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San Beda College of Law

MEMORY AID IN TAXATION LAW

TAXATION LAW

I. GENERAL PRINCIPLES 6. levied for a public purpose.

REQUISITES OF A VALID TAX


POWER OF TAXATION 1. should be for a public purpose
TAXATION – power by which the 2. the rule of taxation shall be uniform
sovereign through its law-making body 3. that either the person or property
raises revenue to defray the necessary taxed be within the jurisdiction of
expenses of government from among the taxing authority
those who in some measure are 4. that the assessment and collection
privileged to enjoy its benefits and must of certain kinds of taxes guarantees
bear its burdens. against injustice to individuals,
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
6. Subject to be taxed, provided it is The power to tax is an attribute of
within its jurisdiction sovereignty emanating from necessity. It
7. Situs of taxation is a necessary burden to preserve the
State's sovereignty and a means to give
TAXES – enforced proportional the citizenry an army to resist an
contributions from the persons and aggression, a navy to defend its shores
property levied by the law-making body from invasion, a corps of civil servants to
of the State by virtue of its sovereignty serve, public improvements designed for
in support of government and for public the enjoyment of the citizenry and those
needs. which come within the State's territory,
and facilities and protection which a
CHARACTERISTICS OF TAXES government is supposed to provide.
1. forced charge; (Phil. Guaranty Co., Inc. v. CIR)
2. pecuniary burden payable in money;
3. levied by the legislature; 3. Benefits-Protection / Reciprocity
4. assessed with some reasonable rule Theory
of apportionment; (see theoretical Taxation is described as a symbiotic
justice) relationship whereby in exchange of the
5. imposed by the State within its benefits and protection that the citizens
jurisdiction; get from the Government, taxes are
paid. (CIR v. Algue, Inc.)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court’s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. “Power to tax is the power to
destroy” (Marshall Dictum) – refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy – sufficiency to
meet government expenditures and
2. “Power to tax is not the power to other public needs.
destroy while the Supreme Court sits” 2. Administrative Feasibility/
(Holmes Dictum) – the power to tax Convenience – capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the State’s
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue – basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
As long as the legislature, in received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

4. Non-impairment of Contracts registration fees are regulatory


Contracts Contracts Contracts may exactions and not revenue measures.
may not be may be be impaired
impaired impaired
b. The tax imposed on videogram
5. Transfer of Property Rights establishments is not only regulatory but
Taxes paid No transfer Transfer is
a revenue measure because the earnings
become part but only effected in
of public restraint in favor of the of such establishments have not been
funds its exercise State subject to tax depriving the government
6. Scope
of an additional source of income. (Tio
All persons, All persons, Only upon a v. Videogram Regulatory Board, 151
property and property, particular SCRA 208)
excises rights and property
privileges c. The “coconut levy funds” were
all raised under the state’s taxing and
SYSTEMS OF TAXATION police powers.
Global System Schedular System The state’s concern to make it a
strong and secure source not only in the
A system A system employed livelihood of the significant segment of
employed where where the income tax the population, but also of export
the tax system treatment varies and earnings, the sustained growth of which
views is made to depend on
indifferently the the kind or category
is one of the imperatives of the
tax base and of taxable income of economic growth.” Philippine Coconut
generally treats in the taxpayer. Producers Federation, Inc. Cocofed v.
common all Presidential Commission on Good
categories of Government (178 SCRA 236, 252)
taxable income of
the individual. CONSTRUCTION OF TAX LAWS
A system which A system which 1. Public purpose is always presumed.
taxes all itemizes the different 2. If the law is clear, apply the law in
categories of incomes and provides
accordance to its plain and simple
income except for varied percentages
certain passive of taxes, to be tenor.
incomes and applied thereto. 3. A statute will not be construed as
capital gains. It imposing a tax unless it does so
prescribes a clearly, expressly and
unitary but unambiguously.
progressive rate 4. In case of doubt, it is construed most
for the taxable strongly against the Government,
aggregate incomes and liberally in favor of the
and flat rates for
taxpayer.
certain passive
incomes derived 5. Provisions of a taxing act are not to
by individuals. be extended by implication.
6. Tax laws operate prospectively
EXAMPLES OF TAXES LEVIED WITH A unless the purpose of the legislature
REGULATORY PURPOSE, OR COMBINED to give retrospective effect is
EXERCISE OF POLICE POWER AND THE POWER expressly declared or may be
OF TAXATION. implied from the language used.
7. Tax laws are special laws and
a. Motor vehicle registration fees prevail over a general law.
are now considered revenue or tax
measures.(Pal v. Edu, G.R No. L-41383, NATURE OF TAX LAWS
August 15,1988) 1. Not political in character
This case reversed the doctrine 2. Civil in nature, not subject to ex
previously held in Republic v. Philippine post facto law prohibitions
Rabbit Bus Lines, Inc., 32 SCRA 211, to 3. Not penal in character
the effect that motor vehicle

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

TAXES ARE PERSONAL TO THE TAXPAYER the tax falls on one person but
1. A corporation’s tax delinquency the burden thereof can be
cannot be enforced against its shifted or passed on to another.
stockholders. (Corporate Entity 3. As to purpose:
Doctrine) a. General Tax – levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax – levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax – the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax – tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax – levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax – levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax – rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax – tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax – based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax – taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll – amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax – assessed on used.
property of a certain class 2. Penalty – punishment for the
c. Excise Tax – imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty – amount
d. Customs Duties – duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment – levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax – both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee – regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

6. Margin Fee – exaction designed to


stabilize the currency. Normally paid after Normally paid
7. Debt – a sum of money due upon the start of a before
contract or one which is evidenced business commencement of
business
by judgment.
8. Subsidy – a legislative grant of Taxes, being the License fee may be
money in aid of a private enterprise lifeblood of the with or without
deemed to promote the public State, cannot be consideration
welfare. surrendered except
9. Customs duties and fees – duties for lawful
charged upon commodities on their consideration
being transported into or exported
from a country. Non-payment does Non-payment
10. Revenue – a broad term that not make the makes the business
business illegal but illegal
includes taxes and income from
maybe a ground for
other sources as well. criminal
11. Impost – in its general sense, it prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on TEST IN DETERMINING IF THE IMPOSITION IS A
imported goods and merchandise. TAX OR A LICENSE FEE
If the purpose is primarily revenue
Tax Special or if revenue is, at least, one of the real
Assessment and substantial purposes, then the
exaction is a tax. If the purpose is
Imposed on persons, Levied only on land
property and excises
regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit Due to the May be due to the
benefit
government in its government but in
sovereign capacity its corporate
Levied and paid Exceptional both as
capacity
annually to time and locality
Payable in money Payable in money,
Exemption granted Exemption does not
property or services
is applicable (Art. apply.
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee Not subject to Subject to
compensation or compensation or
Based on the power Emanates from set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory punished by case of non-payment
revenue imprisonment (Art. III, Sec. 20
except in poll tax 1987 Constitution)
Amount is unlimited Amount is limited
to the cost of (1) Imposed only by Can be imposed by
issuing the license, public authority private individual
and (2) inspection
and surveillance

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

TEST IN DETERMINING IF THE IMPOSITION IS A compensation takes place by operation


TAX OR A LICENSE FEE of law. (Domingo v. Garlitos)
If the purpose is primarily revenue or
if revenue is, at least, one of the real DOCTRINE OF EQUITABLE RECOUPMENT NOT
and substantial purposes, then the FOLLOWED IN THE PHILIPPINES
exaction is a tax. If the purpose is A tax presently being assessed
regulatory in nature, it is a license. against a taxpayer which has prescribed
(PAL v. Edu) may not be recouped or set-off against
an overpaid tax the refund of which is
Tax Debt also barred by prescription. It is against
public policy since both parties are
An obligation Created by contract guilty of negligence.
imposed by law
Tax Toll
Due to the May be due to the
government in its government but in Enforced A sum of money for
sovereign capacity its corporate proportional the use of
capacity contributions from something, a
persons and property consideration which
Payable in money Payable in money, is paid for the use of
property or services a property which is
of a public nature;
Does not draw Draws interest if e.g. road, bridge
interest except in stipulated or
case of delinquency delayed A demand of A demand of
sovereignty proprietorship
Not assignable Assignable
No limit as to the Amount of toll
amount of tax depends upon the
Not subject to Subject to
cost of construction
compensation or compensation or or maintenance of
set-off set-off the public
improvement used
Non-payment is No imprisonment in
punished by case of non- Imposed only by the May be imposed by:
imprisonment payment (Art. III, State (1) Government
except in poll tax Sec. 20 1987 (2) Private
Constitution) individuals or
entities
Imposed only by Can be imposed by
public authority private individual
Tax Penalty

COMPENSATION OR SET-OFF Enforced Sanction imposed as


General Rule: Taxes cannot be the proportional a punishment for
subject of compensation or set-off. contributions from violation of a law
Reasons: persons and or acts deemed
1. lifeblood theory property injurious; violation
of tax laws may give
2. taxes are not contractual
rise to imposition of
obligation but arise out of duty penalty
to the government
3. the government and the Intended to raise Designed to regulate
taxpayer are not mutually revenue conduct
creditors and debtors of each
other. (Francia v. IAC) May be imposed May be imposed by:
Exception: When both obligations are only by the (1) Government
due and demandable as well as fully government (2) Private
liquidated and all the requisites for a individuals or
entities
valid compensation are present,

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Tax Tariff (2) NON-DELEGABILITY OF THE TAXING


POWER
All embracing term A kind of tax General Rule: The power of taxation is
to include various imposed on articles peculiarly and exclusively exercised by
kinds of enforced which are traded the legislature. (See Scope of
contributions upon internationally Legislative Taxing Power, supra)
persons for the
attainment of
- refers to tax legislation
public purposes Exceptions to Non-delegability:
1. Flexible Tariff Clause: Authority of
TAXPAYERS’ SUIT the President to fix tariff rates,
A case where the act complained of import and export quotas, tonnage
directly involves the illegal disbursement and wharfage dues, and other duties
of public funds derive from taxation or imposts. (Art. VI, Sec.28(2), 1987
(Justice Melo, dissenting in Kilosbayan, Constitution)
Inc vs Guingona, Jr.) 2. Power of local government units to
levy taxes, fees, and charges. (Art.
TAXPAYERS AND PUBLIC OFFCIALS HAVE X, Sec. 5, 1987 Constitution)
LOCUS STANDI 3. Delegation to administrative
REQUISITES FOR TAXPAYERS’ SUIT agencies for implementation and
a. The tax money is being collection.
extracted and spent in violation of - merely refers to tax administration
specific constitutional protections or implementation
against abuses of legislative power.
b. That public money is being (3) SITUS OR TERRITORIALITY OF TAXATION
deflected to any improper purpose The power to tax is limited only to
(Pascual vs Secretary of Public persons, property or businesses within
Works) the jurisdiction or territory of the taxing
c. That the petitioner seeks to power.
restrain respondents from wasting
public funds through the enforcement FACTORS THAT DETERMINE THE SITUS:
of an invalid or unconstitutional law a. Kind or classification of the tax
being levied
LIMITATIONS ON THE TAXING b. Situs of the thing or property
taxed
POWER
c. Citizenship of the taxpayer
d. Residence of the taxpayer
A. INHERENT LIMITATIONS (KEY: SPINE)
e. Source of the income taxed
1. Territoriality or Situs of taxation
f. Situs of the excise, privilege,
2. Public purpose of taxes
business or occupation being taxed
3. International comity
4. Non-delegability of the taxing power
APPLICATION OF SITUS OF TAXATION
5. Tax Exemption of the government
Kind of Tax Situs
(1) TESTS IN DETERMINING PUBLIC PURPOSE Personal or Residence or
a. Duty Test – whether the thing to be Community tax domicile of the
furthered by the appropriation of taxpayer
public revenue is something, which
is the duty of the State, as a Real property tax Location of property
government, to provide. (Lex rei sitae)

b. Promotion of General Welfare Test Personal property -tangible: where it


– whether the proceeds of the tax tax is physically located
or permanently kept
will directly promote the welfare of
(Lex rei sitae)
the community in equal measure. -intangible: subject
to Sec. 104 of the
NIRC and the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

principle of mobilia bonds have acquired a business


sequuntur personam situs in the Philippines; and
(5) shares or rights in any
partnership, business or industry
Business tax Place of business established in the Philippines.
(Sec. 104, 1997 NIRC).
Excise or Privilege Where the act is
tax performed or where
occupation is (4) EXEMPTION OF THE GOVERNMENT
pursued As a matter of public policy,
property of the State and of its
Sales tax Where the sale is municipal subdivisions devoted to
consummated government uses and purposes is
deemed to be exempt from taxation
Income Tax Consider although no express provision in the law
(1) citizenship, is made therefor.
(2) residence, and
(3) source of income
(Sec. 42, 1997 NIRC) General Rule: The Government is tax
exempt.
Transfer tax Residence or - However, it can also tax itself.
citizenship of the
taxpayer or location RULES:
of property 1. Administrative Agencies
a. Governmental function - tax
Franchise Tax State which granted exempt unless when the law
the franchise expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL b. Proprietary function – taxable
PROPERTY unless exempted by law. (Sec.
General Rule: Domicile of the owner 27C)
pursuant to the principle of the mobilia 2. GOCCs
sequuntur personam or movables follow General Rule: Income is taxable at
the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax –
and donor’s taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes – exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

accruing to the Government of the instrumentalities, as well as on its


Philippines or to any political property held and activities undertaken
subdivision thereof is not included in in that capacity. Even where one enters
gross income and exempt from the territory of another, there is an
taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
5. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for a. The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity b. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donor’s tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose
taxes on a sovereign state and its

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

4. Non-Infringement Of Religious process of liabilities should


Freedom And Worship (Art. III, Sec. law. imposed. therefore,
5, 1987 Constitution) Notice be no direct
A license tax or fee constitutes a must, double
therefore taxation
curtailment of religious freedom if
, be given
imposed as a condition for its in case of
exercise. (American Bible Society failure to
vs. City of Manila, GR No. L-9637, pay taxes
April 30, 1957)
B. SPECIFIC OR DIRECT
5. Non-Impairment Of Contracts (Art. CONSTITUTIONAL LIMITATIONS
III, Sec. 10, 1987 Constitution)
No law impairing the obligation 1. Non-Imprisonment For Debt Or Non-
of contract shall be passed. (Sec. Payment Of Poll Tax (Art. III, Sec.
10, Art. III, 1987 Constitution) 20, 1987 Constitution)
The rule, however, does not
apply to public utility franchises or 2. Rule Requiring That Appropriations,
right since they are subject to Revenue And Tariff Bills Shall
amendment, alteration or repeal by Originate Exclusively From The
the Congress when the public House Of Representatives (Art. VI,
interest so requires. (Cagayan Sec. 24, 1987 Constitution)
Electric & Light Co., Inc. v.
Commissioner, GR No. 60216, 3. Uniformity, Equitability And
September 25, 1985) Progressivity Of Taxation (Art. VI,
Sec. 28(1), 1987 Constitution)
RULES: Uniformity – all taxable articles or
a. When the exemption is bilaterally kinds of property of the same class
agreed upon between the are taxed at the same rate.
government and the taxpayer – it Equitability – the burden falls to
cannot be withdrawn without those who are more capable to pay.
violating the non-impairment Progressivity – rate increases as the
clause. tax base increases.
b. When it is unilaterally granted by
law, and the same is withdrawn by Q: Is a tax law adopting a regressive
virtue of another law – no violation. system of taxation valid?
c. When the exemption is granted A: Yes. The Constitution does not
under a franchise – it may be really prohibit the imposition of indirect
withdrawn at any time thus, not a taxes which, like the VAT, are
violation of the non-impairment of regressive. The Constitutional provision
contracts means simply that indirect taxes shall be
minimized. The mandate to Congress is
6. Presidential power to grant not to prescribe, but to evolve, a
reprieves, commutations and progressive tax system. (EVAT En Banc
pardons and remit fines and Resolution, Tolentino, et al vs Secretary
forfeitures after conviction (ART. of Finance, October 30, 1995)
VII, SEC. 19, 1987 CONSTITUTION)
Due Equal 4. Limitations On The Congressional
Uniformity
Process Protection Power To Delegate To The
Taxpayer Taxpayers Taxable President The Authority To Fix
may not shall be articles, or
be treated alike kinds of
Tariff Rates, Import And Export
deprived under like property of Quotas, Etc. (Art. VI, Sec. 28(2),
of life, circumstances the same 1987 Constitution)
liberty or and conditions class, shall
property both in the be taxed at 5. Tax Exemption Of Properties
without privileges the same Actually, Directly And Exclusively
due conferred and rate. There Used For Religious, Charitable And

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Educational Purposes. (Art. VI, Exemption (Art. VI, Sec. 28(4),


Sec. 28(3) 7, 1987 Constitution) 1987 Constitution)
The constitutional provision 7. Non-Impairment Of The
(above cited) which grants tax Jurisdiction Of The Supreme Court
exemption applies only to property In Tax Cases (Art. VIII, Sec. 2 And
or realty taxes assessed on such 5(2)(B), 1987 Constitution)
properties used actually, directly
exclusively for religious, charitable 8. Exemption From Taxes Of The
and educational purposes. (Lladoc Revenues And Assets Of
vs. Commissioner, GR No. L-19201, Educational Institutions, Including
June 16, 1965) Grants, Endowments, Donations
The present Constitution And Contributions. (Art. XIV, Sec.
required that for the exemption of 4(3) And (4), 1987 Constitution)
“lands, buildings and
improvements”, they should not only OTHER SPECIFIC TAX PROVISIONS IN
be “exclusively” but also “actually” THE CONSTITUTION
and “directly” used for religious and 1. Power of the President to veto any
charitable purposes. (Province of particular item or items in an
Abra vs. Hernando, GR No. L-49336, appropriation, revenue, or tariff bill.
August 31, 1981) (Art VI, Sec. 27(2), 1987
The test of exemption from Constitution)
taxation is the use of the property 2. Necessity of an appropriation before
for the purposes mentioned in the money may be paid out of the public
Constitution. (Abra Valley College treasury. (Art. VI, Sec. 29 (1), 1987
Inc. vs. Aquino, GR No. L-39086, Constitution)
June 15, 1988) 3. Non-appropriation of public money
or property for the use, benefit, or
EXCLUSIVE BUT NOT ABSOLUTE USE support of any sect, church, or
The term “ exclusively used” does system of religion. (Art. VI, Sec. 29
not necessarily mean total or absolute (2), 1987 Constitution)
use for religious, charitable and 4. Treatment of taxes levied for a
educational purposes. If the property is special purpose. (Art. VI, Sec. 29
incidentally used for said purposes, the (3), 1987 Constitution)
tax exemption may still subsist. (Abra 5. Internal revenue allotments to local
Valley College Inc. vs. Aquino, Gr No. L- government units. (Art. X, Sec. 6,
39086, June 15, 1988) 1987 Constitution)
Corollarily, if a property, although
actually owned by a religious, charitable
and educational institution is used for a DOUBLE TAXATION
non- exempt purpose, the exemption
from tax shall not attach DOUBLE TAXATION – taxing the same
property twice when it should be taxed
ART. XIV, ART. VI, but once.
SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious, IS DOUBLE TAXATION PROHIBITED IN THE
non profit educational, PHILIPPINES?
educational charitable No. There is no constitutional
institution institutions
prohibition against double taxation. It is
Taxes Income tax Property tax
not favored but permissible. (Pepsi Cola
covered Custom
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187) (1) Direct Duplicate Taxation /
Obnoxious – double taxation in the
6. Voting Requirement In Connection objectionable or prohibited sense.
With The Legislative Grant Of Tax

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

This constitutes a violation of the output tax or tax on the finished


substantive due process. product.
• Foreign income taxes may be
Elements: credited against the Phil. Income
a. the same property or subject tax, subject to certain limitations,
matter is taxed twice when it should by citizens, including members of
be taxed only once. general professional partnerships or
b. both taxes are levied for the beneficiaries of estates or trusts
same purpose (pro rata), as well as domestic
c. imposed by the same taxing corporations.
authority • A tax credit is granted for estate
d. within the same jurisdiction taxes paid to a foreign country on
e. during the same taxing period the estate of citizens and resident
f. covering the same kind or aliens subject to certain limitations.
character of tax.
(Villanueva vs. City of Iloilo)
• The donor’s tax imposed upon a
citizen or a resident shall be
(2) Indirect Duplicate Taxation – not credited with the amount of any
legally objectionable. The absence donor’s tax imposed by the authority
of one or more of the above- of a foreign country, subject to
mentioned elements makes the certain limitations.
double taxation indirect. 4. Tax Exemptions
5. Principle of Reciprocity
(3) Domestic- this arises when the taxes 6. Treaties with other states
are imposed by the local or national
government (within the same state) METHODS RESORTED TO BY A TAX TREATY IN
(4) International- refers to the ORDER TO ELIMINATE DOUBLE TAXATION
imposition of comparable taxes in
two or more states on the same FIRST METHOD: The tax treaty sets out
taxpayer in respect of the same the respective rights to tax by the state
subject matter and for identical of source or situs and by the state of
periods. residence with regard to certain classes
of income or capital. In some cases, an
REMEDIES OF DOUBLE TAXATION exclusive right to tax is conferred in one
1. Tax Sparing Rule – same dividend of the contracting states; however, for
earned by a NRFC within the Phil. is other items of income or capital, both
reduced by imposing a lower rate of states are given the right to tax although
15% (in lieu of the 35%), on the the amount of tax that may be imposed
condition that the country to which by the state of source is limited.
the NRFC is domiliced shall allow a SECOND METHOD: The state of source is
credit against the tax due from the given a full or limited right to tax
NRFC, taxes deemed to have been together with the state of residence. In
paid in the Phil. (Sec.28 B 5b) (CIR this case, the treaty makes it incumbent
vs Procter & Gamble) (GR No. upon the state of residence to allow
66838, Dec. 2, 1991) relief in order to avoid double taxation.
2. Tax deductions
Example: vanishing deduction under TWO METHODS OF RELIEF ARE USED UNDER THE
Section 86(A)(2), NIRC SECOND METHOD:
3. Tax credits
Instances under the NIRC: 1. The exemption method- the income
• For VAT purposes, the tax on or capital which is taxable in the state
inputs or items that go into the of source or situs is exempted in the
manufacture of finished products state of residence, although in some
(which are eventually sold) may be instances it may be taken into account
credited against or deducted from in determining the rate of tax applicable
to the tax payer’s remaining income or

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

capital.(This may be done using the tax


deduction method which allows foreign INCIDENCE OF TAXATION – point on which
income taxes to be deducted from gross the tax burden finally rests or settles
income, in effect exempting the down.
payment from being further taxed.) Illustration: Value added tax. The
2. The credit method- although the seller is required by law to pay tax, but
income or capital which is taxed in the the burden is actually shifted or passed
state of source is still taxable in the on to the buyer.
state of residence. The tax paid in the
former is credited against the tax, levied KINDS OF SHIFTING
in the latter.(Commissioner of Internal a. Forward shifting- when burden of
Revenue v. S.C Johnson and Son, Inc. et tax is transferred from a factor of
al., G.R No. 127105, June 25, 1999) production through the factors of
distribution until it finally settles on
Exemption the ultimate purchaser or consumer
Credit Method b. Backward shifting- when burden is
Method
Focus is on the Focus is on the tax transferred from consumer through
income or capital factors of distribution to the factors
itself of production
c. Onward shifting- when the tax is
NOTE: Computational illustration shifted 2 or more times either
between a tax deduction and a tax forward or backward
credit:
(2) CAPITALIZATION – a mere increase in
Tax deduction method the value of the property is not income
Gross income but merely an unrealized increase in
Less: allowable deductions capital. No income until after the
including actual sale or other disposition of the
foreign taxes paid property in excess of its original cost.
Income subject to tax EXCEPT: if by reason of appraisal, the
Multiplied by rate cost basis of property increased and the
Income tax due resultant basis is used as the new tax
base for purposes of computing the
Tax credit method allowable depreciation expense, the net
Gross income difference between the original cost
Less: allowable deductions basis and new basis is taxable under the
excluding economic benefit principle. (BIR Ruling
foreign taxes paid No. 029, March 19, 1998)
Income subject to tax
Multiplied by rate (3) TRANSFORMATION – the manufacturer
Income tax due or producer upon whom the tax has been
Less: foreign taxes paid imposed, fearing the loss of his market if
Net income tax due he should add the tax to the price, pays
the tax and endeavors to recoup himself
by improving his process of production,
FORMS OF ESCAPE thereby turning out his units at a lower
FROM TAXATION cost.

(1) SHIFTING – the process by which the (4) TAX AVOIDANCE – the exploitation by
tax burden is transferred from the the taxpayer of legally permissible
statutory taxpayer (impact of taxation) alternative tax rates or methods of
to another (incident of taxation) without assessing taxable property or income, in
violating the law. order to avoid or reduce tax liability.
Example: “estate planning”
IMPACT OF TAXATION – point on which tax (conveyance of property to a family
is originally imposed.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

corporation for shares) (Delpher Trades a. Constitutional – immunities from


Corp. vs. IAC, 157 SCRA 349) taxation that originate from the
(5) TAX EVASION – use by the taxpayer of constitution.
illegal or fraudulent means to defeat or b. Statutory – those which emanate
lessen the payment of the tax. from legislation
Examples of Statutory Exemptions
FACTORS IN TAX EVASION Sec. 27, NIRC
1. the end to be achieved, i.e. payment Sec. 105 Tariff and Customs
of less than that known by the taxpayer Code
to be legally due, or paying no tax when Sec. 234 Local Government Code
it is shown that the tax is due; Special Laws, such as the
2. an accompanying state of mind Omnibus Investment Code of 1987
which is described as being evil, in bad (EO 226), Philippine Overseas
faith, willful, or deliberate and not Shipping Act (RA 1407 as amended),
coincidental; and Fertilizer Industry Act (RA 3050, as
3. a course of action which is unlawful. amended), Mineral Resources
Development Decree of 1974 (PD 463
INDICIA OF FRAUD IN TAX EVASION as amended), Cottage Industry Act
1. Failure to declare for taxation (RA 318, as amended) and
purposes true and actual income derived exemptions in “Housing for Low
from business for 2 consecutive years Income Group” (PD 1205, as
(Republic vs Gonzales, L-17962) amended)
2. Substantial under-declaration of c. Contractual- agreed to by the
income tax returns of the taxpayer for 4 taxing authority in contracts
consecutive years coupled with lawfully entered into by them
intentional overstatement of deductions under enabling laws
(CIR vs Reyes, 104 PHIL 1061) d. Treaty
e. Licensing Ordinance
TAX TAX 2. As to form
AVOIDANCE EVASION (1) Express – expressly granted by
organic or statute law
Validity Legal and not Illegal and (2) Implied – when particular
subject to subject to persons, property or excises are
criminal penalty criminal deemed exempt as they fall
penalty
outside the scope of the taxing
Effect Minimization of Almost provision itself.
taxes always 3. As to extent
results in (1) Total – absolute immunity
absence of (2) Partial – one where a collection
tax payments of a part of the tax is dispensed
with
(6) TAX EXEMPTION – a grant of 4. As to object
immunity to particular persons or (1) Personal – granted directly in
corporations from the obligation to pay favor of certain persons
taxes. (2) Impersonal – granted directly in
favor of a certain class of
LEGAL BASIS: No law granting any tax property
exemption shall be passed without the
concurrence of a majority of all the PRINCIPLES GOVERNING TAX EXEMPTION
members of Congress (ART VI. SEC 28(4) a. Exemptions from taxation are
OF THE 1987 CONSTITUTION) highly disfavored in law and are
not presumed.
KINDS OF TAX EXEMPTION b. He who claims as exemption must
1. As to source be able to justify his claim by the
clearest grant of organic or statute
law by words too plain to be

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

mistaken. If ambiguous, there is no parties based on material


exemption. consideration of a mutual nature,
c. He who claims exemption should which then becomes contractual and
prove by convincing proof that he is covered by the non-impairment
is exempted. clause of the Constitution.
d. Taxation is the rule; tax exemption b. Adherence to form- if the tax
is the exception. exemption is granted by the
e. Tax exemption must be strictly Constitution, its revocation may be
construed against the taxpayer and effected through Constitutional
liberally in favor of the taxing amendment only
authority. c. Where the tax exemption grant is in
f. Tax exemptions are not presumed. the form of a special law and not by
g. Constitutional grants of tax a general law even if the terms of
exemption are self-executing. the general act are broad enough to
h. Tax exemptions are personal. include the codes in the general law
unless there is manifest intent to
THE FOLLOWING PARTAKE THE NATURE OF repeal or alter the special law
TAX EXEMPTION (Province of Misamis Oriental vs
1. Deductions for income tax purposes Cagayan Electric Power and Light
2. Claims for refund Co. Inc)
3. Tax amnesty
4. Condonation of unpaid tax liabilities NATURE OF TAX AMNESTY
NOTE: must be strictly construed 1. General or intentional overlooking by
against the taxpayer the state of its authority to impose
penalties on persons otherwise guilty
WHEN EXEMPTIONS ARE CONSTRUED of evasion or violation of a revenue
LIBERALLY IN FAVOR OF GRANTEE or tax law.
1. When the law so provides for such 2. Partakes of an absolute forgiveness of
liberal construction. waiver of the government of its right
2. Exemptions from certain taxes, to collect.
granted under special circumstances 3. To give tax evaders, who wish to
to special classes of persons. relent and are willing to reform a
3. Exemptions in favor of the chance to do so.
government, its political subdivisions
or instrumentalities. RULES ON TAX AMNESTY
4. Exemptions to traditional 1. Tax amnesty
exemptees, such as those in favor of a) like tax exemption, it is never
religious and charitable institutions. favored nor presumed
5. If exemptions refer to the public b) construed strictly against the
property taxpayer (must show complete
compliance with the law)
Q: May a tax exemption be revoked?
A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
a. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Reason: Relates to the circumstances fraud or protest, be final and conclusive


of a particular accused and not the upon all parties, unless the liquidation
character of the acts charged in the of import entry was merely tentative.”
information. (Sec 1603,TCC)

Tax amnesty Tax exemption c.) Local Government Code


Local Taxes, fees, or charges shall
Immunity from all Immunity from civil be assessed within five (5) years from
criminal, civil and liability only the date they became due. In case of
administrative fraud or intent to evade the payment of
liabilities arising taxes, fees or charges the same may be
from non payment
of taxes
assessed within ten (10) years from
discovery of the fraud or intent to
Applies only to past Prospective evade payment. They shall also be
tax periods, hence application collected either by administrative or
retroactive judicial action within five (5) years
application from date of assessment (Sec. 194. LGC)

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND


As a rule, taxes are imprescriptible ADMINISTRATION
as they are the lifeblood of the
government. However, tax statutes may SOURCES OF TAX LAWS (Key: SPEC2TRA
provide for statute of limitations. BLT)
The rules that have been adopted 1. Statutes
are as follows: 2. Presidential Decrees
a.) National Internal Revenue Code 3. Executive Orders
The statute of limitation for 4. Constitution
assessment of tax if a return is filed is 5. Court Decisions
within three (3) years from the last day 6. Tax Codes
prescribed by law for the filling of the 7. Revenue Regulations
return or if filed after the last day, 8. Administrative Issuances
within three years from date of actual 9. BIR Rulings
filling. If no return is filed or the return 10. Local Tax Ordinance
filed is false or fraudulent, the period to 11. Tax Treaties and Conventions
assess is within ten years from discovery
of the omission, fraud or falsity. REQUISITES OF TAX REGULATIONS
The period to collect tax is within 1. Reasonable
three years from date of assessment. In 2. Within the authority conferred
the case, however, of omission to file or 3. Not contrary to law
if the return filed is false or fraudulent, 4. Must be published
the period to collect is within ten years
from discovery without need of an NOTE: Administrative regulations must
assessment. always be in harmony with the
provisions of the law. In case of
b.) Tariff and customs code discrepancy between the basic law and
It does not express any general the implementing rule or regulation, the
statute of limitation; it provided, former prevails.
however, that ‘’ when articles have
entered and passed free of duty or final NON-RETROACTIVITY OF BIR RULINGS
adjustment of duties made, with General Rule: Rulings are not
subsequent delivery, such entry and retroactive if they are prejudicial to the
passage free of duty or settlement of taxpayer. (Sec. 246, NIRC)
duties will, after the expiration of one Exceptions:
(1) year, from the date of the final 1. Where the taxpayer deliberately
payment of duties, in the absence of misstates or omits material facts

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

from his return or any document BUREAU OF INTERNAL REVENUE (BIR)


required of him by the BIR. BIR shall be under the supervision
2. Where the facts subsequently and control of the Dept. of Finance (Sec.
gathered by the BIR is materially 2, NIRC)
different from the facts on which
the ruling is based. POWERS AND DUTIES OF THE BIR
3. Where the taxpayer acted in bad Assessment and collection of all
faith. national internal revenue taxes, fees,
and charges
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,
ADMINISTRATIVE INTERPRETATION THROUGH penalties, and fines connected
REENACTMENT therewith
Where a statute is susceptible of the 2. Execution of judgments in all cases
meaning placed upon it by a ruling of decided in its favor by the Court of
the government agency charged with its Tax Appeals (CTA) and the ordinary
enforcement and the legislature courts
thereafter reenacts the provision 3. Give effect to and administer the
without substantial change, such action supervisory and police powers
is to some extent confirmatory that the conferred to it by the Code or other
ruling carries out the legislative laws
purpose.
ASSESSMENT – a finding by the taxing
RULE OF NO ESTOPPEL AGAINST THE authority that the taxpayer has not paid
GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
fair play, as where injustice will result Exceptions:
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
– internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate a. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs – customs law interests,
enforcement b. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers – local and c. In the establishment of tax liens,
real property taxes and
d. In estimating the revenues that may
ORGANIZATION AND FUNCTION OF THE be collected by government in the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

coming year. (Mamalateo, 3. It is discretionary on the part of the


Victorino. Reviewer on Taxation, Commissioner.
2004)

KINDS
1. SELF- ASSESSMENT- one in which the 4. The authority of the Commissioner
tax is assessed by the taxpayer to assess taxes may be delegated,
himself except the power to make final
2. DEFICIENCY ASSESSMENT- made by the assessments.
tax assessor himself whereby the 5. It must be directed to the right
correct amount of the tax is party.
determined after an examination or
investigation is conducted. The Authority of a Revenue Officer -
liability is determined and assessed pursuant to a Letter of Authority issued
for the following reason: by the Regional Director
a. amount ascertained exceeds that a. To examine taxpayers within
which is shown as the tax by the the jurisdiction of the district in
taxpayer in his return order to collect the correct
b. no amount of tax is shown in the amount of tax;
return b. To recommend the assessment of
c. taxpayer did not file any return any deficiency tax due in the
at all same manner that the said acts
3. ILLEGAL AND VOID ASSESSMENT- could have been performed by the
assessment wherein tax assessor has Revenue Regional Director.
no power to assess at all General Rule: income tax returns are
4. ERRONEOUS ASSESSMENT- assessor has
confidential.
power to assess but errs in the Exception: inquiry into income tax
exercise thereof returns may be authorized-

BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon


PROCEEDINGS written order of the President of the
There is a presumption of Philippines;
correctness and good faith on the part of 2. inspection is authorized under
the CIR; thus, the burden lies on the Finance Regulations No. 33 of the
taxpayer. Otherwise, the finding of the Secretary of Finance;
CIR will be conclusive and he will assess 3. production of the tax return is
the taxpayer. The same is true even if material evidence in a criminal case
the CIR is wrong, if the taxpayer does wherein the government is
not controvert. (Cagayan Robina Sugar interested in the result; or
Milling Co. vs. Court of Appeals, GR. 4. production or inspection thereof is
No. 122451, October 12, 2000) authorized by the taxpayer himself.
Reasons: a. lifeblood theory
Networth Method- inventory method of
b. presumption of regularity in
income tax verification.
performance of public
functions
• Applies the accounting principle:
NOTE: Assessments by the BIR must have
on its face the law and facts upon which assets – liabilities = networth
the presumption is made. Condition for its use:
1. taxpayer’s books do not clearly
PRINCIPLES GOVERNING TAX ASSESSMENTS reflect his income or the taxpayer
1. Assessments are prima facie has no books, or if he has books, he
presumed correct and made in good refuses to produce them;
faith. 2. there is evidence of possible source
2. It should be based on actual facts. or sources of income to account for
increases in networth;

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

3. there is a fixed starting point or i. the person liable for tax or


opening networth; and required to file a return or
4. there must be proper adjustments to ii. any officer or employee of such
conform with the income tax laws. person or
iii. any person having in his
possession/custody/care
POWERS AND DUTIES OF THE COMMISSIONER -- the books of accounts,
I. SECTION 4 (power to interpret tax law -- accounting records of entries
and decide tax cases) relating to the business of the
person liable for tax or any other
1. Interpret provisions of this Code and person
other tax laws subject to review of the -- to produce such books,
Secretary of Finance papers, records, and other data
(Quasi-legislative) and to give testimony
2. Decide: (Quasi-judicial) 4. to take the Testimony of the person
a) disputed assessment concerned, under oath as may be
b) refunds of internal relevant to the inquiry
revenue taxes, fees and charges 5. to cause revenue officers and
c) penalties imposed in employees to make a Canvass of any
relation thereto revenue district or region
d) other matters arising
from this Code or other laws or Nothing in Section 5 shall be
portions thereof administered by construed as granting the Commissioner
the BIR subject to the exclusive the authority to inquire into bank
appellate jurisdiction of the CTA deposits other than as provided for
(Sec. 4) under sec. 6 (F) of the Code.

II. SECTION 5 (power to obtain III. SECTION 6 (power to make


information, summon, examine and take assessments, prescribe additional
testimony of persons) requirements for tax administration
and enforcement)
3. For the Commissioner to ascertain:
(a) correctness of any return or in 4. Examination of returns and
making a return where none has determination of tax due
been made A. After a return has been filed the
(b) liability of any person for any Commissioner or his
internal revenue tax or in representative may authorize
correcting such liability i.
(c) tax compliance the Examination of any taxpayer
and
The Commissioner is authorized: ii.
1. to Examine any relevant Book, paper, the Assessment of the correct
record or other data amount of tax;
2. to Obtain any information (costs, B. F
volume of production, receipts, sales, ailure to file a return shall not
gross income, etc), on a regular basis prevent the commissioner from
from: authorizing the examination of
i. any person other than the person any taxpayer;
under investigation or * Any tax or deficiency tax so
ii. any office or officer of the assessed shall be paid upon
national/local government, gov’t notice and demand from the
agencies and instrumentalities Commissioner or his
(Bangko Sentral, gov’t owned and representative
controlled corporations) (e.g. LTO, * Any return, statement or
Register of Deeds) declaration filed in any
3. to Summon authorized office shall not be

TAXATION LAW COMMITTEE


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Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

withdrawn; but within three for VAT-registered persons)


years from date of filing, the and Sec. 237 (Issuance of
same may be modified, Receipts or Commercial
changed or amended; Invoices) or
provided that no notice for ii. When the books of accounts
audit or investigation of such or records do not correctly
return, has in the meantime, reflect the declarations made
been actually served upon the or required to be made in a
taxpayer. return,
Such minimum amount shall
5.Failure to submit required returns and be considered correct.
other documents 7. Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such b) is intending to leave the Phils.
information as he can obtain or
through testimony or otherwise c) to remove his property
which shall be prima facie therefrom or
correct and sufficient for all d) to hide or conceal his property
legal purposes or
e) is performing any act tending to
6.Inventory-taking, Surveillance, obstruct the proceedings for
Presumptive Gross Sales the collection of tax
A. Commissioner may, at any time
during the taxable year 8. Prescribe Real Property Values
(a) order the inventory taking of The Commissioner is authorized to:
goods of any taxpayer or a. Divide the Phils. into different
(b) may place the business zones or areas and
operations of any person b. Determine the fair market value
(natural/juridical) under of real properties located in each
observation or Surveillance, zone or area
if there is reason to
believe that such is not For tax purposes, the value of
declaring his correct income, the property shall be whichever is
sales or receipts for tax higher of:
purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business): authorized to inquire into the Bank
i. When a person has failed to deposits of:
issue receipts as required by (a) a decedent to determine his gross
sec.113 (Invoice requirements estate

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

(b) a taxpayer who has filed an b) power to Issue rulings of first


application to compromise impression or to Reverse, revoke
payment of tax liability by reason modify any existing rule of the
of financial incapacity BIR
c) power to Compromise or Abate
The taxpayer’s application for any tax liability
compromise shall not be considered
unless he waives in writing his
privilege under RA 1405 and other
general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
10. Authority to Register tax agents provided however that the
(a) The Commissioner shall accredit regional evaluation board may
and Register, individuals and compromise:
general professional partnerships 1. assessments issued by
and their rep. who prepare and regional offices involving
file tax returns and other papers deficiency taxes of P500,000
or who appear before the BIR or less and
(b) The Commissioner shall create 2. minor criminal violations as
national and regional may be determined by the
accreditation boards. rules and regulations
3. discovered by regional and
Those who are denied district officials
accreditation may appeal the same
to the Sec. Of Finance who shall Regional Evaluation Board is
rule on the appeal within 60 days composed of:
from receipt of such appeal. Failure i. Regional Director as Chairman
to do so within the prescribed ii. Asst. Regional Director
period shall be deemed as approval iii. Heads of the Legal, Assessment
for accreditation. and Collection Div.
iv. Revenue District Officer having
11. Authority to Prescribe Additional jurisdiction over the taxpayer
Requirements
The Commissioner may prescribe d) power to Assign or reassign
the manner of compliance with any internal revenue officers to
documentary or procedural establishments where
Requirement for the submission or articles subject to excise tax
preparation of financial statements are kept.
accompanying tax returns.
V. SECTIONS 8, 14, 15, 16, 17 (Other
IV. SECTION 7 (Authority to Delegate Powers)
Power ) 13. Duty to ensure the provision and
12. The Commissioner may delegate the distribution of forms, receipts,
powers vested in him to certificates, and appliances, and
- subordinate officials with rank the acknowledgment of payment of
equivalent to Division Chief or taxes (Sec. 8)
higher, subject to
limitations/restrictions imposed 14. Authority to administer oaths and to
under the rules and regulations take testimony (Sec. 14)
EXCEPT, (the following powers
shall NOT be delegated) 15. Authority to make arrests and
a) power to Recommend the seizures (Sec. 15)
promulgation of rules and
regulations by the Sec. of 16. Authority to employ, assign or
Finance reassign internal revenue officers

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

involved in excise tax functions to person’s income, emoluments,


establishments where articles profits and the like (61 CJS 1559)
subject to excise tax are produced – tax on income,
or kept (Sec. 16) whether gross or net. (27 Am. Jur.
308)
17. Authority to assign or reassign
internal revenue officers and INCOME – all wealth, which flows into the
employees of the BIR to other or taxpayer other than as a mere
special duties connected with the return of capital.
enforcement or administration of
the revenue laws (Sec. 17) CAPITAL – resource of person, which can
be used in producing goods and
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED services.
TO INSTITUTE APPEAL PROCEEDINGS WITHOUT Income Capital
THE PARTICIPATION OF THE SOLICITOR
GENERAL? All wealth, which Fund or property
NO. The institution or flows into the which can be used
commencement before a proper court of taxpayer other than in producing goods
civil and criminal actions and as a mere return of or services
proceedings arising under the Tax capital.
Reform Act which shall be conducted by
Flow of Wealth Fund or property
legal officers of the BIR is not in dispute.
An appeal from such court, however, is Source of wealth Wealth
not a matter of right. It is still the
Solicitor General who has the primary
responsibility to appear for the REQUISITES FOR INCOME TO BE TAXABLE
government in appellate proceedings. 1. There must be a gain or profit.
(Commissioner vs. La Suerte Cigar and 2. The gain must be realized or
Cigarette Factory, GR No. 144942, July received.
4, 2002) 3. The gain must not be excluded by
law or treaty from taxation.
SOURCES OF REVENUE
The following taxes, fees and TESTS ON TAXABILITY OF INCOME
charges are deemed to be national 1. Flow of Wealth Test – The
internal revenue taxes. (Sec. 21, NIRC) determining factor for the
1. Income tax imposition of income tax is
2. Estate and donor's taxes whether any gain was derived
3. Value-added tax from the transaction.
4. Other percentage taxes 1. Realization Test - unless the
5. Excise taxes income is deemed "realized,"
6. Documentary stamp taxes there is no taxable income.
7. Such other taxes as are or hereafter 2. Economic-Benefit Principle
may be imposed and collected by Test
the Bureau of Internal Revenue. -flow of wealth realized is
taxable only to the extent that
the taxpayer is economically
benefited.
II. NATIONAL TAXATION
CRITERIA IN IMPOSING INCOME TAX
A. INCOME TAXATION 1. Citizenship Principle – A citizen of
the Philippines is subject to Philippine
DEFINITIONS income tax (a.) on his worldwide
INCOME TAX – tax on all yearly profits income, if he resides in the Philippines,
arising from property, possessions, or (b.) only on his income from sources
trade or business, or as a tax on a within the Philippines, if he qualifies as
nonresident citizen.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. Residence Principle – resident alien or for employment on a


is liable to pay income tax on his income permanent basis;
from sources within the Philippines but c. who works and derives income
exempt from tax on his income from from abroad and whose
sources outside the Philippines. employment thereat requires
3. Source Principle – An alien is subject him to be physically present
to Philippine income tax because he abroad most of the time during
derives income from sources within the the taxable year;
Philippines. Thus, a nonresident alien is d. who is previously considered as a
liable to pay Philippine income tax on non-resident and who arrives in
his income from sources within the the Philippines at anytime during
Philippines such as dividend, interest, the taxable year to reside
rent, or royalty, despite the fact that he thereat permanently shall be
has not set foot in the Philippines. considered non-resident for the
CLASSIFICATION OF TAXPAYERS taxable year in which he arrives
in the Philippines with respect to
Individuals his income derived from sources
a. citizens abroad until the date of his
(1) resident citizens (RC) arrival [Sec.22 (E), NIRC]
(2) non-resident citizens (NRC)
b. aliens NOTE: An overseas contract worker
(1) resident aliens (RA) (OCW) is taxable only on income
(2) non-resident aliens (NRA) derived from sources within the
(a) engaged in trade or Philippines. [Sec. 23 (B)(C)]
business within the A seaman is considered as an
Phils. (NRAETB) OCW provided the following
(b) not engaged in trade or requirements are met:
business within the 1. receives compensation for services
Philippines (NRANETB) rendered abroad as a member of
the complement of a vessel; and
Corporations 2. such vessel is engaged exclusively
a. Domestic (DC) in international trade.
b. Foreign
(1) resident foreign corporation Based on the above provisions,
(RFC) there are three (3) types of
(2) non-resident foreign nonresident citizens, namely: (1)
corporation (NRFC) immigrants; (2) employees of a foreign
Estates entity on a permanent basis; and
Trusts (3) overseas contract workers.
Partnerships Immigrants and employees of a foreign
entity on a permanent basis are
A. INDIVIDUALS treated as nonresident citizens from
the time they depart from the
WHO ARE TAXABLE? Philippines. However, overseas
1. Resident Citizen contract workers must be physically
2. Non-resident Citizen present abroad most of the time
A non-resident citizen means, a during the calendar year to qualify as
Filipino citizen: nonresident citizens.
a. who establishes to the 3. Resident alien - means an individual
satisfaction of the Commissioner whose residence is within the
the fact of his physical presence Philippines and who is not a citizen
abroad with a definite intention thereof. [Sec.22 (F, NIRC)]
to reside therein; 4. Non-resident alien engaged in
b. who leaves the Philippines trade or business within the
during the taxable year to reside Philippines. (NRAETB)
abroad, either as an immigrant

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

A non-resident alien means an


individual whose residence is not Excludes:
within the Philippines and who is not 1. General professional
a citizen thereof. [Sec.22 (G)] partnerships;
The term trade or business 2. Joint venture or consortium
includes the performance of the formed for the purpose of
functions of a public office. [Sec. 22 undertaking construction projects or
(S)] engaging in petroleum, coal,
The term trade, business or geothermal and other energy
profession shall not include operations pursuant to an operating
performance of services by the or consortium agreement under a
taxpayer as an employee. [Sec. 22 service contract with the
(CC)] Government.
A non-resident alien individual
who shall come to the Philippines CORPORATIONS EXEMPT FROM INCOME
and stay therein for an aggregate TAXATION (FOR INCOME REALIZED AS SUCH)
period of more than 180 days during UNDER NIRC
any calendar year shall be deemed a 1. Those enumerated under Sec. 30.
non-resident alien doing business in Exempt corporations are subject
the Philippines Section 22(G) to income tax on their income from
notwithstanding [Sec. 25(A)(1)] any of their properties, real or
5. Non-resident alien not engaged in personal, or from any other activities
trade or business within the conducted for profit, regardless of
Philippines. (NRANETB) the disposition made of such income.
2. With respect to GOCCs, the general
ONLY RESIDENT CITIZENS are taxable rule is that these corporations are
for income derived from sources within taxable as any other corporation
and without the Philippines. All other except:
individual income taxpayers are taxable a. GSIS
only for income derived from sources b. SSS
within the Philippines. c. PHIC
d. PCSO
 Tax Rates: Please refer to Annex A. e. PAGCOR [Sec. 27 (C)]
3. Regional or Area Headquarters
B. CORPORATIONS under Sec. 22 (DD) – not subject to
income tax
WHO ARE TAXABLE?
1. Domestic Corporation – created or Regional operating headquarters
organized in the Phils. or under its under Sec. 22(EE) shall pay a tax of
law [Sec. 22(C), NIRC] 10% of their taxable income.
2. Resident Foreign Corporation –
engaged in trade or business within ONLY DOMESTIC CORPORATIONS are
the Philippines [Sec. 22(H), NIRC] taxable for income derived from sources
3. Non-resident Foreign Corporation – within and without the Philippines. All
not engaged in trade or business other corporate income taxpayers are
within the Philippines [Sec. 22(I), taxable only for income derived from
NIRC] sources within the Philippines.
A Corporation Includes:
1. Partnerships, no matter how  Tax Rates: Please refer to Annex B.
created or organized;
2. Joint-stock companies; C. ESTATES AND TRUSTS
3. Joint accounts (cuentas en
participacion) ESTATE – refers to the mass of properties
4. Associations; or left by a deceased person.
5. Insurance companies [Sec. 22(B),
NIRC]. RULES ON TAXABILITY OF ESTATE

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

When a person who owns property payment of corporate income


dies, the following taxes are payable tax. (Evangelista vs. Collector,
under the provisions of the income tax GR No. L-9996, October 15,
law: 1957; Oña vs. Commissioner, GR
1. Income tax for individual under Sec. No. L-19342, May 25, 1972)
24 and 25 (to cover the period 2. If the heirs, without contributing
beginning January to the time of money, property or industry to
death); improve the estate, simply
2. Estate income tax under Sec. 60 if divide the fruits thereof
the estate is under administration or between/among themselves, a
judicial settlement. co-ownership is created, and
individual income tax is imposed
on the income received by each
of the heirs, payable in their
ESTATES UNDER JUDICIAL SETTLEMENT separate and individual
A. During the Pendency of the capacity. (Pascual vs.
Settlement Commissioner, GR No. L-78133,
General Rule: An estate under October 18, 1988; Obillos vs.
judicial settlement is subject to Commissioner, GR No. L-68118,
income tax in the same manner as October 29, 1985)
individuals. Its status is the same as
the status of the decedent prior to ESTATES NOT UNDER JUDICIAL SETTLEMENT
his death. Pending the extrajudicial
Exceptions: settlement, either of the following
1. The entitlement to personal situations may arise:
exemption is limited only to 1. If the heirs contribute money,
P20,000. property, or industry to the estate
2. No additional exemption is with the intention of dividing the
allowed. profits between/among themselves,
3. The distribution to the heirs an unregistered partnership is
during the taxable year of estate created and the estate becomes
income is deductible from the liable for the payment of corporate
taxable income of the estate. income tax; or
Such distributed income shall 2. If the heirs, without contributing
form part of the respective money, property or industry to the
heirs’ taxable income. estate, simply divide the fruits
Where no such thereof between/among themselves,
distribution to the heirs is made a co-ownership is created and
during the taxable year that the income tax is imposed on the income
income is earned, and such received by each of the heirs,
income is subjected to income payable in their separate and
tax payment by the estate, the individual capacity.
subsequent distribution thereof
is no longer taxable on the part TRUST – A right to the property, whether
of the recipient. real or personal, held by one person for
the benefit of another.
B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL WHEN TRUSTS ARE TAXABLE ENTITIES
DO NOT DIVIDE THE PROPERTY) 1. A trust, the income of which is to be
1. If the heirs contribute to the accumulated
estate money, property, or 2. A trust in which the fiduciary may, at
industry with intention to divide his discretion, either distribute or
the profits between/among accumulate the income.
themselves, an unregistered
partnership is created and the RULES ON TAXABILITY OF THE INCOME OF A
estate becomes liable for the TRUST

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

1. The income of the trust for the 2. contributions are made to the trust
taxable year which is to be by such employer, or such
distributed to the beneficiaries – employees, or both;
filing and payment of tax lie on the 3. such contributions are made for the
beneficiaries. purpose of distributing to such
2. The income of the trust which is to employees both the earnings and
be accumulated or held for future principal of the fund accumulated by
distribution whether consisting of the trust, and
ordinary income or gain from the 4. that the trust instrument makes it
sale of assets included in the impossible for any part of the trust
"corpus" of the estate – filing of corpus or income to be used for, or
return and payment of tax become diverted to, purposes other than the
the burden of the trustee or exclusive benefit of such employees.
fiduciary. (Sec. 60B, NIRC)
Exceptions:
a. In the case of a revocable trust, Tax exemption is likewise to be
the income of the trust will be enjoyed by the income of the pension
returned by the grantor. trust; otherwise, taxation of those
b. In a trust where the income is earnings would result in a diminution of
held for the benefit of the accumulated income and reduce
grantor, the income of the trust whatever the trust beneficiaries would
becomes income to the grantor. receive out of the trust fund.
c. In the case of trust (Commissioner vs. Court of Appeals,
administered in a foreign Court of Tax Appeals and GCL
country, the income of the trust; Retirement Plans, GR No. 95022, March
undiminished by any amount 23, 1992)
distributed to the beneficiaries
shall be taxed to the trustee. D. PARTNERSHIPS
IRREVOCABLE TRUSTS (irrevocable both as KINDS OF PARTNERSHIP FOR TAX PURPOSES
to corpus and as to income) – UNDER THE NIRC
1. General Professional Partnerships
Trust itself, through the trustee or (GPP) - formed by persons for:
fiduciary, is liable for the payment of a. the sole purpose of exercising a
income tax. Taxed exactly in the same common profession and
way as estates under judicial settlement b. no part of the income of which is
and its status as an individual is that of derived from engaging in any
the trustor. It is entitled to the trade or business. [Sec. 22(B),
minimum personal exemption (P20,000) NIRC].
and distribution of trust income during 2. Taxable or Business Partnership –
the taxable year to the beneficiaries is All other partnerships except
deductible from the trust’s taxable general professional partnerships no
income. matter, how created or organized.
It includes unregistered joint
REVOCABLE TRUSTS – the trustor, not the ventures and business partnerships.
trust itself, is subject to the payment of However, joint ventures are not
income tax on the trust income. taxables as corporations when it is;
(a) undertaking construction projects
EXEMPTION OF EMPLOYEES’ TRUST (b) engaged in petroleum, coal and
Provided: other energy operation under a
1. the employee’s trust must be part of service contract with the
a pension, stock bonus or profit government
sharing plan of the employer for the General co-partnerships (GCP)
benefit of some or all of his are partnerships, which are by law
employees; assimilated to be within the context
of, and so legally contemplated as,

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

corporations. The partnership itself shall be subject to creditable


is subject to corporate taxation. The withholding tax of 10%.] They
individual partners are considered are liable in their separate and
stockholders and, therefore, profits individual capacity.
distributed to them by the
partnership are taxable as dividends. b. Share of a partner in the loss
The taxable income for a taxable of a general professional
year, after deducting the corporate partnership may be taken by the
income tax imposed therein, shall be individual partner in his return
deemed to have been actually or of income.
constructively received by the
partners in the same taxable year
and shall be taxed to them in their c. Each partner in a general
individual capacity whether actually professional partnership shall,
distributed or not. [Sec. 73(D), report as gross income his
NIRC] distributed share in the net
income of the GPP, based on his
LIABILITY OF A PARTNERSHIP agreed ratio, whether he, avails
1. General Professional Partnership .- of itemized or optional standard
They are not subject to income tax, deduction.
but are required to file returns of
their income for the purpose of d. Payments made to a partner of
furnishing information as to the a GPP for services rendered shall
share of each partner in the net gain be considered as ordinary
or profit, which each partner shall business income subject to Sec.
include in his individual return. The 24A (Effective January 1, 1982)
partnership shall act as the
withholding agent. 2. Share of a partner in Taxable or
The net income (income for Business partnership
distribution) shall be computed in a. Share of a partner in the net
the same manner as a corporation. income of a taxable or business
Date of filing of the return is April partnership (dividend) shall be
15 of each year. subject to a final tax as follows.
2. Taxable or Business Partnership - • Resident Citizen, Non-
The income tax of this type of resident Citizen and
Partnership is computed and taxed Resident Alien (2000 and
like that of a corporation. This kind onward) – 10% (Sec. 24B2)
of partnership, like a regular • Non-resident Alien engaged
corporation, is also required to file a in trade or business – 20%
quarterly corporate income tax (Sec. 25 A2)
return. Filing and payment of • Non-resident alien not
quarterly return is within 60 days engaged in trade or business
after the end of each quarter while – 25% (Sec. 25B)
the annual return is on or before b. Share of a partner in the loss
April 15 of the following year. of a taxable or business
partnership maybe taken by the
LIABILITY OF A PARTNER individual partner in his return
Rules: of income.
1. Share of a partner in general c. Payments made to a partner of
professional Partnership a business or taxable partnership
a. Each partner shall report as for services rendered shall be
gross income (business income) considered as compensation
his distributed share actually or income subject to sec. 24A.
constructively received in the
net income of the partnership.
(Sec. 26, NIRC) [The same share KINDS OF INCOME TAXES

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

UNDER THE NIRC KINDS OF DIVIDENDS


1. Cash and Property Dividends
1. Net Income Tax Individual Taxpayer
2. Optional Corporate Income tax a. From Domestic Corporations
3. Minimum Corporate Income Tax • RC, NRC, RA – 10% (Sec.
4. Improperly Accumulated Earnings 24A)
Tax • NRAETB – 20% (Sec. 25A2)
5. Preferential Rates or Special Rates • NRANETB – 25% on gross
of Income Tax income (Sec. 25B)
6. Gross Income Tax b. From Foreign Corporations
7. Final Income Tax • RC, NRC, RA, NRAETB – 5-
8. Fringe Benefits Tax 32% (Sec. 24, 25A1)
9. Capital Gains Tax • NRANETB – 25% on gross
(1) NET INCOME TAX income (Sec. 25B)

DEFINITION: Means gross income less Corporate Taxpayer


deductions and/or personal and a. Foreign to Domestic Corp. – 32%
additional exemptions (Sec. 31, NIRC) (Sec. 32A)
b. Domestic to Domestic Corp. –
NET INCOME TAX FORMULA Exempt; intercorporate
Entire Income dividends (Sec. 27D)
Less: Exclusions and Income subject c. Domestic to Foreign Corp. -
to Final Tax (e.g. Passive • Resident Foreign Corp. –
Income) Exempt (Sec. 28 [A] 7d)
Gross Income • Nonresident Foreign Corp. –
Less: Deductions (and/or additional
15% subject to the condition
exemptions, if applicable)
stated in Sec. 28 [B] 5.
Net Taxable Income
Otherwise, it shall be taxed
Multiply by: Tax Rate (%)
at 32%. (See Commissioner
Net Income Tax Due vs. Procter and Gamble, GR
Less: Tax Credit, if any No. 66838, December 2,
Tax Still due, if any 1991)

GROSS INCOME 2. Stock Dividends


General rule: Not subject to tax
DEFINITION: Means all income derived because it does not constitute
from whatever source, including but not income; it represents transfer of
limited to the following (Sec. 32) surplus to capital account. (Sec.
a. Compensation; 73B, 1997 NIRC)
b. Gross income from profession, trade Exceptions:
or business; a. Sec. 73B, 1997 NIRC
c. Gains form dealings in property; (1) there is redemption or
d. Interests; cancellation
e. Rents; (2) the transaction involves
f. Royalties; stock dividends, and
g. Dividends; (3) the “time and manner” of
h. Annuities; the transaction makes it
i. Prizes and winnings; “essentially equivalent to a
j. Pensions; distribution of taxable
k. Partner’s share in the net income of dividends”. (see
the general professional partnership Commissioner vs. Court of
Appeals, Court of Tax
 See Annex D for detailed discussion Appeals & ANSCOR, GR No.
of items. 108576, Jan. 30, 1999)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

b. the recipient is other than the taxable year), then the excess shall
shareholder (Bachrach vs. be included in the gross income.
Seifert, GR No. L-2659, October However, in the case of a transfer for
12, 1950) a valuable consideration, by
c. change in the stockholder’s assignment or otherwise, of a life
equity results by virtue of the insurance, endowment or annuity
stock dividend issuance. contract, or any interest therein,
only the actual value of such
3. Liquidating Dividends – When a consideration and the amount of the
corporation distributes all of its premiums and other sums
assets in complete liquidation or subsequently paid by the transferee
dissolution, the gain realized or are exempt from taxation. No loss is
loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or deductible loss, as the
case may be. (Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the use of capital, the receipt is income
term “exclusions” refers to items that (Pirovano vs. Commissioner, 14
are not included in the determination of SCRA 832)
gross income either because:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase “personal
(c) they are income, gain or profit injuries” should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of
(individual, partnership, or compensation for such loss was
corporation, but not a transferee for voluntary does not change its
a valuable consideration), directly or exempt status. It was in fact
in trust. compensation for a loss, which
NOTE: if the proceeds are impaired petitioner’s capital.
retained by the insurer, the interest
thereon is taxable; 5. Income exempt under Treaty;

2. Return of insurance premium; 6. Retirement benefits, pension,


NOTE: if such amounts (when added gratuities, etc.
to amounts already received before a. those derived under R.A. 7641
the taxable year under such (pertains to private firms
contracts) exceed the aggregate without retirement trust fund);
premiums or considerations paid b. those received by officials and
(whether or not paid during the employees of private employers

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

in accordance with a reasonable c. Prizes and awards made


private benefit plan; primarily in recognition of
Requisites: religious, charitable, scientific,
(1) in the service of the same educational, artistic, literary, or
employer for at least 10 civic achievement
years; Requisites:
(2) at least 50 years old; (1) recipient was selected
(3) must be availed of only once without any action on his
(4) plan approved by the BIR part; and
(R.R.2-98); (2) recipient is not required to
c. separation pay because of render substantial future
death, sickness, or other services.
physical disability or for any d. Prizes and awards granted to
cause beyond the control of the athletes in sports competitions
official or employee (e.g. and sanctioned by their national
retrenchment, redundancy or sports association ;
cessation of business); e. 13th month pay and other
“for any cause beyond the benefits up to P30,000.00;
control of said official or f. GSIS,SSS, Medicare and union
employee” – connotes dues of individuals;
involuntariness on the part of g. Gains derived from debt
the official or employee; securities with a maturity of
separation must not be asked or more than 5 years;
initiated by the official or h. Gains from redemption of shares
employee. in Mutual Fund.
d. social security benefits,
retirement gratuities, pensions EXCLUSIONS VS. DEDUCTIONS
and other similar benefits
received by citizens and aliens Exclusions Deductions
who come to reside permanently [Sec. 32(B)] [Sec. 34]
here from foreign sources
private or public; Refer to flow of Refer to the
e. benefits due to residents under wealth which are not amounts which the
the laws of the U.S. treated as part of law allows to be
administered by the U.S. gross income subtracted from
Veterans Administration because: gross income in
(1) exempted by the order to arrive at
f. SSS benefits; and
fundamental law; (2) net income
g. GSIS benefits. exempted by statute;
(3) do not come
7. Miscellaneous items within the definition
a. Passive income derived in the of income
Philippines by:
(1) Foreign governments; Pertain to the Pertain to the
(2) Financing institutions computation of gross computation of the
owned, controlled or income net income
enjoying refinancing from
Something earned or Something spent or
foreign governments received by the paid in earning of
(3) International or regional taxpayer which do gross income
financial institutions not form part of gross
established by foreign income
governments
b. Income derived from any
public utility or from the DEDUCTIONS
exercise of any governmental
function; DEFINITION: Items or amounts which the
law allows to be deducted from gross

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

income in order to arrive at the taxable (1) Optional Standard Deduction


income. (OSD)
(2) Itemized deductions
BASIC PRINCIPLES GOVERNING DEDUCTIONS (3) premium payments on health
a. The taxpayer seeking a deduction and/or hospitalization
must point to some specific insurance
provisions of the statute authorizing (4) personal additional
the deduction; and exemptions
b. He must be able to prove that he is 2. Corporations
entitled to the deduction authorized • Itemized Deductions
or allowed. (Atlas Consolidated
Mining & Dev. Corp. vs.
Commissioner, GR No. L-26911, KINDS OF DEDUCTIONS
January 21, 1981) a. Optional standard deductions (OSD)
c. Any amount paid or payable which is –10% of the gross income.
otherwise deductible from, or taken The OSD may be availed of
into account in computing gross only by individuals (except
income or for which depreciation or nonresident alien) who are not
amortization may be allowed, shall purely compensation income
be allowed as deduction only if it is earners.
shown that the tax required to be b. Personal and additional exemptions
deducted and withheld therefrom Available only to individuals
has been paid to the BIR. [Sec. (business income and compensation
34(K), NIRC] income earners).

NOTE: Deductions for income tax NRAETB may be entitled to


purposes partake of the nature of tax personal exemptions (only) subject
exemptions; hence, if tax exemptions to reciprocity, i.e.,
are to be strictly construed, then it a. the country of which he is a
follows that deductions must also be subject or citizen has an income
strictly construed. tax law; and
b. the income tax law of his
TAXPAYERS WHO CANNOT AVAIL OF country allows personal
DEDUCTIONS FROM GROSS INCOME exemption to citizens of the
1. Citizens and resident aliens whose Philippines not residing therein,
income is purely compensation but deriving income therefrom
income (except for premium and not to exceed the amount
payments on health and/or allowed in NIRC.
hospitalization insurance);
2. Non-resident aliens not engaged in The personal exemption shall be
trade or business in the Philippines; equal to that allowed by the income
and tax law of his country to a citizen of
3. Non-resident foreign corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.
1. Individuals
a. with gross compensation income Individuals not entitled to these
from employer-employee exemptions:
relationship only a. Non-resident Alien not engaged
(1) premium payments on health in trade or business
and/or hospitalization b. Alien individual employed by
insurance Regional or Area Headquarters
(2) personal additional of Multinational Companies
exemptions c. Alien individual employed by
b. gross income from business or Offshore Banking Units
practice of profession

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

d. Alien individual employed by with and dependent upon the


Petroleum Service Contractor taxpayer for their chief support;
and Subcontractor and
“Chief support” means more
c. Itemized deductions than one-half of the
a. ordinary and necessary requirements for support.
expenses 2. Where such brother / sister or
b. interests children are not more than 21
c. taxes years of age, unmarried and not
d. losses gainfully employed, or where
e. bad debts such dependents regardless of
f. depreciation of property; age, are incapable of self –
g. depletion of oil and gas wells support because of mental or
and mines; physical defect.
h. charitable and other
contributions; Parents, brothers, sisters and senior
i. research and development; citizen with the tax payer, whether
j. pension trust contributions of relative or not, may qualify the
employees; and taxpayer, to the personal exemption of
k. premium payments on health P25,000 as head of the family but not to
and/or hospitalization insurance. the additional exemption of P8,000.
(This is the only deduction which
a compensation income earner B. Additional Exemption for
may claim as a deduction.) Dependents [Sec. 35, NIRC]
P 8,000 – For each of the qualified
d. Special deductions dependent children not
a. private proprietary educational exceeding four (4) in
institutions and hospitals that number.
are non-profit (Sec. 34 A, 2) The additional exemption refers
b. insurance companies (Sec. 37) only to qualified dependent children
c. estates and trusts (Sec. 61) such as legitimate, recognized natural,
illegitimate and legally adopted.
PERSONAL EXEMPTIONS The proper claimant of the
additional exemption is the husband
A. Amounts of Personal Exemptions being the head of the family except
[Sec. 35, NIRC] under the following cases:
1. P 20,000 – Single individual or 1. Husband is unemployed
married individual judicially 2. Husband is working abroad like
decreed legally separated an OFW or a seaman
without qualified dependent 3. Husband explicitly waived his
children. right of the exemption in favor
2. P 25,000 – Head of the family or of his wife in the withholding
married individual judicially exemption certificate.
decreed legally separated
with qualified dependent A Senior Citizen is:
children. 1. any
3. P 32,000 – For each legally resident citizen of the
married individual. Philippines
2. at least
Head of the Family sixty 60 years old, including
1. Unmarried or legally separated those who have retired from
person with one or both parents, both government offices and
or one or more brothers or private enterprises, and
sisters, or one or more 3. has an
legitimate, recognized natural or income of not more than Sixty
legally adopted children living thousand pesos (60,000) per

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

annum subject to the review of • 25 years old child became


the National Economic incapacitated – cannot claim
Development Authority (NEDA) additional exemption
every three years.
ITEMIZED DEDUCTIONS
Parents and dependents qualify
the taxpayer, to the personal A. ORDINARY AND NECESSARY
exemption of P25,000 as head of the
EXPENSES
family but not to the additional
exemption of P8,000.
NECESSARY EXPENSE – appropriate and
NOTE: NRAETB may deduct personal helpful in the development of taxpayer's
exemption (not additional business and are intended to minimize
exemption), but only to the extent losses or to increase profits. These are
allowed by his country to Filipinos the day-to-day expenses.
not residing therein, and shall not ORDINARY EXPENSE – normal or usual in
exceed the aforementioned relation to the taxpayer’s business and
amounts. NRANETB cannot claim the surrounding circumstance.
any personal or additional
exemptions. REQUISITES OF BUSINESS EXPENSE TO BE
DEDUCTIBLE
C. Change of Status [Sec. 35, NIRC] 1. ordinary and necessary;
1. If the taxpayer should marry or 2. paid or incurred w/in the taxable
should have additional year;
dependents during the taxable 3. paid or incurred in carrying on a
year, he may claim the trade or business;
corresponding exemptions in full 4. substantiated with official receipts
for such year. or other adequate records.
2. If the taxpayer should die during 5. if subject to withholding taxes proof
the taxable year, his estate may of payment to the Bureau of Internal
claim the corresponding Revenue must be shown.
exemptions as if he died at the 6. must be reasonable (when the
close of such year. expense is not lavish, extravagant or
3. If the spouse or any dependent excessive under the circumstances)
should die or any dependent 7. must not be contrary to law, public
should marry or become twenty- policy or morals.
one years old during the year, or
should become gainfully NOTE: While illegal income will form
employed, the taxpayer may part of income of the taxpayer,
claim the exemptions as if the expenses which constitute bribe,
spouse or dependent died or as kickback and other similar payment,
if such dependent married, being against law and public policy are
became twenty one years old or not deductible from gross income.
became gainfully employed at (Subsec. A, 1, c)
the close of such year.
4. For any other event and for CAPITAL EXPENDITURE – An expenditure
which there are no specific rules that benefits not only the current period
applicable from the above- but also future periods. It is not
mentioned, the status of the deductible but depreciable, except, if
taxpayer at the end of the year the taxpayer is a non-profit proprietary
shall determine his exemptions. educational institution which may elect
(strictly construed against the either to deduct the capital expense or
taxpayer) depreciate it.
Examples:
• became legally separated –  See Annex E – Business Expenses
can only claim P 20,000

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

 See Annex F – Ceiling on Limitation - The amount of interest


“Entertainment, Amusement and expense paid incurred by a taxpayer in
Recreational Expenses” connection with his trade, business or
exercise of a profession from an existing
B. INTEREST indebtedness shall be reduced by an
amount equal the following percentages
INTEREST – shall refer to the payment for of interest income earned which had
the use or forbearance or detention of been subjected to final withholding
money, regardless of the name it is depending on the year when the interest
called or denominated. It includes the income earned, viz:
amount paid for the borrower's use of, 38% - beginning January 1, 2000 and
money during the term of the loan, as thereafter
well as for his detention of money after
the due date for its repayment. Aim of Limitation: To discourage so-
called “back-to-back” loans where a
REQUISITES FOR DEDUCTIBILITY (REV. REG. taxpayer secures a loan from a bank,
NO. 13-2000) turns around and invests the loan
1. There must be an indebtedness; proceeds in money market placements.
2. There should be an interest By imposing a limit as to the amount of
expense paid or incurred upon interest expense that can be deducted
such indebtedness; from gross income, the previous practice
3. The indebtedness must be that of of tax arbitrage was absolutely nullified.
the taxpayer;
4. The indebtedness must be connected Tax Arbitrage – is a method of
with the taxpayer's trade, business borrowing without entering into a
or exercise of profession; debtor/creditor relationship, often to
5. The interest expense must have been resolve financing and exchange control
paid or incurred during the taxable problems. In tax cases, back-to-back
year; loan is used to take advantage of the
6. The interest must have been lower of tax on interest income and a
stipulated in writing; higher rate of tax on interest expense
7. The interest must be legally due; deduction.
8. The interest arrangement must not
be between related taxpayers; Illustration:
9. The interest must not be incurred to On June 1, 2000 Company X has:
finance petroleum operations; and 1. Obtained a loan from ABC Financing
10. In case of interest incurred to Corporation in connection with the
acquire property used in trade, operation of its business and its
business or exercise of profession, interest expense on the loan
the same, was not treated as a amounted to P 120,000.
capital expenditure. 2. Deposit account in DEF Bank and
11. The interest is not expressly derived interest income thereof
disallowed by law to be deducted amounting to P200,000 on which the
from gross income of the taxpayer. final tax of P40,000 has been
withheld.
RULES ON DEDUCTIBILITY OF INTEREST Assume that Company X’s net
EXPENSE income before the deduction of
General Rule - In general, the amount of interest expense is P500,000.
interest expense paid or incurred within
a taxable year of indebtedness in The deductible expense shall be
connection with the taxpayer's trade computed as follows:
business or exercise of profession, shall
be allowed as a deduction from the Year 2000
taxpayer's gross income.
Net Income before
interest expense P500,000

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Less: Interest Expense P120,000 4. Interest on preferred stock, which


Less: 38% of interest in reality is dividend
income from deposit 5. Interest on unpaid salaries and
(38% x P200,000) 76,000 bonuses
Deductible Interest 6. Interest calculated for cost keeping
Expense 44,000 on account of capital or surplus
Taxable Income P456,000 invested in business which does not
represent charges arising under
interest-bearing obligation.
Deductible Interest Expense 7. Interest paid when there is no
1. Interest on taxes, such as those paid stipulation for the payment thereof.
for deficiency or delinquency, since
taxes are considered indebtedness OPTIONAL TREATMENT OF INTEREST EXPENSE
(provided that the tax is a At the option of the taxpayer,
deductible tax, except in the case of interest incurred to acquire property
income tax). However, fines, used in trade or business may be
penalties, and surcharges on account allowed as a deduction or treated as
of taxes are not deductible. The capital expenditure. [Sec 34 (B)(3),
interest on unpaid business tax shall NIRC]
not be subjected to the limitation
on deduction. C. TAXES
2. Interest paid by a corporation on
scrip dividends Taxes mean TAXES PROPER, and
3. Interest-on deposits paid by therefore no deductions are allowed for:
authorized banks of the Bangko 1. interest
Sentral ng Pilipinas to depositors, 2. surcharges
if it is shown that the tax on such 3. penalties or fines incident to
interest was withheld. delinquency (Sec. 80, Rev. Reg. 2)
4. Interest paid by a corporate taxpayer
who is liable on a mortgage upon real REQUISITES FOR DEDUCTIBILITY
property of which the said 1. must be in connection with
corporation is the legal or equitable taxpayer’s business;
owner, even though it is not directly 2. tax must be imposed by law on, and
liable for the indebtedness. payable by taxpayer (direct tax);
and
NON-DEDUCTIBLE INTEREST EXPENSE 3. paid or incurred during the taxable
1. An individual taxpayer reporting year.
income on the cash basis incurs an
indebtedness on which an interest is TAXES NOT DEDUCTIBLE
paid in advance through discount or 1. income tax;
otherwise: 2. estate and donor’s tax;
• allowed as a deduction in the 3. special assessments;
year the indebtedness is paid 4. excess electric consumption tax;
• if the indebtedness is payable 5. foreign income tax, war profits and
periodic amortization on, the excess profits tax, if the taxpayer
amount of interest which makes use of tax credit; and
corresponds to the amount of 6. final taxes, being in the nature of
the principal amortized or paid income tax.
during the year shall be allowed
as deduction in such taxable NOTE: Taxes allowed as deductions,
year. when refunded or credited, shall be
2. Interest paid on indebtedness included as part of gross income in the
between related taxpayer year of receipt to the extent of the
3. If the indebtedness is incurred to income tax benefit of said deduction.
finance petroleum exploration (Tax Benefit Rule)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

For NRAETB and RFC, taxes paid or from all sources


incurred are allowed as deductions only
if and to the extent that they are 2. Over-all limitation
connected from income within the Taxable
Philippines. income from
outside sources X Phil. = Tax Credit
EXCEPTIONS to requirement that only Taxable income income tax Limit
from all sources
such persons on whom the tax is
imposed by law can claim deduction
The allowable tax credit is the “lower
thereof:
amount” between the tax credit
1. Taxes of shareholder upon his
computed under No. 1 and No. 2.
interest as such and paid by the
corporation without reimbursement
WHEN CREDIT FOR TAXES MAY BE TAKEN
from him, can be claimed by the
The credit for taxes provided by
corporation as deduction.
Section 30(C)(3) to (9) may ordinarily be
2. A corporation paying the tax for the
taken either in the return for the year in
holder its bonds or other obligation
which the taxes accrued or on which the
containing a tax-free covenant
taxes were paid, dependent upon
clause cannot claim deduction for
whether the accounts of the taxpayer
such taxes paid by it pursuant to
are kept and his returns filed upon the
such covenant.
accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer
1) The amount of credit in respect to
to deduct from income tax payable the
the taxes paid or accrued to any
foreign income tax he has paid to his
country shall not exceed the same
foreign country subject to limitation.
proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT
taxpayer’s net income from sources
1. resident citizens of the Philippines
within such country taxable under
2. resident aliens under the principle of
Title II (income Tax) bears to his
reciprocity
entire net income for the same
3. domestic corporations which include
taxable year; and
partnerships except general
2) The total amount of the credit shall
professional partnership
not exceed the same proportion of
4. beneficiaries of estates and trusts
the tax against which such credit is
5. members of beneficiaries of local
taken, which the taxpayer’s net
partnerships
income from sources without the
Philippines taxable under Title II
WHO ARE NOT ENTITLED TO TAX CREDIT
(Income Tax) bears to his entire net
1. non-resident citizens
income for the same taxable year.
2. resident aliens, if without
reciprocity
3. resident aliens whose income is D. LOSSES
derived solely from sources within
the Philippines LOSSES – refer to such losses which do
4. foreign corporations (resident and not come under the category of bad
non-resident) debts, inventory losses, depreciation,
etc., and which arise in taxpayer's
FORMULA FOR COMPUTING LIMITATION profession, trade or business.
1. Per country limitation
Taxable REQUISITES FOR DEDUCTIBILITY
income from 1. Actually sustained during the taxable
foreign country X Phil. = Tax Credit year
Taxable income income tax Limit

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. Connected with the trade, business (3) There has been no


or profession substantial change in the
3. Evidenced by a close and completed ownership of the business or
transaction enterprise.
4. Not compensated for by insurance or There is no substantial
other form of indemnity change in the ownership of
5. Not claimed as a deduction for the business when:
estate tax purposes (a) not less than 75% in
6. Notice of loss must be filed with the nominal value of the
Bureau of Internal Revenue within outstanding issued shares
45 days from the date of discovery is held by or on behalf of
of the casualty or robbery, theft or the same persons; or
embezzlement. (b) not less than 75% of the
paid up capital is held by
NOTE: The taxpayer’s failure to record or on behalf of the same
in his books the alleged loss proves that person.
the loss had not been suffered, hence,
not deductible. (City Lumber vs. NOTE: The 3 year period shall
Domingo and Court of Tax Appeals, GR continue to run notwithstanding
No. L-18611, January 30, 1964) that the corporation paid its taxes
under MCIT, or that the individual
CATEGORY AND TYPES OF LOSSES
availed the 10% OSD.
1. ORDINARY LOSSES
a. Incurred in trade or business, or
 See Annex S for illustration.
practice of profession
• Net operating loss carry-over b. Of property connected, with the
(NOLCO)
trade, business or profession, if
 Refers to the excess of the loss arises from fires,
allowable deductions over gross storms, shipwreck or other
income of the business for any casualties, or from robbery,
taxable year, which had not theft, or embezzlement.
been previously offset as (1) Total destruction
deduction from gross income. The replacement cost to
 Can be carried over as a restore the property to its
deduction from gross income for normal operating condition,
the next 3 consecutive years but in no case shall the
immediately following the year deductible loss be more than
of such loss. the net book value of the
 For mines, other that oil and property as a whole,
gas well, net operating loss immediately before
incurred in any of the first ten casualty.
years of operation may be (2) Partial Destruction
carried over for the next 5 The excess over the net
years. book value immediately
before the casualty should
be capitalized, subject to
 Requirements: depreciation over the
(1) The taxpayer was not remaining useful life of the
exempt from income tax in property.
the year of such net
operating loss; 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
(2) The loss was not incurred in ONLY TO THE EXTENT OF CAPITAL
a taxable year during the GAINS)
taxpayer was exempt from a. Losses from sale or exchange of
income tax; and capital assets

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

b. Losses resulting from securities expenditures pertaining thereto


becoming worthless and which shall be allowed as a deduction.
are capital assets. (2) In case a producing well is
c. Losses from short sales of abandoned, the unamortized cost
property. thereof, as well as the
d. Losses due to failure to exercise undepreciated cost of equipment
privilege or option to buy or sell directly used therein, shall be
property. allowed as deduction in the year
the well, equipment or facility is
3. SPECIAL KINDS OF LOSSES abandoned.
a. Wagering losses - deductible only to
the extent of gain or winnings. [Sec. d. Losses due to voluntary removal of
34 (D)(6)]; deemed to apply only to building incident to renewal or
individuals replacements - deductible expense
b. Losses on wash sales of stocks - not from gross income.
deductible because these are
considered to be artificial loss. e. Loss of useful value of capital
assets due to charges in business
Wash sales – a sale or other conditions - deductible expense only
disposition of stock or securities to the extent of actual loss sustained
where substantially identical (after adjustment for improvement,
securities are acquired or purchased depreciation and salvage value)
within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38]

General rule: Losses from wash sales f. Losses from sales or exchanges of
are not deductible. property between related
Exception: When the sale is made by taxpayers -losses of this nature is not
a dealer in stock or securities and deductible but gains are taxable.
with respect to a transaction made in
the ordinary course of the business of g. Losses of farmers - if incurred in the
such dealer, losses from such sale is operation of farm business, it is
deductible. deductible.
Elements of Wash Sales:
(1) The sale or other disposition of h. Loss in shrinkage in value of stock –
stock resulted to a loss; if the stock of the corporation becomes
(2) There was an acquisition or worthless, the cost or other basis may be
contract or option for acquisition deducted by the owner in the taxable
of stock or securities within 30 year in which the stock of its
days before the sale or 30 days worthlessness is made. Any amount
after the sale; and claimed as a loss on account of shrinkage
(3) The stock or securities sold were in value of the stock through fluctuation
substantially the same as those in the market or otherwise cannot be
acquired within the 61-day deducted from gross income.
period.
E. BAD DEBTS
c. Abandonment losses
in petroleum operation and producing BAD DEBTS – shall refer to those debts
well. resulting from the worthlessness or
(1) In case a contract area where uncollectibility, in whole or in part, of
petroleum operations are amounts due the taxpayer by others,
undertaken is partially or wholly arising from money lent or from
abandoned, all accumulated uncollectible amounts of income from
exploration and development goods sold or services rendered.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

REQUISITES FOR DEDUCTIBILITY International Rubber, GR No. L-


1. Existing indebtedness due to the 22265, Dec. 22, 1967)
taxpayer which must be valid and • Depends upon the particular facts and
legally demandable; the circumstances of the case.
2. Connected with the taxpayer's • Good faith does not require that the
trade, business or practice of taxpayer be an “incorrigible optimist”
profession; but on the other hand, he may not be
3. Must not be sustained in a unduly pessimistic.
transaction entered into between
related parties; F. DEPRECIATION
4. Actually ascertained to be worthless
and uncollectible as of the end of DEPRECIATION – the gradual diminution in
the taxable year.; and the service or useful value of tangible
5. Actually charged off in the books of property due from exhaustion, wear and
accounts of the taxpayer as of the tear and normal obsolescence.
end of the taxable year. The term also applies to
amortization of intangible assets, the
EQUITABLE DOCTRINE OF TAX BENEFIT use of which in trade or business i s of
A recovery of bad debts previously limited duration.
deducted from gross income constitutes
taxable income if in the year the REQUISITES FOR DEDUCTIBILITY
account was written off, the deduction 1. The allowance for depreciation
resulted in a tax benefit. (Tax Benefit must be reasonable.
Rule) 2. It must be for property use or
employment in trade or business or
out of its not being used
Illustration: temporarily during the year.
Case A Case B Case C
3. The allowance must be charged off
Net
income within the taxable, year.
(loss) 4. Schedule on the allowance must be
before attached to the return.
write off
for bad P10,000 (P 9,000) P 5,000
debts PROPERTY HELD BY ONE PERSON FOR LIFE
Less: WITH THE REMAINDER TO ANOTHER PERSON
Accounts The deduction shall be computed as
written off if the life tenant was the absolute owner
as bad
debts 3,000 2,000 6,000 of the property and, as such the expense
Final Net shall accrue to him.
Income
(Loss) P 7,000 (P11,000) (P1,000) PROPERTY HELD IN TRUST
Bad debts
recovery
Allowable deduction shall be
in a subse- apportioned between the income
quent year 3,000 2, 000 6, 000 beneficiaries, and the trustees in
TAXABLE accordance with the pertinent provisions
INCOME
upon the
of the instrument creating or in the
bad debt absence of such provisions, on the basis
recovery P3,000 P -0- P5,000 of the trust income allowable to each.

ASCERTAINMENT OF WORTHLESSNESS METHODS OF DEPRECIATION


• Proof of Two Facts: The term "reasonable allowance"
1. taxpayer did in fact ascertain the shall include (but not limited to) an
debt to be worthless, in the year allowance computed in accordance,
for which deduction is sought, with the regulations prescribed by the
2. that in so doing, he acted in good Department of Finance, under any of the
faith. (Collector vs. Goodrich following methods.
1. Straight-line method

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. Declining-balance method 1. Petroleum Operations


3. Sum of the years-digit method • Depreciation of all properties
4. Any other method which may be directly related to production of
prescribed by the Department of petroleum shall be allowed
Finance upon recommendation of under straight-line (SL) or
the Commissioner of Internal declining balance (DB) method
Revenue. • May shift from DB to SL method
• Useful life: 10 years or shorter
METHODS OF DEPRECIATION life as allowed by the
Kind Formula Commissioner
1)Straight-line cost- salvage value
estimated life • Useful life of property not
2)Declining cost – depreciation x Rate directly related to production: 5
balance estimated life years under straight line method
3)Sum of the years nth period x cost- salvage 2. Mining Operations
digits (SYD) SYD
• Depreciation on all properties in
mining operations other than
Illustration: A machine is used in the petroleum operations at the
manufacturing department of normal rate if expected life is
Corporation A, compute the depreciation less than 10 years.
per annum with the following facts: • If expected life is more than 10
Cost = P15,000 Salvage years, depreciation shall be any
Value= P5,000 number of years between 5
years and the expected life.

3. Depreciation deductible by non-


1. Straight Line Method with estimated resident aliens engaged in
life = 5 years trade/business or non-resident
15,000 – 5,000 = P2,000 corporation
5 years a. Only when such property is
located in the Philippines.
2. Declining balance with rate of 200%
Year 1: 15,000 – 0 x 200% = P6,000
G. DEPLETION OF OIL AND GAS
5
Year 2:15,000–6,000 x 200% =P3,600 WELLS AND MINES
5
DEPLETION - exhaustion of natural
3. Sum of the years digits resources as in mines, oil, and gas
SYD for 5 years = 5+4+3+2+1 or 15 wells. The natural resources are called
Year 1: 5/15 x (15,000 – 5,000) “wasting assets”. As the physical units
= P3,333.33 representing such resources are
Year 2: 4/15 x (15,000 – 5,000) extracted and sold, such assets move
= P2,666.67 towards exhaustion.
Known as cost of depletion
AGREEMENT AS TO USEFUL LIFE ON WHICH allowance for mines, oil gas wells and
DEPRECIATION RATE IS BASED other natural deposits starting calendar
The Bureau of Internal Revenue and year 1976 and fiscal year beginning July
the taxpayer may agree in writing on the 1,1975
useful life of the property to be
depreciated. The agreed rate may be
modified if justified by facts or TO WHOM ALLOWED
circumstances. The change shall not be Only mining entities owning
effective before the taxable year on economic interest in mineral deposits.
which notice in writing by certified mail Economic interest means interest in
or registered mail is served by the party minerals in place investment therein or
initiating. secured by operating or contract
SPECIAL TYPES OF DEPRECIATION agreement for which income is derived,

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

and return of capital expected, from the


extraction of mineral. 1) Recipient is: 1) Recipient is:
Mere economic or pecuniary (a) Government (a) Government
advantage to be derived by production of the of the
Philippines; Philippines;
by one who has no capital investment in
(b) Any of its (b) Any of its
the mineral deposit does not amount to agencies or agencies or
economic interest. political political
subdivisions; subdivisions
FEATURES or
1. Intangible Exploration and (c) Any fully- For a non-priority
development drilling cost in owned activity in any of the
petroleum exploration shall be government areas mentioned in
treated either as: corporation A, and exclusively for
a public purpose.
a. revenue expenditures; or
For priority
b. capital expenditures activity in:
2. The total amount deductible for 1. Science;
exploration and development 2. Education
expenditures shall not exceed 50% of 3. Culture
net income from mining operation. 4. Health
The excess shall be carried forward 5. Economic
to the succeeding year until fully Development
deducted. 6. Human
Settlement
7. Youth and
H. CHARITABLE AND OTHER Sports
CONTRIBUTIONS Development

TAX TREATMENT 2) Recipient is a 2) Non-government


foreign or organizations
international
A. Deductible B. Deductible organization
In Full Subject To with an
Limitation agreement with
the Philippine
Government on
deductibility, or
in accordance
with special law.

3) Recipient is an 3) Recipient is an
accredited non- accredited
government domestic
organization, corporation or
organized/ operated association
for (purposes): organized/opera
ted for
(purposes):

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

I. RESEARCH AND DEVELOPMENT


(a) Scientific; (a) Scientific (R&D)
(b) Educational; (b) Educational;
(c) Cultural; (c) Cultural;
(d) Character (d) Youth and sports TAX TREATMENT
building/you development Either as:
th and sports (e) Charitable 1. Revenue Expenditures
development (f) Social welfare Requisites:
(e) Charitable (g) Religious a. Paid or incurred during
(f) Social (h) Rehabilitation the taxable year
welfare of Veterans b. Ordinary and necessary
(g) Health expenses in connection with
(h) Research If the conditions
trade business or profession
in Table A is not
And satisfying complied with: c. Not chargeable to
the following capital account
conditions: Subject to limitation: 2. Deferred Expenses
1. The donation (a) Individual - Requisites:
must be 10% taxable a. Paid or incurred in
utilized not income from connection with trade, business,
later than the trade or profession
15th day of business or b. Not treated as expense
the 3rd month profession
c. Chargeable to capital
following the before
close of its contribution account but not chargeable to
taxable year. (b) Corporation - property subject to depreciation
2. The 5% taxable or depletion.
administrativ income from
e expense trade Amount deductible:
must not business or Amount ratably distributed over
exceed 30% of profession a period of 60 months beginning with
total before the month taxpayer realized
expenses. contribution benefits from such expenditures.
3. Upon
dissolution,
assets must EXCLUSION FROM RESEARCH AND
be distributed DEVELOPMENT EXPENDITURES
to another 1. Any expenditure for the acquisition
non-profit or improvement of land or for the
domestic improvement of property to be used
corporation in connection with research and
or to the development subject to depreciation
state. and depletion.
2. Any expenditure paid or incurred for
the purpose of ascertaining the
REQUISITES FOR DEDUCTIBILITY
existence, location, extent or
1. The contribution or gift must be
quality of any deposit of ore or other
actually paid.
mineral including oil or gas.
2. It must be given to the organizations
specified in the code.
3. The net income of the institution
J. PENSION TRUST CONTRIBUTIONS
must not inure to the benefit of any
PENSION TRUST CONTRIBUTIONS – a
private stockholder or individual.
deduction applicable only to the
employer on account of its contribution
VALUATION
to a private pension plan for the benefit
Charitable contribution of property
of its employee. This deduction is purely
other than money shall be based on the
business in character.
acquisition cost of said property.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

REQUISITES FOR DEDUCTIBILITY REQUISITES FOR DEDUCTIBILITY


1. The employer must have established 1. Insurance must have actually been
a pension or retirement plan to taken
provide for the payment of 2. The amount of premium deductible
reasonable pensions to his does not exceed P2,400 per family
employees; or P200 per month during the
2. The pension plan is reasonable and taxable ear.
actuarially sound; 3. That said family has a gross income
3. It must be funded by the employer; of not more than P250,000 for the
4. The amount contributed must be no taxable year.
longer subject to the control and 4. In case of married individual, only
disposition of the employer; the spouse claiming additional
5. The payment has not yet been exemption shall be entitled to this -
allowed as a deduction; and deduction.
6. The deduction is apportioned in
equal parts over a period of 10 WHO MAY AVAIL OF THE DEDUCTION
consecutive years beginning with the 1. Individual taxpayers earning purely
year in which the transfer or compensation income during the
payment is made. year.
2. Individual taxpayer earning business
SUMMARY OF RULES ON RETIREMENT BENEFITS income or in practice of his
PLAN / PENSION TRUST profession whether availing of
1. Exempt from Income Tax – itemized or optional standard
employees’ trust under Sec. 60(B) deductions during the year.
2. Exclusion from Gross Income – 3. Individual taxpayer earning both
amount received by the employee compensation, and business or
from the fund upon compliance of practice of profession during the
certain conditions under Sec. 32(B) year.
(6)
3. Deduction from Gross Income – NON-DEDUCTIBLE EXPENSES
a. Amounts contributed by the
employer during the taxable REASONS FOR NON-DEDUCTIBILITY
year into the pension plan to 1. Personal expenses
cover the pension liability 2. Capital expenditures
accruing during the year – 3. Items not normally subject to
considered as ordinary and income tax and therefore are not
necessary expenses under Sec. deductible.
34(A)(1) 4. Items taken advantage of by the
b. 1/10 of the reasonable amount taxpayer to avoid payment of
paid by the employer to cover income tax.
pension liability applicable to
the years prior to the taxable SPECIFIC ITEMS (SECTION 36)
year, or so paid to place the 1. Personal, living or family expenses;
trust in a sound financial basis – 2. Amount paid out for new buildings or
deductible under Sec. 34(J) for permanent improvements, or
betterment made to increase the
K. PREMIUM PAYMENTS value of any property or estate,
ON HEALTH AND/OR Except that intangible drilling
HOSPITALIZATION INSURANCE and development cost incurred in
petroleum operations are
DEFINITION: It is an amount of premium deductible;
on health and/or hospitalization paid by 3. Amount expended in restoring
an individual taxpayer (head of family or property or in making good the
married), for himself and members of his exhaustion thereof for which an
family during the taxable year. allowance has been made;

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

4. Premiums paid on any life insurance (2) OPTIONAL CORPORATE


policy covering the life of any officer INCOME TAX
or employee, or of any person SECTION 27 (A)
financially interested in any trade or
business carried on by the taxpayer, APPLIES TO:
individual or corporate, when the 1. Domestic corporations (DC)
taxpayer is directly or indirectly a 2. Resident foreign corporations (RFC)
beneficiary under such policy. [Sec.
36] RATE OF TAX AND DATE OF EFFECTIVITY
5. Losses from sales or exchanges of 15% of the Gross Income effective
property between related January 1, 2000
taxpayers. [S ec. 36]
CONDITIONS OR REQUIREMENTS
TRANSACTIONS BETWEEN RELATED PARTIES 1. A tax effort ratio of 20% of Gross
1. Between members of the family; National Product
“Family” includes only the 2. A ratio of 40% income tax collection
brothers, sisters (whether by the to total tax revenues
whole or half blood), spouse, 3. A VAT tax effort of 4% of GNP
ancestors, and lineal 4. A 0.9% ratio of Consolidated Public
descendants of the taxpayer. Sector Financial Position (CPSFP) to
2. Except in the case of distributions in GNP
liquidation:
a. between an individual and a OTHER FEATURES
corporation more than 50% in 1. Available only to firms whose
value of the outstanding stock of ratio of:
which is owned, directly or
indirectly, by or for such Cost of sales
individual; <=55%
b. between two corporations more Gross sales or receipts from all
than 50% in value of the sources
outstanding stock of each of
which is owned, directly or 2. The election shall be irrevocable
indirectly, by or for the same for three (3) consecutive years
individual, if either one of such
corporations, with respect to the MEANING OF GROSS INCOME
taxable year of the corporation General concept –
preceding the date of the sale of Gross sales
exchange was a personal holding Less:
company or a foreign personal (1) Sales Return;
holding company; or (2) Discount and allowances
3. Between the grantor and a fiduciary (3) Cost of goods sold - means
of any trust; all business expenses
4. Between the fiduciary of a trust and directly incurred to produce
the fiduciary of another trust if the the merchandise to bring
same person is a grantor with them to their present
respect to each trust; location and use.
5. Between a fiduciary of a trust and a
beneficiary of such trust. (3) MINIMUM CORPORATE
TAX CONSEQUENCES
INCOME TAX (MCIT)
The following are not deductible: SECTION 27 (E)
1. Interest expense [Sec. 34 (B)(2)]
2. Bad debts [Sec. 34 (E)(1)] WHO ARE COVERED?
3. Losses from sales or exchanges of MCIT is imposed on domestic and
property [Sec 36 (B)] resident foreign corporations

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

1. Whenever such corporation has zero


or negative taxable income; or RELIEF FROM MCIT
2. Whenever the amount of
MCIT is greater than the normal The Secretary of Finance is
income tax due from such authorized to suspend the imposition of
corporation determined under the MCIT on any corporation which
Section 27[A]. suffers losses because of:
a. prolonged labor dispute;
LIMITATIONS b. force majeure; or
c. legitimate business reverses.
1. The MCIT shall apply only to
domestic and resident foreign “Substantial losses from a prolonged
corporations subject to the normal labor dispute" means losses arising from a
corporate income tax (income tax strike staged by the employees which
rates under Sec 27[A] of the CTRP). lasted for more than six (6) months
2. In the case of a domestic within a taxable period and which has
corporation whose operations or caused the temporary shutdown of
activities are partly covered by the business operations.
regular income tax system and partly “Force majeure" means a cause due
covered under a special income tax to an irresistible force as by "Act of God"
system, the MCIT shall apply on like lightning, earthquake, storm, flood
operations covered by the regular and the like. This term shall also
corporate income tax system. include armed conflicts like war and
3. In computing for the MCIT due from insurgency.
a resident foreign corporation, only “Legitimate business reverses" shall
the gross income from sources within include substantial losses sustained due
the Philippines shall be considered to fire, robbery, theft, or
for such purpose. embezzlement, or for other economic
reason as determined by the Secretary
WHEN DOES A CORPORATION BECOME of Finance.
LIABLE UNDER THE MCIT?
TAX RATE: 2% of gross income or
MCIT is imposed beginning on taxable base pertinent to a
the fourth taxable year immediately trading/merchandising concern or a
following the year in which such service entity
corporation commenced its business.
The taxable year in which the business TAX BASE: Gross Income
operations commenced shall be the year MEANING OF GROSS INOME
when the corporation registers with the
BIR. General concept - gross income means:
Gross sales
CARRY FORWARD OF THE EXCESS Less:
MINIMUM TAX (1) Sales Return;
(2) Discount and allowances
• Any excess of MCIT over the normal (3) Cost of goods sold - means
income tax can be carried forward all business expenses
on an annual basis. directly incurred to produce
• The excess can be credited against the merchandise to bring
the normal income tax due in the them to their present
next 3 immediately succeeding location and use.
taxable years.
• Any amount of the excess MCIT KINDS OF BUSINESS
which cannot be credited against the
normal income tax due in the next A. Trading or Merchandising Concern
3-year period shall be forfeited. Gross Income = Cost of Sales =
gross sales/ 1.Invoice cost of the

TAXATION LAW COMMITTEE


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Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

receipts less sales goods sold; provides that gross sales include
returns, discounts 2.import duties; sales contributory to income taxable
and allowances and 3.freight in under the regular corporate tax.
cost of goods sold transporting the
goods to the place  See Annex T for interplay of normal
where the goods tax, optional corporate income tax
are actually sold; and MCIT.
4.insurance while
the goods are in
transit. (4) IMPROPERLY ACCUMULATED
B. Manufacturing Cost of Sales = All EARNINGS (IAE) TAX
Gross Income cost of production of
(Same) finished goods, such
SECTION 29
as
1.raw materials (REVENUE REGULATIONS NO. 2 – 2001)
used;
2.direct labor; DEFINITION: “Improperly accumulated
3.manufacturing earnings (IAE)” are the profits of a
overhead; corporation that are permitted to
4.freight cost; accumulate instead of being distributed
5.insurance by a corporation to its shareholders for
premiums; the purpose of avoiding the income tax
6.other costs with respect to its shareholders or the
incurred to bring shareholders of another corporation.
the raw materials
to the factory or TAX RATE: 10% of the Improperly
warehouse. Accumulated Taxable Income (in
C. Services Cost of Services = All addition to other taxes).
Gross Income = direct costs and Rationale behind IAET
Gross receipts less expenses necessarily If the earnings and profits were
sales returns, incurred to provide distributed, the shareholders would then
allowances, the services required be liable to income tax thereon,
discounts and costs by the customers and whereas if the distribution were not
of services clients including: made to them, they would incur no tax
a. Salaries and in respect to the undistributed earnings
employee benefits and profits of the corporation. Thus, a
of personnel, tax is being imposed;
consultants and a. in the nature of a penalty to the
specialists directly corporation for the improper
rendering the accumulation of its earnings, and
service; b. as a form of deterrent to the
b. Cost of facilities avoidance of tax upon
directly utilized in shareholders who are supposed
providing the to pay dividends tax on the
service. earnings distributed to them by
It shall not the corporation.
include interest
expense except for “IMPROPERLY ACCUMULATED TAXABLE
banks and other INCOME”
financial
institutions. Taxable income for the year
Add:
• Gross income excludes passive Income exempt from tax;
income subject to final tax. Income excluded from gross income;
• Other income and Extraordinary Income subject to final tax;
Income are included since RR 9-98

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Net operating loss carry-over (NOLCO) • Domestic corporations not


Total falling under the aforesaid
Less: definition are, therefore,
Income tax paid/payable for the taxable publicly-held corporations.
year
Dividends actually or constructively Exception: The said tax shall not apply
paid/issued from the applicable year’s to:
taxable income 1. Publicly held corporations (Sec. 29)
Amount reserved for the reasonable 2. Banks and other non-banks Financial
needs of the business as defined in the intermediaries (Sec. 29)
Regulations 3. Insurance companies (Sec. 29)
Tax base of improperly accumulated 4. Taxable partnerships (deemed to
earnings tax have actually or constructively
received the taxable income under
EXCLUSIONS Sec. 73D)
5. General professional partnerships
• For corporations using the calendar (exempt; taxable against the
basis the accumulated earnings tax partners)
shall not apply on IAE as of Dec. 31, 6. Non- taxable joint ventures and
1997. 7. Enterprises duly registered with the
• For fiscal year basis, the tax shall Philippine Economic Zone Authority
not apply to the 12-month period of (PEZA) under R.A. 7916, and
fiscal year 1997-1998. enterprises registered pursuant to
the Bases Conversion and
IAE as of the end of a calendar Development Act of 1992 under R.A.
or fiscal year period on or after Dec. 7227, as well as other enterprises
31, 1998 shall be subject to the 10% duly registered under special
tax. economic zones declared by law
which enjoy payment of special tax
WHO ARE COVERED? rate on their registered operations
or activities in lieu of other taxes,
General Rule: The IAE tax shall apply to national or local.
every corporation formed or availed 8. Foreign corporations [RR No. 02-
for the purpose of avoiding the 2001]
income tax with respect to its
shareholders or the shareholders of EVIDENCE OF PURPOSE TO AVOID
any other corporation, by permitting INCOME TAX
earnings and profits to accumulate
instead of being divided or 1. The fact that any corporation is a
distributed. These are: mere holding company or investment
1. Domestic corporations as company shall be prima facie
defined under the Tax Code; evidence of a purpose to avoid the
2. Corporations which are classified tax upon its shareholders or
as closely-held corporations. members.
• those corporations at least
fifty percent (50%) in value Instances indicative of purpose to
of the outstanding capital avoid income tax upon
stock or at least fifty shareholders:
percent (50%) of the total 1. Investment of substantial
combined voting power of all earnings and profits of the
classes of stock entitled to corporation in unrelated
vote is owned directly or business or in stock or
indirectly by or for not more securities of unrelated
than twenty (20) individuals. business;
2. Investment in bonds and other
long-term securities;

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Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.
A speculative and indefinite purpose will
2. The fact that the earnings or profits not suffice.
of a corporation are permitted to Definiteness of plan/s coupled with
accumulate beyond the reasonable action/s taken towards its
needs of the business shall be consummation is essential.
determinative of the purpose to
avoid the tax upon its shareholders PERIOD FOR PAYMENT OF DIVIDEND/
or members unless the corporation, PAYMENT OF IAET
by the clear preponderance of Dividends must be declared and paid
evidence, shall prove the contrary. or issued not later than one year
following the close of the taxable year,
“Reasonable needs of the otherwise, the IAET, if any, should be
business” includes the reasonably paid within fifteen (15) days thereafter.
anticipated needs of the business
such as:
a. Allowance for the increase in the (5) INCOME SUBJECT TO
accumulation of earnings up to
PREFERENTIAL OR SPECIAL
100% of the paid-up capital of
the corporation as of Balance RATES
Sheet date, inclusive of
accumulations taken from other Pertains to income derived by a
years; particular individual or corporation
b. Earnings reserved for definite belonging to a class of income taxpayer
corporate expansion projects or that is subject to either a preferential or
programs as approved by the special rate.
Board of Directors or equivalent
body;  Tax Rates: Please refer to Annex C.
c. Reserved for building, plants or
equipment acquisition as (6) GROSS INCOME TAX (GIT)
approved by the Board of
Directors or equivalent body; GROSS INCOME TAX (GIT) FORMULA
d. Reserved for compliance with
any loan covenant or pre- Entire Income
existing obligation established Less: Exclusions and Income subject
under a legitimate business to Final Tax (e.g. Passive
agreement; Income)
e. Earnings required by law or Gross Income
applicable regulations to be Multiply by: Tax Rates (%)
retained by the corporation or in
respect of which there is legal Net Income Tax Due
prohibition against its
distribution; GIT APPLIES TO
f. In the case of subsidiaries of
foreign corporations in the 1. Non-resident alien not engaged in
Philippines, all undistributed trade or business (25%); and
earnings intended or reserved 2. Non-resident foreign corporation.
for investments within the (32%)
Philippines as can be proven by
corporate records and/or  Tax Rates: Please refer to Annex A
relevant documentary evidence. and B.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

between the market rate and actual


(7) FINAL INCOME TAX rate granted.
6. Membership fees, dues and other
GENERAL PRINCIPLES expenses borne by the employer for
the employee in social and athletic
1. It is constituted as a full and final clubs and similar organizations
payment of the income tax due from 7. Expenses for foreign travel
the payee on a particular type of 8. Holiday and vacation expenses
income subject to final withholding 9. Educational assistance to the
tax (FWT). employee or his dependents; and
The finality of the withholding 10. Life or health insurance and other
tax is limited only to the payee’s non-lire insurance premiums or
income tax liability and does not similar amounts on excess of what
extend to other taxes that may be the law allows.
imposed on said income.
2. The income subjected to final PERSONS LIABLE
income tax is no longer subject to
the net income tax; otherwise, there The EMPLOYER (as a withholding
would be a violation of prohibited agent), whether individual, professional
double taxation. partnership or a corporation, regardless
3. The liability for the payment of the of whether the corporation is taxable or
tax rests primarily on the payor as not, or the government and its
withholding agent. instrumentalities
4. The payee is not required to file an
income tax return for the particular TAX RATE: 32% (from January 1, 2000
income subjected to FWT. It is the onwards) of the Grossed up Monetary
withholding agent who files the Value (GMV) of fringe benefits.
return. In the case of aliens, the tax rates to
5. The rate of the final tax is be applied on fringe benefit shall be as
multiplied to the gross income. follows:
Thus, deductions and/or personal 1. NRANEBT 25%
and additional exemptions are not 2. Aliens employed by regional HO
allowed. 15 %
3. Aliens employed by OBU 15%
(8) FRINGE BENEFIT TAX (FBT) 4. Aliens employed by Petroleum
Service Contractors and
FRINGE BENEFIT TAX is a final income Subcontractors 15%
tax on the employee which shall be
withheld and paid by the employer on a “GMV” OF THE FRINGE BENEFIT
quarterly basis. REPRESENTS

FRINGE BENEFIT means any good, 1. The whole amount of income


service, or other benefit furnished or realized by the employee which
granted by an employer, in cash or in includes the net amount of money or
kind, in addition to basic salaries, to an net monetary value of property
individual employee (except rank and which has been received; plus
file employees) such as, but not limited 2. The amount of fringe benefit tax
to the following: thereon otherwise due from the
1. Housing employee but paid by the employer
2. Expense Account for and in behalf of the employee.
3. Vehicle of any kind
4. Household personnel, such as maid, “GMV” of the fringe benefit
driver and others shall be determined by dividing the
5. Interest on loan at less than market monetary value of the fringe benefit by
rate to the extent of the difference the Grossed up divisor. The Grossed up

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

divisor is the difference between 100% DEDUCTIBILITY TO THE TAXABLE


and the applicable rates. INCOME OF THE EMPLOYER

GROSSED UP General Rule: The amount of taxable


YEAR RATE
DIVISOR fringe benefit and the fringe benefits tax
1998 66% 34% FWT shall constitute allowable deductions
1999 67% 33% FWT from gross income of the employer.
2000 Exception:
68% 32% FWT
onwards If the basis for computation of the
fringe benefits tax is the depreciation
FRINGE BENEFITS NOT SUBJECT TO FBT value, the zonal value or the fair market
value, only the actual fringe benefits tax
1. Fringe benefits not considered as paid shall constitute a deductible
gross income – expense for the employer. The value of
a. if it is required or necessary to the fringe benefit shall not be
the business of employer deductible and shall be presumed to
b. if it is for the convenience or have been tacked on or actually claimed
advantage of employer as depreciation expense by the
2. Fringe Benefit that is not taxable employer. Provided, however, that if the
under Sec. 32 (B) – Exclusions from aforesaid zonal value or fair market
Gross Income value of the said property is greater
3. Fringe benefits not taxable under than its cost subject to depreciation, the
Sec. 33 Fringe Benefit Tax: excess amount shall be allowed as a
a. Fringe Benefits which are deduction from the employer's gross
authorized and exempted under income as fringe benefit expense. (Sec.
special laws, such as the 13th 2.33[D], Rev. Reg. No. 3-98)
month Pay and Other Benefits
with the ceiling of P30,000. EXAMPLE OF DE MINIMIS BENEFITS NOT
b. Contributions of the employer SUBJECT TO FBT (RR NO. 8-2000 AND
for the benefit of the employee 10-2000)
to retirement, insurance and
hospitalization benefit plans; 1. Monetized unused vacation leave
c. Benefits given to the Rank and credits of PRIVATE employees not
File Employees, whether granted exceeding (10) days during the year
under a collective bargaining and the monetized value of leave
agreement or not; and credits paid to government officials
d. The De minimis benefits – and employees
benefits which are relatively 2. Medical cash allowance to
small in value offered by the dependents of employees not
employer as a means of exceeding P750.00 per employee per
promoting goodwill, semester or P125 per month;
contentment, efficiency of 3. Rice subsidy of P1,000.00 or one (1)
Employees sack of 50kg. rice per month
The term “Rank and File amounting to not more than
Employees” shall mean all P1,000:00,
employees who are holding 4. Uniform and clothing allowance not
neither managerial nor exceeding P3,000 per annum;
supervisory position as defined 5. Actual yearly medical benefits not
in the Labor Code exceeding P10,000 per annum;
In the case of rank and file 6. Laundry allowance not exceeding
employees, fringe benefits other P300 per month;
than those excluded from gross 7. Employees achievement awards e. g.
income under the Tax Code and for length of service or safety
other special laws, are taxable achievement, which must be in the
under the individual normal tax form of a tangible personal property
rate. other than cash or gift certificate,

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

with an annual monetary value of On the Net Capital Gain –


not exceeding P10,000 received by Not over P100,000 – FT of
the employee under an established 5%
written plan which does not Amount in excess
of P100,000 – FT of 10%
discriminate in favor paid
b. On sale of land/building held as
employees;
capital asset
8. Gifts given during Christmas and On the gross selling price, or the
major anniversary celebrations not current fair market value at the
exceeding P3, 000 per employee per time of sale, whichever is higher
annum; – FT of 6%
9. Flowers, fruits, books or similar (Reyes, Virgilio. Income Tax Law and
items given to employees under Accounting – A New Approach, 2002)
special circumstances
10. Daily meal allowance for overtime CAPITAL GAINS AND LOSSES –
work not exceeding 25% of the basic IN GENERAL
minimum wage.
CONCEPT OF CAPITAL ASSETS
Time for filing of quarterly remittance
return of final income taxes withheld Under the tax code, there is no
The tax imposed under Sec. 33 shall definition for the term "capital assets".
be treated as a final income tax on the What it gives is the meaning of ordinary
employee that shall be withheld and assets:
paid by the employer, whether a large
taxpayer or non-large taxpayer, on or a. Ordinary assets (Sec. 39, NIRC)
before the 10th day of the month a. Stock in trade of the taxpayer or
following the calendar quarter in which other properties of a kind which
the fringe benefits were granted (RR 04- would properly be included in
2002). the inventory of the taxpayer;

 For Additional Rules on Fringe b. Property held by the taxpayer


Benefits, refer to Annex H. primarily for sale to customers in
the ordinary course of business;
(9) CAPITAL GAINS TAX
c. Property used in trade or
SUMMARY OF TAX RATES business and subject to
depreciation; and
1. Individuals
a. On sale of shares of stock of a d. Real property used in trade or
domestic corporation not listed business.
and traded thru a local stock
exchange, held as capital asset b. Capital Assets include all property
On the Net Capital Gain held by the taxpayer whether or not
Not over P100,000 – FT connected in trade or business but
of 5% not including those enumerated
Amount in excess of P100,000 – FT above (#1) as ordinary assets.
of 10%
b. On sale of real property in the
Philippines held as capital asset CAPITAL GAIN CAPITAL LOSS
On the gross selling price, or the
current fair market value at the The gain derived The loss incurred
time of sale, whichever is higher – from the sale or from the sale or
FT of 6% exchange of capital exchange of capital
2. Corporations assets. assets.
a. On sale of shares of stock of a
domestic corporation not listed
and traded thru a local stock
exchange, held as capital asset

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

NET CAPITAL NET CAPITAL


GAIN LOSS  Non- • Capital losses
deductibility of are allowed only
The excess of the The excess of the Net Capital to extent of the
gains from sales/ losses from sales or losses capital gains;
exchanges of capital exchanges of capital • Capital losses hence, the net
assets over the assets over the gains are allowed only capital loss is
gains from such from such sales or to extent of the not deductible.
sales/ exchanges. exchanges. capital gains; Exception: If any
hence, the net domestic bank or
capital loss is trust company, a
not deductible. substantial part of
 TRANSACTION RESULTING IN TAXABLE whose business is
GAINS BUT NON-RECOGNITION OF LOSSES the receipt of
a. Sale or exchange between deposits, sells any
related parties; bond, debenture,
b. Wash sales by non-dealers of note or certificate
or other evidence
securities and when not subject
of indebtedness
to the stock transfer tax; issued by any
c. Exchanges not solely in kind in corporation
merger and consolidation; and (including one
d. Sales or exchanges that are not issued by a
at arms length. government or
political
REQUISITES FOR RECOGNITION OF subdivision)
CAPITAL GAIN/LOSS
 Net Capital Loss • Not allowed
1. The transaction must involve Carry –Over
• Allowed
property classified as capital
The net capital loss
asset; and
(in an amount not in
excess of the taxable
2. The transaction must be a sale income before
or exchange or one considered as personal exemption for
equivalent to a sale or exchange. such year) shall be
treated in the
RULES ON THE RECOGNITION OF succeeding year (but
CAPITAL GAINS OR LOSSES not beyond 12 months)
as a deduction as
short-term capital loss
(at 100%) from the net
INDIVIDUAL CORPORATION capital gains.

 Holding Capital gains and
Period losses are  See Annex U for illustration.
The percentages recognized to the
of gain or loss to be extent of 100%.
SALE OR EXCHANGE OF CAPITAL ASSETS
taken into account (There is no
shall be the holding period)
The following are considered as sale
following:
orexchange of capital assets:
a.100% - if the
capital assets has 1. Retirement of bonds
been held for 12 2. Short sales of property
mos. or less; and 3. Failure to exercise privilege or
b.50% - if the option to buy or sell property
capital asset has 4. Securities becoming worthless
been held for 5. Distribution in liquidation of
more than 12 corporations
mos.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

6. Readjustment of interest in a a. Exchange solely in kind in


general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation
Sales or exchanges resulting in non- b. Transfer to a controlled
recognition of gains or losses: corporation [Sec. 40(C, 2)]
1. Exchange solely in kind in legitimate 1. Transactions where
mergers and consolidation; gain is recognized
includes: but not the loss –
a. Between the corporations which a. Transactions between related
are parties to the merger or taxpayers [Sec. 36]
consolidation (property for b. Illegal transactions [Sec. 96,
stocks); Rev. Reg. 2]
b. Between a stockholder of a c. Exchanges of property, not
corporation party to a merger or solely in kind, in pursuance of
consolidation and the other corporate mergers and
party corporation (stock for consolidations [Sec. 40, (C, 3)]
stock);
c. Between a security holder of a IMPORTANT DISTINCTION
corporation party to a merger or If it is an ordinary asset, the
consolidation and the other ordinary gains and losses are considered
party corporation (securities for in determining income or loss from
securities) trade, business or profession. (See Secs.
32A, 34D)
2. Transfer to a controlled corporation If it is a capital asset, determine
– exchange of property for stocks further whether or not it is a real
resulting in acquisition of corporate property located in the Philippines. If it
control by a person, alone or is, then it is subject to capital gains tax.
together with others not exceeding (See Secs. 24D, 27D5) (See also Sec s.
four. 24C, 27D2) If not, the capital gains and
“Control” means ownership of losses are considered in determining the
stocks in a corporation amounting to taxable income. (Sec. 39)
at least 51% of the total voting
power of all classes of stocks CAPITAL GAINS AND LOSSES –
entitled to vote. SHARES OF STOCK

SALE OR EXCHANGE OF ORDINARY ASSETS The taxation of shares of stock


whether or not listed and traded in the
General rules of income taxation stock exchange is subject to final tax.
apply to both gain and loss.
WHO ARE LIABLE TO THE TAX
 See Annex D (Gross Income – Gains 1. Individual taxpayer, citizen or alien
from dealings in property) 2. Corporate taxpayer, domestic or
foreign
SUMMARY OF TAX TREATMENT OF 3. Other taxpayers such as estate,
GAINS/LOSSES IN THE EXCHANGE OF trust, trust funds and pension among
PROPERTIES others.

General Rule: Upon the sale or RATES OF TAX


exchange of property, the entire gain or
loss, as the case may be, shall be 1. Shares of stock not traded through
recognized. [Sec. 40 (C, 1)] a local stock exchange – Net capital
gains derived during the taxable
Exceptions: year from sale, exchange, or
1. Transactions where gains and losses transfer shall be taxed as follows (on
are not recognized – a per transaction basis):
Not over P 100,000 - 5%

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Over P 100,000 - 10%


2. Shares of stock listed through a 1. Listed and Traded in the Stock
local stock exchange – ½ of 1% of Exchange - The stockbroker shall
the gross selling price of the stock. turn over the tax collected to the
EXCEPTIONS TO THE TAX B.I.R. within five (5) banking days
1. Gains derived by dealers in from the date of collection.
securities.
2. All other gains which are specifically 2. Not traded through the stock exchange
exempt from income tax under - It shall be paid by the seller on a per
existing investment incentives and transaction basis upon filing of the
other special laws. required return within 30 days
following each sale or other
BASIS FOR COMPUTING GAIN OR LOSS (BIR disposition of shares of stock.
RULING 146-98)

• The fair market value (FMV) of the CAPITAL GAINS AND LOSSES
sale of shares not traded but listed (REAL PROPERTY)
in the stock exchange is the highest
closing price on the day the shares PERSONS LIABLE AND TRANSACTIONS
were sold, transferred or exchanged. AFFECTED
• When no sale is made in the stock
exchange, the FMV shall be the 1. Individual taxpayers, estates and
highest selling price on the day trusts
nearest to the day of sale, transfer Sale or exchange or other
or exchange. disposition of real property
• For shares not listed in the considered as capital assets.
exchange, the FMV shall be the book The said sale shall include "pacto
value nearest the valuation date de retro sale" and other conditional
sale.
The above rules shall be used in 2. Domestic Corporation
computing for the net capital gain/loss Sale or exchange or disposition
for disposition of shares. of lands and/or building which are
not actually used in business and are
IMPORTANT FEATURES treated as capital asset.

1. Sale of shares of stock of a domestic  EXCEPTIONS TO THE TAX


corporation listed and traded in a 1. Gains derived by dealers in real
local stock exchange and that of estate
initial public offering shall be subject
to Percentage tax (Business Tax) RATE AND BASIS OF TAX
2. Capital losses sustained during the A final tax of 6% is based on the
year (not listed and traded in a local gross selling price or fair market value
stock exchange) shall be allowed as or zonal value whichever is higher.
a capital loss deductible on the same Note: Gain or loss is immaterial,
taxable year only (no carry-over) there being a conclusive presumption of
3. The entire amount of capital gain gain.
and capital loss (not listed and
traded in a local stock exchange)  See Annex G – Guidelines in
shall be considered without taking Determining Whether a Real
into account holding period Property is a Capital or an Ordinary
irrespective of who is the taxpayer Asset.
(all 100%)
4. Non-deductibility of losses on wash EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
sales. CAPITAL GAINS TAX ON THE SALE OR
DISPOSITION OF A PRINCIPAL RESIDENCE
FILING AND PAYMENT OF TAX

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Conditions: 1. accounting period is other


a. Sale or disposition of the old than a fiscal year
principal residence; 2. taxpayer has no accounting
b. By natural persons - citizens or aliens period
provided that they are residents 3. taxpayer does not keep
taxable under Sec. 24 of the Code books
(does not include an estate or a 4. taxpayer is an individual
trust); • Fiscal year: accounting period of
c. The proceeds of which is fully 12 months ending on the last day
utilized in (a) acquiring or (b) of any month other than
constructing a new principal December
residence within eighteen (18) • Calendar year: accounting period
calendar months from date of sale or
from January 1 to December 31
disposition;
d. Notify the Commissioner within
B. Periods in which items of gross
thirty (30) days from the date of sale
income included (Sec. 44)
or disposition through a prescribed
• Amount of all items of gross
return of his intention to avail the
tax exemption; income shall be included in the
e. Can only be availed of only once gross income for the taxable
every ten (10) years; year in which received by the
f. The historical cost or adjusted basis taxpayer, unless, any such
of his old principal residence sold, amounts are to be properly
exchanged or disposed shall be accounted for in a different
carried over to the cost basis of his period under methods of
new principal residence accounting permitted
g. If there is no full utilization, the • In case of death of taxpayer:
portion of the gains presumed to include for the taxable year in
have been realized shall be subject which falls the date of his death,
to capital gains tax. all amounts which accrued up to
the date of his death; if not
GROSS INCOME FROM DIFFERENT SOURCES otherwise properly includible in
(SEC. 42) respect of such period or a prior
 Please refer to Annex I. period

ACCOUNTNG PERIODS AND METHODS OF C. Period for which deduction and


ACCOUNTING credits taken (Sec. 45)
• Deductions provided in this Title
I. ACCOUNTING PERIODS shall be taken for the taxable
A. General rule (Sec. 43) year in which ‘paid or incurred,
Taxable income is computed dependent upon the method of
upon the basis of taxpayer’s accounting upon the basis of
annual accounting period (fiscal or which the net income is
calendar year) in accordance with computed, unless, in order to
the method of accounting reflect the income, deductions
employed. should be taken as of a different
• If no method of accounting period.
employed or method does not • In case of death of taxpayer:
clearly reflect the income, deductions allowed for the
computation shall be made in taxable period in which falls the
accordance w/ such method as date of his death, amounts
the opinion of the Commissioner accrued up to the date of his
clearly reflects the income. death if not otherwise properly
• Taxable income is computed allowable in respect of such
based on calendar year if: period or a prior period.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

D. Change of accounting period on account of a change in


(Sec.46) accounting period
• Kinds of changes: b. In all other cases where a
- from fiscal year to calendar separate final or
year adjustment return is
- from calendar year to fiscal require or permitted by
year R&R prescribed by Sec. of
- from one fiscal year to Finance. upon
another recommendation of
• Effect of change: Net income, Commissioner
shall, with the approval of the • Both shall be made for a
Commissioner, be computed on fractional part of a year.
the basis of the new accounting • Then income is computed on the
period, subject to Sec. 47. basis of the short period for
which separate final or
E. Final or adjustment returns for a adjustment return is made.
period of less than 12 months
(1) Returns for short period II. METHODS OF ACCOUNTING
resulting from change of
accounting period A. Cash method
• taxpayer is other than an Recognition of income
individual and expense dependent on
• with the approval of the inflow or outflow of cash.
Commissioner
• If change is from fiscal year to 1. Accrual method
calendar year: Method under which
- separate final or adjustment income, gains and profits are
return be made for the included in gross income when
period between the close of earned whether received or not,
the last fiscal year for which and expenses are allowed as
return was made and the deductions when incurred:
following December 31 although not yet paid. It is the
• If change is from calendar year right to receive and not the
to fiscal year: actual receipt that determines
- separate final or adjustment the inclusion of the amount in
return be made for the gross income
period between the close of • Examples
the last calendar for which :
return was made and the 1. interest or rent income
date designated as the close earned but not yet
of the fiscal year received
• If change is from one fiscal year 2. rent expense accrued
to another: but not yet paid
- separate final or adjustment 3. wages due to workers
return be made for the but remaining unpaid
period between the close of
the former fiscal year and 2. Accounting for
the date designated as the long-term contracts
close of the new fiscal year • Long-term contracts:
(2) Income computed on basis of building, installation or
short period construction contracts
• In what cases? covering a period in excess
a. Where a separate final or of 1 yr
adjustment return is made • Persons whose gross income
is derived in whole or in part

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

from such contracts shall Cost 150,000


report such income upon the Gross profit (GP) 50,000
basis of percentage of
completion Installments payable in 2
• The return is accompanied equal annual installments
by a return certificate of GP/CP ratio
architects or engineers = 50,000/200,000 = 25%
showing the percentage of Collections in 2000=P100,000
completion during the Income for 2000
taxable year of the entire = P100,000 x 25% = P25,000
work performed under the
contract (2) Sales of realty and casual
• Deductions from gross sales of Personalty
income: all expenditures • In cases of:
made during the taxable a. casual sale or other
year on account of the casual disposition of
contract: account being personal property
taken of the material and (other than
supplies on hand at the inventory on hand of
beginning and end of the the taxpayer at the
taxable period for use in close of the taxable
connection with the work year) for a price >
under the contract but not P1,000, or
yet so applied. b. sale or other
• Amended return may be disposition of real
permitted /required by the property, if in either
Commissioner: if upon case the initial
completion of contract, payments do not
taxable income has not been exceed 25% of the
clearly reflected for any selling price
year(s). • How may income be
returned: same as in
3. Installment sales of dealer in
basis personal property above
(1) Sales of dealers in personal • Initial payments:
property payments received in
Under rules and cash or property other
regulations prescribed by than evidences of
the Sec. of Finance, a person indebtedness of the
who regularly sells or purchaser during the
otherwise disposes of taxable period in which
personal property on the the sale or other
installment plan may return disposition is made.
as income there from in any
taxable year that proportion (3) Sales of real
of the installment payments property considered as
actually received in that capital asset by individuals
year, which the gross profit • Individual who sells of
realized or to be realized disposes of real
when payment is completed, property, considered as
bears to the contract price. capital asset and is
otherwise qualified to
Example: Sale in 2000 report the gain under (2)
Contract price (CP) above may pay the
(installments capital gains tax in
receivable) P200, 000

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

installments under rules exemptions, the net taxable income, the


and regulations to be income tax rate, the income tax due,
promulgated by the Sec. the income tax withheld, if any, and the
of Finance. income tax still to be paid or
refundable.
(4) Change from accrual to
installment basis

• taxpayer must be PERSONS REQUIRED TO FILE INCOME TAX


entitled to benefits RETURN
under (1) hereof sales of
dealers in personal a. Individual
property 1. Resident citizen;
• in computing income for 2. Non-resident citizen on income
the year of change or from within the Phil.;
any subsequent year: 3. Resident alien on income from
amounts actually within the Phil.;
received during any such 4. NRAETB on income from within
year on account of sales the Phil.
or other dispositions of 5. An individual (citizens / aliens)
property made in any engaged in business or practice
prior year shall not be of a profession within the Phil.
excluded. regardless of the amount of
gross income;
4. Allocation of 6. Individual deriving compensation
income and deductions income concurrently from two or
• Applicable to: cases of 2 or more employers at any time
more organizations, trades during the taxable year;
or businesses (incorporated 7. Individual whose pure
and organized within the compensation income derived
Philippines) owned or from sources within the Phil.
controlled directly exceeds P60,000.
/indirectly by the same b. Taxable Estate and Trust
interest c. General Professional Partnership
d. Corporation
• Commissioner is authorized
1. Not exempt from income tax;
to distribute, apportion or
2. Exempt from income tax under
allocate gross income or
Sec. 30 of NIRC but has not
deductions between or
shown proof of exemption.
among such organization,
trade or business, if he
INDIVIDUALS EXEMPT FROM FILING INCOME TAX
determines that such
RETURN
distribution, apportionment
or allocation is necessary in
1. Individual whose gross income does
order to prevent evasion of
not exceed total personal and
taxes or to clearly reflect
additional exemptions;
the income of any such
2. Individual with respect to pure
organization, trade or
compensation income derived from
business.
sources within the Philippines, the
income tax on which has been
FILING OF TAX RETURN AND PAYMENT OF TAX
correctly withheld;
3. Individual whose sole income has
TAX RETURN – This is a report made by
been subjected to final withholding
the taxpayer to the BIR of all gross
income tax;
income received during the taxable
4. Individual who is exempt from
year, the allowable deductions including
income tax.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

4. The employee's spouse also complies


SUBSTITUTED FILING –
is when the with all three (3) conditions stated
employer’s annual return may be above.
considered as the “substitute” Income 5. The employer files the annual
Tax Return (ITR) of employee inasmuch information return (BIR Form No.
as the information provided in his 1604-CF)
income tax return would exactly be the 6. The employer issues BIR Form 2316
same information contained in the (Oct 2002 ENCS) version to each
employer’s annual return. employee

HOW IS “SUBSTITUTED FILING” DIFFERENT INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED


FROM “NON-FILING”? FILING (STILL REQUIRED TO FILE)

• Substituted Filing – an individual 1. Individuals deriving compensation


taxpayer although required from two or more employers
under the law to file his income concurrently or successively during
tax return, will no longer have the taxable year.
to personally file his own income 2. Employees deriving compensation
tax return. income, regardless of the amount,
– but instead the whether from a single or several
employer’s annual information employers during the calendar year,
return filed is the considered the income tax of which has not
“substitute” income tax return been withheld correctly (i.e. tax due
of the employee inasmuch as the is not equal to the tax withheld)
information in the employer’s resulting to collectible or refundable
return is exactly the same return.
information contained in the 3. Employees whose monthly gross
employee’s return. compensation income does not
exceed P5,000 or the statutory
• Non-filing – applicable to certain minimum wage, whichever is higher,
types of individual taxpayers and opted for non-withholding of tax
who are not required under the on said income.
law to file an income tax return. 4. Individuals deriving other non-
Example: employee whose business, non-profession-related
pure compensation income does income in addition to compensation
not exceed P60,000 and has only income not otherwise subject to
one employer for the taxable final tax.
year and whose tax withheld is 5. Individuals receiving purely
equivalent to his tax due. compensation income from a single
employer although the income tax of
SUBSTITUTED FILING OF INCOME TAX RETURNS which has been correctly withheld,
BY EMPLOYEES RECEIVING PURELY but whose spouse falls under 1 to 4
COMPENSATION INCOME. [SECTION 4, RR 3- above.
2002; RMC 01-03] 6. Non-resident aliens engaged in trade
or business in the Philippines
Requisites: deriving purely compensation
1. The employee receives purely income, or compensation income
compensation income (regardless of and other non-business, non-
amount) during the taxable year. profession-related income.
2. The employee receives the income
only from one employer during the NOTE: Non-filing of ITR, for employees
taxable year. who are qualified for the substituted
3. The amount of tax due from the filing shall be OPTIONAL for the taxable
employee at the end of the year year 2001, the returns for which shall be
equals the amount of tax withheld filed on or before April 15, 2002.
by the employer. Thereafter, substituted filing where

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

applicable shall be MANDATORY. [Sec 5 3. With the Office of the Commissioner


RR 3-2002)

REQUIREMENT OF BANKS FOR SUBMISSION OF Time For Filing (Pay as you file system)
AN ITR FOR LOAN O R CREDIT CARD
APPLICATIONS April 15 – for those earning sole
compensation income or solely business,
Banks may require the submission of practice of profession or combination of
BIR Form No. 1700 (for employees not business and compensation.
entitled to substituted filing of ITR).
However, for employees entitled to RETURN AND PAYMENT OF ESTIMATED INCOME
substituted filing of ITR, the submission TAX BY INDIVIDUAL (SELF-EMPLOYED OR
of the Joint Certification will suffice. PRACTICE OF PROFESSION)

JOINT CERTIFICATION - It is a sworn 1. First quarter - April 15 of current year


statement made by the employer and 2. Second quarter -August 15 of current
employee, which serve the following year
purposes: 3. Third quarter – November 15 of current
1. It contains the employee's consent year
that BIR Form No. 1604CF may be 4. Final quarter - April 15 of the following
considered his substituted return, in year.
lieu of BIR Form No. 1700, which the
employee no longer filed. Note: When the tax due is in excess of P2,
2. It contains the employer's 000 - the taxpayer may elect to pay in two
certification that he has reported (2) equal installments:
the employee's income to the BIR 1st installment - April 15
and that he has remitted the taxes 2nd installment - on or before July 15
on the employee's income, as
indicated in BIR Form No. 1604-CF. EXTENSION OF TIME TO FILE RETURN
3. It serves as proof of financial
capacity in case the employee The Commissioner may on
decides to apply for a bank loan or a meritorious cases grant a reasonable
credit-card, or for any other extension of time for filing income tax
purpose, as if he had in fact filed a return and may subject the imposition of
BIR Form No. 1700. twenty (20) percent interest per annum
from the original due date.
INDIVIDUALS REQUIRED TO FILE AN
INFORMATION RETURN Return Of Husband And Wife

Individuals not required to file an • File one (1) return for the taxpayer
income tax return may nevertheless be year if following requisites
required to file an information return complied;
pursuant to rules and, regulations a. Married individuals (citizens,
prescribed by the Secretary of Finance resident or nonresident aliens)
upon recommendation of the b. Do not derived income purely
Commissioner. from compensation.
PLACE OF FILING • If impracticable to file one return:
each spouse file a separate return of
1. Legal residence - authorized agent income but the return so filed shall
bank; Revenue District Officer; be consolidated by the Bureau for
Collection agent or duly authorized the purposes of verification for the
treasurer year.
2. Principal place of business

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

UNMARRIED MINOR 3. Insurance company doing business in


the Philippines or deriving income
• Income of unmarried minors derived therein
from property received by the living 4. Foreign corporation having income
from within the Philippines
parent shall be included in the
return of the parent, except: Filing of return (Pay as you file system)
a. when donor’s tax has been paid Quarterly returns for the first three
on such property, or (3) quarters on a strictly sixty (60) day
b. when transfer of such property is basis and the final or adjusted return on
exempt from donor’s tax the 15th day of the fourth (4th) month
following the close of either a-fiscal on
PERSONS UNDER DISABILITY calendar year.

If a taxpayer is unable to make his  See Annex V for Illustration.


own return, it may be made by his
1. duly authorized agents; Who shall file?
2. representative; The return shall be filed by the
3. by guardian; president, vice-president, or other
4. other person charged with the care principal officer, and shall be sworn to by
of his person or property; such officer and by the treasurer or
• who will assume the responsibility of assistant treasurer.
making the return and incurring
penalties provided for erroneous, WITHHOLDING TAXES
false or fraudulent return.
Withholding Taxes
RETURN OF ESTATE, TRUST AND PARTNESHIP Kinds:
1. Withholding Tax at Source:
Estate and Trust with gross income a. Final Withholding Tax
of P20,000 or more and partnership b. Creditable Withholding Tax
(whether professional or business) shall (Expanded withholding tax)
file their income tax return on or before 2. Withholding Tax on Compensation
April 15. (Wages)
3. Withholding Tax on Creditable
TAX RETURNS OF GENERAL PROFESSIONAL Value-Added Tax
PARTNERSHIPS (GPP) 4. Withholding of Percentage Tax
• Each GPP shall file in duplicate, a
return of its income (except those FINAL CREDITABLE
income exempt) WITHHOLDING WITHHOLDING
• Shall set forth: TAX SYSTEM TAX SYSTEM
a. items of gross income and
The amount of Taxes withheld on
deductions allowed income tax withheld certain income
b. names of partners by the withholding payments are
c. TIN agent is constituted intended to equal or
d. address and share of each as a full and final at least approximate
partner payment of the the tax due from the
income due from the payee on the said
Tax Return of a Corporation payee on the said income.
Those required to file: income. [Sec. 2.57
(a), Rev. Reg. 2-98]
1. Corporation subject to tax having
existed during the taxable year,
whether with income or not.
2. Corporation in the process of
liquidation or receivership.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

1. Does not exceed the statutory


The liability for The income minimum wages; or
payment of the tax recipient is still 2. Five thousand (P5,000) monthly
rests primarily on required to file an (P60,000 a year)
the payor or the income tax return
withholding agent. and/or pay the
• whichever is higher.
The payee is not difference between
required to file an the tax withheld and ELEMENTS OF WITHHOLDING ON
income tax return the tax due on the COMPENSATION
for the particular income. [Sec. 1. There must be an employer-
income. 2.57(B), Rev. Regs. employee relationship
2-98] 2. There must be payment of
compensation or wages for services
Time to Withhold Tax at Source rendered
3. There must be a payroll period.
- arises at the time an income is paid COMPENSATION EXEMPTED
or payable, whichever comes first. The
term “payable” refers to the date the 1. Remunerations received as an
obligation becomes due, demandable or incident of employment
legally enforceable. (Sec. 2.54.4 Rev. 2. Remunerations paid for agriculture
Regs. 2.98) labor
3. Remunerations paid for domestic
Nature of Withholding Agent’s Liability services
The withholding agent is directly 4. Remunerations for casual not in the
and independently liable for the correct course of an employer's trade or
amount of the tax that should be business.
withheld from the dividend remittance. 5. Compensation for services of a
(Commissioner vs. Procter and Gamble, citizen, resident of the Philippines,
GR No. 66838, December 2, 1991) for a foreign government or an
international organization
CONSEQUENCES FOR FAILURE TO WITHHOLD: 6. Damages
1. liable for surcharges and 7. Life insurance
penalties; 8. Amount received by the insured as
2. liable upon conviction to a penalty return of premium
equal to the total amount of the 9. Compensation for injuries and
tax not withheld, or not accounted sickness
for and remitted. (Sec. 251, 1997 10. Income exempt under treaty
NIRC) 11. Thirteenth (13th) month pay and
3. any income payment which is other benefits
otherwise deductible from the 12. GSIS; SSS; Philhealth and other
payor’s gross income will not be contributions,
allowed as a deduction if it is
shown that the income tax Tax-Free Covenant BOND [Sec. 57(C)]
required to be withheld is not paid
to the BIR. (Sec. 2.58.5, Rev. Reg. COVENANT BONDS – bonds, mortgages,
2-98) deeds of trust and other similar
obligations of domestic/resident foreign
Withholding Tax On Compensation corporation, which contain a
Every employer must withhold contract/provision by which the obligor
from compensation paid, an amount agrees;
computed in accordance with the 1. to pay any portion of the tax
regulations. imposed upon the obligee;
2. to reimburse the obligee for any
Exception: portion of the tax; or
Where such compensation 3. to pay the interest without
income of an individual: deduction for any tax which the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

obligor may be required/permitted (1) ESTATE TAXES


to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
• Obligor shall deduct and withhold a transmitting property at the time of
tax = 30% of the interest and other death and on the privilege that a person
payments whether interest or other is given in controlling to a certain extent
payments are payable annually or at the disposition of his property to take
a shorter period; whether bonds, effect upon death.
securities, obligations had been/will
be issued/ marketed and the Estate Tax Formula
interest and other payments paid
within and without the Philippines if Gross Estate (Sec. 85)
the interest or other payment is Less: (1) Deductions (Sec. 86)
payable to a non-resident alien or a (2)Net share of the SS in the CPP
citizen or resident of the Philippines Net Taxable Estate
Income of Recipient [Sec. 58 (d)] Multiply by: Tax rate (Sec. 84)
Estate Tax due
• Income which any creditable tax is
Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source 110[B]
shall be included in the return of its
recipient. Estate Tax Due, if any
• The excess of the amount of tax
withheld over the tax due on his
return shall be refunded to him, GROSS ESTATE
subject to Section 204 (abatement,
refund/credit taxes). A decedent’s gross estate includes
• If amount withheld at source is less (Sec. 85)
than the tax due on his return, the
RESIDENT & NON-
difference is paid in accordance with
RESIDENT
Section 56 (payment and assessment NON-RESIDENT
CITIZEN,
of income tax). ALIEN DECEDENT
RESIDENT ALIEN
• All taxes withheld shall be
DECEDENT
considered as trust funds and
maintained in a separate account 1. Real property 1. Real property
and not commingled with any other wherever situated in the
funds of the withholding agent. situated Philippines.

2. Personal 2. Personal property


B. TRANSFER TAXES property a) Tangible
wherever property
situated situated in the
TRANSFER TAX INCOME TAX a) Tangible, Philippines
and b) Intangible
Tax on transfer of Tax on income b) Intangible personal
property. property with
a situs in the
Rates are lower Rates are higher Philippines
--5% to 20% - -- 5% to 32% unless
estate tax exempted on
-- 2% to 15 % or the basis of
30% - donor’s reciprocity.
tax
The law that governs the imposition of
Lesser exemptions More exemptions estate tax

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

The statute in force at the time of that foreign country


death of the decedent shall govern (Reciprocity).
estate taxation.
Valuation of the gross estate
Intangible personal properties with a
situs in the Phil. (Sec. 104, 1997 The properties comprising the gross
NIRC) estate shall be valued based on their fair
market value as of the time of death.
1. Franchise which must be exercised
in the Philippines; PROPERTY VALUATION
2. Shares, obligations or bonds issued
by any corporation or sociedad 1) Real Property - fair market value
anonima organized or constituted in a) as determined by the
the Philippines in accordance with Commissioner or
its laws; b) as shown in the
schedule of values
3. Shares, obligations or bonds issued
fixed by the
by any foreign corporation eighty- provincial and city
five per centum (85%) of the assessors
business of which is located in the WHICHEVER IS HIGHER
Philippines;
4. Shares, obligations or bonds issued 2) Shares of Stock
by any foreign corporation, if such Unlisted
shares, obligations or bonds have Common Shares -book value
acquired a business situs in the Preferred -par value
Philippines; Shares -arithmetic mean
between the highest and
5. Shares or rights in any partnership, Listed lowest quotation at a
business or industry established in date nearest the date of
the Philippines. death, if none is
available on the date of
death itself.
Intangible personal property, with a
situs in the Philippines, of a decedent 3)Right to - shall be taken into
who is a non-resident alien shall not usufruct, use or account the probable
form part of the gross estate if habitation, as life of the beneficiary in
well as that of accordance with the
(reciprocity clause) (Sec. 104)
annuity latest basic standard
mortality table, to be
1. the decedent at the time of his approved by the
death was a citizen and resident of a Secretary of Finance,
foreign country which at the time of upon recommendation of
his death the Insurance
a. did not impose a transfer tax or Commissioner.
death tax of any character
4) Personal - whether tangible or
1. in respect of intangible personal
property intangible, appraised at
property of citizens of the FMV. “Sentimental
Philippines not residing in that value” is practically
foreign country; or disregarded.
2. the laws of the foreign country of
which the decedent was a citizen
and resident at the time of his death Inclusions in the Gross Estate (Sec. 85)
a. allow a similar exemption from
transfer taxes or death taxes of 1. DECEDENT’S INTEREST
every character To the extent of the interest in
b. in respect of intangible personal property of the decedent at the time of
property owned by citizens of his death.
the Philippines not residing in

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. TRANSFER IN CONTEMPLATION OF a. the possession or enjoyment of,


DEATH or the right to the income from
1. A transfer motivated by the thought the property; or
of impending death although death b. the right, either alone or in
may not be imminent; or conjunction with any person, to
designate the persons who shall
2. A transfer by which the decedent possess or enjoy the property or
retained for his life or for any period the income therefrom.
which does not in fact end before his
death: Exception: bona fide sale for an
a. the possession or enjoyment of, adequate and full consideration in
or the right to the income from money or money’s worth.
the property, or
b. the right, either alone or in 5. PROCEEDS OF LIFE INSURANCE
conjunction with any person, to Proceeds of life insurance taken by
designate the person who shall the decedent on his own life shall be
possess or enjoy the property or included in the gross estate if the
the income therefrom. beneficiary is:
a. the estate of the decedent, his
Exception: bona fide sale for an executor or administrator
adequate and full consideration in (regardless whether the designation
money or money’s worth. is revocable or irrevocable); or
b. a third person other than the estate,
3. REVOCABLE TRANSFER executor or administrator where the
A transfer whereby the terms of designation of the beneficiary is
enjoyment of the property may be revocable.
altered, amended, revoked or
terminated by the decedent alone or in 6. TRANSFERS FOR INSUFFICIENT
conjunction with any other person, or CONSIDERATION
where any such power is relinquished in The value to be included in the gross
contemplation of the decedent’s death. estate is the excess of the fair market
It is enough that the decedent had the value of the property at the time of the
power to alter, amend or revoke though decedent’s death over the consideration
he did not exercise such power. received. This is applicable in cases of
transfer in contemplation of death,
Exception: bona fide sale for an revocable transfer and transfer under
adequate and full consideration in general power of appointment made for
money or money’s worth. a consideration but is not a bona fide
sale for an adequate and full
4. TRANSFER UNDER GENERAL POWER consideration in money or money’s
OF APPOINTMENT worth.
A power of appointment is the right
to designate the person or persons who 7. PRIOR INTERESTS
will succeed to the property of the prior All transfers, trusts, estates,
decedent. interests, rights, powers and
The general power of appointment relinquishment of powers made,
may be exercised by the decedent: created, arising, existing, exercised or
1. by will; or relinquished before or after the
2. by deed executed in contemplation effectivity of the NIRC.
of his death; or
3. by deed under which he has retained Property relations between Husband
for his life or for any period not and Wife
ascertainable without reference to The property relations between the
his death or for any period which spouses shall be governed by contract
does not in fact end before his (marriage settlement) executed before
death: the marriage.

TAXATION LAW COMMITTEE


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Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

D
In the absence of such contract, or if E
the contract is void: D
On marriages contracted before August U
3, 1988, the system of conjugal
C
partnership of gains shall govern;
T
On marriages contracted on or after
August 3, 1988 (effectivity of the I
Family Code of the Philippines), the O
system of absolute community of N
property shall govern. S
O
Exempt Transmissions (Sec. 87) N
1. The merger of usufruct in the owner
of the naked title; G
2. Fideicommisary substitution;
R
3. The transmission from the first heir,
O
legatee or donee in favor of another
beneficiary, in accordance with the S
will of the predecessor; and S
All bequests, devices, legacies or E
transfers to social welfare, cultural and S
charitable institutions no part of the net T
income of which inures to the benefit of A
any individual; Provided, that not more T
than 30% of the said bequests, legacies E
or transfers shall be used by such
A
institutions for administration purposes.
P
P
L
I
C
A
B
L
E
T
O

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

R (
E R
S E
I V
D E
E N
N U
T E

A R
L E
I G
E U
N L
S A
T
A I
N O
D N
S
C
I 2
T -
I 2
Z 0
E 0
N 3
S )

The following are deductible from


the gross estate of citizens and resident
aliens:
1. Expenses, losses, indebtedness,
taxes, etc. (ordinary deductions)
2. Transfer for public use
3. Vanishing deduction
4. Family home
5. Standard deduction equivalent to
one million pesos (P1,000,000)
6. Medical expenses
7. Amounts received by heirs under RA
4917 (Retirement Benefits)
8. Net share of the surviving spouse in
the conjugal or community property

1. ORDINARY DEDUCTIONS

A. Funeral Expenses
The amount deductible is the lowest
among the following:
1. actual funeral expenses
2. 5% of the gross estate
3. P200,000.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

been enforced against the deceased in


It includes the following: his lifetime and could have been
1. Mourning apparel of the surviving reduced to simple money judgments.
spouse and unmarried minor children
of the deceased, bought and used in Claims against the estate or
the occasion of the burial. indebtedness in respect of property may
2. Expenses of the wake preceding the arise out of:
burial including food and drinks. 1. Contract;
3. Publication charges for death 2. Tort; or
notices. 3. Operation of Law.
4. Telecommunication expenses in
informing relatives of the deceased.
5. Cost of burial plot. Tombstone Requisites:
monument or mausoleum but not 1. The liability represents a
their upkeep. In case deceased personal obligation of the
owns a family estate or several deceased existing at the time of
burial lots, only the value his death except unpaid
corresponding to the plot where he obligations incurred incident to
is buried is deductible. his death such as unpaid funeral
6. Interment fees and charges. expenses (i.e., expenses
7. All other expenses incurred for the incurred up to the time of
performance of the ritual and interment) and unpaid medical
ceremonies incident to the expenses which are classified
interment. under a different category of
Expenses incurred after the deductions;
interment, such as for prayers, masses, 2. The liability was contracted in
entertainment, or the like are not good faith and for adequate and
deductible. full consideration in money or
Any portion of the funeral and burial money's worth;
expenses borne or defrayed by relatives 3. The claim must be a debt or
and friends of the deceased are not claim which is valid in law and
deductible. enforceable in court;
4. The indebtedness must not have
B. JUDICIAL EXPENSES OF THE been condoned by the creditor
TESTAMENTARY OR INTESTATE or the action to collect from the
PROCEEDINGS decedent must not have
Expenses allowed as deduction under prescribed.
this category are those:
1. incurred in the inventory-taking D. CLAIMS AGAINST INSOLVENT PERSONS
of assets comprising the gross
estate, Requisites:
2. administration, 1. The amount thereof has been
3. payment of debts of the estate, initially included as part of his gross
as well as the distribution of the estate (for otherwise they would
estate among the heirs. constitute double deductions if they
In short, these deductible items are were to be deducted)
expenses incurred during the settlement 2. The incapacity of the debtors to pay
of the estate but not beyond the last day their obligation is proven.
prescribed by law, or the extension
thereof, for the filing of the estate tax C. UNPAID MORTGAGE
return. • In case unpaid mortgage payable is
being claimed by the estate,
C. CLAIMS AGAINST THE ESTATE verification must be made as to who
The word "claims" is generally was the beneficiary of the loan
construed to mean debts or demands of proceeds.
a pecuniary nature which could have

TAXATION LAW COMMITTEE


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Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

• If the loan is found to be merely an 3. In favor of the government of the


accommodation loan where the loan Phil., or any political subdivision
proceeds went to another person, thereof
the value of the unpaid loan must be 4. For exclusive public purposes.
included as a receivable of the
estate. Note: This should also include bequests,
• If there is a legal impediment to devices, or transfers to social welfare,
recognize the same as receivable of cultural and charitable institutions.
the estate, said unpaid obligation/
mortgage payable shall not be 3. VANISHING DEDUCTION
allowed as a deduction from the
gross estate. DEFINITION: The deduction allowed from
• In all instances, the mortgaged the gross estate for properties that were
property, to the extent of the subject to donor’s or estate taxes. It is
decedent's interest therein, should called vanishing deduction because the
always form part of the gross deduction allowed diminishes over a
taxable estate. period of five years. The rate of
deduction depends on the period from
F. TAXES the date of transfer to the death of the
Taxes which have accrued as of the decedent, as follows:
death of the decedent which were
unpaid as of the time of death. PERIOD DEDUCTION
• 1 year or less 100%
The following are not deductible: • 1 year – 2 years 80%
1. income tax on income received • 2 years – 3 years 60%
after death • 3 years – 4 years 40%
2. property taxes not accrued • 4 years – 5 years 20%
before death
3. estate tax
Requisites:
1. the present decedent died within 5
G. LOSSES
years from transfer of the property
Requisites:
from a prior decedent or donor.
1. It should arise from fire, storm,
2. The property must be located in the
shipwreck, or other casualty,
Phils.
robbery, theft or embezzlement;
3. The property formed part of the
2. Not compensated by insurance
taxable estate of the prior decedent,
or otherwise;
or of the taxable gift of the donor.
3. Not claimed as deduction in an
4. The estate tax or donor’s tax on the
income tax return of the taxable
gift must have been finally
estate;
determined and paid.
4. Occurring during the settlement
5. The property must be identified as
of the estate; and
the one received from the prior
5. Occurring before the last day for
decedent, or something acquired in
the payment of the estate tax
exchange therefor.
(last day to pay: six months after
6. No vanishing deduction on the
the decedent’s death).
property was allowable to the estate
of the prior decedent.
2. TRANSFER FOR PUBLIC USE
4. FAMILY HOME
Requisites:
1. The disposition is in a last will and
Conditions:
testament
1. The family home must be the actual
2. To take effect after death
residential home of the decedent
and his family at the time of his
death, as certified by the Barangay

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Captain of the locality where the 8. NET SHARE OF THE


family home is situated; SURVIVING SPOUSE IN THE
2. The total value of the family home CONJUGAL PARTNERSHIP OR
must be included as part of the gross COMMUNITY PROPERTY
estate of the decedent; and
3. Allowable deduction must be in an
amount equivalent to After deducting the allowable
1. the current fair market value of deductions (only the ordinary
the family home as declared or deductions) appertaining to the conjugal
included in the gross estate, or or community properties included in the
gross estate, the share of the surviving
2. the extent of the decedent's spouse must be removed to ensure that
interest (whether only the decedent's interest in the
conjugal/community or exclusive estate is taxed.
property), whichever is lower,
but not exceeding P1,000,000
5. STANDARD DEDUCTION

A deduction in the amount of One


Million Pesos (P1,000,000) shall be
allowed as an additional deduction
without need of substantiation.
The full amount of P1,000,000 shall
be allowed as deduction for the benefit
of the decedent.

6. MEDICAL EXPENSES

• Any amount of medical expenses


incurred within one year from death
in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be
allowed as a deduction under this
subsection.
• Neither can any unpaid amount
thereof in excess of the P500,000
threshold nor any unpaid amount for
medical expenses incurred prior to
the one-year period from date of
death be allowed to be deducted
from the gross estate as claim
against the estate.

7. AMOUNT RECEIVED BY HEIRS


UNDER REPUBLIC ACT NO.
4917

Any amount received by the heirs


from the decedent's employer as a
consequence of the death of the
decedent-employee in accordance with
Republic Act No. 4917 is allowed as a
deduction provided that the amount of
the separation benefit is included as
part of the gross estate of the decedent.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

D N
E O
D N
U -
C R
T E
I S
O I
N D
S E
O N
N T

G A
R L
O I
S E
S N
E S
S
T The following are deductible from the gross
estate of non-resident aliens:
A
1. Expenses, losses, indebtedness and
T
taxes (ELIT) (ordinary deductions)
E
Formula:
A Tax = Phil. Gross
P Credit Estate X World
Limit World Gross ELIT
P
Estate
L
I 2. Transfer for public use
C
A 3. Vanishing deduction on property in
the Philippines.
B
L 4. Conjugal share of the surviving
E spouse

T
O

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

E S
S E
T T
A
T
T
L
E
T
E
A
M
X E
C N
R T
E
D O
I F
T

T
A tax credit is granted for estate
taxes paid to a foreign country on the
H
estate of citizens and resident aliens E
subject to the following limitations
E
1. One foreign country only S
The tax credit is whichever is
lower between:
T
4. Estate tax paid to the foreign A
country T
5. Tax Credit Limit = E
NTE, foreign country X Phil. estate
NTE, world Tax
T
(NTE - Net Taxable Estate) A
X
2. More than one foreign country
The credit shall be that which is A. FILING
the lower amount between Limit A
and Limit B. Notice Of Death To Be Filed
In all cases of transfers subject to
Limit A. Whichever is lower tax, or where, though exempt from tax,
between: the gross value of the estate exceeds
• Estate tax paid to a foreign P20,000, the executor, administrator or
country any of the legal heirs, within two
• Tax Credit Limit = months after the decedent’s death, or
NTE, foreign country X Phil. estate within a like period after qualifying as
NTE, world Tax such executor or administrator, shall
give a written notice thereof to the
Limit B. Whichever is lower Commissioner. (Sec. 89)
between:
• Total of estate taxes paid to all An Estate Tax Return Is Required To Be
foreign countries Filed
• Tax Credit Limit = 1. when the estate is subject to estate
NTE outside Phil. X Phil. estate tax; or
NTE, world Tax 2. when the estate is not subject to
estate tax but the gross estate
exceeds P 200,000; or

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

3. regardless of the amount of the - with the Revenue District


gross estate, where the gross estate Office having jurisdiction over
consists of registered or registrable the executor’ or administrator’s
property such as motor vehicle or residence
shares of stock or other similar c. no executor or administrator
property for which clearance from - with the Office of the
the BIR is required as a condition Commissioner (Sec. 9C, Rev. Reg.
precedent for the transfer of 2-2003)
ownership thereof in the name of
the transferee. B. PAYMENT
Time for Filing of the estate tax return Payment of the estate tax due
The estate tax return shall be filed The estate tax due shall paid at the
within six (6) months after the death of time when the estate tax return is filed.
the decedent. When the Commissioner finds that
the payment of the estate tax on the
Extension: The BIR may, in meritorious due date would impose undue hardships
cases, grant an extension of not upon the estate or any heir:
exceeding thirty (30) days for the filing a. the payment of the estate tax
of the estate tax return. may be extended for a period
not to exceed five (5) years if
When The Gross Estate Exceeds there is a judicial settlement of
P2,000,000, The Estate Tax Return the estate; or
Shall Be Accompanied By A Statement b. the payment of the estate tax
Which Is Certified By An Independent may be extended for a period
Certified Public Accountant Stating not to exceed two (2) years if
1. the itemized assets of the decedent there is an extra-judicial
with its corresponding gross value at settlement of the estate.
the time of his death, or in the case NOTE: In case the available cash is not
of a non-resident, not citizen of the sufficient to pay its total estate tax
Philippines, that part of his gross liability, the estate may be allowed to
estate situated in the Philippines; pay tax by installment. (Sec. 9F, Rev.
2. the itemized deductions from the Reg. 2-2003)
gross estate;
3. the amount of tax due, whether paid Liability for Payment
or still due and outstanding. The estate tax shall be paid by the
executor or administrator before delivery
Place Where to File the Estate Tax to any beneficiary of his distributive share
Return of the estate.
Such beneficiary to the extent of his
1. Resident Citizen distributive share of the estate shall be
- with the Accredited Agent Bank subsidiarily liable for the payment of
(AAB), Revenue District Officer, such portion of the estate tax as his
Collection Officer or duly authorized distributive share bears to the value of
Treasurer of the city or municipality the total net estate. (Sec. 9G, Rev. Reg.
where the decedent was domiciled at 2-2003)
the time of his death. No judge shall authorize the
distribution of the estate unless a
2. Non-resident (citizen or alien) certification from the Commissioner that
a. has registered executor or tax has been paid is shown. (Sec. 94)
administrator No shares or other forms of securities
- with the Revenue District shall be transferred in the books of any
Office where such executor or corporation, partnership, business or
administrator is registered industry organized in the Philippines,
b. executor or administrator is not unless a similar certification by the
registered Commissioner is shown. (Sec. 97)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

When a bank has knowledge of the property belonging to the


death of a person who maintained a taxpayer for unpaid income tax,
joint account, it shall not allow any is by subjecting said property of
withdrawal by the surviving depositor the estate which is in the hands
without the above certification. (Sec. of an heir or transferee to the
97) payment of the tax due the
Provided: that the administrator of estate. (Commissioner of
the estate or any one (1) of the heirs of Internal Revenue vs. Pineda, GR
the decedent may, upon authorization No. L –22734, September 15,
by the Commissioner, withdraw an 1967)
amount not exceeding twenty thousand
pesos (P20,000) without the said
certification.

There is nothing in the Tax Code and (2) DONOR’S TAXES


in the pertinent remedial law that
implies the necessity of the probate DEFINITION: A tax on the privilege of
court or estate settlement of court’s transmitting one’s property or property
approval of the State’s claim for estate rights to another or others without
taxes before the same can be enforced adequate and full valuable
and collected by the BIR. On the consideration.
contrary, under Section 94, it is the
probate or settlement court which is Coverage Of The Tax (SEC. 104)
bidden not to authorize the delivery of
the distributive share to any interested
RESIDENT & NON-
party without a certification from the
RESIDENT CITIZEN, NON-RESIDENT
CIR showing the payment of the estate
RESIDENT ALIEN ALIEN DONOR
tax. (Marcos II vs. Court of Appeals, GR
DONOR
No. 120880, June 5, 1997)
1. Real property 1. Real property
COLLECTION OF TAX FROM THE HEIRS wherever situated situated in the
An estate or inheritance tax, Philippines.
whether assessed before or after the
death of the deceased, can be collected 2. Personal property 2. Personal property
from the heirs even after the wherever situated a. Tangible property
distribution of the properties of the a. Tangible, and situated in the
decedent. (Palanca vs. Commissioner of Intangible Philippines
b. Intangible
Internal Revenue, GR No. 16661,
personal property
January 31, 1962) with a situs in the
Philippines unless
The Government has two ways of exempted on the
collecting taxes due from the estate. basis of
a. By going after all the heirs and reciprocity.
collecting from each one of
them the amount of the tax Requisites
proportionate to the inheritance
received, or 1. Capacity of the donor
b. Pursuant to the lien created by 2. Donative Intent
Section 219 of the Tax Code 3. Delivery, whether actual or
upon all property and rights to constructive, of the subject gift

TAXATION LAW COMMITTEE


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Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

4. Acceptance by the donee provided by law to legitimate


children, and therefore, donation to
Law that governs the imposition of him shall not be considered as
Donor’s Tax donation made to stranger.
• Donation made between business
The donor’s tax shall not apply organizations and those made
unless and until there is a completed between an individual and a business
gift. The transfer is perfected from the organization shall be considered as
moment the donor knows of the donation made to a stranger.
acceptance by the donee; it is
completed by the deliver, either Valuation of gifts of property
actually or constructively, of the The fair market value of the
donated property to the donee. Thus, property given at the time of the gift
the law in force at the time of the shall be the value of the gift.
perfection/completion of the donation
shall govern the imposition of the
donor’s tax.
Intangible personal properties with a
A gift that is incomplete because of situs in the Phil. (same as in estate tax
reserved powers, becomes complete subject to the reciprocity rule) (Sec.
when either: 104)
1. the donor renounces the power; or
2. his right to exercise the reserved Formula: (On a cumulative basis over a
power ceases because of the period of one calendar year)
happening of some event or
contingency or the fulfillment of 1. On the 1st donation of a year
some condition, other than because
of the donor's death. Gross gifts xxx
• Renunciation by the surviving Less: Deductions from gross xxx
spouse of his/her share in the gifts
conjugal partnership or absolute Net gifts xxx
community after the dissolution Multiply by: Tax Rate xxx
of the marriage in favor of the Donor’s tax on the net gifts xxx
heirs of the deceased spouse or
any other person/s is subject to
2. On donation of a subsequent
donor's tax.
date during the year
• Whereas general renunciation
by an heir, including the Gross gifts made on this date XX
surviving spouse, of his/her Less: Deductions from gross gifts XX
share in the hereditary estate Net gifts XX
left by the decedent is not Add: All prior net gifts within the XX
subject to donor's tax, unless year
specifically and categorically Aggregate net gifts XX
done in favor of identified heir/s Multiply by: Tax Rate XX
to the exclusion or disadvantage
Donor’s tax on aggregate net gifts XX
of the other co-heirs in the
Less: Donor’s tax on all prior net XX
hereditary estate. (Sec. 11, Rev.
gifts
Reg. 2-2003)
Donor’s tax on the net gifts on this XX
date
STRANGER - a person who is not a
brother, sister, spouse, ancestor and
lineal descendant, or of a relative by Exemption of certain gifts
consanguinity in the collateral within the
4th civil degree. 1. Gifts made by a resident
• A legally adopted child is entitled to a. Dowries or gifts made on
all the rights and obligations account of marriage and before

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

its celebration or within one 1. Donor was a Filipino citizen or


year thereafter by parents to resident alien
each of their legitimate, 2. At time of foreign donation
illegitimate or adopted children 3. Donor’s taxes of any character and
to the extent of the first P10, description
000. 4. Are imposed and paid by the
b. Gifts made to or for the use of authority of a foreign country.
the National Government or any
entity created by any of its Limitations on tax credit
agencies which is not conducted
for profit, or to any political 1. The amount of the credit in respect
subdivision of the said to the tax paid to any country shall
government. not exceed the same proportion of
c. Gifts in favor of educational, the tax against which such credit is
charitable, religious, cultural or taken, which the decedent’s net
social welfare corporation, gifts situated within such country
institutions, foundations, trust taxable under the NIRC bears to his
or philanthropic organization, entire net gift; and
research institution or 2. The total amount of the credit shall
organization, accredited non- not exceed the same proportion of
government organization (NGO). the tax against which such credit is
Provided, that no more than 30% taken, which the decedent’s net gift
of said gifts shall be used by situated outside the Philippines
such donee for administration taxable under the NIRC bears to his
purposes. entire net gift.
2. Gifts made by a non-resident not
a citizen of the Phil. Formula of Tax Credit Limit
a. same as (b)
b. same as (c) except accredited 1. For donor’s taxes paid to one
non-government organization foreign country
(NGO)
NG situated Tax
A non-profit educational and/or in a foreign country X PDT = Credit
charitable corporation, institution, Entire net gift Limit
accredited non-government
organization, trust or philantrophic (NG - Net Gifts; PDT - Phil. Donor's Tax)
organization, research institution or
organization is 2. For donor’s taxes paid to two or
more foreign country
1. one incorporated as a non-stock
entity NG outside the Phil. X PDT = Tax
2. paying no dividends Entire net gifts Credit
3. governed by trustees who receive no Limit
compensation, and
4. devoting all its income whether The allowable tax credit is the
students’ fees or gifts, donations, lower amount between the tax credit
subsidies or other forms of limit under (a) and (b).
philantrophy to the accomplishment
and promotion of the purposes
enumerated in its Articles of SETTLEMENT OF THE DONOR’S TAX
Incorporation.
Time for Filing of Return and payment
Tax credit for donor’s taxes paid to a of the Donor’s Tax
foreign country The donor’s tax return is filed and
the donor’s tax due is paid within thirty
(30) days after the date the gift is made.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

The return shall be under oath in I. TAX REMEDIES OF THE


duplicate setting forth: GOVERNMENT
1. Each gift made during the calendar
year which is to be included in
Importance
computing net gifts;
2. The deductions claimed and
1. They enhance and support the
allowable;
government’s tax collection.
3. Any previous net gifts made during
2. They are safeguards of taxpayer’s
the same calendar year;
rights against arbitrary action.
4. The name of the donee;
5. Relationship of the donor to the
Tax collection cannot be restrained by
donee; and
court injunction (Sec. 218, 1997 NIRC)
6. Such further information as may be
required by rules and regulations
Justification: Lifeblood Theory
made pursuant to law.
Exception: Injunction may be issued by
NOTE: The filing of a notice of donation
the CTA in aid of its appellate
is not required, unlike in estate tax
jurisdiction under RA 1125 (as amended
where notice of death is required.
by RA 9282).
Place for Filing of Return and payment
Conditions for the Issuance of an
of the Donor’s Tax
Injunction by the Court of Tax Appeals
The CTA may enjoin collection of
1. Resident
taxes:
• With an authorized agent bank, the
a. If in its opinion the same may
Revenue District Officer, Revenue jeopardize the interest of the
Collection Officer or duly government and/or the taxpayer.
authorized Treasurer of the city or b. In this instance, the court may
municipality where the donor was require the taxpayer either to deposit
domiciled at the time of the the amount claimed or file a surety bond
transfer, or if there be no legal for not more than double the amount
residence in the Philippines, with with the court.
the Office of the Commissioner.
2. Non-resident * Before enforcement of remedies,
• Filed with the Philippine Embassy assessment is necessary to trigger the
or Consulate in the country where process. If no return is filed, the
he is domiciled at the time of the Commissioner is empowered to obtain
transfer, or directly with the information, and to summon/examine,
Office of the Commissioner. and take testimony of persons to
determine the amount of tax due. (Sec.
Tax rate 5, 1997 NIRC)

If the donee is a stranger, the rate of TAX REMEDIES UNDER THE 1997 TAX CODE:
tax shall be 30% of the net gifts.
If the donee is not a stranger, 1. Summary – remedies at the
the rate shall be from 2% to 15% of the administrative level or regulation that
net gifts. are executed without ceremony or
delay; short or concise
 See Annex W - Donor’s Tax 2. Substantive – remedies provided for
by law or regulation; an essential part or
constituent or relating to what is
C. TAX REMEDIES essential
UNDER THE NIRC 3. Procedural – remedies involving law of
pleading, evidence, jurisdiction, etc.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

4. Administrative – remedies available at criminal and civil cases arising from


the administration (BIR) level violations of the Tax Code [Secs.
5. Judicial – remedies that are 7(C) and 204, 1997 NIRC]. This
enforced through judicial action, power of the CIR is discretionary and
which may be civil or criminal once exercised by him cannot be
reviewed or interfered with by the
tax remedies of the government to Courts. (Koppel, Philippines vs.
effect collection of taxes Commissioner, GR No. L-1977,
September 21, 1950)
1. Compromise (Sec. 204) 2. By the Regional Evaluation Board
2. Distraint (Actual and composed of:
Constructive) (Secs. 205-208) a. the Regional Director as
3. Levy (Sec. 207B) Chairman,
4. Tax Lien (Sec. 219) b. Assistant Regional Director,
5. Civil Action (Sec. 221) the heads of the Legal,
6. Criminal Action (Secs. 221, and Assessment and Collection
222) Divisions, and
7. Forfeiture of Property (Sec. c. the Revenue District Officer
224-225) having jurisdiction over the
8. Suspension of business taxpayer, as members;
operations in violation of VAT • on assessments issued by the
(Sec. 115) regional offices involving basic
9. Enforcement of Administrative taxes of P500,000 or less, and
Fine minor criminal violations.

The remedies of distraint and levy as Cases which may be compromised


well as collection by civil and criminal
actions may, in the discretion of the 1. Delinquent accounts
Commissioner, be pursued singly or 2. Cases under administrative protests
independently of each other, or all of 3. Civil tax cases being disputed before
them simultaneously. the courts
4. Collection cases filed in courts
5. Criminal violations, other than those
(1) COMPROMISE already filed in court or those
involving criminal tax fraud; and,
DEFINITION: A contract whereby the 6. Cases covered by pre-assessment
parties, by reciprocal concessions, avoid notices but taxpayer is not agreeable
litigation or put an end to one already to the findings of the audit office as
commenced (Art. 2028, New Civil confirmed by the review office.
Code). (Sec.2, Rev. Reg. 7-2001)

Requisites Exceptions
1. The taxpayer must have a tax
liability. 1. Withholding tax cases;
2. There must be an offer (by the 2. Criminal tax fraud cases;
taxpayer of an amount to be paid by 3. Criminal violations already filed in
the taxpayer) court;
3. There must be an acceptance (by 4. Delinquent accounts with duly
the Commissioner or taxpayer as the approved schedule of installment
case may be) of the offer in the payments;
settlement of the original claim. 5. Cases where final reports of
reinvestigation or reconsideration
Officers authorized to compromise have been issued resulting to
reduction in the original assessment
1. The Commissioner of Internal and the taxpayer is agreeable to
Revenue (CIR) with respect to such decision.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

6. Cases which become final and to comply with the formalities


executory after final judgment of a prescribed under Sec. 228 of
court, where compromise is the 1997 NIRC; or
requested on the ground of doubtful g. Assessments made based on the
validity of the assessment (RR. 30– “Best Evidence Obtainable
2002); Rule” and there is reason to
7. Estate tax cases where compromise believe that the same can be
is requested on the ground of disputed by sufficient and
financial incapacity of the taxpayer. competent evidence.
(RR. 30–2002) h. The assessment was issued
within the prescriptive period
Commissioner may compromise the for assessment as extended by
payment of any internal revenue tax the taxpayer's execution of
when Waiver of the Statute of
Limitations the validity or
1. A reasonable doubt as to the authenticity of which is being
validity of the claim against the questioned or at issue and there
taxpayer exists; or is strong reason to believe and
a. The delinquent account or evidence to prove that it is not
disputed assessment is one authentic. (RR. 30– 2002)
resulting from a jeopardy i. The assessment is based on an
assessment. issue where a court of
b. The assessment seems to be competent jurisdiction made an
arbitrary in nature, appearing adverse decision against the
to be based on presumptions, Bureau, but for which the
and there is reason to believe Supreme Court has not decided
that its is lacking in legal upon with finality. (RR. 08-
and/or factual basis; or 2004).
c. The taxpayer failed to file an
administrative protest on 2. The financial position of the
account of the alleged failure taxpayer demonstrates a clear
to receive notice of assessment inability to pay the assessed tax
or preliminary assessment and [Sec. 204(A), 1997 NIRC). In such
there is reason to believe that case, the taxpayer should waive the
its is lacking in legal and/or confidentiality privilege on bank
factual basis; or deposits under RA No. 1405 [Sec.
d. The taxpayer failed to file a 6(F)(2), NIRC].
request for Financial Incapacity. — The offer
reinvestigation/reconsideration to compromise based on financial
within 30 days from receipt of incapacity may be accepted upon
final assessment notice and showing that:
there is reason to believe that a. The corporation ceased operation
its is lacking in legal and/or or is already dissolved. Provided,
factual basis; or that tax liabilities corresponding
e. The taxpayer failed to elevate to the Subscription Receivable or
to the CTA an adverse decision Assets distributed/distributable to
of the Commissioner, or his the stockholders representing
authorized representative, in return of capital at the time of
some cases, within 30 days from cessation of operation or
receipt thereof and there is dissolution of business shall not be
reason to believe that its is considered for compromise; or
lacking in legal and/or factual
basis; or b. The taxpayer, as reflected in its
f. The assessment were issued on latest Balance Sheet supposed to
or after Jan. 1, 1998, where the be filed with the Bureau of
demand notice allegedly failed Internal Revenue, is suffering from

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

surplus or earnings deficit


resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1. The submission of all
which are properly includible in pertinent information, including
the regular "accounts payable" are but not limited to industry
by fiction of law considered as audits, collection performance
part of capital and not liability, data, status reports on criminal
and provided further that the actions initiated against
taxpayer has no sufficient liquid persons; and
asset to satisfy the tax liability; or 2. The submission of taxpayer
returns.

Minimum Compromise Rates (MCR) of


c. The taxpayer is suffering from a any tax liability
networth deficit (total liabilities a. In case of financial incapacity:
exceed total assets) computed by MCR = 10% of the basic assessed tax
deducting total liabilities (net of b. Other cases:
deferred credits and amounts MCR = 40% of the basic assessed tax
payable to stockholders/owners [Sec. 204(A), 1997 NIRC]
reflected as liabilities, except
business-related transactions) Approval of the compromise by the
from total assets (net of prepaid Evaluation Board is required when
expenses, deferred charges, pre- a. the basic tax involved exceeds
operating expenses, as well as P1,000,000.00, or
appraisal increases in fixed b. the settlement offered is less than
assets), taken from the latest the MCR.
audited financial statements,
provided that in the case of an NOTE: The MCR may be less than the
individual taxpayer, he has no prescribed rates of 10% or 40%, as the
other leviable properties under case may be, provided it is approved by
the law other than his family the Evaluation Board (composed of the
home; (Sec. 3, RR. 30–2002). BIR Commissioner and the four BIR
Deputy Commissioners).
c. The taxpayer is a compensation
earner with no other source of Compromise of Criminal Violations
income and the family’s gross General Rule: All criminal violations
monthly compensation does not under the CTRP may be compromised.
exceed (P10,500/month if single;
P21,000/month if married), and Exceptions:
that it appears that the taxpayer 1. Those already filed in court
possesses no other leviable/ 2. Those involving fraud [Sec. 204(B),
distrainable assets, other than his 1997 NIRC].
family home; or
Extent of the Commissioner’s
d. The taxpayer has been granted by Discretion to Compromise Criminal
the SEC or by any competent Violations
tribunal a moratorium or
suspension of payments to 1. Before the complaint is filed with
creditors, or otherwise declared the Prosecutor’s Office: The CIR
bankrupt or insolvent. (Sec. 3, RR. has full discretion to compromise
07-2001) except those involving fraud.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. Regard it as rescinded and insist


2. After the complaint is filed with upon original demand (Art. 2041,
the Prosecutor’s Office but before Civil Code).
the information is filed with the
court: The CIR can still compromise Compromise Penalty
provided the prosecutor must give
consent. It is an amount of money that the
taxpayer pays to compromise a tax
3. After information is filed with the violation. This is paid in lieu of criminal
court: The CIR is no longer prosecution. A taxpayer cannot be
permitted to compromise with or compelled to pay a compromise penalty.
without the consent of the If he does not want to pay, the CIR must
Prosecutor. (People vs. Magdaluyo, institute a criminal action.
GR No. L-16235, April 20, 1961)
This is more so, when the court COMPROMISE VS. ABATEMENT
has rendered a final judgment. As a
mere agent of the Government, the Compromise involves a reduction of
Commissioner is not authorized to the taxpayer’s liability, while
accept anything less than what is abatement means that the entire tax
adjudicated in favor of the liability of the taxpayer is cancelled.
Government. By virtue of such final ABATEMENT
judgment, the Government has
already acquired a vested right. The Commissioner may abate or cancel
a tax liability when
Nature of a Compromise in
Extrajudicial Settlement of the 1. The tax or any portion thereof
Taxpayer’s Criminal Liability for his appears to be unjustly or
Violation excessively assessed; [Sec. 204(B),
1997 NIRC].
It is consensual in character, hence, a. When the filing of the
may not be imposed on the taxpayer return/payment is made at the
without his consent. The BIR may only wrong venue;
suggest settlement of his tax liability b. When the taxpayer’s mistake in
through a compromise. The extra- payment of his tax is due to
judicial settlement and the amount of erroneous written official advice
the suggested compromise penalty of a revenue officer;
should conform with the schedule of c. When the taxpayer fails to file the
compromise penalties provided under return and pay the tax on time
the relevant BIR regulations or orders. due to substantial losses from
prolonged labor dispute, force
Remedy in case the taxpayer refuses majeure, legitimate business
or fails to abide the tax compromise reverses, provided, however, the
abatement shall only cover the
1. Enforce the compromise surcharge and the compromise
a. If it is a judicial compromise, it penalty and not the interest
can be enforced by mere imposed under Sec. 249 of the
execution. A judicial compromise Code;
is one where a decision based on d. When the assessment is brought
the compromise agreement is about or the result of taxpayer’s
rendered by the court on request non-compliance with the law due
of the parties. to a difficult interpretation of said
b. Any other compromise is law.
extrajudicial and like any other e. When the taxpayer fails to file the
contract can only be enforced by return and pay the correct tax on
court action. time due to circumstances beyond
his control, provided, however,

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

the abatement shall only cover The warrant is a summary procedure


the surcharge and the compromise “forcing” the taxpayer to pay. The
penalty and not the interest receipt of a warrant may or may not
imposed under Sec. 249 of the partake the character of a final decision.
Code; If it is an indication of a final decision,
f. Late payment of the tax under the taxpayer may appeal to the CTA
meritorious circumstances (ex. within 30 days from service of the
Failure to beat bank cut-off time, warrant.
surcharge erroneously imposed,
etc.) (Sec. 2, Rev. Reg. 13-2001) ∗ Duties of the officer serving the
warrant of distraint:
2. The administration and collection 1. Make an account of the personal
costs involved do not justify the properties distrained;
collection of the amount due [Sec. 2. Sign the list of personal
204(B), 1997 NIRC]. properties distrained to which
a. Abatement of penalties on shall be added, a statement of
assessment confirmed by the the sum demanded and note of
lower court but appealed by the the time and place of sale;
taxpayer to a higher court 3. Leave either with the owner or
b. Abatement of penalties on person from whose possession
withholding tax assessment under such personal properties were
meritorious circumstances taken, or at the dwelling or
c. Abatement of penalties on place of business of such person
delayed installment payment with someone of suitable age
under meritorious circumstances and discretion (Sec. 208, CTRP)
d. Abatement of penalties on
assessment reduced after Two types of Distraint
reinvestigation but taxpayer is
still contesting reduced 1. Actual: there is taking of
assessment; and possession of the personal
e. Such other circumstances which property from the taxpayer by
the Commissioner may deem the government. Physical
analogous to the enumeration transfer of possession is not
above. (Sec. 3, Rev. Reg. 13-2001) always required. This is true in
the case of intangible property
3. The Commissioner may also, even such as stocks and credits.
without a claim therefor, refund or 2. Constructive: the owner is
credit any tax where on the face of merely prohibited from disposing
the return upon which payment was of his property.
made such payment appears clearly
to have been erroneously paid Actual vs. Constructive Distraint
(Sec. 229, 1997 NIRC)).
ACTUAL CONSTRUCTIVE
DISTRAINT DISTRAINT
(2) DISTRAINT
Made only on the Made on the property
DEFINITION: It is the seizure by the property of a of any taxpayer,
government of personal property, delinquent taxpayer whether delinquent
tangible or intangible, to enforce the or not
payment of taxes. The property may be
There is taking of The taxpayer is
offered in a public sale, if taxes are not
possession merely prohibited
voluntarily paid. It is a summary remedy. from disposing of his
property
Nature of the Warrant of Distraint or
Levy Effected by leaving a Effected by requiring
list of distrained the taxpayer to sign

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

ACTUAL CONSTRUCTIVE inquiry is made on garnishment for it


DISTRAINT DISTRAINT only earmarks a portion of the deposits.
property or by a receipt of the Notwithstanding any contrary
service of a warrant property or by the provision of RA 1405, the Commissioner
of distraint or revenue officer is authorized to inquire into the bank
garnishment preparing and leaving deposits of:
a list of such 1. a decedent to determine his gross
property
estate
An immediate step Not necessarily so 2. a taxpayer who waives his right by
for collection of reason of financial incapacity to pay his
taxes tax liability (Sec.5, NIRC)

Procedures for the Actual Distraint or


Garnishment

Both I
Are summary remedies for the collection of Commencement of distraint
taxes; proceedings
NOTE: Refer only to personal property; and
cannot be availed of where the amount of
the tax involved is not more than P100
Either by the CIR or his duly authorized
representative; or by the Revenue
District Officer
Requisites for the exercise of the
remedy of distraint

1. The taxpayer must be delinquent


(except in constructive distraint) in II
the payment of tax; Service of Warrant of Distraint
2. There must be a subsequent demand (Sec. 208)
for its payment (assessment);
3. The taxpayer must fail to pay the tax
at the time required; and With respect to:
4. The period within which to assess or 1. Personal property –
collect the tax has not yet (a) upon the owner of the goods,
prescribed. chattels, or other personal
property; or
Persons who shall seize and distraint (b) upon the person from whose
personal property (actual distraint) possession such properties are
taken.
1. Amount of delinquent tax is more 2. Stocks and other securities
than P1,000,000 – Commissioner or (a) upon the taxpayer; and
his duly authorized representatives. (b) upon the president, manager,
2. Amount of delinquent tax is treasurer or other responsible
P1,000,000 or less – Revenue District officer of the corporation,
Officer. (Sec. 207(A), 1997 NIRC) company or association which
issued the said stock and
AUTHORITY OF THE COMMISSIONER TO securities.
INQUIRE INTO BANK DEPOSIT ACCOUNTS 3. Bank accounts shall be garnished by
serving a warrant of distraint –
Distraint includes garnishment of (a) upon the taxpayer; and
money even in bank deposits because RA (b) upon the president, manager,
1405 (Bank Secrecy Law) covers only treasurer, or other responsible
divulging of information of deposits. No officer of the bank.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Note: Upon receipt of the warrant of 1. is retiring from any business subject
distraint, the bank shall turn over to the to tax;
Commissioner so much of the bank 2. is intending to –
accounts as may be sufficient to satisfy a. leave the Philippines,
the claim of the government. b. remove his property therefrom,
4. Debts and credits – c. hide or conceal his property,
(a) persons owing or having in his 3. is performing any act tending to
possession the debts; obstruct the proceeding for
(b) or under his control such credits; collecting the tax due or which may
or be due from him (Sec. 223, 1997
(c) upon his agent. NIRC).

Note: The warrant of distraint shall be


sufficient authority to the person owing Procedure for the Constructive
the debts or having in his possession or Distraint of Personal Property
under his control any credits belonging
to the taxpayer to pay to the Taxpayer’s obligation to preserve
Commissioner the amount of such debts
or credits.
CIR shall require the taxpayer or any
person having possession or control of
such property to
(a) sign a receipt covering the property
Taxpayer must sign distrained and
receipt (b) obligate himself to
1. preserve the same intact and
unaltered and
2. not to dispose of the same in any
manner whatsoever without the
express authority of the
III Commissioner of Internal
Posting of Notice Revenue.
(Sec. 209, NIRC)

Notice specifying the time and place


of sale and the articles distrained. The
posting shall be made in not less than Remedy when taxpayer didn’t sign
two (2) public places in the city or muni- receipt
cipality where the distraint is made.
One place for posting of such notice is at
the Office of the Mayor of such city or If the taxpayer or person in possession of
municipality. the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall
(a) proceed to prepare a list of such
property and
(b) in the presence of two (2) witnesses
IV
leave a copy thereof in the premises
Sale of Property Distrained
where the property distrained is located,
after which the said property shall be
deemed to have been placed under
The taxpayer’s property may be placed constructive distraint.
under constructive distraint when he
(3) LEVY

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

DEFINITION: It refers to the act of seizure


of real property in order to enforce the
payment of taxes. The property may be
offered in a public sale, if after seizure,
the taxes are not voluntarily paid. III
Advertisement of the Time and
REQUISITES FOR THE EXERCISE OF THE REMEDY Place of Sale
OF LEVY

Same as in the remedy of distraint. The advertisement shall contain:


1. the amount of tax and penalties due;
2. name of the taxpayer against whom
taxes are levied;
When may Levy be Effected? 3. short description the property to be
sold.
Real property may be levied upon
before, simultaneously, or after the The advertisement shall be made
distraint of personal property belonging within 20 days after the levy, and the
to the delinquent [Sec. 207(B), 1997 NIRC]; same shall be for a period of at least 30
and the remedy by distraint and levy days. It shall be effectuated by:
may be repeated if necessary until the a. posting a notice at the main entrance
full amount, including all expenses, is of the municipal building or city hall
collected (Sec. 217, 1997 NIRC). and in a public and conspicuous
place in the barrio or district in
Procedure of Levy on Real Property which the real property lies; and
b. by publication once a week for 3
weeks in a newspaper of general
I circulation in the municipality or city
Prepare Certificate of Levy where the property is located (Sec.
I 213, CTRP).
Preparation of a duly authen-ticated
certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due IV
from him. This certificate shall Sale
operate with the force of a legal
execution throughout the Philippines
(Sec. 207B, 1997 NIRC).
Distraint vs. Levy

DISTRAINT LEVY

II Refers to personal Refers to real


Service of Notice property property

Forfeiture by the Forfeiture is


government is not authorized
Service of written notice to:
provided
(a) the delinquent taxpayer; or
(b) if he is absent from the Philippines, The taxpayer is not The right of
to his agent or manager of the business given the right of redemption is
in respect to which the liability arose; or redemption with granted in case of
c. to the occupant of the property. respect to distrained real property levied
d. the proper Register of Deeds shall personal property. upon and sold, or
also be notified of the levy (Sec. 207B, forfeited to the
1997 NIRC). government.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

DISTRAINT LEVY addition thereto is a lien upon all


property and rights to property
Both belonging to the taxpayer.
• Are summary remedies for the collection of
taxes; and The lien shall not be valid against
• Cannot be availed of where the amount of any mortgagee, purchaser, or judgment
the tax involved is not more than P100 creditor until notice of such lien shall be
filed by the Commissioner of Internal
Redemption of Property Sold Revenue in the Office of the Register of
Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
and interest thereon from the date of When does it Attach?
delinquency to the date of sale,
together with interest on purchase price Not only from the service of the
at 15% per annum from the date of sale warrant of distraint but from the time
to the date of redemption. (Sec. 214, tax became due and payable.
NIRC).
Lien vs. Distraint
Forfeiture to the Government
LIEN DISTRAINT
If there is no bidder in the public
sale or if the amount of the highest bid Directed against Need not be
is insufficient to pay the taxes, penalties the property directed against the
and costs, the real property shall be subject to the tax property subject to
forfeited to the Government. tax

Further Distraint and Levy Regardless of the Property seized


owner of the must be owned by
The remedy of distraint and levy property the taxpayer
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from (5) CIVIL ACTIONS
the taxpayer. Otherwise, a clever
taxpayer who is able to conceal most of DEFINITION: For tax remedy purposes,
the valuable part of his property would these are actions instituted by the
escape payment of his tax liability by government to collect internal revenue
sacrificing an insignificant portion of his taxes. It includes filing by the
holdings. government with the probate court
claims against the deceased taxpayer.
(4) TAX LIEN
When resorted to?
DEFINITION: It is a legal claim or charge
on property, either real or personal, 1. When a tax is assessed but the
established by law as a security in assessment becomes final and
default of the payment of taxes (51 unappealable because the taxpayer
AmJur 881). Generally, it attaches to fails to file an administrative
the property irrespective of ownership protest with the CIR within 30 days
or transfer thereof. from receipt; or
2. When a protest against assessment is
Extent and nature filed and a decision of the CIR was
rendered but the said decision
The tax, together with interests, becomes final, executory, and
penalties, and costs that may accrue in demandable for failure of the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

taxpayer to appeal the decision to 1. Court of Tax Appeals – on criminal


the CTA within 30 days from offenses arising from violations of
receipt of the decision. the NIRC or TCC and other laws
administered by the BIR and the
NOTE: Judicial action may be resorted BOC, where the principal amount of
to even before assessment although taxes and fees, exclusive of charges
impractical, as stated in Sec. 203, 1997 and penalties claimed is One million
NIRC, “… and no proceeding in court pesos and above.
without assessment for the collection of 2. Regional Trial Court, Municipal
such taxes shall be begun after the Trial Court, Metropolitan Trial
expiration of such (3year) period.” Court – on criminal offenses arising
It should be noted that no civil from violations of the NIRC or TCC
or criminal action for the recovery of and other laws administered by the
taxes shall be filed in court without the BIR and the BOC, where the principal
approval of the Commissioner. amount of taxes and fees, exclusive
of charges and penalties claimed is
Where to file less than One million pesos or where
there is no specified amount
1. Court of Tax Appeals – where the claimed. (Sec. 7, RA No. 9282)
principal amount of taxes and fees,
exclusive of charges and penalties IMPORTANT CONSIDERATIONS
claimed is One million pesos and
above. 1. No criminal action shall be
2. Regional Trial Court, Municipal begun without the approval of the
Trial Court, Metropolitan Trial Commissioner. (Sec. 220, 1997 NIRC)
Court – where the principal amount 2. It shall be brought in the
of taxes and fees, exclusive of name of the Government and shall
charges and penalties claimed is less be conducted by the legal officers of
than One million pesos. (Sec. 7, RA the BIR.
No. 9282)
EFFECT OF ACQUITTAL OF THE
THE APPROVAL OF THECIR IS ESSENTIAL IN TAXPAYER IN A CRIMINAL ACTION
CIVIL CASES. However,under Sec. 7, 1997
NIRC, the Commissioner may delegate It does not necessarily result in the
such power to a Regional Director. exoneration of said taxpayer from his
civil liability to pay taxes.
Defenses which are precluded by final Rationale: The duty to pay tax is
and executory assessments imposed by statute prior to and
independent of any attempt on the part
1. Invalidity or illegality of the of the taxpayer to evade payment. It is
assessment; and not a mere consequence of the felonious
2. Prescription of the government’s acts charged, nor is it a mere civil
right to assess. liability derived from a crime. (Republic
vs. Patanao, GR No. L-14142, May 30,
(6) CRIMINAL ACTIONS 1961)

The judgment in the criminal case EFFECT OF SUBSEQUENT SATISFACTION


shall not only impose the penalty but OF CIVIL LIABILITY
shall also order the payment of taxes
subject of the criminal case as finally The subsequent satisfaction of civil
decided by the Commissioner (Sec. 205, liability by payment or prescription does
NIRC). not extinguish the taxpayer’s criminal
liability.
Where to file
NO SUBSIDIARY IMPRISONMENT

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

In case of insolvency on the part of sale may be injurious to public


the taxpayer, subsidiary imprisonment health or prejudicial to law
cannot be imposed as regards the tax enforcement.
which he is sentenced to pay.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)

CRIMINAL ACTION MAY BE FILED d. Other articles subject to excise tax


DURING THE PENDENCY OF AN which have been manufactured or
ADMINISTRATIVE PROTEST IN THE BIR removed in violation of the Code,
dies for printing or making fake
It is not a requirement for the revenue stamps and labels – Upon
filing thereof that there be a precise forfeiture may be sold or destroyed
computation and assessment of the tax, at the discretion of the
since what is involved in the criminal Commissioner. Forfeited property
action is not the collection of tax but a shall not be destroyed until at least
criminal prosecution for the violation 20 days from seizure.
of the NIRC. Provided, however, that
there is a prima facie showing of a EFFECT OF THE FORFEITURE OF
willful attempt to evade taxes. (See PROPERTY
Ungab vs. Cusi, GR Nos. L-41919-24, May
30, 1980 in relation to Commissioner vs. The effect is to transfer the title to
Court of Appeals, GR No. 119322, June the specific thing from the owner to the
4, 1996) government. All the proceeds in case of
a sale go to the coffers of the
(7) FORFEITURE government (U.S. vs. Surla, GR No.
6536, September 2, 1911). In seizure for
DEFINITION: divestiture of property the enforcement of a tax lien, the
without compensation, in consequence residue, after deducting the tax liability
of a default or offense. and expenses will go to the taxpayer
(Bank of the Phil. Island vs. Trinidad,
ENFORCEMENT OF THE REMEDY OF GR No. 16014, October 4, 1941).
FORFEITURE
INFORMER’S REWARD (Sec 282)
a. In case of personal property – The A. For violations of the NIRC, a reward
forfeiture of chattels and removable of 10% of the revenues, surcharges,
fixtures of any sort is enforced by or fees recovered and/or fine or
seizure and sale or destruction of penalty imposed and collected or P 1
the specific forfeited property. M per case, whichever is lower shall
b. In case of real property – The be given to:
forfeiture of real property is 1. any person who voluntarily gives
enforced by a judgment of definite and sworn information
condemnation and sale in a legal not yet in the possession of the
action or proceeding, civil or BIR leading to the discovery of
criminal, as the case may require. fraud upon the Internal Revenue
c. In case of distilled spirits, liquors, Laws and/or any violations thereof
cigars, cigarettes manufactured, 2. an informer where the offender
products of tobacco and apparatus has offered to compromise the
used for their production – Upon violation of law comiited by him
forfeiture, may be destroyed by and his offer has been accepted
order of the Commissioner where the and collected by the CIR . This

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

excludes an Internal Revenue a demand for payment within a


Officer/employee or other public prescribed period.
official/employee, or his relative
within the sixth degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
General Rule:
B. For the discovery and seizure of Three (3) years after the date
smuggled goods the return is due or filed, whichever is
- a reward of 10% of the FMV of the later (Sec. 203, 1997 NIRC).
smuggled and confiscated goods or
P 1 M per case, whichever is Exceptions:
lower, shall be given to persons 1. Failure to file a return: ten (10)
instrumental in the discovery and years from the date of the
seizure of such smuggled goods. discovery of the omission to file
the return (Sec.222[A]);
* This does not apply to all public 2. False or fraudulent return with
officials whether incumbent or retired, intention to evade the tax: ten
who acquired the information in the (10) years from the date of the
course of performance of their duties discovery of the falsity or fraud
during their incumbency. (Sec.222 [A]);
Note: Nothing in Section 222(A)
shall be construed to authorize the
PRESCRIPTIVE PERIODS FOR examination and investigation or
inquiry into any tax return filed in
THE ASSESSMENT AND accordance with the provisions of
COLLECTION OF TAXES any tax amnesty law or decree.

• Fraud must be alleged and


RATIONALE OF PRESCRIPTIVE PERIODS proved as a fact. It must be the
product of a deliberate intent to
Such periods are designated to evade taxes. It may be
secure the taxpayers against established by the:
unreasonable investigation after the a. Intentional and substantial
lapse of the period prescribed. They are understatement of tax
also beneficial to the government liability by the taxpayer;
because tax officers will be obliged to b. Intentional and substantial
act promptly. overstatement of deductions
of exemptions; and/or
RULES ON PRESCRIPTION c. Recurrence of the above
circumstances
1. When the tax law itself is silent • Falsity constitutes a deviation
on prescription, the tax is from the truth due to mistake,
imprescriptible; carelessness or ignorance.
2. When no return is required, tax
is imprescriptible; There is fraud in the following decided
Note: Remedy of taxpayer is to file a cases:
return. 1. Fraud must be the product of a
3. Defense of prescription is deliberate intent to evade taxes
waivable; (Jalandoni vs. Republic)
2. Simple statement that return filed
WHAT CONSTITUTES ASSESSMENT? was not fraudulent does not disprove
existence of fraud (Tayengco vs.
An assessment contains not only Collector)
a computation of tax liabilities but also

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

3. Substantial under-declarations of also within the 3 year period. It is not


income for six consecutive five years required that the notice be received by
demonstrate fraudulence of return the taxpayer within the prescribed
(Perez vs. CTA) period. But the sending of the notice
4. Presence of fictitious expenses, with must clearly be proven. (Basilan Estate,
no evidence presented, proves Inc. vs. Commissioner, GR No. L-22492,
existence of fraud (Tan Guan vs. September 5, 1967)
Commissioner)
AMENDMENT OF RETURN
However, the courts did not consider
the tax returns filed as false or If the amended return is
fraudulent with intent to evade payment substantially different from the original
of tax in the following cases: return, the prescriptive period shall be
a. Mere understatement in the tax counted from the filing of the amended
return will not necessarily imply return. But the said period shall run
fraud (Jalandoni vs. Republic) from the filing of the original return if
b. Sale of a real property for a price the same is sufficiently complete to
less than its fair market value is enable the Commissioner to make a
not necessarily a false return proper assessment. (Commissioner vs.
(Commissioner vs. Ayala Phoenix Assurance Co., GR No. L-19727,
Securities) May 20, 1965)
c. Fraud is a question of fact and the When Substantive:
circumstances constituting fraud a. substantial under declaration
must be alleged and proved in the (exceeding 30% of that
trial court (Commissioner vs. declared) of taxable sales,
Ayala Securities) receipts or income,
d. Fraud is never imputed and the b. or a substantial overstatement
courts never sustain findings of (exceeding 30% of deductions)
fraud upon circumstances that (Sec. 248)
only create suspicion
(Commissioner vs. Javier) PRESCRIPTIVE PERIOD FOR THE
e. Mistakes of revenue officers on COLLECTION OF TAXES
three different occasions remove
element of fraud (Aznar vs. CTA General Periods:
and Collector) Five (5) years – from assessment
or within period for collection agreed
3. Agreement in writing to the upon in writing before expiration of the
extension of the period to assess 5-year period (Sec. 222, 1997 NIRC).
between the CIR and the Ten (10) years – without
taxpayer before the expiration assessment in case of false or fraudulent
of the 3-year period. NB: The return with intent to evade or failure to
extended period agreed upon file return (Sec. 222, 1997 NIRC).
can further be extended by a
subsequent written agreement WHAT IS THE PRESCRIPTIVE PERIOD
made before the expiration of WHERE THE GOVERNMENT’S ACTION IS
the extended period previously ON A BOND WHICH THE TAXPAYER
agreed upon (Sec. 222[b]). EXECUTES IN ORDER TO SECURE THE
4. Written waiver of renunciation PAYMENT OF HIS TAX OBLIGATION?
of the original three (3) year
limitation, signed by the Ten (10) years under Art.
taxpayer (Sambrano vs. Court of 1144(1) of the Civil Code and not three
Tax Appeals, GR No. L-8652, (3) years under the NIRC. In this case,
March 30, 1957). the Government proceeds by court
action to forfeit a bond. The action is
Note: Notice of the assessment is for the enforcement of a contractual
released, mailed or sent to the taxpayer

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

obligation. (Republic vs. Araneta, GR


No. L-14142, May 30, 1961) 2. Illustrative case: (Lim vs. Court of
Appeals GR Nos. 48134-37, Ocober
GROUNDS FOR SUSPENSION OF THE 18 , 1990)
RUNNING OF THE STATUTE OF a. charge is failure or refusal to
LIMITATIONS pay deficiency income tax –
committed only after the finality
a. When the CIR is prohibited from of the assessment coupled with
making the assessment or the taxpayer’s willful refusal to
beginning the distraint or levy or pay the taxes within the allotted
a proceeding in court, and for period. (i.e. cannot be
sixty (60) days thereafter; committed upon filing the
b. When the taxpayer requests for return)
a reconsideration which is b. charge is filing of false or
granted by the CIR; fraudulent return with intent
c. When the taxpayer cannot be to evade the assessment – in
located in the address given by addition to the fact of discovery,
him in the return, unless he there must be a judicial
informs the CIR of any change in proceeding for the investigation
his address. and punishment of the tax
d. When the warrant of distraint or offense before the 5 year
levy is duly served, and no prescriptive period begins to
property is located; and run.
e. When the taxpayer is out of the
Philippines (Sec. 223, 1997
NIRC). II. TAX REMEDIES OF THE
A TAX RETURN IS CONSIDERED FILED TAXPAYER
FOR PURPOSES OF STARTING THE
RUNNING OF THE PERIOD OF
LIMITATIONS IF General Remedies

a. The return is valid – it has complied A. ADMINISTRATIVE


substantially with the requirements Before Payment
of the law; and a. Protest – filing a petition for
reconsideration or
b. The return is appropriate – it is a reinvestigation within 30
return for the particular tax required days from receipt of
by law. assessment Within 60 days
from filing of protest, all
Note: A defective tax return is the relevant supporting
same as if no return was filed at all. documents should have been
submitted, otherwise, the
assessment shall become
PRESCRIPTIVE PERIOD FOR THE final – cannot be appealed
VIOLATION OF ANY PROVISION OF THE (Sec. 228, 1997 NIRC).
TAX CODE (SEC. 281, 1997 NIRC)
Note: Submission of documents
1. Should be filed within five (5) years within the 60 day period is
from the (a) day of the commission optional to the taxpayer.
of the violation of the law, and if
the same be not known, from the (b) "That the relevant
discovery thereof and the supporting documents
institution of the judicial mentioned in the law refers
proceedings for its investigation and to such documents which the
punishment. taxpayer feels would be

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

necessary to support his Criminal Action


protest and not what the a. Filing of criminal complaint
Commissioner feels should against erring BIR officials and
be submitted, otherwise, employees.
taxpayer would always be at b. Injunction – when the CTA in its
the mercy of the BIR which opinion, the collection by the BIR
may require production of may jeopardize taxpayer.
such documents which
taxpayer could not produce." Note: With the enactment of the new
(Standard Chartered Bank CTA law (RA No. 9282) amending RA No.
vs. CIR, CTA Case No. 5696, 1125, CTA now has jurisdiction over
August 16, 2001) criminal cases. (See Chapter VI - Court
A protest is a vital of Tax Appeals.)
document which is a formal
declaration of resistance of Substantive Remedies
the taxpayer. It is a 1. Questioning the constitutionality or
repository of all arguments. validity of tax statutes or regulations
It can be used in court in 2. Non-retroactivity of rulings (Sec.246,
case administrative remedies NIRC)
have been exhausted. It is 3. Failure to inform the taxpayer in
also the formal act of the writing of the legal and factual bases
taxpayer questioning the of assessment makes it void (Sec.
official actuation of the CIR. 228, NIRC)
This is equivalent to a 4. Preservation of books of accounts and
pleading. once a year examination (Sec. 235,
b. Entering into a compromise NIRC)
(Sec. 204, 1997 NIRC).
After Payment ASSESSMENT AND PROTEST
Filing of claim for refund  Assessment
or tax credit within 2 years from General rule: Taxes are self assessing
date of payment regardless of and thus, do not require the issuance of
any supervening cause (Sec. 229, an assessment notice in order to
1997 NIRC). establish the tax liability of a taxpayer.
Exceptions:
B. JUDICIAL 1. Tax period of a taxpayer is
Civil Action terminated (Sec. 6(D), NIRC)
a. Appeal to the Court of Tax 2. Deficiency tax liability arising
Appeals – within 30 days from from a tax audit conducted by
receipt of decision on the protest the BIR (Sec. 56(B), NIRC)
or from the lapse of 180 days due 3. Tax lien (Sec. 219, NIRC)
to inaction of the Commissioner 4. Dissolving Corporation (Sec.
(Sec. 228, 1997 NIRC). 52(c), NIRC)
b. Action to contest forfeiture of
chattel, at any time before the  Protest
sale or destruction thereof, to 1. Direct denial of protest
recover the same, and upon giving Admnistrative decision on a disputed
proper bond, enjoin the sale; or assessment - The decision of the
after the sale and within 6 Commissioner or his duly authorized
months, an action to recover the representative shall (a) state the facts,
net proceeds realized at the sale the applicable law, rules and regulation
(Sec. 231, 1997 NIRC); and or jurisprudence on which such decision
c. Action for damages against a is based otherwise, the decision shall be
revenue officer by reason of any void, in which case the same shall not be
act done in the performance of considered a decision a disputed
official duty (Sec. 227, 1997 assessment and (b) that the same is his
NIRC).

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

final decision (Sec. 3.1.5, Rev. Regs. No. 4. The actual issuance of a warrant of
12-99) distraint and levy in certain cases
cannot be considered a final decision
2. Indirect denial of protest on a disputed settlement.
a. Commissioner did not rule on the (Commissioner vs. Union Shipping
taxpayer’s motion for Corporation, GR No. 66160, May 21,
reconsideration of the 1990)
assessment – it was only when
respondent received the
summons on

the civil action for the FILING OF CLAIM FOR


collection of deficiency income TAX REFUND OR TAX CREDIT
tax that the period to appeal
commenced to run GROUNDS FOR FILING A CLAIM FOR TAX
(Commissioner vs. Union REFUND OR TAX CREDIT
Shipping Corp.)
b. Referral by the Commissioner of 1. Tax is collected erroneously or
request for reinvestigation to illegally.
the Solicitor General (Republic 2. Penalty is collected without
vs Lim Tian Teng Sons) authority.
c. Reiterating the demand for 3. Sum collected is excessive.
immediate payment of the
deficiency tax due to taxpayer’s TAX REFUND VS. TAX CREDIT
continued refusal to execute
waiver (Commissioner vs. Ayala TAX REFUND TAX CREDIT
Securities Corp.)
d. Preliminary collection letter may The taxpayer asks for The taxpayer asks
serve as assessment notice restitution of the that the money so
(United International Pictures money paid as tax paid be applied to his
existing tax liability
vs. Commissioner)
Two-year period to Two-year period
ACTS OF BIR COMMISSIONER file claim with the starts from the date
CONSIDERED AS DENIAL OF PROTEST CIR starts after the such credit was
WHICH SERVE AS A BASIS FOR APPEAL payment of the tax allowed (in case
TO THE COURT OF TAX APPEALS or penalty credit is wrongly
made).
1. filing by the BIR of a civil suit for
collection of the deficiency tax REQUISITES OF TAX REFUND OR TAX
(Commissioner vs. Union Shipping CREDIT
Corporation, GR No. 66160, May 21,
1990) 1. Claim must be in writing;
2. indication to the taxpayer by the 2. It must be filed with the
Commissioner “in clear and Commissioner within two (2) years
unequivocal language” of his final after the payment of the tax or
denial. (Commissioner vs. Union penalty.
Shipping Corporation, GR No. 66160, Note: No suit or proceeding shall be
May 21, 1990) begun after the expiration of the
3. BIR demand letter reiterating his said two (2) years regardless of any
previous demand to pay, sent to the supervening cause that may arise
taxpayer after his protest of the after payment.
assessment. (Surigao Electric Co., 3. Show proof of payment.
Inc. vs. CTA, GR No. L-25289, June
28, 1974; Commissioner vs. Ayala COMMENCEMENT OF THE TWO (2) YEAR
Securities Corporation, GR No. L- PERIOD (JURISPRUDENCE)
29485, March 31, 1976)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

1. Tax sought to be refunded is considered mere installments of the


illegally or erroneously collected annual tax due. (Commissioner vs.
- from the date the tax was paid. TMX Sales, GR No. 83736, January
(Commissioner vs. Victorias Milling, 15, 1992)
GR No. L-24108, January 31, 1968) 7. Date when the final adjustment
2. Tax is paid only in installments or return was actually filed (ex. Apr.
only in part 2) vs. Last day when the
- from the date the last or final adjustment return could still be
installment or payment because for filed (ex. Apr. 15)
tax purposes, there is no payment - from the date the final adjustment
until the whole or entire tax liability return was actually filed.
is fully paid. (Collector vs. Prieto, (Commissioner vs. Court of Appeals,
GR No. L-11976, August 29, 1961) GR No 117254, January 21, 1999)
3. Taxpayer merely made a deposit 8. Tax was not erroneously or illegally
- counted from the conversion of paid but the taxpayer became
the deposit to payment (Union entitled to refund because of
Garment vs. Collector, CTA Case No. supervening circumstances
416, November 17, 1958) - from the date the taxpayer
- Merely making a deposit is not becomes entitled to refund and not
equivalent to payment until the from the date of payment.
amount is actually applied to the (Commissioner vs. Don Pedro
specific purpose for which it was Central Azucarera, GR No. L-28467,
deposited. Feb. 28, 1973)
4. Tax has been withheld from source PAYMENT UNDER PROTEST IS NOT
(through the withholding tax NECESSARY UNDER NIRC
system)
- counted from the date it falls due A suit or proceeding for tax refund
at the end of the taxable year may be maintained “whether or not such
- A taxpayer who contributes to the tax, penalty or sum has been paid under
withholding tax system does not protest or duress” (Sec. 229, NIRC).
really deposit an amount to the
government, but in truth, performs Note: Similarly, payment under protest
and extinguishes his tax obligation is not necessary in refund for local
for the year concerned. (Gibbs vs. taxes. (See Sec. 196, LGC).
Commissioner, GR No. L-17406,
November 29, 1965) However, payment under protest is
5. End of taxable year vs. date of the necessary in claim for refund for real
filing of the final adjusted return property taxes (Sec. 252, LGC) and for
- from the date when the final customs duties (Sec. 2308, TCC).
adjusted return was filed.
- the rationale in computing this SUSPENSION OF THE TWO-YEAR
period is the fact that it is only then PRESCRIPTIVE PERIOD
the corporation can ascertain
whether it made profits or incurred 1. There is a pending litigation
losses in its business operations. between the Government and the
(ACCRA Investments vs. Court of taxpayer; and
Appeals, GR No. 96322, December 2. CIR in that litigated case agreed to
20, 1991) abide by the decision of the SC as to
6. Date when quarterly income tax the collection of taxes relative
was paid vs. date when final thereto (Panay Electric Co. vs.
adjusted return was filed Collector, GR No. L-10574, May 28,
- from the date when final adjusted 1958).
return was filed
- The filing of the quarterly income INTEREST ON TAX REFUNDS
tax return (Sec. 68) and payment of
quarterly income tax should only be General Rule:

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Government cannot be required BIR makes a tax assessment


to pay interest on taxes refunded to the
taxpayer in the absence of a statutory

If taxpayer is not satisfied with the
provision clearly or expressly directing
assessment file a protest within 30 days
or authorizing such payment.
from receipt thereof
(Commissioner vs. Sweeney, GR No. L-
12178, August 29, 1959) 
Submit supporting documents within
60 days from date of the filing of the
Exceptions: protest
1. When the CIR acted with patent 
arbitrariness. Arbitrariness
If protest is denied, elevate the matter
presupposes inexcusable or obstinate
to the Commissioner of Internal Revenue
disregard of legal provisions.
(CIR) within 30 days from receipt of the
(Commissioner vs. Victorias Milling,
decision of the CIR’s duly authorized
GR No. L-19667, Nov. 29, 1966)
representative officer
2. Under Sec. 79(C)(2) with respect to
income taxes withheld on the wages 
of the employees. Appeal to the Division of the Court of
Tax Appeals (CTA) within 30 days from
TAX CREDIT CERTIFICATE receipt of final decision of CIR or his
duly authorized representative (the
1. May be applied against any internal taxpayer has the option to appeal
revenue tax except withholding straight to the CTA upon receipt of the
taxes, decision of the CIR’s duly authorized
2. Original copy is surrendered to the representative)
revenue office, 
3. No tax refund will be given resulting If the CIR or his duly authorized
from availment of incentives granted representative fails to act on the
by law where no actual payment was protest within 180 days from date of
made (Sec. 204C, 1997 NIRC). submission by taxpayer, the latter may
appeal within 30 days from lapse of the
FORFEITURE OF CASH REFUND/TAX 180-day period with the CTA Division
CREDIT

1. Forfeiture of refund in favor of the The Party adversely affected by the CTA
government when a refund check or Division’s decision may file one motion
warrant remains unclaimed or for reconsideration/new trial within 15
uncashed within five (5) years from days from receipt of decision. If the MR
date of mailing or delivery. is denied file a petition for review with
2. Forfeiture of Tax Credit – a tax the CTA en banc
credit certificate which remains 
unutilized after five (5) years from Appeal to the Supreme Court within 15
date of issue, shall be invalid, unless days from receipt of the CTA en banc
revalidated (Sec. 230, 1997 NIRC). decision under Rule 45 of the Rules of
Court

REGLEMENTARY PERIODS Pre-Assessment Notice, When Not


IN INCOME TAX IMPOSED Required (Sec. 228, NIRC)
BY LAW UPON THE TAXPAYER
(PURSUANT TO REV. REG. NO. 12-99, 1. When the finding for any
SEC. 228 OF THE 1997 NIRC, AND RA deficiency tax is the result of
NO. 1125 AS AMENDED BY RA NO. mathematical error in the
9282) computation of the tax as
appearing on the face of the
return; or

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. When a discrepancy has been ADDITIONS TO THE TAX


determined between the tax (SECS. 247-252 NIRC)
withheld and the amount
actually remitted by the
withholding agent; or DEFINITION: increments to the basic tax
3. When a taxpayer who opted to incident due to the taxpayer’s non-
claim a refund or tax credit of compliance with certain legal
excess creditable withholding requirements.
tax for a taxable period was 1. CIVIL PENALTY / SURCHARGE
determined to have carried over 1. 25% surcharge
and automatically applied the a. Failure to file any return and
same amount claimed against pay the tax due thereon as
the estimated tax liabilities for required under the
the taxable quarter or quarters provisions of this Code or
of the succeeding taxable year; rules and regulations on the
or date prescribed; or
4. When the excise tax due on b. Unless otherwise authorized
excisable articles has not been by the Commissioner, filing a
paid; return with an internal
5. When an article locally revenue officer other than
purchased or imported by an those with whom the return
exempt person, such as, but not is required to be filed; or
limited to, vehicles, capital c. Failure to pay the deficiency
equipment, machineries and tax within the time
spare parts, has been sold, prescribed for its payment in
traded or transferred to non- the notice of assessment; or
exempt persons. d. Failure to pay the full or
part of the amount of tax
Notes: shown on any return
required to be filed under
• As a general rule, payment
the provisions of this Code
under protest is not required
or rules and regulations, or
under the NIRC, except when
the full amount of tax due
partial payment of
for which no return is
uncontroverted taxes is
required to be filed, on or
required under RR 12-99.
before the date prescribed
The Commissioner may, even
for its payment. (Sec. 248)
without a written claim
2. 50% surcharge
therefor, refund or credit
a. in case of willful neglect to
any tax, where on the face
file the return within the
of the return upon which
period prescribed by the
payment was made, such
Code, or
payment appears clearly to
• will not apply in case a
have been erroneously paid.
taxpayer, without notice
• In case of the CIR’s final
from the Commissioner,
denial of the claim for
or his duly authorized
refund, the 30-day period to
representative,
appeal with the CTA must be
voluntarily files the said
within the 2-year peremptory
return (only 25% shall be
period for instituting judicial
imposed)
action.
• 50% surcharge shall be
imposed in case the
 See Annex N – Assessment taxpayer files the return
Process and Appeal only after prior notice in
writing from the
Commissioner or his duly

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)

b. in case a false or fraudulent Congress cannot enact laws


return is willfully made depriving LGU from exercising such
Prima Facie evidence power to tax but it may set guidelines
• substantial underdeclaration and limitations for the exercise.
(exceeding 30% of that Such taxes, fees, and charges
declared) of taxable sales, shall accrue exclusively to the local
receipts or income, government units.
• or a substantial
overstatement (exceeding Nature of the Taxing Power
30% of actual deductions) of a. Not inherent;
deductions (Sec. 248) b. Exercised only if delegated to
them by law or Constitution;
2. INTEREST c. Not absolute; subject to
- 20% per annum or such higher rate limitations provided for by law.
as may be prescribed by the rules
and regulations Under the present constitutional
rule, “where there is neither a grant nor
a. Deficiency interest (Sec. 249B) a prohibition by statute, the tax power
b. Delinquency interest (Sec. 249C) must be deemed to exist although
c. Interest on Extended Payment Congress may provide statutory
(Sec. 249D) limitations and guidelines. The basic
rationale for the current rule is to
3. OTHER CIVIL PENALTIES OR safeguard the viability and self-
ADMINISTRATIVE FINES sufficiency of local government units by
directly granting them general and broad
a. Failure to file certain tax powers.” (Manila Electric Co. vs.
information returns (Sec. 250) Province of Laguna, G.R. No. 131359)
b. Failure of a withholding agent to
collect and remit tax (Sec. 251) Aspects of Local Taxing Power
c. Failure of a withholding agent of a. local taxation
refund excess withholding tax b. real property taxation
(Sec. 252)
Fundamental Principles governing
Local Taxation (Sec. 130, lgc)
a. Shall be uniform in each local
III. LOCAL TAXATION sub-unit
b. Shall be equitable and based as
POWERS AND LIMITATIONS much as possible on the
taxpayer’s ability to pay
NATURE AND SOURCE OF LOCAL c. Levied for public purposes
TAXING POWER (SEE. SEC 5, ART. X, d. Shall not be unjust, excessive,
1987 CONSTITUTION AND SEC. 129, oppressive, or confiscatory
LGC) e. Shall not be contrary to law,
public policy, national
The Local Government Unit has the economic policy, or in restraint
power: of trade
a. to create its own sources of f. Collection of local taxes and
revenue and other impositions shall not be
b. to levy taxes, fees and charges. let to any person

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

g. The revenues collected under Unless otherwise provided in this


the Code shall inure solely to Code, tax exemptions or incentives
the benefit of, and subject to granted to, or presently enjoyed by all
disposition by, the LGU levying persons, whether natural or juridical,
the tax or other imposition including government-owned or
unless otherwise specifically controlled corporations are hereby
provided therein withdrawn upon the effectively of the
h. Each LGU shall, as far as LGC
practicable, evolve a except the following:
progressive system of taxation. 8. local water districts,
9. cooperatives duly registered under
Local Taxing Authority (Sec. 132, lgc) R.A. No. 6938, non-stock and non-
Shall be exercised by the Sanggunian profit hospitals and
of the LGU concerned through an 10. educational institutions.
appropriate ordinance.
The power to grant tax exemptions,
Power to prescribe Penalties for Tax tax incentives and tax reliefs shall not
Violations and Limitations thereon apply to regulatory fees which are
(Sec. 516, lgc) levied under the police power of the
1. The Sanggunian is authorized to LGU.
prescribe fines or other penalties Tax exemptions shall be conferred
for violations of tax ordinances. through the issuance of a non-
a. in no case shall fines be less transferable tax exemption certificate.
than P1,000 nor more than
P5,000 Guidelines for the Granting of Tax
b. nor shall the imprisonment be Exemptions, Tax Incentives and Tax
less than one (1) month nor Reliefs (Art. 282[b], Rules and
more than six (6) month. Regulations Implementing the Lgc)
2. Such fine or other penalty shall be
imposed at the discretion of the 1. On the grant of tax exemptions or
court. tax reliefs:
3. The Sangguniang Barangay may a. the same may be granted in
prescribe a fine of not less than cases of natural calamities, civil
P100 nor more than P1,000. disturbance, general failure of
crops, or adverse economic
Power to Adjust Local Tax Rate (Sec. conditions such as substantial
191, lgc) decrease in prices of agricultural
Adjustment of the tax rates as or agri-based products.
prescribed herein should not be oftener b. The grant shall be through an
than once every five (5) years, and in no ordinance.
case shall such adjustment exceed ten c. Any exemption or relief granted
percent (10%) of the rates fixed under to a type or kind of business shall
the LGC. apply to all business similarly
situated.
Power to Grant Local Tax Exemptions d. The same shall take effect only
(Sec. 192, lgc) during the next calendar year for
Local government units may, a period not exceeding 12
through ordinances duly approved, months as may be provided in
grant tax exemptions, incentives or the ordinance.
reliefs under such terms and conditions, e. In the case of shared revenues,
as they may deem necessary. the exemption or relief shall only
extend to the LGU granting such
Tax Exemptions Existing Before the exemption or relief.
Effectivity of the LGC has been 2. On the grant of tax incentives:
Abolished (Sec. 193, lgc) a. The same shall be granted only
to new investments in the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

locality and the ordinance shall 2. The ordinance levying such taxes,
prescribe the terms and fees or charges shall not be enacted
conditions therefore. without any prior public hearing
b. The grant shall be for a definite conducted for the purpose.
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance
passed prior to the 1 st day of LIMITATIONS OF THE RESIDUAL POWER
January of any year. 1. Constitutional limitations on
d. Any grant to a type or kind of taxing power
business shall apply to all 2. Common limitations prescribed
businesses similarly situated. in Sec. 133 of the LGC
3. Fundamental principles
LEVYING OF LOCAL TAXES (LOCAL TAX governing the exercise of the
ORDINANCE) taxing power of the LGUs
Requisites: prescribed under Sec. 130 of
1. The procedure applicable to local the LGC
government ordinances in general 4. The ordinance levying such
should be observed (Sec. 187, LGC) residual taxes shall not be
2. Procedural details (Secs. 54, 55, and enacted without any prior
59, LGC): public hearing conducted for
a. necessity of a quorum the purpose and
b. submission for approval by the 5. The principle of preemption.
local chief executive
c. he matter of veto and overriding Principle of Preemption or
the same Exclusionary doctrine
d. the publication and affectivity Where the National Government
3. Public hearings are required before elects to tax a particular area, it
any local tax ordinance is enacted impliedly withholds from the local
(Sec.187, LGC) government the delegated power to tax
4. Within 10 days after their approval, the same field. This doctrine principally
publication in full for 3 consecutive rests on the intention of the Congress.
days in a newspaper of general
circulation. In absence of such Excluded impositions (pursuant to the
newspaper in the province, city or doctrine of preemption):
municipality, then the ordinances a. Taxes which are levied under the
may be posted in at least 2 NIRC, unless otherwise provided
conspicuous and publicly accessible by LGC of 1991;
places (Sec. 189, LGC) b. Taxes, fees, etc. which are
imposed under the Tariffs and
Residual Taxing Powers of the Local Customs Code;
government units (Sec. 186, lgc) c. Taxes, fees, etc., the imposition
To levy taxes, fees or charges on any of which contravenes existing
base or subject NOT: governmental policies or which
1. Specifically enumerated in LGC violates the fundamental
2. Taxed under the provisions of principles of taxation;
the NIRC, as amended, and d. Taxes, fees and other charges
3. Other applicable laws imposed under special law.

Conditions: COMMON LIMITATIONS ON LOCAL


1. That the taxes, fees, or charges shall TAXING POWER (SEC. 133, LGC)
not be unjust, excessive, oppressive, Local government units cannot levy:
confiscatory or contrary to declared 1. Income tax, except on banks and
national policy other financial institutions;
2. Documentary stamp tax;

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

3. Estate tax, inheritance, gifts, exported, except as otherwise


legacies and other acquisitions provided in the Code;
mortis causa except as 14. Taxes, fees or charges on
otherwise provided Countryside and barangay
4. Customs duties, registration fees business enterprises and
of vessels and wharfage on cooperatives duly registered
wharves, tonnage dues and all under R.A. 6810 and R.A. 6938,
other kinds of customs fees, (Cooperatives Code of the
charges and dues except Philippines) ; and
wharfage on wharves 15. Taxes, fees or charges of any
constructed and maintained by kind on the National
the local government unit Government, its agencies and
concerned; instrumentalities, and local
5. Taxes, fees, charges and other government units.
impositions upon goods carried
into or out of, or passing CLASSIFICATION OF COMMON
through, the territorial LIMITATIONS
jurisdictions of local government 1. Taxes which are levied under the
units in the guise of charges for NIRC unless otherwise provided by
wharfage, tolls for bridges or the LGC
otherwise. • Numbers 1, 2, 3, 8, 9, 10
6. Taxes, fees or charges on 2. Taxes, fees, etc. which are imposed
agricultural and aquatic products under the Tariffs and Customs Code
when sold by marginal farmers • Number 4
or fishermen; 3. Taxes, fees and charges where the
7. Taxes on business enterprises imposition of which contravenes
certified by the Board of existing governmental policies or
Investments as pioneer or which are violative of the
non-pioneer for a period of 6 fundamental principles of taxation
and 4 years, respectively, from • Numbers 5, 6, 7, 11, 13, 14, 15
the date of registration; 4. Taxes, fees, and charges imposed
8. Excise taxes on articles under special laws.
enumerated under the NIRC, as
• Number 12
amended, and taxes, fees or
charges on petroleum products;
9. Percentage or value-added tax TAXES AND OTHER IMPOSITIONS THAT
(VAT) on sales, barters or THE LOCAL GOVERNMENT MAY LEVY
exchanges or similar transactions
on goods or services except as (A) PROVINCES
otherwise provided herein; (SECS. 134-141, LGC)
10. Taxes on the gross receipts of 1. Tax on Transfer of Real Property
transportation contractors and 2. Tax on Business of Printing and
persons engaged in the Publication
transportation of passengers or 3. Franchise Tax
freight by hire and common 4. Tax on Sand, Gravel and other
carriers by air, land or water, Quarry Resources extracted from
except as provided in the Code; Public Land
11. Taxes on premiums paid by way 5. Professional Tax
of Reinsurance or retrocession; 6. Amusement Tax
12. Taxes, fees or charges for the 7. Annual Fixed Tax for every
registration of motor vehicles Delivery Truck or Van of
and for the issuance of all kinds Manufacturers or Producers,
of licenses or permits for the Wholesalers of, Dealers, or
driving thereof, except tricycle; Retailers in, certain products
13. Taxes, fees or other charges on
Philippine products actually

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

 See Annex J for the rates and


details.

(B) MUNICIPALITIES Payment of Business Taxes


(SEC. 143, LGC) a. It shall be payable for every
separate or distinct
1. Municipal Taxes- taxes on the establishment or place where
businesses of the following: business subject to the tax is
a. On manufacturers, assemblers, conducted and one line of
repackers, processors, brewers, business does not become
distillers, rectifiers, and exempt by being conducted with
compounders of liquors, distilled some other business for which
spirits, and wines or such tax has been paid.
manufacturers of any article of b. The tax on a business must be
commerce of whatever kind or paid by the person conducting
b. On wholesalers, distributors, or the same.
dealers in any article of c. In cases where a person
commerce of whatever kind or conducts or operates 2 or more
c. On exporters, and on of the businesses mentioned in
manufacturers, millers, Section 143 of LGC
producers, wholesalers, - which are subject to the
distributors, dealers or retailers same rate of tax, the tax shall be
of essential commodities computed on the combined total
d. On retailers gross sales or receipts of the said 2
e. On contractors and other or more related businesses.
independent - which are subject to
f. On banks and other financial different rates of tax, the gross
g. On peddlers engaged in the sale sales or receipts of each business
of any merchandise or article of shall be separately reported for the
commerce purpose of computing the tax due
h. On any business, not otherwise from each business.
specified in the preceding
paragraphs, which the  See Annex K for the rates and
sanggunian concerned may deem details.
proper to tax.
(C) CITIES
2. Municipal non-revenue fees and (SEC. 151, LGC)
charges
The municipality may impose • The city may levy the taxes, fees,
and collect such reasonable fees and and charges which the province or
charges on business and occupation municipality may impose.
except professional taxes reserved for • The tax rates that the city may levy
provinces. (Sec. 147. LGC) may exceed the maximum rates
allowed for the province or
Rates of Tax within the Metropolitan municipality by not more than 50%
Manila Area (sec. 144, lgc) except the rates of professional and
amusement taxes.
- Not to exceed by 50% the
maximum rates prescribed in the (D) BARANGAYS
preceding Section. (SEC. 152, LGC)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Barangays may levy the following taxes,


fees, and charges which shall accrue With respect to sale, it is the
exclusively to them: place of the consummation of the sale,
associated with the delivery of the
things which are the subject matter of
a. Taxes – On stores or retailers
the contract that determines the situs of
with fixed business
the contract for purposes of taxation,
establishments with the gross
and not merely the place of the
sales or receipts for the
perfection of the contract. (Shell Co.,
preceding calendar year of
Inc. v. Municipality of Sipocot,
P50,000 or less (for barangays in
Camarines Sur 105 Phil 1263)
the cities) and P30,000 or less
(for barangays in municipalities)
B. Situs According to Sec. 150, LGC
b. Rate = not exceeding 1% of such
gross sales or receipts. Branch or sales office – a fixed place in
c. Service Fees or Charges – For the locality which conducts the
services rendered in connection operation of the business as an extension
with the regulation or the use of of the principal office
barangay-owned properties or
service facilities such as palay, Principal office- the head or the main
copra or tobacco dryers office of the business; the city or the
d. Barangay Clearance – No city or municipality specifically mentioned in
municipality may issue any the Articles of Incorporation or official
license or permit fee for any registration papers as being the official
business or activity unless a address of said principal office shall be
clearance is first obtained from considered the situs thereof.
the barangay where such
business or activity is located or 1. Place of sale (with branch or sales
conducted. outlet therein):
e. Other Fees and Charges – The • Municipality or city where the
barangay may levy reasonable branch or outlet is located.
fees and charges: 2. Place of sale (no branch or sales
1. On Commercial breeding of outlet):
fighting cocks, cockfights
• Municipality or city of principal
and cockpits;
office (not in the place of sale)
2. On places of Recreation
3. If manufacturer, assembler,
which charge admission fees;
contractor, producer, or exporter
and
(MACPE) with factory, project office,
3. On Billboards, signboards,
plant or plantation (FPPP)
neon signs and outdoor
4. 30% of recorded sales in the principal
advertisements.
office: city or municipality where
the principal office is located
SITUS OF LOCAL TAXATION
5. 70% of recorded sales in the
principal office: city or municipality
A. Situs According to the Cases
where the FPPP is located
With respect to excise tax, the
tax is upon the performance of an act, • pro rata if FPPP are located in
enjoyment of a privilege or the engaging different municipalities or cities
in an occupation. The power to levy such in proportion to their respective
tax is not dependent on the domicile of volumes of production.
the taxpayer, but on the place in which 6. If plantation is located in some other
the act is performed or the occupation is place than where the factory is
engaged in; not upon the location of the located, the foregoing 70% shall be
office, but the place where the sale is subdivided as follows:
perfected. (Allied Thread Co., Inc. v. • 60% to the city or municipality
City Mayor of Manila, L-40296) where the factory is located

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

• 40% to the city or municipality


where the plantation is located. Tax Rate = P5.00 and an annual
additional tax of P1.00 for every
COMMON REVENUE-RAISING POWERS P1,000 of income regardless of
OF LGUs (SEC. 153 TO 155) whether from business, exercise of
1. Service fees and charges for services profession or from property which in
rendered no case shall exceed P5,000.
2. Public Utility Charges for the In case of husband and wife,
operation of public utilities owned, the additional tax herein imposed
operated and maintained by LGUs shall be based upon the total
within their jurisdiction. property owned by them and the
3. Toll fees or charges for the use of total gross receipts or earnings
any public road, pier or wharf, derived by them.
waterway, bridge, ferry or
telecommunication system funded B. Juridical Persons (Sec. 158)
and constructed by the local Every corporation no matter how
government unit concerned created or organized, whether
Exceptions: domestic or resident foreign,
a. Officers and enlisted men of the engaged in or doing business in the
AFP and PNP; Philippines shall pay an annual
b. Post office personnel delivering community tax.
mail; and
c. Physically handicapped and Tax Rate = P500 and an annual
disabled citizens who are additional tax which in no case shall
sixty-five (65) years or older. exceed P10,000 in accordance with the
(Sec. 152, LGC) following schedule:
1. For every P5,000 worth of real
When public safety and welfare so property owned by it during the
requires, the sanggunian concerned may preceding year based on the
discontinue the collection of the tolls, valuation used for the payment
and thereafter the said facility shall be of the real property tax - P2.00;
free and open for public use. and
2. For every P5,000 of gross
COMMUNITY TAX receipts or earnings derived by
Cities or municipalities may levy a it from its business in the
community tax. Philippines during the preceding
year - P2.00.
A. Individuals Liable (Sec. 157)
a. every inhabitant of the The dividends received by a
Philippines; corporation shall, for the purpose of the
b. eighteen (18) years of age or additional tax, be considered as part of
over; the gross receipts or earnings of said
c. under any of the following corporation.
instances:
d. who has been regularly THE FOLLOWING ARE EXEMPT FROM
employed on a wage or salary THE COMMUNITY TAX (SEC. 159)
basis for at least thirty (30) 1. Diplomatic and consular
consecutive working days representatives; and
during any calendar year; or 2. Transient visitors when their stay in
e. who is engaged in business or the Philippines does not exceed
occupation; or three (3) months.
f. who owns real property with
an aggregate assessed value PLACE OF PAYMENT: place of residence
of P1,000 or more; or of the individual, or in the place where
g. who is required by law to file the principal office of the juridical
an income tax return entity is located.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

collect the community tax in their


TIME OF PAYMENT: accrues on the 1st respective jurisdictions. (Sec. 164, LCG)
day of January of each year which shall
be paid not later than the last day of The proceeds of the community tax
February of each year. actually and directly collected by the
city or municipal treasurer shall accrue
PENALTIES FOR DELINQUENCY: an entirely to the general fund of the city or
interest of 24% per annum from the due municipality concerned.
date until it is paid shall be added to the
Proceeds of the community tax
amount due.
collected through the barangay
treasurers shall be apportioned as
A community tax certificate may
follows:
also be issued to any person or
corporation not subject to the • 50% accrues to the general fund
community tax upon payment of P1.00 of the city or municipality
(Sec. 162, LGC). concerned; and
• 50% accrues to the barangay
Presentation of Community Tax where the tax is collected.
Certificate on Certain Occasions – (Sec.
163) Collection Of Local Taxes
A. Individual
1. When an individual subject to Tax Period and Manner of Payment –
the community tax (Sec. 165, LGC)
acknowledges any document Unless otherwise provided, the
before a notary public; tax period shall be the calendar
2. takes the oath of office upon year.
election or appointment to Such taxes, fees, and charges
any position in the may be paid in quarterly
government service; installments.
3. receives any license,
certificate or permit from any Accrual of Tax – (Sec. 166, LGC)
public authority; pays any tax Unless otherwise provided, shall
or fee; accrue on the first day of January of
4. receives any money from any each year.
public fund; However, new taxes, fees or
5. transacts other official charges, or changes in the rates
business; or thereof, shall accrue on the first
6. receives any salary or wage day of the quarter next following
from any person or the effectivity of the ordinance
corporation. imposing such new levies or rates.
The presentation of the community tax
certificate shall not be required in Time of Payment – (Sec. 167, LGC)
connection with the registration of a Unless otherwise provided shall
voter. be paid within the first twenty (20)
days of January or of each
B. Corporation subsequent quarter as the case may
1. receives any license, certificate be.
or permit from any public May, for a justifiable reason or
authority; cause, be extended without
2. pays any tax or fee; surcharges or penalties, but only for
3. receives money from public a period not exceeding six (6)
funds; or months.
4. transacts other official business.
The city of municipal treasurer Surcharges and Penalties on Unpaid
deputizes the barangay treasurer to Taxes, Fees or Charges – (Sec. 168,
LGC)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Surcharge not exceeding 25% of (2) Civil Remedies


the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.

Interests on Other Unpaid Revenues – Either of these remedies or all may


(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.
date it is due until it is paid, but in no
case shall the total interest on the JURISDICTION OF COURTS OVER LOCAL
unpaid amount or portion thereof TAXATION CASES
exceed thirty-six (36) months.
a. With the amendment brought by
Collection of Local Revenues by the RA No. 9282, the Court of Tax
Treasurer – (Sec. 170 LGC) Appeals now has appellate
All local taxes, fees and charges jurisdiction over local taxation
shall be collected by the provincial, city, cases decided by the Regional
municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal b. Regular judicial courts are not
treasurer may designate the barangay prohibited from enjoining the
treasurer or his deputy to collect local collection of local taxes, subject
taxes, fees or charges. to Rule 58 (Preliminary
In case a bond is required for the Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the Note: Unlike the NIRC, the Local Tax
premiums thereon in addition to the Code does not contain any specific
premiums of the bond that may be provision prohibiting courts from
required under the Code. enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
negate the procedural rules and
UNDER THE LGC requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989)
1. TAX REMEDIES OF THE
LOCAL GOVERNMENT UNITS (LGUs)
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT
Civil Remedies Of The Local AND COLLECTION
Government Units (LGU) To Effect OF LOCAL TAXES
Collection Of Taxes PRESCRIPTIVE PERIODS OF ASSESSMENT
(1) Local Government’s Lien – Local 1. Local taxes, fees, or charges – five
taxes, fees, charges and other (5) years from the date they became
revenues constitute a lien, superior due. (Sec. 194, LGC).
to all liens, charges or 2. When there is fraud or intent to
encumbrances in favor of any evade the payment of taxes, fees
person, enforceable by any or charges – ten (10) years from
appropriate administrative or discovery of the fraud or intent to
judicial action. evade the payment (Sec. 194, LGC).

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

PRESCRIPTIVE PERIOD OF COLLECTION taxpayer is entitled to a refund or


Local taxes, fees, or charges credit.
may be collected within five (5) years
from the date of assessment by c. Right of redemption – 1 year from
administrative or judicial action. No the date of sale or from the date of
such action shall be instituted after the forfeiture (Sec. 179, LGC).
expiration of such period (Sec. 194,
LGC). B. JUDICIAL
GROUNDS FOR THE SUSPENSION OF 1. Court action
THE RUNNING OF THE PRESCRIPTIVE • within 30 days after receipt of
PERIODS decision or lapse of 60 days of
a. The treasurer is legally Secretary of Justice’s inaction
prevented from the assessment (Sec. 187 LGC)
or collection of the tax; • within 30 days from receipt
b. The taxpayer requests for a
when protest of assessment is
reinvestigation and executes a
denied (Sec. 195 LGC)
waiver in writing before the
• if no action is taken by the
expiration of the period within
which to assess or collect; and treasurer in refund cases and the
c. The taxpayer is out of the two year period is about to lapse
country or otherwise cannot be (Sec. 195 LGC)
located (Sec. 194, LGC). • if remedies available does not
provide plain, speedy and
2. TAX REMEDIES OF adequate remedy.
2. Action for declaratory relief
THE TAXPAYER
3. Injunction – if irreparable damage
would be caused to the taxpayer and
Remedies Of The Taxpayer In Local no adequate remedy is available.
Taxation

A. ADMINISTRATIVE
Before assessment IV. REAL PROPERTY
a. Appeal – any question on TAXATION
constitutionality or legality of tax
ordinance within 30 days from
effectivity thereof to Secretary of Definitions:
Justice (Sec. 187 LGC) REAL PROPERTY TAXATION – A direct
b. Declaratory relief whenever tax on ownership of lands and
applicable. buildings or other improvements
thereon payable regardless of
After assessment whether the property is used or
a. Protest – within 60 days from receipt not, although the value may vary
of assessment (Sec. 195 LGC). in accordance with such factor.
Payment under protest is not Under the LGC, it covers
necessary. the administration, appraisal,
assessment, levy and collection
b. Payment & subsequent refund or of Real Property Tax, i.e. tax on
tax credit – within 2 years from land and building and other
payment of tax to local treasurer structures and improvements on
(Sec. 196 LGC). It is to be noted it, including machineries.
that, unlike in internal revenue
taxes, the supervening cause applies REAL PROPERTY – subject to the
in local taxation because the period definition given by Art. 415 of
for the filing of claims for refund or the Civil Code.
credit of local taxes is counted not
necessarily from the date of
payment but from the date the

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

IMPROVEMENT – valuable addition made EXTENT OF THE POWER TO LEVY


to a property or amelioration in • Basic real property tax;
its condition amounting to more • 1% additional real estate tax to
than a mere replacement of finance the Special Education
parts involving capital Fund; (Sec. 236)
expenditures and labor. • 5% additional ad valorem tax on
Idle lands; (Sec. 236, LGC) and
• Special levy or special
assessments (may be imposed
NATURE AND CLASSES even by municipalities outside
Metro Manila) on lands comprised
CHARACTERISTICS OF REAL PROPERTY within its territorial jurisdiction
TAX specially benefited by public
1. Direct tax on the Ownership of works, projects or improvements
real property funded by the local government
2. Ad valorem tax. The value is unit concerned.
based on the tax base. Provided:
3. Proportionate – the tax is  Special levy shall not exceed
calculated on the basis of a 60% of the actual cost of
certain percentage of the value such projects and
assessed. improvements, including the
4. Indivisible single obligation costs of acquiring land and
5. Local tax such other real property in
connection therewith
TAXING AUTHORITIES (SEC. 233, LGC)  not apply to lands exempt
from basic real property tax
Rate of Basic Real and the remainder of the
LGU
Property Tax land have been donated to
the local government unit
1. Province not exceeding 1% of concerned for the
assessed value
construction of said
projects. (Sec. 240, LGC).
2. City not exceeding 2%

3. Municipality not exceeding 2%. FOR PURPOSES OF REAL PROPERTY


within Metro TAXATION IDLE LANDS SHALL INCLUDE:
Manila (SEC. 237, LGC)
1. Agricultural lands more than one
hectare in area one-half of which
FUNDAMENTAL PRINCIPLES GOVERNING remain uncultivated or unimproved by
REAL PROPERTY TAXATION (SEC. 198, the owner of the property or person
LGC) having legal interest therein.
1. Real property shall be appraised at Agricultural lands planted to
its current and Fair market value; permanent or perennial crops with
2. Real property shall be classified for at least 50 trees to a hectare shall
assessment purposes on the basis of not be considered idle lands.
actual Use. Lands actually used for grazing
3. Real property shall be assessed on purposes shall likewise not be
the basis of Uniform classification considered idle lands; and
within each LGU 2. Lands other than agricultural
4. The appraisal, assessment, levy and located in a city or municipality
collection of RP Tax shall not be let more than one thousand square meters
to any Private person in area one-half of which remain
5. The appraisal and assessment of real unutilized or unimproved by the
property shall be Equitable. owner of the property or person
having legal interest therein.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

purposes (Art. VI, Sec. 28,


IDLE LANDS EXEMPT FROM TAX (SEC. Constitution);
238, LGC) 3. Machineries and equipment that
are actually, directly and
By reason of: exclusively used by local water
1. force majeure utilities and GOCC’s engaged in
1. civil disturbance the supply and distribution of
2. natural calamity water and/or electric power;
3. or any cause which physically or 4. Real property owned by duly
legally prevents the owner of registered cooperatives as
the property or person having provided for in RA 6938; and
legal interest therein from 5. Machinery and equipment used
improving, utilizing or for pollution control and
cultivating the same. environmental protection.

CLASSIFICATION OF LANDS FOR PURPOSES ACTUAL USE OF PROPERTY AS BASIS


OF ASSESSMENT SEC. 218 (A) FOR ASSESSMENT (SEC. 217 LGC)
a. Commercial Real property shall be classified,
b. Agricultural valued and assessed on the basis of
c. Residential actual use regardless of where located,
d. Mineral whoever owns it, and whoever uses it.
e. Industrial
f. Timberland Unpaid realty taxes attach to the
g. Special property and is chargeable against the
person who had actual or beneficial use
SPECIAL CLASSES OF REAL PROPERTY and possession of it regardless of
(SEC. 216, LGC) whether or not he is the owner. To
impose the real property tax on the
1. Hospitals subsequent owner which was neither the
2. Cultural and Scientific purposes owner nor the beneficial user of the
3. owned and used by Local water property during the designated periods
districts would not only be contrary to law but
4. GOCCs rendering essential public also unjust. (Estate of Lim vs. City of
services in the supply and Manila, GR No. 90639, February 21,
distribution of water and/or 1990)
generation or transmission of
electric power.
PROCEDURE
PROPERTIES EXEMPT FROM REAL
PROPERTY TAX (SEC. 234, LGC) STEP 1: DECLARATION OF REAL
Exemption is limited only to the PROPERTY
following:
1. Real property owned by the DECLARATION BY OWNER OR ADMINISTRATOR
government except when the (SEC. 202-203)
beneficial use thereof has been • File a sworn declaration with the
granted to a taxable person; assessor
2. Charitable institutions, - once every 3 years during
churches, personages or the period from January 1
convents appurtenant thereto, to June 30.
mosques, non-profit or religious • For newly acquired property –
cemeteries and all lands, WHEN: Must file with the assessor within
buildings and improvements 60 days from date of transfer
actually, directly and WHAT: Sworn statement containing the
exclusively used for religious, fair market value and description of the
charitable or educational property.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

• For improvement on property


WHEN: Must file within 60 days upon Determination of fair market value
completion or occupation (whichever (FMV)
comes earlier) For land
WHAT: Sworn statement containing the  Assessor of the province/city or
fair market value and description of the municipality may summon the
property. owners of the properties to be
affected and may take depositions
DECLARATION BY PROVINCIAL / CITY / concerning the property, its
MUNICIPAL ASSESSOR (SEC. 204) ownership, amount, nature and
value (Sec. 213, LGC)
WHEN: Only when the person under Sec.  Assessor prepares a schedule of
202 refuses or fails to make a FMV for different classes of
declaration within the prescribed time. properties.
 Sanggunian enacts an ordinance
No oath by the assessor is required.
 The schedule of FMV is
Notes: Proof of Exemption of Real published in a newspaper of
Property from Taxation - (Sec. 206) general circulation in the
province, city or municipality
WHO: By any person or for whom real concerned or in the absence
property is declared. thereof, shall be posted in the
provincial capitol, city or
• Claim for exemption must be filed municipal hall and in two other
conspicuous public places
with the assessor together with
therein (Sec. 212, LGC)
sufficient documentary evidence to
support claim
For machinery
1. For Brand new machinery: FMV is the
WHEN: within 30 days from the date of
acquisition cost
declaration of property.
2. In all other cases: FMV
= Remaining eco. life X Replacement
IF PROPERTY IS DECLARED FOR THE FIRST
Estimated Eco.Life Cost
TIME – (SEC.222)
If Declared for the first time, real
property shall be assessed for back STEP 4: DETERMINE ASSESSED
taxes: VALUE (SEC. 218)
For not more than 10 years prior to
date of initial assessment Determine Assessed Value
Taxes shall be computed on the basis Procedure
of applicable schedule of values in force 1. Take the schedule of FMV
during the corresponding period. 2. Assessed Value = FMV x
Assessment level
STEP 2: LISTING OF REAL 3. Tax = Assessed value x Tax rate
PROPERTY IN THE ASSESSMENT
ROLLS (SECS. 205, 207) STEP 5: PAYMENT AND COLLECTION
OF TAX
 All declarations shall be kept and
filed under a uniform (a) Accrual of Tax: January of every
classification system to be year and such will constitute as
established by the provincial, city a superior lien. (Sec. 246)
or municipal assessor.
(b) Time and Manner of Payment:
(Sec. 250)
STEP 3: APPRAISAL AND
1. basic real property tax in 4 equal
VALUATION OF REAL PROPERTY installments (March 31, June 30,
(SECS. 212-214, 224-225) September 30, December 30)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

2. special levy – governed by 1. Real Property tax lien (Secs. 257,


ordinance LGC) – superior to all liens, charges
or encumbrances;
(c) Interest for Late Payment (Sec. 255) 2. Distraint (Sec. 254[B], LGC);
1. two percent (2%) for each month 3. Levy (Sec. 254[A], 258 LGC);
on unpaid amount until the 4. Purchase of property by local
delinquent amount is paid treasurer for want of bidder (Sec.
2. provided in no case shall the 263, LGC).
total interest exceed thirty-six B. JUDICIAL
(36) months. Civil Action ( Sec. 266, 270 LGC)

(d) For Advance and Prompt Payment PRESCRIPTIVE PERIODS FOR THE
1. Advance payment – discount not COLLECTION OF REAL
exceeding 20% of annual tax (Sec. PROPERTY TAXES
251, LCG)
2. Prompt payment – discount not
exceeding 10% of annual tax due 1. Basic real property tax and any
(Art 342 IRR) other tax levied under the title on
Real Property Taxation– five (5)
Collection of Tax (Sec. 247) years from the date they became
It shall be the responsibility of the due. (Sec. 270, LGC).
city or municipal treasurer concerned. 2. When there is fraud or intent to
The city or municipal treasurer may evade the payment of taxes – ten
deputize the barangay treasurer to (10) years from discovery of the
collect all taxes on real property located fraud or intent to evade the
in the barangay; provided, the barangay payment (Sec. 270, LGC).
treasurer is properly bonded.
GROUNDS FOR THE SUSPENSION OF
Period to Collect (Sec. 270) THE RUNNING OF THE PRESCRIPTIVE
1. within five (5) years from the PERIODS
date they become due
2. within ten (10) years from 1. The treasurer is legally prevented
discovery of fraud, in case there from the assessment or collection of
is fraud or intent to evade the tax;
2. The taxpayer requests for a
Suspension of Prescriptive Period (Sec. reinvestigation and executes a
270) waiver in writing before the
1. local treasurer is legally expiration of the period within
prevented to collect tax. which to assess or collect; and
2. the owner or property requests 3. The taxpayer is out of the country or
for reinvestigation and writes a otherwise cannot be located (Sec.
waiver before expiration of 270, LGC).
period to collect.
3. the owner of property is out of 2. TAX REMEDIES OF THE
the country or cannot be TAXPAYER
located.
A. ADMINISTRATIVE
REAL PROPERTY TAX
REMEDIES UNDER THE LGC Protest – payment under protest is
required within 30 days to provincial,
1. TAX REMEDIES OF THE LOCAL city, or municipal treasurer. No protest
GOVERNMENT TO EFFECT shall be entertained unless the tax is
COLLECTION OF TAXES first paid. (Sec. 252 LGC)

Claim for Tax Refund or Credit (Sec.


A. ADMINISTRATIVE
253)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

a) the taxpayer may file a written


claim for refund or credit with
the provincial or city treasurer within 15 days
within two years from the date
the taxpayer is entitled to such
reduction or adjustment. SUPREME COURT

b) in case of denial of refund or B. JUDICIAL


credit, appeal to LBAA as in 1. Court Action – appeal of CBAA’s
protest case. decision to Court of Tax Appeals en
banc.
Redemption of real property (Sec. 261 2. Suit assailing validity of tax;
LGC) recovery of refund of taxes paid
(Sec. 64 PD 464).
Remedy against the Assessment/Appeal 3. Suit to declare invalidity of tax due
1st: within 60 days from notice of to irregularity in assessment and
assessment of provincial, city or collection (Sec. 64 PD 464)
municipal assessor to LBAA (Sec. 226 4. Suit assailing the validity of tax sale
LGC) (Sec. 83 PD 464) (Sec. 267 LGC)
2nd: within 30 days from receipt of
decision of LBAA to CBAA (Sec. 230 Condonation of Real Property Taxes
LGC) 1. By the Sanggunian
3rd: within 30 days from receipt of Real property taxes may be
decision of CBAA to Court of Tax condoned wholly or partially in a
Appeals en banc given local government unit when:
4th: within 15 days from receipt of a. There is general failure of crops;
decision of Court of Tax Appeals en b. There is substantial decrease in
banc to the Supreme Court the price of agricultural or agri-
based products; or
APPEALS IN REAL PROPERTY c. There is calamity.
TAXATION 2. By the President of the Philippines
• when public interest so requires.

PROVINCIAL, CITY OR MUNICIPAL


ASSESSOR
V. TARIFF AND
within 60 days CUSTOMS CODE
Owner/Person with legal interest
must file:
1) Written Petition under Oath DEFINITIONS
2) With Supporting Documents TARIFF: Customs duties, toll or tribute
payable upon merchandise to the
LOCAL BOARD OF ASSESSMENT APPEALS
Government.
(LBAA should decide within 120 days
from receipt of petition) CUSTOM DUTIES: Tax assessed upon
merchandise from or exported to, a
within 30 days foreign country. (Garcia v. Executive
Sec., GR No. 101273, July3, 1992))

CENTRAL BOARD OF ASSESSMENT Note: Customs and tariffs are


APPEALS synonymous with one another. They
both refer to the taxes imposed on
within 30 days imported or exported wares, articles, or
merchandise.

COURT OF TAX APPEALS (EN BANC)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Other Types of Fees Charged by the JURISDICTION OF COLLECTOR OF


Bureau of Customs CUSTOMS OVER IMPORTATION OF
ARTICLES
1. Arrastre charge 1. Cause all articles for importation to
2. Wharfage due – counterpart of be entered in the customhouse,
license, charged not for the use of 2. Cause all such articles to be
any wharf but for a special fund appraised and classified,
known as the Port Works Fund. 3. Assess and collect the duties, taxes
3. Berthing fee and other charges thereon, and
4. Harbor fee 4. Hold possession of all imported
5. Tonnage due articles until the duties, taxes and
other charges are paid thereon.
Meaning and Scope of the Tariff and (Sec. 1206, TCC)
Customs Laws
Include not only the provisions of the TERRITORIAL JURISDICTION OF THE
Tariff and Customs Code (TCC) and BOC
regulations pursuant thereto, but all 1. All seas within the jurisdiction of the
other laws and regulations that are Philippines
subject to the Bureau of Customs (BOC) 2. All coasts, ports, airports, harbors,
or otherwise within its jurisdiction. bays, rivers and inland waters
As to its scope, therefore, tariff and whether navigable or not from the
customs laws extend not only to the sea. (1st par, Sec. 603, TCC)
provisions of the TCC but to all other
laws as well, the enforcement of which CUSTOMS DUTIES
is entrusted to the BOC.
WHEN TARIFF AND CUSTOMS APPLIED
THE BUREAU OF CUSTOMS Only after importation has begun but
before importation is terminated.
FUNCTIONS OF THE BUREAU OF
CUSTOMS Importation begins:
1) when the conveying vessel or
1. Assessment and collection of aircraft
revenues from imported articles and 2) enters the jurisdiction of the
all other impositions under the tariff Phil.
and customs laws; 3) with intention to unload therein
2. Control smuggling and related
frauds; Importation is deemed terminated:
3. Supervision and control over the
entrance and clearance of vessels (a) upon payment of the duties, taxes
and aircraft engaged in foreign and other charges due upon the articles.
commerce;
4. Enforcement of TCC and related (b) and legal permit for withdrawal
laws; shall have been granted.
5. Supervision and control over the
handling of foreign mails arriving in • In case the articles are free of
the Philippines; duties, taxes and other charges, until
6. Supervise and control all import and they have legally left the jurisdiction of
export cargoes for the protection of the customs (Sec. 1202, TCC)
government revenue;
7. Exclusive original jurisdiction over INTENTION TO UNLOAD
seizure and forfeiture cases under Even if not yet unloaded, and there is
the tariff and customs laws. unmanifested cargo, forfeiture may take
place because importation has already
begun.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

ARTICLES UNDER TCC Where such conditions as to


May either be: warrant a lawful importation do
1. Subject to duty – not exist, the legal effects of the
a. Live animals and animal importation of qualifiedly
products; prohibited articles are the same
b. Vegetable products; as those of absolutely prohibited
c. Animal or vegetable fats; oils articles. (Auyong Hian vs. CTA,
and their cleavage products; GR No. L-28782, September 12,
prepared edible fats; animal or 1974)
vegetable waxes;
d. Prepared foodstuffs; beverages, 3. Conditionally-free from tariff and
spirits and vinegar; tobacco and customs duties (conditionally-free
manufactured tobacco importation)
substitutes; • Those provided in Sec. 105, TCC;
e. Mineral products; • Those granted to government
f. Products of chemical or allied agencies, GOCCs with
industries; agreements with foreign
g. Plastics and articles thereof; countries;
rubber and articles thereof; • Those given to international
h. Raw hides and skins; leather, institutions entitled to
etc.; exemption by agreement or
i. Wood and articles of wood, etc.; special laws; and
j. Pulp of wood, etc.;
• Those that may be granted by
k. Textiles and textile articles;
the President upon NEDA’s
l. Articles of stone; plaster,
recommendation.
cement, etc.;
m. Footwear, headgear, etc.;
4. Free from TC duties (duty-free)
n. Natural or cultured pearls
Imported goods must be
precious/semi-precious stones;
entered in a customhouse at their
o. Base metals and articles of base
port of entry otherwise they shall be
metals;
considered as contraband and the
p. Machinery and mechanical
importer is liable for smuggling (See
appliances; electric equipment;
Sec. 101, TCC).
sound recorders, etc;
All articles when imported from
q. Vehicles, aircraft, vessels and
any country into the Philippines shall
associated transport equipment;
be subject to duty upon each
r. Optical, photographic, medical,
importation, even though previously
surgical instruments, etc.;
exported from the Philippines,
s. Arms, ammunition, parts and
except as otherwise specifically
accessories;
provided for in the TCC or other
t. Miscellaneous manufactured
laws.
articles; and
u. Works of art, collector's pieces
Liability for Customs Duties
arid antiques (Sec. 104, Title 1,
General Rule: All importations /
TCC).
exportations of goods are subject to
customs duties (Sec. 105, TCC).
2. Prohibited from being imported
(Prohibited importation)
Exceptions:
a. Absolutely prohibited such as:
(1) Exemptions under the TCC;
weapons of war; gambling
(2) Exemptions granted to
devices; narcotics or prohibited
government agencies,
drugs; immoral, obscene or
instrumentalities or GOCCs with
insidious articles; and those
existing contracts,
prohibited under special laws
commitments, agreements, or
(Sec.102, TCC).
b. Qualifiedly prohibited

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

obligations with foreign It is the invoice value of the


countries; goods plus freight, insurance, costs,
(3) Exemptions of international expenses and other necessary expenses.
organizations pursuant to This replaces the Home Consumption
agreements or special laws; and Value as basis of valuation of goods.
(4) Exemptions granted by the Pres.
of the Phil. upon CLASSIFICATION OF CUSTOM DUTIES
recommendation of NEDA (Sec. A. Regular Duties – those which are
105, TCC). imposed and collected merely as a
LIABILITY OF IMPORTER FOR CUSTOM DUTIES source of revenue.
• A personal debt which can be 1. Ad valorem duty: This is a duty
discharged only by payment in based on the value of the
full thereof; imported article.
• A lien upon the imported articles 2. Specific duty: This is a duty
while they are in custody or based on the dutiable weight of
subject to the control of the goods (either the gross weight,
government. (Sec. 1204, TCC). legal weight, or net weight).
3. Alternating duties: This is a
Extent Of Importer’s Liability duty which alternates ad
The liability of an importer is valorem and specific.
limited to the value of the imported 4. Compound Duty: This is a duty
merchandise. In case of forfeiture of consisting of ad valorem and
the seized material, the maximum civil specific duties.
penalty is the forfeiture itself.
(Mendoza vs. David, GR No. L-9452, B. Special duties – those which are
March 27, 1961) imposed and collected in addition to
the ordinary customs duties usually
Drawback to protect local industries against
A device resorted to for enabling a foreign competition.
commodity affected by taxes to be
exported and sold in foreign markets 1. Dumping duty
upon the same terms as if it had not 2. Countervailing duty
been taxed at all. (Uy Chaco Sons vs. 3. Marking duty
Collector of Customs, GR No. 7618, 4. Discriminatory duty
March 27, 1913)
NATURE OF SPECIAL CUSTOMS DUTIES
Import Entry Special customs duties are
It is a declaration to the BOC additional import duties imposed on
showing particulars of the imported specific kinds of imported articles under
article that will enable the customs certain conditions.
authorities to determine the correct
duties. An importer is required to file an PURPOSE OF SPECIAL CUSTOMS DUTIES
import entry. It must be accomplished The special customs duties are
from disembarking of last cargo from imposed for the protection of consumers
vessel. and manufacturers, as well as Phil.
products from undue competition posed
Transaction value under RA NO. 8181 by foreign-made products.

SPECIAL DUTIES COMPARED

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY

1. Nature Imposed upon foreign Imposed upon Imposed upon


Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.

2. Amount/Rate Equivalent to the 5% ad valorem Any amount not


Difference between bounty, subsidy, or of articles exceeding 100%
the actual price subvention. ad valorem of the
and the normal subject articles
value of the article.

3. Imposing Authority Secretary of Finance Commissioner of President of the


Special committee Customs Philippines
on Anti-Dumping
(composed of the
Secretary of Finance
as Chairman;
Members: the
Secretary of DTI,
and either the
Secretary of
Agriculture if article
in question is
agricultural product
or the Secretary of
labor if non-
agricultural product

FLEXIBLE TARIFF CLAUSE 2. to establish import quota or to ban


The President may fix tariff rates, imports of any commodity, as may
import and export quotas, etc. under be necessary; and
TCC (See Sec. 28, Art. VI, Constitution 3. to impose an additional duty on all
and Sec. 401, TCC) imports not exceeding ten (10%) per
1. to increase, reduce or remove cent ad valorem whenever
existing protective rates of import necessary:
duty (including any necessary change
in classification). LIMITATIONS IMPOSED REGARDING THE
The existing rates may be FLEXIBLE TARIFF CLAUSE
increased or decreased to any level,
on one or several stages but in no a. Conduct by the Tariff Commission of
case shall the increased rate of an investigation in a public hearing.
import duty be higher than a The Commission shall also hear
maximum of one hundred (100%) per the views and recommendations of
cent ad valorem any government office, agency or
instrumentality concerned.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

The Commission shall submit g. conditions, causes, and effects


their findings and recommendations relating to competition of
to the NEDA within thirty (30) days foreign industries with those of
after the termination of the public the Philippines, including
hearings. dumping and cost of production;
The NEDA thereafter submits its and
recommendation to the President. h. in general, to investigate the
1. The power of the President to operation of customs and tariff
increase or decrease the rates of laws, including their relation to
import duty within the the national revenues, their
abovementioned limits fixed in the effect upon the industries and
Code shall include the modification labor of the country and to
in the form of duty. submit reports of its
In such a case the corresponding investigation as provided.
ad valorem or specific equivalents of
the duty with respect to the imports 2. Administrative Assistance to the
from the principal competing foreign President and Congress (Sec. 506,
country for the most recent TCC)
representative period shall be used
as bases (Sec. 401, TCC).

THE TARIFF COMMISSION (TC) TAX REMEDIES UNDER THE


TARIFF AND CUSTOMS CODE
FUNCTIONS OF THE TARIFF (TCC)
COMMISSION
1. Investigative Powers (Sec. 505,
TAX REMEDIES OF THE
TCC)
a. the administration of and the GOVERNMENT
fiscal and industrial effects of
the tariff and customs laws of A. ADMINISTRATIVE
this country now in force or 1. Tax Lien (Sec. 1204 TCC)
which may hereafter be enacted; • attaches on the goods,
b. the relations between the rates regardless of ownership, while
of duty on raw materials and the still in the custody or control
finished or partly finished of the Government
products; • availed of when the
c. the effects of ad valorem and importation is neither
specific duties and of compound prohibited nor improperly
specific and ad valorem duties; made
d. all questions relative to the 2. Administrative Fines and
arrangement of schedules and Forfeitures
classification of articles in the • applied when the
several schedules of the tariff importation is unlawful,
law; • and it may be exercised even
e. the tariff relations between the where the articles are not or
Philippines and foreign no longer in Custom’s
countries, commercial treaties, custody
preferential provisions, - unless the importation is
economic alliances, the effect of merely attempted in which
export bounties and preferential case it may be effected only
transportation rates; while the goods are still
f. the volume of importations, within the Customs
compared with domestic pro- jurisdiction or in the hands
duction and consumption; of a person who is aware

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

thereof (Sec. 2531 & 2530, a. A written claim for refund


TCC) may be submitted by the
• under Sec. 2530(a) of the importer in abatement cases
TCC, in order to warrant on missing packages,
forfeiture, it is not necessary deficiencies in the contents
that the vessel or aircraft of packages or shortages
must itself carry the before arrival of the goods in
contraband. The the Philippines, articles lost
complementary if collateral or destroyed after such
use of the Cessna plane for arrival, dead or injured
smuggling operation is animals, and for manifest
sufficient for it to be clerical errors; and
deemed to have been used b. Drawback cases where the
in smuggling. (Llamado vs. goods are re-exported (Sec.
Commissioner of Customs, 1701-1708 TCC).
GR No. L-28809, May 16, 3. Settlement of any seizure by
1983) payment of fine or redemption
3. Reduction of customs duties / • But this shall not be allowed
compromise in any case where
• subject to approval of Sec. importation is absolutely
of Finance (Sec. 709, 2316 prohibited, or the release
TCC) would be contrary to law, or
when there is an actual and
4. Seizure, Search, Arrest (Sec. intentional fraud (Sec. 2307
2205, 2210, 2211 TCC) TCC).

B. JUDICIAL 4. Appeal
1. this remedy is normally • Within 15 days to the
availed of when the tax lien
Commissioner after
is lost by the release of the
notification by Collector of
goods
his decision (Sec. 2313
• Civil Action (Sec. 1204, TCC).
TCC)
• Criminal Action B. JUDICIAL
1. Appeal
TAX REMEDIES OF THE TAXPAYER • Within 30 days from receipt
of decision of the
A. ADMINISTRATIVE Commissioner or Secretary of
1. Protest Finance to the division of the
a. Any importer or interested CTA (Sec. 2403 TCC, Sec. 7
party if dissatisfied with RA 1125, as amended by Sec.
published value within 15 9 RA 9282)
days from date of • Since Sec.11 of RA 1125 as
publication, or within 5 days amended by RA 9282
from the date the importer empowers the Tax Court to
is entitled to refund if issue injunctions, it would
payment is rendered appear that an importer may
erroneous or illegal by appeal without first paying
events occurring after the the duties, such as in
payment. seizure, but not in protest
b. Taxpayer – within 15 days cases.
from assessment. Payment 2. Action to question the legality
under protest is necessary. of seizure
(Sec. 2308, 2210 TCC) 3. Abandonment (Sec. 1801 TCC)
2. Refund a. expressly (Sec. 1801 TCC)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

b. impliedly – 5. Must be filed when the amount


c. failure to file an import claimed is paid or within 15 days
entry within 30 days after the payment;
from the discharge of 6. Protestant must furnish samples of
goods or goods under protest when required.
d. having filed an entry
fails to claim within 15 PROCEDURE IN CUSTOMS PROTEST
days but it shall not be CASES
so effective until so
declared by the The Collector acting within his
collector. (Sec. 1801, as jurisdiction shall cause the imported
amended by RA 7651) goods to be entered at the customhouse

TWO KINDS OF PROCEEDINGS IN The Collector shall assess, liquidate, and
THE BUREAU OF CUSTOMS (BOC) collect the duties thereon, or detain the
said goods if the party liable does not
A. CUSTOMS PROTEST CASES pay the same
DEFINITION: These are cases which deal 
solely with liability for customs duties, The party adversely affected (the
fees, and other charges. protestant) may file a written protest on
his foregoing liability with the Collector
Note: Before filing a protest, there within 15 days after paying the
must first be a payment under protest. liquidated amount (the payment under
protest rule applies)
When customs protest applicable 
Hearing within 15 days from receipt of
The customs protest is required to be the duly presented protest. Upon
filed only in case the liability of the termination of the hearing, the Collector
taxpayer for duties, taxes, fees and shall decide on the same within 30 days
other charges is determined and the
taxpayer disputes said liability.
 
When Customs protest NOT required If decision is adverse to If decision is adverse to
the protestant the government
Where there is no dispute, but the  
claim for refund arises by reason of the Appeal with the Automatic Review by
happening of supervening events such as Commissioner within the Commissioner
when the raw material imported is 15 days from notice
utilized in the production of finished 
products subsequently exported and a Automatic review by
 the Secretary of
duty drawback is claimed. Appeal with the Court
Finance
of Tax Appeals Division
Requirements for making a protest within 30 days from 
notice
1. Must be in writing
2. Must point out the particular
decision or ruling of the Collector of
Customs to which exception is taken
or objection made;
3. Must state the grounds relied upon
for relief;
4. Must be limited to the subject
matter of a single adjustment;

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

If decision of d. Export contrary to law. (Sec.


 Commissioner or 3514, TCC)
Appeal with the
Secretary of Finance is
CTA en banc
adverse to the 2. The Philippines is divided into
 protestant, he may various ports of entry – entry other
Appeal by certiorari appeal to the CTA and than port of entry, will be
with the Supreme SC under the same SMUGGLING.
Court within 15 days procedure on the left.
from notice PORT OF ENTRY
A domestic port open to both
foreign and coastwise trade including
“airport of entry”. (Sec. 3514, TCC)
ALL articles imported into the
Reasons for the automatic review of Philippines whether subject to duty or
decisions adverse to the Government not shall be entered through a
customshouse at a port of entry.
1. To protect the interest of the ENTRY: in Customs law means-
Government 1. the
2. A favorable decision will not be documents filed at the
appealed by the taxpayer and Customs house
certainly a Collector will not 2. the
appeal his own decision. submission and acceptance
3. Lifeblood Theory of the documents
3. the
B. SEIZURE AND FORFEITURE CASES procedure of passing goods
through the customs house
DEFINITION: These refer to matters (Rodriguez vs. Court of
involving smuggling. It is administrative Appeals, GR No. 115218,
and civil in nature and is directed September 18, 1995)
against the res or imported articles and
entails a determination of the legality of CONTRABAND: Articles of prohibited
their importation. These are actions in importations or exportations. (Sec. 3514,
rem. TCC)
Thus, It is of no defense that the
owner of the vessel sought to be
forfeited had no actual knowledge that
his property was used illegally. The EVIDENCE FOR CONVICTION IN
absence or lack of actual knowledge of SMUGGLING CASES
such use is a defense personal to the Mere possession of the article in
owner himself, which cannot in any way question - unless defendant could
absolve the vessel from the liability of explain that his possession is lawful to
forfeiture. (Commissioner of Customs the satisfaction of the court (Sec. 3601,
vs. Manila Star Ferry, Inc., GR Nos. TCC). Payment of the tax due after
31776-78, October 21, 1993) apprehension is not a valid defense
(Rodriguez vs. Court of Appeals, GR No.
SMUGGLING 115218, September 18, 1995)
1. An act of any person who shall:
a. Fraudulently import any article THINGS SUBJECT TO CONFISCATION IN
contrary to law, or SMUGGLING CASES
b. Assist in so doing, or Anything that was used for
c. Receive, conceal, buy, sell, smuggling is subject to confiscation, like
facilitate, transport, conceal or the vessel, plane, etc. (Llamado vs.
sell such article knowing its Commissioner of Customs, GR No. L-
illegal importation (Sec. 3601, 28809, May 16, 1983).
TCC)

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Exception: Common carriers that are DOCTRINE OF HOT PURSUIT


not privately chartered cannot be Requisites:
confiscated. 1. Over Vessels
a. An act is done in Phil. Waters
RIGHT OF CUSTOMS OFFICERS TO which constitutes a violation of
EFFECT SEIZURE & ARREST (SEC. 2205) the tariff and customs laws
1. May seize any vessel, aircraft, cargo, b. a pursuit of such vessel began
article, animal or other movable within the jurisdictional waters
property when the same is subject to which
forfeiture or liable for any time as (i) may continue beyond the
imposed under tariff and customs maritime zone, and
laws, rules & regulations (ii) the vessel may be seized on
2. May exercise such powers only in the high seas.
conformity with the laws and
provisions of the TCC 2. Over Imported Articles
a. There is a violation of the tariff
COMMON CARRIERS; FORFEITURE and customs laws
1. Common carriers are generally not b. As a consequence they may be
subject to forfeiture although if the pursued in the Phil.
owner has knowledge of its use in c. With jurisdiction over them at
smuggling and was a consenting any place therein for the
party, it may also be forfeited. enforcement of the law. (2nd
2. If a motor vehicle is hired to carry par. Sec. 603, TCC)
smuggled goods but it has no
Certificate of Public Convenience
(CPC), it is not a common carrier. It REGIONAL TRIAL COURTS (RTC)
is thus subject to forfeiture, and VS.
lack of personal knowledge of the BUREAU OF CUSTOMS (BOC)
owner or the carrier is not a defense
to forfeiture. • The RTCs do not have jurisdiction
over seizure and forfeiture
PROPERTIES NOT SUBJECT TO proceedings conducted by the BOC
FORFEITURE IN THE ABSENCE OF PRIMA and to interfere with these
FACIE EVIDENCE proceedings. The Collector of
The forfeiture of the vehicle, vessel Customs has exclusive jurisdiction
or aircraft shall not be effected if it is over all questions touching on the
established that the owner thereof or his seizure and forfeiture of dutiable
agent in charge of the means of goods.
conveyance used as aforesaid has no • No petitions for certiorari,
knowledge of or participation in the prohibition or mandamus filed with
unlawful act: the RTC will lie because these are in
Provided, however, that a prima reality attempts to review the
facie presumption shall exist against the Commissioner's actuations. Neither
vessel, vehicle or aircraft under any of replevin filed with the RTC will
the following circumstances: issue. Rationale: Doctrine of
1. If the conveyance has been used Primary Jurisdiction.
for smuggling at least twice • Even if a Customs seizure is illegal,
before; exclusive jurisdiction (to the
2. If the owner is not in the exclusion of regular courts) still
business for which the belongs to the Bureau of Customs
conveyance is generally used; (Jao v. Court of Appeals, GR No.
and 104604, October 6, 1995).
3. If the owner is financially not in
a position to own such GOODS IN CUSTOM’S CUSTODY BEYOND
conveyance. REACH OF ATTACHMENT

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Goods in the custom’s custody 1) officials of the BOC, district


pending payment of customs duties are collectors, police officers, agents,
beyond the reach of attachment. As long inspectors, and guests of the BOC;
as the importation has not been 2) officers of the Phil. Navy and other
terminated, the imported goods remain members of the AFP and national law
under the jurisdiction of the Bureau of enforcement agencies when authorized
Customs. (Viduya vs. Berdiago, GR No. by the Commissioner of Customs
L-29218, October 29, 1976) 3) officials of the BIR on all cases
falling within the regular performances
ADMINISTRATIVE AND JUDICIAL of their duties, when the payment of
PROCEDURES RELATIVE TO CUSTOMS internal taxes are involved;
SEIZURES AND FORFEITURES 4) officers generally empowered by law
to effect arrests and execute processes
Determination of probable cause and of courts, when acting under the
issuance of warrant direction of the Collector.
 REQUIREMENTS FOR CUSTOMS
Actual seizure of the articles FORFEITURE
 1. The wrongful making by the owner,
Listing of description, appraisal and importer, exporter or consignee of
classification of seized property any declaration or affidavit, or the
wrongful making or delivery by the
 same persons of any invoice, letter
Report of seizure to the Comm. of or paper - all touching on the
Customs and the Chairman, Comm. importation or exportation of
on Audit merchandise.; and
 2. That such declaration, affidavit,
Issuance by the Collector of a invoice, letter or paper is false.
warrant of detention (Farolan, Jr. vs. Court of Tax
Appeals, GR No. 42204, January 21,
 1993)
Notification to owner or importer
 PLACES WHERE SEARCHES & SEIZURES
Formal hearing MAY BE CONDUCTED
(a) enclosures
 (b) dwelling house (there must be
District collector renders his search warrant issued by a judge)
decisions (c) vessels or aircrafts and persons
or articles conveyed therein
  (d) vehicles, beasts and persons
If decision is not If decision is not (e) persons arriving from foreign
favorable to the favorable to the countries.
aggrieved owner or government
importer Note: Burden of proof in seizure or
forfeiture is on the claimant. (Sec.
  2535, TCC)
Appeal by the Automatic Review
aggrieved owner or by the
REQUIREMENTS FOR MANIFEST
importer Commissioner
A manifest in coastwise trade for
cargo and passengers transported from
one place or port in the Philippines to
PERSONS HAVING POLICE AUTHORITY
another is required when one or both of
TO ENFORCE THE TARIFF & CUSTOMS
such places is a port of entry (Sec. 906,
LAWS AND EFFECT SEARCHES,
TCC). Manifests are also required of
SEIZURES AND ARRESTS (SEC. 2203,
vessel from a foreign port (Sec. 1005,
TCC)
TCC).

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

compliance with all other legal


IS MANIFEST REQUIRED ONLY FOR requirements (Sec. 1508, TCC)
IMPORTED GOODS?
NO. Articles subject to seizure ABATEMENT
do not have to be imported goods. The reduction or non-imposition of
Manifests are also required for articles customs duties on certain imported
found on vessels or aircraft engaged in materials as a result of:
coastwise trade. (Rigor vs. Rosales, GR 1) Damage incurred during voyage;
No. L-33756, October 23, 1982) 2) Deficiency in contents packages
3) Loss or destruction of articles
UNMANIFESTED CARGO IS SUBJECT TO after arrival
FORFEITURE whether the act of 4) Death or injury of animals
smuggling is established or not under the
principle of res ipsa loquitur. It is FRAUDULENT PRACTICES CONSIDERED
enough that the cargo was unmanifested AS CRIMINAL OFFENSES AGAINST
and that there was no showing that CUSTOMS REVENUE LAWS
payment of duties thereon had been 1) Unlawful importation;
made for it to be subject to forfeiture. 2) Entry of imported or exported article
by means of any false or fraudulent
SETTLEMENT OF FORFEITURE CASES practices, invoice, declaration,
General Rule: Settlement of cases by affidavit, or other documents;
payment of fine or redemption of 3) Entry of goods at less than their true
forfeited property is allowed. weights or measures or upon a
classification as to quality or value;
Exceptions: 4) Payment of less than the amount
1. the importation is absolutely due;
prohibited or 5) Filing any false or fraudulent claim
2. the surrender of the property to for the payment of drawback or
the person offering to redeem refund of duties upon the
would be contrary to law, or exportation of merchandise; or
3. when there is fraud. (Sec. 2307, 6) Filing any affidavit, certificate or
TCC) other document to secure to himself
or others the payment of any
drawback, allowance or refund of
duties on the exportation of mdse.
greater than that legally due
ACQUITTAL IN CRIMINAL CHARGE NOT thereon. (Sec. 3602, TCC)
RES JUDICATA IN SEIZURE OR
FORFEITURE PROCEEDINGS
Reasons: VI. COURT OF
1) Criminal proceedings are actions in TAX APPEALS
personam while seizure or forfeiture
proceedings are actions in rem. (RA 1125 as amended
2) Customs compromise does not by RA 9282)
extinguish criminal liability. (People
vs. Desiderio, GR No. L-208005,
November 26, 1965)  See ANNEX O for comparison of CTA
as created by RA No. 1125 and the
Note: At any time prior to the sale, the amendments made by RA No. 9282.
delinquent importer may settle his
obligations with the Bureau of Customs,
in which case the aforesaid articles may NATURE AND POWERS
be delivered upon payment of the
corresponding duties and taxes and ELEVATION OF RANK

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

shall be of the same level as the issue an order authorizing the BIR,
Court of Appeals, possessing all the through the Commissioner:
inherent powers of a Court of Justice
1. to seize and distraint any goods,
COMPOSITION chattels, or effects and the personal
• Consists of a Presiding Justice and property, including stocks and other
five (5) Associate Justices securities, debts, credits, bank
• May sit en banc or in two (2) accounts, and interests in and rights
Divisions, each Division consisting of to personal property and/or
three (3) Justices. The Presiding 2. levy the real property of such
Justice and the most Senior persons in sufficient quantity to
Associate Justice shall serve as satisfy the tax or charge together
chairmen of the two divisions with any increment thereto incident
to delinquency.
QUORUM
• Four (4) Justices shall constitute a This remedy shall not be exclusive
quorum for sessions EN BANC. and shall not preclude the Court from
availing of other means under the Rules
• Two (2) Justices for sessions of a
of Court.
DIVISION.
PROVIDED: in case the required quorum
cannot be had due to any vacancy, JURISDICTION
disqualification, inhibition, disability,
or any other lawful cause, the Presiding I. EXCLUSIVE APPELLATE JURISDICTION
Justice shall designate any Justice of TO REVIEW BY APPEAL
other Divisions of the Court to sit
temporarily therein. (a) Decisions of the Commissioner
of Internal Revenue
POWERS 1. in cases involving disputed
1. to administer oaths; assessments, refunds of
2. to receive evidence; internal revenue taxes, fees
3. to summon witnesses by or other charges, penalties
subpoena; in relation thereto,
4. to require production or papers 2. or other matters arising
or documents by subpoena duces under the NIRC or other laws
tecum; administered by the BIR;
5. to punish contempt; (b) Inaction by the Commissioner of
6. to promulgate rules and Internal Revenue
regulations for the conduct of its 1. in cases involving disputed
business; assessments, refunds of
7. to assess damage against internal revenue taxes, fees
appellant if appeal to CTA is or other charges, penalties
found to be frivolous or dilatory; in relation thereto,
8. to suspend the collection of the 2. or other matters arising
tax pending appeal; and under the NIRC or other laws
9. to render decisions on cases administered by the BIR,
brought before it where the NIRC provides a
10. to issue order authorizing specific period for action, in
distraint of personal property which case the inaction shall
and levy of real property be deemed a denial;
(c) Decisions, orders or resolutions
DISTRAINT OF PERSONAL PROPERTY of the RTC
AND LEVY OF REAL PROPERTY – in local tax cases originally
Upon the issuance of any ruling, decided or resolved by them in
order or decision by the CTA favorable to the exercise of their original or
the national government, the CTA shall appellate jurisdiction;

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

(d) Decisions of the Commissioner administered by the BIR or the


of Customs Bureau of Customs
1. in cases involving liability • Provided however, where the
for customs duties, fees or principal amount of taxes and
other money charges, fees, exclusive of charges and
seizure, detention or release penalties claimed is less than
of property affected, fines, one million pesos (P1, 000, 000.
forfeitures or other 00) or where there is no
penalties in relation specified amount claimed - the
thereto, offenses or penalties shall be
2. or other matters arising tried by the regular courts and
under the Customs Law or the jurisdiction of the CTA shall
other laws administered by be appellate.
the Bureau of Customs; • Any provision of law or the Rules
(e) Decisions of the Central Board of Court to the contrary
of Assessment Appeals notwithstanding, the criminal
– in the exercise of its appellate action and the corresponding
jurisdiction over cases involving civil action for the recovery of
the assessment and taxation of civil liability for taxes and
real property originally decided penalties shall at all times be
by the provincial or city board of simultaneously instituted with,
assessment appeals; and jointly determined in the
(f) Decisions of the Secretary of same proceeding by the CTA,
Finance the filing of the criminal action
– on customs cases elevated to being deemed to necessarily
him automatically for review carry with it the filing of the
from decisions of the civil action, and no right to
Commissioner of Customs which reserve the filing of such civil
are adverse to the Government action separately from the
under Section 2315 of the Tariff criminal action will be
and Customs Code; recognized.
(g) Decisions of the Secretary of
Trade and Industry in the case (b) Exclusive appellate jurisdiction
of nonagricultural product, in criminal offenses
commodity or article, and the • Over appeals from the
Secretary of Agriculture in the judgments, resolutions or orders
case of agricultural product, of the RTC in tax cases originally
commodity or article, decided by them, in their
– involving dumping and respective territorial
countervailing duties under Secs. jurisdiction.
301and 302, respectively, of the
• Over petitions for review of the
Tariff and Customs Code, and
judgments, resolutions, or
safeguard measures under RA
orders of the RTC in the exercise
No, 8800, where either party
of their appellate jurisdiction
may appeal the decision to
over tax cases originally decided
impose or not to impose said
by the Metropolitan Trial Courts,
duties.
Municipal Trial Courts, and
Municipal Circuit Trial Courts in
II. JURISDICTION OVER CASES
their respective jurisdiction.
INVOLVING CRIMINAL CASES
III. JURISDICTION OVER TAX
(a) Exclusive original jurisdiction
COLLECTION CASES
over all criminal cases arising from
(a) Exclusive original jurisdiction
violations of the NIRC or Tariff and
in tax collection cases involving
Customs Code and other laws
final and executory assessments

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

for taxes, fees, charges and Within 30 days after the receipt of
penalties. such decision or ruling or after the
• In collection cases where the expiration of the period fixed by law for
principal amount of taxes and action.
fees, exclusive of charges and
penalties, claimed is less than Modes of Appeal
one million pesos (P 1, 000, 000. (1) By filing a petition for review under
00) – shall be tried by the proper a procedure analogous to that
Municipal Trial Court, provided for under Rule 42 of 1997
Metropolitan Trial Court, and Rules on Civil Procedure
Regional Trial Court. • decision, ruling, or inaction of
the Commissioner of Internal
(b) Exclusive appellate jurisdiction Revenue, Commissioner of
in tax collection cases Customs, the Secretary of
• Over appeals from the Finance, the Secretary of Trade
judgments, resolutions or orders and Industry or the Secretary of
of RTC in tax collection cases Agriculture or the Regional Trial
originally decided by them, in Courts
their respective territorial • this appeal shall be heard by a
jurisdiction. Division of the CTA
• Over petitions for review of the (2) By filing a petition for review under
judgements, resolutions or a procedure analogous to that
orders of the RTC in the exercise provided for under Rule 43 of 1997
of their appellate jurisdiction Rules on Civil Procedure
over tax collection cases • decisions or rulings of the
originally decided by the Central Board of Assessments
Metropolitan Trial Courts, Appeals and the Regional Trial
Municipal Trial Courts and Courts in the exercise of its
Municipal Circuit Trial Courts, in appellate jurisdiction
their respective jurisdiction. • this appeal shall be heard by the
CTA en banc.
 In criminal and collection cases, the
Government may directly file the Procedure
said cases with the CTA covering A. Any party adversely affected by a
amounts within its exclusive and ruling, order or decision of a Division
original jurisdiction. of the CTA may file a motion for
reconsideration or new trial before
 See ANNEX P – Comparative the same Division within 15 days
Diagrams on CTA jurisdiction. from notice

“Other Matters” B. Any party adversely affected by a


Those controversies which can be resolution of a Division of the CTA on
considered within the scope of the a motion for reconsideration or new
function of the BIR / BOC under ejusdem trial may file a petition for review
generis rule (e.g. action for the nullity of with the CTA en banc.
distraint and levy; questioning the
propriety of the assessment; collection C. Any party adversely affected by a
of compromise penalties). decision or ruling of the CTA en banc
may file with the Supreme Court a
verified petition for review on
APPEAL certiorari pursuant to Rule 45 of the
1997 Rules on Civil Procedure.
When

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Gamble Phils. Mfg. Corp, GR No.


Thirty (30) day Prescriptive Period for 66838, April 15, 1988)
Appeal
Starts to run from the date the NOTE: However, this was reversed in
taxpayer receives the appealable Supreme Court’s subsequent resolution
decision. If the taxpayer’s request for wherein it was held that “in the absence
reconsideration (i.e., the protest is of explicit statutory provisions to the
denied or the original assessment is contrary, the Government must follow
maintained, the appealable decision is the same rules of procedure which bind
the decision denying the request for private parties.” (Commissioner vs.
reconsideration. Procter and Gamble, GR No. 66838,
The said period is jurisdictional and December 2, 1991, Resolution)
non-extendible. Requests or motions for
reconsideration, however, operate to Tax collection Not Suspended during
suspend the running of the period to Appeal
appeal. A pro forma request for
reconsideration or one which is directed General Rule: No appeal taken to the
to the Secretary of Finance does not CTA shall suspend the payment, levy or
suspend the running of the 30-day distraint, and/or sale of any property of
reglementary period. the taxpayer.

Only A Final Decision Is Appealable To Exception: The CTA is empowered to


The Court Of Tax Appeals suspend the collection of internal
revenue taxes and custom duties only
• Preliminary collection letters, post when there was a –
reporting notices and pre-assessment c) showing that collection of the tax
notices are not appealable, because may jeopardize the interest of the
they are not the final decision of the government and / or the taxpayer;
Commissioner. d) deposit of the amount claimed or
• An assessment can be appealed if file a surety bond for not more
taxpayer does not seek a than double the amount of tax
reconsideration. with the Court when required; and
• At times there is an exchange of e) showing by taxpayer that appeal is
communications between taxpayer not frivolous nor dilatory.
and Commissioner states that his
action is final, then, period for Can The CTA Enjoin Collection of
appeal begins to run. Taxes?
• Commissioner must state that his
decision is final, for period of appeal • Sec. 11 of RA No. 1125 as amended
to run. by Sec. 9 of RA No. 9282 grants CTA
• Final decision cannot be implied power to suspend collection of tax if
from issuance of warrant of distraint such collection works to serious
and levy, unless it is issued after a prejudice of either taxpayer or
request for reconsideration. government.
GENERAL RULE: New issues cannot be • However, Sec. 218 of the Tax Code
raised for the first time on appeal. provides no court may grant
injunction to restrain collection of
EXCEPTIONS: any tax, fee or charge imposed by
a. Defense of prescription Tax Code.
Reason: This is a statutory right. • The provision in Tax Code refers to
(Visayan Land Transportation vs. courts other than the CTA.
Collector) (Blaquera vs. Rodriguez, GR No. L-
b. Errors of administrative officials 11295, March 29, 1958)
Reason: State can never be in • Appeal to the CTA does not
estoppel and lifeblood theory. automatically suspend collection
(Commissioner vs. Procter and

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

unless CTA issues suspension order at be shifted or passed on to the buyer,


any stage of proceedings. transferee or lessee of the goods,
properties or services. This rule shall
Simultaneous filing of an application likewise apply to existing contracts of
for refund or credit and institution of a sale or lease of goods, properties or
case before the CTA allowed services at the time of the effectivity of
Republic Act No. 7716.
The law fixes the same period of
two (2) years for filing a claim for refund VAT replaced Sales Tax as imposed by
with the Commissioner and for filing a previous Tax Laws.
case with the CTA. The two-year period
for both starts from the date after the HISTORY:
payment of the tax or penalty, or from a. Executive Order No. 273
the approval of the application for b. Republic Act No. 7716
credit. c. Republic Act No. 8241
d. Republic Act No. 8424 (took
Observation: If we are not going to effect on 1 January 1998)
allow the taxpayer to file a refund
before the CTA and let him wait for the TRANSACTIONS COVERED BY VAT:
CIR’s decision, and the latter failed to 1. Sale of Commodities or Goods (in
render a decision within the 2-year the course of trade or business
period, the said taxpayer can no longer only)
file a refund before the CTA because his 2. Sale of Services (in the course of
right to appeal has prescribed. trade or business only)
3. Exportation (in the course of
Weight of Decision of CTA trade or business only)
4. Importation (whether or not in
• Decisions of Tax Court have the course of trade or business)
persuasive effect and may serve as
judicial guides. They have more PERSONS LIABLE FOR VAT
persuasive value than BIR Rulings. Any person who, in the course of
• CTA’s findings of fact are entitled to trade or business, sells barters,
the highest respect. (Raymundo vs. exchanges, leases goods or properties,
de Joya, GR No. L-27733, December renders services, and any person who
3, 1980) imports goods shall be subject to the
• The Supreme Court will not set aside value-added tax (VAT) imposed in
conclusions reached by Tax Court Sections 106 to 108 of the National
which by the very nature of its Internal Revenue Code.
function, is dedicated exclusively to
the consideration of tax problems “IN THE COURSE OF TRADE OR
and has developed an expertise on BUSINESS”
the subject, unless there has been The regular conduct or pursuit of a
an abuse or an improvident exercise commercial or an economic activity,
of authority on its part. including transactions incidental
(Commissioner vs. Court of Appeals thereto, by any person regardless of
& Atlas Consolidated, GR No. 86785, whether or not the person engaged
November 21, 1991) therein is a non-stock, nonprofit private
organization (irrespective of the
disposition of its net income and
VII.VALUE–ADDED TAX whether or not it sells exclusively to
(VAT) members or their guests), or government
entity.
TITLE IV OF NIRC
Therefore if the disposition of goods
DEFINITION: The value-added tax is an or services is NOT in the course of trade
indirect tax and the amount of tax may or business then it is not subject to VAT;

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

with the exception of importation of 2. Foreign Currency Denominated Sale


course. as provided in Section 106 (A)(2)(b)
3. Sale to persons or entities which is
The rule of regularity, to the
VAT exempt under special laws or
contrary notwithstanding, services as
international agreements to which
defined in this Code rendered in the
the Philippines is a signatory as
Philippines by non-resident foreign
provided in Section 106 (A)(2)(c)
persons shall be considered as being
4. Transactions subject to zero-rated
course of trade or business.
(0%) as provided in Section 108(B)
Importation is subject to VAT
regardless of whether or not it is in the REGISTRATION UNDER THE VAT SYSTEM
course of trade or business (SECTION 236 OF THE NIRC)
The reason for the rule is to protect
our local or domestic goods or articles General Rule: Failure to register is
and to regulate the entry or introduction subject to temporary closure of the
of foreign articles to our local market. establishment for 5 days as provided in
Regulation is one of the purposes of Section 115(b).
Taxation.
Exception: It does not apply to an
exporter who fails to register. The effect
Tax Rates: is, instead of treating the transaction as
1. 10% - the rate used in sale of zero-rated (0%), it is treated as an
commodities and goods, sale of exempt transaction.
services, and importation.
2. Zero-rated (0%) - the rate used in What is the difference? In zero-rated
exportation. (0%) transactions, tax credit is
available. However, in exempt
transactions, tax credit is not available.
MANNER OF COMPUTING THE VAT:
A. 10% rate of Tax
EXEMPT TRANSACTIONS (SECTION 109):
1. In sale of commodities and goods, 1. In Section 109(a) and (c), food and
10% is multiplied with the Gross non-food products are VAT-exempt
Selling Price. as long as these products are in its
2. In sale of services, 10% is multiplied original state. The simple process of
with the Gross Receipts. preparation or preservation for the
3. In importation, 10% is multiplied market such as freezing, drying,
with the rates used by the Bureau of salting, broiling, roasting, smoking,
Customs in imposing tariff and or stripping does not remove the
customs duties plus customs duties, product from its category of being in
excise taxes, if any, and other its original state.
charges, such tax to be paid by the • However, even if the products were
importer prior to the release of such no longer in its original state, it can
goods from customs custody: still be VAT-exempt under Section
Provided, That where the customs 109(r), if sold by agricultural
duties are determined on the basis cooperatives duly registered by
of the quantity or volume of the Cooperative Development Authority.
goods, the value-added tax shall be 2. Under Section 109(m), private
based on the landed cost plus excise educational institutions are exempt
taxes, If any. customs duties. from VAT if duly accredited by the
DECS or by the CHED. In case of
B. Zero-rated (0%) rate of tax government educational institution,
no accreditation is required.
1. Export Sales as provided in Section
106(A)(2)(a) 3. Transactions in the field of Arts are
VAT-exempt only, as provided in

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

Section 109(n), if the seller is the the goods superior to all charges or
artist himself or the artist’s services liens on the goods, irrespective of
performed for the production of the possessor thereof.
such works.
TRANSACTIONS DEEMED SALE:
4. Section 109(p) makes Regional or
Area Headquarters exempt from The following transactions shall be
VAT. deemed sale therefore making them
covered by VAT:
5. Under Section 109(w) in order for
the sale or lease of real property to (1) Transfer, use or consumption not in
be exempted from VAT, the the course of business of goods or
transaction must NOT be conducted properties originally intended for sale or
in the ordinary course of trade or for use in the course of business;
business. It complements Section (2) Distribution or transfer to:
106(A)(1)(a) where it states that in (a) Shareholders or investors as
order for the sale or lease of real share in the profits of the VAT-registered
property to be covered by VAT, it persons; or
must be made in the ordinary course (b) Creditors in payment of debt;
of trade or business. (3) Consignment of goods if actual sale is
not made within sixty (60) days following
6. Revenue Regulations No. 6-97 adds a the date such goods were consigned; and
requirement in order for the lease of (4) Retirement from or cessation of
residential units with a monthly business, with respect to inventories of
rental of not more than P8,000.00, taxable goods existing as of such
as provided in Section 109(x), to be retirement or cessation.
VAT exempt, that the annual gross
receipts must not exceed How to determine the VAT: The tax
P550,000.00. shall be computed by multiplying the
total amount indicated in the invoice by
7. Section 109(z) provides that the sale one-eleventh (1/11).
or lease of goods or performances of
services other than those mentioned Example: the total amount indicated in
in the preceding paragraphs are VAT the invoice is P110. P110/11 = P10. P10
exempt if the Gross Annual Receipts is the amount of VAT.
do not exceed P550,000.00.
However, the limitation of TAX CREDIT AND REFUND
P550,000.00 does apply for those
transactions from Section 109(a) to Formula for Tax Credit:
(y), except (x) because Revenue Output
Regulations No. 6-97 imposes a Less: Input
P550,000.00 limitation. VAT due.

• In cases of tax-free importation of • If Input is greater than Output,


goods into the Philippines by Tax Credit is available.
persons, entities or agencies exempt
from tax where such goods are
subsequently sold, transferred or "INPUT TAX" means the value-added tax
exchanged in the Philippines to non- due from or paid by a VAT-registered
exempt persons or entities, the person in the course of his trade or
purchasers, transferees or recipients business on importation of goods or local
shall be considered the importers purchase of goods or services, including
thereof, who shall be liable for any lease or use of property, from a VAT-
internal revenue tax on such registered person. It shall also include
importation. The tax due on such the transitional input tax determined in
importation shall constitute a lien on

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
San Beda College of Law
1

MEMORY AID IN TAXATION LAW

accordance with Section 111 of the The claim for tax credit referred to
NIRC. in the foregoing paragraph shall include
not only those filed with the Bureau of
"OUTPUT TAX" means the value-added Internal Revenue but also those filed
tax due on the sale or lease of taxable with other government agencies, such as
goods or properties or services by any the Board of Investments or the Bureau
person registered or required to register of Customs.
under Section 236 of the NIRC.
The Commissioner within 120 days,
• If at the end of any taxable quarter in proper cases, from the date of
the output tax exceeds the input submission of complete documents in
tax, the excess shall be paid by the support of the application shall grant a
VAT-registered person. If the input refund or issue the tax credit certificate
tax exceeds the output tax, the for creditable input taxes.
excess shall be carried over to the
succeeding quarter or quarters. Any Remedy in case of full, or partial
input tax attributable to the denial, or failure on the part of the
purchase of capital goods or to zero- Commissioner to act upon the
rated sales by a VAT-registered application for tax credit or refund: the
person may at his option be taxpayer affected may, within thirty (30)
refunded or credited against other days from the receipt of the decision
internal revenue taxes, subject to denying the claim or after the expiration
the provisions of Section 112. of the one hundred twenty day-period,
appeal the decision or the unacted claim
with the Court of Tax Appeals.
OPTIONS OF A TAXPAYER AS PROVIDED
IN SECTION 112:
RETURN AND PAYMENT OF VAT
1. to claim for tax credit; or
2. to claim for refund
Every person liable to pay the value-
The claim, which must be in writing, added tax shall file a quarterly return of
for both cases, must be filed within 2 the amount of his gross sales or receipts
years after the close of the taxable within 25 days following the close of
quarter when the sales were made for: each taxable quarter prescribed for each
a) the issuance of a tax credit taxpayer: Provided, however, That VAT-
certificate; b) refund of creditable input registered persons shall pay the value-
tax due or paid attributable to such added tax on a monthly basis.
sales.
Any person, whose registration has
HOW TO DETERMINE CREDITABLE INPUT been cancelled in accordance with
TAX Section 236, shall file a return and pay
The sum of the excess input tax the tax due thereon within 25 days from
carried over from the preceding month the date of cancellation of registration:
or quarter and the input tax creditable Provided, That only one consolidated
to a VAT-registered person during the return shall be filed by the taxpayer for
taxable month or quarter shall be his principal place of business or head
reduced office and all branches.

reduced by the amount of claim for


refund or tax credit for value-added tax
and other adjustments, such as purchase
returns or allowances and input tax
attributable to exempt sale.

TAXATION LAW COMMITTEE


 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo