TAXATION LAW PRE-WEEK NOTES
NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
GENERAL PRINCIPLES OF TAXATION
Definition, Concept and Purpose of Taxation
Taxation is the power exercised by the sovereign through
its law-making body to raise revenue for the expenses of
government.
Nature and Characteristics of Taxation
 The power to tax is inherent but constitutional
provisions limit the exercise thereof. Its two-fold
nature is its being inherent and legislative;
 enforced and not voluntary;
 exacted pursuant to law (must originate from the
House of Representatives);
 exaction is always pecuniary;
 taxes are personal and cannot be transferred or
transmitted but the burden can be shifted (in
case of indirect taxes like VAT);
 for public purpose;
 levied by authority which has jurisdiction over
the following person, property, transaction,
rights and privileges (which is the extent of
coverage/scope of powers).
Power of Taxation as distinguished from Police
Power and Power of Eminent Domain
The 20% senior citizen discount and tax deduction
scheme are valid exercise of police power of the State
absent a clear showing that it is arbitrary, oppressive or
confiscatory. The discount is intended to improve the
welfare of the senior citizens who, at their age, are less
likely to be gainfully employed, more prone to illnesses
and other disabilities, and thus, in need of subsidy in
purchasing commodities. (Manila Memoraial Park, Inc.
v. Sec. of DSWD and DOF, 2013, DEL CASTILLO)
Theory and Basis of Taxation
 Necessity Theory – existence of government is a
necessity, therefore it has the right to compel
citizens and property to pay taxes;
 Benefits – Protection Theory – payment of taxes
allows a citizen to enjoy benefits in an organized
society; and
 Life Blood Theory – taxes constitute the lifeblood
of the country and support the operations of
government and the public services extended to the
people.
Principles of a Sound Tax System - FAT
1. Fiscal Adequacy – sufficiency to meet
government expenditures and other public
needs.
2. Administrative Feasibility/ Convenience –
capability of being effectively enforced.
3. Theoretical Justice/ Ability to Pay Theory –
based on the taxpayer‘s ability to pay; must be
progressive.
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Scope and Limitations of Taxation
A. INHERENT LIMITATIONS
1. Territoriality - limited only to persons, property
or businesses within the jurisdiction or territory
2. Public purpose
3. International comity
4. Non-delegability of taxing power
5. Tax Exemption of the government
B. CONSTITUTIONAL LIMITATIONS
1. Tax measures must originate from the House of
Representatives;
2. Tax must be uniform and equitable;
3. Progressive system of taxation;
4. President has delegated legislative power to
impose tariff rates, import and export quotas,
tonnage and wharfage dues and other duties or
imposts;
5. Charitable institutions, churches and personages
or convents appurtenant thereto, mosques, non-
profit cemeteries and all lands, buildings and
improvements, actually, directly and exclusively
(ADE) used for religious, charitable or
educational purposes are tax exempt;
6. Grant of tax exemption must be approved by
majority of ALL members of Congress;
7. Tax collected for a special purpose shall be
dedicated only for that purpose;
8. All local government units may impose tolls (ex.
use of roads), charges (ex. special assessment for
certain activities) and fees (ex. building permits,
business permits) in line with the principle of
local autonomy; and
9. Taxes not subject to set-off or compensation.
Stages or Aspects of Taxation
 Levy – Congress determines the persons,
property or exercises to be taxed, amount to be
raised, rates to be imposed and manner of
implementation.
 Assessment and Collection – The executive
branch administers and implements all tax laws
and enforces the levy.
 Payment and/or Exercise of Remedies –
Payment but failure thereof will allow the
government to exercise both administrative and
judicial remedies.
Requisites of a Valid Tax
1. Should be for a public purpose
2. Shall be uniform
3. That either the person or property taxed be within the
jurisdiction of the taxing authority
4. That the assessment and collection of certain kinds of
taxes guarantees against injustice to individuals,
especially by way of notice and opportunity for hearing
be provided
5. The tax must not impinge on the inherent and
Constitutional limitations on the power of taxation
Sources of Tax Laws
01. Statutes
02. Presidential Decrees
TAXATION LAW PRE-WEEK NOTES
NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018

03. Executive Orders If no return is filed or the return filed is false or

04. Constitution fraudulent - within 10 years from discovery of the
05. Court Decisions omission, fraud or falsity.
06. Tax Codes
07. Revenue Regulations  Collection - within 3 years from date of
08. Administrative Issuances assessment. In case of omission to file or if the
09. BIR Rulings return filed is false or fraudulent - within 10
10. Local Tax Ordinance years from discovery without need of an
11. Tax Treaties and Conventions assessment.

Construction and Interpretation of Tax Laws
1. Public purpose is always presumed.
2. If the law is clear, apply the law in accordance to its
plain and simple tenor.
3. A statute will not be construed as imposing a tax
unless it does so clearly, expressly and unambiguously. It
cannot be extended by implication.
b.) Tariff and customs code, as amended by CMTA
It does not express any general statute of limitation;
When articles have entered and passed free of duty or
final adjustment of duties made, with subsequent
delivery, such entry and passage free of duty or
settlement of duties will, after the expiration of one (1)
year, from the date of the final payment of duties, in the
absence of fraud or protest, be final and conclusive upon
all parties, unless the liquidation of import entry was
merely tentative.

4. In case of doubt, it is construed most strongly against
the Government, and liberally in favor of the taxpayer.
6. Tax laws operate prospectively unless legislature
expressly gives retrospective effect.
c.) Local Government Code Local Taxes, fees, or
charges
 Assessment - within 5 years from the date they
became due. In case of fraud - within 10 years
from discovery of the fraud.

7. Tax laws are special laws that prevail over a general  Collection - within 5 years from date of
law. assessment

Tax exemptions and Exclusions Double Taxation

Tax exemptions are strictissimi juris. Indeed, taxation is
the rule and tax exemption the exception. Tax
exemptions should be granted only by clear and
unequivocal provision of law on the basis of language too
plain to be misunderstood. (BIR VS MANILA HOME
TEXTILE, 2016, DEL CASTILLO)
Non-Retroactivity of BIR Rulings
GR: Not retroactive if prejudicial to taxpayer.
XPNs:
1. Taxpayer deliberately misstates material facts in his
return.
2. Facts submitted in the request for a ruling is materially
different from actual facts.
3. Taxpayer acted in bad faith.
Doctrines in Taxation
1. Prospectivity of Tax Laws - Operate prospectively
unless the purpose of the legislature to give retrospective
effect is expressly declared or may be implied from the
language used.
2. Imprescriptibility of Taxes (Doctrine of
Imprescriptibilty) As a rule, taxes are imprescriptible as
they are the lifeblood of the government. However, tax
statutes may provide for statute of limitations, as
follows:
a.) National Internal Revenue Code
 Assessment - within 3 years from the last day
prescribed by law for the filling of the return or if
filed after the last day, within three years from
date of actual filling.
It is taxing the same property twice. Double taxation is
not prohibited in the Philippines. There is no
constitutional prohibition against double taxation. It is
not favored but permissible.
Escapes from Taxation
a) Shifting of Tax Burden – the process by which the tax
burden is transferred from the statutory taxpayer
(impact of taxation) to another (incident of taxation).
b) Tax Avoidance – the use of legally permissible
alternative tax rates or methods of assessing taxable
property or income, in order to avoid or reduce tax
liability.
c) Tax Evasion – use by the taxpayer of illegal or
fraudulent means to defeat or lessen the payment of the
tax.
Doctrine of Equitable Recoupment
A tax presently being assessed but which has already
prescribed may not be recouped against an overpaid tax
the refund of which is also barred by prescription. This is
against public policy since both the taxpayer and the
government are guilty of negligence.
Compensation and Set-off
GR: Tax is NOT subject to compensation or set-off for
the following reasons:
1. lifeblood theory
2. taxes are not contractual obligation but arise out of
duty to the government

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TAXATION LAW PRE-WEEK NOTES
NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
3. the government and the taxpayer are not mutually
creditors and debtors of each other
XPN: When both obligations are due and demandable as
well as fully liquidated and all the requisites for a valid
compensation are present, compensation takes place by
operation of law.
Compromise and Tax Amnesty
 Compromise - A contract whereby the parties
avoid litigation or put an end to one already
commenced by reciprocal concessions.
 Tax Amnesty - Partakes of an absolute waiver of
the government of its right to collect.
Taxpayer’s Suit - one is allowed to sue by asserting that
public funds are illegally disbursed or that there is a
wastage of public funds through the enforcement of an
invalid or unconstitutional law.
As distinguished from a citizen's suit, the person
complaining must allege that he has been or is about to
be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute or act
complained of. A citizen’s suit may also be made in
representation of minors or generations yet unborn to
enforce rights or obligations under environmental laws.
The Court retains the broad discretion to waive the
requirement of legal standing in favor of any petitioner
when the matter involved has transcendental
importance, or otherwise requires a liberalization of the
requirement.
NATIONAL TAXATION
Income Tax is tax on all yearly profits arising from
property, possessions, trade or business, or as a tax on a
person‘s income, emoluments, profits and the like.
Income Tax systems
 Global Tax System – all items of income
subjected to a single set of income tax rate.
 Schedular Tax System – different types of
incomes are subject to different sets of graduated or
flat income tax rates.
 Semi-Schedular or Semi-Global Tax System –
the compensation income, business or professional
income, capital gain and passive income not subject to
final tax, and other income are added together to arrive
at the gross income, and after deducting the sum of
allowable deductions from business or professional
income, capital gain and passive income not subject to
final tax, and other income, in the case of corporations,
as well as personal and additional exemptions, in the
case of individual taxpayers, the taxable income is
subjected to one set of graduated tax rates.
Taxable period - the calendar year or the fiscal year
ending during such calendar year, upon the basis of
which the net income is computed for income tax
purposes.
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Kinds:
1. Calendar period - 12 consecutive months starting on
January 1 and ending on December 31.
2. Fiscal period - 12 months ending on the last day of any
month other than December.
3. Short period - Instances when the taxpayer may have a
taxable period of less than twelve (12) months:
1. When the corporation is newly organized and
commenced operations on any day within the
year
2. When the corporation changes its accounting
period
3. When a corporation is dissolved
4. When a Commissioner of Internal Revenue, by
authority, terminates the taxable period of a
taxpayer
5. In case of final return of the decedent and such
period ends at the time of his death
KINDS OF TAXPAYERS
A. Individuals
1. Resident Citizens (RC)
2. Non-Resident Citizens (NRC)
3. Resident Aliens (RA)
4. Non-Resident Aliens (NRA)
5. Engaged In Trade Or Business Within The Phils.
(NRAETB)
6. Not Engaged In Trade Or Business Within The
Philippines (NRANETB)
B. Corporations
1. Domestic (DC)
2. Resident Foreign Corporation (RFC)
3. Non-Resident Foreign Corporation (NRFC)
C. Estates - An estate refers to the mass of properties left
by a deceased person.
D. Trusts - A trust is a right to the property, whether real
or personal, held by one person for the benefit of
another.
E. Partnerships
When income is taxable
 Existence of income – gain not mere return of
capital
 Recognition of income - Recognition of income is
dependent upon the Accounting
Method used by the taxpayer:
1. Cash Method – only income actually received shall
be recognized and that only expenses actually paid
shall be claimed as deductions.
2. Accrual Method – income is recognized only when
earned, regardless of whether it has been received
and expenses are allowed as deductions only when
incurred regardless of whether it was actually paid
Tests on Taxability of Income
1. Flow of Wealth Test – The determining factor for the
imposition of income tax is whether any gain was
derived from the transaction.
2. Realization Test - unless the income is deemed
"realized," there is no taxable income.
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NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
3. Economic-Benefit Principle Test - flow of wealth
realized is taxable only to the extent that the taxpayer is
economically benefited.
Classification of income
1. Gross income and taxable income from sources within
the Philippines
2. Gross income and taxable income from sources
without the Philippines
3. Income partly within or partly without the Philippines
GROSS INCOME means all income derived from
whatever source, including but not limited to the
following items:
01. Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions and similar items
02. Gross income derived from the conduct of trade or
business or the exercise of a profession
03. Gains derived from dealings in property
04. Interests
05. Rents
06. Royalties
07. Dividends
08. Annuities
09. Prizes and winnings
10. Pensions and
11. Partner’s distributive share from the net income of
the general professional partnership
“Income from whatever source” includes all income
not expressly excluded or exempted from the class of
taxable income, irrespective of the voluntary or
involuntary action of the taxpayer in producing the
income
Gross income vis-à-vis net income vis-à-vis taxable
income
Net income - All pertinent items of gross income
specified in the NIRC, less the deductions
Taxable income – Net income less personal and
additional exemptions
Classification of income subject to tax
1. Compensation income - includes all
remuneration for services rendered by an
employee for his employer.
2. Fringe benefits - is any good, service or other
benefit furnished or granted by an employer in
cash or in kind in addition to basic salaries, to an
individual employee, except a rank and file
employee.
3. Professional income - refers to the fees received
by a professional from the practice of his
profession, provided that there is no employer-
employee relationship between him and his
clients.
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4. Income from business - refers to income derived
from merchandising, mining, manufacturing and
farming operations.
5. Income from dealings in property - Gains derived
from dealings in property means all income
derived from the disposition of property
whether real, personal or mixed. It is the
difference between the proceeds of the sale or
exchange and the acquisition value of the
property disposed by the taxpayer.
6. Passive investment income - refers to income
derived from any activity on which the taxpayer
has no active participation or involvement.
Passive incomes that are subject to final tax under
the NIRC:
1. Interests, royalties, prizes and other winnings
2. Cash and/or property dividends
3. Capital gains from sale of shares of stock not traded in
the stock exchange
4. Capital gains from sales of real property
REPUBLIC VS. SALVADOR, GR NO 205428, JUNE 7,
2017(DEL CASTILLO)
Respondents are registered owners of a parcel of land,
83 square meters of which was subjected to
expropriation proceedings by the DPWH. Respondents
received two checks from the DPWH representing the
100% of the zonal value of the subject property as just
compensation. In the expropriation case, the RTC
directed the Republic to pay the respondents
consequential damages equivalent to the value of the
capital gains tax and other taxes for necessary for the
transfer of the subject property in the Republic’s name.
Republic did not agree. The Court agreed with the RTC
and held that capital gains tax is a consequence of the
expropriation proceedings. The Bureau of Internal
Revenue (BIR) in BIR Ruling No. 476-2013 has
constituted the DPWH as a withholding agent tasked to
withhold the six-percent final withholding tax in the
expropriation of real property for infrastructure projects.
Thus, as far as the government is concerned the capital
gains tax in expropriation proceedings remains a liability
of the seller, as it is a tax on the seller’s gain from the sale
of the property.
7. Annuities, proceeds from life insurance or other
types of insurance
Annuity - refers to the periodic installment payments
of income or pension by insurance companies during
the life of a person or for a guaranteed fixed period of
time, whichever is longer, in consideration of capital
paid by him. The portion representing return of
premium is not taxable while that portion that
represents interest is taxable.
8. Prizes and awards - refers to amount of money in
cash or in kind received by chance or through
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NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
luck and are generally taxable except if
specifically excluded.
9. Pensions, retirement benefit or separation pay -
It refers to amount of money received in lump
sum or on staggered basis in consideration of
services rendered given after an individual
reaches the age of retirement. Pension being part
of gross income is taxable to the extent of the
amount received except if there is a BIR
approved pension plan.
10. Income from any source whatever
Forgiveness of Indebtedness
1. When cancellation of debt is income. If an individual
performs services for a creditor, who in consideration
thereof, cancels the debt, it is income to the extent of the
amount realized by the debtor as compensation for his
services.
2. When cancellation of debt is a gift. If a creditor merely
desires to benefit a debtor and without any consideration
therefore cancels the amount of the debt, it is a gift from
the creditor to the debtor and need not be included in the
latter’s income. The creditor is subject to donor’s tax.
3. When cancellation of debt is a capital transaction. If a
corporation to which a stockholder is indebted forgives
the debt, the transaction has the effect of payment of a
dividend
4. An insolvent debtor does not realize taxable income
from the cancellation or forgiveness
5. The insolvent debtor realizes income resulting from
the cancellation or forgiveness of indebtedness when he
becomes solvent.
Recovery of Accounts Previously Written Off-When
Taxable/When Not Taxable (Tax Benefit Rule or
Equitable Doctrine of Tax Benefit)
It is a principle that if a taxpayer recovers a loss or
expense that was deducted in a previous year, the
recovery must be included in the current year's gross
income to the extent that it was previously deducted.
Exclusions from Gross Income - refer to the removal of
otherwise taxable items from the reach of taxation
There are exclusions from the gross income either
because they:
1. Represent return of capital;
2. Are not income, gain or profit;
3. Are subject to another kind of internal revenue tax;
4. Are income, gain or profit that is expressly exempt
from income tax under the Constitution, Tax treaty, Tax
Code, or general or a special law.
Taxpayers who may avail of the exclusions
All kinds of taxpayers – individuals, estates, trusts and
corporations, whether citizens, aliens, whether residents
or non-residents may avail of the exclusions.
Exclusions under the Constitution
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Income derived by the Government or its political
subdivision is exempt from gross income only if the
source of the income is from any public utility or from
the exercise of any essential governmental functions.
Exclusions under the Tax Code
01. Gifts, bequests and devises
02. Life insurance proceeds
03. Amount received by insured as return of premium
04. Retirement benefits, pensions, gratuities, etc.
05. Income exempt under treaty
06. Compensation for injuries or sickness
07. Miscellaneous items.
a. 13thmonth pay and other Benefits;
b. Prizes and awards
c. Prizes and awards in sports competitions
d. Income derived by foreign government
e. Income derived by the government or its political
subdivisions
f. GSIS, SSS, Medicare and other contributions
g. Gains from the sale of bonds, debentures or other
certificate of indebtedness
h. Gains from redemption of shares in mutual fund
Exclusions under special laws
Personal Equity and Retirement Account (PERA) R.A.
9505 refers to the voluntary retirement account
established by and for the exclusive use and benefit of
the Contributor for the purpose of being invested solely
in PERA investment products in the Philippines. All
income earned from the investments and reinvestments
of the maximum amount allowed herein are tax exempt.
Maximum annual PERA contribution allowed are as
follows:
If the contributor is single - P100,000 or its equivalent in
any convertible foreign currency at the prevailing rate at
the time of the actual contribution
If the contributor is married - Each of the spouses shall be
entitled to make a maximum contribution of One
hundred thousand pesos (₱100,000) or its equivalent in
any convertible foreign currency.
If the contributor is an OFW - Double the allowable
maximum amount
Deductions from Gross Income - refer to items or
amounts authorized by law to be subtracted from
pertinent items of gross income to arrive at the taxable
income.
Itemized deductions
1. Charitable and other contributions
2. Research and Development
3. Expenses (Ordinary and Necessary)
4. Depreciation
5. Depletion of Oil and gas wells and mines
6. Bad Debts
7. Interest expense
8. Taxes
9. Losses
10. Pension trust contributions
TAXATION LAW PRE-WEEK NOTES
NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
Optional Standard Deduction (OSD) - a fixed
percentage deduction which is allowed to certain
taxpayers without regard to any expenditure and is in
lieu of the itemized deduction. The OSD is an amount not
exceeding:
1. 40% of the gross sales or gross receipts of a qualified
individual taxpayer; or
2. 40% of the gross income of a qualified corporation
It should be emphasized that the “cost of sales” in case of
individual seller of goods, or the “cost of service” in case
of individual seller of services, is not allowed to be
deducted for purposes of OSD.
Personal and Additional Exemptions
1. Basic Personal Exemption – the amount subtracted
from gross income which is allowed for the theoretical
personal, family, and living expenses of an individual
taxpayer regardless of status, whether single or married
individual judicially decreed as legally separated with no
qualified dependents or head of the family; ₱50,000 for
each individual taxpayer regardless of whether he is
single, head of the family or married.
2. Additional Exemptions – exemptions in addition to the
basic personal exemptions that are granted to certain
individuals who have qualified dependents; ₱25,000 for
each “qualified dependent” not exceeding four (4).
Health and Hospitalization Insurance Premium- not to
exceed ₱2,400 per family or ₱200 a month per family
 Only an individual taxpayer may claim health
and hospitalization insurance expenses as
deduction.
 Individual taxpayers whether earning purely
compensation income during the year or earning
business income or in practice of his profession,
whether availing of itemized or optional
standard deductions during the year.
 In the case of married taxpayers, only the spouse
claiming the additional exemption for
dependents shall be entitled to this deduction.
 Conditions in order to avail said deduction
1. The health and/or hospitalization was
taken by the taxpayer for himself,
including his family; and
2. Said family has a gross income of not
more than ₱250,000 for the taxable year.
Items not deductible
In computing net income, no deduction shall in any case
be allowed in respect to:
1. Personal, living or family expenses – these are
personal expenses and not related to the conduct of
trade or business.
2. Any amount paid out for new buildings of for
permanent improvements, or betterments made to
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increase the value of any property or estate – these are
capital expenditures added to the cost of the property
and the periodic depreciation is the amount that is
considered as deductible expense.
3. Any amount expended in restoring property or in
making good the exhaustion thereof for which an
allowance is or has been made (Major Repairs;
Considered asset)
4. Premiums paid on any life insurance policy covering
the life of any officer or employee, or of any person
financially interested in any trade or business carried on
by the taxpayer, individual or corporate, when the
taxpayer is directly or indirectly a beneficiary under such
policy
5. Interest expense, bad debts, and losses from sales of
property between related parties (Related Party
Transactions)
6. Losses from sales or exchanges of property
7. Non-deductible interest
8. Non-deductible taxes
9. Non-deductible losses
10. Losses from wash sales of stock or securities
INCOME TAX ON INDIVIDUALS
a) Income Tax on Resident Citizens, Non-resident
Citizens and Resident Aliens
1. RC - taxable on all income derived from sources within
and without the Philippines;
2. NRC - taxable only on income derived from sources
within the Philippines;
3. RA/NRA - taxable only on income derived from
sources within the Philippines.
Taxation on compensation income
Included in compensation income:
a. Regular salary/wage
b. Separation pay/retirement benefit not otherwise
exempt
c. Bonuses, 13th month pay, and other benefits not
exempt
d. Director’s fees (If also an employee of the company
where he is also a director)
Excluded from compensation income:
1. Fringe benefit subject to FBT
2. De minimis benefit
3. 13th month pay and other benefits and payments
specifically excluded from taxable compensation income
(P82,000)
Examples of Fringe Benefits under the law
1. Housing
2. Expense account
3. Vehicle of any kind
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NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
4. Household personnel such as maid, driver and others
5. Interest on loans at less than market rate to the extent
of the difference between the market rate and the actual
rate granted
6. Membership fees, dues and other expenses borne by
the employer for the employee in social and athletic
clubs or other similar organizations
7. Holiday and vacation expenses
8. Expenses for foreign travel
9. Educational assistance to the employee or his
dependents
10. Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law
allows
De Minimis Benefits - facilities or privileges furnished
or offered by an employer to his employees that are of
relatively small value and are offered or furnished by the
employer merely as a means of promoting the health,
goodwill, contentment and efficiency of his employees.
The 13th month pay and other benefits are excluded
from gross income, provided that they do not exceed
₱82,000. Any excess thereof is considered part of the
compensation income of an individual, hence, subject to
income tax.
Individual Taxpayers Exempt from Income Tax
1. Senior citizens provided considered a MWE
2. MWE They shall be exempt from the payment of
income tax on their income, holiday pay,
overtime pay, night shift differential pay and
hazard pay
3. Exemptions granted under international
agreements
INCOME TAX ON CORPORATIONS
Income Tax on Domestic Corporations (DC)
Section 69 of the old NIRC allows unutilized tax credits to
be refunded as long as the claim is filed within the
prescriptive period. This, however, no longer holds true
under Section 76 of the 1997 NIRC as the option to carry-
over excess income tax payments to the succeeding
taxable year is now irrevocable. (BELLE CORPORATION
vs CIR, 2011, DEL CASTILLO)
Taxes imposed on Domestic Corporations (DC)
1. Normal corporate income tax (NCIT) - 30% of
taxable income from all sources within and without the
Philippines
2. Minimum corporate income tax (MCIT) - 2% of gross
income, if MCIT applies
3. Gross income tax (Optional corporate income tax) -
15% of gross income, if qualified
4. Improperly Accumulated Earnings Tax (IAET) - 10%
of improperly accumulated earnings
5. Final tax on passive income
Resident Foreign Corporation (RFC) - refers to a
corporation organized, authorized, or existing under the
laws of any foreign country, engaged in trade or business
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within the Philippines. It shall be liable for a 30% income
tax on their income from within the Philippines
1. Normal Corporate Income Tax (NCIT) – also
applies to RFCs.
2. Minimum Corporate Income Tax (MCIT) also
applies RFCs.
3. Branch Profit Remittance Tax Branch - In general,
profits remitted abroad by a branch office are
subject to a 15% tax rate, based on the total profits
applied or earmarked for remittance, without any
deduction for the tax component thereof.
A. International carriers doing business in the
Philippines - Gross income within the Phil @ 2 ½%
of Philippine gross billings
B. Off-shore banking units - Gross income within the
Phil @ 10%
C. Resident depository banks (foreign currency
deposit units)- 15% of remittances
D. Regional or Area Headquarters and Regional
Operating Headquarters of Multinational
Companies - both tax-exempt
Income Tax on Non-Resident Foreign Corporations
(NRFC) – 30% GROSS INCOME within the Philippines
INCOME TAX ON SPECIAL CORPORATIONS
Domestic Corporations
1. Proprietary educational institutions and hospitals -
Net taxable income 10%
St. Luke’s Medical Center remains a proprietary non-
profit hospital under Section 27(B) of the NIRC as long as
it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate
purposes. As a proprietary non-profit hospital, it is
entitled to the preferential tax rate of 10% on its net
income from its for-profit activities. (CIR v. ST. LUKE'S
MEDICAL CENTER, INC., 2017, DEL CASTILLO)
2. Non-profit hospitals - Net taxable income 10%
3. Government-owned or controlled corporations,
agencies or instrumentalities - Net taxable income
30%
4. Depository banks (foreign currency deposit units)
Exemptions from Tax on Corporations
The following organizations shall not be taxed in respect
to income received by them as such:
1. Labor, agricultural or horticultural organization, not
organized principally for profit;
2. Mutual savings banks and cooperative banks
3. Fraternal Beneficiary Society, Order or Association
TAXATION LAW PRE-WEEK NOTES
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4. Cemetery Companies
5. Religious, Charitable, Scientific, Athletic or Cultural
Corporations
Requisites for exemption:
a. Organized and operated for one or more specified
purposes;
b. No part of the net income inures to the benefit of the
any private stockholder or individual
6. Business, Chamber of Commerce, or Board of Trade
7. Civic league
Requisites for exemption:
a. Not organized for profit but operated exclusively for
purposes beneficial to the community as a whole. In
general, organizations engaged in promoting the
welfare of mankind;
b. Sworn affidavit filed with the BIR showing the
following:
i. Character of the league or organization
ii. Purpose for which it was organized
iii. Actual activities
iv. Sources of income and disposition thereof, and
v. All facts relating to the operation of the
organization which affects it right to exemption.
vi. The copy of articles of incorporation, by laws and
financial statements should be attached to the sworn
affidavit
8. Non-stock, Non-Profit Educational Institutions;
9. Government Educational Institutions;
10. Mutual Fire Insurance Companies and like
Organizations
11. Farmers, Fruit Growers or like Associations
Income of whatever kind and character of the
foregoing organizations from any of their properties, real
or personal, or from any of their activities conducted for
profit regardless of the disposition made of such income,
shall be subject to tax imposed under the NIRC.
The foregoing exempt corporations have common
requisites for exemption:
1. Not organized and operated principally for Profit;
2. No part of the net income Inures to the benefit of any
member or individual;
3. No capital is represented by Shares of stock; and
4. Educational or instructive in character.
The moment they invest their income or receive
income from their properties, real or personal conducted
8
for profit, such income derived from those properties is
subject to tax.
If religious, charitable or social welfare corporations
derive income from their properties or any of their
activities conducted for profit, income tax shall be
imposed on said items of income irrespective of their
disposition
However, in case of non-stock, non-profit educational
institution, as long as the income is actually, directly and
exclusively used for educational purpose, such income is
exempt as provided for in Art. XIV, Sec. 3 of the 1987
Constitution.
Other corporations exempt from income tax under
Special Laws
1. Cooperatives under R.A. 6938, the Cooperative Code of
the Philippines
2. Foundations created for scientific purposes under Sec.
24 of R.A. 2067, an Act to Integrate, Coordinate, and
Intensify Scientific and Technological Research and
Development and to Foster Invention
Tax on other Business Entities: General Partnerships,
General Professional Partnerships, Co-ownerships,
Joint Ventures and Consortia
General partnerships are taxable like corporations
while General Professional Partnerships (GPPs) are not
subject to income tax because they are mere “pass-
through”entities.
Filing of Returns and Payment of Income Tax
Period within which to file Income Tax Return of
Individuals and Corporations
For individuals - on or before April 15th day of each
year covering income for the preceding taxable year.
However, individuals who are self-employed or in
practice of a profession are required to file and pay
estimated income tax every quarter as follows:
1. First Quarter - April 15
2. Second Quarter - August 15
3. Third Quarter - November 15
4. Final Quarter - April 15 of the following year
For corporations – within 60 days following the close
of the taxable quarter for quarterly income tax returns.
For annual income tax return, on or before April 15 if
calendar year, and on or before the 15th day of the fourth
month following the close of the fiscal year.
Persons liable to file Income Tax Returns
Individual taxpayers
1. Resident citizens receiving income from sources
within or outside the Philippines
a. Individuals deriving compensation income from 2 or
more employers, concurrently or successively at
anytime during the taxable year;
TAXATION LAW PRE-WEEK NOTES
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b. Employees deriving compensation income
regardless of the amount, whether from a single or
several employers during the calendar year, the
income tax on which has not been withheld correctly
resulting to collectible or refundable return;
c. Employees whose monthly gross compensation
income does not exceed 5,000 or the statutory
minimum wage, whichever is higher, and opted for
non-withholding of tax on said income;
d. Individuals deriving non-business, nonprofessional
related income, in addition to compensation income
not otherwise subject to a final tax;
e. Individuals receiving purely compensation income
from a single employer, although the income of which
has been correctly withheld, but whose spouse is not
entitled to substituted filing
2. Non-resident citizens receiving income from sources
within the Philippines
3. Citizens working abroad receiving income from
sources within the Philippines
4. Aliens, whether resident or not, receiving income from
sources within the Philippines
Substituted filing - when the employer‘s annual return
may be considered as the substitute Income Tax Return
(ITR) of an employee, inasmuch as the information
provided in his income tax return would exactly be the
same information contained in the employer‘s annual
return.
Conditions for the substituted filing of ITR
1. Employee receives purely compensation income,
regardless of amount, during the taxable year
2. He receives the income only from one employer
3. Income tax withheld is equal to income tax due
4. Employer filed information return showing the income
tax withheld on employees compensation income
WITHHOLDING OF TAXES
Concept of withholding taxes
Taxes imposed or prescribed by the NIRC are to be
deducted and withheld by the payor-corporations
and/or persons for the former to pay the same directly to
the BIR. Hence, the taxes are collected practically at the
same time the transaction is made or when the taxable
transaction occurs. It is taxation at source.
Kinds of Withholding Taxes
1. Withholding of final tax on certain incomes;
2. Withholding of creditable tax at source
a. Withholding Tax on Compensation - tax withheld from
individuals receiving purely compensation income; tax
withheld from income payments to individuals arising
from an employer-employee relationship
b. Expanded Withholding Tax – a kind of withholding tax
which is prescribed only for certain payors and is
9
creditable against the income tax due of the payee for the
taxable quarter year
c. Withholding of Business Taxes (VAT and Percentage)
d. Withholding Tax on Government Money Payments –
withheld by government offices and instrumentalities,
including government-owned or controlled corporations
and local government units, before making any payments
to private individuals, corporations, partnerships and/or
associations
TRANSFER TAXES - imposed upon the privilege of
passing ownership of property without any valuable
consideration.
Kinds of Transfer Taxes under the NIRC
1. Estate tax
2. Donor’s tax
Estate Tax - an excise tax imposed upon the privilege of
transmitting property at the time of death and on the
privilege that a person is given in controlling to a certain
extent the disposition of his property to take effect upon
death. It is based on the laws in force at the time of death.
It is not a tax on property because their imposition does
not rest upon general ownership but rather they are
privilege tax since they are imposed on the act of passing
ownership of property
Purposes in Imposing the Estate Tax
1. To generate additional revenue for the government
2. To reduce the concentration of wealth
3. To provide for an equal distribution of wealth
4. To compensate the government for the protection
given to the decedent that enabled him to prosper and
accumulate wealth
Time and transfer of properties
The properties and rights are transferred to the
successors at the time of death. The statute in force at the
time of death of the decedent governs the imposition of
the estate tax. The estate tax accrues as of the death of
the decedent. The accrual of the tax is distinct from the
obligation to pay the same which is 6 months after the
death of the decedent.
Classification of decedent
1. Resident decedent
a. Resident citizen
b. Non-resident citizen
c. Resident alien
2. Non-resident decedent
a. Non-resident alien
Gross estate and net estate
Gross estate is arrived at after adding all those included
and deducting the exclusions while net estate is arrived
at after subtracting the allowable deductions from the
gross estate.
Items to be included in the gross estate
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1. Decedent's interest
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under general power of appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers of insufficient consideration
Deductions and exclusions from estate
1. Expenses, losses, indebtedness, and taxes (ELIT):
a. Funeral expenses - The amount deductible is the lower
between actual funeral expenses or 5% of the gross
estate but not exceeding P200,000.
b. Judicial expenses for testamentary or intestate
proceedings
Examples of judicial expenses:
1. Fees of executor or administrator
2. Attorney’s fees
3. Court fees
4. Accountant’s fees
5. Appraiser’s fees
6. Clerk hire
7. Costs of preserving and distributing the estate
8. Costs of storing or maintaining property of the estate
9. Brokerage fees for selling property of the estate
c. Claims against the estate - are debts or demands of a
pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been
reduced to simple money judgments.
d. Claims against insolvent persons included in the gross
estate
Requisites for deductibility:
1. The full amount of the receivables be included first in
the gross estate; and
2. The incapacity of the debtors to pay their obligation is
proven not merely alleged.
e. Unpaid mortgages or indebtedness upon the property
Requisites for its deductibility
1. The value of the property to the extent of the
decedent’s interest therein, undiminished by such
mortgage or indebtedness is included in the gross estate;
and
2. The mortgage indebtedness was contracted in good
faith and for an adequate and full consideration in money
or money’s worth.
f. Unpaid taxes- Taxes which have accrued as of the death
of the decedent which were unpaid as of the time of
death are deductible.
g. Losses incurred during the settlement of the estate
Requisites for its deductibility
10
Losses are allowed as deductions from the gross estate
of a Filipino citizen whether resident or non-resident and
resident alien are allowed provided that they:
1. Were incurred during the settlement of the estate;
2. Arise from fire, storm, shipwreck, or other casualties,
or robbery, theft or embezzlement;
3. Are not compensated by insurance or otherwise;
4. Are not claimed as deduction in the ITR of the estate
at the time of the filing of the return; and
5. Occur not later than the last day prescribed by law
or any extension thereof for payment of the estate tax.
2. Property previously taxed (Vanishing Deductions) -
Vanishing Deduction is the deduction allowed from the
gross estate of citizens, resident aliens and non-resident
estates for properties which were previously subject to
donors or estate taxes. The purpose of vanishing
deduction is to lessen the harsh effects of double
taxation.
3. Transfers for public use
Requisites for deductibility:
a) The disposition is in a last Will and testament;
b) To take effect after Death;
c) In favor of the Government of the Philippines or
any political subdivision thereof;
d) For exclusive Public purposes; and
e) The value of the property given is Included in the
gross estate.
4. The Family home (not applicable to NRA)
It is the dwelling house, including the land where it is
situated where the married person or an unmarried head
of the family and his family resides.
It is deemed constituted on the house and lot from the
time that it is constituted as a family residence and is
considered as such so long as any of the beneficiaries
actually resides therein.
5. Standard deduction (not applicable to NRA) – P1M
6. Medical expenses (not applicable to NRA)
Requisites for deductibility:
1. Medical expenses incurred by the decedent;
2. Incurred within one (1) year prior to the decedent’s
death;
3. Must be substantiated with receipts; and
4. Shall not exceed 500,000 whether paid or unpaid.
7. Amount received by heirs under R.A. No. 4917
(Retirement Benefits of Employees of Private Firms) (not
applicable to NRA) - R.A. 4917 is an Act providing that
the retirement benefits of employees of private firms
shall not be subject to attachment, levy, execution, or any
tax whatsoever. It provides that retirement benefits
received by officials and employees of private firms,
whether individual or corporate, in accordance with a
reasonable private benefit plan maintained by the
employer shall be exempt from all taxes and shall not be
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liable to attachment, garnishment, levy or seizure by or
under any legal or equitable process whatsoever except
to pay a debt of the official or employee concerned to the
private benefit plan or that arising from liability imposed
in a criminal action. The retiring official or employee has
been in the service of the same employer for at least ten
(10) years. He should not less than fifty years of age at
the time of the retirement.
Requisites for deductibility:
1. Amounts received by the heirs from the decedent’s
employer;
2. Received as a consequence of the death of the
decedent-employee; and
3. Amount is included in the gross estate of the
decedent.
8. Net share of the surviving spouse in the conjugal or
community property.
The net share of the surviving spouse is not included
in the net estate of the decedent. After deducting the
allowable deductions pertaining to the conjugal or
community properties included in the gross estate, the
net share of the surviving spouse must be removed to
ensure that only the decedent’s interest in the estate is
taxed.
Tax Credit for Estate Taxes Paid to a Foreign Country
Estate Tax Credit is a remedy against international
double taxation to minimize the onerous effect of taxing
the same property twice. Only the estate of a citizen or a
resident alien at the time of death can claim tax credit for
any estate taxes paid in a foreign country.
Exemption of Certain Acquisitions And
Transmissions
Transmissions exempted from the payment of estate tax
1. The merger of usufruct in the owner of the naked title
2. The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary
3. The transmission from the first heir, legatee or donee
in favor of another beneficiary, in accordance with the
desire of the predecessor
4. All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions.
Filing of notice of death - filed Within 2 months (60 days)
after the decedent’s death or within the same period
after qualifying as executor or administrator. It is filed by
the executor, administrator, or any legal heir.
Notice of death required when:
1. Transfers subject to tax
2. Even if exempt from tax, if gross value of estate
exceeds P20,000.
11
Estate tax return - is filed within 6 months from the
decedent’s death
Donor’s Tax - an excise tax imposed on the privilege of
transferring property by way of a gift inter vivos based
on pure act of liberality without any or less than
adequate consideration and without any legal
compulsion to give.
Requisites for a gift to be taxable:
1. Capacity of donor to donate (which shall be
determined as of the making of the donation)
2. Donative intent
3. Acceptance by the donee
4. Actual or constructive delivery of gift
Transfers Which May Be Constituted As Donation
1. sale/exchange/transfer of property for
insufficient consideration - The property is
transferred for less than adequate and full
consideration in money or money’s worth; FMV
minus the consideration = taxable gift
2. condonation/remission of debt
Classification of Donor Liable to Pay Donor’s Tax
1. Taxable within and outside Philippines:
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Domestic corporation
2. Taxable only within the Philippines:
a. Non-resident aliens
b. Foreign corporation
Determination of gross gift - All property, real or
personal, tangible or intangible, that was given by the
donor to the donee by way of gift, without the benefit of
any deduction
Real property - the fair market value as determined by
the CIR at the time of donation or the value fixed by the
assessor, whichever is higher.
Tax Credit for Donor’s Taxes Paid to a Foreign
Country
The donor’s tax imposed by the Tax Code upon a donor
who was a citizen or a resident at the time of donation
shall be credited by/ lessened with any donor’s taxes
imposed by a foreign country.
Persons Liable
Any person making a donation is required to file donor’s
tax return unless the donation is specifically exempted
under NIRC or other special laws. He is required for
every donation to accomplish under oath a donor’s tax
return in duplicate.
Tax basis
1. Where the donee is a relative – The donor is taxed
according to graduated tax rates
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NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
2. When the donee is a stranger - The donor is taxed at
30% of the net gifts
VALUE-ADDED TAX (VAT)
VAT as an Indirect Tax; it can be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or
services. VAT is a Regressive tax; not based on ability to
pay.
Value Added Tax is an indirect business tax imposed and
collected on every:
(a) sale, barter, or exchange of goods or properties (real
or personal),
It refers to the sale, barter, exchange and/or lease of
goods or properties, including transactions deemed
sale and the performance of service for
consideration, whether in cash or in kind.
(b) lease of goods or properties (real or personal) or
(c) rendition of services in the course of trade or
business, and
It means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or
consideration.
(d) importation of goods (whether or not in the course of
trade or business).
Importation is an act of bringing goods and
merchandise into a country (Philippines) from a
foreign country.
Impact and Incidence of Tax
The impact (levy or imposition) of VAT is on the seller
upon whom the tax has been imposed. He is considered
as the statutory taxpayer who can avail of a tax refund.
The incidence (payment) of VAT is on the final consumer.
The tax is shifted to the buyer of the goods, properties, or
services as part of the purchase price.
Tax Credit Method
“Destination Principle” or the “Cross Border
Doctrine” – The destination of the goods determines
taxation or exemption from tax. Goods and services are
taxed only in the country where they are consumed.
Hence, Exports - either exempt or zero rated; Imports -
are subject to VAT.
Exception: A zero percent VAT rate for services that are
performed in the Philippines, "paid for in acceptable
foreign currency and accounted for in accordance with
the rules and regulations of the BSP."
Imposition of VAT
When the intent of the law is not apparent as worded, or
when the application of the law would lead to absurdity
or injustice, legislative history is all important. We are
convinced that the legislature never intended to include
cinema/theater operators or proprietors in the coverage
of VAT. (CIR v. SM PRIME HOLDINGS, INC. 2010, DEL
CASTILLO)
On Importation of Goods
12
Tax Base of Importation
The tax base shall be based on the total value used by the
BOC in determining tariff and customs duties (Landed
Cost) plus customs duties, excise taxes, if any, and other
charges to be paid by the importer prior to the release of
such goods from customs custody. Landed cost consists
of the invoice amount, customs duties, freight, insurance
and other charges
Transfer Of Goods By Tax Exempt Persons
Consequence if a tax exempt person would transfer
imported goods to a non-exempt person: The purchaser
or transferee shall be considered as an importer and
shall be held liable for VAT and other internal revenue
tax due on such importation (Technical Importation)
On services
Transactions Deemed Sale
a) Transfer, use or consumption not in the course of
business of goods/properties originally intended for
sale or use in the course of business
b) Distribution or transfer to shareholders, investors
or creditors
c) Consignment of goods if actual sale is not made
within 60 days from date of consignment
d) Retirement from or cessation of business with
respect to inventories on hand
Change or Cessation of Status as VAT-Registered
Person which are Not Subject To VAT
1. Change of control
2. Change in the trade or corporate name
3. Merger or consolidation
Zero-Rated and Effectively Zero-Rated Sales of Goods
or Properties
Zero-rated sale of goods or properties by a VAT-
registered person is a taxable transaction for VAT
purposes but the sale does not result in any output tax.
However, the input tax on the purchases of goods,
properties or services related to such zero-rated sale
shall be available as tax credit or refund.
VAT-exempt transactions - refers to the sale of goods
or properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and the
seller is not allowed any tax credit of VAT (input tax) on
purchases. Input tax is considered as an expense.
Input and Output tax
Input Tax - the VAT due on or paid by a VAT-registered
person on importation of goods or local purchase of
goods, properties or services, including lease or use of
properties, in the course of his trade or business. It shall
also include the transitional input tax and the
presumptive input tax.
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Sources of Input Tax
1. Purchase or importation of goods
2. Purchase of real properties
3. Purchase of services
4. Transactions deemed sale
5. Presumptive input tax
6. Transitional input tax
Output Tax - the VAT due on the sale or lease of taxable
goods or properties or services.
Determination of the Output Tax and VAT Payable
and Computation of VAT Payable or Excess Tax
Credits
VAT Payable - excess of output tax over the input tax at
the end of any taxable quarter.
Substantiation of Input Tax Credits
1. Input Tax on imported goods - Import entry or
other equivalent document showing actual
payment of
2. Input taxes on domestic purchases of goods or
properties– VAT Invoice
3. Input tax on purchases of real property - Public
instrument (i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell, etc.)
together with the VAT invoice for the entire
selling price and non-VAT Official Receipt for the
initial and succeeding payments. Public
instrument and VAT Official Receipt for every
payment
4. Input tax on domestic purchases of service – VAT
Official receipt
5. Transitional input tax - Inventory of goods as
shown in a detailed list to be submitted to the
BIR
6. Input tax on “deemed sale transaction” -
Required invoices
7. Input tax from payments made to non-residents
(such as for services, rentals, or royalties) -
Monthly Remittance Return of Value Added Tax
Withheld (BIR Form 1600) filed by the resident
payor in behalf of the non-resident evidencing
remittance of VAT due which was withheld by
the payor.
8. Advance VAT on sugar - Payment order showing
payment of the advance VAT
FORT BNIFACIO DEV. CORP vs. CIR (2013)
- DEL CASTILLO
FBDC purchased from the national government a portion
of the Fort Bonifacio reservation. It now claims for a
refund for overpaying its VAT liability for failure to take
into consideration its transitional input tax credit
13
brought about by its transition from being a non-VAT
taxpayer to VAT. The Court disagreed with the CIR and
allowed the claim arguing that to avail of the 8%
transitional input tax credit, all that is required from the
taxpayer is to file a beginning inventory with the Bureau
of Internal Revenue (BIR). Sec. 105 provides that:
SEC. 105. Transitional input tax credits.—A person
who becomes liable to value-added tax or any person
who elects to be a VAT-registered person shall, subject
to the filing of an inventory as prescribed by
regulations, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to
registered person shall, subject to the filing of an
inventory as prescribed by regulations, be allowed
input tax on his beginning inventory of goods, materials
and supplies equivalent to 8% of the value of such
inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher,
which shall be creditable against the output tax.
Furthermore, the Court held that a transitional input
tax credit is not a tax refund per se but a tax credit.
Logically, prior payment of taxes is not required before a
taxpayer could avail of transitional input tax credit. A tax
credit is not synonymous to tax refund. Tax refund is
defined as the money that a taxpayer overpaid and is
thus returned by the taxing authority. Tax credit, on the
other hand, is an amount subtracted directly from one’s
total tax liability. It is any amount given to a taxpayer as a
subsidy, a refund, or an incentive to encourage
investment
Refund or Tax Credit of Excess Input Tax
Who may claim for refund/apply for issuance of tax
credit certificates
1. Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated
2. A VAT-registered person may apply for the issuance
of a tax credit certificate or refund of input taxes paid
on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied
against output taxes.
3. A person whose registration has been cancelled due
to retirement from or cessation of business, or due to
changes in or cessation of status
Period to file claim/apply for the issuances of tax credit
certificates - 2 years after the close of the taxable quarter
when the sales were made.
CIR vs. AICHI FORGING COMPANY OF ASIA, INC.,
(2010) - DEL CASTILLO
Aichi filed a claim for refund of input VAT with the CIR
and CTA for the period July 1, 2002 to September 30,
2002 with the CIR on the same date, September 30, 2004.
The CIR held that the claim should have been filed on or
before September 29, 2004. Hence, the claim was filed
beyond the reglementary period and thus must be
dismissed. The Court did not agree with the CIR and
ruled that the claim was timely made as the
reglementary period should be reckoned from the close
of the taxable quarter when the relevant sales were made
pertaining to the input VAT regardless of whether said
tax was paid or not as provided under Sec. 112 (A) of the
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NIRC. However, the claim was nonetheless dismissed for
being premature. The administrative (CIR) and the
judicial (CTA) claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait
for the decision of the CIR or the lapse of the 120-day
period in violation of Section 112(D) of the NIRC, which
provides that, the CIR has "120 days, from the date of the
submission of the complete documents in support of the
application for tax refund/credit," within which to grant
or deny the claim. In case of full or partial denial by the
CIR, the taxpayer’s recourse is to file an appeal before the
CTA within 30 days from receipt of the decision of the
CIR. However, if after the 120-day period the CIR fails to
act on the application for tax refund/credit, the remedy
of the taxpayer is to appeal the inaction of the CIR to CTA
within 30 days.
The burden of proving entitlement to a tax refund rests
on the taxpayer. Sec. 6 of the EPIRA provides that the
sale of generated power by generation companies shall
be zero-rated. In this case, TPC failed to present a
Certificate of Compliance from the ERC during the trial.
(CIR v. TOLEDO POWER COMPANY, 2015, DEL CASTILLO)
In this case, the administrative and the judicial claims for
refund/credit of unutilized input VAT were
simultaneously filed. Obviously, respondent did not wait
for the decision of the CIR or the lapse of the 120-day
period. The premature filing of respondent’s claim before
the CTA warrants a dismissal inasmuch as no jurisdiction
was acquired by the CTA. (COMMISSIONER OF
INTERNAL REVENUE v. AICHI FORGING COMPANY OF
ASIA, INC., 2010, DEL CASTILLO )
Invoicing Requirements
Courts are bound by prior decisions. Thus, once a case
has been decided one way, courts have no choice but to
resolve subsequent cases involving the same issue in the
same manner. We ruled then, as we rule now, that failure
to print the word "zero-rated" in the invoices/receipts is
fatal to a claim for credit/refund of input VAT on zero-
rated sales. (NB. RA 9337 amended Sec. 113 of the NIRC,
mandating the seller to write or print prominently on the
invoice or receipt the term “zero-rated sale” if such sale
is subject to 0% VAT. (J.R.A. PHILIPPINES, INC. v. CIR,
2010 – DEL CASTILLO)
Consequences of Issuing Erroneous VAT Invoice or
VAT Official Receipt
1. In case of non-VAT registered person who issues a VAT
invoice/receipt shall be held liable to:
a. payment of percentage tax if applicable;
b. payment of VAT without input tax;
c. 50% surcharge on tax due; and
d. the purchaser shall be allowed to recognize an input
tax credit provided that the invoice/official receipt
contains the required information.
2. In case of VAT-registered who issues a VAT
invoice/official receipt for a VAT-exempt sale without
the words “VAT Exempt Sale” shall be held liable to pay
12% VAT.
SILICON PHILIPPINES, INC., v. CIR (2011)
Silicon filed a claim for tax credit or refund representing
VAT input taxes on its domestic purchases of goods and
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services and importation of goods and capital equipment
which are attributable to zero-rated sales. However, the
CTA denied the claim for failure of Silicon to indicate the
ATP. The Court partly agreed with the CTA saying that
the ATP need not be reflected or indicated in the invoices
or receipts because there is no law or regulation
requiring it. But while there is no law requiring the ATP
to be printed on the invoices or receipts a claimant for
unutilized input VAT on zero-rated sales is required to
present proof that it has secured an ATP from the BIR
prior to the printing of its invoices or receipts. Without
the ATP, the invoices or receipts would have no
probative value for the purpose of refund.
Filing of Returns and Payment
Monthly VAT Declaration – file and pay within 20 days
following the close of the month
Quarterly VAT return – file and pay within 25 days
following the close of each taxable quarter
Withholding of Final VAT On Sales To Government
The Government or any of its political subdivisions,
instrumentalities or agencies, including government
owned or controlled corporations (GOCCs) shall, before
making payment on account of its purchase of goods
and/or services taxed at 12% shall deduct and withhold
a final VAT of 5% of the gross payment.
PERCENTAGE TAXES - refers to business taxes payable
by any person or entity whose sale of goods or service is
not covered by the VAT system.
CIR VS SM PRIME HOLDINGS INC. 2010 – DEL CASTILLO
BIR issued PANs to SM Prime and First Asia, which were
then consolidated into one at the behest of SM Prime
reasoning that it is a majority stockholder of First Asia,
assessing VAT deficiency on cinema ticket sales relative
to the activity of showing cinematographic films. The
Court held that showing cinematographic films is not a
service covered by VAT. The gross receipts of proprietors
or operators of cinemas/theaters derived from public
admission are not among the services subject to VAT;
Only lessors or distributors of cinematographic films are
included in the coverage of VAT.
EXCISE TAX - apply to taxes on goods manufactured or
produced in the Philippines for domestic sale or
consumption of for any other disposition and to things
imported, which tax shall be in addition to the value-
added tax. Excise taxes imposed and based on weight or
volume capacity or any other physical unit of
measurement shall be referred to as “specific tax”; while
excise tax imposed and based on the selling price or
other specified value of the goods shall be referred to as
“ad valorem tax”.
Basically an indirect tax, excise taxes are directly levied
upon the manufacturer or importer upon removal of the
taxable goods from its place of production or from the
customs custody.
DOCUMENTARY STAMP TAX (DST) - is a tax on
documents, instruments, loan agreements, and papers
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evidencing the acceptance, assignment, sale or transfer of
an obligation, right or property incident thereto. A DST is
in the nature of an excise tax levied on the exercise by
persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal
relationship through the execution of specific
instruments. DST also applies on documents not exempt
by law even if they are in electronic form.
PRUDENTIAL BANK V. CIR, GR NO 180390, JULY 27,
2011 - DEL CASTILLO
Prudential Bank was assessed deficiency DST on its
Savings Account Plus (SAP) product with the Bangko
Sentral ng Pilipinas. It contends that its SAP is not
subject to DST because it is not included in the list of
documents under Section 180 of the NIRC and that its
SAP is evidenced by a passbook and not by a deposit
certificate. However, the Court upheld the assessment
and ruled that SAP is subject to DST.
The DST is imposed on certificates of deposit. A
certificate of deposit is defined as a written
acknowledgment by a bank or banker of the receipt of a
sum of money on deposit which the bank or banker
promises to pay to the depositor, to the order of the
depositor, or to some other person or his order, whereby
the relation of debtor and creditor between the bank.
A certificate of deposit need not be in a specific form; thus,
a passbook of an interest-earning deposit account issued
by a bank is a certificate of deposit drawing interest.
A document to be considered a certificate of deposit need
not be in a specific form. The fact that the SAP is
evidenced by a passbook cannot remove its coverage
from DST. A passbook issued by a bank qualifies as a
certificate of deposit drawing interest because it is
considered a written acknowledgement by a bank that it
has accepted a deposit of a sum of money from a
depositor.
CIR vs. LA TONDENA DISTILLERS, INC. (LTDI [now
GINEBRA SAN MIGUEL], G.R. No. 175188, July 15, 2015
The transfer of real property to a surviving corporation
pursuant to a merger is not subject to Documentary Stamp
Tax.
Respondent La Tondeña Distillers, Inc. entered into a
Plan of Merger with Sugarland Beverage Corporation
(SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water
Corporation (MBWC). As a result of the merger, the
assets and liabilities of the absorbed corporations were
transferred to respondent, the surviving corporation.
Respondent requested for a confirmation of the tax-
free nature of the said merger from the Bureau of
Internal Revenue (BIR). Then, the BIR issued a ruling
stating that pursuant to Section 40(C)(2) and (6)(b) of
the 1997 National Internal Revenue Code (NIRC), no gain
or loss shall be recognized by the absorbed corporations
as transferors of all assets and liabilities. However, the
transfer of assets, such as real properties, shall be subject
to DST imposed under Section 196 of the NIRC.
Consequently, respondent paid to the BIR said
Documentary Stamp Tax (DST).
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Subsequently, realizing that it should not have paid
DST, Respondent filed with CIR a claim for tax refund
representing the DST allegedly erroneously paid on the
occasion of the merger.
Issue: Whether the transfer of real property on occasion
of a merger is subject to DST?
Held: No. The Court ruled that Section 196 of the NIRC
does not include the transfer of real property from one
corporation to another pursuant to a merger. In a
merger, the real properties are not deemed "sold" to the
surviving corporation and the latter could not be
considered as "purchaser" of realty since the real
properties subject of the merger were merely absorbed
by the surviving corporation by operation of law and
these properties are deemed automatically transferred to
and vested in the surviving corporation without further
act or deed. Therefore, the transfer of real properties to
the surviving corporation in pursuance of a merger is not
subject to documentary stamp tax. As stated at the
outset, documentary stamp tax is imposed only on all
conveyances, deeds, instruments or writing where realty
sold shall be conveyed to a purchaser or purchasers. The
transfer of real property to respondent was neither a sale
nor was it a conveyance of real property for a
consideration contracted to be paid as contemplated
under Section 196 of the Tax Code. Hence, Section 196 of
the Tax Code is inapplicable and respondent is not liable
for documentary stamp tax.
Does the transfer of real property on occasion of a
merger is subject to DST?
No. The Court ruled that Section 196 of the NIRC
does not include the transfer of real property from one
corporation to another pursuant to a merger. In a
merger, the real properties are not deemed "sold" to
the surviving corporation and the latter could not be
considered as "purchaser" of realty since the real
properties subject of the merger were merely
absorbed by the surviving corporation by operation of
law and these properties are deemed automatically
transferred to and vested in the surviving corporation
without further act or deed. Therefore, the transfer of
real properties to the surviving corporation in
pursuance of a merger is not subject to documentary
stamp tax. As stated at the outset, documentary stamp
tax is imposed only on all conveyances, deeds,
instruments or writing where realty sold shall be
conveyed to a purchaser or purchasers. The transfer of
real property to respondent was neither a sale nor
was it a conveyance of real property for a
consideration contracted to be paid as contemplated
under Section 196 of the Tax Code. Hence, Section 196
of the Tax Code is inapplicable and respondent is not
liable for documentary stamp tax.
TAX REMEDIES UNDER THE NIRC
Tax evasion is deemed complete when the violator has
knowingly and willfully filed a fraudulent return with
intent to evade and defeat a part or all of the tax.
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Corollarily, an assessment of the tax deficiency is not
required in a criminal prosecution for tax evasion.
However, in Commissioner of Internal Revenue v. Court
of Appeals, we clarified that although a deficiency
assessment is not necessary, the fact that a tax is due
must first be proved before one can be prosecuted for tax
evasion. (BIR v. CA G.R. No. 197590, November 24, 2014,
DEL CASTILLO)
Tax remedies refers to the actions and processes that
the Government may undertake to enforce the collection
of legitimate taxes and those that taxpayer may take or
pursue in order to resist the payment of what he
considers are unlawful taxes.
There are two remedies provided in the NIRC:
1. The remedies of the Government, and
2. The remedies of the taxpayer
The Code provides the Government with TWO remedies:
1. Assessment, and
2. Collection
Assessment Notice - is a computation prepared by the
BIR of the alleged unpaid taxes, plus interests, penalties
or surcharges, if any.
Requisites of Valid Assessments
1. Pre-assessment notice (PAN) sent to the
taxpayer.
2. The taxpayers shall be informed in writing of the
law and the facts upon which the assessment is
made.
3. Assessment must be made within the
prescriptive period.
Kinds of Assessment
1. Self-assessment- tax is assessed by the taxpayer
himself. The amount of tax is reflected in the tax
return that is filed by him and the tax assessed is
paid at the time he files the return. Known as the
“pay-as-you-file” system.
2. Deficiency assessment- made by the tax assessor
himself whereby the correct amount of the tax is
determined after an examination or investigation
is conducted.
3. Illegal and void assessment- the tax assessor has
no power to act at all.
4. Erroneous assessment- the assessor has the
power to assess but errs in the exercise of the
power.
Tax Delinquency as Distinguished from Tax
Deficiency
Deficiency is the amount still due and collectible from a
taxpayer upon audit or investigation while delinquency
is the failure of the taxpayer to pay the tax due on the
date fixed by law or indicated in the assessment notice or
letter of demand.
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Jeopardy Assessment - a tax assessment which was
assessed without the benefit of complete or partial audit
by an authorized revenue officer grounded on the
reasonable belief that the assessment and collection of a
deficiency tax will be jeopardized by delay because of the
taxpayer’s failure to comply with the audit and
investigation requirements.
Prescriptive Periods for Making Assessments of
Internal Revenue Taxes
1. Three (3) years from the last day within which to
file a return or when the return was actually
filed, whichever is later;
2. Ten (10) years from discovery of the failure to
file the tax return or discovery of falsity or fraud
in the return;
3. Within the period agreed upon between the
government and the taxpayer where there is a
waiver of the prescriptive period for assessment.
Grounds for Suspension of the Running of
Prescriptive Periods
1. CIR is prohibited from making the assessment or
beginning the distraint or levy or proceeding in
court.
2. Taxpayer requests for a reinvestigation granted
by the CIR.
3. Taxpayer cannot be located in the address given
by him in the return
4. When the warrant of distraint or levy is duly
served, and no property is located.
5. Taxpayer is out of the Philippines.
Surtaxes or Surcharges (aka civil penalties) are the
amounts imposed in addition to the tax required to be
paid for failure to pay the correct tax on or before the
due date. They shall be at 25% for late filing or late
payment and 50% willful neglect or fraud surcharge.
Compromise Penalty – the amount agreed upon
between the taxpayer and the Government to be paid as
a penalty in cases of a compromise.
Outline of Tax Remedies of a Taxpayer and the
Government Relative to Assessment of Internal
Revenue Taxes
1. The taxpayer files his tax return.
2. A Letter of Authority (LOA) is issued authorizing
BIR examiner to audit or examine the tax return
and determines whether the full and complete
taxes have been paid.
3. If the examiner believes that proper taxes should
be assessed, the CIR or his representative shall
then notify the taxpayer of the findings in the
form of a pre-assessment notice (PAN). The pre-
assessment notice requires the taxpayer to
explain within fifteen (15) days from receipt why
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no notice of assessment and letter of demand for
additional taxes should be directed to him.
4. If the taxpayer ignores the pre-assessment
notice, a final notice of assessment and a letter of
demand (FLD/FAN) is issued. This should be
issued within a period of three (3) years from the
time the tax return was filed or should have been
filed whichever is the later. Where the taxpayer
did not file a tax return or where the tax return
filed is false or fraudulent, then the
Commissioner has a period of ten (10) years
from discovery of the failure to file a tax return
or from discovery of the fraud within which to
issue an assessment notice.
It must contain the facts, law and jurisprudence
relied upon by the Commissioner. Otherwise it
would not be valid.
The taxpayer may file an administrative protest
by filing a i) request for reconsideration or ii)
reinvestigation within thirty (30) days from
receipt. There is no need to pay under protest. If
not seasonably filed, the assessment becomes
final and collectible; hence, administrative and
judicial remedies in collecting the tax may be
resorted to.
In a Request for Reinvestigation, all relevant
supporting documents should be submitted
within sixty (60) days from filing of the protest,
otherwise the assessment shall become final and
collectible.
5. If the protest is denied in whole or in part, or is
not acted upon within one hundred eighty (180)
days from the submission of documents, the
taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the
adverse decision, or from the lapse of the one
hundred eighty (180) day period.
6. A decision of a division of the CTA adverse to the
taxpayer or the government may be the subject
of a motion for reconsideration or new trial, a
denial of which is appealable to the CTA en banc
by means of a petition for review.
7. If the decision of the CTA en banc affirms the
denial of the protest by the CIR, the taxpayer
must file a petition for review on certiorari with
the Supreme Court within 15 days from notice
of the judgment on questions of law.
Requirements for the Validity of a Formal Letter of
Demand and Assessment Notice
1. There must have been previously issued a pre-
assessment notice;
2. It must have been issued prior to the prescriptive
period and shall state the facts, the law, rules and
regulations, or jurisprudence on which the
assessment is based.
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ALLIED BANKING CORPORATION VS. CIR, G.R. NO.
175097. FEBRUARY 5, 2010 - DEL CASTILLO
The CIR must indicate clearly and unequivocally to the
taxpayer whether an action constitutes a final
determination on a disputed assessment. A careful
reading of the Formal Letter of Demand leads us to agree
with petitioner that the instant case is an exception to
the rule on exhaustion of administrative remedies, i.e.,
estoppel on the part of the administrative agency
concerned. In the Formal Letter of Demand with
Assessment Notices, respondent used the word "appeal"
instead of "protest", "reinvestigation", or
"reconsideration". Although there was no direct
reference for petitioner to bring the matter directly to
the CTA, it cannot be denied that the word "appeal"
under prevailing tax laws refers to the filing of a Petition
for Review with the CTA.
Presumption That Flows From a Taxpayer’s Failure
to Protest an Assessment
Tax assessments by tax examiners are presumed correct
and made in good faith (notatu dignum). The taxpayer
has the duty to prove otherwise. In the absence of proof
of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not
be disturbed. All presumptions are in favor of the
correctness of tax assessments.
Two Types of Protest
1. Request for reconsideration - refers to a plea for re-
evaluation of an assessment on the basis of existing
records without need of additional evidence.
2. Request for reinvestigation - refers to a plea for re-
evaluation of an assessment on the basis of newly-
discovered evidence or additional evidence that a
taxpayer intends to present in the investigation.
A request for reinvestigation suspends the running of
the statute of limitations for collection of the tax. When a
taxpayer demands a reinvestigation, the time employed
in reinvestigation should be deducted from the total
period of limitation.
Undoubtedly, a reinvestigation, which entails the
reception and evaluation of additional evidence, will take
more time than a reconsideration of a tax assessment
which will be limited to the evidence already at hand;
this justifies why the former can suspend the running of
the statute of limitations on collection of the assessed
tax, while the latter cannot.
Requirements for the Validity of a Taxpayer’s Protest
1. It must be filed within the reglementary period
of 30 days from receipt of the notice of
assessment.
2. The taxpayer must show the statement of the
facts, the applicable law, rules and regulations, or
jurisprudence on which the taxpayer’s protest is
based.
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3. Within 60 days from filing of the protest, the
taxpayer shall submit all relevant supporting
documents.
Procedure for Suspension of Collection of Taxes
Where the collection tax by means of levy, distraint or
sale of property of the taxpayer may jeopardize the
interest of the government or the taxpayer, an interested
party may file a motion for the suspension of the
collection of the tax liability with the CTA.
Recovery of Tax Erroneously Paid
The right of a withholding agent to claim a refund of
erroneously or illegally withheld taxes comes with the
responsibility to return the same to the principal
taxpayer. (CIR v. Smart Communication, Inc. GR 179045-
46, Aug. 25, 2010, Del Castillo, J.)
Difference between Tax Refund and Tax Credit
Tax refund - return of the sum erroneously paid by the
taxpayer
Tax credit - application of the reimbursable amount
against the amount collectible from the taxpayer
Conditions for the Grant of a Claim for Refund of
Creditable Withholding Tax
1. The claim is filed within the two-year period
from the date of the payment of the tax.
2. It is shown on the return that the income
payment received was declared as part of the
gross income; and
3. The fact of withholding is established by a copy
of a statement duly issued by the payee showing
the amount paid and the amount of tax withheld
therefrom (Creditable Withholding Tax
Certificates)
DEL CASTILLO CASES:
BELLE CORPORATION V CIR, JANUARY 10, 2011
Belle Corp had an overpayment of income taxes in the
year 1997 and signified in its 1997 Annual Income Tax
Return is option to carry over the same to the succeeding
year. However on April 12, 2000, it filed an
administrative claim for refund covering excess income
tax payments for the year 1997. The Court held that Belle
Corp is not entitled to refund because once the option to
carry over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period
and no application for tax refund or issuance of tax credit
certificate shall be allowed therefor.
COMMISSIONER OF INTERNAL REVENUE VS. FAR EAST
BANK AND TRUST COMPANY (NOW BANK OF THE
PHILIPPINE ISLANDS), GR NO 173854, MARCH 15, 2010
FEBTC filed a claim for refundable income tax. The
refundable amount consists of taxes withheld by FEBTC’s
payors of rental and sales of real property. The Court
ultimately denied FEBTC’s claim for its failure to prove
that income derived from rentals and sale of real
property were included in the gross income reflected in
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the income tax return. Furthermore, FEBTC also failed to
present all the Certificates of Creditable Tax Withheld at
Source – the document evidencing taxes withheld by
payors - to prove entitlement to all the claimed withheld
taxes by payors.
Section 10 of Revenue Regulation No. 6-85, as
amended, reads:
“Section 10. Claims for tax credit or refund.—
Claims for tax credit or refund of income tax
deducted and withheld on income payments
shall be given due course only when it is shown
on the return that the income payment received
was declared as part of the gross income and the
fact of withholding is established by a copy of the
statement duly issued by the payer to the payee
(BIR Form No. 1743.1) showing the amount paid
and the amount of tax withheld therefrom.”
Judicial Remedies Available To Taxpayer
1. Appeal to the CTA Division within 30 days from
receipt of decision on the protest or from the
lapse of 180 days due to inaction of the CIR
2. Appeal to the CTA en Banc within 15 days from
the receipt of the decision of CTA decision via
petition for review.
3. Appeal to the SC within 15 days from the receipt
of the decision of the CTA under Rule 45.
4. By way of Special Civil Action under Rule 65
5. Action to contest forfeiture of chattel, at any time
before the sale or destruction thereof.
6. Action for damages gainst RO by reason of any
act done in the performance of his office.
7. Injunction to be issued by the CTA if the
collection may jeopardize the interest of the
government or the taxpayer.
Decision of the Collector of Customs
1. Decisions of the Collector of Customs in protest
and seizure cases are appealable to the
Commissioner of Customs within 15 days from
receipt of notice of the written decision. The
appeal is done by simply notifying the Collector
of the taxpayer’s desire to have the matter
reviewed by the Commissioner; the Collector
then forwards the records to the Commissioner.
No hearing on this appeal is required.
2. From the decision of the Commissioner, the
taxpayer may file with the CTA a petition for
review within the 30-day reglementary period.
Remedy Available To Challenge an Adverse BIR
Ruling - request the Secretary of Finance to review the
ruling.
Power to Review Compromise Agreements by the
Court of Tax Appeals
The authority to compromise vested in the CIR should be
exercised upon his sound discretion, and courts have no
power to compel him to exercise such discretion one way
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or another. If this discretion is abused, the CTA and not
the Court of Appeals, may correct such. It must be noted
that a compromise is considered as other matters arising
under the NIRC which vests the CTA with jurisdiction
which could be directly appealed to the Supreme Court.
Conditions That Must Be Complied With Before the
Court of Tax Appeals May Suspend the Collection of
Taxes
The CTA may suspend the collection of internal
revenue taxes if the following conditions are met:
1. The case is pending with CTA;
2. The collection will jeopardize the interest of the
Government and/or the taxpayer; and
3. The taxpayer is deposits the amount being
collected with the court or files a surety bond for
not more than double the amount of the tax.
Effect of Taxpayer’s "Waiver of the Statute Of
Limitations"
The waiver of the statute of limitation executed by a
taxpayer is not a waiver of the right to invoke the defense
of prescription. The waiver of the statute of limitation is
merely an agreement in writing between the taxpayer
and the BIR that the period to assess and collect taxes
due is extended to a date certain. If the said waiver is
invalid, the taxpayer can still raise prescription as
defense.
CTA’s Authority to Pass on the Constitutionality or a
Revenue Regulation (RR) or Revenue Memorandum
Circular (RMC) issued by the BIR
The CTA can now rule on the validity or constitutionality
of a revenue regulation or revenue memorandum
circular but only if it is involved in a tax assessment case
or claim for tax refund.
LOCAL TAXATION
Fundamental principles
1. Taxation shall be uniform in each local government
unit;
2. Taxes, fees, charges and other impositions shall:
a. equitable and based on ability to pay;
b. for public purposes;
c. not unjust, excessive, oppressive, or confiscatory;
3. Collection shall not be let to any private person;
4. Collections shall inure solely to the benefit of the LGU;
and
5. Evolve a progressive system of taxation.
Source of Taxing Power
1. Art. X, Sec 5 of the 1987 Constitution. “Each local
government unit shall have the power to create their
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own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges shall accrue
exclusively to the local governments.”
2. Sec. 129 of the LGC. “Each local government unit shall
exercise its power to create its own sources of revenue
and to levy taxes, fees, and charges subject to the
provisions herein, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local government units.”
Authority to grant local tax exemptions - Local
government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs.
Withdrawal of exemptions
GR: Tax exemptions or incentives granted to or enjoyed
by all persons, whether natural or juridical, including
government-owned or controlled corporations are
hereby withdrawn upon the effectivity of the LGC.
XPNs: Those exemptions or incentives conferred to:
1. Local water districts
2. Cooperatives duly registered under R.A. 6938
3. Non-stock and non-profit hospitals
4. Educational institutions
Authority to Adjust Local Tax Rates
LGUs have the power to adjust local tax rates provided
that the adjustment of the tax rates as prescribed herein
should not be oftener than once every five (5) years, and
in no case exceed 10% of the rates under the LGC.
Residual Taxing Power of Local Governments
LGUs may exercise the power to levy taxes, fees or
charges on any base or subject NOT otherwise
specifically enumerated herein or taxed under the:
1. Local Government Code;
2. National Internal Revenue Code; or
3. Other applicable laws.
Requisites of a Valid Tax Ordinance
1. The procedure applicable to local government
ordinances in general should be observed, to wit:
a. Necessity of a quorum
b. Submission for approval by the local chief executive
c. The matter of veto and overriding the same
d. Publication and effectivity
2. Public hearings are required before any local tax
ordinance is enacted.
3. Within 10 days after their approval, publication in full
for 3 consecutive days in a newspaper of general
circulation. In the absence of such newspaper in the
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province, city or municipality, then the ordinance may be
posted in at least two conspicuous and publicly
accessible places.
Taxing Powers of Provinces
1. Tax on transfer of real property ownership (Local
Transfer Tax)
2. Tax on business of printing and publication
3. Franchise tax
4. Tax on sand, gravel and other quarry services
5. Professional tax
6. Amusement tax
7. Tax on delivery truck/van
Taxing Powers of Cities
The city, may levy the taxes, fees, and charges which
the province or municipality may impose.
Taxing Powers of Municipalities
Municipalities may levy taxes, fees, and charges not
otherwise levied by provinces.
1. Tax on business
2. Fees and charges on business and occupation
3. Fees for sealing and licensing of weights and measures
4. Fishery rentals, fees and charges
Common revenue raising powers
1. Service fees and charges
2. Public utility charges
3. Toll fees or charges
Community Tax - a poll or capitation tax imposed upon
residents of a city or municipality.
Common limitations on the taxing powers of LGUs
LGUs cannot impose:
1. Income tax, except when levied on banks and other
financial institutions;
2. Documentary stamp tax;
3. Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
under the LGC; XPN: tax on transfer of real property
4. Customs duties, registration fees of vessel and
wharfage on wharves, tonnage dues, and all other kinds
of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local
government unit concerned;
5. Taxes, fees, and charges and other impositions upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
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6. Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
7. Taxes on business enterprises certified to by the Board
of Investments as pioneer or non-pioneer for a period of
six (6) and four (4) years, respectively from the date of
registration;
8. Excise taxes on articles enumerated under the NIRC, as
amended, and taxes, fees or charges on petroleum
products;
9. Percentage or value-added tax (VAT) on sales, barters
or exchanges or similar transactions on goods or services
except as otherwise provided herein;
10. Taxes on the gross receipts of transportation
contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air,
land or water, except as provided in this Code;
11. Taxes on premiums paid by way or reinsurance or
retrocession;
12. Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
13. Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided in the
LGC;
14. Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered
under R.A. No. 6810 and the "Cooperative Code of the
Philippines" respectively;
15. Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units.
13. Collection of business taxes Paid at the beginning of
the year as a fee to allow the business to operate for the
rest of the year.
Tax Period and Manner of Payment
Tax Period for the Collection of Taxes - based on
calendar year
Manner of payment of the taxes - may be paid in
quarterly installments
Accrual of Tax - Accrues on the 1st day of January of
each year.
Time of payment - Within 20 days of January or of each
subsequent quarter (i.e. Jan. 20, Apr. 20, Jul. 20, and
Oct. 20)
Penalties on Unpaid Taxes, Fees or Charges
1. Surcharge - 25%
2. Interest - not exceeding 2% per month of the unpaid
taxes including the surcharge until the amount is fully
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paid but in no case shall the total interest exceed 36
months
Taxpayer’s Remedies
Periods of Assessment and Collection of Local Taxes
Assessment – within 5 years from the date they became
due. In case of fraud, within 10 years from discovery.
Collection - within 5 years from the date of assessment
Protest of Assessment
1. Taxpayer has 60 days to file a written protest
with treasurer from receipt of notice of
assessment.
2. If Local Treasurer denies the protest wholly or
partly, taxpayer has 30 days from receipt of the
denial of the protest or from lapse of the 60 day
period prescribed to appeal with RTC.
3. If adverse decision from RTC, appeal to CTA
Division if RTC exercised original jurisdiction
and to CTA En Banc if RTC exercised appellate
jurisdiction.
Claim for Refund of Tax Credit for Erroneously or
Illegally Collected Tax, Fee or Charge
Procedure for the refund
1. A written claim for refund or credit is filed with the
local treasurer.
2. A claim or proceeding is then filed with the court of
competent jurisdiction (depending upon the
jurisdictional amount) within two (2) years from the
date of the payment of such tax, fee, or charge, or from
the date the taxpayer is entitled to a refund or credit.
REAL PROPERTY TAXATION
Fundamental principles
1. Real property shall be appraised at its Current and
FMV.
2. Real property shall be classified on the basis of its
actual use.
3. Real property shall be assessed on the basis of a
uniform classification within each local government unit.
4. The appraisal, assessment, levy and collection of real
property tax shall not be let to any private person.
5. The appraisal and assessment of real property shall be
equitable.
Nature of Real Property Tax
Real property tax is a direct tax on ownership of lands
and buildings or other improvements thereon not
specially exempted, and is payable regardless of whether
the property is used or not.
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1. Direct tax whose burden could not be shifted by the
one who pays to other persons
2. Ad valorem tax based on the assessed value of the
property
3. Local tax
4. Imposed on use and not ownership
5. Progressive in character pending to a certain extent
on the use and value of the property
6. Indivisible single obligation
Exemption from Real Property Taxes
1. Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted for
consideration or otherwise to a taxable person.
2. Charitable institutions, churches, parsonages, or
convents appurtenant thereto, mosques, non-profit or
religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used
for religious, charitable, or educational purposes.
3. All machineries and equipment that are actually,
directly and exclusively used by local Water utilities
and government-owned or controlled corporations
engaged in the supply and distribution of water and/or
generation and transmission of electric power.
4. All real property owned by duly registered
Cooperatives as provided for under RA 6938.
5. Machinery and equipment used for Pollution control
and environmental protection.
Appraisal and Assessment of Real Property Tax
Rule on appraisal of real property tax at fair market
value – should be appraised at the current and fair
market value prevailing in the locality where the
property is situated
Unpaid realty taxes attach to the property and are
chargeable against the person who had actual or
beneficial use and possession of it regardless of whether
or not he is the owner. To impose the real property tax
on the subsequent owner which was neither the owner
nor the beneficial user of the property during the
designated periods would not only be contrary to law but
also unjust.
Declaration of Real Property
It shall be the duty of all persons, natural or juridical,
owning or administering real property, including the
improvements therein, within a city or municipality, or
their duly authorized representative, to prepare, or cause
to be prepared, and file with the provincial, city or
municipal assessor, a sworn statement declaring the true
value of their property, whether previously declared or
undeclared, taxable or exempt, which shall be the current
and fair market value of the property, as determined by
the declarant.
Actual Use of Property as Basis of Assessment - refers
to the purpose for which the property is principally or
predominantly utilized by the person in possession
thereof. The basis of taxing real property is actual use,
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regardless of where located, whoever owns it, and
whoever uses it.
Collection of Real Property Tax
1. RPT shall accrue on the first day of January.
2. Collecting authority - City or municipal treasurer.
Nevertheless, the Treasurer may deputize the
barangay treasurer to collect all taxes on real property
located in the barangay, provided that:
1. The barangay treasurer is properly bonded for the
purpose: provided, further,
2. The premium on the bond shall be paid by the city
or municipal government concerned.
3. Periods within which to collect -Within five (5) years
from the date taxes become due or within 10 years
from discovery in case of fraud.
Special Rules on Payment
a) Payment of real property taxes in installments RPT
may be paid in 4 equal installments (on or before Mar.
31, Jun. 30, Sept. 30, Dec. 31.
b) Interests on unpaid real property taxes is at 2% per
month until the delinquent tax shall have been fully paid
but in no case shall exceed 36 months.
c) Condonation of real property taxes - The sanggunian
by ordinance passed prior to the first (1st) day of
January of any year and upon recommendation of the
Local Disaster Coordinating Council, may condone or
reduce, wholly or partially, the taxes and interest thereon
for the succeeding year or years in the city or
municipality affected by the calamity.
Remedies of LGUs for Collection of Real Property
Taxes
a) Issuance of Notice of Delinquency for real property tax
payment to be posted at the main hall and in a publicly
accessible and conspicuous place in each barangay of the
LGU concerned. It shall also be published once a week for
two (2) consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality.
b) Local government’s lien
Guidelines in the exercise of local government lien
1. A legal claim on the property subject on the real
property tax as security for the payment of tax
obligation.
2. It is constituted on the property subject to the tax
from the date the RPT accrued, i.e., first day of
January.
3. It is superior to any lien, mortgage, or encumbrance
of any kind whatsoever.
4. It is enforceable by administrative or judicial action.
5. It may be extinguished only upon payment of the tax
and related interests and expenses.
REMEDIES IN GENERAL
Remedies of the LGUs for the Collection of Real
Property Tax
1. Administrative action
22
a. Exercise of lien on the property subject to tax
b. Levy on the real property subject of the tax
c. Distraint of personal property
2. Judicial action
Refund or Credit of Real Property Taxes
1. Taxpayer files a written claim for refund or
credit with the treasurer within 2 years from the
date the taxpayer is entitled to such reduction or
adjustment
2. Provincial or City Treasurer should decide the
claim within 60 days from receipt of the claim.
3. In case of denial, appeal to the LBAA within 30
days as in protest case.
4. Appeal to CBAA within 30 days if LBAA gives an
adverse decision.
Payment of Real Property Tax Under Protest
1. File protest with local treasurer
2. Appeal to the LBAA
3. Appeal to the CBAA
4. Appeal to the Court of Tax Appeals (CTA)
5. Appeal to the Supreme Court (SC)
TARIFF AND CUSTOMS CODE OF THE PHILIPPINES, as
amended by the CUSTOMS MODERNIZATION AND
TARIFF ACT (effective on June 16, 2016)
Tariff - is the list or schedule of articles in which a duty is
imposed upon the importation into the country with the
rates at which they are severally taxed. It is the system of
imposing duties or taxes on the importation of foreign
merchandise. It includes customs duties, toll or tribute
payable upon merchandise to the general government;
rate of customs; or list of articles liable to duties.
Customs Duties - is the name given to taxes on the
importation and exportation of commodities
They are used interchangeably.
Kinds or Classification of Duties
a) Ordinary/Regular tariff or customs duties - these are
taxes imposed or assessed upon merchandise from, or
exported to, a foreign country for the purpose of raising
revenues.
1. Ad valorem - Customs duties computed on the
basis of value of imported article
2. Specific - Customs duties computed on the basis
of dutiable weight of good i.e. a unit of measure
such as per kilogram, per liter, etc.
b) Special duties - are additional import duties imposed
on specific kinds of imported articles for the protection
of consumers and manufacturers, as well as Philippine
products from undue competition posed by foreign made
products.
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(1) Dumping duties – are imposed on imported goods
which are likely to be sold in the Philippines at a price
less than its fair value.
(2) Countervailing duties – equals the amount of the
subsidy granted by the foreign country on the
production, manufacture, or exportation into the
Philippines of any article likely to injure an industry in
the Philippines.
(3) Marking duties - imposed on an ad valorem basis
imposed for improperly marked articles. (e.g., failure to
indicate “Made in xxx”)
(4) Retaliatory/discriminatory duties - imposed on
imported goods of the country that discriminates against
the commerce (products) of the Philippines.
(5) Safeguard Measures – imposed upon goods or
products imported in increased quantities
Flexible Tariff Clause - this clause provides the authority
given to the President to adjust tariff rates.
Accrual and Payment of Tax and Duties
Period for filing import entry - Imported articles must be
entered in the custom house at the port of entry within
30 days, which shall not be extendible, from the
discharge of the last package from the vessel or aircraft.
Taxable Importations - All articles when imported from a
foreign country including those previously exported
from the Philippines are subject to duty unless otherwise
specifically provided for in the Tariff and Customs Code.
PROHIBITED IMPORTATIONS
1. Dynamite, gunpowder, ammunitions and other
explosives, firearms, and weapons of war, and parts
thereof.
2. Written or printed articles in any form containing any
matter advocating or inciting treason, or rebellion,
insurrection, sedition, or subversion against the
Government of the Philippines, or forcible resistance to
any law of the Philippines, or containing any threat to
take the life of, or inflict bodily harm upon any person in
the Philippines.
3. Written or printed articles, negatives or
cinematographic film, photographs, engravings,
lithographs, objects, paintings, drawings, or other
representation of an obscene or immoral character.
4. Articles, instruments, drugs and substances designed,
intended or adapted for producing unlawful abortion, or
any printed matter which advertises or describes or
gives directly or indirectly information where, how or by
whom unlawful abortion is produced.
5. Roulette wheels, gambling outfits, loaded dice, marked
cards, machines, apparatus or mechanical devices used in
gambling or the distribution of money, cigars, cigarettes,
or other when such distribution is dependent on chance,
including jackpot and pinball machines or similar
contrivances, or parts thereof.
23
6. Lottery and Sweepstakes tickets advertisements
thereof and list of drawings therein.
7. Any article manufactured in whole or in part of gold,
silver or other precious metals or alloys thereof, the
stamps, brands or marks or which do not indicate the
actual fineness of quality of said metals or alloys.
8. Any adulterated or misbranded articles of food or any
adulterated or misbranded drug in violation of the
provisions of the “Food and Drugs Act”.
9. Marijuana, opium, poppies, coca leaves, heroin or any
other narcotics or synthetic drugs which are or may
hereafter be declared habit forming by the President of
the Philippines, or any compound, manufactured salt,
derivative, or preparation thereof.
10. Opium pipes and parts thereof, or whatever material.
11. All other articles and parts thereof, the importation of
which is prohibited by law or rules and regulations
issued by competent authority.
De Minimis Importations (Small Value Importations)
The CMTA acknowledges the e-commerce trend of
increasing number of small value consignments and thus,
retained the provision on de minimis values (small value
importations) below which no duties and taxes will be
collected and with minimal clearance procedures,
including data requirements.
The de minimis threshold value has now been
increased to Php10,000. Thus, if the value of an
importation does not exceed Ph10,000, there will be no
duties and taxes that will be collectible by the BoC.
Conditionally-Free and Duty-Exempt Importations
1. Personal and household effects by “returning
residents” (nationals who have stayed in a
foreign country for a period of at least 6 months)
- importation is duty and tax-free, Provided:
a) Should neither be of commercial
quantity nor intended for barter, sale or
hire;
b) For those who have stayed in a foreign
country for a period of at least 10 years,
the Free on Board (FoB) or Free Carrier
Arrangement (FCA) value shall not
exceed P350,000 and that the privilege is
not availed of within 10 years prior to
the returning resident’s arrival;
c) If the stay is at least 5 years, the FCA or
FOB value shall not exceed P250,000 and
that the privilege is not availed of within
5 years prior to the returning resident’s
arrival.
d) If the stay is less than 5 years, the FCA or
FoB value shall not exceed P150,000 and
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that the privilege is not availed of within
6 months prior to the returning
resident’s arrival.
2. Returning Overseas Filipino Workers (OFWs)
shall have the privilege to bring in tax and duty
free home appliances and other durables
(limited to one of every kind) once in a given
calendar year accompanying them on their
return or arriving within a reasonable time (not
exceeding 60 days after every returning OFWs
return).
3. Residents of the Philippines, OFWs or other
Filipinos, while residing abroad or upon their
return to the Philippines, are also allowed to
bring in or send to their families or relatives in
the Philippines “balikbayan boxes” (containing
personal and household effects only) duty and
tax-free, provided that the FCA value shall not
exceed P150,000 and the items are not in
commercial quantities or intended for barter,
sale or for hire. This can be availed up to 3 times
in a calendar year.
Any amount in excess of the above threshold values shall,
however, be subject to duties and taxes.
Filing of Goods Declaration
All imported goods will be subject to the lodgment of a
goods declaration (commonly known as entry
declaration), which may be for consumption, for
warehousing, for admission, for conditional importation
or for customs transit, depending on the purpose.
As a general rule, goods declarations for consumption
are cleared though a “formal entry” process, except in the
following instances where goods may be cleared through
“informal entry”:
(i) goods of a commercial nature with Free on Board or
Free Carrier Arrangement (FCA) value of less than Php
50,000; or
(ii) personal or household effects or goods, not in
commercial quantity, imported in passenger’s baggage
or mail.
A goods declaration must now be lodged within 15
days from a BoC notice (sent through electronic or
personal service) informing the importers of the date of
discharge of the last package from the vessel or aircraft,
extendible for another 15 days (upon request by the
importer based on valid grounds). Once lodged, the BoC,
after its examination, shall issue a notice of assessment
(of duties and taxes payable). The importer has a period
of 15 days from receipt of said notice within which to pay
the corresponding duties and taxes. In effect, this is also
the period within which the importer may contest the
assessment issued by the BoC at the border. Otherwise,
the assessment will be deemed final after the lapse of the
15-day period. The failure to pay duties and taxes within
the 15-day period shall result in the imposition of a 10%
surcharge (increased to 25% if delinquency lasts for
more than one year) based on the total assessed amount
24
or balance thereon as well as to a 20% interest per
annum computed from the date of final assessment.
After payment of duties and taxes, the importer will
then have a non-extendible period of 30 days to claim the
goods from customs custody.
Provisional Goods Declaration
If, at the time of importation, an importer does not
have all the information or supporting documents
required to complete a goods declaration, the CMTA now
allows the lodging of a provisional goods declaration
(PGD). The PGD is a new concept that importers can use
particularly in instances where additional information
and/or collateral documents are required to be
submitted at the border. Under this concept, an importer
would have to execute an undertaking to complete the
necessary information or submit the supporting
documents within 45 days (extendible for another 45
days) from the lodging of the PGD. Goods under PGD may
be released upon posting of a security equivalent to the
amount ascertained to be the applicable duties and taxes.
An assessment by the BoC at the border of a PGD shall
be deemed tentative and shall be completed upon final
readjustment and submission of the additional
information or documentation required to complete the
declaration.
Amendment of Goods Declaration
If an importer needs to amend a goods declaration
already filed, the CTMA, for valid reasons and with the
approval of the BoC, also permits the filing of an
amended goods declaration. The amendment, however,
must be done prior to final assessment or examination of
the goods by the BoC.
Misdeclaration, Misclassification, and
Undervaluation in Goods Declarations
Misdeclaration - when the discrepancy pertains to
quantity, quality, description, weight, or measurement of
the imported goods.
Misclassification - when insufficient or wrong
description of the goods or use of wrong tariff heading
was declared resulting in a discrepancy.
Undervaluation is present when:
• The declared value fails to disclose in full the price
actually paid or payable or any dutiable adjustment to
the price; or
• When an incorrect valuation method is used; or
• The valuation rules are not properly observed.
Any misdeclaration, misclassification or
undervaluation of imported goods resulting in a
discrepancy will be subject to a fixed surcharge rate of
250% of the duty and tax due
Surcharge, however, will not be imposed when:
• The discrepancy in duty is less than 10%; or
• The importer’s declared value and/or tariff
heading/classification:
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Relied on an official government ruling; or
• Is rejected in a formal customs dispute settlement
process involving difficult or highly technical questions
relating to the application of customs valuation rules
and/or tariff classifications.
If the misdeclaration, misclassification or
undervaluation is intentional or fraudulent (such as
when a false or altered document is submitted or when
false statements or information are knowingly made), a
500% surcharge (of the duty and tax due) will be
imposed on the importer and to those who willfully
participated in the fraudulent act. The imported goods
will be subject to seizure regardless of the amount of the
discrepancy.
There is prima facie evidence of fraud if the
discrepancy (in duty and tax to be paid) amounts to more
than 30%.
Unlawful Importation or Exportation
Smuggling is the fraudulent act of importing any goods
into the Philippines, or the act of assisting in receiving,
concealing, buying, selling, disposing or transporting
such goods, with full knowledge that the same has been
fraudulently imported. It likewise includes the
exportation of goods in any manner contrary to law.
Outright smuggling - refers to the act of importing
goods into the country without complete customs-
prescribed importation documents, or without being
cleared by customs or other regulatory government
agencies. In this case, imported goods are not registered
at all with the BoC or other government agencies.
Technical smuggling - refers to the act of importing
goods into the country by means of a fraudulent, falsified
or erroneous declaration of the goods as to its nature,
kind, quality, quantity or weight. In other words,
technical smuggling takes place through undervaluation,
misclassification or underdeclaration of the goods
shipped.
The difference between outright smuggling and
technical smuggling lies in the use or non-use of legal
trade channels when bringing the goods into the country.
Outright smuggling bypasses the usual and normal
procedure and process of clearing the cargo at the BoC,
while technical smuggling involves fraudulent acts
during the processing and releasing of the goods. In both
instances, however, the ultimate objective is to evade the
payment of the prescribed taxes, duties and other
charges.
REMEDIES
1. Government
a) Administrative/extrajudicial
(1) Search, seizure, forfeiture, arrest
(2) Authority of the Commissioner to make
compromise
b) Judicial
2. Taxpayer
25
a) Protest
1. Any importer or interested party - if dissatisfied with
published value within 15 days from date of
publication or within 5 days from date the importer is
entitled to refund in case payment is rendered
erroneous or illegal by events occurring after the
payment.
2. Taxpayer - within 15 days from assessment.
Payment under protest is necessary.
b) Abandonment - Claim to goods deemed waived by
failure to file an import entry within 30 days from the
discharge of goods; or Having filed an entry fails to claim
within 15 days but it shall not be so effective until so
declared by the collector.
c) Abatement and refund - It is the reduction or non-
imposition of custom duties on certain imported
materials as a result of:
1. Damaged incurred during voyage;
2. Deficiency in contents of packages;
3. Loss or destruction of articles after arrival; or
4. Death or injury of animals.
JUDICIAL REMEDIES - Jurisdiction of the CTA
1. Exclusive appellate jurisdiction over civil tax cases
a) Cases within the jurisdiction of the court en banc
1. Decisions or resolutions on motions for
reconsideration or new trial of the Court in Divisions in
the exercise of its exclusive appellate jurisdiction over:
a. Cases arising from administrative agencies –
Bureau of Internal Revenue, Bureau of Customs,
Department of Finance, Department of Trade and
Industry, Department of Agriculture;
b. Local tax cases decided by the RTC in the
exercise of their original jurisdiction; and
c. Tax collection cases decided by the RTC in the
exercise of their original jurisdiction involving final
and executory assessments for taxes, fees, charges
and penalties, where the principal amount of taxes
and penalties claimed is less than P1million;
d. Criminal offenses arising from violations of the
NIRC or the Tariff and Customs Code and other
laws administered by the Bureau of Internal
Revenue or Bureau of Customs
2. Decisions, resolutions or orders on motions for
reconsideration or new trial of the Court in Division in
the exercise of its exclusive original jurisdiction over:
a. tax collection cases
b. involving criminal offenses arising from
violations of the NIRC or the Tariff and Customs
Code and other laws administered by the Bureau of
Internal Revenue or Bureau of Customs;
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3. Decisions, resolutions or orders of the RTC decided
or resolved by them in the exercise of their appellate
jurisdiction over:
a. local tax cases
b. tax collection cases
c. criminal offenses arising from violations of the
NIRC or the Tariff and Customs Code and other
laws administered by the Bureau of Internal
Revenue or Bureau of Customs.
4. Decisions of the Central Board of Assessment
Appeals (CBAA) in the exercise of its appellate
jurisdiction over cases involving the assessment and
taxation of real property originally decided by the
provincial or city board of assessment appeals.
b) Cases within the jurisdiction of the court in divisions
1. Exclusive original or appellate jurisdiction to review
by appeal the following:
a. Decisions of the Commissioner of Internal
Revenue;
b. Inaction by the Commissioner of Internal
Revenue;
c. Decisions, resolutions or orders of the RTC in
local tax cases decided by them in the exercise of
their original jurisdiction;
d. Decisions of the Commissioner of Customs in
cases involving liability arising under the Customs
Law or other laws administered by the Bureau of
Customs;
e. Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review
from decisions of the Commissioner of Customs
adverse to the Government under Section 2315 of
the TCC; and
f. Decisions of the Secretary of Trade and Industry,
in the case of non-agricultural product, commodity
or article, and the Secretary of Agriculture, in the
case of agricultural product, commodity or article,
involving dumping and countervailing duties, and
safeguard measures, where either party may
appeal the decision to impose or not to impose said
duties;
2. Exclusive jurisdiction over cases involving criminal
offenses, to wit:
a. Original jurisdiction over all criminal offenses
arising from violations of the NIRC or TCC and
other laws administered by the BIR or the Bureau
of Customs, where the principal amount of taxes
and fees, exclusive of charges and penalties,
claimed is 1 million pesos or more; and
b. Appellate jurisdiction over appeals from the
judgments, resolutions or orders of the RTC in
their original jurisdiction in criminal offenses
arising from violations of the NIRC or TCC and
26
other laws administered by the BIR or Bureau of
Customs, where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is
less than 1 million pesos or where there is no
specified amount claimed; 3. Exclusive jurisdiction
over tax collections cases, to wit:
a. Original jurisdiction in tax collection cases
involving final and executory assessments for
taxes, fees, charges and penalties, where the
principal amount of taxes and fees, exclusive of
charges and penalties, claimed is 1 million pesos
or more; and
b. Appellate jurisdiction over appeals from the
judgments, resolutions or orders of the Regional
Trial Courts in tax collection cases originally
decided by them within their respective
territorial jurisdiction.
CE CASECNAN WATER AND ENERGY COMPANY, INC., et
al. vs. THE PROVINCE OF NUEVA ECIJA, et al. G.R. No.
196278, June 17, 2015 - DEL CASTILLO
The Court of Tax Appeals (CTA) has exclusive jurisdiction
over a special civil action for certiorari assailing an
interlocutory order issued by the Regional Trial Court
(RTC) in a local tax case.In filing an action for injunction
to restrain collection, petitioner was in effect also
challenging the validity of the RPT assessment. Simply
because the action is an application for injunctive relief
does not necessarily mean that it may no longer be
considered as a local tax case.
Judicial Procedures
In order for the CTA En Banc to take cognizance of an
appeal via a petition for review, a timely motion for
reconsideration or new trial must first be filed with the
CTA Division that issued the assailed decision or
resolution. Failure to do so is a ground for the dismissal
of the appeal. The same rule applies to an amended
decision issued by CTA Division. (Asiatrust Dev’t Bank,
Inc. v. CIRm GR Nos. 201530 & 201680-81, April 19, 2017,
Del Castillo, J. )
SPS TRAYVILLA v. BERNARDO SEJAS G.R. No. 204970,
February 01, 2016 – DEL CASTILLO
Spouses Trayvilla filed a case for specific performance
and damages against Sejas before the RTC praying among
others the reconveyance of a parcel of land which Sejas has
previously sold to them but over which Sejas, by fraud and
deceit, reasserted his ownership. Sejas moved for dismissal
of the case, claiming that that the Spouses case was not for
specific performance but was in reality a real action or one
involving title to and possession of real property, in which
case the value of the property should be alleged in the
complaint in order that the proper filing fee may be
computed and paid. Since the value of the land was not
alleged in the Complaint, the proper filing fee was not paid,
and for this reason the case should be dismissed.
Does the RTC acquired jurisdiction over the case?
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NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018
No, the RTC did not acquire jurisdiction over the case.
Spouses’ aim in filing the case was to secure their claimed
ownership and title to the subject property, which qualifies
their case as a real action. Since the subject case is a real
action, the Spouses should have observed the requirement
under Rule 141 of the Rules of Court, as amended by A.M.
No. 04-2-04-SC and Supreme Court (SC) Amended
Administrative Circular No. 35-2004 which provides that
the FAIR MARKET value of the REAL property in litigation
STATED IN THE CURRENT TAX DECLARATION OR
CURRENT ZONAL VALUATION OF THE BUREAU OF
INTERNAL REVENUE, WHICHEVER IS HIGHER, OR IF
THERE IS NONE, THE STATED VALUE OF THE PROPERTY
IN LITIGATION OR THE VALUE OF THE PERSONAL
PROPERTY IN LITIGATION AS ALLEGED BY THE CLAIMANT
shall be the basis for the computation of the docket fees to
be paid. Since the value of the subject property as stated in
the Complaint is just P6,000.00, then the RTC did not have
jurisdiction over Spouses’ case in the first instance; hence, it
should have dismissed Civil Case No. 4633-2K5. But it did
not. In continuing to take cognizance of the case, the trial
court clearly committed grave abuse of discretion.
LITIGATION OR THE VALUE OF THE PERSONAL
PROPERTY IN LITIGATION AS ALLEGED BY THE
CLAIMANT shall be the basis for the computation of the
docket fees to be paid. Since the value of the subject
property as stated in the Complaint is just P6,000.00,
then the RTC did not have jurisdiction over Spouses’ case
in the first instance; hence, it should have dismissed Civil
Case No. 4633-2K5. But it did not. In continuing to take
cognizance of the case, the trial court clearly committed
grave abuse of discretion.
RECENT JURISPRUDENCE ON TAXATION
DOCKET FEE IS JURISDICTIONAL BUT FAILURE TO PAY
THE SAME DOES NOT AUTOMATICALLY CAUSE THE
DISMISSAL OF THE CASE
The Petitioner Macario Lim Gaw, Jr., filed a Petition for
Review on Certiorari assailing the Decision and
Resolution of the CTA En Banc in the CTA EB Criminal
Case No. 26 where the latter dismissed the Petition for
failure of the Petitioner to pay docket fees.
Petitioner acquired 10 parcels of land through a Short
Term Loan Facility from Banco De Oro. Petitioner then
entered into an Agreement to Sell with Azure
Corporation for the sale and transfer of real properties to
Eagle I Landholdings, Inc., a joint venture company. Upon
transfer, the Petitioner requested the BIR RDO No. 52 for
the respective computations of the tax liabilities due on
the sale of the lands. In accordance with the One Time
Transactions (ONETT) Computation sheets, Petitioner
paid Capital Gains Tax (CGT) and Documentary Stamp
Tax (DST) and was issued the corresponding Certificates
Authorizing Registration and Tax Clearance Certificates.
Two years later, Respondent Commissioner of Internal
Revenue (CIR) opined that Petitioner was not liable for
the 6% CGT but for the 32% Regular Corporate Income
Tax (RCIT) and 12% VAT, on the theory that the
properties sold were ordinary assets and not capital
assets resulting to the assessment of deficiency RCIT and
VAT up to the issuance of FDDA. In addition, Respondent
also found that the Petitioner misdeclared his income,
misclassified the properties and used multiple Tax
Identification Numbers to avoid being assessed of the
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correct amount of taxes, prompting the Department of
Justice to file a criminal complaint for tax evasion.
The Supreme Court ruled that, the CTA En Banc erred
in dismissing the Petition due to nonpayment of the
required docket fees since mere failure to pay the same
at the time of the filing of the Petition does not
automatically cause the dismissal of the case even if the
same is jurisdictional as long as the party had no
intention to defraud the government and the same are
paid within reasonable period of time. On the issue of tax
type which the Petitioner should be subjected, the court
found that the proper remedy is to remand the case to
the CTA First Division to conduct a full-blown trial where
both parties are given the chance to present evidence of
their respective claims. The Petition for Review is
partially GRANTED. The case is remanded back to the
CTA 1st Division to conduct further proceedings in CTA
Case No. 8503 and to ORDER the Clerk of Court to assess
the correct docket fees. Petitioner Mariano Lim Gaw, Jr.,
is likewise ORDERED to pay the correct docket fees
within ten (10) days from the receipt of the correct
assessment of the Clerk of Court. [MACARIO LIM GAR JR.
VS COMMISSIONER OF INTERNAL REVENUE, G.R. NO.
222837, JULY 23, 2018]
SUPREME COURT PARTIALLY UPHELD
CONSTITUTIONALITY OF RMO 23-2014 ON TAXABILITY
OF ALLOWANCES & OTHER BENEFITS OF
GOVERNMENT EMPLOYEES
The Petitioners filed a Petition for Prohibition and
Mandamus, imputing grave abuse of discretion on the
part of the Respondent Commissioner of Internal
Revenue in issuing Revenue Memorandum Order (RMO)
23-2014. They argued that RMO 23-14 classified the
Petitioner’s allowances and bonuses as taxable
compensations, which are considered by law as non-
taxable fringe benefits and de minimis. Also, they argued
that the imposition of withholding taxes on theses
allowances and bonuses violates the prohibition on non-
diminution of benefits under Article 100 of the Labor
Code. Likewise, they argued that the issuance of RMO
constitutes abuse of legislative power and diminishes the
delegated power of local government units as it defines
new offenses and prescribes penalty particularly upon
local government officials. Further, it violates their right
to due process of law and the equal protection clause of
the Constitution as it discriminates against government
officials and employees by imposing fringe benefit tax
upon their allowances and benefits as opposed to the
allowances and benefits of employees of the private
sector.
Aside from the relief sought, the Petitioners also pray
for the issuance of a writ of mandamus ordering
Respondent to upgrade the ceiling of the 13th month pay
and other benefits.
On the other hand, Respondent countered that the
Petitions are barred by the doctrine of hierarchy of
courts since the Petitioners failed to present any special
and important reasons or compelling circumstances to
justify direct recourse to the Supreme Court. Further,
RMO 23-14 is a mere reiteration of the Tax Code and this
does not require the approval and signature of the
TAXATION LAW PRE-WEEK NOTES
NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018

Secretary of Finance as this merely provides for

instructions in the implementation of stated policies of
the Bureau.
In resolving the Petition, the Supreme Court partially
ruled in favor of the Respondent noting the Petitioners’
non-exhaustion of administrative remedies and violation
of the rule on hierarchy of courts. Non-exhaustion of
administrative remedies pertains to the filing of appeal
granted to the taxpayer within thirty (30) days from
receipt of adverse ruling to file with the Office of the
Secretary of Finance a request for review in writing and
under oath which the Petitioners failed to do.
Moreover, Petitioners violated the rule on hierarchy of
courts as the Petition should have been initially filed with
the Court of Tax Appeals (CTA) which has exclusive
jurisdiction to determine the constitutionality or validity
of tax laws, rules and regulations, and other
administrative issuances of the Respondent.
The Petitioner, upon filing its annual Income Tax
Return (ITR) for the fiscal year 2007, exercised its carry-
over option of unutilized creditable income tax for the
year 2006. Subsequently, it amended its ITR reflecting
the removal of excess tax credits for the year 2006 and
instead filed a claim for refund or issuance of TCC.
In resolving the Petition, the Court ruled that the
Petitioner, having constructively chosen the option of
carry-over the excess tax credits in its ITR, is already
barred from claiming a refund or TCC. In addition, the
irrevocability rule is limited only to the option of
carrying-over, with this a taxpayer is still free to change
its choice to carry-over if it first chosen refund or TCC of
its excess tax credit. The Petition is DENIED for lack of
merit. [UNIVERSITY PHYSICIANS SERVICES INC.-
MANAGEMENT, INC. VS. COMMISSIONER OF INTERNAL
REVENUE, G.R. NO. 205955, MARCH 27, 2018]

The Court went further in saying that the assailed

sections particularly Sections III, IV and VII of RMO 23-14
are consistent with the Tax Code and does not charge any
new or additional tax. Furthermore, the Court stated that
the equal protection clause, fiscal autonomy and the rule
on non-diminution of benefits are not violated since the
RMO was issued to simply reinforce existing taxes
applicable to both private and public sector.

However, with Section VI of RMO 23-14, the Court

finds that the Respondent overstepped the boundaries of
its authority to interpret existing provisions of the Tax
Code in so far as it designated persons required to
withhold and remit taxes which are not among those
under the Tax Code.

As regards the prayer for the issuance to compel the

Respondent to increase the ceiling of 13th month pay
and other benefits, the same has already been considered
moot and academic, meaning, it ceases to present
justiciable controversy by virtue of supervening events
wherein the declaration on the issue would be of no
practical value or use given the enactment of TRAIN Law
increasing the tax exempt threshold to Php 90,000.00.
Consequently, the Petitions are PARTIALLY GRANTED.
Section VI of Revenue Memorandum Order 23-2014 is
declared NULL AND VOID insofar as the additional
designated persons that are not included in the Tax Code.
Sections III, IV and VII declared VALID. Finally, Petition
for increase of ceiling of 13th month pay and other
benefits is hereby DENIED on the ground of mootness.
[COURAGE ET. AL VS. COMMISSIONER OF INTERNAL
REVENUE & SECRETARY OF FINANCE, G.R. 213446 &
G.R. 213658, JULY 03, 2018]

IRREVOCABILITY RULE NOT APPLICABLE ON THE

OPTION TO REFUND EXCESS TAX CREDITS

The Petitioner University Physicians Services

Incorporated-Management Inc. filed a Petition for
Review seeking the reversal of the earlier decision and
resolution of the Court of Tax Appeals (CTA) denying the
application for tax refund or issuance of Tax Credit
Certificate (TCC) of its excess unutilized creditable
income tax for the taxable year 2006.

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TAXATION LAW PRE-WEEK NOTES
NEW ERA UNIVERSITY COLLEGE OF LAW BAR OPERATIONS 2018

TRAIN LAW (INCOME TAX ONLY)

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