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GENERAL PRINCIPLES
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Police power - to promote general
welfare, public health, public morals,
and public safety.
2. As to compensation
Taxation protection and benefits
received from the government.
Eminent Domain payment of just
compensation, which is the full and fair
equivalent of the loss.
Police power maintenance of a
healthy economic standard of the
society.
3. As to persons affected
Taxation and Police power operates
upon a community or class of
individuals.
Eminent Domain operates on the
individual property owner.
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Cement Corporation v. Cement Manufacturers
Association of the Philippines, et al., G. R. No.
158540, August 3, 2005)
Taxation distinguished from police power. Taxation
is distinguishable from police power as to the means
employed to implement these public goals. Those
doctrines that are unique to taxation arose from
peculiar considerations such as those especially
punitive effects (Southern Cross Cement Corporation
v. Cement Manufacturers Association of the
Philippines, et al., G. R. No. 158540, August 3, 2005)
as the power to tax involves the power to destroy
and the belief that taxes are lifeblood of the state.
(Ibid.) taxes being the lifeblood of the government,
their prompt and certain availability is of the
essence.
These considerations necessitated the
evolution of taxation as a distinct legal concept from
police power. (Ibid.)
How the power of taxation may be used to
implement power of eminent domain. Tax
measures are but enforced contributions exacted
on pain of penal sanctions and clearly imposed for
public purpose. In most recent years, the power to
tax has indeed become a most effective tool to
realize social justice, public welfare, and the
equitable distribution of wealth. (Commissioner of
Internal Revenue v. Central Luzon Drug Corporation,
G.R. No. 159647, April 16, 2005)
Establishments granting the 20% senior
citizens discount may claim the discounts granted
to senior citizens as tax deduction based on the net
cost of the goods sold or services rendered:
Provided, That the cost of the discount shall be
allowed as deduction from gross income for the
same taxable year that the discount is granted.
Provided, further, That the total amount of the
claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales
GENERAL PRINCIPLES
E
nforced contribution
PA
id at regular intervals
GE
- nerally payable in money
PRO
portionate in character (to the
taxpayers ability to pay)
LE
vied on persons, property, or
exercise of a right or privilege.
LE
vied by the state having
jurisdiction.
LE
vied by the legislature.
LE
vied for public purpose
PURPOSE OF TAXTAION
1. Revenue Raising Purpose
The primary purpose of taxation is to provide funds
or property with which the government discharges
its appropriate functions for the protection and
general welfare of its citizens.
Imposed for the purpose of raising funds for the
service of the government.
2. Non-revenue Objectives
a. To strengthen the anaemic
enterprises by granting them tax
exemptions or other conditions or
incentives for growth.
b. To protect local industries against
foreign competition by increasing
import taxes.
c. As a bargain tool in trade
negotiations with other countries.
d. To counter the effects of inflation
or depression.
e. To reduce inequalities in the
distribution of wealth.
f. To promote science and invention,
finance educational activities or
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
maintain and improve
the
efficiency of local police force.
g. To implement police power and
promote general welfare.
3. Special or regulatory. Imposed primarily for
the regulation of useful or non useful
occupation or enterprises and secondarily
only for the raising of public funds.
PRINCIPLES OF SOUND TAX SYSTEM
The Canons of a sound tax system,
also known as the characteristics or,
principles of a sound tax system, are used
as a criteria to determine whether a tax
system is able to meet the purpose or
objectives of taxation. They are:
1. Fiscal adequacy The sources of
revenue should be sufficient and
elastic to meet the demands of
public expenditure.
2. Administrative Feasibility Tax laws
must be capable of convenient, just,
and effective administration on the
part of both the government and
taxpayer.
3. Theoretical justice The tax burden
should be in proportion to the
taxpayers ability to pay.
THEORY AND BASIS OF TAXATION
a. Principle of Necessity. The existence of the
government is a necessity; and the main
source of revenue of the government is
taxes. Taxes are the lifeblood of the
government. The government therefore
will not be able to survive and continue to
perform its functions without taxes.
(CIR vs. ALGUE 158 SCRA 8)
b. Lifeblood Theory.
1. The primary purpose of taxation is to
generate funds for the state to finance
the needs of the citizenry and to
advance the common wealth.
2. The government chiefly relies on
taxation to obtain the means to carry
on its operation.
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GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Acosta, etc.,G. R. No. 154068, August 3, 2007)
However, statutes may provide for
prescriptive periods for the collection of particular
kinds of taxes.
b.
Tax laws, unlike remedial laws, are
not to be applied retroactively. Revenue laws are
substantive laws and their application must not be
equated with remedial laws. (Acosta, supra)
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
foreign investments which may lead to economic
development. If the tax credit method is used,
there would be no more tax to credit since there is
no more tax to credit as a result of the tax
exemption. Consequently, when the tax method
credit method is applied to these items of income,
such incentives are siphoned off since, in effect,
the tax benefits are cancelled out. (Ibid.) Thus, the
need for the tax sparing provision.
EXEMPTION FROM TAXATION
Tax Exemption. Is the granting of immunity to a
particular class, from a tax which persons or
corporations generally with in the same state or
taxing district are obliged to pay.
Contract.
2.
Tax exemptions may be granted on some
ground of public policy.
3.
Reciprocity.
GENERAL PRINCIPLES
c.
Taxes cannot be the subject of
compensation because the government and
taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be
set-off.
Thus, it is correct to say that the offsetting
of a taxpayers tax refund with its alleged tax
deficiency is unavailing under Art. 1279 of the Civil
Code. (South African Airways v. Commissioner of
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Internal Revenue, G.R. No. 180356, February 16,
2010 reiterating Caltex Philippines, Inc. v.
Commission on Audit, which applied Francia v.
Intermediate Appellate Court)
GENERAL PRINCIPLES
Delinquent accounts;
b.
Cases under administrative protest
after issuance of the Final Assessment Notice to the
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service,
Enforcement Service and other offices in the
National Office;
c.
Civil tax cases being disputed
before the courts;
d.
e.
Criminal violations, other than
those already filed in court, or those involving
criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
What tax cases could not be the subject of
compromise?
a.
Withholding tax cases unless the
applicant-taxpayer invokes provisions of law that
cast doubt on the taxpayers obligation to withhold.;
b. Criminal tax fraud cases, confirmed as
such by the Commissioner of Internal Revenue or his
duly authorized representative;
c.
court;
d.
Delinquent accounts with duly
approved schedule of installment payments;
e.
Cases where final reports of
reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and
the taxpayer is agreeable to such decision by signing
the required agreement form for the purpose. On
the other hand, other protested cases shall be
handled by the Regional Evaluation Board (REB) or
the National Evaluation Board (NEB) on a case to
case basis;
f.
Cases which become final and
executory after final judgment of a court where
GENERAL PRINCIPLES
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
b. The administration and collection costs
involved do not justify the collection of the amount
due. [Sec. 204 (B), NIRC of 1997]
The collection of a tax may not be suspended. Only
the Court of Tax Appeals may issue an order
suspending the collection of a tax.
As a general rule, No court shall have the authority
to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge.
(Sec. 218, NIRC)
b.
Tax amnesty applies only to past tax
periods, hence of retroactive application
(Castaneda, supra) WHILE tax exemption has
prospective application.
TAX AMNESTY
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GENERAL PRINCIPLES
a.
chance to
BEBER, DINDO
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to go beyond what the law expressly and clearly
declares.
(Lincoln Philippine Life Insurance
Company, Inc., etc., v. Court of Appeals, et al., 293
SCRA 92, 99)
Interpretation in the imposition of taxes, is not the
similar doctrine as that applied to tax exemptions.
The rule in the interpretation of tax laws is that a
statute will not be construed as imposing a tax
unless it does so clearly, expressly, and
unambiguously. A tax cannot be imposed without
clear and express words for that purpose.
Accordingly, the general rule of requiring
adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by
implication. In answering the question of who is
subject to tax statutes, it is basic that in case of
doubt, such statutes are to be construed most
strongly against the government and in favor of the
subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond
what statutes expressly and clearly import.
[Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July
21, 2008 citing CIR v. Court of Appeals, 338 Phil.
322, 330-331 (1997)]
As burdens, taxes should
not be unduly exacted nor assumed beyond the
plain meaning of the tax laws. (Ibid., citing CIR v.
Philippine American Accident Insurance Company,
Inc., G.R. No. 141658, March 18, 2005, 453 SCRA
668)
BEBER, DINDO
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
solutio indebeti. (Commissioner of Internal Revenue
v. Esso Standard Eastern, Inc, 172 SRCA 364)
But note Nestle Phil. v. Court of Appeals, et al., G.R.
No. 134114, July 6, 2001 which held that in order for
the rule on solutio indebeti to apply it is an essential
condition that the petitioner must first show that its
payment of the customs duties was in excess of
what was required by the law at the time the
subject 16 importations of milk and milk products
were made.
Unless shown otherwise, the
disputable
presumption
of
regularity
of
performance of duty lies in favor of the Collector of
Customs.
Strict interpretation of a tax refund that partakes
of the nature of a tax does not apply to tax refund
based on erroneous payment or where there is no
law that authorizes collection of the tax. There is
parity between tax refund and tax exemption only
when the former is based either on a tax
exemption statute or a tax refund statute.
(Commissioner of Internal Revenue v. Fortune
Tobacco Corporation, G. R. Nos. 167274-75, July
21, 2008)
Tax refunds (or tax credits), on the other
hand, are not founded principally on legislative
grace but on the legal principle which underlies all
quasi-contracts abhorring a persons unjust
enrichment at the expense of another.
[Commissioner, supra citing Ramie Textiles, Inc. v.
Hon. Mathay, Sr., 178 Phil. 482 (1979); Puyat &
Sons v. City of Manila, et al., 117 Phil. 985 (1963)]
The dynamic of erroneous payment of tax
fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but
also mistake in law. (Commissioner, supra citing
CIVIL CODE, Arts. 2142, 2154 and 2155)
The Government is not exempt from the
application of solutio indebiti. (Commissioner,
supra citing Commissioner of Internal Revenue v.
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GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
October 1975, 67 SCRA 351, 357-358; Surigao
Consolidated Mining Co. Inc. v. Commissioner of
Internal Revenue, supra]
a.
the 25% surcharge for late filing or
late payment [Sec. 248 (A), NIRC of 1997] (also
known as the delinquency surcharge), and
b.
the 50% willful neglect or fraud
surcharge. [Sec. 248 (B), Ibid.]
GENERAL PRINCIPLES
3.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
paid them to the State. (Bank of the Philippine
Islands v. Commissioner of Internal Revenue, G. R.
No. 137002, July 27, 2006)
7.
Compromise penalty is the amount agreed
upon between the taxpayer and the Government to
be paid as a penalty in cases of a compromise.
8.
As a result of divergent rulings on whether it
is subject to tax or not, the taxpayer was not able to
pay his taxes on time. Imposed surcharges and
interests for such delay, the taxpayer not invokes
good faith with the BIR countering by saying that
good faith is not a valid defense for violation of a
special law. Furthermore, the BIR further raises the
defense that the government is not bound by the
errors of its agents. Who is correct ?
The taxpayer is correct. The settled rule is that good
faith and honest belief that one is not subject to tax
on the basis of previous interpretation of
government agencies tasked to implement the tax,
are sufficient justification to delete the imposition of
surcharges. (Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue, G. R. No. 166786,
September 11, 2006)
Non Retroactive Applications to Tax Payers:
Exceptions
Any Revocation, Modification, reversal of the rules
and regulations or the rulings of the Commissioner
of Internal Revenue cannot be given retroactive
application if the same will be prejudicial to the tax
payer. This will be applied retroactively in the
following cases:
e.
Observance of the principle of comity.
Comity is the respect accorded by nations to each
other because they are equals. On the other hand
taxation is an act of sovereign. Thus, the power
should be imposed upon equals out of respect.
CIR vs LEDNICKY JULY 31, 1964
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GENERAL PRINCIPLES
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
What are the principles to consider in the
determination of whether tax revenues are
devoted for a public purpose ?
a.
The tax revenues are for a public
purpose if utilized for the benefit of the community
in general. An alternative meaning is that tax
proceeds should be utilized only to attain the
objectives of government.
b.
Inequalities resulting from the
singling out of one particular class for taxation or
exemption infringe no constitutional limitation.
REASON: It is inherent in the power to tax
that the legislature is free to select the subjects of
taxation.
BASIS: The lifeblood theory.
c.
An individual taxpayer need not
derive direct benefits from the tax.
REASON: The paramount consideration is
the welfare of the greater portion of the
population.
d.
A tax may be imposed, not so
much for revenue purposes, but under police
power for the general welfare of the community.
This would still be for a public purpose.
e.
Public
purpose
continually
expanding. Areas formerly left to private initiative
now lose their boundaries and may be undertaken
by the government if it is to meet the increasing
social challenges of the times.
f.
Tax revenue must not be used for
purely private purposes or for the exclusive benefit
of private persons.
g. Private persons may be benefited but
such benefit should be merely incidental as its
GENERAL PRINCIPLES
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Requisites for taxpayers, concerned citizens, voters
or legislators to have locus standi to sue.
a. In general, the case should involve
constitutional issues. (David, et al., v. President
Gloria Macapagal-Arroyo, etc., et al., G. R. No.
171396, May 3, 2006)
b.
showing:
1)
That tax money is being
extracted and spent in violation
of
specific
constitutional protections against abuses
of
legislative power. (Flast v. Cohen, 392
U.S.
83)
2)
That public money is being
deflected to any
improper
purpose
(Pascual v. Secretary of Public Works, 110
Phil. 33) or a claim
of
illegal
disbursement of public funds or that the tax
measure is unconstitutional. (David, supra)
3)
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GENERAL PRINCIPLES
c.
For voters, there must be a
showing of obvious interest in the validity of the
election law in question.
d.
For concerned citizens, there must
be a showing that the issues raised are of
transcendental importance which must be settled
early.
e.
For legislators, there must be a
claim that the official action complained of
infringes upon their prerogatives as legislators.
(David, et al., v. President Gloria MacapagalArroyo, etc., et al., G. R. No. 171396, May 3, 2006)
Only those directly affected have locus standi to
impugn the alleged encroachment by the executive
department into the legislative domain of
Congress.
a.
Only those who shall be directly
affected by such executive encroachment, such as
for example employees who would find themselves
subject to disciplinary powers that may be imposed
under the questioned Executive Order as they have
a direct and specific interest in raising the
substantive issue therein (Automotive Industry
Workers Alliance (AIWA),etc., et al., v. Romulo, etc.
,et al., G. R. No. 157509, January 18, 2005) or
employees who are going to be demoted,
transferred or otherwise affected by any personnel
action subject o the rule on exhaustion of
administrative remedies.
b. Moreover, and if at all, only Congress,
can claim any injury from the alleged executive
encroachment of the legislative function to amend,
modify and/or repeal laws. (Automotive Industry
Workers Alliance (AIWA),etc., et al., supra, citing
Gonzales v. Narvasa, G. R. No. 140835, August
14,2000, 337 SCRA 733, 741)
Locus standi being merely a matter of procedure,
have been waived in certain instances where a party
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
who is not personally injured may be allowed to
bring suit. The following are examples of instances
where suits have been brought by parties who have
not have been personally injured by the operation
of a law or any other government act but by
concerned citizens, taxpayers or voters who actually
sue in the public interest:
a.
Taxpayers suits to question
contracts entered into by the national government
or government-owned or controlled corporations
allegedly in contravention of the law.
b.
A taxpayer is allowed to sue where
there is a claim that public funds are illegally
disbursed, or that public money is being deflected to
any improper purpose, or that there is a wastage of
public funds through the enforcement of an invalid
or unconstitutional law. (Abaya v. Ebdane, G. R. No.
167919, February 14, 2007)
The VAT law provides that, the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%) after any of the
following conditions have been satisfied. (i) valueadded tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or (ii)
national government deficit as a percentage of GDP
of the previous year exceeds one and one-half
percent (1 %).
Was there an invalid delegation of legislative power
?
No. There is no undue delegation of legislative
power but only of the discretion as to the execution
of the law. This is constitutionally permissible.
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be
done, who must do it, and what is the scope of his
authority. In the above case the Secretary of
Finance becomes merely the agent of the legislative
department, to determine and declare the even
GENERAL PRINCIPLES
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
vested exclusively on Congress; local legislative
bodies are now given direct authority to levy taxes,
fees and other charges pursuant to Article X, section
5 of the 1987 Constitution. (Batangas Power
Corporation v. Batangas City, et al. G. R. No. 152675,
and companion case, April 28, 2004 citing National
Power Corporation v. City of Cabanatuan, G. R. No.
149110, April 9, 2003)
Local government legislation, is not
regarded as a transfer of general legislative power,
but rather as the grant of authority to prescribe
local regulations, according to immemorial
practice, subject, of course, to the interposition of
the superior in cases of necessity. (People v. Vera,
65 Phil. 56)
Taxing power of the local government is limited.
The taxing power of local governments is limited in
the sense that Congress can enact legislation
granting tax exemptions.
While the system of local government
taxation has changed with the onset of the 1987
Constitution, the power of local government units
to tax is still limited.
While the power to tax by local governments
may be exercised by local legislative bodies, no
longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution, the basic
doctrine on local taxation remains essentially the
same, the power to tax is [still] primarily vested in
the Congress. (Quezon City, et al., v. ABS-CBN
Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon
City, et al. v. Bayan Telecommunications, Inc., G.R.
No. 162015, March 6, 2006, 484 SCRA 169 in turn
referring to Mactan Cebu International Airport
Authority, v. Marcos, G.R. No. 120082, September
11, 1996, 261 SCRA 667, 680)
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GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Section 137 of the LGC does not prohibit grant of
future exemptions.
GENERAL PRINCIPLES
BEBER, DINDO
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
She filed a claim for refund alleging that her sales
commission is not taxable because the same was a
compensation for her services rendered in Germany
and therefore considered as income from sources
outside the Philippines.
Is her contention correct ?
Yes. The important factor which determines the
source of income of personal services is not the
residence of the payor, or the place where the
contract for service is entered into, or the place of
payment, but the place where the services were
actually performed.
Since the activity of securing the sales were in
Germany, then the income did not originate from
sources from within the Philippines. (Commissioner
of Internal Revenue v. Baier-Nickel, G. R. No.
153793, August 29, 2006)
Ensite, Ltd.. is a Canadian corporation not doing
business in the Philippines. It holds 40% of the
shares of Philippine Stamping Plant, Inc.,., a
Philippine company while the 60% is owned by
Fred Corporation, a Filipino-owned Philippine
corporation. Ensite Co. also owns 100% of the
shares of Susanto Co., an Indonesian company
which has a duly licensed Philippine branch. Due to
worldwide restructuring of the Ensite Ltd.,. group,
Ensite Ltd.,. decided to sell all its shares in
Philippine Stamping Plant, Inc. and Susanto Co.
The negotiations for the buy-out and the signing of
the Agreement of Sale were all done in the
Philippines. The Agreement provides that the
purchase price will be paid to Ensite Ltds bank
account in the U.S. and that title to the Philippine
Stamping Plant, Inc. and Susanto Co. shall be
transferred to General Co., in Toronto Canada
where stock certificates will be delivered. General
Co. seeks your advice as to whether or not it will
subject the payments of the purchase price to
withholding tax. Explain your advice. The
payments of the purchase price will be subject to
withholding tax. Considering that all the activities
(sales) occurred within the Philippines, the income
is considered as income from within, subject to
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GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Are these salaries, allowances and rentals subject
to Philippine income tax? Explain briefly.
The salaries and allowances of Larry, being derived
from labor or personal services rendered outside of
the Philippines is considered as income from
without. Since Larry is an OCW, then he is to be
taxed only on his income derived from within the
Philippines such as the rentals on his Philippine
residence, and not on his income from without.
Obama Airlines, Inc., a foreign airline company
which does not maintain any flight to and from the
Philippines sold air tickets in the Philippines, through
a general sales agent, relating to the carriage of
passengers and cargo between two points, both
outside the Philippines.
Is Obama, Inc., subject to income taxes on the sale
of the tickets ?
Yes. The source of income which is taxable is that
activity which produced the income. The sale of
tickets in the Philippines is the activity that
determines whether such income is taxable in the
Philippines.
The tickets exchanged hands here and payments for
fares were also made here in Philippine currency.
The situs of the source of payments is the
Philippines. the flow of wealth proceeded from and
occurred, within the Philippine territory, enjoying
the protection accorded by the Philippine
Government. In consideration of such protection,
the flow of wealth should share the burden of
supporting the government. [Commissioner of
Internal Revenue v. British Overseas Airways
Corporation (BOAC), 149 SCRA 395]
Off-line air carriers having general sales agents in
the Philippines are engaged in or doing business in
the Philippines and their income from sales of
passage documents here is income from within the
Philippines. Thus, the off-line air carrier liable for
the 32% (now 30%) tax on its taxable income.
GENERAL PRINCIPLES
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
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. *NIRC of 1997, Sec.
28(A)(3)(a)]
The place of sale is irrelevant; as long as
the uplifts of passengers and cargo occur from the
Philippines, income is included in GPB. (South
African Airways v. Commissioner of Internal
Revenue, G.R. No. 180356, February 16, 2010)
3. Estate Tax is levied on the basis of the residence
of the decedent at the time of his death.
4. Donors Tax is levied on the basis of the
residence of the donor at the time of donation.
5. Business or Occupation Tax is levied on the basis
of the place where the business is done or the
place the occupation is engaged in.
6. Tax on the sale of personal property is levied on
the basis of the place where the sale is
consummated or perfected.
SITUS OF TAXATION OF PROPERTY
1. Real Property. Location of the property ( lex rei
sitae)
2. Tangible Personal Property. Location of the
property or owners domicile (mobilia sequuntur
personam)
3. Intangible Personal property. Domicile or
residence.
SITUS OF VAT
Value-added tax (VAT) is a tax which is imposed
only on the increase in the worth, merit or
importance of goods, properties or services, and
not on the total value of the goods or services
being sold or rendered.
22
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
well as the specific or direct constitutional
limitations.
c.
Congress shall evolve a progressive
system of taxation;
d.
All appropriation, revenue or tariff
bills shall originate exclusively in the House of
Representatives, but the Senate may propose and
concur with amendments;
a.
ART. III
b.
28, ART. VI
c.
d.
III
e.
No taking of private property
without just compensation;
f.
10, ART. III
g.
one subject
Non-impairment clause;SECTION
Law-making process:
1)
Bill should embrace only
expressed
in the title thereof;
2)
Three (3) readings on three
separate days;
3)
Printed copies in final form
distributed three
(3) days before passage.
h.
Presidential power to grant
reprieves, commutations and pardons and remittal
of fines and forfeiture after conviction by final
judgment.
The specific or direct constitutional limitation.
a.
No imprisonment for non-payment
of a poll tax; SEC. 20, ART. III
Delegation by Congress
2)
through a law
3)
subject to Congressional limits and
restrictions
4)
within the framework of national
development program.
g.
Tax exemption of charitable
institutions, churches, parsonages and convents
appurtenant thereto, mosques, and all lands,
buildings and improvements of all kinds actually,
directly and exclusively used for religious, charitable
or educational purposes;
h.
No tax exemption without the
concurrence of majority vote of all members of
Congress;
i.
No use of public money or property
for religious purposes except if priest is assigned to
the armed forces, penal institutions, government
orphanage or leprosarium;
b.
Taxation shall be uniform and
equitable; SEC. 28(1), ART. VI
GENERAL PRINCIPLES
BEBER, DINDO
23
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
j.
Money collected on tax levied for a
special purpose to be used only for such purpose,
balance if any, to general funds;
k.
The Supreme Court's power to
review judgments or orders of lower courts in all
cases involving the legality of any tax, impose,
assessment or toll or the legality of any penalty
imposed in relation to the above;
l.
Authority of local government units
to create their own sources of revenue, to levy
taxes, fees and other charges subject to guidelines
and limitations imposed by Congress consistent with
the basic policy of local autonomy;
m.
Automatic
release
of
government's just share in national taxes;
local
n.
GENERAL PRINCIPLES
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
a.
test.
b.
interest) test.
GENERAL PRINCIPLES
25
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Benjie demands that he be refunded an amount
equivalent to one-half of the real property taxes he
paid. The municipal attorney rendered an opinion
that Benjie cannot be reimbursed because the
ordinance did not provide for such reimbursement.
Benjie files suit to declare the ordinance void on
the ground that it is a class legislation. Will his suit
prosper ? Explain your answer briefly.
No. There is no class legislation because there is
no violation of the equal protection suit. There is a
valid classification between those who already paid
their taxes and those who have not. Furthermore,
the taxing authority has the prerogative to select
the subjects and objects of taxation, including
granting a 50% discount in the payment of unpaid
real estate taxes, and the condonation of all
penalties on fines resulting from late payment.
The rewards law to tax collectors does not violate
equal protection. The equal protection clause
recognizes a valid classification, that is, a
classification that has a reasonable foundation or
rational basis and not arbitrary. With respect to RA
9335, its expressed public policy is the
optimization of the revenue-generation capability
and collection of the BIR and the BOC. Since the
subject of the law is the revenue- generation
capability and collection of the BIR and the BOC,
the incentives and/or sanctions provided in the law
should logically pertain to the said agencies.
Moreover, the law concerns only the BIR and the
BOC because they have the common distinct
primary function of generating revenues for the
national government through the collection of
taxes, customs duties, fees and charges.
Indubitably, such substantial distinction is
germane and intimately related to the purpose of
the law. Hence, the classification and treatment
accorded to the BIR and the BOC under RA 9335
fully satisfy the demands of equal protection.
26
GENERAL PRINCIPLES
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
STAGES OF TAXATION
A. Levying or Imposition refers to the
enactment of tax laws and is therefore
purely legislative in character. Courts have
no power to inquire into or interfere in the
wisdom, objective, motive or expediency in
the passage of a tax laws. The legislative
power to tax includes:
1. Discretion as to purpose
for which taxes shall be
levied;
2. Discretion as to subjects
of taxation;
3. Discretion as to amount
or rate of tax; and
4. Discretion as to the
manner, means, and
agencies of collection of
taxes.
B. Collection and Administration refers to the
act of assessing, collecting, and
implementing tax laws, which can be
delegated by the legislative body to the
executive
branch
and
the
local
government. The power of taxation should
be exercised with caution to minimize the
injury to the proprietary rights of a
taxpayer.
C. Payment.
D. Refund.
ASSESSMENT
TAXES
OF
INTERNAL
REVENUE
GENERAL PRINCIPLES
c.
If the examiner is satisfied that the
tax return is truly reflective of the taxable
transaction and all taxes have been paid,
the process ends. However, if the examiner
is not satisfied that the tax return is truly
reflective of the taxable transaction and
that the taxes have not been fully paid, a
Notice of Informal Conference is issued
inviting the taxpayer to explain why he
should not be subject to additional taxes.
d.
If the taxpayer attends the informal
conference and the examiner is satisfied
with the explanation of the taxpayer, the
process is again ended.
If the taxpayer ignores the invitation to the
informal conference, or if the examiner is
not satisfied with taxpayers explanation,,
and he believes that proper taxes should be
assessed, the Commissioner of Internal
Revenue
or
his
duly
authorized
representative shall then notify the
taxpayer of the findings in the form of a preassessment notice. The pre-assessment
notice requires the taxpayer to explain
within fifteen (15) days from receipt why no
notice of assessment and letter of demand
for additional taxes should be directed to
him.
e.
If the Commissioner is satisfied
with the explanation of the taxpayer, then
the process is again ended.
If the taxpayer ignores the pre-assessment
notice by not responding or his explanations
are not accepted by the Commissioner, then
a notice of assessment and a letter of
demand is issued.
The notice of assessment must be issued by
the Commissioner to the taxpayer within a
period of three (3) years from the time the
tax return was filed or should have been
filed whichever is the later of the two
events. Where the taxpayer did not file a
BEBER, DINDO
27
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
tax return or where the tax return filed is
false or fraudulent, then the Commissioner
has a period of ten (10) years from
discovery of the failure to file a tax return or
from discovery of the fraud within which to
issue an assessment notice. The running of
the above prescriptive periods may
however be suspended under certain
instances.
The notice of assessment must be issued
within the prescriptive period and must
contain the facts, law and jurisprudence
relied upon by the Commissioner.
Otherwise it would not be valid.
f.
The taxpayer should then file an
administrative protest by filing a request for
reconsideration or reinvestigation within
thirty (30) days from receipt of the
assessment notice.
The taxpayer could not immediately
interpose an appeal to the Court of Tax
Appeals because there is no decision yet of
the Commissioner that could be the subject
of a review.
To be valid the administrative protest must
be filed within the prescriptive period, must
show the error of the Bureau of Internal
Revenue and the correct computations
supported by a statement of facts, and the
law and jurisprudence relied upon by the
taxpayer. There is no need to pay under
protest. If the protest was not seasonably
filed the assessment becomes final and
collectible and the Bureau of Internal
Revenue could use its administrative and
judicial remedies in collecting the tax.
g.
Within sixty (60) days from filing of
the protest, all relevant supporting
documents shall be submitted, otherwise
the assessment shall become final and
collectible and the BIR could use its
28
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Commissioner to decide the taxpayer must
file a petition for review on certiorari with
the Supreme Court within fifteen (15) days
from notice of the judgment on questions
of law. An extension of thirty (30) days may
for justifiable reasons be granted. If the
taxpayer does not so appeal, the decision of
the Court of Tax Appeals would become
final and this has the effect of making the
assessment also final and collectible. The
BIR could then use its administrative and
judicial remedies to collect the tax.
The word assessment when used in
connection with taxation, may have more
than one meaning. More commonly the
word assessment means the official
valuation of a taxpayers property for
purpose of taxation. The above definition of
assessment finds application under tariff
and customs taxation as well as local
government taxation.
For real property taxation, there may be a
special meaning to the burdens that are
imposed upon real properties that have
been benefited by a public works
expenditure of a local government. It is
sometimes called a special assessment or a
special levy. (Commissioner of Internal
Revenue v. Pascor Realty and Development
Corporation, et al., G.R. No. 128315, June
29, 1999)
For internal revenue taxation assessment as
laying a tax. The ultimate purpose of an
assessment to such a connection is to
ascertain the amount that each taxpayer is
to pay. (Ibid.)
An assessment is a notice duly sent to the
taxpayer which is deemed made only when
the BIR releases, mails or sends such notice
to the taxpayer. (Commissioner of Internal
GENERAL PRINCIPLES
BEBER, DINDO
29
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Sec. 6 (B) of the NIRC of 1997 allows the BIR
to make or amend a tax return from his own
knowledge or obtained through testimony
or otherwise. Thus, the Commissioner of
Internal Revenue investigates any
circumstance which led him to believe that
the taxpayer had taxable income larger than
that reported. Necessarily, this inquiry
would have to be outside of the books
because they supported the return as filed.
He may take the sworn testimony of the
taxpayer, he may take the testimony of
third parties; he may examine and
subpoena, if necessary, traders and
brokers accounts and books and the
taxpayers books of accounts.
The
Commissioner is not bound to follow any
set of patterns.
The existence of
unreported income may be shown by any
particular proof that is available in the
circumstances of the particular situation.
(Commissioner of Internal Revenue v.
Hantex Trading Co., Inc. G. R. No. 136975,
March 31, 2005)
General rule: When the Commissioner of
Internal Revenue may rely on estimates.
The rule is that in the absence of
accounting records of a taxpayer, his tax
liability may be determined by estimation.
The petitioner (Commissioner of Internal
Revenue) is not required to compute such
tax liabilities with mathematical exactness.
Approximation in the calculation of taxes
due is justified. To hold otherwise would be
tantamount to holding that skillful
concealment is an invincible barrier to
proof. (Commissioner of Internal Revenue
v. Hantex Trading Co., Inc. G. R. No. 136975,
March 31, 2005)
However, the rule does not apply where
the estimation is arrived at arbitrarily and
capriciously. (Ibid.)
30
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
the names , addresses, and financial
statements of corporations, mutual fund
companies, insurance companies, regional
operating headquarters or multinational
companies, joint accounts, associations,
joint ventures or consortia and registered
partnerships, and their members; xxx *Sec.
5 (B), NIRC of 1997)
A pre-assessment notice is a letter sent by
the Bureau of Internal Revenue to a
taxpayer asking him to explain within a
period of fifteen (15) days from receipt why
he should not be the subject of an
assessment notice. It is part of the due
process rights of a taxpayer.
As a general rule, the BIR could not issue an
assessment notice without first issuing a
pre-assessment notice because it is part of
the due process rights of a taxpayer to be
given notice in the form of a preassessment notice, and for him to explain
why he should not be the subject of an
assessment notice.
Instances where a pre-assessment notice is
not required before a notice of assessment
is sent to the taxpayer.
a. When the finding for any deficiency tax is
the result of mathematical error in the
computation of the tax as appearing on the
face of the return; or
b.
When a discrepancy has been
determined between the tax withheld and
the amount actually remitted by the
withholding agent; or
c. When a taxpayer opted to claim a refund
or tax credit of excess creditable
withholding tax for a taxable period was
determined to have carried over and
automatically applied the same amount
claimed against the estimated tax liabilities
GENERAL PRINCIPLES
31
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(now Sime Darby International Tire Co., Inc.),
et al., G.R. No. 104171, February 24, 1999,
303 SCRA 546; Philippine Journalists, Inc. v.
Commissioner of Internal Revenue, G. R. No.
162852, December 16, 2004], as well as their
assessments.
The law prescribing a limitation of
actions for the collection of the income tax
is beneficial both to the Government and to
its citizens; to the Government because tax
officers would be obliged to act promptly in
the making of assessment, and to citizens
because after the lapse of the period of
prescription citizens would have a feeling of
security against unscrupulous tax agents
who will always find an excuse to inspect
the books of taxpayers, not to determine
the latters real liability, but to take
advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such
a legal defense taxpayers would
furthermore be under obligation to always
keep their books and keep them open for
inspection subject to harassment by
unscrupulous tax agents. The law on
prescription being a remedial measure
should be interpreted in a way conducive to
bringing about the beneficent purpose of
affording protection to the taxpayer within
the contemplation of the Commission which
recommend the approval of the law. [Bank
of Philippine Islands (Formerly Far East Bank
and Trust Company) v. Commissioner of
Internal Revenue, G. R. No. 174942, March
7, 2008]
This mandate governs the question
of prescription of the governments right
to assess internal revenue taxes primarily
to safeguard the interests of taxpayers
from
unreasonable
investigation.
Accordingly, the government must assess
internal revenue taxes on time so as not to
32
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
B.F. Goodrich Phils., Inc., et al., G.R. No.
104171, February 24, 1999)
33
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
49 L. Ed. 2d 1046 (1976); 428 US 433 (1976)]
In such a situation, the determination of
the Commissioner contained in a deficiency
notice disappears. *Commissioner of
Internal Revenue, supra citing a U.S. Court
of Appeals ruling, in Clark and Clark v.
Commissioner of Internal Revenue, 266 F. 2d
698 (1959)+ Hence, the determination by
the CTA must rest on all the evidence
introduced and its ultimate determination
must find support in credible evidence.
[Commissioner of Internal Revenue, supra]
What are the instances that suspends the
running of the prescriptive periods (Statute
of Limitations) within which to make an
assessment and the beginning of distraint or
levy or of a proceeding in court for the
collection, in respect of any tax deficiencies?
a.
When the Commissioner is
prohibited from making the assessment, or
beginning distraint, or levy or proceeding in
court and for sixty (60) days thereafter;
b.
When the taxpayer requests for and
is granted a reinvestigation by the
commissioner;
c.
When the taxpayer could not be
located in the address given by him in the
return filed upon which the tax is being
assessed or collected;
d.
When the warrant of distraint and
levy is duly served upon the taxpayer, his
authorized representative, or a member of
his household with sufficient discretion, and
no property could be located; and
e.
When the taxpayer is out of the
Philippines.
NOTES AND COMMENTS:
The holding in Commissioner of Internal
Revenue v. Court of Appeals, et al., G.R. No.
115712, February 25, 1999 (Carnation case)
that the waiver of the period for assessment
34
GENERAL PRINCIPLES
3.
xxxx
Commissioner
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
For tax cases involving more than
P1M
B.
1.
The
Revenue District
Officer with respect to tax
cases still pending investigation
and the period to assess is
about to prescribe regardless of
amount.
xxxx
d. The waiver must be executed in three (3)
copies, the original copy to be attached to
the docket of the case, the second copy for
the taxpayer and the third copy for the
Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy
shall be indicated in the original copy.
35
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
making of assessment so that taxpayers,
after the lapse of the period of prescription,
would have a feeling of security against
unscrupulous tax agents who will always try
to find an excuse to inspect the books of
taxpayers, not to determine the latters real
liability, but to take advantage of a possible
opportunity to harass even law-abiding
businessmen. Without such legal defense,
taxpayers would be open season to
harassment by unscrupulous tax agents.
[Commissioner of Internal Revenue v. FMF
Development Corporation, G. R. No.
167765, June 30, 2008 citing Republic of
the Phils. v. Ablaza, 108 Phil. 1105, 1108
(1960)]
The signatures of both the Commissioner
and the taxpayer, are required for a waiver
of the prescriptive period, thus a unilateral
waiver on the part of the taxpayer does not
suspend
the
prescriptive
period.
[Commissioner of Internal Revenue v. Court
of Appeals, et al., G.R. No. 115712, February
25, 1999 (Carnation case)]
The act of requesting a reinvestigation
alone does not suspend the running of the
prescriptive period.
The request for
reinvestigation must be granted by the CIR.
The Supreme Court declared that the
burden of proof that the request for
reinvestigation had been actually granted
shall be on the Commissioner of Internal
Revenue. Such grant may be expressed in
its communications with the taxpayer or
implied from the action of the
Commissioner
or
his
authorized
representative in response to the request
for reinvestigation. [Bank of Philippine
Islands (Formerly Far East Bank and Trust
36
GENERAL PRINCIPLES
REVENUE
TAX
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Communication, Inc., G. R. No. 167146,
October 31, 2006 citing Rev. Regs. No. 1285)
What is that type of protest that
suspends the running of the statute of
limitations for the beginning of distraint or
levy or a proceeding in court for collection ?
Why ?
It is that type of protest when the taxpayer
requests for a reinvestigation which is
granted by the Commissioner (Sec. 223,
NIRC of 1997), that suspends the running of
the statute of limitations for collection of
the tax. (Commissioner of Internal Revenue
v. Philippine Global Communication, Inc., G.
R. No. 167146, October 31, 2006 citing Sec.
271, now Sec. 223, NIRC of 1997) When a
taxpayer demands a reinvestigation, the
time employed in reinvestigation should be
deducted from the total period of
limitation.
[Commissioner of Internal
Revenue, supra citing Republic v. Lopez, 117
Phil. 575, 578; 7 SCRA 566, 568-569 (1963)]
Undoubtedly, a reinvestigation, which
entails the reception and evaluation of
additional evidence, will take more time
than a reconsideration of a tax assessment
which will be limited to the evidence
already at hand; this justifies why the
former can suspend the running of the
statute of limitations on collection of the
assessed tax, while the latter cannot.
(Commissioner of Internal Revenue v.
Philippine Global Communication, Inc., G. R.
No. 167146, October 31, 2006 citing Bank of
Philippine Islands v. Commissioner of
Internal Revenue, G. R. No. 139736, 17
October 2005, 473 SCRA 205, 230-231)
What are the requirements for the validity
of a taxpayers protest ?
GENERAL PRINCIPLES
a.
It must be filed within the
reglementary period of thirty (30) days from
receipt of the notice of assessment.
b.
The taxpayer must not only show
the errors of the Bureau of Internal
Revenue but also the correct computation
through
1)
A statement of the facts, the
applicable law, rules and regulations, or
jurisprudence on which the taxpayers
protest is based,
2)
If there are several issues involved
in the disputed assessment and the
taxpayer fails to state the facts, the
applicable law, rules and regulations, or
jurisprudence in support of his protest
against some of the several issues on which
the assessment is based, the same shall be
considered undisputed issue or issues, in
which case, the taxpayer shall be required
to pay the corresponding deficiency tax or
taxes attributable thereto. (Sec. 3.1.5, Rev.
Regs. 12-99)
c.
Within sixty (60) days from filing of
the protest, the taxpayer shall submit all
relevant supporting documents. [4th par.,
Sec. 228 (e), NIRC of 1997]
Relevant
supporting
documents,
defined. The term relevant supporting
documents should be understood as
those documents necessary to support the
legal basis in disputing a tax assessment as
determined by the taxpayer. The BIR can
only inform the taxpayer to submit
additional documents.
The BIR cannot demand what type of
supporting
documents
should
be
submitted. Otherwise, a taxpayer will be
at the mercy of the BIR, which may require
the production of documents that a
taxpayer cannot submit. (Commissioner of
BEBER, DINDO
37
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Internal Revenue v. First Express Pawnshop
Company, Inc., G. R. 172045-46, June 16, 2009)
JUDICIAL
REMEDIES
PROTESTED ASSESSMENTS
INVOLVING
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
petition for review (Sec. 3, Rule 10, RRCTA effective
December 15, 2005) because the collection of the
tax may jeopardize the interest of the taxpayer.
As a general rule, there must always be a decision of
the Commissioner of Internal Revenue or
Commissioner of Customs before the Court of Tax
Appeals, would have jurisdiction. If there is no such
decision, the petition would be dismissed for lack of
jurisdiction unless the case falls under any of the
following exceptions.
Instances where the Court of Tax Appeals would
have jurisdiction even if there is no decision yet by
the Commissioner of Internal Revenue:
a. Where the Commissioner has not acted on the
disputed assessment after a period of 180 days from
submission of complete supporting documents, the
taxpayer has a period of 30 days from the expiration
of the 180 day period within which to appeal to the
Court of Tax Appeals. (last par., Sec. 228 (e), NIRC of
1997; Commissioner of Internal Revenue v. Isabela
Cultural Corporation, G.R. No. 135210, July 11, 2001)
b. Where the Commissioner has not acted on an
application for refund or credit and the two year
period from the time of payment is about to expire,
the taxpayer has to file his appeal with the Court of
Tax Appeals before the expiration of two years from
the time the tax was paid.
It is disheartening enough to a taxpayer to be kept
waiting for an indefinite period for the ruling,. It
would make matters more exasperating for the
taxpayer if the doors of justice would be closed for
such a relief until after the Commissioner, would
have, at his personal convenience, given his go
signal. (Commissioner of Customs, et al, v. Court of
Tax Appeals, et al., G.R. No. 82618, March 16, 1989,
unrep.)
The characteristic of a BIR denial of a protest such as
would enable the taxpayer to appeal the same to
GENERAL PRINCIPLES
39
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
b.
Tax laws, unlike remedial laws, are
not to be applied retroactively. Revenue
laws are substantive laws and their
application must not be equated with
remedial laws. (Acosta, supra)
3.
What is the prescriptive period for
collecting internal revenue taxes ?
There are four (4) prescriptive periods for
the collection of an internal revenue tax:
a.
Collection upon a false or
fraudulent return or no return without
assessment. In case of a false or fraudulent
return with the intent to evade tax or of
failure to file a return, a proceeding in
court for the collection of such tax may be
filed without assessment, at any time within
ten (10) years after the discovery of the
falsity, fraud or omission. *Sec. 222 (a),
NIRC of 1997]
b.
Collection upon a false or
fraudulent return or no return with
assessment. Any internal revenue tax which
has been assessed (because the return is
false or fraudulent with intent to evade tax
or of failure to fail a return), within a period
of ten (10) years from discovery of the
falsity, fraud or omission may be collected
by distraint or levy or by a proceeding in
court within five (5) years following the
assessment of the tax. *Sec. 222 (c), in
relation to Sec. 222 (a) NIRC of 1997,
emphasis supplied]
c.
Collection upon an extended
assessment. Where a tax has been assessed
with the period agreed upon between the
Commissioner and the taxpayer in writing
(which should initially be within three (3)
years from the time the return was filed or
should have been filed), or any extensions
before the expiration of the period agreed
upon, the tax may be collected by distraint
40
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2008 citing
BPI v. Commissioner of
Internal Revenue, G.R. No. 139736, 17
October 2005, 473 SCRA 205, 222-223]
NOTES AND COMMENTS:
a.
Both the former Sec. 269,
NIRC of 1977 and Sec.222 of NIRC of 1997
do not refer to a regular return. It is
clear that in enacting Sec. 222, entitled
Exceptions as to the period of limitation
of assessment and collection of taxes,
the NIRC of 1997 has eliminated subparagraph c of the former Sec. 269 of the
NIRC, also entitled Exceptions as to the
period of limitation of assessment and
collection of taxes. Said Sec. 269 (c),
reads Any internal revenue tax which has
been assessed within the period of
limitation above-prescribed may be
collected by distraint or levy or by a
proceeding in court within three years
following the assessment of the tax.
A perusal of Sec. 222 of the NIRC is
clear that it covers only three scenarios
only. 1) No assessment was made upon a
false or fraudulent return or omission to
file a return; 2) an assessment was made
upon a false or fraudulent return or
omission to file a return; and 3) an
extended assessment issued within a
period agreed upon by the Commissioner
and the taxpayer. The same scenarios are
those referred to in the former Sec. 269
which provided for a prescriptive period
for collection of three (3) years.
It is clear therefore that neither Sec. 222
nor the former Sec. 269 provide for an
instance where the assessment was made
upon a regular return or one that is not
false or fraudulent, or that there was an
agreement to extend the period for
assessment.
GENERAL PRINCIPLES
41
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service,
Enforcement Service and other offices in
the National Office;
c. Civil tax cases being disputed
before the courts;
d. Collection cases filed in courts;
e. Criminal violations, other than
those already filed in court, or those
involving criminal tax fraud. (Sec. 2, Rev.
Regs. No. 30-2002)
What tax cases could not be the subject
of compromise ?
a.
Withholding tax cases unless the
applicant-taxpayer invokes provisions of
law that cast doubt on the taxpayers
obligation to withhold.;
b. Criminal tax fraud cases, confirmed as
such by the Commissioner of Internal
Revenue or his duly authorized
representative;
c.
Criminal violations already filed in
court;
d.
Delinquent accounts with duly
approved schedule of installment
payments;
e.
Cases where final reports of
reinvestigation or reconsideration have
been issued resulting to reduction in the
original assessment and the taxpayer is
agreeable to such decision by signing the
required agreement form for the purpose.
On the other hand, other protested cases
shall be handled by the Regional
Evaluation Board (REB) or the National
Evaluation Board (NEB) on a case to case
basis;
f.
Cases which become final and
executory after final judgment of a court
where compromise is requested on the
42
GENERAL PRINCIPLES
BEBER, DINDO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
a. The tax or any portion thereof appears
to be unjustly or excessively assessed; or
b. The administration and collection costs
involved do not justify the collection of
the amount due. [Sec. 204 (B), NIRC of
1997]
The collection of a tax may not be
suspended. Only the Court of Tax Appeals
may issue an order suspending the
collection of a tax.
As a general rule, No court shall have the
authority to grant an injunction to restrain
the collection of any national internal
revenue tax, fee or charge. (Sec. 218,
NIRC)
No appeal taken to the CTA from the
decision of the Commissioner of Internal
Revenue or the Commissioner of Customs
or the Regional Trial Court, provincial, city
or municipal treasurer or the Secretary of
Finance, the Secretary of Trade and
Industry and Secretary of Agriculture, as
the case may be shall suspend the
payment, levy, distraint, and/or sale of
any property of the taxpayer for the
satisfaction of his tax liability as provided
by existing law: Provided, however, That
when in the opinion of the Court the
collection by the aforementioned
government agencies may jeopardize the
interest of the Government and/or the
taxpayer the Court at any stage of the
proceeding may suspend the said
collection and require the taxpayer either
to deposit the amount claimed or to file a
surety bond for not more than double the
amount with the Court. (Sec. 11, Rep.
Act No. 1125, as amended by Sec. 9, Rep.
Act No. 9282 )
GENERAL PRINCIPLES
BEBER, DINDO
43
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
collected was more than what the law
allows.
c.
The tax was paid through a
mistaken belief that the taxpayer should
pay the tax (solution indebeti)
What are the three (3) conditions
for the grant of a claim for refund of
creditable withholding tax ?
a.
The claim is filed with the
Commissioner of Internal Revenue within
the two-year period from the date of the
payment of the tax.
b.
It is shown on the return of
the recipient that the income payment
received was declared as part of the gross
income; and
c.
The fact of withholding is
established by a copy of a statement duly
issued by the payee showing the amount
paid and the amount of tax withheld
therefrom. (Banco Filipino Savings and
Mortgage Bank v. Court of Appeals, et al.,
G. R. No. 155682, March 27, 2007)
Proof of fact of withholding. Sec. 10.
Claim for tax credit or refund. (a) Claims
for Tax Credit or Refund of Income tax
deducted and withheld on income
payments shall be given due course only
when it is shown on the return that the
income payment received has been
declared as part of the gross income and
the fact of withholding is established by a
copy of the Withholding Tax Statement
duly issued by the payor to the payee
showing the amount paid and the amount
of the tax withheld therefrom xxx (Rev.
Regs. No. 6-85, as amended)
The document which may be accepted as
evidence of the third condition, that is,
44
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
b.
within thirty (30) days from
receipt of the denial by the Commissioner
of the application for refund or credit.
(Sec. 11, R.A. No. 1125)
The two (2) year period and the
thirty (30) day period should be applied
on a whichever comes first basis. Thus, if
the 30 days is within the 2 years, the 30
days applies, if the 2 year period is about
to lapse but there is no decision yet by the
Commissioner which would trigger the
30-day period, the taxpayer should file an
appeal, despite the absence of a decision.
(Commissioners, etc. v. Court of Tax
Appeals, et al., G. R. No. 82618, March 16,
1989, unrep.)
Where the taxpayer is a corporation the
two year prescriptive period from date of
payment for refund of income taxes
should be the date when the corporation
filed its final adjustment return not on the
date when the taxes were paid on a
quarterly basis.
(Philippine Bank of
Communications v. Commissioner of
Internal Revenue, et al., G.R. No. 112024,
January 28, 1999)
It is only when the return, covering the
whole year, is filed that the taxpayer will
be able to ascertain whether a tax is still
due or refund can be claimed based on
the adjusted and audited figures. (Bank of
the Philippine Islands v. Commissioner of
Internal Revenue, G.R. No. 144653,
August 28, 2001)
What is solutio indebeti as applied to tax
cases ?
Under the principle of solutio indebiti
provided in Art. 2154, Civil Code, If
something is received when there is no
GENERAL PRINCIPLES
45
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
the Bank has chosen the tax credit
approach it cannot anymore avail of the
tax refund. (Philippine Bank of
Communications v. Commissioner of
Internal Revenue, et al., G.R. No. 112024,
January 28, 1999)
a.
The choice, is given to the taxpayer,
whether to claim for refund under Sec. 76
or have its excess taxes applied as tax
credit for the succeeding taxable year,
such election is not final.
Prior
verification and approval by the
Commissioner of Internal Revenue is
required. The availment of the remedy of
tax credit is not absolute and mandatory.
It does not confer an absolute right on the
part of the taxpayer to avail of the tax
credit scheme if it so chooses. Neither
does it impose a duty on the part of the
government to sit back and allow an
important facet of tax collection to be at
the sole control and discretion of the
taxpayer. (Paseo Realty & Development
Corporation v. Court of Appeals, et al., G.
R. No. 119286, October 13, 2004)
What is the irrevocability rule in claims
for refund and what is the rationale
behind this ?
A corporation entitled to a tax credit or
refund of the excess estimated quarterly
income taxes paid has two options: (1) to
carry over the excess credit or (2) to
apply for the issuance of a tax credit
certificate or to claim a cash refund. If
the option to carry over the excess credit
is exercised, the same shall be
irrevocable for that taxable period.
In exercising its option, the corporation
must signify in its annual corporate
adjustment return (by marking the
46
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
made, actually or constructively, it
became forever irrevocable regardless of
whether the excess tax credits were
actually or fully utilized Under Section 76
of the Tax Code, a claim for refund of
such excess credits can no longer be
made. The excess credits will only be
applied against income tax due for the
taxable quarters of the succeeding
taxable years.
Despite the denial of its claim for refund,
Systra does not lose the unapplied tax
credits. The amount will not be forfeited
in favor of the government but will
remain in the taxpayers account.
Petitioner may claim and carry it over in
the succeeding taxable years, creditable
against future income tax liabilities until
fully utilized. (Systra Philippines, Inc., v.
Commissioner of Internal Revenue, G. R.
No. 176290, September 21, 2007 citing
Philam Asset Management, Inc. v.
Commissioner of Internal Revenue, G.R.
Nos. 156637/162004, 14 December
2005, 477 SCRA 761)
Supposing in the above problem that
Systra permanent ceased operations,
what happens to the unapplied credits ?
Where, the corporation permanently
ceases its operations before full
utilization of the tax credits it opted to
carry over, it may then be allowed to
claim the refund of the remaining tax
credits. In such a case, the remaining tax
credits can no longer be carried over and
the irrevocability rule ceases to apply.
Cessante ratione legis, cessat ipse lex.
(Footnote no. 23, Systra Philippines, Inc.,
v. Commissioner of Internal Revenue, G.
R. No. 176290, September 21, 2007)
The holding in State Land Investment
Corporation v. Commissioner of Internal
Revenue, G. R. No. 171956, January 18,
2008 that the taxpayer is entitled to a
GENERAL PRINCIPLES
47
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(Commissioner of Internal Revenue v. Court of Tax
Appeals, G. R. No. 106611, July 21, 1994, 234 SCRA
348) Without the tax return it would be virtually
impossible to determine whether the proper taxes
have been assessed and paid. After all, it is
axiomatic that a claimant has the burden of proof to
establish the factual basis of his or her claim for tax
credit or refund. Tax refunds, like tax exemptions,
are construed strictly against the taxpayer. (Paseo
Realty & Development Corporation v. Court of
Appeals, et al., G. R. No. 119286, October 13, 2004)
However, in BPI-Family Savings Bank v.
Court of Appeals, 386 Phil. 719; 326 SCRA
641 (2000), refund was granted, despite
the failure to present the tax return,
because other evidence was presented to
prove that the overpaid taxes were not
applied. (Ibid.)
Discuss the difference between tax
refund and tax credit..
There are unmistakable formal and
practical differences between the two
modes. Formally, a tax refund requires a
physical return of the sum erroneously
paid by the taxpayer, while a tax credit
involves the application of the
reimbursable amount against any sum
that may be due and collectible from the
taxpayer.
On the practical side, the taxpayer to
whom the tax is refunded would have the
option, among others, to invest for profit
the returned sum, an option not
proximately available if the taxpayer
chooses instead to receive a tax credit.
(Commissioner of Customs v. Philippine
Phosphate Fertilizer Corporation, G. R. No.
144440, September 1, 2004)
48
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
trusts would be a necessary segregation
in the accounting of such income,
interest or otherwise, earned from those
trusts from that earned by the other
clients of the bank-trustee. (Far East
Bank and Trust Company, etc., v.
Commissioner, etc., et al., G.R. No.
138919, May 2, 2006) The amounts that
are the exempt earnings of the
employees trust has not been shown as
they have been commingled with the
interest income of the other clients of
the bank-trustee.
CTA Circular No. 1-95 clearly requires
that photocopies of the receipts or
invoices must be pre-marked and
submitted to the CTA to verify the
correctness of the summary listing and
the CPA certification. CTA Circular No. 195, issued on 25 January 1995, reads:
1. The party who desires to introduce
as evidence such voluminous documents
must present: (a) Summary containing
the total amount/s of the tax account or
tax paid for the period involved and a
chronological or numerical list of the
numbers, dates and amounts covered by
the invoices or receipts; and (b) a
Certification of an independent Certified
Public Accountant attesting to the
correctness of the contents of the
summary after making an examination
and evaluation of the voluminous
receipts and invoices. Such summary and
certification must properly be identified
by a competent witness from the
accounting firm.
2. The method of individual presentation
of each and every receipt or invoice or
other
documents
for
marking,
identification and comparison with the
GENERAL PRINCIPLES
BEBER, DINDO
49
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Acting on a yearly routinary Letter of
Authority No. 0018064 NA dated June
27, 1988 issued by petitioner, directing
the investigation of tax liabilities of
respondent for taxable year 1987, an
investigation was conducted by Revenue
Officer Frederick Capitan which showed
that respondent was liable for 1.
deficiency income tax in the amount of
P2,340,902.52; and 2. deficiency
franchise tax in the amount of
P2,838,335.84.
On April 17, 1989, respondent filed an
amended final corporate Income Tax
Return ending December 31, 1988
reflecting a refundable amount of
P107,649,729.
Respondent thus filed on March 30, 1990
a letter-claim for refund or credit in the
amount of P107,649,729 representing
overpaid income taxes for the years 1987
and 1988.
Petitioner not having acted on its
request, respondent filed on April 6,
1990 a judicial claim for refund or credit
with the Court of Tax Appeals.
It is gathered that respondent paid the
deficiency franchise tax in the amount of
P2,838,335.84. It protested the payment
of the alleged deficiency income tax and
claimed as an alternative remedy the
deduction thereof from its claim for
refund or credit.
The Court of Tax Appeals granted the
P107,649,729 claim for refund, or in the
alternative for the BIR to issue a tax
credit. Is the Court of Tax Appeals
correct ?
Yes. Section 69 of the National Internal
Revenue Code of 1986, now Sec. 76
provides, if the sum of the quarterly tax
payments made during a taxable year is
50
GENERAL PRINCIPLES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
a. Tax is aimed at raising revenue
while penalty is imposed to
regulate conduct.
b. Tax is imposed only by the
government, while penalty is
imposed by the government or
by private entities.
3. TAX AND LICENSE FEE
a. Tax is imposed to raise revenue
while license is imposed for
regulatory purpose.
b. Tax has no maximum limit,
whereas license is limited to the
cost of regulation.
c. Tax is imposed on person,
property, and right to exercise
privilege, whereas license is
important on the right to
exercise a privilege.
d. Non-payment of tax does not
make the act or business illegal,
while non-payment of license
makes the act or business illegal.
4. TAX AND SPECIAL ASSESSMENT
a. Tax is levied on persons,
property, or exercise of a
privilege,
while
special
assessment is levied only on
land.
b. No special benefit accrues to the
tax payer, while special benefit
result to the property assessed in
special assessment.
c. Tax is of general application,
whereas special assessment is
exceptional as to time and place
and not of general application.
5. TAX AND DEBT
a. Tax is imposed while debt
arises from contract.
b. Tax cannot be assigned while
debt is assignable.
GENERAL PRINCIPLES
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
a. Direct tax is a tax imposed on the
person who also bears the burden
thereof.
b. Indirect tax is a tax imposed on the tax
payer who shifts the burden of the tax
to another.
3. As to determination of amount
a. Specific tax is computed based on a
physical unit of measurement, as by
head, number, weight, length, or
volume.
b. Ad valorem tax is a tax of a fixed
proportion of the value of property
with respect to which the tax is
assessed.
4. As to purpose
a. General, fiscal, or revenue tax is
imposed for the general purpose of
supporting the government.
b. Special or regulatory tax is imposed for
a special purpose, to achieve some
social or economic objectives.
5. As to scope or authority imposing the tax
a. National tax is imposed by the national
government
b. Municipal or local tax is imposed by
municipal corporations, or local
governments.
6. As to graduation of rates
a. Proportional
Based on a fixed percentage of the
amount of the property, receipts, or
other basis to be taxed.
b. Progressive or graduated
The rate of tax increases as the tax
base or bracket increases.
c. Regressive
The rate of tax decreases as the tax
base or bracket increases. We have no
regressive taxes in the Philippines.
52
GENERAL PRINCIPLES
Sources:
PRIMUS PRE-BAR REVIEW BAR STAR NOTES
TAXATION LAW REVIEW, ATTY. FRANCIS SABABAN
TAXATION FOR FILIPINOS,
ARANDIA-VILLANUEVA
ATTY.
ANGELINA
BEBER, DINDO
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
II. National Internal Revenue Code of 1997 as
amended (NIRC)
A. Income Taxation
1. Income Tax Systems:
a. Global Tax System
Global Tax System Under the global tax
system, the total allowable deductions as well as
personal and additional exemptions, in the case of
qualified individuals, or the total allowable
deductions only, in the case of corporations, are
deducted from the gross income to arrive at the
net taxable subject to the graduated income tax
rates, in the case of individuals, or to the corporate
income tax rate, in the case of corporations. It did
not matter whether the income received by the
taxpayer is classified as compensation income,
business or professional income, passive
investment income, capital gain, or other income.
All items of gross income, deductions, and personal
and additional exemptions, if any, are reported in
one income tax return to be filed at least annually,
and the applicable tax rate is applied on the tax
base. The pure global tax system was enforced in
the Philippines up to December 31, 1981, with the
maximum rate of 70% being applied on net income
of individuals.
Under the global system, all income received
by the taxpayer are grouped together, without any
distinction as to the type or nature of the income,
and after deducting therefrom expenses and other
allowable deductions, are subjected to tax at a
graduated or fixed rate.(Mamalateo,67)
b. Schedular Tax System
Schedular Tax System Under the schedular
tax system, different types of incomes are subject
to different sets of graduated or flat income tax
rates. The applicable tax rate (s) will depend on the
NATIONAL INTERNAL REVENUE CODE OF 1997
53
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
In sum, either (a) the global tax system
(e.g., taxpayer with compensation income not
subject to final withholding tax, or business or
professional income, or mixed income
compensation and business or professional
income), or (b) the schedular tax system (e.g.,
taxpayer with compensation, capital gains, passive
income, or other income subject to final
withholding tax), or (c) both the global and
schedular tax systems, may be applied, depending
on the nature of the income realized by the
taxpayer during the year.(Mamalateo,68)
2. Features of the Philippine Income Tax Law
a. Direct tax
Direct tax because the tax burden is borne
by the income recipient upon whom the tax is
imposed. It is a tax demanded from the very
person who, it is intended or desired, should pay it.
b. Progressive
Progressive tax, since the tax base increases
as the tax rate increases. It is founded on the
ability to pay principle and is consistent with the
Constitutional provision that Congress shall evolve
a progressive system of taxation.
c. Comprehensive
Comprehensive system of imposing income
tax by adopting the citizenship principle, the
residence principle, and the source principle. Any
one of the three principles is enough to justify the
imposition of income tax on the income of a
resident citizen and domestic corporation thst are
taxed on worldwide income.
d. Semi-schedular or semi-global tax system
Semi-schedular or semi-global system of
income taxation, although certain passive
54
FERUELO, MARIVIC M.
stock
of
domestic
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
4. Types of Philippine Income Tax
1. Presumptive income tax- A scale of income taxes
is imposed in relation to a group of persons actual
expenditure and the presumed income.
5. Taxable Period
Sec. 22 (P) The term "taxable year" means the
calendar year, or the fiscal year ending during
such calendar year, upon the basis of which the
net income is computed under this Title. 'Taxable
year' includes, in the case of a return made for a
fractional part of a year under the provisions of
this Title or under rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the commissioner, the period
for which such return is made.
a. Calendar Period
The twelve
(12) consecutive months
starting on January 1 and ending on December 31.
Instances when a calendar year shall be the
basis for computing the net income:
1. when the taxpayer is an individual;
2. when the taxpayer does not keep books of
account;
3. when the taxpayer has no annual accounting
period; and
4. when the taxpayer is an estate or trust.
NATIONAL INTERNAL REVENUE CODE OF 1997
(Vol.2
b. Fiscal Period
55
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
to fiscal year, a separate final or adjustment
return shall be made for the period between the
close of the last calendar year for which return
was made and the date designated as the close of
the fiscal year. If the change is from one fiscal
year to another fiscal year, a separate final or
adjustment return shall be made for the period
between the close of the former fiscal year and
the date designated as the close of the new fiscal
year.
(B) Income Computed on Basis of Short Period. Where a separate final or adjustment return is
made under Subsection (A) on account of a
change in the accounting period, and in all other
cases where a separate final or adjustment return
is required or permitted by rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, to be
made for a fractional part of a year, then the
income shall be computed on the basis of the
period for which separate final or adjustment
return is made.
Returns for short period resulting from
change of accounting period.
a. if a taxpayer, other than an individual, with the
approval of the BIR,
1. changes the basis of computing net income
from fiscal year to calendar year,
FERUELO, MARIVIC M.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
5. Non-Resident Alien Engaged in Trade or Business
in the Philippines (NRAETB);
b) Non-resident citizens
a) Resident citizens
A citizen of the Philippines who stays in the
Philippines without the intention of transferring his
physical presence abroad whether to stay
means:
(1) A citizen of the Philippines who establishes
to the satisfaction of the Commissioner the fact of
his physical presence abroad with a definite
intention to reside therein.
FERUELO, MARIVIC M.
57
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(2) A citizen of the Philippines who leaves the
Philippines during the taxable year to reside
abroad, either as an immigrant or for
employment on a permanent basis.
(3) A citizen of the Philippines who works and
derives income from abroad and whose
employment thereat requires him to be physically
present abroad most of the time during the
taxable year.
(4) A citizen who has been previously
considered as nonresident citizen and who arrives
in the Philippines at any time during the taxable
year to reside permanently in the Philippines shall
likewise be treated as a nonresident citizen for
the taxable year in which he arrives in the
Philippines with respect to his income derived
from sources abroad until the date of his arrival in
the Philippines.
(5) The taxpayer shall submit proof to the
Commissioner to show his intention of leaving the
Philippines to reside permanently abroad or to
return to and reside in the Philippines as the case
may be for purpose of this Section.
Types of nonresident citizens There are
three (3) types of nonresident citizens, namely:
(1) immigrants;
(2) employees of a foreign entity on a
permanent basis; and
(3) overseas contract workers. Immigrants and
employees of a foreign entity on a
permanent basis are treated as nonresident
citizens from the time they depart from the
Philippines. However, overseas contract
workers must be physically present abroad
most of the time during the calendar year
to qualify as nonresident citizens. The phrase
most of the time means at least 183 days
58
FERUELO, MARIVIC M.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
What the law requires for an alien to be
considered as a resident of the Philippines is
merely physical or bodily presence in a given place
for a period of time, not the intention to make it a
permanent place of abode.
b) Non-resident aliens
Sec. 22(G) The term "nonresident alien"
means an individual whose residence is not within
the Philippines and who is not a citizen thereof.
Nonresident aliens are further classified
into engaged or not engaged in trade or business in
the Philippines. The Philippines exercises limited
taxation rights over income of aliens derived from
the economic activities done within the Philippines.
The country of source exercises its taxing rights
due to the territorial link on the income.
(1) Engaged in trade or business
Nonresident Alien Engaged in Trade or Business
in the Philippines If the aggregate period of his
stay in the Philippines is more than one hundred
eighty (180) days during any calendar year, he shall
be deemed a nonresident alien doing business in
the Philippines. An alien engaged in trade or
business in the Philippines is taxed on his income
from sources within the Philippines (after
deducting personal and additional exemptions, if
any) at the graduated income tax rates of 5% to
32%, while his passive investment incomes shall
generally be subject to 20 final tax.(Mamalateo,81)
Non-resident alien engaged in trade or
business in the Philippines is:
1. a foreigner not residing but engaged in trade,
business in the Philippines;
2. engaged in the exercise of profession in the
Philippines; and
59
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Companies. - There shall be levied, collected and
paid for each taxable year upon the gross income
received by every alien individual employed by
regional or area headquarters and regional
operating headquarters established in the
Philippines by multinational companies as
salaries, wages, annuities, compensation,
remuneration and other emoluments, such as
honoraria and allowances, from such regional or
area headquarters and regional operating
headquarters, a tax equal to fifteen percent (15%)
of such gross income: Provided, however, That
the same tax treatment shall apply to Filipinos
employed and occupying the same position as
those of aliens employed by these multinational
companies. For purposes of this Chapter, the term
'multinational company' means 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.
2. Sec. 25 (D) Alien Individual Employed by
Offshore Banking Units. - There shall be levied,
collected and paid for each taxable year upon the
gross income received by every alien individual
employed by offshore banking units established in
the Philippines as salaries, wages, annuities,
compensation,
remuneration
and
other
emoluments, such as honoraria and allowances,
from such off-shore banking units, a tax equal to
fifteen percent (15%) of such gross income:
Provided, however, That the same tax treatment
shall apply to Filipinos employed and occupying
the same positions as those of aliens employed by
these offshore banking units.
3. (E) Alien Individual Employed by Petroleum
Service Contractor and Subcontractor. - An Alien
individual who is a permanent resident of a
foreign country but who is employed and
assigned in the Philippines by a foreign service
contractor or by a foreign service subcontractor
engaged in petroleum operations in the
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RA 9504: Tax Exemption on Minimum
Wage Earners
1. Domestic Corporation;
2. Foreign Corporations;
b. Corporations
Sec.22 (B) The term "corporation" shall
include partnerships, no matter how created or
organized, joint-stock companies, joint accounts
(cuentas en participacion), association, or
insurance companies, but does not include
general professional partnerships and a joint
venture or consortium formed for the purpose of
undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium
agreement under a service contract with the
Government.
The phrase no matter how created or
organized has been construed by the BIR in its
rulings as to be applicable to all entities deemed as
a corporation, to wit:
1. whether or not organized under Philippines or
foreign laws;
2. whether or not organized in accordance with law
or against it; or
3. whether stock or non-stock, profit or non-profit.
(2008Sababan,25)
Corporations under the NIRC of 1997:
NATIONAL INTERNAL REVENUE CODE OF 1997
1) Domestic corporations
educational
institutions
and
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1. Those that do not derive any income from
sources within the Philippines and thus
exempt from income tax; and
2. Those that are engaged in trade or business
in the Philippines and thus subject to income
tax at:
a. Preferential tax rate, or
b. Normal corporate income tax rate or
minimum corporate income tax rate,
whichever is higher.
Under the first category are the regional or
area headquarters established in the Philippines.
They are exempt from income tax because they are
not engaged in trade or business in the Philippines.
They do not derive income from sources within the
Philippines and are merely cost centers.
Under the second category are branches
engaged in trade or business in the Philippines.
(2)Non-resident foreign corporations
Sec. 22 (I) The term 'nonresident foreign
corporation' applies to a foreign corporation not
engaged in trade or business within the
Philippines.
A nonresident foreign corporation is a
foreign corporation not engaged in trade or
business within the Philippines. Gross income from
sources within the Philippines paid to a
nonresident foreign corporation shall be subject to
the 35% final corporate income tax, which must be
withheld by the Philippine payor of the income.
(Mamalateo,96-99)
c. Partnerships
Except for a general professional
partnerships and an unincorporated joint venture
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capacity, whether actually distributed or not. Thus,
the principle of constructive receipt of income or
profit is being applied to undistributed profits of
general professional partnerships.
e. Estates and Trusts
An estate - is created by operation of law,
when an individual dies, leaving properties to his
compulsory or other heirs,
A trust - is a legal arrangement whereby the
owner of a property (the trustor) transfers
ownership to a person (the trustee) who is to hold
and control the property belonging to the owners
instructions, for the benefit of a designated person
(s) (the beneficiaries).
Taxable estates and trusts are taxed in the
same manner and on the same basis as in the case
of an individual, except that:
(a) the amount of income for the year which is to
be distributed currently by the fiduciary to the
beneficiaries, and the amount of the income
collected by a guardian of an infant which is to be
held or distributed as the court may direct, shall be
allowed as deduction in computing taxable income
of the estate or trust, but the amount so allowed
as deduction shall be included in computing the
taxable income of the beneficiaries, whether
distributed to them or not;
(b) in the case of income received by estates of
deceased persons during the period of
administration or settlement of the estate, and in
the case of income which, in the discretion of the
fiduciary, may be either distributed to the
beneficiary or accumulated, there shall be allowed
as an additional deduction in computing the
taxable income of the estate or trust the amount of
the income of the estate or trust for its taxable
year, which is properly paid or credited during such
year to any legatee, heir or beneficiary, but the
NATIONAL INTERNAL REVENUE CODE OF 1997
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inherited properties is automatically converted
into an unregistered partnership the moment the
said common properties and/or the incomes
derived therefrom are used a common fund with
intent to produce profits for the heirs in proportion
to their respective shares in the inheritance as
determined in a project partition either duly
executed in an extrajudicial settlement or
approved by the court in the corresponding testate
or intestate proceeding. (Mamalateo,83-85)
7. Income Taxation
a. Definition
a. Definition
Income means:
income,
gross
or
b. Nature
c. General principles
General Principles of Income Taxation
1. Basis of Taxability of Incomes.
a. As regards individuals, the taxability of
income depends upon:
1) citizenship; or
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FERUELO, MARIVIC M.
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1. Any material gain, not excluded by law;
received
for
4) Methods of accounting
There are several methods of accounting
revenues and expenses that may be used by
taxpayers under the 1997 Tax Code. These are:
1. Cash receipts and disbursements method;
2. Accrual method;
3. Installment method;
4. Percentage of completion method; or
FERUELO, MARIVIC M.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
5. Crop year basis.
a) Cash method vis--vis Accrual
method
Cash method. Cash method is a method
of accounting whereby all items of gross income
received during the year shall be accounted for in
such taxable year and that only expenses actually
paid shall be claimed as deductions during the
year. Under this method, income is realized upon
actual or constructive receipt of cash or its
equivalent, and expenses are deductible only upon
actual payment thereof, regardless of the taxable
year when the service is performed or the expense
is incurred.
Accrual method. Accrual method is a
method of accounting for income in the period it is
earned, regardless of whether it has been received
or not. In the same manner, expenses are
accounted for in the period they are incurred and
not in the period they are paid. Under this method,
net income is being measured by the excess of the
income earned during the period over the
expenses incurred during the same period. The
income that has been earned and the expenses
that have been incurred are to be reported during
the year, although they have not been collected or
paid. In the succeeding year of receipt or payment,
the taxpayer shall report no additional income or
expenses.
b) Installment payment vis--vis
Deferred payment vis-vis Percentage
completion (in long term contracts)
Installment method
SEC. 49. Installment Basis. - (A) Sales of
Dealers in Personal Property. - Under rules and
regulations prescribed by the Secretary of
Finance, upon recommendation of the
Commissioner, a person who regularly sells or
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computing his income for the year of change or
any subsequent year, amounts actually received
during any such year on account of sales or other
dispositions of property made in any prior year
shall not be excluded.
Installment method. Installment method
is a method considered appropriate when
collections of the proceeds of sales and income
extend over relatively long periods of time and
there is strong possibility that full collection will
not be made. As customers make installment
payments, the seller recognizes the gross profit on
sale in proportion to the cash collected during the
year.
Generally, income from a sale of property
on the installment basis may be reported as the
payments are received. If the installment method
is elected for qualifying sales, the gain reported for
any taxable year is the proportion of the
installment payment received in that year which
the gross profit, realized or to be realized when
payment is completed, bears to the total contract
price.
Deferred Payment
CREDITABLE WITHHOLDING TAX; deferred
payment sales of real property made prior to and
after February 20, 1996 - A distinction should be
made if the payment was made prior to or after
February 20, 1996. In case of deferred payment
sales of real property, not on installment plan, and
made prior to February 20, 1996, the income is
wholly taxable to the seller in the year of sale. The
buyer shall withhold the Creditable Withholding
Tax (CWT) based on the initial or down payment.
[BIR Ruling No. 0-78-94]. The CWT shall be credited
when the final income tax payable is computed at
the end of the taxable year.
Subsequent installments shall still be
subject to withholding by the buyer, if the sellerNATIONAL INTERNAL REVENUE CODE OF 1997
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completion during the taxable year of the entire
work performed under contract. There should be
deducted from such gross income all expenditures
made during the taxable year on account of the
contract, account being taken of the material and
supplies on hand at the beginning and end of the
taxable period for use in connection with the
work under the contract but not yet so applied. If
upon completion of a contract, it is found that the
taxable net income arising thereunder has not
been clearly reflected for any year or years, the
Commissioner may permit or require an amended
return.
Long-term contracts, which are usually
contracts taking more than a year to complete, and
frequently involving large scale projects for the
construction of industrial plants or buildings, are
regulated due to the timing issues of the reporting
of income and expenses. In long-term contracts,
the return should be accompanied by a certificate
of the architect or engineer showing the
percentage of completion during the taxable year
of the entire work performed under the
contract.(Mamalateo, Tax Reviewer, 255)
FERUELO, MARIVIC M.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
9. Gross Income.
a. General Definition. - Except when
otherwise provided in this Title, gross income
means all income derived from whatever source,
including (but not limited to) the following items:
(1) Compensation for services in whatever form
paid, including, but not limited to fees, salaries,
wages, commissions, and similar items; (2) Gross
income derived from the conduct of trade or
business or the exercise of a profession; (3) Gains
derived from dealings in property; (4) Interests; (5)
Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9)
Prizes and winnings; (10) Pensions; and (11)
Partner's distributive share from the net income of
the general professional partnership.(Section 42
NIRC)
Gross income means income, gain or
profit subject to tax. It includes compensation for
personal and professional services, business
income, profits, and income derived from any
source whatever (whether legal or illegal), unless
exempt from tax under the Constitution, tax treaty,
or statute.
Net income means gross income less
statutory deductions and exemptions. It is referred
to as taxable income under Section 31 of the
1997 Tax Code. Net income must be computed
with respect to a fixed period. That period is twelve
months ending December 31st of every year,
except in the case of a corporation filing returns on
a fiscal year basis, in which case net income will be
computed on the basis of such fiscal year.
(Mamalateo, Tax Review)
GROSS INCOME
CAINDAY, RAQUEL A.
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(4) Rentals and royalties. - Rentals and
royalties from property located in the Philippines
or from any interest in such property, including
rentals or royalties for (a) The use of or the right or privilege to
use in the Philippines any copyright, patent, design
or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or
right;
(b) The use of, or the right to use in the
Philippines any industrial, commercial or scientific
equipment;
(c) The supply of scientific, technical,
industrial
or
commercial
knowledge
or
information;
(d) 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
paragraph (a), any such equipment as is mentioned
in paragraph (b) or any such knowledge or
information as is mentioned in paragraph (c);
(e) 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;
(f) Technical advice, assistance or services
rendered
in
connection
with
technical
management or administration of any scientific,
industrial or commercial undertaking, venture,
project or scheme; and
(g) The use of or the right to use:
(i) Motion picture films;
(ii) Films or video tapes for use in
connection with television; and
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upon recommendation of the Commissioner.
Where items of gross income are separately
allocated to sources within the Philippines, there
shall be deducted (for the purpose of computing
the taxable income therefrom) the expenses,
losses and other deductions properly apportioned
or allocated thereto and a ratable part of other
expenses, losses or other deductions which cannot
definitely be allocated to some items or classes of
gross income. The remainder, if any, shall be
included in full as taxable income from sources
within the Philippines. In the case of gross income
derived from sources partly within and partly
without the Philippines, the taxable income may
first be computed by deducting the expenses,
losses or other deductions apportioned or
allocated thereto and a ratable part of any
expense, loss or other deduction which cannot
definitely be allocated to some items or classes of
gross income; and the portion of such taxable
income attributable to sources within the
Philippines may be determined by processes or
formulas of general apportionment prescribed by
the Secretary of Finance. Gains, profits and income
from the sale of personal property produced (in
whole or in part) by the taxpayer within and sold
without the Philippines, or produced (in whole or
in part) by the taxpayer without and sold within
the Philippines, shall be treated as derived partly
from sources within and partly from sources
without the Philippines.
Gains, profits and income derived from the
purchase of personal property within and its sale
without the Philippines, or from the purchase of
personal property without and its sale within the
Philippines shall be treated as derived entirely form
sources within the country in which sold: Provided,
however, That gain from the sale of shares of stock
in a domestic corporation shall be treated as
derived entirely form sources within the
Philippines regardless of where the said shares are
sold. The transfer by a nonresident alien or a
foreign corporation to anyone of any share of stock
issued by a domestic corporation shall not be
effected or made in its book unless: (1) the
transferor has filed with the Commissioner a bond
conditioned upon the future payment by him of
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
the employers trade or business; or (d) for services
by a citizen or resident of the Philippines for a
foreign government or an international
organization. (Mamalateo,114-116)
(2) Fringe Benefits
a) Special
Benefit.- Section 33
Treatment
of
Fringe
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
For purposes of computing the distributive share of
the partners, the net income of the partnership
shall be computed in the same manner as a
corporation.
Each partner shall report as gross income his
distributive share, actually or constructively
received, in the net income of the partnership.
Under R.A. 6110) - An individual is deemed
a professional if, during a taxable year, he passes
any government examination for the practice of a
profession given by a board of examiners or by the
Supreme Court or remains a registered member of
any profession covered by such examination,
regardless of whether or not, during that taxable
year he actually practices his profession.
"Every professional legally authorized to
practice his profession, who has paid the
corresponding annual privilege tax on professions
as herein imposed, shall be entitled to practice the
profession for which he has been duly qualified
under the law, in all parts of the Philippines
without being subject to any other national tax,
license or fee for the practice of the profession, if
they have paid to the office concerned the
registration fees required by their respective
profession. (R.A. 6110)
Professional Income refers to the fees
received by a professional from the practice of his
profession, provided that there is no employeremployee relationship between him and his clients.
The existence or absence of the employeremployee relationship determines whether the
income shall be treated as compensation income
or professional fee. This fact is material for
purposes of taxation because there is no deduction
allowed against compensation income, whereas
allowable deductions may be made from
professional income. Thus, a lawyer may practice
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2. bookstore?
3. two dormitories?
Suggested answer:
1. For the operation of the canteen inside
the campus, the income thereon being incidental
to the operations of the university as a school, is
exempt (Art. XIV [4] [3], Constitution; DECS
Regulations No. 137-87, Dec.16, 1987).
2. For the same reasons, the University of
Bigaa is not liable to pay income taxes for the
operations of the bookstore, since this is an
ancillary activity the conduct of which is carried out
within the school premises.
3. The University of Bigaa shall not be liable
to pay income taxes for the operation of the
dormitory located in the campus, for same reasons
as the foregoing.
However, the latter shall be liable for
income taxes on income from operations of the
dormitory located outside the school premises.
(Mamalateo,122)
(5) Income from Dealings in Property
a) Types of Property
1) Ordinary Asset -Include stock in
trade of the taxpayer or other property of a kind
which would properly be included in the inventory
of the taxpayer if on hand at the close of the
taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary
course of his trade or business, or property used in
the trade or business, of a character which is
subject to the allowance for depreciation; or real
property used in trade or business of the
taxpayer.(Codal)
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capital gain or loss even though the property has to
be subdivided or improved or both to make it
salable. However, if the inherited property is
substantially improved or very actively sold or both
it may be treated as held primarily for sale to
customers in the ordinary course of the heir's
business.
The sole question is-were the taxpayers in the
business of subdividing real estate? If they were,
then it seems indisputable that the property sold
falls within the exception in the definition of capital
assets . . . that is, that it constituted 'property held
by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business
Capital Assets
For tax purposes, there are three (3)
general types of capital assets. These are: (a)
shares of stock of a domestic corporation; (b) real
property (of individuals) or land/or building (of
corporations); and (c) other types of assets,
including shares of stock of a foreign corporation.
The rules provided for in the 1997 Tax Code are
summarized below.
1. Shares of stock of Domestic Corporation
The rules on sale cr exchange of shares of
stock of a domestic corporation are:
a. If the seller or transferor is a dealer in
securities, the shares of stock (whether listed and
traded in the local stock exchange, listed but not
traded in the local stock exchange, or not listed)
shall be treated as ordinary assets and the ordinary
gain, if any, from the sale or transfer thereof shall
be subject to the graduated income taxrates, in the
case of individual seller or transferor, or to the
normal corporate income tax, in the case of
corporate seller or transferor.
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
not later than the 15th day of the fourth month
following the close of the taxable year. Take note
that it does not matter who is the seller or
transferor (whether he is an individual (citizen or
alien) or a corporation (domestic or foreign),
provided he/it is not a dealer in securities.
The capital gain from the sale of listed
chores over the counter or outside of the local
stock exchange shall be subject to 5%-10% capital
gains tax, since the law requires that the listed
shares must be traded in the local stock exchange.
What is controlling is whether or not the shares of
stock are traded in the local stock exchange.
However, the capital loss from the sale of listed
shares outside of the local stock exchange can be
deducted from the capital gain from another sale
of unlisted shares, or listed shares but traded
outside of the local stock exchange.(Mamalateo)
Other capital assets
All other capital assets, except shares of
stocks of a domestic corporation and real property,
shall be subject to income tax at the graduated
income tax rates (if seller is an individual) or at 32%
corporate income tax (if seller is a corporation).
Examples are motor vehicles, and jewelries not
used in the taxpayers trade or business, shares of
stocks of a foreign corporation and investments in
short term commercial papers that are not
considered as deposits substitutes.(Mamalateo)
Holding Period of the property is
material for individual taxpayers only Only 50% of
long term capital gains are recognized as subject to
income tax, if derived by an individual taxpayer
from short-term capital asset transactions. A
capital gain is treated as (a) long-term if the asset
sold or exchanged is held for more than twelve
months, (b) short-term if the asset sold or
exchanged is held for twelve months or less. In the
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CAINDAY, RAQUEL A.
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
profit, or gains, profits and income derived from
any source whatever .
Capital Gain gain derived from the sale
or exchange of capital asset
Illustrations:
G.R. No. L-14532 ( May 26, 1965) JOSE
LEON GONZALES vs THE HON. COURT OF TAX
APPEALS and THE COLLECTOR OF INTERNAL
REVENUE:
We also adhered to the view that the
transfer of property through condemnation
proceedings is a sale or exchange and that profit
from the transaction constitutes capital gain.
But to say that the proceeds of
expropriation which is the return of capital and,
therefore, a capital gain, partakes of the same
nature as interests paid thereon is far from correct;
because interest is compensation for the delay in
the return of such capital. It was so held by the
United States Supreme Court in Kieselback v.
Commissioner of Internal Revenue, 317 U.S. 399.
This additional payment was necessary to
give the owners the full equivalent of the value of
the property at the time it was taken. Whether one
calls it interest on the value or payments to meet
the
constitutional
requirement
of
just
compensation is immaterial. It is income paid to
the taxpayers in lieu of what they might have
earned on the sum found to be the value of the
property on the day the property was taken. It is
not a capital gain upon an asset sold.
G.R. No. 160756 (March 9, 2010)
CHAMBER OF REAL ESTATE AND BUILDERS'
ASSOCIATIONS, INC. vs. THE HON. EXECUTIVE
SECRETARY ALBERTO ROMULO, et al:
GROSS INCOME
xxx
xxx
xxx
xxx
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
xxx
xxx
xxx
CAINDAY, RAQUEL A.
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
As previously stated, FWT is imposed on the sale
of capital assets. On the other hand, CWT is
imposed on the sale of ordinary assets.
The fact that the tax is withheld at source does not
automatically mean that it is treated exactly the
same way as capital gains. As aforementioned, the
mechanics of the FWT are distinct from those of
the CWT. The withholding agent/buyers act of
collecting the tax at the time of the transaction by
withholding the tax due from the income payable
is the essence of the withholding tax method of tax
collection.
2) Actual Gain vis--vis Presumed Gain
In.(G.R. No. 102967(February 10, 2000),
BIBIANO V. BAAS, JR. vs. COURT OF APPEALS
For income tax purposes, income is an actual gain
or an actual increase of wealth.
Presumed gain
Illustration:
The 2-1/2% tax on gross Philippine billings
imposed under the proviso added by Presidential
Decree No. 69 to Section 24(b)(2) is an income tax
levied on the presumed gain of the airline
companies. Such proviso and the statutory
definition of gross Philippine billings provided by
Presidential Decree No. 1355 ensured that
international airlines are taxed on the income they
derive from Philippine sources. (G.R. No. 67938
December 19, 1989) COMMISSIONER OF INTERNAL
REVENUE vs. AMERICAN AIRLINES, INC. and COURT
OF TAX APPEALS
3) Long Term Capital Gain vis--vis Short
Term Capital Gain Section 39 B
Percentage Taken into Account. - In the case of a
taxpayer, other than a corporation, only the
following percentages of the gain or loss
recognized upon the sale or exchange of a capital
GROSS INCOME
CWT
a) The amount of
income tax withheld
by the withholding
agent is constituted as
a full and final
payment
of
the
income tax due from
the payee on the said
income.
a) Taxes withheld on
certain
income
payments are intended
to equal or at least
approximate the tax
due of the payee on
said income.
b) Payee of income is
required to report the
income and/or pay the
difference between the
tax withheld and the
tax due on the income.
The payee also has the
right to ask for a refund
if the tax withheld is
more than the tax due.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Sababan, this is referred to as the Short
Term Holding Period
(2)Fifty percent (50%) if the capital asset
has been held for more than twelve (12)
months- (according to Sababan, this is
referred to as the Long Term Holding
Period
Illustration:
G.R. No. L-24248 (July 31, 1974) ANTONIO
TUASON, JR vs. JOSE B. LINGAD:
As thus defined by law, the term "capital assets"
includes all the properties of a taxpayer whether or
not connected with his trade or business, except:
(1) stock in trade or other property included in the
taxpayer's inventory; (2) property primarily for sale
to customers in the ordinary course of his trade or
business; (3) property used in the trade or business
of the taxpayer and subject to depreciation
allowance; and (4) real property used in trade or
business. If the taxpayer sells or exchanges any of
the properties above-enumerated, any gain or loss
relative thereto is an ordinary gain or an ordinary
loss; the gain or loss from the sale or exchange of
all other properties of the taxpayer is a capital gain
or a capital loss.
Under section 34(b) (2) now section 39 B of the Tax
Code, if a gain is realized by a taxpayer (other
than a corporation) from the sale or exchange of
capital assets held for more than twelve months,
only 50% of the net capital gain shall be taken
into account in computing the net income.
The Tax Code's provision on so-called long-term
capital gains constitutes a statute of partial
exemption. In view of the familiar and settled rule
that tax exemptions are construed in strictissimi
juris against the taxpayer and liberally in favor of
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
G.R. No. L-16021, August 31, 1962 - ANTONIO
PORTA
FERRER
vs.
(COLLECTOR)
now
COMMISSIONER OF INTERNAL REVENUE
The petitioner was the sole proprietor of the "La
Suiza Bakery. He owned this bakery from October
16, 1951 up to September 15, 1955, when he sold
the same to Juan Pons for the sum of P100,000.00.
After deducting the total book value of the assets
and the incidental expenses from the gross selling
price, petitioner filed on February 14, 1956 his
income tax return, showing a net profit of
P19,678.09 as having been realized from the sale of
the bakery.
Petitioner later requested the respondent to refund
to him the sum of P2,030.00, claiming that the
bakery was a capital asset which he had held for
more than twelve months, so that the profit from
its sale was a long term capital gain, and therefore,
only 50 per cent of it was taxable under the
National Internal Revenue Code.
Parenthetically, it may be noted that tax rates are
graduated upwards as the total amount of income
increases. But capital assets are generally held for a
period in excess of a year. When held for more
than a year, the profit or loss realized is reported
for tax purposes only in the year that the asset was
sold or exchanged even though the increment
might have developed over several years or was
the result of years of effort. Since the gain is taxed
all in one year, a higher rate of tax would
necessarily be paid be included; similarly, only a
limited amount of any loss than if a part of the gain
were reported each year the asset was held. In an
attempt to compensate for this, only a percentage
of the gain on such sales is required to can be
deducted in the year in which realized. (Alexander,
Federal Tax Handbook, p. 411, 1959 ed.)
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(3) If the property was acquired by gift, the basis
shall be the same as if it would be in the hands of
the donor or the last preceding owner by whom it
was not acquired by gift, except that if such basis is
greater than the fair market value of the property
at the time of the gift then, for the purpose of
determining loss, the basis shall be such fair
market value; or
(4) If the property was acquired for less than an
adequate consideration in money or money's
worth, the basis of such property is the amount
paid by the transferee for the property; or
(5) The basis as defined in paragraph (C)(5) of this
Section, if the property was acquired in a
transaction where gain or loss is not recognized
under paragraph (C)(2) of this Section.
b) Cost or basis of the property
exchanged in:
Exchange of Property. (1) General Rule. - Except as herein provided, upon
the sale or exchange or property, the entire
amount of the gain or loss, as the case may be,
shall be recognized.
(2) Exception. - No gain or loss shall be recognized
if in pursuance of a plan of merger or consolidation
(a) A corporation, which is a party to a
merger or consolidation, exchanges property solely
for stock in a corporation, which is a party to the
merger or consolidation; or
(b) A shareholder exchanges stock in a
corporation, which is a party to the merger or
consolidation, solely for the stock of another
corporation also a party to the merger or
consolidation; or
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CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
receives not only stock permitted to be received
without the recognition of gain or loss but also
money and/or other property, then (i) if the
corporation receiving such money and/or other
property distributes it in pursuance of the plan of
merger or consolidation, no gain to the corporation
shall be recognized from the exchange, but (ii) if
the corporation receiving such other property
and/or money does not distribute it in pursuance
of the plan of merger or consolidation, the gain, if
any, but not the loss to the corporation shall be
recognized but in an amount not in excess of the
sum of such money and the fair market value of
such other property so received, which is not
distributed.
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
6) Income Tax Treatment of Capital Loss
a) Capital loss limitation rule Section 39
C (applicable to both corporations and individuals)
Limitation on Capital Losses. - Losses from
sales or exchanges of capital assets shall be
allowed only to the extent of the gains from such
sales or exchanges. If a bank or trust company
incorporated under the laws of the Philippines, a
substantial part of whose business is the receipt of
deposits, sells any bond, debenture, note, or
certificate or other evidence of indebtedness
issued by any corporation (including one issued by
a government or political subdivision thereof), with
interest coupons or in registered form, any loss
resulting from such sale shall not be subject to the
foregoing limitation and shall not be included in
determining the applicability of such limitation to
other losses.
a) Net loss carry over rule Section 39 D
(applicable only to individuals)
Net Capital Loss Carry-over. - If any
taxpayer, other than a corporation, sustains in any
taxable year a net capital loss, such loss (in an
amount not in excess of the net income for such
year) shall be treated in the succeeding taxable
year as a loss from the sale or exchange of a capital
asset held for not more than twelve (12) months.
7) Dealings in real property situated in the
Philippines (Section 24 D)
The provisions of Section 39 (B), notwithstanding.
A final tax of 6% based on the gross selling price or
current fair market value as determined in
accordance with Section 6(E) of this Code,
whichever is higher, is hereby imposed upon
capital gains presumed to have been realized from
the sale, exchange, or other disposition of real
property located in the Philippines, classified as
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CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
either of the two cases above is in the affirmative,
the real property shall be treated as ordinary asset,
and the gain, if any, from the sale or transfer
thereof shall be subject to the graduated income
tax rates or to the normal corporate income tax
rate, and expanded withholding tax, as discussed
in the preceding paragraph. On the other hand, if
the answer is in the negative, the real property
shall be treated as capital asset, and the gain, if
any, by a citizen, alien (resident or nonresident),
and domestic corporation shall be subject to the
final capital gains tax of 6% based on the gross
selling price or fair market value of the property at
the time of sale, whichever is higher. It is to be
noted that foreign corporations (whether resident
or nonresident) are not entitled to the preferential
tax rates on their gain from sale of real property
classified as capital asset because there is no
similar express provision as that granted to
domestic corporations. Therefore, regardless of
classification, net taxable income from the sale of
real property realized by a resident foreign
corporation shall be subject to the normal
corporate income tax and expanded withholding
tax. However, if the seller is a nonresident foreign
corporation, the gain from sale shall be taxed at
32% (now 35%). The real property referred to here
could be a condominium unit which foreigners are
allowed to own subject to certain conditions under
the Condominium Act.
Deed of exchange executed by the parties
voluntarily and without any financial consideration,
involving real properties, would subject both
parties separately and distinctly to the capital gains
tax, based on the fair market value or
consideration, whichever is igher. In this case,
there are two taxable transactions.
Income on sale of real property not located
in the Philippines, regardless of classification, by
resident citizens and domestic corporations shall
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
net capital gains realized during the taxable year
from the sale, barter, exchange or other
disposition of shares of stock in a domestic
corporation, except shares sold, or disposed of
through the stock exchange.
Not over P100,000
5%
On any amount in excess of P100,000
10%
9. Sale of Principal Residence (Section 24
D Exception)
Capital Gains from Sale of Real Property. (2) Exception. - The provisions of
paragraph (1) of this Subsection to the contrary
notwithstanding, capital gains presumed to have
been realized from the sale or disposition of their
principal residence by natural persons, the
proceeds of which is fully utilized in acquiring or
constructing a new principal residence within
eighteen (18) calendar months from the date of
sale or disposition, shall be exempt from the
capital gains tax imposed under this Subsection:
Provided, That the historical cost or adjusted basis
of the real property sold or disposed shall be
carried over to the new principal residence built or
acquired: Provided, further, That the Commissioner
shall have been duly notified by the taxpayer
within thirty (30) days from the date of sale or
disposition through a prescribed return of his
intention to avail of the tax exemption herein
mentioned: Provided, still further, That the said tax
exemption can only be availed of once every ten
(10) years: Provided, finally, that if there is no full
utilization of the proceeds of sale or disposition,
the portion of the gain presumed to have been
realized from the sale or disposition shall be
subject to capital gains tax. For this purpose, the
gross selling price or fair market value at the time
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CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
exempt from tax or subject to the final tax at
preferential rate under the 1997 Tax Code or under
the applicable tax treaty.
Interest means the amount which a
depository bank may pay on savings and time
deposits in accordance with the rates authorized
by the Bangko Sentral ng Pilipinas.(Mamalateo,Tax
Review)
a. Income interes from Philippine currency
deposits and eposit substitutes Gross interest
income from Philippine currency bank deposits and
yield or any other monetary benefits from deposit
substitutes and from trust fund and similar
arrangements are subject to the 20% final
withholding tax, of all depositors, including
enterprises registered with PEZA, SBMA, CDA,and
other economic zones and free port zones, and
senior citizens, except when the depositories a
nonresident alien not engaged in trade or business
in the Philippines, where such interest in income
shall be subject to the higher 25% tax rate
pursuant to Section 25 (B) of the Tax Code.
However, if the depositor is an employee trust
fund or accredited retirement plan, such interest
income, yield or other monetary benefit is exempt
from final the final withholding tax.
The term deposit substitutes shall mean
an alternative form of obtaining funds from the
public (the term public means borrowing from
twenty (20) or more individual or corporatelenders
at any one time).
b. Interest income on foreign currency
deposits Gross interest income from foreign
currency deposits with an Offshore Banking Unit
(OBU) or Foreign Currency Deposit Unit (FCDU) in
the Philippines is subject to the final withholding
tax of 7.5%. However interest income from foreign
currency deposit is with a bank located outside the
GROSS INCOME
87
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
such form prescribed by the Banko Sentral ng
Pilipinas received by a citizen, resident alien, and
nonresident alien engaged in trade or business in
the Philippines, shall be exempt fro income tax.
Howeer, should the holder of the certificate preterminate the deposit or investment before the
fifth year, a final tax shall be imposed on the entire
income and shall be deducted and withheld by the
depository bank from the the proceeds of the long
term deposit or investment certificate based on
the remaining maturity thereof:
Four years to less than five years. 5%
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
some other owned property by the corporation,
paying the dividend. The shares of stocks declared
as a property dividend by a corporation are shares
of stock of another corporation to which the
corporation paying the dividend has investments
and is shown as assets in its balance
sheet.(Mamalateo, Tax Reviewer)
1) Cash Dividend taxable to the extent of
cash received
2) Stock Dividend A stock dividend
representing the transfer of surplus to capital
account shall not be subject to tax. However, if a
corporation cancels or redeems stock issued as a
dividend at such time and in such manner as to
make the distribution and cancellation or
redemption, in whole or in part, essentially
equivalent to the distribution of a taxable dividend,
the amount so distributed in redemption or
cancellation of the stock shall be considered as
taxable income to the extent that it represents a
distribution of earnings or profits. (Section 73 B)
ordinarily not taxable income if it involves the
transfer of a portion of retained earnings to capital
stock, which does not change the proportionate
interest of the stockholder in the corporation. It
becomes taxable if it gives the shareholder an
interest different from that which his former
shareholdings represent, as when there has been a
change of corporate identity or in the nature of
shares issued as dividend.
A stock dividend is a dividend payable in
reserve or increase of additional stock corporation.
A cash dividend is disbursement to the stock holder
of the accumulated earnings and the corporation
parts irrevocably with all interest therein.
Stock dividends are generally exempt from
tax A stock dividend, which represents the
transfer of surplus to capital account, is not subject
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
or stock
investments and other properties
received as dividends.
4) Liquidating Dividend
Where a
corporation distributes all of its assets in complete
liquidation or dissolution, the gain realized or loss
sustained by the stockholder, whether individual or
corporate, is a taxable income or a deductible loss,
as the case may be. (Section 73 A par. 2)
90
CAINDAY, RAQUEL A.
is
non-resident
foreign
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
occurs whenever the reduction in source-country
tax is replaced by an increase in residence-country
tax.
91
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
a corporation domiciled in the US shall be as
follows: (a) 25% in all other cases; (b) 15%, if paid
by a BOI-registered enterprise engaged in
preferred areas of activities, and (c) the lowest rate
of the Philippines tax that may be imposed on
royalties of the same kind, paid under similar
circumstances to a resident of the third State.
The
phrase
paid under
similar
circumstances under the most favored nation
clause in the Philippines-US Tax Treaty has been
constructed as referring to the manner of payment
of taxes or circumstances that are tax-related, and
not to the subject matter of the tax (royalty).
Treatment of royalty under the Philippines-China
Tax Treaty Under the Philippines-China Tax
Treaty effective January 1, 2002, the tax on
royalties shall not exceed:
1. 15 percent of the gross amount of the
royalties arising arising from the the use of, or the
right to use, any copyright of literary, artistic or
scientific work, including cinematographic films or
tapes for televison or broadcasting or
2. 10 percent of thegross amount of
royalties arising from the use of, or the right to use,
any patent, trade mark, design or model, plan,
secret formula or process, or from the use of, or
right to use, industrial, commercial or scientific
equipment, or for information concerning
industrial, commercial or scientific experience.
b. Royalty paid by a foreign corporation
Recipient is a resident citizen and a domestic
corporation
The royalty paid by a foreign corporation
to a resident citizen and a domestic corporation is
subject to tax at the graduated rates of tax ranging
from 5% to 32% (in the case of resident citizens) or
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CAINDAY, RAQUEL A.
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Lease of real property. Gross income
means all income derived from whatever source,
including rents. Rental income is treated os
business income to which the lessor may claim
allowable deductions under Section 34 of the 1997
Tax Code.
If the lessor is a citizen, resident alien or
non-resident alien engaged in trade or business in
the Philippines, his net taxable income shall be
subject to the graduated income tax rates provided
for in Section 24 of the 1997 Tax Code, and if the
lessors are husband and wife, they shall corapute
separately their individual income tax based on
their respective taxable income. However if any
income cannot be definitely attributed to or
identified as income exclusively earned or realized
by either of the spouses the same shall be divided
equally between the spouses for the purpose of
determining their respective taxable income.
If the lessor is a nonresident alien not
engaged in trade or business in the Philippines, the
rental income from real property located in the
Philippines shall be subject to 25% final with
holding tax, unless a lower rate is imposed
pursuant to an effective tax treaty, such tax to be
withheld and remitted by the lessee in the
Philippines to the BIR within the prescribed date.
If the lessor is a domestic corporation or a
resident foreign corporation, its net taxable
income shall be subject to the 32% (now 35%)
norms, corporate income tax or its gross income
will be subjected to the 2% minimum corporate
income tax, whichever higher. However, if the
lessor is a nonresident foreign corporation, the
gross rental income from real property located in
the Philippines shall be subjected to the 32% (now
35%) corporate income tax, such tax to be withheld
and remitted by the lessee in the Philippines to BIR
within the prescribed dates.(Mamalateo,123)
GROSS INCOME
Vessel
Aircraft,
machineries and
other equipments 32.0%
Other assets
7.5%
25%
25%
CAINDAY, RAQUEL A.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
9) Pensions, retirement benefit or
separation pay. this refers to pensions which are
not considered as exclusions from gross income.
(Sababan, Taxation Law Review, 2008 pp. 89-90)
10) Income from any sources whatever
Income from any source whatever
The phrase is broad enough tocover gains
contemplated here. These words disclose a
legislative policy to include all income not expressly
exempted within the class of taxable income under
our laws, irrespective of the voluntary or
involuntary action of the taxpayer in producing the
gains.
a) forgiveness of indebtedness
condonation or remission of debt -
or
is
CAINDAY, RAQUEL A.
of
1. interests
Sources from
Within
the
Philippines
(Section 42 A)
Sources
from
without
the
Philippines
(Section 42 C)
Interests
derived
from
sources within
the Philippines,
and interests on
bonds, notes or
other interest-
interests other
than
those
derived
from
sources within
the Philippines
(Section 42 C-1)
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2. Dividends
bearing
obligation
of
residents,
corporate
or
otherwise(
Section 42 A 1)
The
amount Dividends other
received
as than
those
dividends:
derived
from
sources within
(a)
from
a
the Philippines
domestic
(Section 42 C-2)
corporation; and
(b)
from
a
foreign
corporation,
unless less than
fifty
percent
(50%) of the
gross income of
such
foreign
corporation for
the three-year
period ending
with the close of
its taxable year
preceding the
declaration of
such dividends
or for such part
of such period as
the corporation
has been in
existence) was
derived
from
sources within
the Philippines
as determined
under
the
provisions
of
this Section; but
GROSS INCOME
3. Services
only
in
an
amount which
bears the same
ration to such
dividends as the
gross income of
the corporation
for such period
derived
from
sources within
the Philippines
bears to its gross
income from all
sources (Section
42 A -2)
Compensation
for labor or
personal
services
performed
in
the Philippines
(Section 42 A- 3)
4, Rentals; Rentals
and
5. Royalties royalties from
property located
in
the
Philippines
or
from
any
interest in such
property,
including rentals
or royalties for (a) The use of or
the right or
privilege to use
in
the
Philippines any
copyright,
patent, design
or model, plan,
Compensation
for labor or
personal
services
performed
without
the
Philippines;
(Section 42 C-3)
Rentals
or
royalties from
property located
without
the
Philippines
or
from
any
interest in such
property
including rentals
or royalties for
the use of or for
the privilege of
using
without
the Philippines,
patents,
copyrights,
secret processes
and
formulas,
goodwill,
CAINDAY, RAQUEL A.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
secret formula
or
process,
goodwill,
trademark,
trade brand or
other
like
property
or
right;
(b) The use of,
or the right to
use
in
the
Philippines any
industrial,
commercial or
scientific
equipment;
(c) The supply of
scientific,
technical,
industrial
or
commercial
knowledge
or
information;
(d) 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 paragraph (a),
any
such
equipment as is
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CAINDAY, RAQUEL A.
trademarks,
trade
brands,
franchises and
other
like
properties
(Section 42 C-4
and 5)
mentioned
in
paragraph (b) or
any
such
knowledge
or
information as is
mentioned
in
paragraph (c)
(e) 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;
(f)
Technical
advice,
assistance
or
services
rendered
in
connection with
technical
management or
administration
of any scientific,
industrial
or
commercial
undertaking,
venture, project
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
or scheme; and
(g) The use of or
the right to use:
(i)
Motion
picture films;
(ii) Films or
video tapes for
use
in
connection with
television; and
(iii) Tapes for
use
in
connection with
radio
broadcasting
(Section 42 A-4 )
6. Sale of gains,
profits
Real
and
income
Property
from the sale of
real
property
located in the
Philippines
(Section 42 A-5)
Gains,
profits
and
income
from the sale of
real
property
located without
the Philippines
without
the
Philippines, or
from
the
purchase
of
personal
property
without and its
sale within the
Philippines shall
be treated as
derived entirely
form
sources
within
the
country in which
sold:
8. Shares of That gain from
Stock
of the
sale
of
Domestic
shares of stock
Corporation in a domestic
corporation shall
be treated as
derived entirely
form
sources
within
the
Philippines
regardless
of
where the said
shares are sold.
T
CAINDAY, RAQUEL A.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
It is explained in G.R. No. L-42780 January
17, 1936 - MANILA GAS CORPORATION vs.THE
COLLECTOR OF INTERNAL REVENUE The approved doctrine is that no state
may tax anything not within its jurisdiction without
violating the due process clause of the
constitution. The taxing power of a state does not
extend beyond its territorial limits, but within such
it may tax persons, property, income, or business.
If an interest in property is taxed, the situs of either
the property or interest must be found within the
state. If an income is taxed, the recipient thereof
must have a domicile within the state or the
property or business out of which the income
issues must be situated within the state so that the
income may be said to have a situs therein.
Personal property may be separated from its
owner, and he may be taxed on its account at the
place where the property is although it is not the
place of his own domicile and even though he is
not a citizen or resident of the state which imposes
the tax. But debts owing by corporations are
obligations of the debtors, and only possess value
in the hands of the creditors.
CAINDAY, RAQUEL A.
2) Exclusions
distinguished
deductions and tax credit
from
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Tax Credit - The direct dollar-for-dollar
reduction of an individual's tax liability; compare
with tax deduction, which reduces an individual's
tax liability only in proportion to his/her tax
bracket. (investorword.com)
Tax deductions reduce how much you owe
in taxes by decreasing your income. This can put
you down into a lower tax bracket, and that means
that you will owe less in terms of taxes. There are
two types of tax deductions that lower your
income. (infotaxsquare.com)
A tax credit is much more valuable than a
deduction or income exclusion. A tax credit
reduces your taxes, but a deduction reduces your
taxable amount. Tax deductions and income
exclusions have the same effect, but a different
cause. Income exclusions apply to money that was
not taxable in the first place (for example, some
money earned in a foreign country), but
deductions usually relate to spending and charity.
(infotaxsquare.com)
A tax credit is an item that reduces your
actual tax, whereas a tax deduction only reduces
your taxable income. With tax credits you can
reduce the actual amount of tax that must be paid;
a deduction is subject to the variation in the
progressive tax rate.
Tax credits do not depend on the tax rate,
so it is of equal value to a taxpayer regardless of
your income level. Tax deductions are just as
valuable as tax credits, and are available to
practically everyone. (irstaxsupport.com)
4. Under the Constitution
Section 27 (C) Government-owned or
Controlled-Corporations,
Agencies
or
Instrumentalities. - The provisions of existing
special or general laws to the contrary
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
income of the beneficiary. It is immaterial whether
the proceeds are received in a single sum or in
installments. If, however, such proceeds are held
by the insurer under an agreement to pay interest
thereon, the interest payments must be included in
income. The interest income shall be taxed at the
graduated income tax rates.
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(5) Income Exempt under Treaty. - Income
of any kind, to the extent required by any treaty
obligation binding upon the Government of the
Philippines.
Income of any kind, to the extent required
by any treaty obligation binding upon the
Government of the Philippines, is exempt from
income tax, Interest income from foreign currency
loan extended by Asian Finance and Investment
Corporation of Singapore is exempt from the 20%
final withholding tax under the tax treaty.
(Mamalateo, Tax Reviewer, 166)
(6)
Retirement
Gratuities, etc.-
Benefits,
Pensions,
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
retirement gratuity received by government
officials and employees.
(7) Miscellaneous Items. (a)
Income
Derived
by
Foreign
Government. - Income derived from investments in
the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on deposits in
banks in the Philippines by (i) foreign governments,
(ii) financing institutions owned, controlled, or
enjoying refinancing from foreign governments,
and (iii) international or regional financial
institutions established by foreign governments.
(b) Income Derived by the Government or
its Political Subdivisions. - Income derived from any
public utility or from the exercise of any essential
governmental
function
accruing
to
the
Government of the Philippines or to any political
subdivision thereof.
(c) Prizes and Awards. - Prizes and awards
made primarily in recognition of religious,
charitable, scientific, educational, artistic, literary,
or civic achievement but only if:
(i) The recipient was selected without any
action on his part to enter the contest or
proceeding; and
(ii) The recipient is not required to render
substantial future services as a condition to
receiving the prize or award.
(d) Prizes and Awards in sports
Competition. - All prizes and awards granted to
athletes in local and international sports
competitions and tournaments whether held in the
Philippines or abroad and sanctioned by their
national sports associations.
To be eligible for exemption, the national
sports association referred to in the law that
should sanction said sport activity is the Philippine
Olympic Committee.(Mamalateo,173)
102
CAINDAY, RAQUEL A.
(e) 13th Month Pay and Other Benefits. Gross benefits received by officials and employees
of public and private entities: Provided, however,
That the total exclusion under this subparagraph
shall not exceed Thirty thousand pesos (P30,000)
which shall cover:
(i) Benefits received by officials and
employees of the national and local government
pursuant to Republic Act No. 6686;
(ii) Benefits received by employees
pursuant to Presidential Decree No. 851, as
amended by Memorandum Order No. 28, dated
August 13, 1986;
(iii) Benefits received by officials and
employees not covered by Presidential decree No.
851, as amended by Memorandum Order No. 28,
dated August 13, 1986; and
(iv) Other benefits such as productivity
incentives and Christmas bonus: Provided, further,
That the ceiling of Thirty thousand pesos (P30,000)
may be increased through rules and regulations
issued by the Secretary of Finance, upon
recommendation of the Commissioner, after
considering among others, the effect on the same
of the inflation rate at the end of the taxable year.
(f) GSIS, SSS, Medicare and Other
Contributions. - GSIS, SSS, Medicare and Pag-ibig
contributions, and union dues of individuals.
(g) Gains from the Sale of Bonds,
Debentures or other Certificate of Indebtedness. Gains realized from the same or exchange or
retirement of bonds, debentures or other
certificate of indebtedness with a maturity of more
than five (5) years.
(h) Gains from Redemption of Shares in
Mutual Fund. - Gains realized by the investor upon
redemption of shares of stock in a mutual fund
company as defined in Section 22 (BB) of this Code.
6. Under a Tax Treaty
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
In the case of G.R. No. 127105 June 25,
1999 COMMISSIONER OF INTERNAL REVENUE, vs.
S.C. JOHNSON AND SON, INC., and COURT OF
APPEALS, two tax treaties were discussed:
RP-US Tax Treaty regarding the rate of tax
to be imposed by the Philippines upon royalties
received by a non-resident foreign corporation.
The provision states insofar as pertinent
that
1) Royalties derived by a resident of one of the
Contracting States from sources within the other
Contracting State may be taxed by both
Contracting States.
2) However, the tax imposed by that Contracting
State shall not exceed.
a) In the case of the United States, 15
percent of the gross amount of the royalties, and
b) In the case of the Philippines, the least
of:
(i) 25 percent of the gross amount of the
royalties;
ii) 15 percent of the gross amount of the
royalties, where the royalties are paid by a
corporation registered with the Philippine Board of
Investments and engaged in preferred areas of
activities; and
(iii) the lowest rate of Philippine tax that
may be imposed on royalties of the same kind paid
under similar circumstances to a resident of a third
State.
Unlike the RP-US Tax Treaty, the RPGermany Tax Treaty allows a tax credit of 20
percent of the gross amount of such royalties
against German income and corporation tax for the
GROSS INCOME
marketing
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Under R.A. 9178 (Barangay Micro Business
Enterprises Act of 2002), Barangay Micro Business
Enterprises shall be exempt from income tax for
income arising from the operation of the
enterprise. BMBE refers to any business entity or
enterprise engaged in the production, processing
or manufacturing of products or commodities,
including agro-processing, trading and services,
whose total assets including those arising from
loans but exclusive of the land on which the
particular business entitys office, plant and
equipment are situated, shall not be more than P3
million.(Mamalateo, Tax Reviewer,161)
h. Deductions from Gross Income
1) General Rules:
a) Deductions must be paid or incurred in
connection with the taxpayers trade, business or
profession. Rationale: Sababan p. 101) Deductions
are allowed because these are necessary to
generate income.;
b) Deductions must be supported by
adequate receipts or invoices (except standard
deductions)
Deductions are construed strictly against
the taxpayer claiming it.
As a general rule, deductions are strictly
construed against the taxpayer claiming them and
it is incumbent upon the taxpayer to establish a
clear right to tax exemption. Tax exemptions are
looked upon with disfavor.(Mamalateo, 192)
Deductions from Gross Income
There are three (3) types of deductions from gross
income. These are:
a. The 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;
104
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
assets and should not be subjected to income tax.
Cost of goods purchased for resale, with proper
adjustment for opening and closing inventories,
are deducted from gross sales in computing gross
income.(Mamalateo, Tax Reviewer,190)
a) sale of inventory of goods by
manufacturers and dealers of property
The sale of real property located in the
Philippines, classified as ordinary assets, shall be
subject to the [CWT] (expanded) under Sec.
2.57..2(J) of [RR 2-98], as amended, based on the
gross selling price or current fair market value as
determined in accordance with Section 6(E) of the
Code, whichever is higher, and consequently, to
the ordinary income tax imposed under Sec.
24(A)(1)(c) or 25(A)(1) of the Code, as the case may
be, based on net taxable income.( (G.R. No. 160756
(March 9, 2010) CHAMBER OF REAL ESTATE AND
BUILDERS'
ASSOCIATIONS, INC. vs. THE HON.
EXECUTIVE SECRETARY ALBERTO ROMULO, et al)
Sale of inventory of goods by
manufacturers and dealers of properties. In sale
of goods representing inventory, the amount
received by the seller consists of return of capital
and gain from sale of goods or properties. That
portion of the receipt representing return of
capital is not subject to income tax. Accordingly,
cost of goods manufactured and sold (in the case
of manufacturers) or cost of sales (in the case of
dealers) is deducted from gross sales and is
reflected above the gross income line in a profit
and loss statement.(Mamalateo, 190)
b) sale of stock in trade by real estate
dealer and dealer in securities
Sale of stock in trade by a real estate
dealer and dealer in securities. While real estate
dealers and dealers in securities also maintain
stocks in trade primarily for sale to customers in
the course of their trade or business, they are
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
least in part, in the year the assets are acquired.
Other systems allow depreciation expense over
some life using some depreciation method or
percentage. Rules vary highly by country, and may
vary within a country based on type of asset or
type of taxpayer. Many systems that specify
depreciation lives and methods for financial
reporting require the same lives and methods be
used for tax purposes. Most tax systems provide
different rules for real property (buildings, etc.)
and personal property (equipment, etc.).
a. expenses - Section 34 A (1)
(1) Requisites for deductibility
below for discussion
refer
Business Expenses:
Conditions for deductibility of business
expenses:
1. It must be ordinary and necessary;
2. It must be paid or incurred during the
taxable year;
3. It must be 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;
4. It must be supported by adequate
invoices or receipts;
5. It is not contrary to law, public policy or
morals; and
6. The tax required to be withhold on the
expense paid or payable is shown to have been
remitted
to
the
BIR.(Mamalateo,
Tax
Reviewer,193)
CAINDAY, RAQUEL A.
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2) other forms of compensation for
personal services actually rendered; and
3) the grossed-up monetary value of the
fringe benefits provided the final income tax
thereof has been paid.
With respect to (2) Sababan cited the case
of Aguinaldo vs Commissioner 112 SCRA 136), the
Supreme Court declared that the bonus given to
the workers from the profit earned in the sale of a
parcel of land by the corporation cannot be
allowed as deduction from gross income. Since
bonus is considered as other forms of
compensation. To be allowed as a deduction the
workers must have rendered actual service and
since the source of the bonus was the sale of a
parcel of land the bonus is not within the coverage
of the allowable deduction because the sale was
done by the real estate brokers. The worker in this
case, did not render personal service.
With respect to fringe benefit, Sababan
explained that this refers to fringe benefit under
Section 33, given to managerial employees subject
to final income tax wherein the managerial
employee is the taxpayer although the
management withholds the tax therein, thus, it can
be claimed only as a deduction by the
management provided the final income tax
thereon has been paid.
A reasonable allowance for
3. travel expenses.
travel expenses, here and abroad, while away from
home in the pursuit of trade, business or
profession.
Sababan p. 103, made a distinction
between Section 33 B-7 and the above provision
(Section 34 A-1(a)ii. The travel expense in the
former (33 B-7) is the one granted to managerial
employees for their foreign travel. This is
GROSS INCOME
CAINDAY, RAQUEL A.
107
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(8) Expenses for professionals
Professional expenses are deductible in the
year the professional services are rendered, not in
the year they are billed.
The court ruled that accrual of income and expense
is permitted when the all events test has been met.
This test requires: (1) fixing a right to income or
liability to pay; and (2) the availability of
reasonably accurate determination of such income
or liability. It added that it does not, however,
demand that the amount of income or liability be
known absolutely; it only requires that a taxpayer
has at its disposal the information necessary to
compute the amount with reasonable accuracy,
which implies something less than an exact or
completely accurate amount. Moreover, deduction
partakes the nature of tax exemption; it must be
construed
strictly
against
the
taxpayer.(Mamalateo, 194)
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
amount of the expense being deducted, and (ii) the
direct connection or relation of the expense being
deducted to the development, management,
operation and/or conduct of the trade, business or
profession of the taxpayer.
Sababan, pp. 104-105, cited the case of
Esso Standard Eastern, Inc. vs. Commissioner (175
SCRA 149), where the Supreme Court enumerated
the conditions for an expense to be deductible,
namely: (1) the expense must be ordinary and
necessary; (2) it must be paid or incurred within
the taxable year; and it must be paid or incurred
while carrying on a trade or business. In addition,
not only must the taxpayer meet the business
test, he must substantially prove by evidence or
records the deductions claimed under the law,
otherwise, the same will be disallowed. The mere
allegation of the taxpayer than an item or expense
is ordinary and necessary does not justify its
deduction.
(c) Bribes, Kickbacks and Other Similar Payments. No deduction from gross income shall be allowed
under Subsection (A) hereof for any payment
made, directly or indirectly, to an official or
employee of the national government, or to an
official or employee of any local government unit,
or to an official or employee of a governmentowned or -controlled corporation, or to an official
or employee or representative of a foreign
government, or to a private corporation, general
professional partnership, or a similar entity, if the
payment constitutes a bribe or kickback.
Sababan, p. 105, these are exceptions to the
expenses deductible, because Bribes and kickbacks
are not ordinary and necessary to the trade,
business or profession the taxpayer, therefore, not
deductible.
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
allowed to be deducted is Php 15,800. This figure is
arrived at by deducting 42% out of the P10,000
interest earned by the taxpayer which is P4,200
from the P20,000 interest expense incurred.
Interest is the amount paid by a debtor
to his creditor for the use or forbearance of
money.
In general, the amount of interest expense
paid or incurred within a taxable year on
indebtedness in connection with the taxpayers
trade, business or exercise of profession shall be
allowed as a deduction from the taxpayers gross
income.
1) Requisites for deductibility (Villanueva,
pp. 111-112):
a) There must be an indebtedness
connected with the trade or business of the
taxpayer;
b) The interest must have been paid or
accrued during the taxable year;
c) The interest must have been stipulated
in writing;
d) The indebtedness must be that of the
taxpayer, except in the case of a mortgage upon
real estate of which the taxpayer is the legal or
equitable owner, he may deduct interest paid by
him, even though he is not directly liable, upon the
bond or note secured by such mortgage.
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
indebtedness is paid: Provided, further, That
if the indebtedness is payable in periodic
amortizations, the amount of interest which
corresponds to the amount of the principal
amortized or paid during the year shall be
allowed as deduction in such taxable year.
An illustration was also provided by
Sababan, p.107: A taxpayer using the cash basis
method of accounting borrows money in which
interest is paid in advance through discount. He
obtains a loan of P1,000,000 in October 2006
subject to a 20% interest, after deducting the
advanced interest of P200,000, he received only
P800,000. Can the taxpayer claim the deduction in
April, 2007 or April 2006 ITR? The answer requires
qualification on when the obligation has been paid.
If the entire amount of the obligation has been
paid in 2006, the entire amount of interest shall be
allowed as a deduction in 2006. However, if the
principal obligation has not been paid entirely, let
say only P100,000 of the P1,000,000 was paid in
2006, then the taxpayer can only claim P20,000
(10% of the advanced interest) as deduction for
interest expense for that year.
The same is true with obligations subject
to periodic amortization payments, only the
interest expense corresponding to the principal
amortizations paid during the taxable year shall be
deducted as interest expense.
GROSS INCOME
CAINDAY, RAQUEL A.
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2) Non-deductible taxes, exceptions under
the Code:
(a) The income tax provided for under this Title;
(b) Income taxes imposed by authority of any
foreign country; but this deduction shall be
allowed in the case of a taxpayer who does not
signify in his return his desire to have to any extent
the benefits of paragraph (3) of this subsection
(relating to credits for taxes of foreign countries);
(c) Estate and donor's taxes; and
(d) Taxes assessed against local benefits of a kind
tending to increase the value of the property
assessed.
3) Treatment for surcharges/interests/fines
for delinquency
4) Treatment for special assessment
5) Tax credit vis-a- vis deduction
Sababan, pp 108-109 - There are two ways
to minimize a taxpayers tax liability: a) tax
deductions; and b) tax credits. The first is deducted
from the gross in come, while the latter is a
deduction from the income tax due:
Gross Income
Less: Deductions
Net Income
X Tax Rate
Net Income Tax Payable
Less: Tax Credits
112
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
said taxes. The above formula should be
considered. In considering the taxes as a
deduction, the taxpayer reduces only his
taxable income or net income which serves
the basis for the tax he should pay since
the net income is in turn multiplied with
the tax rate to arrive at the net income tax
due. On the other hand, in claiming the
said taxes as a form of tax credit, the
taxpayer reduces not the basis of his tax
liability but more significantly, the tax
liability itself, hence the taxpayer can have
more benefit in claiming taxes as tax
credits rather than as deductions.
d. Losses
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
profession, or incurred in any transaction entered
into for profit though not connected with his trade,
business or profession; and
7. In the case of casualty loss, it has been
reported to the BIR within forty-five days from
date of occurrence of the loss.(Mamalateo, 203204)
2) Other types of losses:
a) Capital Losses is deductible only to the
extent of capital gain (Villanueva, p. 119).
To understand the concept, Sababan, pp.
39-41), defined capital asset as provided for in the
Code as property held by the taxpayer (whether
or not connected with his trade or business), but
does not include stock in trade of the taxpayer or
other property of a kind which would properly be
included in the inventory of the taxpayer if on hand
at the close of the taxable year, or property held by
the taxpayer primarily for sale to customers in the
ordinary course of his trade or business, or
property used in the trade or business, of a
character which is subject to the allowance for
depreciation; or real property used in trade or
business of the taxpayer. The definition is
relevant in order to determine the applicability of
three provisions of the Code: 1) Percentage taken
into account otherwise known as the Holding
Period (Section 39 B; 2) Limitation on Capital
Losses or the Loss Limitation Rule (Section 39 C; 3)
Net Capital Loss Carry Over Rule (Section 39 D.
The percentage taken into account or the
holding period is defined as the length of time or
duration by which an individual held the capital
asset. There are two percentages which should be
taken into account in recognizing the gain or loss
from such sale or exchange: 1) 100% if the capital
asset has been held for not more than 12 months
114
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(A) In the case of any loss claimed to have
been sustained from any sale or other disposition
of shares of stock or securities where it appears
that within a period beginning thirty (30) days
before the date of such sale or disposition and
ending thirty (30) days after such date, the
taxpayer has acquired (by purchase or by exchange
upon which the entire amount of gain or loss was
recognized by law), or has entered into a contact
or option so to acquire, substantially identical stock
or securities, then no deduction for the loss shall
be allowed,
d) Wagering Losses (from gambling
Section 34 D 4 (6) - Losses from wagering
transactions shall be allowed only to the extent of
the gains from such transactions.
e) Net Operating Loss Carry-Over (NOLCO)
Section 34 D(3)
(3) Net Operating Loss Carry-Over. - The
net operating loss of the business or enterprise for
any taxable year immediately preceding the
current taxable year, which had not been
previously offset as deduction from gross income
shall be carried over as a deduction from gross
income for the next three (3) consecutive taxable
years immediately following the year of such loss:
Provided, however, That any net loss incurred in a
taxable year during which the taxpayer was
exempt from income tax shall not be allowed as a
deduction under this Subsection: Provided, further,
That a net operating loss carry-over shall be
allowed only if there has been no substantial
change in the ownership of the business or
enterprise in that (i) Not less than seventy-five
percent (75%) in nominal value of outstanding
issued shares., if the business is in the name of a
GROSS INCOME
CAINDAY, RAQUEL A.
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Debts due to the taxpayer actually
ascertained to be worthless and charged off within
the taxable year except those not connected with
profession, trade or business and those sustained
in a transaction entered into between parties
mentioned under Section 36 (B) of this Code:
Provided, That recovery of bad debts previously
allowed as deduction in the preceding years shall
be included as part of the gross income in the year
of recovery to the extent of the income tax benefit
of said deduction.
!) Requisites for deductibility
Villanueva p. 124 (Bad debts are deductive
when ascertained to be worthless and charged off
within the taxable year. The debt must be valid and
subsisting and must arise from the business, trade
or profession of the taxpayer. Before a debt can be
ascertained to be worthless, the creditor must
have taken all reasonable steps to collect within
the period or prescription, and in the light of the
following circumstances, action in good faith, he
may justify an ascertainment of worthlessness of a
debt:
a) insufficiency of collateral
b) bankruptcy or insolvency;
c) loss of evidence of indebtedness;
d) the disappearance of the debtors, who
fled leaving no properties;
e) debt of the debtor leaving no properties;
f) injury to debtor incapacitating him from
work;
g) fruitless efforts to collect small amounts
from debtors scattered all over the country.)
116
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
in the exercise of sound, objective business
judgment that there remained no practical, but
only vaguely theoretical, prospect that the debt
would ever be paid. Worthless is not determined
by an inflexible formula or slide rule calculation,
but upon the exercise of sound business judgment.
The factors to be considered include, but are not
limited to, the following: (a) the debtor has no
property nor visible income; (b) the debtor has
been adjudged bankrupt or insolvent; (c) collateral
shares have become worthless; and (d) there are
numerous debtors with small amounts of debts
and further action on the accounts would entail
expenses exceeding the amounts sought to be
collected.(Mamalateo,206)
f. Depreciation Section 34 F
It is the gradual diminution in the useful
value of tangible property resulting from wear and
tear and normal obsolescence. The term is also
applied to amortization of the value of intangible
assets, the use of which in the trade or business is
definitely limited in duration.
There shall be allowed as a depreciation
deduction a reasonable allowance for the
exhaustion, wear and tear (including reasonable
allowance for obsolescence) of property used in
the trade or business. In the case of property held
by one person for life with remainder to another
person, the deduction shall be computed as if the
life tenant were the absolute owner of the
property and shall be allowed to the life tenant. In
the case of property held in trust, the allowable
deduction shall be apportioned between the
income beneficiaries and the trustees in
accordance with the pertinent provisions of the
instrument creating the trust, or in the absence of
such provisions, on the basis of the trust income
allowable to each.
1) Requisites for deductibility the Code
provided for the requisites for
depreciation to be deductible: it must
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2) Methods of computing depreciation
allowance:
(a) The straight-line method;
Illustration: G.R. No. L-24213 March 13, 1968
VICTORIAS MILLING CO., INC., vs. THE COURT OF
TAX APPEALS, THE PROVINCIAL ASSESSOR AND THE
PROVINCIAL TREASURER OF NEGROS OCCIDENTAL,
Under the "straight-line method," the rate and
the base the cost are constant. For example,
the depreciation of the same machinery
depreciated at the same rate, will be as follows:
Book Value
Depreciation
First year,
5%
of
P100,000.00 P100,000.00
Second
year,
5%
of
100,000.00
95,000.00
Third year,
5%
of
100,000.00
90,000.00
5,000.00
Formula by Wikipedia:
Straight-line depreciation
Straight-line depreciation is the simplest and mostoften-used technique, in which the company
estimates the salvage value of the asset at the end
of the period during which it will be used to
generate revenues (useful life) and will expense a
portion of original cost in equal increments over
that period. The salvage value is an estimate of the
value of the asset at the time it will be sold or
disposed of; it may be zero or even negative.
Salvage value is also known as scrap value or
residual value.
Book value
Book
Depreciation Accumulated value
at
beginning of expense
depreciation end
year
year
$17,000
(original
cost)
$3,000
$3,000
$14,000
$14,000
$3,000
$6,000
$11,000
$11,000
$3,000
$9,000
$8,000
$8,000
$3,000
$12,000
$5,000
$5,000
$3,000
$15,000
$2,000
(scrap
value)
at
of
Straight-line method:
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(b) Declining-balance method, using a rate not
exceeding twice the rate which would have been
used had the annual allowance been computed
under the method described in Subsection (F) (1);
In the "fixed percentage of diminishing book value
method", the rate of yearly depreciation remains
the same but the base the book value upon
which the rate is applied diminishes from year to
year. For instance, the depreciation of a machinery
which costs P100,000.00, depreciated at 5% is as
follows:
Book Value
Depreciation
First year,
5% of
P100,000.00
P5,000.00
Second year,
5% of
95,000.00
4,750.00
Third year,
5% of
90,250.00
4,512.50
(b)
The
sum-of-the-years-digit
method;
Book
value
at
end of
year
$1,000
(original 40%
cost)
$400
$400
$600
$600
40%
$240
$640
$360
$360
40%
$144
$784
$216
$216
40%
$86.40
$870.40
$129.6
0
$900
$100
(scrap
value)
$129.60 $29.60
$129.60
$100
119
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
year of depreciation a subtraction might be needed
in order to prevent book value from falling below
estimated Scrap Value.
beginn cost
ing of
year
e at
end
of
year
rate
expense tion
5/15
$300
($900 * $300
5/15)
$70
0
4/15
$240
($900 * $540
4/15)
$46
0
3/15
$180
($900 * $720
3/15)
$28
0
2/15
$120
($900 * $840
2/15)
$16
0
$60
($900 * $900
1/15)
digits.
$10
0
(scr
ap
valu
e)
$1,000
(origin
$900
al
cost)
$700
$460
$900
$900
the
sum
of
the
CAINDAY, RAQUEL A.
$280
$160
$900
$900
1/15
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
development, cultural or educational purposes or
for the rehabilitation of veterans, or to social
welfare institutions, or to non-government
organizations, in accordance with rules and
regulations promulgated by the Secretary of
finance,
upon
recommendation
of
the
Commissioner, no part of the net income of which
inures to the benefit of any private stockholder or
individual in an amount not in excess of ten
percent (10%) in the case of an individual, and five
percent (5%) in the case of a corporation, of the
taxpayer's taxable income derived from trade,
business or profession as computed without the
benefit of this and the following subparagraphs.
Conditions for deductibility
1. The charitable contribution must
actually be paid or made to the Philippine
government or any political subdivision thereof
exclusively for public purposes, or any of the
accredited domestic corporation or association
specified in the Tax Code;
2. It must be made within the taxable year;
3. It must not exceed 10% (individual) or
5% (corporation) of the taxpayers taxable income
before
charitable
contributions
(whether
deductible in full or subject to limitation);
4. It must be evidenced by adequate
receipts or records; and
5. The amount of charitable contribution of
property other than money shall be based on the
acquisition cost of said property. The limitation is
imposed to prevent abuse of donating paintings
and other valuable properties and claiming
excessive deductions therefrom. (Mamalateo,210)
Irrespective of the accounting method
used by the donor, donation is recognized as a
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Development Authority (NEDA), In consultation
with appropriate government agencies, including
its regional development councils and private
philantrophic persons and institutions: Provided,
That any donation which is made to the
Government or to any of its agencies or political
subdivisions not in accordance with the said annual
priority plan shall be subject to the limitations
prescribed in paragraph (1) of this Subsection;
promulgated, upon
Commissioner;
(c) Donations to Accredited Nongovernment Organizations. - the term 'nongovernment organization' means a non profit
domestic corporation:
CAINDAY, RAQUEL A.
recommendation
of
the
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
satisfaction of the Commissioner that the amount
will be paid for the specific project within a period
to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, but not to
exceed five (5) years, and the project is one which
can be better accomplished by setting aside such
amount than by immediate payment of funds.
Requisites for deductibility The Code
provided for the requisites for deductibility: a)
Contributions or gifts actually paid or made within
the taxable year; 2) to, or for the use of the
Government of the Philippines or any of its
agencies or any political subdivision thereof
exclusively for public purposes, 3) or to accredited
domestic corporation or associations organized
and operated exclusively for religious, charitable,
scientific, youth and sports development, cultural
or educational purposes or for the rehabilitation of
veterans, or to social welfare institutions, or to
non-government organizations, no part of the net
income of which inures to the benefit of any
private stockholder or individual in an amount not
in excess of ten percent (10%) in the case of an
individual, and five percent (5%) in the case of a
corporation, of the taxpayer's taxable income
derived from trade, business or profession.
Amounts that may be deducted
According to Sababan, pp. 13 114), There
are two types of deduction for donations: (1)
partial and (2) full deduction.
Partial deduction may be claimed if the
donee is any of the following: a) the Government
of the Philippines or any of its agencies or any
political subdivision thereof for its use exclusively
for public purpose; 2) accredited domestic
corporation or associations organized and
operated exclusively for religious, charitable,
GROSS INCOME
CAINDAY, RAQUEL A.
123
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An employer establishing or maintaining a
pension trust to provide for the payment of
reasonable pensions to his employees shall be
allowed as a deduction (in addition to the
contributions to such trust during the taxable year
to cover the pension liability accruing during the
year, allowed as a deduction under Subsection (A)
(1) of this Section ) a reasonable amount
transferred or paid into such trust during the
taxable year in excess of such contributions, but
only if such amount (1)has not theretofore been
allowed as a deduction, and (2) is apportioned in
equal parts over a period of ten (10) consecutive
years beginning with the year in which the transfer
or payment is made.
1) Requisites
for
deductibility
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
such election shall be irrevocable for the taxable
year for which the return is made.
125
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
taxpayers are now entitled to a personal
exemption in the amount of P50,000 regardless of
status.
For married individuals where only one spouse is
deriving gross income, only such spouse shall be
allowed the personal exemption.
Personal note: Under the provisions of R. A. 9504
as amendment to Section 35 of the Code, the term
head of the family is no longer defined, may be
explained by the act that a uniform personal
exemption of P50,000 was provided regardless of
the status.
b) Additional exemptions for taxpayers
with dependents
Discussion by Sababan, p.120):
The additional exemption for dependents
which allows additional exemption of P25,000 for
each dependent not to exceed 4, is only for
married individuals. This shall only be claimed by
one lone of the spouses. Further, in order to avail
of this exemption, the spouses must be legally
married.
In case of legally separated spouses, the Code
provides that the additional exemption may be
claimed by the spouse who has custody of the
children.
c) Status as the end-of-the-year rule
Section 35 Change of Status. - If the taxpayer
marries or should have additional dependent(s) as
defined above during the taxable year, the
taxpayer may claim the corresponding additional
exemption, as the case may be, in full for such
year.
If the taxpayer dies during the taxable
year, his estate may still claim the personal and
126
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
years of age, unmarried and not gainfully
employed or if such dependent, regardless of age,
is incapable of self-support because of mental or
physical defect.
c) Status-at-the-end-of-the-year rule
Status-at-the-end-of-the-year rule which
means that whatever is the status of the taxpayer
at the end of the calendar year shall be used for
purposes of determining his personal and
additional exemptions generally applies. A change
of status of the taxpayer during the taxable year
generally benefits, but does not prejudice,
him.(Mamalateo, 217)
6. Items Not Deductible - Section 36
(A) General Rule. - In computing net
income, no deduction shall in any case be
allowed in respect to (1) Personal, living or family expenses;
(2) Any amount paid out for new
buildings
or
for
permanent
improvements, or betterments made to
increase the value of any property or
estate;
This Subsection shall not apply to
intangible drilling and development costs
incurred in petroleum operations which
are deductible under Subsection (G) (1)
of Section 34 of this Code.
GROSS INCOME
127
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
corporations, with respect to the taxable
year of the corporation preceding the
date of the sale of exchange was under
the law applicable to such taxable year, a
personal holding company or a foreign
personal holding company;
(4) Between the grantor and a fiduciary
of any trust; or
(5) Between the fiduciary of and the
fiduciary of a trust and the fiduciary of
another trust if the same person is a
grantor with respect to each trust; or
(6) Between a fiduciary of a trust and
beneficiary of such trust.
To summarize, the following are Non-Deductible
Expenses
In general, in computing net income, no
deduction shall in any case be allowed in respect to
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
person is a grantor with respect to each
trust; or
f. Between a fiduciary of a trust and a
beneficiary of such trust.(Mamalateo, 217220)
Discussion of Sababan, pp.125:
The items provided in Section 36 are not
deductible from gross income because as a general
rule, these items are not related to trade, business
or profession of the taxpayer particularly with
respect to personal, living or family expenses.
With respect to item number 2, of Section
36 A (for permanent improvement or betterment),
and item number 3 of Section 36 A (expenses for
restoring property) the same is no longer
deductible because allowance for depreciation
thereof has already been provided.
The expense referred to in Section 36 A-4
refers to the life insurance policies of rank-and-file
employees although the Code is silent. This section
should be correlated to Section 33 B-10 (the life or
health insurance and other non-life insurance
premiums or similar amounts in excess of what the
law allows) is considered as a fringe benefit subject
to the final income tax. As previously discussed,
this fringe benefit is only subject to tax if given to
managerial and supervisory employees. If given to
rank-and-file employees, such benefit is not
subject to final income tax. Further, the fringe
benefit under Section 33 is deductible from the
gross income under Section 34 A-1(a)(i) which
provides x-x including the grossed-up monetary
value of fringe benefit furnished or granted by the
employer to the employee: Provided, that the final
income tax imposed under Section 33 x-x has been
paid. Thus, the life or health insurance given to
managerial and supervisory employees in the form
GROSS INCOME
CAINDAY, RAQUEL A.
129
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Non-deductible interest refers to Section
34 B 2(b) - interest is not deductible if both the
taxpayer and the person to whom the payment has
been made or is to be made are related.
Non-deductible taxes refers to Section 34 C
1 (a) Income tax provided for under this title, (c)
Estate and Donors Taxes, and (d) Taxes assessed
against local benefits of a kind tending to increase
the value of the property assessed.
Losses from wash sales of stock or securities
(Section 38)
(A) In the case of any loss claimed to have
been sustained from any sale or other
disposition of shares of stock or securities
where it appears that within a period
beginning thirty (30) days before the date
of such sale or disposition and ending
thirty (30) days after such date, the
taxpayer has acquired (by purchase or by
exchange upon which the entire amount of
gain or loss was recognized by law), or has
entered into a contact or option so to
acquire, substantially identical stock or
securities, then no deduction for the loss
shall be allowed under Section 34.
Exception: when the losses is claimed by a
dealer in stock or securities and with
respect to a transaction made in the
ordinary course of the business of such
dealer.
Exempt Corporations: Section 30
Exempt Corporations
Government-owned or controlled corporations.
All corporations, agencies, or instrumentalities
owned or controlled by the Government, except;
1. Government Service Insurance System;
130
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
cultural purposes, or for the rehabilitation
of veterans, no part of its net income or
asset shall belong to or inures to the
benefit of any member, organizer, officer
or any specific person;
(F) Business league chamber of commerce,
or board of trade, not organized for profit
and no part of the net income of which
inures to the benefit of any private stockholder, or individual;
(G) Civic league or organization not
organized for profit but operated
exclusively for the promotion of social
welfare;
(H) A nonstock and nonprofit educational
institution;
131
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
3. Bonuses, 13th month pay, and other
benefits not exempt (this refers to
bonus received by an employee in
excess of the allowable P30,000 per
year.
4. Directors fees this includes per
diems and allowances given to a
director or trustee of a corporation
5. non-monetary compensation, this
include fringe benefit subject to tax
which refers to those given to
managerial employees.
Exclusions from Compensation Income:
1. Fringe benefit not subject to tax
(Section 32 C) (1)fringe benefits which
are authorized and exempted from tax
under special laws; (2) Contributions of
the employer for the benefit of the
employee to retirement, insurance and
hospitalization benefit plans; (3)
Benefits given to the rank and file
employees, whether granted under a
collective bargaining agreement or not
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
gross income of not more than Two
hundred fifty thousand pesos (P250,000)
for the taxable year: Provided, finally, That
in the case of married taxpayers, only the
spouse claiming the additional exemption
for dependents shall be entitled to this
deduction.
3. Taxation of compensation income of a
minimum wage earner
Income/Income
from
133
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
earnings to the authorized capital stock. The
dividends shall be subject to a final income tax rate
of 10%. For dividend income to be considered
passive, the dividends must be issued by a
domestic corporation or partnership except,
general professional partnership. The share of a
partner in a general professional partnership is
exempt from the final tax, however, each partner
shall be liable for net income tax in their separate
and individual capacities.
d) Prizes and Winnings With respect to
prizes the following elements must be present to
constitute passive income: a) must be derived from
sources within the Philippines; b) must be more
than P10,000; c) must be pursuant to a promotion
or contest. Exception are those prizes with the
following elements: a) received primarily in
recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement;
b) the recipient was selected without any action on
his part to enter the contest or proceeding; c) the
recipient is not required to render substantial
future services as a condition to receiving the prize
or award, in which case, the recipient is not liable
for the tax.
Winnings on the other hand are not
subject to limitation of P10,000 unlike prizes. A
winning to be considered passive must be derived
from sources within the Philippines. Winnings are
subject to final tax rate of 20%, including those
from gambling, except those from Lotto and PCSO.
Passive Income not subject to final tax:
Interests, royalties, dividends, prizes and
winnings derived from sources without are not
considered passive income, thus, must be included
by the individual taxpayer in his net income tax.
The individual taxpayer liable is the RC.
134
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Suppose, the shares are from a foreign
corporation, what then is the income tax
liability? In this case, the place where the
shares are sold is material.
2) Income from the sale of real property
situated in the Philippines:
Discussion by Sababan pp. 50-51 (Section
24 D)
A final income tax of 6% based on
the gross selling price or fair market value,
whichever is higher, shall be imposed on
capital gains presumed to have been
realized from the sale, exchange or other
disposition of real property located in the
Philippines classified as capital asset. To be
classified as capital asset subject to final in
come tax the following element must be
present: a) the property sold is real
property; b) located in the Philippines; c)
classified as a capital asset.
First, the property must be a real
property. In case the seller is an individual,
estate or trust, the real property subject of
the provision refers to the immovable
property under Article 415 of the Civil
Code. If the seller is a corporation, the real
property referred to only includes land
and/or buildings.
Second, the real property must be
located in the Philippines. Consequently if
the real property is located outside the
Philippines, the final income tax is
inapplicable.
Lastly, the real property must be
classified as a capital asset. Consequently,
if the real property is classified as an
ordinary asset, the income tax prescribed
GROSS INCOME
135
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
residence;
c)
the
acquisition
or
construction of the new residence is within
18 months from the dale of sale or
disposition; d) the historical cost or
adjusted basis of real property sold or
disposed shall be carried over to the new
principal residence built or acquired; e) the
taxpayer should inform the BIR of his
intention to avail of the exemption within
30 days from the sale or disposition and f)
the tax exemption can only be availed of
once every 10 years. If there is no full
utilization of the proceeds of sale or
disposition, the portion of the gain
presumed to have been realized from the
sale or disposition shall be subject to final
income tax. For this purpose, the gross
selling price or fair market value at the
time of sale whichever is higher, shall be
multiplied by a fraction which the
unutilized amount bears to the gross
selling price in order to determine the
taxable portion and final income tax shall
be imposed.
11) Taxation of Non-Resident Alien Engaged in
Trade or Business (NRAETB) - Section 25. Tax on
Nonresident Alien Individual. (A) Nonresident Alien Engaged in trade or
Business Within the Philippines. (1) In General. - A nonresident alien
individual engaged in trade or business in the
Philippines shall be subject to an income tax in the
same manner as an individual citizen and a
resident alien individual, on taxable income
received from all sources within the Philippines. A
nonresident alien individual who shall come to the
Philippines and stay therein for an aggregate
period of more than one hundred eighty (180) days
during any calendar year shall be deemed a
136
CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
similar works shall be subject to the tax provided
under Section 28 of this Code: Provided,
furthermore, That 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 imposed under
this Subsection: Provided, finally, that should the
holder of the certificate pre-terminate 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:
Four years to less than five years
5%
Three years to less than four years
12%
Less than three years
20%
Discussion by Sababan, pp. 53-54:
Final income tax of 20% is imposed on
dividends, interests, royalties prizes and other
winnings received from sources within the
Philippines by a NRAETB. By way of exception, with
respect to prizes amounting to P10,000 or less, the
tax applicable is the net income tax. Also prizes
from PCSO and Lotto are exempt from income tax.
Royalties on books as well as other literary
works an on musical compositions are subject to a
final income tax of only 10% on the total amount
thereof.
GROSS INCOME
CAINDAY, RAQUEL A.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
In general, Senior Citizens must file income tax
returns and pay income tax. However, the Senior
Citizen is exempt from paying income tax if his
returnable income is in the nature of
compensation income and he qualifies as a
minimum wage earner under RA No. 9504. The
Senior Citizen is also exempt from income tax if the
aggregate amount of gross income earned by the
Senior Citizen during the taxable year does not
exceed the amount of his personal exemptions
(basic and additional).
Under the Regulations, the Senior Citizen can avail
of income tax exemption only upon compliance
with certain requirements. These are:
1.
the Senior Citizen must first be qualified as
such by the Commissioner of Internal Revenue or
his duly authorized representative (i.e., the
Revenue District Officer (RDO)) having jurisdiction
over the place where the Senior Citizen resides), by
submitting a certified true copy of his Senior
Citizen Identification Card (OSCA ID) issued by the
OSCA of the city or municipality where he resides;
2. the Senior Citizen must file a Sworn Statement
on or before January 31 of every year that his
annual taxable income for the previous year does
not exceed the poverty level as determined by the
NEDA thru the NSCB; and
3. if qualified, his name shall be recorded by the
RDO in the Master List of Tax-Exempt Senior
Citizens for that particular year, which the RDO is
mandatorily required to keep.
b.Exemption granted under international
agreements:
Example:
138
CAINDAY, RAQUEL A.
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
The above-quoted provision, although referring
only to purchases made by the WHO, elucidates
the clear intention of the Agreement to exempt the
WHO from "indirect" taxation.
The certification issued by the WHO, dated January
20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the
construction of the WHO office building. The 3%
contractor's tax would be within this category and
should be viewed as a form of an "indirect tax" On
the Organization, as the payment thereof or its
inclusion in the bid price would have meant an
increase in the construction cost of the building.
139
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
the benefits of tax exemption under the
Agreement, Petitioners' circumstances before the
questioned ruling remained obtaining thru the
taxable years 1969-1972. It appears too much of a
stretch to hold petitioners straight-jacketed to an
irreversible situs of birth constraint and by reason
thereof deny altogether any opportunity to a
serendipitous enjoyment of a tax relief accorded in
the Agreement. Such a random quirk of pirouette
in the tax treatment fags sharply at odds with the
shared expectations of the high contracting parties.
This Court will not deem itself authorized to depart
from the plain meaning of the tax exemption
provision so explicit in terms and so searching in
extent. (Emphasis supplied) This does not however
foreclose the possibility of petitioners' coming to
roost in the country contingent upon the
termination of their tour of duty, but only then
may the bridge be crossed for tax purposes. (pp.
82-84, Record)
14. Taxation of Domestic Corporation Section 27
a) Tax payable
Discussion of Sababan pp. 73-74
1) Regular tax Discussion by Sababan p.
57- In general a domestic corporation is liable for
net income tax because the Code says taxable
income. The net income tax is imposed at a rate
of 35% on all income derived from sources within
and without the Philippines.
2) Minimum Corporate Income Tax on
Domestic Corporations (MCIT) Section 27 E:
(1) Imposition of Tax. - A minimum
corporate income tax of two percent (2%)
of the gross income as of the end of the
taxable year, as defined herein, is hereby
imposed on a corporation taxable under
this Title, beginning on the fourth taxable
year immediately following the year in
which such corporation commenced its
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CAINDAY, RAQUEL A.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
be applicable beginning 2011, the 4th year
of operation.
b) Carry Forward of Excess
Minimum Tax Any excess of the MCIT
over the net income tax shall be carried
forward and credited against the net
income tax for the 3 years immediately
succeeding taxable years:
Illustration: Corporation A, 2006 and 2007
NIT
MCIT
2006
P110,000
P200,000
2007
P300,000
P200,000
GROSS INCOME
a)
Relief from the MCI under
certain conditions The Secretary of
Finance is authorized to suspend the
imposition of the MCIT of 2% on any
corporation which suffer losses on account
of 1) prolonged labor dispute; 2) force
majeure; 3) legitimate business reverses.
The Secretary is likewise authorized to
promulgate, upon the recommendation of
the
Commissioner,
the
necessary
regulations that shall define the terms and
conditions under which he may suspend
the imposed of the MCIT in meritorious
cases.
b)
Corporation exempt from
MCIT is the Non-resident Foreign
Corporation (NRFC)
c)
Applicability of the MCIT
where a corporation is governed both
under the regular tax system and a special
income tax system - Based on the provision
of the Code, it is safe to conclude that the
MCIT of 2% cannot be imposed
simultaneously with the net income tax of
35%. Only one may be imposed, whichever
is higher.
Revenue Regulation No. 9-98 Issued
September 2, 1998 prescribes the regulations to
implement RA No. 8424 relative to the imposition
of the Minimum Corporate Income Tax (MCIT) on
domestic corporations and resident foreign
corporations. Specifically, an MCIT of 2% of the
gross income as of the end of the taxable year is
imposed upon any domestic corporations
beginning the 4th taxable year immediately
following the taxable year in which such
corporation commenced its business operations.
The MCIT will be imposed whenever such
operation has zero or negative taxable income or
whenever the amount of MCIT is greater than the
normal income tax due from such operation. In the
case of a domestic corporation whose operations
or activities are partly covered by the regular
income tax system and partly covered under a
CAINDAY, RAQUEL A.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
special income tax system, the MCIT will apply on
operations covered by the regular income tax
system.
The Regulations will apply to domestic and
resident
foreign
corporations
on
their
aforementioned taxable income derived beginning
January 1, 1998 pursuant to the pertinent
provisions of RA 8424, provided, however, that
corporations using the fiscal year accounting
period and which are subject to MCIT on income
derived pertaining to any month or months of the
year 1998 will not be imposed with penalties for
late payment of the tax.
b) Allowable Deductions:
1) Itemized deductions these deductions
are found under Section 34 of the Code,
are amounts authorized to be subtracted
from gross income to arrive at taxable
income (Villanueva, p. 107), include the
following:
a. Ordinary and necessary trade,
business or professional expenses
b. Interest expense
c. Taxes
d. Losses
e. Bad Debts
f. Depreciation
g. Depletion of oil and gas well and
mines
h. Charitable and other contributions
i. Research and development
j. Pension trusts
k.
2) Optional Standard Deduction - Section 34
L:
In lieu of itemized deduction, an individual
taxpayer, other than a non-resident alien, may
elect a standard deduction in an amount not
exceeding 10% of his gross income. Unless he
signifies his intention in his income tax return to
elect the optional standard deduction, he is
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As regards royalties, the lower rate of 10% which is
applicable to individual taxpayers, does not apply
to DC. All royalties derived by DCs from sources
within the Philippines are subject to a final income
tax rate of 20%.
If the interest and royalty income are derived from
sources without the Philippines, the DC is liable to
pay the net income tax.
b) Capital Gains from the Sale of Shares
of Stock Not Traded in the Stock
Exchange. - A final tax at the rates
prescribed below shall be imposed on
net capital gains realized during the
taxable year from the sale, exchange or
other disposition of shares of stock in a
domestic corporation except shares
sold or disposed of through the stock
exchange:
Not over P100,000
5%
Amount in excess of P100,000
10%
Discussion by Sababan, p. 60 The rules on
individuals are also applicable to DC. The capital
gains from the sale of shares of stock not traded in
the stock exchange shall be subject to final income
tax provided the elements are present.
c) Tax on Income Derived under the
Expanded Foreign Currency Deposit System. Income derived by a depository bank under the
expanded foreign currency deposit system from
foreign currency transactions with local
commercial banks, including branches of foreign
banks that may be authorized by the Bangko
Sentral ng Pilipinas (BSP) to transact business with
foreign currency depository system units and other
depository banks under the expanded foreign
currency deposit system, including interest income
from foreign currency loans granted by such
depository banks under said expanded foreign
GROSS INCOME
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Discussion by Sababan, p. 61 Under this
provision, the domestic corporation is the
stockholder of another domestic corporation.
Being a stockholder, it is entitled to dividends. The
dividends received by it is not subject to tax or
exempt.
e) Capital Gains Realized from the Sale,
Exchange or Disposition of Lands and/or Buildings.
- A final tax of six percent (6%) is hereby imposed
on the gain presumed to have been realized on the
sale, exchange or disposition of lands and/or
buildings which are not actually used in the
business of a corporation and are treated as capital
assets, based on the gross selling price of fair
market value as determined in accordance with
Section 6(E) of this Code, whichever is higher, of
such lands and/or buildings. (Codal provision)
Discussion by Sababan, p. 62 A final income
tax rate of 6% is imposed on the gain presumed to
have been realized on the sale, exchange or
disposition of lands and/or buildings which are
classified as capital assets based on the gross
selling g price or fair market value, whichever is
higher. The rules on individual taxpayers with
respect to sale of real property which is a capital
asset located in the Philippines is also applicable to
domestic corporation, however, the real property
which can be subject under this provision are only
land and/or buildings, unlike in the case of
individuals which includes all the immovable
property enumerated in Article 415 of the Civil
code.
3) Passive Income Not subject to Tax As can
be deduced from above discussions, the
passive income not subject to tax are: 1)
inter corporate dividends received by a DC
from another DC.
c) Taxation of Capital gains Section 40 A
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d) Tax on proprietary educational
institutions and hospitals Section 27
B Proprietary Educational Institutions
and
Hospitals.
Proprietary
educational institutions and hospitals
which are nonprofit shall pay a tax of
ten percent (10%) on their taxable
income except those covered by
Subsection (D) hereof: Provided, that if
the gross income from unrelated trade,
business or other activity exceeds fifty
percent (50%) of the total gross
income derived by such educational
institutions or hospitals from all
sources, the tax prescribed in
Subsection (A) hereof shall be imposed
on the entire taxable income. For
purposes of this Subsection, the term
'unrelated trade, business or other
activity' means any trade, business or
other activity, the conduct of which is
not substantially related to the
exercise or performance by such
educational institution or hospital of its
primary purpose or function. A
'Proprietary educational institution' is
any private school maintained and
administered by private individuals or
groups with an issued permit to
operate from the Department of
Education, Culture and Sports (DECS),
or the Commission on Higher
Education (CHED), or the Technical
Education and Skills Development
Authority (TESDA), as the case may be,
in accordance with existing laws and
regulations
Discussion by Sababan, pp. 57-58 The net
income tax rate imposed on domestic corporation
is 35%. By way of exception, proprietary
educational institutions and hospitals are liable for
net income tax at a rate of only 10%, provided the
following requisites should concur: 1) it must be a
stock and non-profit institution; 2) it must be a
private educational institution or hospital; 3) their
gross income from unrelated trade, business or
GROSS INCOME
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exemption of the exempt corporations from
income tax is without any condition or
qualification.
Does the exemption apply only to those
enumerated? No. Under Section 32 B(7)(b), the
Code provides that income from any public utility
or from the exercise of any essential governmental
function accruing to the Government of the
Philippines or to any political subdivision thereof
shall be considered an exclusion from income tax,
hence, exempt.
The exemption provided under Section 7 C
applied to those enumerated without any
qualification, while the exemption under Section
32 B(7)(b) is only applicable if the requirement is
met, otherwise, there is no exemption.
15. Taxation of Resident Foreign Corporation RFC)
Section 28 A Tax on Resident Foreign
Corporations. (1) In General. - Except as otherwise
provided in this Code, a corporation organized,
authorized, or existing under the laws of any
foreign country, engaged in trade or business
within the Philippines, shall be subject to an
income tax equivalent to thirty-five percent (35%)
of the taxable income derived in the preceding
taxable year from all sources within the
Philippines.
In the case of corporations adopting the
fiscal-year accounting period, the taxable income
shall be computed without regard to the specific
date when sales, purchases and other transactions
occur. Their income and expenses for the fiscal
year shall be deemed to have been earned and
spent equally for each month of the period.
The reduced corporate income tax rates
shall be applied on the amount computed by
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Provided, however, That a resident foreign
corporation shall be granted the option to be taxed
at fifteen percent (15%) on gross income under the
same conditions, as provided in Section 27 (A).
(b) Income Derived under the Expanded
Foreign Currency Deposit System. - Income derived
by a depository bank under the expanded foreign
currency deposit system from foreign currency
transactions with local commercial banks including
branches of foreign banks that may be authorized
by the Bangko Sentral ng Pilipinas (BSP) to transact
business with foreign currency deposit system
units, including interest income from foreign
currency loans granted by such depository banks
under said expanded foreign currency deposit
system to residents, shall be subject to a final
income tax at the rate of ten percent (10%) of such
income.
Any income of nonresidents, whether
individuals or corporations, from transactions with
depository banks under the expanded system shall
be exempt from income tax.
(c) Capital Gains from Sale of Shares of
Stock Not Traded in the Stock Exchange. - A final
tax at the rates prescribed below is hereby
imposed upon the net capital gains realized during
the taxable year from the sale, barter, exchange or
other disposition of shares of stock in a domestic
corporation except shares sold or disposed of
through the stock exchange:
Not over P100,000
5%
10%
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1, 2000 and thereafter, the rate shall be thirty-two
percent (32%)
Discussion by Sababan, p. 69 NRFC is liable for
gross income tax at the rate of 35% on income
derived from sources within the Philippines. This
income includes: interest, dividends, rents,
royalties, salaries, premiums (except reinsurance
premiums), annuities, periodic or casual gains,
profits and income, and capital gains.
(2) Tax on Certain Income Section 28 B1(5)
(a) Interest on Foreign Loans. - A final withholding
tax at the rate of twenty percent 20%) is hereby
imposed on the amount of interest on foreign
loans contracted on or after August 1, 1986;
(b) Intercorporate Dividends. - A final
withholding tax at the rate of fifteen percent (15%)
is hereby imposed on the amount of cash and/or
property dividends received from a domestic
corporation, which shall be collected and paid as
provided in Section 57 (A) of this Code, subject to
the condition that the country in which the
nonresident foreign corporation is domiciled, shall
allow a credit against the tax due from the
nonresident foreign corporation taxes deemed to
have been paid in the Philippines equivalent to
twenty percent (20%) for 1997, nineteen percent
(19%) for 1998, eighteen percent (18%) for 1999,
and seventeen percent (17%) thereafter, which
represents the difference between the regular
income tax of thirty-five percent (35%) in 1997,
thirty-four percent (34%) in 1998, and thirty-three
percent (33%) in 1999, and thirty-two percent
(32%) thereafter on corporations and the fifteen
percent (15%) tax on dividends as provided in this
subparagraph;
(c) Capital Gains from Sale of Shares of
Stock not Traded in the Stock Exchange. - A final
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CAINDAY, RAQUEL A.
5%
10%
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
was held that although Eximbank financed the loan
which was granted by the foreign lender to the
Philippine borrower, that did not make Eximbank
the lender.
The exemption under Section 32 B-7(a),
applies only where the lender is a foreign
government, or a financing institution owned,
controlled or enjoying refinancing from a foreign
government, or an international or regional
financial institution established by a foreign
government. There the lender does not fall under
any of those enumerated, the exemption from
income tax does not apply. (Exemption is
construed strictissimi juris against the taxpayer), In
contrast, the lender under Section 28 B-5(a) is only
NRFC, not a foreign government.
2.Intercorporate dividends Among the
three corporate taxpayers, only the NRFC is liable
for dividends received by it from a DC.
Generally, such dividend income is subject
to the final income tax, by way of exception,
Section 28 B-5(b) provided that the amount of cash
and/or property dividends received from a DC by
NRFC shall be subject to final income tax at the
rate of 15%. This is on the condition that the
country in which the NRFC is domiciled, shall allow
a credit against the tax due from the NRFC. Taxes
deemed to have been paid in the Philippines shall
be equal to 20%, which represents the difference
between the regular income tax of 35% and the
15% tax on dividends.
Relevant to this is the Marubeni vs.
Commissioner (177 SCRA 500). Marubeni, a NRFC
located in Tokyo invested in AG&P, a DC, without
coursing the investment through its branch office
in the Philippines. When AG&P declared dividends,
it withheld the 15% final income tax on branch
profit remittance and 10% final income tax on
GROSS INCOME
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
be considered: 1) the first group those countries
which imposed tax on income derived from
sources within and without their countries; 2)
second group those countries which imposed tax
on income derived from sources within their
countries only, for income derived outside, their
citizens are exempt.
(a)
Publicly-held
corporations;
CAINDAY, RAQUEL A.
GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(2) Income excluded from gross
income;
(3) Income subject to final tax; and
(4) The amount of net operating
loss carry-over deducted;
And reduced by the sum of:
(1)
Dividends
actually
constructively paid; and
or
that only DCs are liable to this tax and those which
are classified as closely held corporations. The term
'closely held corporation' means any corporation at
least fifty percent (50%) in value of outstanding
capital stock or at least fifty percent (50%) of the
total combined voting power of all classes of stock
entitled to vote is owned directly or indirectly by or
for not more than twenty (20) individuals (as
defined under Section 157 of the Code and RR No.
2-2001).
The corporations exempted from the
application of improperly accumulated earnings tax
according to the Code are: 1) publicly-held
corporations; 2) banks and other non-bank
financial intermediaries; 3) insurance companies.
However, RR No. 2-2001 adds the
following to the list: 1) taxable partnerships, 2)
general professional partnerships 3) non-taxable
joint ventures; 4) enterprises located within the
PEZA and other economic zones. Therefore, there
are 7 corporation s which are exempted from this
kind of tax.
Unlike the specifically exempted corporations
listed in the Code, the second has no enumeration,
that is that the improperly accumulated
earnings are for the reasonable needs of the
company. Reasonable needs of the Business
includes the reasonable anticipated needs of the
business.
Further, RR No. 2-2001 enumerates several
instances: 1) Allowance for the increase in the
accumulation of earnings up to 100% of the paid
up capital of the corporations as of Balance Sheet
date, inclusive of accumulations taken fro other
years; 2) Earnings reserved for definite corporate
expansion projects or programs requiring
considerable capital expenditure as approved by
the Board of Directors or equivalent body; 3)
CAINDAY, RAQUEL A.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Earnings reserved for building, plants or equipment
acquisition as approved by the Board of Directors
or equivalent body; 54) Earnings reserved for the
compliance with any loan covenant or pre-existing
obligation established under a legitimate business
agreement; 5) Earnings acquired by law or
applicable regulations to be retained by the
corporation or in respect of which there is legal
prohibition against its distribution; 6) In case of
subsidiaries of foreign corporations in the
Philippines, all undistributed earnings intended or
reserved for investment within the Philippines as
can be proven by corporate records and/or
relevant documentary evidence,
In Cyanamid vs Commissioner (322 SCRA
639), the Court ruled that the exemption by virtue
of reasonable needs of the corporation should be
supported by documentary evidence, minutes of
the meeting and a Board Resolution.
What is the difference between the two
exemptions? The enumerated corporations under
the Code, are exempted from the application of
the tax without qualification. By being such
corporation, they are automatically exempted. In
contrast, all other corporations are exempted
provided the qualification for exemption is met,
that is that the improperly accumulated earnings
must be for the reasonable needs of the business.
If the corporation does not fall under the
two exceptions, is there an instance when said
corporation will be exempt? Yes. If it will be found
that there is no such accumulation, thus it will not
be liable.
Section 29 D defines improperly
accumulated taxable income as taxable income
adjusted by: 1) income exempt from tax; 2) income
excluded from tax; 3) income subject to final
income tax; 4) the amount of net operating loss
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
which are exempt from corporate income tax.
These entities according to Sababan are as follows:
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corporations comprising of the joint venture or
consortium must be engaged in the same line of
business. It is only the joint venture or consortium
itself which is exempt from corporate income tax,
not the income of each corporation comprising the
consortium or joint venture. Thus, each
corporation which is a member of the consortium
or joint venture is liable for corporate income tax.
(Batangas Land Transportation Co. vs. Collector,
102 Phil. 822)
c) Government-Owned or Controlled
Corporation (Section 27 C) already discussed in
taxation of DC
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GROSS INCOME
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(J) Farmers' or other mutual typhoon or
fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone
company, or like organization of a purely local
character, the income of which consists solely of
assessments, dues, and fees collected from
members for the sole purpose of meeting its
expenses; and
(K) Farmers', fruit growers', or like
association organized and operated as a sales
agent for the purpose of marketing the products of
its members and turning back to them the
proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce
finished by them;
Notwithstanding the provisions in the
preceding paragraphs, the income of whatever
kind and character of the foregoing organizations
from any of their properties, real or personal, or
from any of their activities conducted for profit
regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.
Discussion by Sababan, pp. 84-86 With
regard to the corporations enumerated in Section
30, the most important provision to be noted is the
last paragraph, which is an all-embracing provision,
applicable to all those enumerated.
The last paragraph implies that an exempt
corporation can be held liable for corporate
income tax if it derives income from: 1) any of their
property, real o personal; or 2) any of their
activities conducted for profit regardless of the
disposition made of such income. In these two
instances, although a corporation is one of those
enumerated as exempt fro corporate income tax, it
may still be held liable.
GROSS INCOME
CAINDAY, RAQUEL A.
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20. TAXATION OF G.P.P.
General professional partnership is an exempt
corporation
A general professional partnership is an
exempt corporation for purposes of income tax
provided the following requisites concur:
1. It is formed by persons for the sole
purpose of exercising their common
profession; and
2. No part of the income of which is derived
from engaging in any trade or business.
On the other hand, if the two requisites are
absent, the exemption provided in Sec.22 (B)
cannot be applied. In that case, the partnership is
deemed a taxable corporation and is liable for
corporate income tax. (Sababan, Taxation Law Review,
p.80-81)
AMILING, EVELYN S.
Formula
Gross Income
LESS: OSD or Itemized Deduction
Net Income of the GPP
DIVIDED BY: The number of the Partners
Distributive Share of each Partner
LESS: Premium
insurance
on
hospitalization&
health
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Income tax shall apply to the income of estates
or of any kind of property held in trust, including:
1. Income accumulated in trust for the
benefit of unborn or unascertained person
or persons with contingent interests;
2. income accumulated or held for future
distribution under the terms of the will or
trust;
3. Income which is to be distributed currently
by the fiduciary to the beneficiaries;
4. income collected by a guardian of an infant
which is to be held or distributed as the
court may direct;
5. Income received by estates of deceased
persons
during
the
period
of
administration or settlement of the estate;
and
6. Income which, in the discretion of the
fiduciary, may be either distributed to the
beneficiaries or accumulated. (Sec.60 (A),
NIRC)
b. EXCEPTION
Income tax SHALL NOT BE IMPOSED on
employee's trust which forms part of a pension,
stock bonus or profit-sharing plan of an employer
for the benefit of some or all of his employees:
1. if contributions are made to the trust by
such employer, or employees, or both for
the purpose of distributing to such
employees the earnings and principal of
the fund accumulated by the trust in
accordance with such plan, and
2. if under the trust instrument it is
impossible, at any time prior to the
satisfaction of all liabilities with respect to
employees under the trust, for any part of
the corpus or income to be (within the
taxable year or thereafter) used for, or
diverted to, purposes other than for the
exclusive benefit of his employees.
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
AMILING, EVELYN S.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2. The amount of the income of the trust
which is to be distributed currently to the
beneficiary; and
3. The amount of the income collected by the
guardian of an infant which is to be held or
distributed as the court may direct.(Co
Untian, Tax Digest, pp.81)
3. Revocable Trusts
A revocable trust is a trust where at any time
the power to revest in the grantor title to any part
of the corpus of the trust is vested:
1. in the grantor either alone or in
conjunction with any person not having a
substantial adverse interest in the
disposition of such part of the corpus or
the income therefrom; or
2.
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AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
The withholding tax system was devised for
two main reasons: first, to provide the taxpayer a
convenient manner to meet his probable income
tax liability; and second, to ensure the collection of
the income tax which could otherwise be lost or
substantially reduced through failure to file the
corresponding returns. To these, a third reason
may be added: to improve the government's cash
flow. (Citibank, N.A. vs. CA, et al., G.R. No. 107434, October
10, 1997, as cited in NIRC Manual for UV Class, p.39)
Withholding agent
The following persons are constituted as
withholding agents:
1. In general, any juridical person, whether or
not engaged in trade or business;
2. 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; and
3. All
government
offices,
including
government-owned
or-controlled
corporations, as well as local government
units. ( Mamalateo, Reviewer on Tax, p.270)
The withholding agent is the agent of both the
Government and the taxpayer.
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
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Withholding tax shall be deducted and
withheld by the withholding agent when the
income payment is paid or payable or accrued
(Rev. Regs. No. 2-98, amended Sec.4, Rev. Regs.
No. 12-2001, Sept. 7, 2001), or the income
payment is accrued as an expense or asset,
whichever is applicable, in the payors books,
whichever comes first. The term payable refers
to the date the obligation becomes due,
demandable or legally enforceable.
Where the income is not yet paid or payable
but at the same time has been recorded as an
expense or asset, whichever is applicable, in the
payors books, the obligation to withhold shall arise
in the last month of the return period in which the
same is claimed as an expense or amortized for tax
purposes. (Mamalateo, Reviewer on Taxation, p.270)
The withholding tax liability may arise only
when the agent has possession, custody or control
of the funds remitted to and received by a nonresident taxpayer. (Commissioner vs. Union Shipping
Corporation, 185 SCRA 547, as cited in Vitug-Acosta, Tax Law
and Jurisprudence, p.189)
b. KINDS
1) Withholding of final tax on certain income
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 (1) final income tax on passive
incomes, (2) capital gains tax on sales of shares of
stocks and real properties, (3) fringe benefit tax
and (4) the 10% tax on cash rewards of informers
shall be withheld by payor-corporation and/or
person and paid in the same manner and subject to
the same conditions as provided in the Tax Code.
(Sec. 57 (A), NIRC)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(15th) day of April. Refunds or credits made after
such time shall earn interest at the rate of six
percent (6%) per annum, starting after the lapse of
the three-month period to the date the refund of
credit is made.
Refunds shall be made upon warrants drawn
by the Commissioner or by his duly authorized
representative without the necessity of countersignature by the Chairman, Commission on Audit
or the latter's duly authorized representative as an
exception to the requirement prescribed by
Section 49, Chapter 8, Subtitle B, Title 1 of Book V
of Executive Order No. 292, otherwise known as
the Administrative Code of 1987. (Sec. 79 (C), NIRC)
Withholding agent has implied authority to file
claim for refund.
If the withholding agent is also an agent of the
beneficial owner of the dividends with respect to
the filing of the necessary income tax return and
with respect to actual payment of the tax to the
government, such authority may reasonably be
held to include the authority to file a claim for
refund and to bring an action for recovery of such
claim. This implied authority is especially
warranted where the withholding agent is the
wholly owned subsidiary of the parent-stockholder
and therefore, at all times, under the effective
control of such parent-stockholder. (Commissioner of
Internal Revenue vs. Procter & Gamble Philippine Mfg. Corp.,
G.R. No. 66838, December 2, 1991, as cited in NIRC Manual
for UV Class, p.40)
4) Year-end adjustment
On or before the end of the calendar year but
prior to the payment of the compensation for the
last payroll period, the employer shall determine
the tax due from each employee on taxable
compensation income for the entire taxable year in
accordance with Section 24(A). The difference
between the tax due from the employee for the
entire year and the sum of taxes withheld from
January to November shall either be withheld from
his salary in December of the current calendar year
or refunded to the employee not later than
January 25 of the succeeding year. (Sec. 79 (H), NIRC)
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
d. WITHHOLDING ON VAT
Withholding Tax on Government Money
Payments (GMP) is the withholding tax withheld
by government offices and instrumentalities,
including government-owned or -controlled
corporations and local government units, before
making any payments to private individuals,
corporations, partnerships and/or associations.
(http://www.bir.gov.ph/taxinfo/taxinfo.htm)
AMILING, EVELYN S.
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As a general rule, withholding tax does not
apply on transactions subject to VAT. The
exceptions to this rule are:
1. Gross payments by the government shall
be subject to the 5% withholding tax;
2. Gross payments by resident VAT-taxpayers
to non-resident foreign persons of rentals,
royalties, reinsurance premiums, and
services done in the Philippines-12%
(Sec114(C), NIRC). However, if the payor of
royalty is a PEZA-registered enterprise, the
10% VAT may not be passed on to it. Since
the enterprise is exempt from all direct and
indirect taxes under a special law (RA 7916,
as amended) and considering that the
services is done in a foreign territory, it is
not required to withhold and remit the
VAT. (BIR Ruling No. 009-08; Vat Ruling No.
005-2003). An ecozone is considered as a
special customs area which is considered
as a foreign territory by fiction of law.
Withholding of tax applies only to taxable
transactions. Thus, payment for the sale of live
dairy cows to a government agency, which is an
exempt transaction, is not subject to withholding
tax. (VAT Ruling No. 24-98, Sept.1, 1998, Mamalateo,
Reviewer on Taxation, p.393)
162
AMILING, EVELYN S.
in
case
of
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Every employer required to deduct and
withhold the taxes in respect of the wages of his
employees shall, on or before January thirty-first
(31st) of the succeeding year, submit to the
Commissioner an annual information return
containing a list of employees, the total amount of
compensation income of each employee, the total
amount of taxes withheld during the year,
accompanied by copies of the written statement,
and such other information as may be deemed
necessary. This return, if made and filed in
accordance with rules and regulations promulgated
by the Secretary of Finance, upon recommendation
of the Commissioner, shall be sufficient compliance
with the requirements of Section 68 in respect of
such wages. (Sec. 83, NIRC)
f. FINAL WITHHOLDING TAX AT SOURCE
Final Withholding Tax is a kind of withholding
tax which is prescribed only for certain payors and
is not creditable against the income tax due of the
payee for the taxable year. Income Tax withheld
constitutes the full and final payment of the
Income Tax due from the payee on the said
income. (http://www.bir.gov.ph/taxinfo/taxinfo.htm)
Under the final withholding tax system the
amount of income tax withheld by the withholding
agent is constituted as a full and final payment of
the income due from the payee on the said
income. [1st sentence, 1st par., Sec. 2.57 (A), Rev.
Regs. No. 2-98]
The liability for payment of the tax rests
primarily on the payor or the withholding agent.
Thus, in case of his failure to withhold the tax or in
case of under withholding, the deficiency tax shall
be collected from the payor withholding agent.
The payee is not required to file an income tax
return for the particular income. (Domondon, Bar Star
Notes on Taxation (2010) p.47)
163
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
P180,000.00 in Metro Manila and
other highly urbanized areas and
P150,000.00 in other areas or such
adjusted amount of selling price for
socialized housing as may later be
determined and adopted by the
HLURB;
(2) Corporations registered with the
Board of Investments, PEZA, and
SBMA, enjoying exemption from
income tax under E.O. 226, R.A.
7916 and R.A. 7227;
B. ESTATE TAX
1. BASIC PRINCIPLES
Death is the generating source of power
Reviewer
on
Taxation,
http://www.bir.gov.ph/taxinfo/taxinfo.htm)
164
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
The transfer of the net estate of the decedent
in excess of P200, 000.00 shall be subject to the
estate tax based on a graduated schedule at a rate
of 5% to 20%.
Formula
Gross Estate
LESS: Deductions
Net Estate
x Rate
Taxable Net Estate
6. CLASSIFICATION OF DECEDENT
For estate tax purposes, decedents are
classified as follows:
2. DEFINITION
Estate Tax is a tax on the right of the deceased
person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on
certain transfers which are made by law as
equivalent
to
testamentary
disposition.
(http://www.bir.gov.ph/taxinfo/taxinfo.htm)
3. NATURE
Estate tax is a transfer tax on the right of
transmitting property at the time of death and on
the privilege that a person is given to control to a
certain extent the disposition of his property to
take effect upon his death. (Vitug & Acosta, Tax Law
and Jurisprudence, p.210)
4. PURPOSE OR OBJECT
The dominant purpose of the law is to reach
such transfers which are really substitutes for
testamentary dispositions and thus prevent the
evasion of the estate tax.
The object of estate tax is to tax the shifting of
economic benefits and enjoyment of the property
from the dead to the living. (Mamalateo, Reviewer on
Taxation, p.276)
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(2) The fair market value as shown in the
schedule of values fixed by the Provincial
and City Assessors.
Medical
expenses
P500,000.00;
not
exceeding
alien
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
2. Tangible personal property within the
Philippines; and
3. Intangible personal property - within the
Philippines. Intangible personal property
deemed situated in the Philippines:
a. Franchise exercised
Philippines;
within
the
c. Revocable transfers.
10. ITEMS TO BE INCLUDED IN GROSS ESTATE
The gross estate includes not only property
owned by the decedent at the time of his death
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
regardless of whether the power is exercised or
not during his lifetime.
Revocable transfers are included in the gross
estate because of the tremendous power and
control which the transferor can exercise. The
transferor can at anytime revoke the transfer,
hence, it is as if there was no transfer made.
(Sababan, Taxation Law Review, p. 135-136)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
1. The mourning apparel of the surviving
spouse and the unmarried minor children
of the deceased bought and used on the
occasion of the burial;
2. Expenses for the deceaseds
including food and drinks;
wake,
AMILING, EVELYN S.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
the President, Vice President, or other
principal officer of the corporation.
D. Claims of the deceased against insolvent
persons. The decedent case is the creditor. The
only requisite is that the amount of indebtedness
must be included in the gross estate.
E.
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AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Philippines, or any political subdivision thereof
shall be considered as a deduction to the gross
estate. The only qualification is for the amount of
all the bequests, legacies, devises or property
transferred should be used exclusively for public
purposes.
4. Family Home.
For the amount equivalent to the current fair
market value of the decedent's family home to be
deducted from the gross estate, the requisites are:
(1) The amount to be deducted should not
exceeds One million pesos (P1,000,000);
the excess shall be subject to estate tax;
(2) There must be a certification from the
Barangay Captain that the said family
home is the actual resident of the
decedent;
x ELIT
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
4. Proceeds of life insurance under a group
insurance taken by employer (not taken
out upon his life);
expressly
x PHILIPPINE
ESTATE
ESTATE
AMILING, EVELYN S.
(http://www.bir.gov.ph/taxinfo/taxinfo.htm)
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(3) Where the estate consists of registered or
registrable property such as real property,
motor vehicle, shares of stock or other
similar property for which a clearance from
the Bureau of Internal Revenue is required
as a condition precedent for the transfer of
ownership thereof in the name of the
transferee.
However, where the value of the estate
exceeds Two million pesos (P2,000,000), the estate
tax shall be supported with a statement duly
certified to by a Certified Public Accountant
containing the following:
a) Itemized assets;
Rate of Tax
Tax payable by the donor on gifts made in
favor of relatives is computed based on graduated
rates from 2% - 15 %.
Tax payable by the donor on gifts made in
favor of strangers is computed at the rate of 30%
of the net gifts.
Relative vis--vis Stranger
For the donors tax purposes, a "stranger", is a
person who is not a:
C. DONORS TAX
1. BASIC PRINCIPLE
The gift tax is a tax on the privilege of
transmitting ones property rights to another or
others without adequate and full valuable
consideration. The gift tax rates are comparatively
lower than the counterpart rats in estate taxation
that may thus provide for an incentive for
taxpayers to opt for the less onerous tax. On the
part of the government, the reduction in revenue
could well be made up by an earlier payment of
the transfer tax. (Report of the Tax Commission on
Natonal Internal Revenue Laws, Vol. 1, p.63 cited in Vitug &
Acosta, Tax Law and Jurisprudence, p.223)
Taxable Gift
Any transfer of property by gift, or, except in
forced sales and in sale of real property which is
classified as capital asset (subject to FIT), for less
than adequate and full consideration in money and
moneys worth may be subject to the gift or
donors tax. The tax shall apply whether the
transfer is in trust or otherwise, whether the gift is
direct of indirect, and whether the property is real
AMILING, EVELYN S.
173
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
In general, the tax shall be computed on the
basis of the total net gifts made during the
calendar year in accordance with the graduated or
fixed donors tax rates. (Co Untian, Tax Digest, p. 107)
If the donor makes several gifts during the
same calendar year, the gifts shall be added on the
cumulative basis (cummulative method). The
donor is required to include in the return for the
last donation previous donations made within the
same calendar year. The tax paid for the first
donation shall be considered as a tax credit for the
succeeding donations. (Sababan, Taxation Law Review,
p. 152)
at
the
time
of
the
transfer.
(http://www.bir.gov.ph/taxinfo/taxinfo.htm)
3. NATURE
Donors tax or gift tax is a transfer tax imposed
on the privilege of the donor to transfer property
during his lifetime without consideration or with
consideration but inadequate or insufficient.
4. PURPOSE OR OBJECT
(1) To complement the estate tax by
preventing the tax-free depletion of the
transferers estate during his lifetime. (Co
Untian, Tax Digest, p. 102)
Gross Gifts
LESS: Deductions
Net Gifts
xSchedular or Fixed Rate
Taxable Net Gifts
LESS: Tax Credit
Donors Tax Payable
2. DEFINITION
Donor's Tax is a tax on a donation or gift,
and is imposed on the gratuitous transfer of
property between two or more persons who are
174
living
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
to tax. (BIR Ruling DA 022-2006 cited in Dizon, Q & A in
Taxation, p. 417)
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
which treats the effect as a donation. (BIR Ruling No.
33-02, Aug. 16, 2002 cited in Dizon, Q & A in Taxation, pp.
420-421)
8. CLASSIFICATION OF DONOR
The following taxpayers are subject to donors
tax:
(1) Resident citizen donor;
a. Franchise exercised
Philippines;
within
the
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AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
owned by citizens of the Philippines not residing in
that foreign country.
(1) Dowries.
Requisites:
PHILIPPINE
DONORS
PHILIPPINE
DONORS
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
B. Exemptions on Gifts Made by a Nonresident
Alien under Section 101 (B)
(1) Gifts made to or for the use of the National
Government or any of its agencies not
conducted for profit, or to any of its
political subdivision;
(2) Gifts in favor of an educational and/or
charitable, religious, cultural or social
welfare
corporation,
institution,
foundation, trust or philanthrophic
organization or research institution or
organization not more than thirty percent
(30% shall be used by for administration
purposes.
Other deductions allowed:
1.
2.
3.
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
proportion to their respective interest (one-half
each). Unless the wife expressly joins in the making
of the donation, it shall be deemed to be made by
the husband alone. (Tang Ho v. Board of Tax Appeals, 79
Phil. 889, cited in Vitug & Acosta, Tax Law and Jurisprudence,
p.224)
tax.
Nature
D. VALUE-ADDED TAX
1. CONCEPT
AMILING, EVELYN S.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Consumption is "the use of a thing in a way
that thereby exhausts it." (Domondon, Bar Star Notes
on Taxation (2010) p.36-37) Consumption takes place
when the taxpayer when the taxpayer does not sell
further the goods, properties or services either
because he is the final consumer or he is not
engaged in business subject to VAT. (Mamalateo,
Reviewer on Taxation, p.317)
2. CHARACTERISTICS
(1) It is a tax on value added of a taxpayer.
(2) It is collected through the tax credit
method.
(3) It is a transparent form of sales tax.
(4) It is broad-based tax on consumption of
goods, properties or services in the
Philippines.
(5) It is an indirect tax.
(6) The Philippines adopted the tax inclusive
method.
180
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
If however, the input taxes exceed the output
taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input
taxes result from zero-rated or effectively zerorated transactions or from acquisition of capital
goods, any excess over the output taxes shall
instead be refunded to the taxpayer or credited
against other internal revenue taxes. (Domondon, Bar
Star Notes on Taxation (2010) p.36-37)
6. DESTINATION PRINCIPLE
As a general rule, the VAT system uses the
destination principle as a basis for the
jurisdictional reach of the tax. Under this principle
goods and services are taxed only in the country
where they are consumed. Thus, exports are zerorated, while imports are taxed.
This is also known as the Cross Border
Doctrine, according to which, no VAT shall be
imposed to form part of the cost of goods destined
for consumption outside of the territorial border of
the taxing authority. (Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils.), Inc., G. R.. No. 150154,
August 9, 2005) Hence, actual or constructive export
7. PERSONS LIABLE
Under Section 105 of the Tax Code and Sec.
4.105-1 of RR No. 16-2005, the following are liable
for VAT:
(1) any person who in the course of trade or
business sells, barters, exchanges, leases
goods or properties;
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
Non-stock,
non-profit
organizations
or
government entities are liable to pay VAT on the
sale of goods or services.
Sec. 105 of the Tax Code clarifies that even a
nonstock,non-profit organization or government
entity, is liable to pay VAT on the sale of goods
orservices. VAT is a tax on transactions, imposed at
every stage of the distribution process on the sale,
barter, exchange of goods or property, and on the
performance of services, even in the absence of
profit attributable thereto. The term "in the course
of trade or business" requires the regular conduct
or pursuit of a commercial or an economic activity,
regardless of whether or not the entity is profitoriented. (Commissioner of Internal Revenue vs. Court of
Appeals, et al., G.R. No. 125355, March 30, 2000, NIRC
Manual for UV Class, p.45)
AMILING, EVELYN S.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
There shall be levied, assessed and collected
on every sale, barter or exchange of goods or
properties, a VAT equivalent to twelve percent
(12%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or
exchanged to be paid by the seller or transferor.
The term 'goods' or 'properties' shall mean all
tangible and intangible objects which are capable
of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
(b) The right or the privilege to use patent,
copyright, design or model, plan, secret
formula or process, goodwill, trademark,
trade brand or other like property or right;
(c) The right or the privilege to use in the
Philippines of any industrial, commercial or
scientific equipment;
(d) The right or the privilege to use motion
picture films, tapes and discs; and
(e) Radio, television, satellite transmission and
cable television time.
The term 'gross selling price' means the total
amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller
in consideration of the sale, barter or exchange of
the goods or properties, excluding the value-added
tax. The excise tax, if any, on such goods or
properties shall form part of the gross selling price.
(Sec. 106 (A)(1), NIRC)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Deemed Sale the Seller is also the buyer and
no valuable consideration is thus paid. (Mamalateo,
Reviewer on Taxation, p.326)
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
PEZA or SBMA, since the special economic zone or
free port zone is considered by fiction of law as a
foreign territory. (RR No. 4-2007; RMC 74-99 cited in
184
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
In the case of tax-free importation of goods
into the Philippines by persons, entities or agencies
exempt from tax where such goods are
subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the
purchasers, transferees or recipients shall be
considered the importers thereof, who shall be
liable for any internal revenue tax on such
importation. The tax due on such importation shall
constitute a lien on the goods superior to all
charges or liens on the goods, irrespective of the
possessor thereof. (Sec. 107(B), NIRC)
13. VAT ON SALE OF SERVICE AND USE OR LEASE
OF PROPERTIES
There shall be levied, assessed and collected, a
VAT equivalent to twelve percent (12%) of gross
receipts derived from:
(a) sale or exchange of services;
(b) use or lease of properties. (Sec.108, NIRC)
The phrase 'sale or exchange of services'
means:
(a) the performance of all kinds or services in
the Philippines for others for a fee,
remuneration or consideration, including
those performed or rendered by
construction and service contractors;
(b) stock, real estate, commercial, customs
and immigration brokers;
(c) lessors of property, whether personal or
real; warehousing services;
(d) lessors or distributors of cinematographic
films;
(e) persons engaged in milling processing,
manufacturing or repacking goods for
others;
(f) proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns,
resorts;
185
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
is mentioned in subparagraph (2) or any
such knowledge or information as is
mentioned in subparagraph (3);
(5) 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.
(6) 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;
(7) The lease of motion picture films, films,
tapes and discs; and
(8) The lease or the use of or the right to use
radio, television, satellite transmission and
cable television time. (Sec. 108(A), NIRC)
The term 'gross receipts' means the total
amount of money or its equivalent representing
the contract price, compensation, service fee,
rental or royalty, including the amount charged for
materials supplied with the services and deposits
and advanced payments actually or constructively
received during the taxable quarter for the services
performed or to be performed for another person,
excluding value-added tax. (Sec. 108(A), NIRC)
a. Requisites for taxability
(1) The sale of service must be performed
or is to be performed in the course of
trade or business in the Philippines;
(2) For valuable consideration actually or
constructively received; and
(3) The service is not exempt under the
Tax Code, special law or international
agreement. (Mamalateo, Reviewer on
Taxation, p.334)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Philippines is a signatory effectively
subjects the supply of such services to zero
percent (0%) rate;
(4) Services rendered to vessels engaged
exclusively in international shipping; and
(5) Services performed by subcontractors
and/or
contractors
in
processing,
converting, of manufacturing goods for an
enterprise whose export sales exceed
seventy percent (70%) of total annual
production.
15. VAT EXEMPT TRANSACTIONS
Zero-rated sale
transactions
distinguished
from
exempt
2005)
AMILING, EVELYN S.
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(e) Services subject to percentage tax under
Title V of the Tax Code;
Petroleum
Exploration
Concessionaires under the Petroleum Act
of 1949;
(l) Sales by agricultural cooperatives duly
registered and in good standing with the
Cooperative Development Authority (CDA)
to their members, as well as sale of their
produce, whether in its original state or
processed form, to non-members; their
importation of direct farm inputs,
machineries and equipment, including
spare parts thereof, to be used directly and
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AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(4) Sale of residential lot valued at One
Million Five Hundred Thousand Pesos
(P1,500,000.00) and below, or house &
lot and other residential dwellings
valued at Two Million Five Hundred
Thousand Pesos (P2,500,000.00) and
below where the instrument of
sale/transfer/disposition was executed
on or after July 1, 2005; Provided, That
not later than January 31, 2009 and
every three (3) years thereafter, the
amounts stated herein shall be
adjusted to its present value using the
Consumer Price Index, as published by
the National Statistics Office (NSO);
Provided,
further,
that
such
adjustment shall be published through
revenue regulations to be issued not
later than March 31 of each year.
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 do not exceed P1,500,000.00. 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.
(q) Lease of residential units with a monthly
rental per unit not exceeding Ten
Thousand Pesos (P10,000.00), regardless of
the amount of aggregate rentals received
by the lessor during the year; Provided,
that not later than January 31, 2009 and
every three (3) years thereafter, the
amount of P10,000.00 shall be adjusted to
its present value using the Consumer Price
Index, as published by the NSO;
The foregoing notwithstanding, lease
of residential units where the monthly
rental per unit exceeds Ten Thousand
Pesos (P10,000.00) but the aggregate of
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
hundred fifty (150) tons and above,
including engine and spare parts of said
vessels; Provided, further, that the vessels
to be imported shall comply with the age
limit requirement, at the time of
acquisition counted from the date of the
vessels original commissioning, as follows:
(i) for passenger and/or cargo vessels, the
age limit is fifteen (15) years old, (ii) for
tankers, the age limit is ten (10) years old,
and (iii) For high-speed passenger crafts,
the age limit is five (5) years old; Provided,
finally, that exemption shall be subject to
the provisions of Section 4 of Republic Act
No. 9295, otherwise known as The
Domestic Shipping Development Act of
2004;
(t) Importation of fuel, goods and supplies by
persons engaged in international shipping
or air transport operations; Provided, that
the said fuel, goods and supplies shall be
used exclusively or shall pertain to the
transport of goods and/or passenger from
a port in the Philippines directly to a
foreign port without stopping at any other
port in the Philippines; Provided, further,
that if any portion of such fuel, goods or
supplies is used for purposes other than
that mentioned in this paragraph, such
portion of fuel, goods and supplies shall be
subject to 10% VAT;
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
presumptive input tax. (Sec. 110 (A), NIRC; Sec. 4.109-2
RR16-2005)
VAT has
input
tax
on
mixed
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AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(1) All the input taxes that can be directly
attributed to transactions subject to
VAT may be recognized for input tax
credit; Provided, that input taxes that
can be directly attributable to VAT
taxable sales of goods and services to
the Government or any of its political
subdivisions,
instrumentalities
or
agencies, including government-owned
or controlled corporations (GOCCs)
shall not be credited against output
taxes arising from sales to nonGovernment entities; and
(2) If any input tax cannot be directly
attributed to either a VAT taxable or
VAT-exempt transaction, the input tax
shall be pro-rated to the VAT taxable
and VAT-exempt transactions and only
the ratable portion pertaining to
transactions subject to VAT may be
recognized for input tax credit. (Sec.
4.110-4, RR No. 16-2005)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(4) For the purchase of services official
receipt showing the information required
under Secs. 113 and 237 of the Tax Code.
A cash register machine tape issued to a
registered buyer shall constitute valid proof of
substantiation of tax credit only if it shows the
information required under Secs. 113 and 237
of the Tax Code.
b. Transitional input tax shall be supported by an
inventory of goods as shown in a detailed list
to be submitted to the BIR.
c. Input tax on deemed sale transactions shall
be substantiated with the invoice required
under Sec. 4.113-2 of these Regulations.
d. 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 non-resident
evidencing remittance of VAT due which was
withheld by the payor.
e. Advance VAT on sugar shall be supported by
the Payment Order showing payment of the
advance VAT. (Sec. 4.110-8, RR No. 16-2005)
21. REFUND OR TAX CREDIT OF EXCESS INPUT TAX
a. Who may claim for refund/apply for
issuance of tax credit certificate (TCC)
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively
zero-rated may apply for the issuance of a tax
credit certificate/refund of input tax attributable to
such sales. The input tax that may be subject of the
claim shall exclude the portion of input tax that has
been applied against the output tax.
In case of zero-rated sales under Secs.
106(A)(2)(a)(1) and (2), and Sec. 106(A)(2)(b) and
Sec. 108(B)(1) and (2) of the Tax Code, the
payments for the sales must have been made in
acceptable foreign currency duly accounted for in
accordance with the BSP rules and regulations.
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
Where the taxpayer is engaged in both zerorated or effectively zero-rated sales and in taxable
(including sales subject to final withholding VAT) or
exempt sales of goods, properties or services, and
the amount of creditable input tax due or paid
cannot be directly and entirely attributed to any
one of the transactions, only the proportionate
share of input taxes allocated to zero-rated or
effectively zero-rated sales can be claimed for
refund or issuance of a tax credit certificate.
In the case of a person engaged in the
transport of passenger and cargo by air or sea
vessels from the Philippines to a foreign country,
the input taxes shall be allocated ratably between
his zero-rated sales and non-zero-rated sales (sales
subject to regular rate, subject to final VAT
withholding and VAT-exempt sales). (Sec. 4.112-1, RR
No. 16-2005)
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export of goods and services from the Philippines
to a foreign country must be zero-rated for VAT;
while, those destined for use or consumption
within the Philippines shall be imposed the twelve
percent (12%) VAT. (Domondon, Bar Star Notes on
Taxation (2010) p.40-41)
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AMILING, EVELYN S.
b. Invoicing and
transactions
recording
deem
sale
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
include, all the information that should be
indicated in a VAT invoice or VAT OR. The data
appearing in the invoice shall be duly recorded in
the subsidiary sales journal. The total amount of
deemed sale shall be included in the return to be
filed for the month or quarter.
In the case of retirement from or cessation of
business, an inventory of goods on hand shall be
prepared and submitted to the 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, but it must show the total amount. It is
sufficient to just make a reference to the inventory
regarding the description of the goods. However,
the sales invoice number should be indicated in the
inventory filed and a copy thereof shall form part
of this invoice. 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. If the business is to be
liquidated and the goods in the inventory are sold
or disposed of to VAT-registered buyers, an invoice
or instrument of sale or transfer shall to prepared
citing the invoice number wherein the tax was
imposed on the deemed sale. At the same time the
tax paid corresponding to the goods sold should be
separately indicated in the instrument of sale.
Example: A, at the time of retirement, had
1,000 pieces of merchandise which was deemed
sold at a value of P20,000.00 with an output tax of
P2,000.00. After retirement, A sold to B, 500
pieces for P12,000.00. In the contract of sale or
invoice, A should state the sales invoice number
wherein the output tax on deemed sale was
imposed and the corresponding tax paid on the
500 pieces is P1,000.00, which is included in the
P12,000.00, or he should indicate it separately as
follows:
Gross selling price
VAT previously paid on
P11,000.00
deemed sale
1,000.00
Total
P12,000.00
In this case, B shall be entitled only to P1,000
as input tax and not 1/11 of P12,000.00. (Sec. 4.1132, RR No. 16-2005)
AMILING, EVELYN S.
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23. FILING OF RETURN AND PAYMENT
AMILING, EVELYN S.
E. COMPLIANCE REQUIREMENTS
1. ADMINISTRATIVE REQUIREMENTS
A person who is subject o internal revenue tax
must comply with certain administrative
requirements prescribed by the Tax Code. These
are:
(1) Registration as a VAT taxpayer;
(2) Keeping and stamping of books of
accounts, sales, invoices and official
receipts and other accounting records;
(3) Issuance of invoices and receipts;
(4) Filing of tax returns and payments of taxes;
and
(5) Withholding of taxes on certain income.
(Mamalateo, Reviewer on Tax, p.386)
A. REGISTRATION REQUIREMENTS
Every person subject to any internal revenue
tax shall register once with the appropriate
Revenue District Officer:
(1) Within ten (10) days from date of
employment, or
(2) On or before the commencement of
business, or
(3) Before payment of any tax due, or
(4) Upon filing of a return, statement or
declaration as required in this Code.
The registration shall contain the taxpayer's
name, style, place of residence, business and such
other information as may be required by the
Commissioner in the form prescribed therefor.
A person maintaining a head office, branch or
facility shall register with the Revenue District
Officer having jurisdiction over the head office,
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
branch or facility. The term 'facility' may include
but not be limited to sales outlets, places of
production, warehouses or storage places. (Sec.
236(A), NIRC)
3) Transfer of registration
A registered person who decides to transfer his
place of business or his head office or branches,
has the duty to update his registration status by
filing an application for registration information
update in the form prescribed therefor. (Sec. 236 (D),
NIRC)
4) Other updates
Any person registered shall, whenever
applicable, update his registration information with
ESTATE TAX, DONORS TAX, VAT, TAXPAYERS REMEDIES
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Digest, p. 112; Section 236(G) in relation to Section 110(1)(v),
NIRC)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
The VAT shall not apply to goods or
properties existing as of the occurrence of the
following:
(1) Change of control of a corporation
(2) Change in the trade or corporate name
(3) Merger or consolidation of corporation
(Sec. 4.106-8, RR No. 16-2005)
C. SUPPLYING
TAXPAYER
NUMBER (TIN)
IDENTIFICATION
OR
SALES
OR
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logbook/register of taxpayers who availed of their
printing services. The logbook/register shall
contain the following information:
(1) Names, Taxpayer Identification Numbers of
the persons or entities for whom the
receipts or sales or commercial invoices
were printed; and
(2) Number of booklets, number of sets per
booklet, number of copies per set and the
serial numbers of the receipts or invoices
in each booklet. (Sec. 238, NIRC)
2) Invoicing requirements for VAT
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 official receipts. Said documents shall be
considered as a VAT Invoice or VAT official
receipt. All purchases covered by invoices/receipts
other than VAT Invoice/VAT Official Receipt shall
not give rise to any input tax.
VAT invoice/official receipt shall be prepared at
least in duplicate, the original to be given to the
buyer and the duplicate to be retained by the seller
as part of his accounting records. (Sec. 4.113-1(A), RR
16-2005; Sec. 113(A), NIRC)
AMILING, EVELYN S.
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Issuance of a VAT Invoice or VAT Receipt
by a non-VAT person.
OF
BUSINESS
TO
ANOTHER
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(b) A nonresident citizen - on his
income derived from sources
within the Philippines;
(c) A resident alien - on his income
derived from sources within the
Philippines; and
(d) A nonresident alien engaged in
trade or business or in the exercise
of profession in the Philippines - on
his income derived from sources
within the Philippines.
The income tax return shall be filed in
duplicate. (Sec. 51(A)(1)(4), NIRC)
(a) Return of husband and wife
General Rule: Legally married
individuals who do not derive
income purely from compensation
shall file jointly.
Exceptions:
(1) purely
compensation
earners;
(2) not purely compensation
earners but impracticable
for the spouses to file one
return, each spouse may
file a separate return but
the returns filed shall be
consolidated
by
the
Bureau for purposes of
verification for the taxable
year. (Sec. 51 (D), NIRC)
(b) Return of parent to include
income of the child
The income of unmarried
minors derived from property
received from a living parent shall
be included in the return of the
parent, except (1) when the
donor's tax has been paid on such
property, or (2) when the transfer
of such property is exempt from
donor's tax. (Sec. 51 (E), NIRC)
202
AMILING, EVELYN S.
(c) Return of
disability
persons
under
AMILING, BEBER, CAINDAY,CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(c) An individual whose sole income has
been subjected to final withholding tax
pursuant to Section 57(A) of this Code;
and
References:
Except
in
cases
where
the
Commissioner otherwise permits, the
return shall be filed with:
(1) an authorized agent bank,
(2) Revenue District Officer,
(3) Collection Agent or
(4) duly authorized Treasurer of the
city or municipality where the taxpayer has
his legal residence or principal place of
business in the Philippines, or
(5) with the Office of the
Commissioner, if there be no legal
residence or place of business in the
Philippines. (Sec.51 (B), NIRC)
c) When to file
AMILING, EVELYN S.
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2. Government Remedies
Remedies provided by the NIRC:
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
levying officer to the Commissioner or his duly
authorized representative: Provided, however,
That a consolidated report by the Revenue
Regional Director may be required by the
Commissioner as often as necessary: Provided,
further, That the Commissioner or his duly
authorized representative, subject to rules and
regulations promulgated by the Secretary of
Finance, upon recommendation of the
Commissioner, shall have the authority to lift
warrants of levy issued in accordance with the
provisions hereof.
Levy on real property
Levy is a remedy whereby the collection of
delinquent taxes is enforced on the real property
belonging to the delinquent taxpayer.
a. The internal revenue officer designated by the
BIR or his duly authorized representative shall
prepare a duly authenticated certificate.
1. Showing the name of the taxpayer and the
amounts of the tax and penalty due from
him.
2. Said certificate shall operate with the force
of a legal execution throughout the
Philippines.
b. Levy shall be effected by writing upon a said
certificate a description of the property upon
which levy is made.
c. At the same time, written notice of the levy shall
be mailed to or served upon the Register of the
deeds of the province or city where the property
is located upon
1. The delinquent taxpayer, or
2. If he absent from the Philippines, to his
agent or the manager of the business in
respect to which the liability arose, or
GOVERNMENT REMEDIES
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3) Forfeiture of real property to the
government for want of bidder
SEC. 215. Forfeiture to Government for Want of
Bidder. - In case there is no bidder for real
property exposed for sale as herein above
provided or if the highest bid is for an amount
insufficient to pay the taxes, penalties and costs,
the Internal Revenue Officer conducting the sale
shall declare the property forfeited to the
Government in satisfaction of the claim in
question and within two (2) days thereafter, shall
make a return of his proceedings and the
forfeiture which shall be spread upon the records
of his office. It shall be the duty of the Register of
Deeds concerned, upon registration with his office
of any such declaration of forfeiture, to transfer
the title of the property forfeited to the
Government without the necessity of an order
from a competent court.
Within one (1) year from the date of such
forfeiture, the taxpayer, or any one for him may
redeem said property by paying to the
Commissioner or the latter's Revenue Collection
Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of
sale, but if the property be not thus redeemed,
the forfeiture shall become absolute.
The sale in public auction of the levied
property may have two results:
1. there is bidder and the bid is enough;
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
correct taxable sales or receipts for the taxable
quarter.
(b) Failure of any Person to Register as
Required under Section 236. The temporary closure of the establishment
be for the duration of not less than five (5)
and shall be lifted only upon compliance
whatever requirements prescribed by
Commissioner in the closure order.
shall
days
with
the
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tax on such return was due, and in availing of the
compromise, a tax return shll be filed as basis for
computing the amount of compromise to be paid.
(Mamalateo, 434-435)
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(A) There shall be imposed, in addition to the
tax required to be paid, 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 as required under the provisions of
this Code or rules and regulations on the date
prescribed; or
(2) Unless otherwise authorized by the
Commissioner, filing a return with an internal
revenue officer other than those with whom the
return is required to be filed; or
(3) Failure to pay the deficiency tax within
the time prescribed for its payment in the notice
of assessment; or
(4) Failure to pay the full or part of the
amount of tax shown on any return required to be
filed under the provisions of this Code or rules
and regulations, or the full amount of tax due for
which no return is required to be filed, on or
before the date prescribed for its payment.
(B) In case of willful neglect to file the return
within the period prescribed by this Code or by
rules and regulations, or in case a false or
fraudulent return is willfully made, the penalty to
be imposed shall be fifty percent (50%) of the tax
or of the deficiency tax, in case, any payment has
been made on the basis of such return before the
discovery of the falsity or fraud: Provided, That a
substantial underdeclaration of taxable sales,
receipts or income, or a substantial
overstatement of deductions, as determined by
the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of
Finance, shall constitute prima facie evidence of a
false or fraudulent return: Provided, further, That
failure to report sales, receipts or income in an
amount exceeding thirty percent (30%) of that
declared per return, and a claim of deductions in
GOVERNMENT REMEDIES
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The penalty and interest are not penal but
compensatory for the concomitant use of the
funds by the taxpayer beyond the date when he is
supposed to have paid them to the Government.
(2008Domondon, 377-378)
2) Interest
a) In General
Sec. 249. (A) In General. - There shall be assessed
and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per
annum, or such higher rate as may be prescribed
by rules and regulations, from the date prescribed
for payment until the amount is fully paid.
b) Deficiency interest
Sec. 249. (B) Deficiency Interest. - Any deficiency
in the tax due, as the term is defined in this Code,
shall be subject to the interest prescribed in
Subsection (A) hereof, which interest shall be
assessed and collected from the date prescribed
for its payment until the full payment thereof.
Deficiency interest
The interest assessed and collected on any
unpaid amount of tax at the rate of twenty percent
(20%) per annum or such higher rate as may be
prescribed by regulations, from the date prescribed
for payment until the amount is fully paid.
Computation of deficiency interest
Deficiency interest on deficiency income tax
accrues and commences from the date of
assessment as shown in the assessment notice,
instead of the date the compliant for its collection
is filed. (2008Domondon, 382)
c) Delinquency interest
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for the payment of the amounts due is mandatory
in case of delinquency.
Rationale for mandatory collection
The intention of the law is to discourage
delay in the payment of taxes to the State and, in
this sense, the surcharge and interest charged are
not penal but compensatory in nature they are
compensation to the State for the delay inn
payment or for the concomitant use of the funds
by the taxpayer beyond the date he is supposed to
have paid them to the State.
d) Interest on extended payment
Sec. 249. (D) Interest on Extended Payment. - If
any person required to pay the tax is qualified and
elects to pay the tax on installment under the
provisions of this Code, but fails to pay the tax or
any installment hereof, or any part of such
amount or installment on or before the date
prescribed for its payment, or where the
Commissioner has authorized an extension of
time within which to pay a tax or a deficiency tax
or any part thereof, there shall be assessed and
collected interest at the rate hereinabove
prescribed on the tax or deficiency tax or any part
thereof unpaid from the date of notice and
demand until it is paid.
Interest on extended payment
a. If a person required to pay the tax is qualified
and elects to pay the tax on installment under
the provisions of the NIRC of 1997,
b. But fails to pay the tax or any installment
thereof, or any part of such amount installment
on or before the date within which to pay a tax
or a deficiency tax or any part thereof
agreement
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
b. the financial position of the taxpayer
demonstrates a clear inability to pay the
tax.
(b) Cases under administrative protest after
issuance of the Final Assessment Notice to the
taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service,
Large Taxpayer Service (LTS), Collection Service,
Enforcement Service and other offices in the
National Office;
(c) Civil tax cases being disputed before the courts;
(d) Collection cases filed in courts;
(e) Criminal violations, other than those already
filed in court, or those involving criminal tax
frauds.
In civil cases, the government may
compromise the liability of the taxpayer at any
stage of the proceeding except when the case is
already final and executory. In this case, if the
government would allow a compromise even if the
case is already final and executory, the doctrine of
separation of powers will be violated.
In criminal cases, on the other hand,
compromise is also allowed except:
1. if the criminal case is already filed before the
RTC; or
2. if the case involves fraud. (Sababan, 192)
Tax cases which could not be the Subject of
compromise with the BIR:
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pesos (P1,000,000.00), and the settlement offered
is not less than the prescribed percentages.
(2008Domondon, 457-458)
The commissioner has sole power and
authority to compromise taxes. It is ultra vires for
BIR subordinate officers, without being specifically
authorized by the BIR Commissioner, to approve
and accept compromises. These ultra vires act
cannot have any valid and binding legal effect upon
the BIR, which could issue reassessment.
GOVERNMENT REMEDIES
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serious doubt can be a ground to deny the
application for compromise based on the financial
incapacity of the taxpayer to pay the tax.
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
performing any act tending to obstruct the
proceedings for the collection of the tax for the
past or current quarter or year or to render the
same totally or partly ineffective unless such
proceedings are begun immediately, the
Commissioner shall declare the tax period of such
taxpayer terminated at any time and shall send
the taxpayer a notice of such decision, together
with a request for the immediate payment of the
tax for the period so declared terminated and the
tax for the preceding year or quarter, or such
portion thereof as may be unpaid, and said taxes
shall be due and payable immediately and shall be
subject to all the penalties hereafter prescribed,
unless paid within the time fixed in the demand
made by the Commissioner.
The tax code enumerates the powers and
duties of the BIR as follows:
1. To assess the collection of internal taxes, fees,
and charges;
2. To enforce all forfeitures, penalties and fines
connected therewith;
3. To execute judgment in all cases decided in its
favor by the CTA and the ordinary courts; and
4. To effect and administer the supervisory and
police powers conferred upon it by the Tax Code or
other special laws. (Mamalateo, 396)
Rep. Act No. 1405, the Bank Deposits
Secrecy Law prohibits inquiry into bank deposits.
As exceptions to Rep. Act No. 1405, the
Commissioner of Internal Revenue is only
authorized to inquire into the bank deposits of:
a. a decedent to determine his gross estate; and
b. any taxpayer who has filed an application for
compromise of his tax liability by reason of
financial incapacity to pay his tax liability. [Sec.
5 (F), NIRC of 1997]
GOVERNMENT REMEDIES
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(d) The conditions to be observed by revenue
officers respecting the institutions and conduct of
legal actions and proceedings;
(e) The conditions under which goods intended for
storage in bonded warehouses shall be conveyed
thither, their manner of storage and the method of
keeping the entries and records in connection
therewith, also the books to be kept by Revenue
Inspectors and the reports to be made by them in
connection with their supervision of such houses;
(f) The conditions under which denatured alcohol
may be removed and dealt in, the character and
quantity of the denaturing material to be used, the
manner in which the process of denaturing shall be
effected, so as to render the alcohol suitably
denatured and unfit for oral intake, the bonds to
be given, the books and records to be kept, the
entries to be made therein, the reports to be made
to the Commissioner, and the signs to be displayed
in the business or by the person for whom such
denaturing is done or by whom, such alcohol is
dealt in;
(g) The manner in which revenue shall be collected
and paid, the instrument, document or object to
which revenue stamps shall be affixed, the mode of
cancellation of the same, the manner in which the
proper books, records, invoices and other papers
shall be kept and entries therein made by the
person subject to the tax, as well as the manner in
which licenses and stamps shall be gathered up
and returned after serving their purposes;
(h) The conditions to be observed by revenue
officers respecting the enforcement of Title III
imposing a tax on estate of a decedent, and other
transfers mortis causa, as well as on gifts and such
other rules and regulations which the
Commissioner may consider suitable for the
enforcement of the said Title III;
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For the purpose of this Section, "large taxpayer"
means a taxpayer who satisfies any of the
following criteria;
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to bad faith. We note that the term health maintenance
organization was first recorded in the Philippine statute
books only upon the passage of The National Health
Insurance Act of 1995 (Republic Act No. 7875).Section 4
(o) (3) thereof defines a health maintenance
organization as an entity that provides, offers, or
arranges for coverage of designated health services
needed by plan members for a fixed prepaid premium.
Under this law, a health maintenance organization is
one of the classes of a health care provider.
It is thus apparent that when VAT Ruling No.
231-88 was issued in respondents favor, the term health
maintenance organization was yet unknown or had no
significance for taxation purposes. Respondent,
therefore, believed in good faith that it was VAT exempt
for the taxable years 1996 and 1997 on the basis of VAT
Ruling No. 231-88.
In ABS-CBN Broadcasting Corp. v. Court of Tax
Appeals, this Court held that under Section 246 of the
1997 Tax Code, the Commissioner of Internal Revenue is
precluded from adopting a position contrary to one
previously taken where injustice would result to the
taxpayer. Hence, where an assessment for deficiency
withholding income taxes was made, three years after a
new BIR Circular reversed a previous one upon which
the taxpayer had relied upon, such an assessment was
prejudicial to the taxpayer.To rule otherwise, opined the
Court, would be contrary to the tenets of good faith,
equity, and fair play.
shall
days
with
the
This Court has consistently reaffirmed its ruling in ABSCBN Broadcasting Corp. The rule is that the BIR rulings
have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer, as in this
case.
More recently, in Commissioner of Internal
Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIRs
own issuances but later was suddenly saddled with
deficiency taxes due to its subsequent ruling changing
the category of the taxpayers transactions for the
purpose of paying its VAT, this Court ruled that applying
such ruling retroactively would be prejudicial to the
taxpayer.
218
GOVERNMENT REMEDIES
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
III. LOCAL GOVERNMENT CODE OF 1991, AS AMENDED
A. LOCAL GOVERNMENT TAXATION
1. FUNDAMENTAL PRINCIPLES GOVERNING LOCAL
TAXATION (SEC. 130, LGC)
a.
Shall be uniform in each local sub-unit
b.
Shall be equitable and based as much
as possible on the taxpayers ability to pay
c.
Levied for public purposes
d.
Shall not be unjust, excessive,
oppressive, or confiscatory
e. Shall not be contrary to law, public policy,
national economic policy, or in restraint of trade
f. Collection of local taxes and other impositions
shall not be let to any person
g. The revenues collected under the Code shall
inure solely to the benefit of, and subject to
disposition by, the LGU levying the tax or other
imposition unless otherwise specifically
provided therein
h. Each LGU shall, as far as practicable, evolve a
progressive system of taxation.
2. Nature and Source of Local Taxing Power
(See. Sec 5, Art. X, 1987 Constitution and Sec.
129, LGC)
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b.
nor shall the imprisonment be less than
one (1) month nor more than six (6) month.
2. Such fine or other penalty shall be imposed
at the discretion of the court.
3. The Sangguniang Barangay may prescribe a
fine of not less than P100 nor more than P1,
000.
C. POWER TO GRANT LOCAL TAX EXEMPTIONS (SEC.
192, LGC)
Local government units may, through
ordinances duly approved, grant tax
exemptions, incentives or reliefs under such
terms and conditions, as they may deem
necessary.
D. WITHDRAWAL OF EXEMPTIONS-TAX
EXEMPTIONS EXISTING BEFORE THE EFFECTIVITY OF THE
LGC HAS BEEN ABOLISHED (SEC. 193, LGC)
Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or
presently enjoyed by all persons, whether
natural or juridical, including governmentowned or controlled corporations are hereby
withdrawn upon the effectively of the LGC
except the following:
1. local water districts,
2. cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and
3. Educational institutions.
The power to grant tax exemptions, tax
incentives and tax reliefs shall not apply to
regulatory fees which are levied under the
police power of the LGU.
OF
PREEMPTION
OR
EXCLUSIONARY
DOCTRINE
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
a.
Taxes which are levied under the NIRC,
unless otherwise provided by LGC of 1991;
b.
Taxes, fees, etc. which are imposed
under the Tariffs and Customs Code;
c.
Taxes, fees, etc., the imposition of
which contravenes existing governmental
policies or which violates the fundamental
principles of taxation;
d.
Taxes, fees and other charges imposed
under special law.
3. LOCAL TAXING AUTHORITY
A. Section 132. Local Taxing Authority. - The
power to impose a tax, fee, or charge or to
generate revenue under this Code shall be
exercised by the Sanggunian of the local
government unit concerned through an
appropriate ordinance.
B. LEVYING OF LOCAL TAXES (LOCAL TAX
ORDINANCE)
Requisites:
1. The procedure applicable to local government
ordinances in general should be observed (Sec.
187, LGC)
2.
Procedural details (Secs. 54, 55, and 59,
LGC):
a.
necessity of a quorum
b.
submission for approval by the local
chief executive
c.
he matter of veto and overriding the
same
d.
the publication and affectivity
2. Public hearings are required before any
local tax ordinance is enacted (Sec.187, LGC)
4. Within 10 days after their approval,
publication in full for 3 consecutive days in a
newspaper of general circulation. In absence of
such newspaper in the province, city or
municipality, then the ordinances may be
posted in at least 2 conspicuous and publicly
accessible places (Sec. 188, LGC)
CONEJERO, JOSELITO V.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Rate: Not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar year.
Exceptions:
1. for newly started business
TAX RATE = 1/20 of 1% of the capital
investment
2. School Texts or references prescribed by
DEPED shall be EXEMPT from tax.
Other Provisions: No VAT on sale,
importation, printing, publication of books,
newspaper, magazine, review or bulletin w/c
appears at regular intervals w/ fixed prices w/c
is not devoted principally to publication of paid
advertisements (Sec. 109 [y], NIRC)
3. Franchise Tax (Sec. 137, LGC)
Type of tax: Notwithstanding any exemption
granted by any law or other special law, the
province may impose a tax on business enjoying
a franchise.
Rate: Not exceeding 50% of 1% of the gross
annual receipts for the preceding calendar year
based on the incoming receipts, or realized
within its territorial jurisdiction.
Exceptions: For newly started business
TAX RATE = 1/20 of 1% of the capital
investment
Other Provisions: Franchise grantees of
telephone telegraph, radio, TV & all other
(except electric, gas & water utilities) are
subject to 10% VAT (Sec. 108 [A], NIRC)
4. Tax on Sand, Gravel and Other Quarry
Resources (Sec. 138, LGC)
Type of tax: The province may levy and collect
taxes on ordinary stones, sand, gravel, earth
and other quarry resources extracted from
public lands or from the beds of seas, lakes,
rivers, streams, creeks and other public waters
within its territorial jurisdiction
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
circuses, boxing stadia and other places of
amusement.
Rate: Not more than 30% of the gross
receipts from admission fees.
Exceptions: The holding of operas, concerts,
dramas, recitals, painting and art exhibitions,
flower shows, musical programs, literary and
oratorical presentations, except pop, rock or
similar concerts, shall be exempt from the
payment of amusement tax
Other Provisions: Proceeds from the
amusement tax shall be shared equally by the
province & the municipality where such
amusement places are located.
7. Annual Fixed Tax on Delivery Trucks and Vans
of Manufacturers, Wholesalers or, Dealers or
Retailers in certain products (Sec. 141, LGC)
Rate: not exceeding P500 on every truck,
van or vehicle used in the delivery or
distribution of merchandise.
Exceptions: Manufacturers, producers,
wholesalers, dealers & retailers subject to this
tax is exempt from peddlers tax.
Other Provisions: Covers distilled spirits, soft
drinks, cigars and cigarettes and other products,
as may be determined by the Sanggunian
Panlalawigan.
B. CITIES
(SEC. 151, LGC)
The city may levy the taxes, fees, and
charges which the province or municipality may
impose.
The tax rates that the city may levy may
exceed the maximum rates allowed for the
province or municipality by not more than 50%
except the rates of professional and amusement
taxes.
C. MUNICIPALITIES
(SEC. 143, LGC)
LOCAL GOVERNMENT TAXATION
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4.
laundry
soap,
detergents,
and
medicine;
5.
agricultural implements, equipment
and post-harvest facilities, fertilizers, pesticides
and other farm inputs;
6.
poultry feeds and other animal feeds;
7.
school supplies; and
8.
cement.
Rate: At a rate not exceeding one-half
of the rates for sales of articles mentioned in
paragraphs (a), (b) and (d) of Sec. 143 of LGC.
d. Retailers (Sec. 143 [d], LGC).
Rate: The tax on retailers is not a graduated
annual fixed tax but an annual percentage tax
imposed at the following rates: On gross sales
or receipts for the preceding calendar year not
exceeding P400,000 - 2%; and on sales or
receipts exceeding P400,000 -1%.
e. Contractors and other
contractors. (Sec. 143 [e], LGC).
independent
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CONEJERO, JOSELITO V.
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
the difference shall be paid before the business
is considered officially retired.
4. PAYMENT OF BUSINESS TAXES
a.
It shall be payable for every separate or
distinct establishment or place where business
subject to the tax is conducted and one line of
business does not become exempt by being
conducted with some other business for which
such tax has been paid.
b.
The tax on a business must be paid by
the person conducting the same.
c.
In cases where a person conducts or
operates 2 or more of the businesses
mentioned in Section 143 of LGC
- which are subject to the same rate of tax, the
tax shall be computed on the combined total
gross sales or receipts of the said 2 or more
related businesses.
- which are subject to different rates of tax, the
gross sales or receipts of each business shall be
separately reported for the purpose of
computing the tax due from each business.
5. Section 147. Fees and Charges. - The
municipality may impose and collect such
reasonable fees and charges on business and
occupation and, except as reserved to the
province in Section 139 of this Code, on the
practice of any profession or calling,
commensurate with the cost of regulation,
inspection and licensing before any person may
engage in such business or occupation, or
practice such profession or calling.
6. SITUS OF LOCAL TAXATION
A. Situs According to the Cases
With respect to excise tax, the tax is
upon the performance of an act, enjoyment of a
privilege or the engaging in an occupation. The
power to levy such tax is not dependent on the
domicile of the taxpayer, but on the place in
which the act is performed or the occupation is
engaged in; not upon the location of the office,
but the place where the sale is perfected.
(Allied Thread Co., Inc. v. City Mayor of Manila,
L-40296)
LOCAL GOVERNMENT TAXATION
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
F. COMMUNITY TAX
Cities or municipalities may levy a community
tax.
2.
For every P5,000 of gross receipts or
earnings derived by it from its business in the
Philippines during the preceding year - P2.00.
A.
Individuals Liable (Sec. 157)
a.
every inhabitant of the Philippines;
b.
eighteen (18) years of age or over;
c.
under any of the following instances:
d.
who has been regularly employed on
a wage or salary basis for at least thirty (30)
consecutive working days during any calendar
year; or
e.
who is engaged in business or
occupation; or
f.
who owns real property with an
aggregate assessed value of P1,000 or more; or
g.
who is required by law to file an
income tax return
CONEJERO, JOSELITO V.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
3.
receives any license, certificate or
permit from any public authority; pays any tax
or fee;
4.
receives any money from any public
fund;
5.
transacts other official business; or
6.
receives any salary or wage from any
person or corporation.
The presentation of the community tax
certificate shall not be required in connection
with the registration of a voter.
A.
Corporation
1.
receives any license, certificate or
permit from any public authority;
2.
pays any tax or fee;
3.
receives money from public funds; or
4.
transacts other official business.
The city of municipal treasurer deputizes the
barangay treasurer to collect the community tax
in their respective jurisdictions. (Sec. 164, LCG)
The proceeds of the community tax actually and
directly collected by the city or municipal
treasurer shall accrue entirely to the general
fund of the city or municipality concerned.
Proceeds of the community tax collected
through the barangay treasurers shall be
apportioned as follows:
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
1. Taxes which are levied under the NIRC
unless otherwise provided by the LGC
Numbers 1, 2, 3, 8, 9, 10
2. Taxes, fees, etc. which are imposed under
the Tariffs and Customs Code
Number 4
3. Taxes, fees and charges where the
imposition of which contravenes existing
governmental policies or which are violative of
the fundamental principles of taxation
Number 12
7. COLLECTION OF LOCAL TAXES
A. Tax Period and Manner of Payment (Sec.
165, LGC)
Unless otherwise provided, the tax period shall
be the calendar year.
Such taxes, fees, and charges may be paid in
quarterly installments.
B. Accrual of Tax (Sec. 166, LGC)
Unless otherwise provided, shall accrue on the
first day of January of each year.
However, new taxes, fees or charges, or
changes in the rates thereof, shall accrue on the
first day of the quarter next following the
effectivity of the ordinance imposing such new
levies or rates.
C. Time of Payment (Sec. 167, LGC)
Unless otherwise provided shall be paid within
the first twenty (20) days of January or of each
subsequent quarter as the case may be.
May, for a justifiable reason or cause, be
extended without surcharges or penalties, but
only for a period not exceeding six (6) months.
D. Surcharges and Penalties on Unpaid Taxes,
Fees or Charges (Sec. 168, LGC)
LOCAL GOVERNMENT TAXATION
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
made of record in the books of accounts of the
taxpayer examined.
In case the examination herein authorized is
made by a duly authorized deputy of the local
treasurer, the written authority of the deputy
concerned shall specifically state the name,
address, and business of the taxpayer whose
books, accounts, and pertinent records are to
be examined, the date and place of such
examination and the procedure to be followed
in conducting the same.
For this purpose, the records of the revenue
district office of the Bureau of Internal Revenue
shall be made available to the local treasurer,
his deputy or duly authorized representative.
8. TAX REMEDIES OF THE TAXPAYER
A. Periods of assessment and collection of local
taxes, fees or charges.
Section 194. Periods of Assessment and
Collection. (a) Local taxes, fees, or charges shall be
assessed within five (5) years from the date they
became due. No action for the collection of such
taxes, fees, or charges, whether administrative
or judicial, shall be instituted after the
expiration of such period: Provided, That. taxes,
fees or charges which have accrued before the
effectivity of this Code may be assessed within a
period of three (3) years from the date they
became due.
(b) In case of fraud or intent to evade the
payment of taxes, fees, or charges, the same
may be assessed within ten (10) years from
discovery of the fraud or intent to evade
payment.
(c) Local taxes, fees, or charges may be collected
within five (5) years from the date of
assessment by administrative or judicial action.
No such action shall be instituted after the
expiration of said period: Provided, however,
That, taxes, fees or charges assessed before the
effectivity of this Code may be collected within
a period of three (3) years from the date of
assessment.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
protest with the local treasurer contesting the
assessment; otherwise, the assessment shall
become final and executory. The local treasurer
shall decide the protest within sixty (60) days
from the time of its filing. If the local treasurer
finds the protest to be wholly or partly
meritorious, he shall issue a notice cancelling
wholly or partially the assessment. However, if
the local treasurer finds the assessment to be
wholly or partly correct, he shall deny the
protest wholly or partly with notice to the
taxpayer. The taxpayer shall have thirty (30)
days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day
period prescribed herein within which to appeal
with the court of competent jurisdiction
otherwise the assessment becomes conclusive
and unappealable.
a. Protest within 60 days from receipt of
assessment (Sec. 195 LGC). Payment under
protest is not necessary.
b. Payment & subsequent refund or tax credit
within 2 years from payment of tax to local
treasurer (Sec. 196 LGC). It is to be noted that,
unlike in internal revenue taxes, the
supervening cause applies in local taxation
because the period for the filing of claims for
refund or credit of local taxes is counted not
necessarily from the date of payment but from
the date the taxpayer is entitled to a refund or
credit.
c. Right of redemption 1 year from the date
of sale or from the date of forfeiture (Sec. 179,
LGC).
C. Claim for Refund of Tax Credit.
Section 196. Claim for Refund of Tax Credit. - No
case or proceeding shall be maintained in any
court for the recovery of any tax, fee, or charge
erroneously or illegally collected until a written
claim for refund or credit has been filed with
the local treasurer. No case or proceeding shall
be entertained in any court after the expiration
of two (2) years from the date of the payment
COURTS
OVER
LOCAL
a.
With the amendment brought by RA
No. 9282, the Court of Tax Appeals now has
appellate jurisdiction over local taxation cases
decided by the Regional Trial Court in the
exercise of its appellate or original jurisdiction.
b.
Regular judicial courts are not
prohibited from enjoining the collection of local
CONEJERO, JOSELITO V.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
taxes, subject to Rule 58
Injunction) of the Rules of Court.
(Preliminary
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(g) One fishing boat and net, not exceeding the
total value of Ten thousand pesos (P10,000.00),
by the lawful use of which a fisherman earns his
livelihood; and
(h) Any material or article forming part of a
house or improvement of any real property.
5. Section 177. Penalty for Failure to Issue and
Execute Warrant. - Without prejudice to
criminal prosecution under the Revised Penal
Code and other applicable laws, any local
treasurer who fails to issue or execute the
warrant of distraint or levy after the expiration
of the time prescribed, or who is found guilty of
abusing the exercise thereof by competent
authority shall be automatically dismissed from
the service after due notice and hearing.
D. Procedure for judicial action.
1. Court action
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CONEJERO, JOSELITO V.
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
B. REAL PROPERTY TAXATION
1. Fundamental Principles
Section 198. Fundamental Principles. - The
appraisal, assessment, levy and collection of
real property tax shall be guided by the
following fundamental principles:
(a) Real property shall be appraised at its
current and fair market value;
(b) Real property shall be classified for
assessment purposes on the basis of its actual
use;
(c) Real property shall be assessed on the basis
of a uniform classification within each local
government unit;
(d) The appraisal, assessment, levy and
collection of real property tax shall not be let to
any private person; and
(e) The appraisal and assessment of real
property shall be equitable.
2. Nature of Real Property Tax
1.
Direct tax on the Ownership of real
property
2.
Ad valorem tax. The value is based on
the tax base.
3.
Proportionate the tax is calculated on
the basis of a certain percentage of the value
assessed.
4.
Indivisible single obligation
5.
Local tax
JOSELITO V. CONEJERO
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
or any cause which physically or legally
prevents the owner of the property or person
having legal interest therein from improving,
utilizing or cultivating the same.
4.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
Taxes shall be computed on the basis of
applicable schedule of values in force during the
corresponding period.
C. LISTING OF REAL PROPERTY IN THE
ASSESSMENT ROLLS (SECS. 205, 207)
Section 205. Listing of Real Property in the
Assessment Rolls. (a) In every province and city, including the
municipalities within the Metropolitan Manila
Area, there shall be prepared and maintained by
the provincial, city or municipal assessor an
assessment roll wherein shall be listed all real
property, whether taxable or exempt, located
within the territorial jurisdiction of the local
government unit concerned. Real property shall
be listed, valued and assessed in the name of
the owner or administrator, or anyone having
legal interest in the property.
(b) The undivided real property of a deceased
person may be listed, valued and assessed in
the name of the estate or of the heirs and
devisees without designating them individually;
and undivided real property other than that
owned by a deceased may be listed, valued and
assessed in the name of one or more coowners: Provided, however, That such heir,
devisee, or co-owner shall be liable severally
and proportionately for all obligations imposed
by this Title and the payment of the real
property tax with respect to the undivided
property.
(c) The real property of a corporation,
partnership, or association shall be listed,
valued and assessed in the same manner as that
of an individual.
(d) Real property owned by the Republic of the
Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has
been granted, for consideration or otherwise, to
a taxable person, shall be listed, valued and
assessed in the name of the possessor, grantee
or of the public entity if such property has been
acquired or held for resale or lease.
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
E. Classes of Real Property
a.
Commercial
b.
Agricultural
c.
Residential
d.
Mineral
e.
Industrial
f.
Timberland
g.
Special
The city or municipality within the Metropolitan
Manila Area, through their respective
Sanggunian, shall have the power to classify
lands as residential, agricultural, commercial,
industrial, mineral, timberland, or special in
accordance with their zoning ordinances.
SPECIAL CLASSES OF REAL PROPERTY (SEC. 216,
LGC)
1. Hospitals
2. Cultural and Scientific purposes
3. owned and used by Local water districts
4. GOCCs rendering essential public services in
the supply and distribution of water and/or
generation or transmission of electric power.
F. ACTUAL USE OF PROPERTY AS BASIS OF
ASSESSMENT (SEC. 217 LGC)
Real property shall be classified, valued and
assessed on the basis of actual use regardless of
where located, whoever owns it, and whoever
uses it.
Unpaid realty taxes attach to the property and
is chargeable against the person who had actual
or beneficial use and possession of it regardless
of whether or not he is the owner. To impose
the real property tax on the subsequent owner
which was neither the owner nor the beneficial
user of the property during the designated
periods would not only be contrary to law but
also unjust. (Estate of Lim vs. City of Manila, GR
No. 90639, February 21, 1990)
JOSELITO V. CONEJERO
CLASS
ASSESSMENT LEVELS
Residential
20%
Agricultural
40%
Commercial
50%
Industrial
50%
Mineral
50%
Timberland
20%
Assessment
Levels
P175,000
0%
P175,000.00
300,000
10%
300,000.00
500,000
20%
500,000.00
750,000
25%
750,000.00
1,000,000
30%
1,000,000.00
2,000,000
35%
2,000,000.00
5,000,000
40%
5,000,000.00
10,000,000
50%
Over
10,000,000.00
REAL PROPERTY TAXATION
60%
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AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
(2) Agricultural
Fair Market Value
Over
Not Over
P300,000.00
Assessment
Levels
25%
500,000.00
750,000
55%
750,000.00
1,000,000
60%
5,000,000.00
2,000,000
65%
2,000,000.00<TD 70%
P300,000.00
500,000
30%
500,000.00
750,000
35%
Class
Assessment Levels
750,000.00
1,000,000
40%
Agricultural
40%
1,000,000.00
2,000,000
45%
Residential
50%
50%
Commercial
80%
Industrial
80%
2,000,000.00
(3) Commercial / Industrial
Fair Market Value
Over
Not Over
P300,000.00
Assessment
Levels
(c) On Machineries
Assessment
Level
30%
P300,000.00
500,000
35%
Cultural
15%
500,000.00
750,000
40%
Scientific
15%
750,000.00
1,000,000
50%
Hospital
15%
1,000,000.00
2,000,000
60%
10%
2,000,000.00
5,000,000
70%
10%
5,000,000.00
10,000,000
75%
Government-owned
or
controlled
corporations
engaged in the supply and
distribution of water and/or
generation and transmission
of electric power
10,000,000.00
80%
(4) Timberland
Fair Market Value
Over
Not Over
P300,000.00
45%
P300,000.00
500,000
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JOSELITO V. CONEJERO
Assessment
Levels
50%
AMILING, BEBER, CAINDAY, CONEJERO, FERUELO & LIAO TAXATION LAW REVIEWER FOR THE 2011 BAR
3. Section 221. Date of Effectivity of Assessment or
Reassessment. - All assessments or reassessments
made after the first (1st) day of January of any year
shall take effect on the first (1st) day of January of the
succeeding year: Provided, however, That the
reassessment of real property due to its partial or
total destruction, or to a major change in its actual
use, or to any great and sudden inflation or deflation
of real property values, or to the gross illegality of the
assessment when made or to any other abnormal
cause, shall be made within ninety (90) days from the
date any such cause or causes occurred, and shall take
effect at the beginning of the quarter next following
the reassessment.
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the local government unit, on or before the thirty-first
(31st) day of December each year, an assessment roll
containing a list of all persons whose real properties
have been newly assessed or reassessed and the
values of such properties.
3. Notice of Time for Collection of Tax
Section 249. Notice of Time for Collection of Tax. - The
city or municipal treasurer shall, on or before the
thirty-first (31st) day of January each year, in the case
of the basic real property tax and the additional tax
for the Special Education Fund (SEF) or any other date
to be prescribed by the sanggunian concerned in the
case of any other tax levied under this title, post the
notice of the dates when the tax may be paid without
interest at a conspicuous and publicly accessible place
at the city or municipal hall. Said notice shall likewise
be published in a newspaper of general circulation in
the locality once a week for two (2) consecutive
weeks.
C. Periods Within Which To Collect Real Property Tax
PERIOD TO COLLECT (SEC. 270)
1.
within five (5) years from the date they
become due
2.
within ten (10) years from discovery of fraud,
in case there is fraud or intent to evade
SUSPENSION OF PRESCRIPTIVE PERIOD (SEC. 270)
1.
Local treasurer is legally prevented to collect
tax.
2.
The owner or property requests for
reinvestigation and writes a waiver before expiration
of period to collect.
3.
The owner of property is out of the country or
cannot be located.
D. Special Rules on payment
1. Section 250. Payment of Real Property Taxes
in Installments. - The owner of the real property
or the person having legal interest therein may
pay the basic real property tax and the
additional tax for Special Education Fund (SEF)
due thereon without interest in four (4) equal
installments; the first installment to be due and
payable on or before March Thirty-first (31st);
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President of the Philippines may, when public
interest so requires, condone or reduce the real
property tax and interest for any year in any
province or city or a municipality within the
Metropolitan Manila Area.
E. Remedies of LGUs for the collection of real
property tax.
1. Issuance of Notice of Delinquency in the
Payment of the Real Property Tax.
Section 254. Notice of Delinquency in the
Payment of the Real Property Tax. (a) When the real property tax or any other tax
imposed under this Title becomes delinquent,
the provincial, city or municipal treasurer shall
immediately cause a notice of the delinquency
to be posted at the main hall and in a publicly
accessible and conspicuous place in each
Barangay of the local government unit
concerned. The notice of delinquency shall also
be published once a week for two (2)
consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality.
(b) Such notice shall specify the date upon
which the tax became delinquent and shall state
that personal property may be distrained to
effect payment. It shall likewise state that any
time before the distraint of personal property,
payment of the tax with surcharges, interests
and penalties may be made in accordance with
the next following Section, and unless the tax,
surcharges and penalties are paid before the
expiration of the year for which the tax is due
except when the notice of assessment or special
levy is contested administratively or judicially
pursuant to the provisions of Chapter 3, Title II,
Book II of this Code, the delinquent real
property will be sold at public auction, and the
title to the property will be vested in the
purchaser, subject, however, to the right of the
delinquent owner of the property or any person
having legal interest therein to redeem the
property within one (1) year from the date of
sale.
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(b) The tax or a portion thereof paid under
protest, shall be held in trust by the treasurer
concerned.
(c) In the event that the protest is finally
decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded
to the protestant, or applied as tax credit
against his existing or future tax liability.
(d) In the event that the protest is denied or
upon the lapse of the sixty day period
prescribed in subparagraph (a), the taxpayer
may avail of the remedies as provided for in
Chapter 3, Title II, Book II of this Code.
B. Section 253. Repayment of Excessive
Collections. - When an assessment of basic real
property tax, or any other tax levied under this
Title, is found to be illegal or erroneous and the
tax is accordingly reduced or adjusted, the
taxpayer may file a written claim for refund or
credit for taxes and interests with the provincial
or city treasurer within two (2) years from the
date the taxpayer is entitled to such reduction
or adjustment.
The provincial or city treasurer shall decide the
claim for tax refund or credit within sixty (60)
days from receipt thereof. In case the claim for
tax refund or credit is denied, the taxpayer may
avail of the remedies as provided in Chapter 3,
Title II, Book II of this Code.
7. Taxpayers remedies
A. Contesting an assessment of value of real
property
1. Section 226. Local Board of Assessment
Appeals. - Any owner or person having legal
interest in the property who is not satisfied with
the action of the provincial, city or municipal
assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of
the written notice of assessment, appeal to the
Board of Assessment Appeals of the provincial
or city by filing a petition under oath in the form
prescribed for the purpose, together with
copies of the tax declarations and such
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prescribe the titles, functions and duties of their
members and adopt its own rules and
regulations.
Unless otherwise provided by law, the annual
appropriations for the Central Board of
Assessment Appeals shall be included in the
budget of the Department of Finance in the
corresponding General Appropriations Act.
3. Section 231. Effect of Appeal on the Payment
of Real Property Tax. - Appeal on assessments of
real property made under the provisions of this
Code shall, in no case, suspend the collection of
the corresponding realty taxes on the property
involved as assessed by the provincial or city
assessor, without prejudice to subsequent
adjustment depending upon the final outcome
of the appeal.
B. Payment of real property under protest
1. File protest with Local Treasurer
Protest payment under protest is required
within 30 days to provincial, city, or municipal
treasurer. No protest shall be entertained
unless the tax is first paid. (Sec. 252 LGC)
2. Appeal to the LBAA
Within 60 days from notice of assessment of
provincial, city or municipal assessor to LBAA
(Sec. 226 LGC)
3. Appeal to the CBAA
Within 30 days from receipt of decision of LBAA
to CBAA (Sec. 230 LGC)
4. Appeal to the CTA
Within 30 days from receipt of decision of CBAA
to Court of Tax Appeals en banc
5. Appeal to the SC
Within 15 days from receipt of decision of Court
of Tax Appeals en banc to the Supreme Court
JOSELITO V. CONEJERO
Within 60 days
Owner/Person with legal interest
Must file:
1) Written Petition under Oath
2) With Supporting Documents
Within 30 days
Within 30 days
Within 15 days
SUPREME COURT
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