TAXATION II PRE-FINALS | ATTY.

KIM ARANAS

August 21, 2015 discussion

Coverage
*Purpose and Nature
*Tax Rate and Tax Base
*Exemptions
*Return and Payment of DST
*Effects of failure to Affix Documentary Stamp
*Jurisprudence
-Documentary Stamp Tax
Purpose:

The untaxed document will not be recorded, nor will it or any copy thereof or any record of transfer
of the same be admitted or used in evidence in court until the requisite stamp or stamps have been
affixed thereto and cancelled.
No notary public or other officer authorized to administer oaths will add his jurat or acknowledgment
to any document subject to Documentary Stamp Tax unless the proper documentary stamps are
affixed thereto and cancelled.

-Nature:
In general, DST are levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific instruments. Examples
of such privileges, the exercise of which, as effected through the issuance of particular documents are subject
to the payment of documentary stamp taxes are leases of lands, mortgages, pledges and trusts, and
conveyances of real property. (Philippine Home Assurance Corporation v. Court of Appeals)

b) By using the web-based Electronic Documentary Stamp Tax (eDST) System in the payment/remittance
of his/her DST liabilities and the affixture of the prescribed documentary stamp on taxable
documents; and
c) By Revenue Collection Agent, for remittance of sold loose documentary stamps.
-Philcor Credit Corporation vs. Commissioner of Internal Revenue
G.R. No. 169899, February 6, 2013
Under Section 173 of the National Internal Revenue Code, the persons primarily liable for the payment of
DST are the persons (1) making; (2) signing ; (3) issuing; (4) accepting; or (5) transferring the taxable
documents, instruments or papers. Should these parties be exempted from paying tax, the other party
who is not exempt would then be liable. In this case, petitioner Philacor is engaged in the business of
retail financing. Through retail financing, a prospective buyer of home appliance may purchase an
appliance on installment by executing a unilateral promissory note in favor of the appliance dealer, and
the same promissory note is assigned by the appliance dealer to Philacor. Thus, under this arrangement,
Philacor did not make, sign, issue, accept or transfer the promissory notes. It is the buyer of the
appliances who made, signed and issued the documents subject to tax while it is the appliance dealer who
transferred these documents to Philacor which likewise indisputably received or accepted them.
Acceptance, however, is an act that is not even applicable to promissory notes, but only to bills of
exchange. Under the Negotiable Instruments Law, the act of acceptance refers solely to bills of exchange.
In a ruling adopted by the Bureau of Internal Revenue as early as 1995, acceptance has been defined as
having reference to incoming foreign bills of exchange which are accepted in the Philippines by the
drawees thereof, and not as referring to the common usage of the word as in receiving. Thus, a party to a
taxable transaction who accepts any documents or instruments in the plain and ordinary meaning does
not become primary liable for the tax.
-Where DST Return is filed?

-Who are required to file DST Tax Declaration?

a)

In case of constructive affixture of documentary stamps, by the persons making, signing, issuing,
accepting or transferring documents, instruments, loan agreements and papers, acceptances,
assignments, sales and conveyances of the obligation, right or property incident thereto wherever the
document is made, signed, issued, accepted or transferred when the obligation or right arises from
Philippine sources or the property is situated in the Philippines at the same time such act is done or
transaction had;

Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which has jurisdiction over the
residence or principal place of business of the taxpayer or where the property is located in case of sale of
real property or where the Collection Agent is assigned.
In places where there is no Authorized Agent Bank:
*Revenue Collection Officer or
*Duly authorized City or Municipal Treasurer
--

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Tax Code
Section
174

*certificates or other evidences of deposits that are drawing interest and having a specific maturity date
*promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation.

DST RATES
Document

Taxable Unit

Original issue of Shares of

Stock with par value

P200.00 or fraction
thereof

Original Issue of Shares of

Stock without par value

Tax Due Per

Unit
1.00

P200.00 or fraction
thereof

1.00

P200.00 or fraction
thereof
P200.00 or fraction
thereof

1.00

P200.00 or fraction
thereof

.50

On each Document

1.50

Stock Dividend

176

177

178

179
180

Bonds,
Debendtures,
Certificate of Stock in
foreign Countries
Certificate of Profits or
interest in Property or
Accumulation
Bank
Checks,
Drafts,
Certificate of Deposit not
bearing interest and other
Instruments
All Debt instruments*
All Bills of Exchange or
Drafts

P200.00 or fraction
thereof
P200.00 or fraction
thereof

.75

1.00
.30

Taxable Base
-Par value of shares of
stocks

Actual consideration
for the issuance of
shares of stocks
Actual
value
represented by each
share
Par value of such
bonds, debendtures,
Certificate of Stock or
indebtedness
Face value of such
certificate/
memorandum

Issue price of any

such instruments
Face Value of any
such bill of exchange
or draft

Debt Instrument shall mean instruments representing borrowing and lending transaction including but
not limited to:
*debentures
*certificates of indebtedness
*due bills
*bonds
*loan agreements, including those signed abroad wherein the object of the contract is located or used in
the Philippines
*instruments and securities issued by the government or any of its instrumentalities
*deposit substitute debt instruments

Tax Code
Section
181

Document

Taxable Unit

Acceptance of Bills of
Exchange or order for the
payment
of
money
purporting to be drawn in a
foreign country but payable
in the Philippines

P200.00 or fraction
thereof

182

Foreign Bills of Exchange

and Letters of Credit

P200.00 or fraction
thereof

.30

183

Life Insurance Policies

If the amount of
insurance does not
exceed
P100,000.00

Exempt

Exceeds
P100,000.00
but
does not exceed
P300,000.00
Exceeds
P300,000.00
but
does not exceed
P500,000.00
Exceeds
P500,000.00
but
does not exceed
P750,000.00

Tax Due Per

Unit
.30

Taxable Base
Face value of such
bill of exchange or
order
or
the
Philippine equivalent
of such value, if
expressed in foreign
currency
Face value of such
bill of exchange or
letter of credit or the
Philippine equivalent
of such value, if
expressed on foreign
currency
Amount of Insurance

Amount of Insurance
10.00

Amount of Insurance
25.00

Amount of Insurance

50.00

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Exceeds
P750,000.00
but
does not exceed
P1,000,000.00

Amount of Insurance

192

75.00
Exceeds
P1,000,000.00

189

190

191

Warehouse
Receipts
(except if value does not
exceed P200.00)
Jai-alai, Horse Race Tickets,
Lotto or Other Authorized
Number Games

Bills
of
Lading
or
Receipts(except
charter
party)

Amount of Insurance
193

Each receipt

100.00
15.00

P1.00 cost of ticket

.10

Cost of the ticket

194

Additional P0.10 on
every P1.00 or
fraction thereof if
cost
of
ticket
exceeds P1.00
If the value of such
goods
exceeds
P100.00 and does
not
exceed
P1,000.00

Cost of the ticket

1.00

If the value exceeds

P1,000.00

Value of such goods

195
Value of such goods
10.00

Freight
tickets
covering
goods,
merchandise
or
effects carried as
accompanied
baggage
of
passengers on land
and water carriers
primarily engaged
in
the
transportation of
passengers

Exempt

Proxies(except
proxies
issued affecting the affairs
of
associations
or
corporations, organized for
religious, charitable or
literary purposes)
Powers of Attorney(except
acts connected with the
collection of claims due
from or accruing to the
Government of the Republic
of the Philippines, or the
government
of
any
province,
city
or
Municipality.
Lease and other Hiring
agreements
or
memorandum or contract
for hire, use or rent of any
land or tenements or
portions thereof

196

Mortgages, Pledges of
lands, estate, or property
and Deeds of Trust

Deeds of Sale, instrument

or writing and Conveyances
of Real Property (except
grants, patents or original
certificate
of
the
government)

Each proxy

15.00

Each Document

5.00

First
2,000
or
fractional
part
thereof

3.00

For every P1,000 or

fractional
part
thereof in excess of
the first P2,000 for
each year of the
term of the said
contract
or
agreement
First 5,000

1.00

20.00

Amount Secured

On each P5,000 or
fractional
part
thereof in excess of
P5,000
First 1,000

10.00

Amount Secured

15.00

Consideration
FMV, whichever
higher
government is
party, basis shall
the consideration)

For each additional

15.00

or
is
(if
a
be

Consideration
or
FMV, whichever is

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

P1,000 or fractional
part thereof in
excess of P1,000
197

Charter parties and Similar

Instruments

1,000
below

1,001
tons

tons

to

and

10,000

Over 10,000 tons

198

--

Stamp Tax on Assignments

and
Renewals
or
Continuance of Certain
Instruments

P500.00 for
the first 6
months or
fraction
thereof
in
excess of 6
motnhs
P1,000 for
the first 6
months Plus
P100 each
month
or
fraction
thereof
in
excess of 6
months
P1,500 for
the first 6
months Plus
P150 each
month
or
fraction
thereof
in
excess of 6
months
At the same
rate as that
imposed on
the original
instrument

M.J. Lhuillier Pawnshop vs. CIR, G.R. No. 166786, May 3, 2006

higher
(if
government is a
party, basis shall be
the consideration.
Registered
gross
tonnage

Registered
tonnage

gross

The onus of proving that pawnshops are not subject to DST is thus shifted to petitioner. In
establishing tax exemptions, it should be borne in mind that taxation is the rule, exemption is the
exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris
against the taxpayer and liberally in favor of the taxing authority. One who claims an exemption from
tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too
categorical to be misinterpreted.
In the instant case, there is no law specifically and expressly exempting pledges entered in to by
pawnshops from the payment of DST. Section 199 of the NIRC enumerated certain documents which
are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous
claim that is not subject to DST is without merit. It cannot be over-emphasized that tax exemption
represents a loss of revenue to the government and must, therefore, not rest on vague inference.
Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be
clear and express; it cannot be made to rest on doubtful implications.

-Exempt papers/ documents from DST:

Registered
tonnage

gross

Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order,

association or cooperative company, operated on the lodge system or local cooperation plan and
organized and conducted solely by the members thereof for the exclusive benefit of each member
and not for profit.
Certificates of oaths administered by any government official in his official capacity or
acknowledgment by any government official in performance of his official duty.
Written appearance in any court by any government official in his official capacity.
Certificates of the administration of oaths to any person as to the authenticity of any paper required
to be filed in court by any person or party thereto, whether the proceedings be civil or criminal.
Papers and documents filed in court by or for the national, provincial, city or municipal governments
Affidavits of poor persons for the purpose of proving poverty
Statements and other compulsory information required of persons or corporations by the rules and
regulations of the national, provincial, city or municipal government exclusively for statistical
purposes and which are wholly for the use of the Bureau or office in which they are filed, and not at
the instance or for the use or benefit of the person filing them.
Certified copies and other certificates placed upon documents, instruments and papers for the
national, provincial, city or municipal governments.
Certificates of the assessed value of lands, not exceeding P200 in value assessed, furnished by the
provincial, city or municipal Treasurer to applicants for registration of title to land.

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Borrowing and lending of securities executed under the Securities Borrowing and Lending Program
of a registered exchange, or in accordance with regulations prescribed by the appropriate regulatory
authority.
Loan agreements or promissory notes, the aggregate of which does not exceed Two hundred fifty
thousand pesos (P250,000), or any such amount as may be determined by the Secretary of Finance,
executed by an individual for his purchase on installment for his personal use or that of his family and
not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture:
Sale, barter or exchange of shares of stock listed and traded through the local exchange (R.A. 9648)
Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance
of any agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no
change in the maturity date or remaining period of coverage from that of the original instrument.
Fixed income and other securities traded in the secondary market or through an exchange.
Derivatives: Provided, That for purposes of this exemption, repurchase agreements and reverse
repurchase agreements shall be treated similarly as derivatives.
Interbranch or interdepartmental advances within the same legal entity.
All forbearances arising from sales or service contracts including credit card and trade receivables:
Provided, that the exemption be limited to those executed by the seller or service provider itself.
Bank deposit accounts without a fixed term or maturity
All contracts, deeds, documents and transactions related to the conduct of business of the Bangko
Sentral ng Pilipinas
Transfer of property pursuant to Section 40(C )(2) of the National Internal Revenue code of 1997, as
amended
Interbank call loans with maturity of not more than seven (7) days to cover deficiency in reserves
against deposit liabilities, including those between or among banks and quasi-banks.

in electronic form. As provided for by R.A. 8792, otherwise known as the Electronic Commerce Act,
electronic documents are the functional equivalent of a written document under existing laws, and
the issuance thereof is therefore tantamount to the issuance of a written document, and therefore
subject to DST.
-Is any document, transaction or arrangement entered into under Financial Lease subject to Documentary
Stamp Tax? (RMC No. 46-2014)

-OTHER PERCENTAGE TAX (OPT)

-What is Electronic Documentary Stamp Tax (eDST) System? (sec. 5 (1), RR No. 7-2009)

Yes. Financial Lease is akin to a debt rather than a lease. A nature of an obligation than a lease of
personal property, The mere act of extending credit is already a means of facilitating an obligation or
advancing in behalf of the lessee certain property in lieu of cash in exchange for a definitive
amortization to be paid to the lessor with profit margin included. Section 179 of the NIRC, as
amended, covers all debt instruments. Therefore, being a nature of an obligation, any document,
transaction or arrangement entered into under financial lease is subject to DST under such Section of
the NIRC, as amended.

The eDST is a web-based application created for taxpayers and the BIR that is capable of affixing a
secured documentary stamp on the taxable documents as defined under the appropriate provisions
under Title VII of the NIRC of 1997, as amended, thru the use of a computer unit, any laser printer
with at least 1200 dpi resolution, and Internet Explorer 7.0. It is also capable of providing a 3-layer
watermark on stamps for added security.

Percentage Tax on Domestic Carriers and Keepers of Garages

Percentage Tax on International Carrier
Franchise Taxes
Tax on Overseas Communication
Tax on Banks and Non-bank Financial Intermediaries Performing Quasi- Banking Functions
Tax on Life Insurance Premiums
Tax on Agents of Foreign Insurance Companies
Amusement Taxes
Tax on Winnings
Tax on Sale, Barter or exchange of Shares of Stock Listed and traded Through the Local Stock
Exchange or Through Initial Public Offering
Return and Payment of Percentage Tax

--

-Is DST Law applicable on Electronic Documents? (sec. 10, RR No. 13-2004)

Yes. The DST rates as imposed under the Code, as amended by R.A. 9243 shall be applicable on all
documents not otherwise expressly exempted by the said law, notwithstanding the fact that they are

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Coverage
Persons Exempt from VAT under
Sec. 116
Domestic carriers and keepers of
garages
International Carriers:
International air/shipping carriers
doing business in the Philippines
Franchise Grantees:
Electric, gas and water utilities
Radio and television broadcasting
companies whose annual gross
receipts of the preceding year do
not exceed P 10,000,000 and did
not opt to register as VAT taxpayer
Tax on overseas dispatch message
or conversation originating from
the Philippines (Section 120) (by
telephone, telegraph, telewriter
exchange, wireless and other
communication services)

Basis
Gross Sales or Receipts

Tax Rate
3%

Gross Receipts

3%

Gross Receipts

3%

Gross Receipts
Gross Receipts

2%
3%

Amount paid for the service (paid

by the person availing the service
to the person rendering the
services)

10%

Other
non-bank
Finance
Intermediaries (Sec. 122)

Exemptions from Section 120:

1.
2.
3.
4.

Government
Diplomatic Services
International Organizations
News Services

Life Insurance Companies (except

purely cooperative companies or
associations)(Sec 123)
Agents of foreign insurance
companies (Sec. 124) (except
reinsurance premium)
In all cases, where owners of
property obtain insurance directly
with foreign companies (without
use of any agent)

-Bank and non-bank financing

intermediaries

Interest,
commissions
and
discounts from lending activities as
well as income from finance lease
on the basis of remaining
maturities of instruments:
*Short term maturity (5 years or
less)
*Maturity period is more than 5
years
On Dividends and equity shares in

0%

7%

7%

5%

5%
1%
2%

Total Premiums collected

Twice as the tax imposed in

Section 123

Premiums paid

5%

AMUSEMENT TAXES

5%
1%

net income of subsidiaries

On royalties, rentals of properties,
real or personal, profits from
exchange and all other items
treated as gross income under
Section 32 of the code
On Net Trading Gains within the
taxable year on foreign currency,
debt securities, derivatives and
other similar financial instruments
On interest, discounts and other
items of gross income paid to
finance companies and other
financial
intermediaries
not
performing
quasi
banking
functions
Interest,
commissions
and
discounts paid from their loan
transactions
from
finance
companies as well as income from
financial leasing shall be taxed
based on the remaining maturities
of instruments:
*maturity period is 5 years or less
*maturity period is more than 5
years
Total Premiums collected

Proprietors, lessee or operator of

the following:
Cockpits
Cabarets, Night or Day Clubs

Gross Receipts
Gross Receipts

18%
18%

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Boxing exhibitions (Except world or

oriental championship is at stake
AND one of the contenders if
Filipino citizen promoted by the
Filipino citizen of Philippine
Corporation.)
Professional Basketball games
Jai-alai and race track (operators
shall withheld tax on winnings)
irrespective of whether or not any
amount is charged for admission.
Every stock broker who effected a
sale, barter, exchange or other
disposition of shares of stock
listed and traded through the
Local Stock Exchange (LSE) other
than the sale by a dealaer in
securities
A corporate issuer/stock broker,
whether domestic of foreign,
engaged in the sale, barter,
exchange or other disposition
through Initial Public Offering
(IPO)/ secondary public offering
of shares of stock in closely held
corporations

Gross Receipts

10%

When: within 25 days after the end of each taxable quarter (except cancellation of VAT registrationOP Tax
accrues from the date of cancellation)

Gross receipts
Gross receipts

15%
30%

Persons retiring from business subject to business tax must notify the nearest RDO, file his return and pay the
tax within 20 days after closing the business.
Note: Commissioner by a revenue regulation may prescribe manner and time for filing.
Where: AABs, RDO, or duly authorized treasurer of the city or municipality.

Gross selling price or gross value in

money or shares of stocks sold,
bartered, exchanged or otherwise
disposed

of 1%
Tax Enforcement & Administration
An Introduction to NIRC Remedies
Agencies Involved in Tax Administration

GSP or gross value in money

shares of stocks sold, bartered,
exchanged or otherwise disposed
in accordance with the proportion
of stocks sold, bartered or
exchanged or after listing in the
stock exchange
*Up to 25%
*Over 25% but not over 33 1/3%
*Over 33 1/3%

Bureau of Internal Revenue (BIR)

Bureau of Customs (BOC)
Provincial, city, and municipal assessors and treasurers

--

4%
2%
1%

-Closely Held Corporations (Section 127)

When and where to file OPT return?

Any corporation at least 50% in value of the outstanding capital stock or at least 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.

Powers and Duties of the BIR (AGEE)

Assessment and collection of all national internal revenue taxes, fees, and charges
Give effect to and administer the supervisory and police power conferred to it by the Tax Code or
other laws
Enforcement of all forfeitures, penalties and fines in connection therewith
Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary
courts

--

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Officials of the BIR

1.
2.
3.
4.
5.
6.
7.

CIR
Deputy Commissioners
Assistant Commissioners
Head Revenue Executive Assistants
(HREA)
Regional Directors
Revenue District Officers
Revenue enforcement officers or
examiners

---------

September 1, 2015 discussion

In depth discussion of the powers:
1. POWER TO INTERPRET THE TAX CODE AND OTHER TAX LAWS (EXCLUSIVE AND ORIGINAL
JURISDICTION)
a. Recommending power in the passage of Revenue regulations
b. Revenue Regulation general interpretations of tax laws seeking to explain the
provisions fo the law
c. Revenue Ruling/Opinion more specific in nature; addressing particular needs of a
taxpayer but is applicable only to the requesting taxpayer. Subject to review by the Secretary
of Finance

GENERAL POWERS OF THE CIR

1.

Power to interpret the tax code and

other tax laws (exclusive and original
jurisdiction)
2. To obtain information, and to
summon,
examine
and
take
testimony of persons;
3. To make assessments and prescribe
additional requirements for tax
administration and enforcement;
4. To conduct inventory taking,
surveillance and to prescribe
presumptive gross sales and receipts;
5. To terminate taxable period;
6. To prescribe real property values;
7. To inquire into bank deposit
accounts;
8. To accredit and register tax agents;
9. To prescribe additional procedural or
documentary requirements; and
10. To delegate power to subordinates.
(Sec. 4 to 8, NIRC)

2. POWER TO DECIDE DISPUTED ASSESSMENTS, REFUNDS, PENALTIES AND OTHER MATTERS UNDER
THE NIRC OR OTHER LAWS ADMINSITRED BY THE BIR
a. Administrative actions by taxpayers prior to the judicial action (CTA)
b. There must be clear and unequivocal indication. Whenever the CIRs action on an
assessment questioned by the taxpayer constituted his final decision/determination on the
dispute.
3. OBTAIN INFORMATION AND TO SUMMON, EXAMINE AND TAKE TESTIMONY OF PERSONS
a. EXTENT:
i. Canvass from time to time the revenue region or district
ii. Obtain information on a regular basis information sourced from the taxpayer (selfassessment) or 3rd party information
iii. Take testimony of persons (under oath) as may be relevant or material to the
inquiry
iv. Examine any book, record, data which may be relevant to the inquiry, subject to the
period to prescribe the keeping of books. How many year?
v. To issue summons
-Q: Is the BPS exempt from internal revenue taxes?
A: No. Only DST exempted.
Q: May the CIR and/or his subordinate issue subpoena? (i.e. subpoena duces tecum)
A: YES. Pursuant to the CIRs power to obtain information and to summon under Sec 5 of the NIRC. However,
this is NOT a requisite before resorting to the best evidence obtainable.
--

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

3.

4.

MAKE ASSESSMENTS
a.

b.

iii.
iv.

Examination of returns and determination of tax due based on best evidence obtainable
i. GR: Confidentiality of tax returns:
ii. Exception (PA-EFEC)
1. Upon written order of President of the Philippines
2. IN aid of legislation of Confressional Oversight Committee
3. Material evidence in criminal case where the government is interested in
the result
4. Inspection of authorized under of Financial Regulation 33
5. Request for exchange of information by foreign tax authority (RA no.
10021/FATCA)
6. Upon consent/authority of taxpayer.
Sources:
i. Government offices/agencies
ii. Corporations/employers
iii. Clients or patients
iv. Tenants, lessees, vendees and from all other sources

-Q: May returns, statement, or declaration filed with the BIR be withdrawn?
A: As a rule NO.
Exception:
Done within 3 years from filing of the returns
No notice of audit or investigation of such return has been served upon the taxpayer.
-c. Assess the proper tax
i. CONCEPT OF ASSESSMENT
1. Assess means to impose a tax, to charge with a tax; to declare a tax to be
payable; to apportion a tax to be paid or contributed, to fix a rate; to fix or
settle a sum to be paid by way of tax; to set, fix or charge a certain sum to
each taxpayer; to settle, determine or fix the amount of tax to be paid (84
C.J.S. 74-750)
2. An assessment is the notice to the effect that the amount therein stated is
due from a taxpayer as a tax with a demand for payment of the same
within a stated period of time (Commissioner vs. CTA)
ii. Requisites for valid assessment:
1. The taxpayer shall be informed in writing of the law and the facts on which
the assessment is made. (Sec 228, NIRC)
2. An assessment constrains not only a computation of tax liabilities, but also
a demand for payment within a prescribed period (CIR vs. PASCOR)

v.

vi.

An assessment must be served on and received by the taxpayer (CIR vs.

PASCOR)
Best evidence obtainable OR
Use the net-worth method- an extension of the basic accounting formula: Asset (A)
= liabilities (L) + Equity (E)
Conditions (using Net Worth Method)
1. No books of accounts or books do not reflect the correct income or refuses
to produce the books or books were destroyed
2. There is evidence of possible source/s of income causing an increase in net
worth
3. There is fix or opening net worth
4. The method reflects taxpayers income with accuracy and certainty after
various adjustments.
NET WORTH METHOD
Net worth end of taxable year
Less: Net worth beg of taxable year
Increase in net worth
Add: Non-deductible disbursements
Correct Net Income
Less: exemptions
Taxable Income

xxx
xxx
xxx
xxx
xxx
xxx
xxx

Income tax on Taxable Income

Less: Amount already paid on reported Taxable income
Deficiency Income Tax
Add: Surcharge and Interest
Total Amount Due
d.

xxx
xxx
xxx
xxx
xxx

Conduct of inventory-taking, surveillance, and to prescribe presumptive gross sales and

receipts
i. TYPES OF SURVEILLANCE:
1. Covert Surveillance surreptitious and undercover watch on business;
2. Overt Surveillance - commences from inventory taking of business
document, then actual business observation and close monitoring of
business activities
3. Short duration surveillance Tax Compliance Check

-Q: May the BIR conduct Benchmarking aside from surveillance?

A: Yes. This is usually undertaken to determine the NET VALUE due and the NET INCOME TAX DUE

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

ii. BENCHMARKING GUIDELINES:

1. Shall be separate for corporations and individuals;
2. Per are, per line of industry, and per tax type basis
3. Done per RDO by preparing taxpayers profile per taxable year
4. Based on tax returns and data from other sources within and outside the
Bureau, RDOs shall determine the specific industry coverage
5. If LOA was issued, it will only be closed upon consideration of the
prescribed benchmarks.
e.

5.

AUTHORITY TO TERMINATE TAXABLE PERIODS

a.

6.
7.

Issue jeopardy assessments

i. GR: BIR Assessment only upon FULL audit
ii. Exception: Jeopardy Assessment
iii. Jeopardy Assessment A tax assessment made by an authorized Revenue
Officer (RO) without the benefit of a complete or partial audit in light of the ROs
belief that the assessment and collection of the deficiency tax will be jeopardized by
delay to taxpayers failure to:
1. Comply with audit and investigation requirements to present his books
and/or pertinent records; OR
2. Substantiate all or any of the deduction, exemption or credit claimed in his
return

Instances when tax periods may be terminated: (LR-RA)

i. Intending to leave the Philippines;
ii. Retiring from business;
iii. Intends to remove/hide/conceal his properties in the Philippines;
iv. Taxpayer is performing an act tending to obstruct the proceedings for collection of
the tax for past or current quarter for a year or to render the same ineffective
(totally or partially)

PRESCRIBE REAL PROPERTY VALUES ZONAL EVALUATION

INQUIRE INTO BANK DEPOSITS
a.
b.

GR: Bank Secrecy Law:

Exception:
i. Power to inquire into bank deposits of a decedent for purposes of determining his
gross estate, determining the correct estate tax due to the government, no need of
waiver
ii. In an application for compromise of tax liability due to financial incapacity to pay tax
liability

iii. Exchange of information by the BIR on tax matters pursuant to internationallyagreed standards (RA 10021, FATCA)
8.

ACCREDIT AND REGISTER TAX AGENTS

9. PRESCRIBE ADDITIONAL PROCEDURAL OR DOCUMENTARY REQUIREMENTS

10. AUTHORITY OF THE COMMISSIONER TO DELEATE POWER
a. EXCEPTION: Non-delegable Powers (RICA)
i. To recommend the promulgation of rules and regulations of the Sec of Finance
ii. To issue rulings of first impression or to reverse, revoke, modify only existing ruling
iii. To compromise or abate any tax liability (except assessments issued by the regional
offices involving basic deficiency taxes of P500,000 or less, and minor criminal
violations)
Exception to Exc: May be delegated to subordinate official with a a rank
equivalent to division chief or higher
iv. Power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produces or kept.
11. AUHTORITY TO MAKE ARRESTS AND SEIZURES
a. Responsible officers:
i. CIR
ii. Deputy Commissioners
iii. Regional Directors
iv. Revenue District Officers
v. Other Internal Revenue Officers
b. Reason: violation of penal laws and Rules and regulations administered by the BIR
c. Proceedings: Before a competent court, to be dealt with according to law.
12. AUTHORITY TO ASSIGN INTERNAL REVENUE OFFICERS
a. Those involved in excise tax functions: LIMITATION up to 2 years
b. Assignment to other special duties
i. LIMITATION:
1. Internal revenue officer assigned to perform assessment or collection
function shall not remain in the same assignment for more than 3 years
2. Assignment to special duties shall not exceed 1 year.
ii. UNLESS THERE IS A CERTIFICATION (CAR)
1. Register of deeds no registration of transfer in the registry of property
transferring real rights or any chattel mortgage
2. Debtor of the deceased shall not pay to the administrator, heirs, legatee,
executor, administrator, etc
3. Bank shall not allow withdrawal

10

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

4.

Lawyer, notary public, or any government officer must furnish copies with
the BIR
iii. RMO 3-2009 OPLAN KANDADO. The closure of the business shall last for a period
of no less than 5 days and shall be in force until the violation is rectified.
iv. RATE Run Against Tax Evaders
---------4 DEPUTY COMMISSIONERS PLUS 2
1. Operations Group
2. Legal and inspection group
3. Resource management group
4. Information systems group
PLUS two deputy commissioners for newly created positions
5. Tax reform administration group
6. Special Concerns Group
-------FIELD SERVICE REGIONAL OFFICES (HEADED BY THE REGIONAL DIRECTOR)
POWERS AND DUTIES OF RD (Section 10, NIRC)
1. Implements laws, policies, pans, programs, rules and regulations of the department or agencies in the
regional area
2. Administer and enforce internal revenue laws, and rules and regulations, including the assessment
and collection of all internal revenue taxes, charges and fees
3. Issues letters of authority (LOA) for the examination of taxpayers within the region
4. Provides economical, efficient and effective service to the people in the area
5. Coordinates with the Local Government in the area
6. Coordinate with other regional offices or other departments, bureaus and agencies in the area
7. Exercises control and supervision over the officers and employees within the region
8. Performs such other functions as may be provided under the law and as may be delegated in the CIR

2.

Collection agents and clerks

As a rule , assignment is up to 3 years.

Tasked for BIR to achieve its quota in accordance with the govts budget.
---Q: What are the duties and functions of RDOs and other Internal Revenue Officers?
1) Examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax;
AND
2) Recommend the assessment of any deficiency tax
*Pursuant to a LOA issued by the Regional Director.
-----September 10, 2015 discussion
NIRC REMEDIES
1. Remedies of the Government
2. Remedies of the taxpayer
REMEDIES OF THE GOVERNMENT
(Manner in which the government may assess/collect tax)
3 KINDS:
BASIC

Assessment
Collection

Administrative Remedies
NATURE

Cebu is under the Region 13.

Judicial Remedies

----REVENUE DISTRICT OFFICERS implement programs, methods, and procedures necessary for the efficient,
effective and economical assessment and collection of internal revenue taxes in the revenue district

PROCEDURE

Lien
Distraint
Levy
Forfeiture
Sale of Property
Fines and Penalties
Compromise & Abatement
Civil
Criminal

Assessment & Collection

Collection ONLY

Compositions of RDOS:
1. Field Men and Examiners

11

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

WHEN ASSESSMENT IS MADE? && EXCEPTIONS?

Prescriptive period for assessment (Sec 203, NIRC)
If the taxpayer filed a return: internal revenue taxes shall be assessed within 3 years after the last day
prescribed by law for the filing of the return.
If a return is filed BEYOND THE PERIOD prescribed by law: the 3 year period shall be counted from the
day the return was filed.
o EXCEPTION:
False return
Fraudulent return with intent to evade tax
Failure to file return (sec 222, NIRC)
Q: What is the difference between false and fraudulent return?
A: Both are erroneous return since they do not reflect the true amount. Fraudulent, there is intent. False is
basically from negligence of TP ( no intention).

KINDS OF ASSESSMENT

BY THE TAXPAYER

BY THE BIR

BY THE BIR, WITH

AUTHORITY

SELF-ASSESSMENT

ILLEGAL AND VOID ASSESSMENT

DEFICIENCY ASSESSMENT
ERONEOUS ASSESSMENT
JEOPARDY ASSESSMENT
DISPUTED ASSESSMENT

GENERAL RULE: TAXES ARE SELF-ASSESSING

Exceptions: (When there is a need for assessment)
1. Tax period of a taxpayer is terminated (Sec 6D)
2. Deficiency tax liability arising from a tax audit by BIR (Sec 568)
3. Tax lien (Sec 219)
4. Dissolving Corporation (Sec 52C)
PRINCIPLES GOVERNING TAX ASSESSMENT
1.
2.

3.
4.
5.

Presumed in favor of tax assessment

Must be based on actual facts on presumptions
a. PAN Preliminary Assessment notice BIR must specify both the factual and legal basis of
deficiency. Also in FAN (Final Assessment Notice)
Discretionary upon the commissioner
The authority to assess may be delegated
Must be directed to the right party

12

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

13

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

NOTES:
Issuance of LOA signed by CIR OR signed by RD if the investigation was conducted by RDOs.
RR 2013 informal conference before informing TP was cut short by the regulation.
PAN required under the law. Several jurisprudence invalidating BIR assessments because of the
absence of PAN. AS a requirement: must contain both factual and legal basis of assessment. There
should also be a period for the TP to pay the tax.
Issuance of Pan Response from TP (within 15 days) BIR will check merit and may dismiss it or
may issue formal letter of demand (FLD) or Final Assessment Notice (FAN).
Upon FLD/FAN Protest (within 30 days) = need to specify nature of protest.
o Whats the danger of no protest? You cannot anymore question the FAN before the CTA.
NATURE OF PROTEST:
o Request for reconsideration You are requesting that BIR look back the documents and
computation. No need of additional document.
o Request for reinvestigation There is a new evidence or additional evidence introduced for
TP not to be liable. Submit supporting documents within 60 days.
o With legal or jurisprudential basis
CIR is mandated to resolve your protest within a period of 180 days (not mandatory, only
recommendatory). Counting would matter if reconsideration or reinvestigation.
o Reconsider = start from date of filing of protest
o Reinvestigation = from date of submission of supporting documents.
Lapse of 180 days is NOT deemed denial of your protest. It gives you a right that you can APPEAL to
CTA within 30 days after the lapse OR wait for BIR decision before filing appeal (with another 30
days). Choice is MUTUALLY EXCLUSIVE. (Lascona Case, 2012)
If decision if favorable to TP, End. However, Secretary of Finance may review.
In MR, Fresh period DOES NOT APPLY. The remaining number of days will be the only days available
to you.
If appeal coming from BIR to CTA, already a judicial action.
SUMMARY:
o LOA
o Audit or investigation
o PAN
o FAN
o Adverse Decision
o Appeal to CTA
o Appeal to SC
REMEDIES OF THE GOVERNMENT FOR NON-PAYMENT OF TAXES
I.

Administrative remedies
a. Tax lien
b. Distraint (actual and constructive)

II.

III.

c. Levy
d. Sale of property of a delinquent taxpayer
e. Forfeiture of property
f. Compromise and abatement
g. Penalties and fines
h. Suspension of business operations
Judicial Remedies
a. Civil action
b. Criminal action
Enforcement of administrative fine
COLLECTION if there is deficiency tax payable, it culminates assessment.

---ADMINISTRATIVE LIABILITIES
A. TAX LIEN
A legal claim or charge on property of the taxpayer as security for the payment of some debt or
obligation.
Accrues when the taxpayer neglects or refuses to pay his tax liability after demand with interests,
penalties and costs that may accrue in addition thereto.
The lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien
shall have been filed in the register of deeds of the province or city where the property is located. But
effective against third persons only when notice of such lien is filed by the Commissioner in the
Register of Deeds in the province/city where the property is situated. (Sec. 219, NIRC)

No taking of property but only an indication that the government has a lien over the property.
What is the extent of the lien? It may be undertaken against all the personal and reap properties of
the TP.
Superior over other creditors of TP.

---B. DISTRAINT
The collection of taxes is enforced on the goods, chattels, or effects and other personal property,
including stocks and other securities, debts, credits and interest and rights to personal property.
Who may effect distraint?
1. Commissioner or his duly authorized representative if the amount involved is more than P
1,000,000.00
2. Revenue District Officer if the amount involved is 1,000,000 or less.

2 types: ACTUAL AND CONSTRUCTIVE

Already a manner of collecting, as opposed to Tax lien

14

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Keyword: PERSONAL PROPERTY

ACTUAL vs. CONSTRUCTIVE DISTRAINT

Requisites of Distraint (D2 FN)

o The taxpayer must be delinquent (except in constructive distraint) in the payment of tax
o There must be a subsequent demand for its payment (assessment)
o The TP fails to pay the tax at the time required AND
o The period within which to assess or collect the tax has not yet prescribed.

ACTUAL DISTRAINT
Made only on the property of a delinquent taxpayer

1.

ACTUAL DISTRAINT
a. There is taking of possession of the property from the taxpayer by the government
b. Resorted to when at the time required for payment, a person fails to pay his delinquent tax
obligation
c. Effected by:
i. Leaving a list of the distrained property OR
ii. By service of a warrant of distraint or garnishment
1. Garnishment of bank account delivered to TP and bank officer

-----------Q: Is garnishment of bank account a violation of Bank Secrecy Law?

A: NO. When it comes to garnishment, there is no inquiry of the details of the bank account. Just placed under
the control of the government.
**if everything is silent, ACTUAL DISTRAINT
-----------

There is taking of possession

Effected by leaving a list of distrained property or by
service of warrant of distraint or garnishment

An immediate step for collection of taxes

LIEN vs. DISTRAINT

LIEN
Directed against the property subject to the tax
Regardless of the owner of the property

CONSTRUCTIVE DISTRAINT
a. The owner is merely prohibited from disposing of his property
b. Issued even when there is no actual tax delinquency
c. Availed of when taxpayer is:
i. Retiring from any business subject to tax
ii. Intending to ---1. Leave the Philippines OR
2. Remove his property therefrom OR
3. Hide or conceal his property OR
iii. Performs any act tending to obstruct the proceedings for collecting the tax due.
d. No actual taking. Just preserving it for taking SOON.

--------Q: What happens if you sold the property (after distraint) without authority from CIR?
A: Under Sec 276.
----------

DISTRAINT
Need not be directed against the property subject to
the tax
Property seized must be owned by the taxpayer

-----------C.

2.

CONSTRUCTIVE DISTRAINT
Made on the property of any taxpayer whether
delinquent or not
The taxpayer is merely prohibited from disposing of
his property
Effected by requiring the taxpayer to sign a receipt of
the property or by the revenue officer preparing and
leaving a list of such property
*If TP refuses to sign, there has to be a valid reason
Not necessarily so

LEVY
It refers to the act of seizure of real property in order to enforce the payment of taxes. The requisites
for the exercise of the remedy of levy is the same as in the remedy of distraint.
WHEN?
Before/ Simultaneously / After the distraint of personal property belonging to the taxpayer
Effected by:
1. writing upon an authenticated certificate showing:
the name of the taxpayer
amounts of the tax and penalty due
description of the property upon which levy is made
2.

written notice of the levy shall be mailed to or served upon:

the Register of Deeds of the province or city where the property is located, and
the delinquent taxpayer
If absent from the Philippines, to his agent or manager of the business in respect to which

15

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

1.
2.
3.

4.
5.

the liability arose

If there be none, to the occupant of the property in question

Procedure:
internal revenue officer shall prepare a duly authenticated certificate showing the name of the
taxpayer, amounts of tax and penalty due. Enforceable throughout the Philippines
officer shall write upon the certificate a description of the property upon which levy is made
written notice of levy shall be mailed or served upon
the Register of Deeds where the property is located and
the taxpayer or agent/manager of the business in respect to the tax liability or to the occupant
of the property
If personal property of taxpayer is not sufficient to satisfy the tax due, levy on real property shall
proceed within 30 days after distraint
Report on levy
1. By levying officer
submitted 10 days from receipt of warrant
submitted to the Commissioner or his representative
2. By the Revenue Regional Director consolidated report, as may be required by the
Commissioner

D. SALE OF PROPERTY OF DELINQUENT TAX PAYER

In case of distrained property
A) Notification specifying the time and place of sale & the articles distrained shall be exhibited:
in not less than 2 public places (one place shall be at the office of the Mayor)
in the municipality or city where the distraint is made
B) The time of sale shall not be less than 20 days after notice to the owner or possessor of the property
and the publication or posting of such notice
C) Sale of the property at
public auction to the highest bidder for cash, or
through duly licensed commodity or stock exchanges, with the approval of the CIR.
In case of levied property
A) Advertisement of the time and place of sale of the taxpayer's property as may be necessary to satisfy
the claim within 20 days after the levy, and it shall cover a period of at least 30 days
1. posting a notice at the main entrance of the municipal building or city hall and in a public and
conspicuous place in the barrio or district in which the real estate lies and
2. by publication once a week for 3 weeks in a newspaper of general circulation in the municipality
or city where the property is located

B) Sale at
1. at the main entrance of the municipal building or city hall or
2. on the premises to be sold, as the officer conducting the proceedings shall determine and as the
notice shall specify.
C) Disposition of proceeds of sale NB: In case the proceeds of the sale exceed the claims (taxes,
penalties and interest) and cost of the sale, the excess shall be turned over to the owner of the
property.
Redemption by the taxpayer
Within 1 year from the date of sale, that is, from the date of the registration of the deed of sale. By the
taxpayer or anyone for him by paying the full amount of:
Taxes
Penalties
Interests, and
Costs of Sale
Pending redemption of the property sold, the owner shall:
not be deprived of the possession of the property
be entitled to the rents and other income thereof

RIGHT OF PRE-EMPTION
Prevent selling of property by paying all
liabilities before date of sale
RIGHT OF REDEMPTION
Redeem property from registration of
Certificate of Sale
E.

DISTRAINT

LEVY

Available

available

Not available

Available
*only for the RPs

FORFEITURE OF PROPERTY

Effected when:
o There is no bidder for the RP in the public sale OR
o If the amount of the highest bid isinsufficient to pay the taxes, penalties and costs
The Register of Deeds concerned shall:
o Upon registration of the declaration of forfeiture, transfer ot the title fo the property to the
government
o (see slide(
Enforced by:
o IN CASE OF PERSONAL PROPERTY
Seizure and
Sale or destruction of the property

16

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

F.

COMPROMISE AND ABATEMENT

1. COMPROMISE
A contract whereby the parties by reciprocal concessions, avoid litigation or puta an end to one
already commenced
A. Requisites
i. The TP must have a tax liability
ii. There must be acceptance (by the commissioner or taxpayer as the case may be) of
the offer in the settlement of the original claim
iii. There must be an offer (by the TP of an amount to be paid him)
B. Officers authorized to compromise (see slide)

Note:

IN CASE OF REAL PROPERTY

Judgment and condemnation and
Sale in a legal action or proceeding civil or criminal, as the case may be
Redemption by the Taxpayer
o Same as that of redemption in case of sale
o The 1 year period starts from the date of registration of the declaration of forfeiture

Acceptance is not yet final if made by subordinate

But rejection, even if made by subordinate, is final.

Compromise in civil cases

Grounds (civil case)
1. When a reasonable doubt as to the validity
of the claim against the taxpayer exists
2. When the financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.

Compromise in criminal cases

All criminal actions may be compromised,
except:
1.
2.

those already filed in court

those involving fraud

Limitation as to amount:
1. In case of financial incapacity: 10% of the
basic assessed tax
2. Other cases: 40% of the basic assessed tax

Extent of Discretion
A) before the complaint is filed with the prosecutor's
office
The Commissioner has full discretion to
compromise except those involving fraud.

The approval of the Evaluation Board

(composed of the CIR and the Deputy
Commissioners) is required when:
1. The basic tax involved exceeds P1,000,000 or
2. The settlement offered is less than the MCR

B) after the complaint is filed with the prosecutor's

office but before the information is filed with the
court
The Commissioner can still compromise provided
the prosecutor consented.

C) after the information is filed with the court

The Commissioner is no longer permitted to
compromise with or without the consent of the
prosecutor
C.

Remedies when TP refuses or fails to abide by a tax compromise

i. Enforce the compromise
1. Judicial compromise can be enforced by mere execution
2. Extrajudicial compromise can only be enforced by court action
ii. Regard it as rescinded and insists upon original demand.

COMPROMISE

COMPROMISE PENALTY
Definition
An amount of money paid by the taxpayer to settle
An amount of money paid to compromise a tax
his civil liability for tax assessed
violation that he has committed, which may be the
subject of criminal prosecution
Basis of Amount Paid
Basic tax assessed
Gross sales or receipts during the year of the tax due
Minimum Amount
The limitation depends on the legal grounds used by
Depends on the nature of the tax violation and the
the taxpayer
minimum amount is generally not less than Php 1,000
2.

ABATEMENT
Cancellation of the tax liability

Grounds:
1) When the tax assessed or any portion thereof appears to be unjustly or excessively demanded, or
2) When the administration and collection costs involved do not justify the collection of the amount
due
General Rule: the power to compromise and abate cannot be delegated by the CIR
Except:
1. Assessments issued by regional offices involving basic taxes of Php500,000 or less and;
2. Minor criminal violations.

G. PENALTIES AND FINES

Refer to:
o Surcharges
o Deficiency Interest
o Delinquency Interest

17

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Surcharges:
Not really a penalty as used in criminal law but a civil administrative sanction designed primarily to:
a) Protect the State revenue, and
b) Reimburse the government for the expenses in investigating and the loss resulting from the
taxpayers fraud
Interest
A. Deficiency Interest
20% per annum from the date prescribed for its payment until the full payment thereof
B.

Delinquency Interest
Interest of 20% or the Manila Reference rate, whichever is higher, required to paid in
case of failure to pay:
i.
The amount of the tax due on any return required to be filed
ii.
Amount of the tax due for which return is required
iii.
The deficiency tax or any surcharge or interest thereon, on the date appearing
in the notice and demand of the CIR

Compromise Penalty
Similarities of compromise and compromise penalty:
1.
2.
3.

They both imply mutual agreement.

A compromise penalty cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
The CIR has no power to impose and collect the compromise penalties in the absence of a
compromise agreement validly entered into between the taxpayer and the CIR.

H. SUSPENSION OF BUSINESS OPERATIONS

Failure to file VAT return
Failure to issue VAT receipts
----------------------JUDICIAL REMEDIES
A. CIVIL ACTIONS
includes filing by the government within the probate court claims against the deceased
taxpayer.

Enforced by:
1) Filing a civil case for the collection of sum of money with the proper regular court (i.e. MTC
or RTC) or
2) Filing an answer to the petition for review filed by the taxpayer with the CTA.
A. Civil actions filed with ordinary courts
Resorted to only when tax becomes:
1. Delinquent
2. Collectible
Collectibility arises when:
1. Self-assessed tax shown in the return was not paid within the date prescribed by law.
2. Final assessment is not protested administratively within 30 days from date of receipt.
3. Non-compliance with the condition laid in the approval of protest.
4. Failure to file a timely appeal to the CTA on the final decision of the CIR or his authorized
representative on the disputed assessment.
Defenses precluded by final and executory assessments:
1) Invalidity or illegality of the assessment and
2) Prescription of the governments right to assess.

B. Civil actions filed with the CTA

The fact that no civil action was filed before the ordinary courts to collect the tax liability
is no ground for claiming that the right to collect had already prescribed.
The answer filed by the government in the CTA is tantamount to the filing of a civil
action for collection in the regular court and has the effect of tolling the prescriptive
period. (Hermanos, Inc. vs CIR, 29 SCRA 552)
B. CRIMINAL ACTIONS
2 Common crimes punishable under the Tax Code:
1) Attempt to evade or defeat a tax
2) Failure to file return, supply correct and accurate information, pay tax, withhold and remit
tax and refund excess taxes withheld on compensation.
Any person required under the Tax Code
a. To pay any tax
b. Make a return
c. Keep any record
d. Supply correct and accurate information
e. Withhold or remit taxes withheld
f. Refund excess taxes withheld on compensation

18

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Who willfully violates these duties at the time or times required by law shall be punished upon
conviction in addition to other penalties.
Is the approval of the CIR required in filing criminal or civil cases?
YES. However, the approval of the Commissioner required for the judicial enforcement of tax liability
is not jurisdictional. Lack of such approval merely affects the cause of action or capacity to sue.
Is assessment required before a criminal action may be charged?
NO, provided there is a prima facie showing of a willful attempt to avoid taxes.

REMEDIES OF TAXPAYER
(see slide)
A. ADMINISTRATIVE
a. Before Payment
i. (payment) with protest
ii. Entering into a compromise
b. After payment filing of a claim for refund or tax credit within 2 years from date of
payment regardless of supervening cause.
B. JUDICIAL
a. Civil action
i. Appeal to CTA within 30 days from receipt of decision on the protest or from the
lapse of 180 days due to inaction of the Commissioner;
ii. Action to contest forfeiture of chattel and
iii. Action for damages
b. Criminal Action
i. Filing of criminal complaint against erring BIR official and employee and
ii. Injunction when the CTA in its opinion, considers that the collection by the BIR
may jeopardize taxpayer.
Protest of Assessment
1. File a request for reinvestigation or reconsideration within 30 days from receipt of the
assessment
a. Request for reinvestigation
A plea for re-evaluation of an assessment on the basis of newly-discovered or
additional evidence, that a taxpayer intends to present in the reinvestigation. It
involves a question of fact or law or both.
b.

Request for reconsideration

2.

A plea for re-evaluation of the assessment on the basis of existing records

without need of additional evidence. Involves a question of fact or law or both
(RR No. 12-85)

Within 60 days from filing of protest, all relevant supporting documents should have been
submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228, NIRC)

Appeal of Protest to the CTA (Sec. 228 NIRC)

1) Grounds:
a. If the protest is denied in whole or in part or
b. Is not acted upon within 180 days from submission of documents/filing of protest
(reconsideration)
2) Appellate Court: Court of Tax Appeals
Period to appeal:
a. Within 30 days from receipt of the decision denying the protest or
b. 30 days from the lapse of the 180 day period.
Effect of failure to appeal: the decision shall be final, executor and demandable.
Taxpayers Suit
Requisites:
1. the tax money is being extracted and spent in violation of specific Constitutional protections
against abuses of legislative power
2. that public money is being deflected to any improper purpose
3. That the petitioner seeks to restrain the respondents from wasting public funds through
enforcement of invalid or unconstitutional law.
However, the Supreme Court has discretion whether or not to entertain a taxpayers suit and could
brush aside the lack of locus standi where the issues are of transcendental importance in keeping
with the courts duty to determine that public officers have not abused the discretion given to them.

TAX REFUND OR TAX CREDIT

Grounds
1) Tax is collected erroneously or illegally
2) Penalty is collected without authority
3) Sum collected is excessive
Requisites
1) Claim must be in writing
2) It must be filed with the Commissioner within two years (2) after the payment of the tax or
penalty; and

19

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

3) Show proof of payment

Prescriptive period for the COLLECTION of taxes:
Starting date of counting the 2-year period:
GENERAL RULE: from the date of payment, regardless of any supervening cause that may arise after
payment.

NIRC does not provide for prescriptive period.

2 views-

EXCEPTIONS:
1. Corporate Income tax
Where a corporation paid quarterly income taxes in any of the first 3 quarters during the
taxable year but incurs a net loss during the taxable year, the 2-year period for the filing of
the claim for refund or credit shall be counted from the date of the filing of the annual
corporate ITR.
2. Income Tax paid in installments
Taxes are deemed paid, for purposes of determining the commencement of the 2-year
period for filing a written claim for the refund or credit therefrom on the date the last
installment was paid.
PRESCRIPTION
Purpose:
Prescriptive periods are designed to secure the taxpayers against unreasonable investigation after the lapse of
the period prescribed. They are also beneficial to the government because tax officers will be obliged to act
promptly.
General Rules:
1. When the tax law itself is silent on prescription, tax is imprescriptible.
2. When no return is required, tax is imprescriptible
3. Defense of prescription is waivable and
4. Provisions on prescriptions, being remedial in nature should be liberally interpreted to carry out its intent.

Prescriptive period for the ASSESSMENT of taxes:

GENERAL RULE: three years after the date the return is due or filed, whichever is later.
EXCEPTIONS:
1. Failure to file a return: ten (10) years from the date of the discovery of the omission to file
the return.
2. False or fraudulent return with intent to evade the tax: ten (10) years from the date of the
discovery of the falsity or fraud
3. Agreement in writing to the extension (not reduction) of the period to assess between the
Commissioner and the taxpayer before the expiration of the three-year period.
4. Waiver or renunciation of the original three (3) year limitation, signed by the taxpayer.

1.
2.

Three (3) years from assessment or within period for collection agreed upon in writing
before expiration of the five-year period (CIR v. SCB, GR. 192173, July 29, 2015)
Ten (10) years without assessment in case of false or fraudulent return with intent to
evade or failure to file return.

Grounds for suspension of the running of prescriptive period for assessment and collection:
1) When the Commissioner is prohibited from making the assessment or beginning the
distraint or levy or proceeding in court, and for 60 days thereafter
2) When the taxpayer requests for a reconsideration which is granted by the Commissioner
3) When the taxpayer cannot be located in the address given by him in the return, unless he
informs the Commissioner of any change in his address
4) When the warrant of distraint or levy is duly served, and no property is located and
5) When the taxpayer is out of the Philippines.

Amended return

Allowed when:
1) The amendment is made within 3 years from the date of filing the original return and
2) No notice of audit or investigation of such return has, in the meantime, been actually
served upon the taxpayer.
Effect on prescription
The prescriptive period starts to run from the filing of the original return, if the same is
sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to
be assessed.
However, where the amended return is substantially different from the original, the right to assess
is counted from the filing of the amended return.
Prescriptive period for the filing of CRIMINAL ACTION:
Five (5) years from the day of the commission of the violation, and if not known, from the
discovery thereof and the institution of judicial proceedings for its investigation and
punishment.

20

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Grounds for interruption of the period:

1) When proceedings are instituted against the guilty persons
2) It begins to run again if the proceedings are dismissed for reasons not constituting jeopardy.
3) Offender is absent from the Philippines.
Retroactivity of BIR Rulings

General Rule: Prospective

Exceptions:
1. Where the taxpayer deliberately misstates or omits material facts from his return
or any document required of him by the BIR.
2. Where the facts subsequently gathered by the BIR are materially different from
the facts on which the ruling is based and
3. Where the taxpayer acted in bad faith.

September 15, 2015

TARIFF AND CUSTOMS CODE
Enforced and regulated by Bureau of Customs
Distinctions of Customs Duties and Tariff
Ordinarily, synonymous
TARIFF generic; pertains to customs duties (a list of taxes and toll or tribute payable upon
merchandise to the government.
o 2 types:
Import tariff
Export tariff
Customs Duties taxes on the importation and exportation of commodities, the tariff or tax assesses
upon merchandise imported from, or exported to a foreign country
o Applicable to products exported from Phils and subsequently imported to the Phils
Primary purpose of imposing a tariff (SEE SLIDE)
1. REVENUE TARIFFS- those whose rates are relatively low so that goods may be readily imported
and duties may be easily collected
2. PROTECTIVE TARIFFS those whose rates are relatively high o keep certain imports out of the
domestic market or to raise domestic price on certain imports so that they may be manufactured
profitably at domestically.
3. BARGAINING TARIFFS those whose schedules include rates designed primarily for bargaining
purposes or which contain some general provision for the imposition of higher duties upon
products of countries whose tariff policies are considered unsatisfactory or unfair.

Scope of Tariff and Custom Laws

Provisions of the TCC
Regulations pursuant thereto
Regulations subject to BOC, or otherwise within its jurisdiction
BUREAU OF CUSTOMS
Officers:
1. Commissioner of Customs Alberto Lina
2. Deputy Commissioners (7)
3. District Collectors
The country is divided into 13 districts. In each of these districts are DISTRICT COLLECTORS.
---------DUTIES, POWERS AND JURISDICTION OF BOC (SEE SLIDE)
1. The assessment and collection of the lawful revenues from imported articles and all other dues, fees,
charges, fine and penalties accruing under the tariff and customs laws.
2. The prevention and the suspension of smuggling and other frauds upon the customs
3. The supervision and control over the entrance and clearance of vessels and aircraft engaged in
foreign commerce
4. The enforcement of tariff and custom laws and all other laws, rules and regulations relating to tariff
and custom administration
5. The supervision and control over the handling of foreign mails arriving in the Philippines, for the
purpose of the collection of the lawful duty on the dutiable articles thus imported and the prevention
of smuggling through the medium of such mails.
6. The supervision and control over all import and export cargoes, landed or stored in piers, airport,
terminal facilities, including container yards and freight stations, for the protection of government
revenue
7. Exclusive original jurisdiction over seizure and forfeiture cases under the tariff and custom laws.
------------------Other than the BOC, we also have the Tariff Commission.
Customs Territory = subject to TCC
Eco-zones = considered foreign territory hence, outside customs territory.
-------------WHAT ARE SUBJECT TO CDT? (see slide)
MERCHANDISE
o The Revised Administrative Code defines merchandise, when used with reference to
importation or exportation, to include goods, wares and in general, anything that may be
the subject of exportation. Checks, money order and dollar bills properly within the concept
of merchandise as used in Revised Administrative Code, are merchandise. [Bastida vs. CIR]

21

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Kinds of Goods/Merchandise
1. Articles subject to duty (Dutiable Goods)
2. Prohibited importation
It follows that you are also prohibited from exporting it
3. Conditionally-free importations
I.e. Balikbayan Boxes

DUTIABLE GOODS (AFP-CPP-NPA-VMH-FAT-WE-MAMO)

1. Animals and animal products
2. Animal or vegetable fats; oil and their cleavage products
3. Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco
4. Products of Chemical or allied industries
5. Plastic and rubber articles
6. Pulp or wood
7. Natural or cultural stones
8. Plaster, cements and other related articles
9. Arms and ammo (not assembled)
10. Vegetable products
11. Mineral products
12. Hides (Skin, Fur, Leather)
13. Footwear, Headgear
14. Aircraft, vessels and all other mode of transportation
15. Textile and textile products
16. Wood and related articles
17. Electrical and mechanical machineries
18. Metals
19. Artworks, antique
20. Manufactures/Miscellaneous articles
21. Optical products, medical and surgical products
PROHIBITED IMPORTATION (HOT-DOG-TAMAD)
If you import these, these will have to be seized.
1. Heroine, marihuana and other dangerous drugs, narcotics and pharmaceutical products EXCEPT when
made by the government designed for medical purpose
2. Opium pipes and other drugs paraphernalia
3. Written or printed materials containing any matter advocating of inciting treason, sedition, rebellion
materials
4. Dynamite, ammunition and other explosive weapons EXCEPT when authorized by law
5. Written or printed articles involving Obscene or immoral character
6. Gambling devices
7. Lottery and sweepstakes Tickets EXCEPT those authorized by the Philippine Government

8.

Articles , instruments, drugs and substances designed andintended to produce unlawful abortion and
printed materials promoting unlawful abortion
9. Articles made of precious metal but actual fineness of quality not indicated
10. Other articles PD 34
11. Any adulterated or misbranded drug violation of Food and Drugs Act (Sec 102, TCC)
CONDITIONALLY-FREE IMPORTATION (PSST-BAR-FEW-PERA-SAM-CPP-VICE)
1. Professional instruments and implements
2. Sea store supplies to the vessel or aircraft
3. Salvage articles recovered from an abandoned vessel
4. Trailer chassis by a shipping company
5. Books
6. Aquatic products
7. Relief organization and articles used for relief operation
8. Film production by foreign media and movie outfit
9. Equipment used in salvaging vessels
10. Wearing apparels
11. Personal and household effects
12. Importation for the use of foreign embassies
13. Receptacles, containers, holders and other similar boxes
14. Animals Except Race Horse
15. Samples of any kind
16. Articles for repair, re-condition for export
17. Mining equipment and tools
18. Cost of repair made abroad upon a vessel registered in the Philippines
19. Articles which are previously exported but returned in the Philippines
20. Prizes, medals, trophies, badges and other thing bestowed as an award.
21. Vessels spare part of foreign vessel and aircraft
22. Articles which are imported subsequently in the Philippines
23. Coffin, Caskets
24. Exhibition, competition articles for display
----------------------------------Those provided in the TCCP in favor of returning residents with respect to their personal and household
effects: (Note: Returning resident only absent 6 months; Balikbayan/OFW at least a year not the same)
1. Personal and household effects including luxury items brought out of the Philippines and returned
2. Personal and household effects except luxury items purchased abroad and imported to the
Philippines;
3. The purchase abroad of consumable, livelihood tools, personal and household effects by OFW and
Balikbayans;

22

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

4.
5.

Purchase abroad of consumables and livelihood tools, personal and household effects by OFW and
Balikbayans at duty-free shops;
Personal and household effects of members of Philippine Diplomatic mission including civil or military
attachs.

--------------------------------CLASSIFICATIONS OF CUSTOMS DUTIES

1. Ordinary or regular customs duties imposed and collected merely as a source of revenue
a. Ad valorem the duty is based on the market value or price of the imported articles
b. Specific duty is based on the weight or volume of the imported article.
i. Gross weight article + containers
ii. Legal weight article + immediate container
iii. Net weight article only
c. Alternating duties between ad valorem and specific (market value or weight)
d. Compound duties - takes into consideration both ad valorem and specific in the
computation.
2.

Special Customs Duties imposed and collected in addition to ordinary customs duties usually to
protect local industries against foreign competition.

----------BASIS OF DUTIABLE VALUE

TRANSACTION VALUE price actually paid or payable for the goods when sold for export to the Philippines.
It is adjusted by adding certain expenses to the extent that they are incurred by the buyer but are not included
in the price actually paid or payable for the imported goods, the value of the materials, components parts and
items incorporated in the imported goods; amount of royalties and license fees; cost of transport; loading,
unloading and handling charges; and the cost of the insurance.
Sequence in determination of value
1. Transaction value
2. Transaction value of identical goods
a. Identical same in all respects, functions, quality, goods must be produced in the same
country as the goods are to be valued
3. Transaction value of similar goods
Similar same function, interchangeable but do not have similarity in all respects
4. Deductive value
a. Unit price with the highest aggregate quantity sold in the Philippines
5. Computed value

6.

a. Cost or value of materials and fabrication employed in producing imported goods

Other reasonable means or fallback value
a. Depends on the customs officers by using other reasonable means and on the basis of data
available in the Philippines.

Basis for dutiable weight for specific custom duties

1. Gross weight
2. Legal weight
3. Net weight
--------------------

KINDS OF SPECIAL CUSTOM DUTIES

1. Dumping Duty imposed upon foreign products with value lower than their fair market value to the
detriment of local products
a. Rate: difference between the actual price and the normal value of the article [normal value
export price]
b. Imposing authority: Special committee on Anti Dumping
i. SOF as chairman
ii. Members: Sec of Agriculture OR Sec of Labor if non-agricultural product
2. Countervailing Duty imposed upon foreign goods enjoying subsidy thus allowing them to sell at
lower prices to the detriment of local products similarly situated.
a. Rate: equivalent to the bounty, subsidy or subvention
i. Bounty award rewarded to exporter to encourage the manufacturer
ii. Subsidy Fiscal incentive not in the form of cash award and may not eb given
directly
iii. Subvention: Anything other than the bounty or subsidy but the purpose is still to
assist manufacturer or exporter
b. Imposing authority: Sec of Finance
3. Marking Duty imposing upon those not properly marked as to place of origin of the goods
a. Rate: 5% ad valorem of articles
b. Imposing authority: Commissioner of Customs
c. Exception:
i. Sec 303 of TCC
ii. Produced for more than 20 years prior its exportation
4. Discriminatory Duty imposed upon goods coming from countries that discriminate against
Philippine products
a. Rate: any amount not exceeding 100% ad valorem of the subject articles
b. Imposing authority: President of the Phils. with assistance of Tariff Commission

23

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

c.

Drawback: It is a device resorted to for enabling a commodity affected by taxes to be

exported and sold in foreign markets upon the same terms as if it not had been taxed at all.
It may be full or partial.

OTHER CUSTOMS FEES, DUES OR CHARGES PAYABLE

1. Harbor fees imposed ON VESSEL entering into or departing from a port of entry of the Philippines
2. Wharfage dues are assessed against the cargo of a vessel engaged in foreign or coastwise trade,
based on the quantity weight or measure received and/or discharged by such vessel.
3. Berthing dues are assessed against a vessel for mooring or berthing at a pier, wharf, or river at any
port in the Philippines
4. Storage dues assessed on articles for storage in customs premises, cargo shed.
5. Arrastre dues imposed on all imported and exported articles and baggage of passenger for their
handling, receiving and custody.
6. Tonnage dues paid by the owner, agent, operator or master of a vessel engaged in foreign trade
based on the net tonnage of the vessel or weight of the articles discharged or laden
7. Other fees charged and collected for services rendered and documents issued by the BOC
------------------IMPORATION UNDER TCC
Who are authorized to make an import entry?
1. The importer being holder of the B/L
2. A customs broker acting under authority of the holder of the bill; or a person duly empowered to act
as agent or attorney-in-fact.
LIABILITY FOR CUSTOMS DUTIES
General Rule: All importations and of goods are subject to custom duties (Sec 105, TCC)
Exceptions:
o Exemptions under TCC
o Exemptions granted to govt agencies or GOCCs with existing contracts, commitments,
agreements or obligations with foreign countries
o International organizations pursuant to agreement and special law
o Exemption granted by the President of the Philippines upon recommendation of NEDA

Import entry
A declaration to the BOC showing the description, value, tariff classification and other particulars of the
imported article to enable the customs authorities to determine the correct customs duties and internal
revenue taxes due on the importation.
Abandonment
It is the renunciation by an importer of all his interest in the property rights in the imported article. It may be
express or implied.
Smuggling or Unlawful Importation
Any person who shall fraudulently import or bring into the Philippines, or assist in doing so, any article,
contrary to law, or shall receive, conceal, buy, sell or in any manner, facilitate the transportation,
concealment, or sale of such article after importations, knowing the same to have been contrary to law, shall
be guilty of smuggling, (Sec 3601, TCC)
Fraudulent Practices (Criminal Offense) against Custom Revenues under Sec 3602
1. Entry of imported articles by means of any false or fraudulent invoice
2. Entry of goods at less than the true weight or measure
3. Filing of any false or fraudulent entryfor the payment of drawbacks or refund of duties
Returning residents - For the purpose of conditionally free importation of personal and household effects,
they are nationals who have stayed in a foreign country for a period of at least 6 months.
----------------------IN RE: BALIKBAYAN BOXES
Balikbayan
For the purpose of tax-free purchase at Philippine Duty-free shops, he must be:
a) Filipino citizen who has been continuously out of the Philippines for a period of at least 1 year; OR
b) Overseas Filipino Worker (OFW); OR
c) Former Filipino citizen and his family who had been naturalized in a foreign country and comes or
returns to the Philippines.
To Open or NOT? :)

When is importation deemed to begin and deemed terminated?

Importation begins when carrying vessel or aircraft enters into the jurisdiction of the Philippines with
intent to unload.
Importation terminates upon payment of the duties and other charges due upon the articles or
secured to be paid, at the port of entry AND the legal permit for withdrawal shall have been granted
In the case of articles that are free of duties, taxes and other charges, importation is deemed
terminated from the time they have legally left the jurisdiction of the customs.

September 16 discussion
Discussion about FATCA (Foreign Account Tax Compliance Act)
Who are required to submit reports of those suspected evading tax?

24

TAXATION II PRE-FINALS | ATTY. KIM ARANAS

Foreign Institutions

In our case, when did we adapt or ratify that particular law?

A: In so far as the BIR is concerned, July 13, 2015.
Adapted around may in so far as Phils is considered.
Failure to submit report:
RA 10021
Providing 3 instances when there may be disclosure of bank accounts of TP:
1. Determination of liability of TP
2. Agreed by TP
3. Financial difficulty or incapacity
4. Request of foreign tax authorities:
a. Exhausted all efforts in their jurisdiction
-----------------------Continuation of TCC

25