Professional Documents
Culture Documents
Taxation Two Complete
Taxation Two Complete
Taxation Two Complete
amdg
Taxation Two
ESTATE
TAX
1
DONORS
TAX
20
VALUE-ADDED
TAX
28
PERCENTAGE
TAXES
55
EXCISE
TAXES
65
DOCUMENTARY
STAMP
TAXES
69
POWERS
OF
THE
BIR
71
REMEDIES
OF
THE
GOVERNMENT
77
TAXPAYERS
REMEDIES
100
COMPLIANCE
REQUIREMENTS
107
COURT
OF
TAX
APPEALS
(RA
9282
AND
REVISED
RULES
OF
COURT
OF
THE
CTA)
111
LOCAL
TAXATION
116
COMMUNITY
TAX
135
REAL
PROPERTY
TAXATION
137
CUSTOMS
AND
TARIFFS
CODE
148
Based on Atty. Monteros outline, with integrated notes from Atty. Salvadors review class, Reyes, some Mamalateo,
some CoUntian and the various reviewers in school.
Estate Tax
Estate tax is the tax on the right to transmit property at death and on certain transfers
by the decedent during his lifetime which are made by the law equivalent of
testamentary dispositions.
It accrues upon the death of the decedent.
A transmission by inheritance is taxable at the time of the predecessors death,
notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary. (Lorenzo v Posadas)
The tax is measured by the value of the property transmitted at the time of death,
regardless of its appreciation or depreciation.
The accrual of the tax is distinct from the obligation to pay the tax.
SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net
estate as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of
the Philippines, a tax based on the value of such net estate, as computed in accordance with the following
schedule
Over But not over The tax shall Plus Of the Excess
be Over
P200k Exempt
P200k P500k 0 5% P200k
P500k P2m P15k 8% P500k
P2m P5m P135k 11% P2m
P5m P10m P465k 15% P5m
P10m P1.215m 20% P10m
(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death;
SEC. 104. Definitions. - For purposes of this Title, the terms "gross estate" and "gifts" include real and personal
property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent
or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal
property so transferred but which are situated outside the Philippines shall not be included as part of his "gross
estate" or "gross gift": Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any
partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if
the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect
of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of
the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation
allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country.
For estate tax purposes, residence refers to the domicile of the person.
For residents and citizens, gross estate includes ALL properties, real or personal,
tangible or intangible, WHEREVER situated.
For non-resident aliens, gross estate includes only properties those situated in the
Philippines.
o Except with respect to INTANGIBLE personal property, its inclusion to the gross
estate is the subject to the rule of reciprocity.
If the foreign country of the non-resident alien does not impose a transfer
tax of any character on the IPP of Filipinos not residents of that foreign
country; or
The foreign country of the non-resident alien allows a similar exemption
from transfer tax in respect of IPP owned by Filipinos not residents of that
foreign country,
Then IPPs of the non-resident alien here are exempt from the
estate tax.
o Reciprocity must be total. If any of the two states or countries collects or imposes
and does not exempt any transfer, death, legacy, or succession tax of any
character, reciprocity does not apply. (CIR v Fisher)
o Reciprocity in exemption does not require the foreign country to possess
international personality. (CIR v Campos Rueda)
Includes any interest or right in the nature of property, but less than title, having value
or capable of having value, like
o Dividends declared, but paid after the death
o Partnership profits
o Right of usufruct
The following, among others, are intangible personal properties located in the
Philippines:
1. Franchise which must be exercised in the Philippines
2. Shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws
3. Shares, obligations or bonds issued by any foreign corporation 85% of the business
of which is located in the Philippines
4. Shares, obligations or bonds issued by ay foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines, and
5. Shares or rights in any partnership, business or industry in the Philippines.
Mickey Ingles 2
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Properties not in the estate
There may be properties which at the time of the decedents death are not in the estate
because they were transferred by him during his lifetime.
These transfers are:
1. Transfers in contemplation of death,
2. Revocable transfers,
3. Transfers under a general power of appointment, and
4. Transfers for an insufficient consideration.
o The values of these properties will be included in the determination of the gross
estate for estate tax purposes.
As such, the gross estate, for purposes of the estate tax, may exceed the actual value of
his assets at the time of his death as it includes the value of transfers of property by him
during his lifetime that partake of the nature of testamentary dispositions.
These kinds of transfers have the following in common:
o They are ostensible transfers, usually with the purpose to evade the estate tax
o They are extension of interests
o If the transfers are in fact for a bona fide consideration, then they will not form
part of the gross estate (this proviso is present in all the provisions regarding
these transfers)
Revocable transfers
(C) Revocable Transfer. -
(1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of
a bona fide sale for an adequate and full consideration in money or money's worth) by trust or otherwise, where
the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in
whatever capacity exerciseable) by the decedent alone or by the decedent in conjunction with any other person
(without regard to when or from what source the decedent acquired such power), t o alter, amend, revoke, or
terminate, or where any such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date
of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even
though the alteration, amendment or revocation takes effect only on the expiration of a stated period after the
exercise of the power, whether or not on or before the date of the decedent's death notice has been given or the
power has been exercised. In such cases, proper adjustment shall be made representing the interests which would
have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been
given or the power has not been exercised on or before the date of his
Mickey Ingles 3
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
death, such notice shall be considered to have been given, or the power exercised, on the date of his death.
A revocable transfer is a transfer where the terms of the enjoyment of the property may
be altered, amended, revoked or terminated by the decedent.
It is sufficient that the decedent had the power to revoke, though he did not exercise the
power to revoke.
Again, the same rule with bona fide sales applies.
(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this
Section shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of powers, as
severally enumerated and described therein, whether made, created, arising, existing, exercised or relinquished
before or after the effectivity of this Code.
(G) Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
In the transfers in contemplation of death, revocable transfer, or transfer under a GPA,
the value to include in the gross estate will be determined under the following rules:
o If the transfer was in the nature of a bona fide sale for an adequate and full
consideration in money or moneys worth, no value will be included in the gross
estate;
o If the consideration received on the transfer was less than adequate and full, the
value to include in the gross estate will be the excess of the fair market value at
the time of the decedents death over the consideration received;
o If there was no consideration received on the transfer (donation mortis causa),
the value to include in the gross estate will be the fair market value of the
property at the time of the decedents death.
When looking at transaction, ask yourself, was the consideration insufficient?
Mickey Ingles 4
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
a. If yes, then add the balance of the FMV at the time of death and the
consideration.
b. If no, then it was a bona fide sale. Dont add the value to the gross estate.
Mickey Ingles 5
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Proceeds of insurance under policies taken out by the decedent upon his life shall
constitute part of the gross estate if the beneficiary is:
1. The estate of the decedent, his executor or administrator AS SUCH; or
2. A third person (not those in #1), and the designation of the beneficiary is revocable.
The Insurance Code states that the designation of a beneficiary is generally revocable.
o Except of course, when the policy states that the designation is irrevocable. In
such cases, the proceeds are not considered as part of the decedents estate.
With #1, doesnt matter if revocable or not.
With #2, life insurance proceeds are excluded, provided:
o Irrevocable, and
o Payable to beneficiary other than estate, executor, administrator
Life insurance proceeds must be taken out BY THE DECEDENT.
o So not included in the GE if from:
Company policy
GSIS
SSS
It must be LIFE INSURANCE to be included in the GE
o If accident insurance, not included in GE
Deductions
The deductions from the gross estate are:
1. Ordinary deductions
a. Expenses, losses, indebtedness, taxes, etc:
i. Funeral expenses
ii. Judicial expenses of testamentary or intestate proceedings
iii. Claims against the estate
iv. Claims against the insolvent persons
v. Unpaid mortgage or indebtedness on property
vi. Taxes paid
vii. Losses
b. Transfer for public use
c. Vanishing deductions
2. Special deductions
a. Family home
b. Standard deduction of P1,000,000
c. Medical expenses
d. Amounts received by heirs under RA 4917.
These deductions are allowed for a citizen or resident of the Philippines.
Non-resident aliens are not entitled to special deductions.
Ordinary deductions
Funeral expenses
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident of the
Philippines, by deducting from the value of the gross estate -
(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts:
(a) For actual funeral expenses or in an amount equal to five percent (5%) of the gross estate, whichever is lower,
but in no case to exceed Two hundred thousand pesos (P200,000);
The deduction of funeral expenses is the
o Amount of actual funeral expenses, or
o An amount equal to 5% of the gross estate, whichever is LOWER,
But not to exceed P200,000.
Funeral expenses includes:
1. Mourning apparel of the surviving spouse and the unmarried minor children of the
deceased bought and used on the occasion of the burial
2. Expenses for the deceased wakes
3. Publication charges for death notices
4. Telecommunication expenses incurred in informing relatives of the deceased
5. Cost of burial plot, tombstones, monument or mausoleum (BUT NOT THEIR UPKEEP)
6. Interment and/or cremation fees and charges, and
Mickey Ingles 7
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
7. All other expenses incurred for the performance of the rites and ceremonies incident
to interment
These arent deductible:
o Expenses incurred AFTER the interment
o Expenses borne or defrayed by relatives and friends
The cut-off point is interment. Thus, the expenses for the 9th day, thank you cards, 40th
day arent included.
When some of the items which are actual funeral expenses are covered by a memorial
plan, the value of the memorial plan must be included in the gross estate.
o The value of the memorial plan plus other actual funeral expenses will give an
aggregate which will be compared with the 5% limitation and with P200k.
Mickey Ingles 8
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o In other words, if enforceable against him when he was alive, the obligations will
be claims against his estate when he shall be dead.
o So, an obligation that has prescribed during his lifetime, or that was
unenforceable against him, will not be a claim against his estate when he shall be
dead.
Requisites:
1. The liability must represent a personal obligation of the deceased at the time of his
death (except unpaid obligations incurred incident to his death and unpaid medical
expenses classified as a deduction),
2. The liability was contracted in good faith and for adequate and full consideration,
3. The claim must be a debt or claim which is valid in law and enforceable in court
4. The indebtedness must not have been condoned by the creditor during the lifetime of
the decedent, or the actions to collect must not have prescribed.
Regarding the 4th requisite, if the debts were condoned AFTER the decedents death, the
debts are deductible, following the date-of-death valuation rule. (Dizon v CTA)
If the claim arose out of a debt instrument, the debt instrument must be notarized.
o EXCEPT for loans granted by financial institutions where notarization is not part
of the business practice or policy of the institution.
If the loan was contracted within 3 years before the death of the decedent, the admin
or executor must submit a statement showing the disposition of the proceeds of the
loan.
If a monetary claim against the decedent did not arise out of a debt instrument, the
requirement of a notarized debt instrument does not apply.
There is no requirement to add the amount to the gross estate (as compared to claims
against insolvent persons/mortgage). This is a DIRECT DEDUCTION.
Mickey Ingles 9
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o These are called zero-sum computations. They dont really benefit the heirs
because these transactions werent supposed to be part of the gross estate
anyway.
Taxes
Taxes are deductions from the gross estate if such taxes accrued prior to the decedents
death.
Those that accrued after the decedents death are not deductions from gross estate.
These taxes can NOT be deducted:
1. Income tax on income received after death
2. Property taxes not accrued before death
3. Estate tax
Losses
There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses are not compensated for
by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a
deduction for the income tax purposes in an income tax return, and provided that such losses were incurred not
later than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91.
Losses are deductible from the gross estate if:
1. Arising from fire, storm, shipwreck, or other casualty, robbery, theft or
embezzlement
2. Not compensated by insurance or otherwise
3. Not claimed as a deduction in an income tax return of the estate subject to
income tax
4. Occurring during the settlement of the estate, and
5. Occurring before the last day for the payment of the estate tax (6 months after
the decedents death, or the allowed extension)
o Example: Dude died January 1, 2010. A fire razed his house on March 1, 2010.
His estate was settled January 1, 2012. He can claim a deduction (within 6
months!)
Dude died January 1, 2010. A fire razed his house on January 1, 2011.
He cant claim a deduction.
Vanishing deductions
(2) Property Previously Taxed. - An amount equal to the value specified below of any property forming a part of the
gross estate situated in the Philippines of any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5) years prior to his death, where such property can be
identified as having been received by the decedent from the donor by gift, or from such prior decedent by gift,
bequest, devise or inheritance, or which can be identified as having been acquired in exchange for property so
received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the
decedent, or if the property was transferred to him by gift within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Mickey Ingles 10
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and
only in the amount finally determined as the value of such property in determining the value of the gift, or the
gross estate of such prior decedent, and only to the extent that the value of such property is included in the
decedent's gross estate, and only if in determining the value of the estate of the prior decedent, no deduction was
allowable under paragraph (2) in respect of the property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate tax of the prior
decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under said
Subsection shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the
property referred to consists of two or more items, the aggregate value of such items shall be used for the purpose
of computing the deduction.
Property may change hands within a very short period of time by reason of the early
death of the owner who received it by inheritance or by donation (gift).
To provide relief to the burdened taxpayer, vanishing deductions are allowed to reduce
the gross estate.
Vanishing deductions are allowed when:
1. The present decedent died within 5 years from receipt of the property from a
prior decedent or donor;
2. The property on which the vanishing deduction is being claimed must be located
in the Philippines
3. The property must have formed part of the taxable estate of the prior decedent,
or of the taxable gift of the donor
4. The estate tax on the prior succession or the donors tax on the gift must have
been finally determined and paid
5. The property must be identified as the one received from the prior decedent or
donor, or something acquired in exchange therefore
6. No vanishing deduction on the property was allowable to the estate of the prior
decedent
How do we compute?
Step 1: Get the basis. Either the value of the property in the prior estate/value used for
donors tax purposes OR the value of the property in the present estate, whichever is
LOWER.
Step 2: The Step 1 value will be reduced by any payment made by the present decedent on
any mortgage or lien on the property (when such mortgage/lien was used as a
deduction on the prior dead guys estate, or gift of the donor)
Step 3: The Step 2 value shall be further reduced by:
Step 2 value x Expenses, losses, indebtedness, taxes and transfers for
Gross Estate public use
Step 4: Look at the chart below and multiply to get the value which you can actually deduct.
% If received by inheritance or gift
100 Within one year prior to death of the decedent
80 More than one year but not more than two years
Mickey Ingles 11
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
60 More than two years but not more than 3 years
40 More than 3 years but not more than 4 years
20 More than 4 years but not more than 5 years
Example
Che inherited land from his pop with a fmv of P500k when inherited. Two and a half
years later, Che died. The FMV of the land was P600k at that time. The gross estate, on
which the land was part, was P2m. deductions from the gross estate (not including the
family home, medical expenses, standard deduction or RA 4917 receivable) amounted to
P400k. Whats the vanishing deduction?
Step 1: Get the lower value. - P500k
Step 2: No mortgage mentioned, so P500k
Step 3: P500k x P400k = P100k
P2m
Basis of the vanishing deduction (500k-100k) = P400k
Vanishing deduction (60% of P400k) = P240
Special deductions
Family Home
(4) The Family Home. - An amount equivalent to the current fair market value of the decedent's family home:
Provided, however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess
shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must
have been the decedent's family home as certified by the barangay captain of the locality.
The deduction is an amount equivalent to the current FMV of the decedents family
home.
o BUT the maximum is P1m only.
Do not forget to add the amount of the family home to the gross estate. Kasama yan!
o Zero-sum? Yes, but only to the extent of P1m. Lugi yung rich folk.
The deduction will be allowed when the famly home is certified to be as such by the
barangay captain of the locality where it is located.
For a person married at the time of death, and who was under a system of conjugal
partnership or absolute community, the deduction for the family home is of the FMV,
but should not exceed P1m, if such family home was conjugal property or community
property. (Remember this!)
Standard deduction
(5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).
Do not forget to deduct P1m every time! Its standard!
Medical expenses
(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1) year prior to his death which
shall be duly substantiated with receipts: Provided, That in no case shall the deductible medical expenses exceed
Five Hundred Thousand Pesos (P500,000).
All medical expenses incurred (whether paid or unpaid) within ONE YEAR before the
death of the decedent shall be allowed as a deduction, PROVIDED,
o that the same are duly substantiated with official receipts, and
o The total amount, whether paid or unpaid, does NOT exceed P500k.
If its more than P500k, can you deduct it as a claims against the estate? No. See
requisites of claims against the estate.
Mickey Ingles 12
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by the heirs from the decedent
- employee as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917:
Provided, That such amount is included in the gross estate of the decedent.
Retirement benefits received by employees of private firms in accordance with a
reasonable benefit plan maintained by the employer are EXEMPT from all taxes, provided
that the retiriing employee has been in the services of the same employer for at least 10
years and is not less than 50 years old at the time of his retirement.
The amount must:
o have been received by the heirs of the decedent-employee as a consequence of
the latters death, and
o included in the gross estate of the descendent. (important!)
Mickey Ingles 13
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under said
paragraph shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under paragraph (2) bears to the value of that part of the decedent's gross estate
which at the time of his death is situated in the Philippines. Where the property referred to consists of two (2) or
more items, the aggregate value of such items shall be used for the purpose of computing the deduction.
(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines or any political subdivision thereof, for exclusively public purposes.
A non-resident decedent who was not a citizen of the Philippines at the time of death,
with properties within and outside the Philippines, is subject to tax only on his estate
within the Philippines.
Due to this, the estate in the Philippines is allowed deductions for:
1. Expenses, losses, indebtedness, taxes, etc, computed by:
Gross Estate, Philippines x World expenses, losses, indebtedness,
Gross Estate, World taxes, funeral expenses, judicial
expenses, etc
It does not matter where the expenses are paid or incurred. On the total of
the items, the formula provided by law will be applied.
Moreover, it also doesnt matter if you can pinpoint specifically where the
expenses were incurred, you have to use the formula.
2. Transfers for public use of property in the Philippines
3. Vanishing deduction on property in the Philippines
A non-resident, not citizen is NOT allowed:
1. Deduction for family home
2. Standard deduction
3. Deduction for medical expenses
4. Deduction for amount receivable under RA 4917
D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return
required to be filed under Section 90 the value at the time of his death of that part of the gross estate of the
nonresident not situated in the Philippines.
No deduction shall be allowed for a non-resident alien unless the executor, administrator
or anyone of his heirs, includes in the return required to be filed under Sec. 90 the value
at the time of the decedents death that part of his gross estate not situated in the
Philippines. (Needed for the formula specified above)
Community property will consist of all properties owned by the spouses at the time of
the celebration marriage or acquired thereafter (presumed to belong to the community)
o The family home constituted by the husband and wife is community property.
Proceeds of life insurance taken out by the decedent on his own life, when includible in
the gross estate, will be exclusive property if the premiums were paid out of exclusive
funds.
o They will be community property if the premiums were paid out of community
funds.
A claim against an insolvent person will be included in the gross estate as exclusive or
community depending on whether the claim is for exclusive or community property.
Deductions from gross estate
The same rules and ceilings which were discussed on the part of deductions will apply
The following are the community/conjugal deductions:
1. Funeral expenses and judicial expenses
2. Those obligations contracted during the marriage which are presumed to have
benefited the family (debts incurred during the marriage, etc)
The following are exclusive deductions:
1. Debts before the marriage by either spouse that did NOT redound to the benefit of
the family
2. Special deductions of family home, standard deduction, medical expenses and
amounts receivable under RA 4917
3. Support of the illegitimate children of either spouse
4. Liabilities incurred by either spouse of a crime
Mao, a citizen and resident of the Philippines, was married under the system of absolute
community of property during the marriage. He died leaving the following properties and
obligations:
Real properties inherited from his father 10 years ago and before the marriage P200k
Real property received as a gift from the mother 7 years ago,
during the marriage P1.115m
Cash income from the property received as gift P5k
Real property owned by Mrs. Mao before the marriage P300k
The family home P500k
Medical expenses P70k
Funeral expenses P50k
Judicial expenses for settlement of estate P100k
Obligations incurred during the marriage P150k
Debt of Mao before the marriage P120k
Mickey Ingles 15
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Step 1: Get the net conjugal estate (gross conjugal estate conjugal deductions)
(P200k1 + P300k2 +500k3) - (P50k4 + P100k5 + P150k6) = P700k
Step 3: Get the gross estate of the decedent (decedents share + exclusive properties)
P350k + P1.115m7 + P5k8 = P1.47m
Step 4: Get his net estate (Gross estate decedent exclusive deductions & special
deductions)
P1.47m (P120k9 + P250k10 + P70k11 + P1m12) = P30k
Step 5: The net taxable estate is P30k. Check the schedular rate, and youll find out that his
estate is tax exempt!
Tips:
Do not forget the limitations and ceilings imposed by the general rule of deductions.
o Family home only up to P1m.
o Funeral expenses only up to P200k whatevers lower of the actual expense and
5% of the gross estate (exclusive + conjugal)
o Medical expenses not to exceed P500k
Remember that only of the family home is counted as a special deduction (since half
belongs to the still living spouse).
o And also remember that if the value of the family home (once halved) is above
P1m, the deduction allowed is still P1m because of the ceiling imposed by law.
Dont forget to subtract the standard deduction. Its not usually given as part of the facts
but you still have to deduct that.
Medical expenses are special deductions and are deducted from the gross estate of the
decedent. Funeral deductions are conjugal deductions and are deducted from the gross
conjugal/community estate.
1
Real property inherited from the father
2
Real property owned by Mrs. Mao before the marriage
3
Value of the family home
4
Funeral expenses
5
Judicial expenses
6
Obligations incurred during the marriage
7
Real property gift from mom during marriage
8
Income from the gift
9
debt before marriage
10
the value of the family home
11
Medical expenses
12
Standard deduction! Dont forget!
Mickey Ingles 16
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the
net income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent
(30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.
The following are exempt from estate tax:
1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommisary
3. Transmission from the 1st heir, legatee or donee in favor of another beneficiary in
accordance with the desire of the predecessor, and
4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income inures to the benefit of any individual,
provided that not more than 30% of the said bequests, devises, legacies or transfers
shall be used by such institutions for the administration purposes
5. Irrevocable life insurance to someone other than the EEA
6. GSIS/SSS benefits
7. Retirement benefits of private firms approved by the BIR
8. Separate property of the surviving spouse
Between what you paid to the foreign country and the tax credit limit here, you choose
whatevers lower as what you can credit.
See example in donors tax part.
Admin Provisions
SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though exempt from
tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of
Mickey Ingles 17
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after
qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner.
A notice of death must be filed within two months after the decedents death:
1. In all cases of transfers subject to tax, or
2. When exempt, the value of the estate exceeds P20,000
(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax,
the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of
the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting
forth:
(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen
of the Philippines, of that part of his gross estate situated in the Philippines;
(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and
(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall
be supported with a statement duly certified to by a Certified Public Accountant containing the following:
(a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of
a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86; and
(c) The amount of tax due whether paid or still due and outstanding.
(B) Time for Filing. - For the purpose of determining the estate tax provided for in Section 84 of this Code, the
estate tax return required under the preceding Subsection (A) shall be filed within six (6) months from the
decedent's death.
A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the
Commissioner within thirty (30) after the promulgation of such order. (C) Extension of Time. - The
Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30)
days for filing the return. (D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the
return required under Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was domiciled at
the time of his death or if there be no legal residence in the Philippines, with the Office of the Commissioner.
An estate tax return is required to be filed when the estate is:
1. Subject to estate tax,
2. Exempt from estate tax, but the gross estate exceeds P200,000
3. Regardless of the amount of the gross estate, where the said gross estate consists of
registered or registerable property, motor vehicle or shares of stock, or other similar
property for which clearance from the BIR is required as a condition precedent for
the transfer of ownership thereof in the name of the transferee.
The return shall be under oath and shall include the following:
1. Value of the gross estate at the time of the decedent (for non-resident aliens, the
value of the gross estate here in the Philippines)
2. Deductions allowed from the gross estate
3. Whatevers necessary to establish the correct estate tax
If the estate tax return shows that the gross estate exceeds P2,000,000, it should be
accompanied by a statement certified by a CPA. See codal.
The estate tax return should be filed within 6 months after the decedents death.
o The BIR can extend this, but not more than 30 days.
A return need not be complete in all particulars. It is sufficient if it complies substantially
with the law. There is substantial compliance when:
o The return is made in good faith and is not false or fraudulent;
o It covers the entire period involved; and
Mickey Ingles 18
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
oIt contains information as to the various items of income, deductions and credits
with such definiteness as to permit the computation and assessment of the tax.
(CIR v Gonzales)
Where the return was made on the wrong form, it was held that the filing
thereof did not stop the running of the period of limitations, and where the
return was very deficient, there was no return at all. (same case)
Approval of probate court is NOT mandatory in collection of estate taxes
Mickey Ingles 19
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Miscellaneous Provisions
SEC. 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or administrator
makes a written application to the Commissioner for determination of the amount of the estate tax and discharge
from personal liability therefore, the Commissioner (as soon as possible, and in any event within one (1) year after
the making of such application, or if the application is made before the return is filed, then within one (1) year
after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in
Section 203 shall not notify the executor or administrator of the amount of the tax. The executor or administrator,
upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in
the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.
SEC. 93. Definition of Deficiency. - As used in this Chapter, the term "deficiency" means:
(a) The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the executor,
administrator or any of the heirs upon his return; but the amounts so shown on the return shall first be increased
by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the
amount previously abated, refunded or otherwise repaid in respect of such tax; or
(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his return, or if no
return is made by the executor, administrator, or any heir, then the amount by which the tax exceeds the amounts
previously assessed (or collected without assessment) as a deficiency; but such amounts previously assessed or
collected without assessment shall first be decreased by the amounts previously abated, refunded or otherwise
repaid in respect of such tax.
SEC. 94. Payment Before Delivery by Executor or Administrator. - No judge shall authorize the executor or
judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from
the Commissioner that the estate tax has been paid is shown.
SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the Registry of
Property any document transferring real property or real rights therein or any chattel mortgage, by way of gifts
inter vivos or mortis causa, legacy or inheritance, unless a certification from the Commissioner that the tax fixed in
this Title and actually due thereon had been paid is show, and they shall immediately notify the Commissioner,
Regional Director, Revenue District Officer, or Revenue Collection Officer or Treasurer of the city or municipality
where their offices are located, of the non payment of the tax discovered by them. Any lawyer, notary public, or
any government officer who, by reason of his official duties, intervenes in the preparation or acknowledgment of
documents regarding partition or disposal of donation inter vivos or mortis causa, legacy or inheritance, shall have
the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer
of the place where he may have his principal office, with copies of such documents and any information whatsoever
which may facilitate the collection of the aforementioned tax. Neither shall a debtor of the deceased pay his debts
to the heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner that the
tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without
said certification if the credit is included in the inventory of the estate of the deceased.
SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the payment of the
estate tax, new obligations of the decedent shall appear, and the persons interested shall have satisfied them by
order of the court, they shall have a right to the restitution of the proportional part of the tax paid.
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall not be
transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any share, obligation, bond or right by way of gift inter vivos or
mortis causa, legacy or inheritance, unless a certification from the Commissioner that the taxes fixed in this Title
and due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that
the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or
any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000) without the said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said depositors.
Donors Tax
Purpose:
o Raise revenues for government
o Supplement estate tax
o Prevent avoidance of income tax by splitting income among donees
SEC. 98. Imposition of Tax. -
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of
the property by gift, a tax, computed as provided in Section 99.
Mickey Ingles 20
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible.
Gifts and donors tax will be levied, assessed, collected and paid upon the transfer by
any person, resident or nonresident, of property by gift
o The property can be real or personal, tangible or intangible
o The transfer can be in trust or otherwise
o The gift can be direct or indirect
The donors tax shall not apply unless and until there is a completed gift. The transfer of
property by gift is perfected from the moment the donor knows of the acceptance by the
donee; it is completed by the delivery, either actually or constructively, of the donated
property to the donee. Thus, the law in force at the time of the perfection/completion
of the donation shall govern the imposition of the donors tax. (RR 02-03)
Gross gifts
SEC. 104. Definitions. - For purposes of this Title, the terms "gross estate" and "gifts" include real and personal
property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent
or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal
property so transferred but which are situated outside the Philippines shall not be included as part of his "gross
estate" or "gross gift": Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any
partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if
the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect
of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of
the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation
allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign count
There are two kinds of donors (similar to estate tax):
1. The resident or citizen of the Philippines, and
2. The non-resident, not citizen of the Philippines
If the donor is a resident or a citizen of the Philippines, gross gifts would consist of:
1. Real estate, regardless of location
2. Tangible personal property, regardless of location
3. Intangible personal property, regardless of location
If the donor is non-resident, not citizen of the Philippines, gross gifts would consist of:
1. Real estate located in the Philippines
2. Tangible personal property located in the Philippines
3. Intangible personal property located in the Philippines, subject to the reciprocity
clause (Similar to the rules for estate tax, see discussion there for what constitutes
intangible property)
a. If donor at the time of the donation was a citizen and resident of a foreign
country which at the time of the donation did not impose a transfer tax of any
character in respect of intangible personal property of Filipino citizens not
residing in that country, or
b. If the laws of the foreign country of which the donor was a citizen and resident
at the time of donation allow a similar exemption from transfer taxes of every
character in respect of intangible personal property owned by citizens of the
Philippines not residing in that country
A donation made by a corporation to the heirs of a deceased office out of gratitude for
his past services is subject to the donees gift tax. It is not subject to deduction for the
Mickey Ingles 21
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
value of said services which do not constitute a recoverable debt. (Pirovano v CIR, the
heirs here wanted to consider it remuneratory so it wont be taxed as a gift. In this case,
the donees were the ones who were made liable to pay, not the donor)
Prior to RA 7166, a donation for a political candidate was subject to donors tax. (ACCRA
v CIR, wherein the ACCRA partners claimed that political and electoral contributions
were not subject to donors tax)
o But now, under RA 7166, contributions duly reported to the BIR are not subject
to any donors tax.13
o Segue to election taxes: so what happens to the money given to the candidate?
(RR 7-2011, Feb 8, 2011)
GR: The money given to the candidate will NOT go into his taxable
income, as long as it is utilized in his campaign.
HOWEVER, unutilized/excess campaign funds shall be subject to
income tax.
Moreover, any candidate (winner or loser) must file with the COMELEC
his/her statement of expenditures. If not, he/she will be precluded from
using such expenditures as deductions from his/her campaign
contributions. As such, the entire amount of such contributions will be
directly subject to income tax.
o Any provision of law to the contrary notwithstanding, any contribution in cash or
in kind to any candidate or political party or coalition of parties for campaign
purposes, duly reported to the Commission shall not be subject to the payment of
any gift tax. (RR 8-2009, Oct 22, 2009)
Any provision of law to the contrary notwithstanding, any contribution in
cash or in kind to any candidate or political party or coalition of parties for
campaign purposes, duly reported to the Commission shall not be subject
to the payment of any gift tax. (RR 8-2009)
13
Sec 13 xxx Any provision of law to the contrary notwithstanding any contribution in cash or in kind to any candidate or political party or
coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to the payment of any gift tax.
Mickey Ingles 22
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o For example, the real property had a cost of P100, a FMV of P200, but sold for
only P170.
If it were classified as a capital asset, it will be taxed 6% of the FMV
(remember, the base is either the consideration or the FMV, whichever is
higher).
If it were classified as an ordinary asset, it will be taxed twice. First, it will
be taxed for income tax purposes (tax base of P70). Second, it will be
taxed for donors tax (tax base of P30). In this case, donors tax will be
attracted unwittingly.
Cancellation of indebtedness
If a creditor desires to benefit a debtor, and without any consideration therefore, cancels
the debt (and the debtor accepts), the amount of the debt is a donation by the creditor
to the debtor.
Mickey Ingles 23
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
research institutions or organizations, provided that not more than 30% of said gifts
shall be used by such donee for administration purposes
The entity must be:
i. Non-stock
ii. Paying no dividends
iii. Governed by trustees who receive NO compensation
iv. Devoting ALL its income to the accomplishment of the purpose
enumerated in its AOI
Example Husband and wife donated P400k to son and daughter-in-law, on account of
marriage out of community property. How do we break this down?
Gross gift Gross gift to Deduction Kind of Net Gift Tax Rate Donors
by donee (see Tax
schedule)
Father Son P100k P10k Non- 90k Exempt 0
P200k stranger
Daughter-in- None Stranger 100k 30% 30k
law P100k
Other deductions
The BIR ahs allowed the following as deductions from gross gifts to arrive at net gifts:
1. Encumbrance on the property donated, if assumed by the donee
2. Those specifically provided by the donor as a diminution of the property donated.
Mickey Ingles 24
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Example Lhizavhel donated land which was subject to a mortgage to Chlahrihvel. The FMV
of the land was P1m, but the mortgage was P400k. Chlahrihvel agreed to assume the
mortgage, hence the deduction of P400k is allowed. The net gift is P600k.
(A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts made during
the calendar year in accordance with the following schedule:
If the net gift is:
Over But not over The tax shall be Plus Of Excess over
P100k Exempt
P100k 200k 0 2% P100k
200k 500k 2k 4% 200k
500k 1m 14k 6% 500k
1m 3m 44k 8% 1m
3m 5m 204k 10% 3m
5m 10m 404k 12% 5m
10m 1.004m 15% 10m
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger, the tax payable by
the donor shall be thirty percent (30%) of the net gifts. For the purpose of this tax, a "stranger", is a person who is
not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as amended.
Note: calendar year reporting
o So if you want to avoid paying the tax, split the donation (Dec 31 and January 1)
The tax rate for donors are illustrated in the table above.
However, if donee or beneficiary is a stranger, the tax payable by the donor shall be
30% of the net gifts.
A stranger is a person who is NOT a:
1. Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant, or
2. Relative by consanguinity in the collateral line within the 4th degree of relationship.
Donation made between business organizations and those made between an individual
and a business organization shall be considered as donation made to a stranger. (RR 02-
03)
The basic tax formula is as follows:
On the first donation of a calendar year
Gross gifts
Less: Deductions from these gross gifts
Net Gifts
X Donors tax rate
Donors tax due on the net gifts
Mickey Ingles 25
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Donors tax on aggregate net gifts
Less: Donors tax on all prior net gifts within the same calendar year
Donors tax due on the net gifts of this date
Example
Mr. and Mrs. Lumbat are Filipino residents. On Jan 3, 2010, they donated a lot with a FMV
of P2m to their child, Zombie, and his wife, Honka Monka on account of their marriage. On
June 3, 2010, they donated P200k to Mr. Lumbats brother, Piggie Boy.
June 3, 2010
Gross gifts
made:
To Piggie Boy 100k 100k 100k 100k
Total 100k 100k 100k 100k
Deduction: 0
Net gifts made 100k 0 100k 0 100k 100k
on this date
Add: All prior net 490k 500k 490k 500k
gifts within the
year
Aggregate net 590k 500k 490k 600k
gifts
Donors tax on 19,400 150,000 13,600 180,000
aggregate net
gifts
Less: Donors tax 13,600 150,000 13,600 150,000
on all prior net
gifts within the
year
Donors Tax Due 5,800 0 5,800 0 30,000 30,000
Mickey Ingles 26
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence in the
Philippines, with the Office of the Commissioner. In the case of gifts made by a nonresident, the return may be
filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner.
The donors tax return must be filed within 30 days after the date of the donation.
On all donations of one date, only one donors tax return is required.
In case of husband and wife as donors the donors tax return of the husband will be
apart of the donors tax return of the wife.
Where to file? See codal.
When and where to pay? The donors tax will be paid at the time the return is filed, and
with the office where the return is filed.
Allowed tax credit is whichever is lower of the foreign donors tax paid and the limit.
Example
Mr. Aquino donated property to Jojo here in the Philippines, net gift value of P200k.
He also donated to Pele in Brazil, net gift value of P300k. In Brazil, he paid a tax of P10k.
They are both relatives of Mr. Aquino.
Foreign donors tax paid = P10k
Donors tax supposed to be paid worldwide, without the credit = P14,000.
Credit is:
300k x P14,000 = 8,400
500k
So choose whats lower between the tax paid abroad and the credit limitation. So, its
P8,400. Thats the tax credit.
Mr. Aquino has to pay P5,600 na lang.
Value-Added Tax
Characteristics:
o Tax on the value added by the taxpayer
o Collected through tax credit
o Transparent form of sales tax
o Broad-based tax on consumption
o Indirect tax
o We adopted the tax-inclusive method
o No cascading
TITLE IV
VALUE-ADDED TAX
CHAPTER I
IMPOSITION OF TAX
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the effectivity of Republic Act No. 7716.
VAT is imposed on any person who:
1. Sells, barters or exchanges goods or properties in the course of trade or business; or
2. Sells services in the course of trade or business; or
3. Imports goods, whether or not in the course of trade or business.
The VAT is a tax on consumption, levied on the sale, barter, exchange or lease of goods
or properties and services in the Philippines and the importation of goods into the
Philippines.
o The seller is the one statutorily liable for the payment of the tax, but the amount
of the tax may be shifted or passed on to the buyer, transferee or lessee of the
goods or properties or services.
o VAT is imposed on the seller, not the buyer.
i. EXCEPT: in importation
If seller is VAT exempt, no need for payment on VAT on his sales. He will have to
shoulder the burden of the VAT passed to him by his suppliers for his purchases.
Mamalateo says that the sale should be for valuable consideration. If no valuable
consideration, not subject to VAT.
Is VAT really a tax on the value-added?
o Yes. Consider this:
A sells to B a piece of wood.
Price: P100
Tax (10% for this example): P10.
Total: P110.
Mickey Ingles 28
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
B has an output tax of P15, and an input of P10. He has a P5 NET VAT payable
(output-input). Ok, fine, but where do we see the tax on the value added by B?
We see that in the level of the price level. By applying his skills and labor, B
made a chair out of the wood that he bought from A. From P100, the price increased to
P150. There was a P50 increase from the value added by B. And applying the VAT on this
P50, it results into the same amount, which is P5. This proves that the tax is really on the
value added.
How do we know if the transaction is subject to VAT? What are the elements?
1. It must be done in the ordinary course of trade or business
2. There must be a sale, barter, exchange, lease of goods or properties, or
rendering of service in the Philippines.
3. It is not VAT-exempt or VAT zero-rated.
o If all three are present, then the transaction is subject to the 12% VAT. Absence
of one will not make the transaction subject to VAT.
But remember that importations are subject to VAT, whether or not in the
course of trade or business.
As it is a tax on the transaction, there is no need whatsoever for there to be a taxable
gain (unlike in income tax). It is not required by either law or jurisprudence.
o In fact, the NIRC and in CIR v CA and COMASERCO state that non-stock, non-
profit organizations are subject to the VAT, as long as the service is done for a
fee or remuneration.
In his comment, Sir said that Comaserco would have escaped liability from
VAT if they pressed the point that they were doing the services not in the
course of business.
Mickey Ingles 29
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
However, if the taxpayer is a non-resident alien, there is no need for the regularity of
conduct. Services rendered by them in the Philippines are considered as being in the
course of trade or business, and thus, subject to the VAT.
o This is an exception to the regularity requirement.
Any sale, barter or exchange of goods or services not in the course of trade or business
is not subject to VAT. (CIR v Magsaysay, wherein a company sold property to another.
SC said no VAT since seller was not involved in the business of selling property)
When determining if this element/requisite exists, be mindful of the following:
o Was the transaction done regularly? Or isolated?
o Was it incidental thereto?
o Is the taxpayer a non-resident alien? (Because if he is, the transaction need not
be regular.)
Between an automobile shop who sells 5 parcels of land and a real estate dealer who
sold a parcel of land, both will be subject to VAT. The automobile shop because of its
regular conduct, and the real estate dealer because of the nature of his business
(pursuit of a commercial or economic activity, which takes the quantitative approach.)
This provision notwithstanding, an importation of goods for personal use is still subject
to VAT because of Section 107.
o This is an exception to pursuit of a commercial or economic activity
requirement
Are fees collected by tollway operators subject to VAT?
o Yes. VAT is imposed on all kinds of services and tollway operators who are
engaged in constructing, maintaining, and operating expressways are no different
from lessors of property, transportation contractors, etc. (Diaz v Secretary of
Finance)
The term gross selling price means the total amount of money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding
the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price.
(1) The term goods or properties shall mean all tangible and intangible objects which are capable of pecuniary
estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
Goods or properties include:
a. Real properties held primarily for sale to customers, or held for lease in the ordinary
course of trade or business;
b. The right or privilege to use patent, copyright, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or other like property or right;
c. The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion picture films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
This is not an exclusive list.
What is a sale?
A sale is the transfer of ownership of property in consideration of money received or to
be received.
VAT accrues upon consummation of the sale, regardless of the terms of payment.
What are transactions deemed sales?
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or
for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were
consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.
Mickey Ingles 31
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
By virtue of law, the following are considered sales in the course of trade or business,
and is subject to the VAT:
a. Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business;
b. Distribution or transfer of inventory to shareholders or investors as share in the
profits of the VAT-registered persons; (Property Dividends)
c. Distribution or transfer of inventory to creditors in payment of debt;
d. Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned; and
e. Retirement from or cessation of business, with respect to inventories of taxable
goods existing as of such retirement or cessation.
o For example, Johnson & Johnson gave Atty. Montero baby powder. Thats a
deemed sale by virtue of transfer of goods originally intended for sale
o With number 4 (letter e), Atty. Salvador says that capital goods are included in
the valuation
o Take note of this! Possible multiple choice question!
(E). Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall, by rules and
regulations prescribed by the Secretary of Finance, determine the appropriate tax base in cases where a
transaction is deemed a sale, barter or exchange of goods or properties under Subsection (B) hereof, or where the
gross selling price is unreasonably lower than the actual market value.
The CIR shall determine the appropriate tax base in cases where transactions are
deemed sales, or where the gross selling price is unusually lower than the actual market
value.
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties.
The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire
another domestic common carriers by land, air and water relative to their transport of goods or cargoes; services
of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange
of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret
formula or process, goodwill, trademark, trade brand or other like property or right;
(2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge
or information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such
nonresident person.
(6) The supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
Mickey Ingles 32
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease
or licensing agreement was executed if the property is leased or used in the Philippines.
The term "gross receipts" means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services
and deposits and advanced payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.
Any sale or exchange of services in the course of trade or business, including the use or
lease or properties, shall be subject to the VAT.
To be defined as sales of services, the services:
o Should be rendered in the Philippines,
o Can be any and all kinds of services rendered to others (provided there is no
employer-employee relationship);
o There is a fee, remuneration or consideration.
Sale of services in the course of trade or business includes those performed or rendered
by:
a. construction and service contractors
b. stock, real estate, commercial, customs and immigration brokers
c. lessor of property, whether personal or real
d. warehousing services
e. lessor or distributors of cinematographic films
f. persons engagedin milling, processing, manufacturing or repacking of goods for
others
g. proprietors, operators, or keepers of hotels, motels, resthouses, pension houses,
inns, resorts
h. proprietors or operators of restaurants, refreshment parlors, cafes and other eating
places, including clubs and caterers
i. dealers in securities
j. lending investors
k. transportation contractors on their transport of goods or cargoes, including persons
who transport goods or cargoes for hire and other domestic common carriers by
land, relative to their transport of goods or cargoes (keep this in mind for when we
take up percentage tax)
l. common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines (same
here)
m. sales of electricity by generation companies, transmission and distribution companies
n. services of franchise grantees of electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees, except those under Section
119 of the NIRC
o. non-life insurance companies (except their crop insurances), including surety, fidelity
and bonding companies
p. similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties
Also included are:
a. The lease or use of or right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand and other
like property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a
means of enabling the application or enjoyment of any such property, or right as is
Mickey Ingles 33
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
enumerated in letter (b) hereof or any such knowledge or information as is mention
(c)
e. The supply of services by a non-resident person or his employee in connection with
the use of property or rights belonging to, or the installation or operation of any
brand, machinery or other apparatus purchased from such non-resident person;
f. The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
g. The lease of motion picture films, tapes, and discs,
h. The lease or use of or the right to use radio, television, satellite transmission and
cable television time.
For VAT, all gross receipts from services rendered by the partners shall be entirely
taxable to the partnership.
Lease of properties shall be subject to the tax herein imposed irrespective of the place
where the contract or lease or licensing agreement was executed if the property is
leased or used in the Philippines
The list not exhaustive. However, exhibition of movies is not subject to VAT, but subject
to amusement tax imposed by local government units. (CIR v SM Prime)
For the sale or exchange of services, including the use or lease of properties, the VAT
rate is 12% of the gross receipts.
Gross receipts means cash or its equivalent actually received or constructively received
(not including the VAT) as:
o Payments on the contract price, compensation, service fee, rental or royalty;
Note: royalty includes services as to investment, training and education
(Philamlife CA GR SP 31283, April 25, 1995)
o Payments or materials supplied with the services; and
o Deposits of advanced payments on the contract for services.
For example, Lionel was a building contractor. He spent P50m for
materials and P30mfor labor. The taxable gross receipts is P80m, the
whole of which is VATable by 12%.
o Constructive receipt occurs when the money consideration or its equivalent is
placed in the control of the person who rendered the service without restriction
by the payor. (like a bank deposit; issuance by the debtor of a notice to offset
any debt or obligation and acceptance thereof by the seller as payment for the
services rendered)
Are reimbursements subject to VAT? (See RMC 9-2006 for more details on this)
o If the reimbursable expenses advanced by brokers on behalf of their customers
are receipted with the brokers VAT OR, then its vatable.
o But if no receipt given (only a non-vat acknowledgment receipt), the same shall
not form the gross receipts of the broker and shall not be subject to the VAT on
the part of the broker.
However, the third-party must provide an OR in the name of the
customer.
o Gross receipts do NOT include money or receipts entrusted to the taxpayer which
do NOT belong to them or do NOT redound to their benefit. (Think of travel
agents)
(B) Transfer of Goods by Tax-Exempt Persons. - In the case of tax-free importation of goods into the
Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred
or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall
be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax
due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods,
irrespective of the possessor thereof.
This article deals with technical importation.
When a person who was exempt from the VAT on his importation subsequently sells
(transfers or exchanges) in the Philippines such imported article to a non-exempt person
or entity, the purchaser (transferee or assignee) will be required to pay the VAT.
o Xavi is a tax-exempt entity who imported stuff. He then sold it to Diego, a non-
exempt entity. Diego has to pay for the VAT. Diego can claim the VAT paid as
creditable input taxes.
The VAT of an importation should be paid prior to the releae of the goods from customs
custody. If its subject to both excise tax and VAT, he has to pay both prior to the
release.
A seller of goods or services who imports stuff can claim the VAT paid on importations
during a taxable period as input taxes creditable against the output taxes on the sales of
the same period.
Before tackling zero-rated and exempt transactions, lets have an overview of the VAT
system.
Understanding VAT is a matter of perspective. We first have to know WHO we are
talking about.
Remember that in the VAT system, the burden of paying the VAT is passed on to the
buyer. (A sells to B; B pays the 12% VAT on it.)
o But B can recover the amount he paid to A by selling the shirt to C, since C will
pay the 12% on the VAT.
The biggest difference of zero-rated/effectively zero-rated transactions and VAT-exempt
transactions is the ability to recover VAT already paid to the seller.
o Why do we look at the input tax and not the output tax?
Because the input tax is what we all seek to recover, thats what we paid
for.
Output tax doesnt come out of our own pockets because we can pass that
burden to our buyers.
o In zero-rated transactions, there is total relief for the purchaser from the burden
of the tax since he does not have input VAT and in effect, because VAT is at 0%,
it does not have output VAT.
Mickey Ingles 35
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o In exempt transactions, there is only partial relief because the purchaser is not
allowed any tax refund or credit for input taxes paid.
In normal VAT transactions, the VAT paid to A can be recovered by selling it to C. We
are talking about B.
So, if we were B, and we had a choice what should our next sale transaction be
normal VATable, zero-rated, or exempt?
o Clearly, we wont go for exempt, because we wont recover the VAT we paid to
our suppliers (A).
But what do you do with the unrecovered VAT in exempt transactions?
Itll be considered as cost, so deductible item.
Mickey Ingles 36
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Its a toss-up between going for normal VATable transactions and zero-rated
transactions.
In both these cases, we will recover the VAT we paid to our suppliers. It
will just depend on different factors.
If we go for a zero-rated transaction, do we want to go through the
hassle of having to deal with the BIR and paying the fees?
If we go for the normal VATable, the recovery would be quicker.
But this would mean wed have to keep track of the VAT paid to us
and then have to pay the net VAT payable to the government. And
what if our line of business is really engaged in exporting (zero-
rated), should we go to the trouble of looking for buyers here in
the Philippines if thats not our main line of business anyway?
(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" means sale to a
nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales to zero rate.
For goods, a rate of 0% of the gross selling price will be applied if:
1. Export sale; or
2. Foreign currency denominated sale; or
3. Sales to persons or entities whose exemption under special laws, or international
agreements to which the Philippines is a signatory (effective zero rated sales)
Export sales means:
o the sales and actual shipments or exportations of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so
exported, and
o paid for in acceptable foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the BSP.
The following are also within the meaning of export sales (possible MCQ!):
Mickey Ingles 37
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
a. sales of raw materials or packaging materials to a non-resident buyer for delivery to
a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of said buyers goods and paid for in
acceptable foreign currency and accounted for in accordance with BSP rules and
regulations
b. sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed 70% of total annual production (as long as 70% is exported,
then 100% of net input may be refunded)
c. sale of gold to the BSP
d. those considered export sales under EO 226 and other special laws
e. sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations
While an ecozone is geographically within the Philippines, it is deemed a separate
customs territory and is regarded in law as foreign soil. Thus, sales by suppliers from
outside the ecozone to this separate customs territory are deemed as exports and
treated as export sales. (CIR v Sekisui)
Foreign currency denominated sales means
o sales to nonresidents of goods assembled or manufactured in the Philippines,
o for delivery to residents in the Philippines, and
o paid in acceptable foreign currency and accounted for in accordance with BSP
rules and regulations.
o This does not apply to automobiles and non-essential goods subject to excise
taxes.
Under the cross-border principle of the VAT system, no VAT shall be imposed to form
part of the cost of goods destined outside of the territorial border of the taxing authority.
(CIR v Seagate)
For services
Sec 108 (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, of manufacturing goods for
an enterprise whose export sales exceed seventy percent (70%) of total annual production.
(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country (RA 9337)
(7) Sale of power or fuel generated through renewable sources of energy such as, but no limited to, biomass, solar,
wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel
cells and hydrogen cells. (RA 9337)
For services performed in the Philippines, a rate of 0% of the gross receipts will be
applied in the following instances:
1. From processing, manufacturing or repacking of goods,
a. For other persons doing business outside the Philippines,
b. The goods are subsequently exported,
c. The services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
2. Services other than processing, manufacturing or repacking of goods, rendered to a:
a. Person engaged in business conducted outside the Philippines, or
Mickey Ingles 38
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
b. non-resident person not engaged in business who is outside the Philippines
when the services are performed
i. the consideration is paid in acceptable foreign currency and accounted
for in accordance with the blah blah blah of the BSP
3. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects
such services to zero rate;
4. Services rendered to persons engaged in international shipping or international air
transport operations, including leases of property for use thereof;
5. Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceed 70% of total
annual production;
6. Transport of passengers and cargo by air and sea vessels from the Philippines to a
foreign country, and
7. Sale of power or fuel generated through renewable sources of energy
Services other than processing, manufacturing, or repacking of goods must likewise be
performed outside the Philippines. (CIR v Bumeister and Wain, wherein the recipient of
the services was the Consortium who was deemed doing business within the Philippines)
In CIR v American Express, AMEX had a branch in the Philippines (AMEX-Phil) who
collected receivables from the Philippine customers of AMEX-Hong Kong. SC held that
AMEX-Phil qualified for zero-rating. It fell under Section 108 (b) (2) (Performed services
in the Philippines for a person doing business outside the Philippines and paid in
acceptable foreign currency)
The VAT system generally follows the destination principle (exports are zero-rated
whereas imports are taxed).
o However, there is an exception in the form of services performed in the
Philippines for a recipient doing business outside the Philippines (since the service
is still done here). (CIR v Wain)
To be exempt from the destination principle under Section 108(b)(1) and (2), the
service must be
o Performed in the Philippines,
o For a person doing business outside the Philippines, and
o Paid in acceptable foreign currency accounted for in accordance with BSP rules.
Effectively-zero rated sales usually come from special laws and international agreements
o RA 7227, RA 7916, Asia Development Bank, Embassies, etc
According to RR 16-2005, PEZA enterprises have to register first with the
BIR to get effectively zero rated benefits. If not, it will just be deemed
exempt. (BIR Ruling DA 736-2006, check if still applicable)
Mickey Ingles 39
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
In both zero-rated and effectively zero-rated transactions, the seller who charges zero
output tax can claim a refund or a tax credit certificate for the VAT previously charged
by suppliers.
Exempt Transactions
SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value added tax:
(a) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a
kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic
materials therefor.
Products classified under this paragraph shall be considered in their original state even if they have undergone the
simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting,
smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra
shall be considered in their original state;
(b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered
as pets);
(c) Importation of personal and household effects belonging to the residents of the Philippines returning from
abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from
customs duties under the Tariff and Customs Code of the Philippines;
(d) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal
household effects (except any vehicle, vessel, aircraft, machinery other goods for use in the manufacture and
merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their
own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days
before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons
are actually coming to settle in the Philippines and that the change of residence is bona fide;
(e) Services subject to percentage tax under Title V;
(f) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane
into raw sugar;
(g) Medical, dental, hospital and veterinary services except those rendered by professionals;
(h) Educational services rendered by private educational institutions, duly accredited by the Department of
Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED), the Technical Education
and Skills Development Authority (TESDA) and those rendered by government educational institutions
(i) Services rendered by individuals pursuant to an employer-employee relationship;
(j) Services rendered by regional or area headquarters established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in
the Asia-Pacific Region and do not earn or derive income from the Philippines;
(k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under
special laws, except those under Presidential Decree 529;
(l) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members
as well as sale of their produce, whether in its original state or processed form, to non-members; their importation
of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively
in the production and/or processing of their produce;
(m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority;
(n) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the
members;
(o) Export sales by persons who are not VAT-registered;
(p) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade
or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued
at (P1,919,500) and below, house and lot and other residential dwellings valued at (P3,199,200) and below:
Provided, That not later January 31, 2009 and every three years thereafter, the amounts herein stated shall be
adjusted to their present value using the Consumer Price Index, as published by the NSO;
(q) Lease of a residential unit with a monthly rental not exceeding (P12,800); Provided, That not later January 31,
2009 and every three years thereafter, the amounts herein stated shall be adjusted to their present value using
the Consumer Price Index, as published by the NSO;
(r) Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin which
appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the
publication of paid advertisements;
Mickey Ingles 40
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(s) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare
parts thereof for domestic or international transport operations;
(t) importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations
(u) services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank
financial intermediaries; and
(v) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in
the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of (P1,919,500):
Provided, That not later January 31, 2009 and every three years thereafter, the amounts herein stated shall be
adjusted to their present value using the Consumer Price Index, as published by the NSO.
(2) A VAT-registered person may elect that subsection (1) not apply to its sale of goods or properties or services,
Provided, that an election made under this Subsection shall be irrevocable for a period of three (3) years from the
quarter the election was made. (RA 9337)
VAT-exempt transactions refer 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.
The person making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not subject to VAT.
The seller does not charge VAT and he can NOT claim exemption from whats been
passed to him.
A VAT-registered person may elect that the exemptions shall not apply to his sales of
goods or properties or services.
o But one the election is made, it shall be irrevocable for a period of three years
counted from the quarter when the election was made.
EXCEPT for franchise grantees of radio and TV broadcasting whose annual
gross receipts for the preceding year do not exceed P10m. In their case,
the option becomes perpetually irrecovable. (RR 4-2007)
Itll be too lengthy if RR 16-05 will be replicated here. Instead, Ill just add those parts
which further explain the statutory enumeration above.
Note: the new threshold values are based on RR 16-2011.
Re (a): the term livestock does not include fighting cocks, race horses, zoo animals
and other animals generally considered as pets.
Re (b): Specialty feeds refers to non-agricultural feeds or food for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets.
Re (g): laboratory services are exempted. But if the hospital or clinic operates a
pharmacy or drug store, the sale of drugs and medicine is subject to VAT.
Re (h): Educational services do not include seminars, in-service training, review classes
and other similar services rendered by persons who are not accredited by the DepEd,
CHED or Tesda.
Re (j): this only refers to RAHQs. ROHQs are subject to zero-rated sales. (?)
Re (l): importation by non-agricultural, non-electric and non-credit cooperatives of
machineries and equipment, including spare parts thereof, to be used by them are
subject to VAT.
o Sale by agricultural cooperatives to non-members can only be exempted from
VAT if the producer of the agricultural products sold is the cooperative itself. It
the cooperative is not the producer (like a trader), then only those sales to its
members shall be exempted from VAT. (RR 4-2007)
Re (p): If the real property is not primarily held for sale to customers or held for lease in
the ordinary course of trade or business BUT the same is used in the trade or business
of the seller, the sale thereof shall be subject to VAT being a transaction incidental to
the taxpayers main business.
Mickey Ingles 41
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Low-cost housing refers to housing projects intended for homeless low-income
family beneficiaries, undertaken by the Government or private developers, which
may either be a subdivision or a condominium.
o Socialized housing refers to housing programs and projects covering houses
and lots or home lots only undertaken by the Government or the private sector
for the underprivileged and homeless citizens.
o If two or more adjacent residential lots are sold or disposed in favor of one
buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be
exempt from VAT only if the aggregate value of the lots do not exceed
P1,919,500.
Re (q): Lease of residential units where the monthly rental per unit exceeds P12,800 but
the aggregate of such rentals of the lessor during the year do not exceed P1,919,500
shall likewise be exempt from VAT. However, it shall be subjected to the 3% percentage
tax.
o So, less than P12.8k/month -> exempt
o More than P12.8k/month but less than P1.9195m/year -> 3% Percentage tax.
o More than P12.8k/month and more than P1.9195m/year -> 12% VAT.
o Residential units shall refer to apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places.
Motels are not included.
o Units refer to an apartment unit in case of apartments, house in the case of
houses, per person in the case of dorms, boarding houses and bed spaces, and
per room in case of rooms for rent.
Re (s): the exemption from VAT on the importation and local purchase of passenger
and/or cargo vessels shall be limited to those of 150 tons and above, including engine
and spare parts of said vessels.
o Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal
plates including marine-grade aluminum plates, used for shipping transport
operations shall be exempt. It will be subject to the Domestic Shipping
Development Act of 2004.
o Same thing with the importation of capital equipment, machinery, spare parts,
life-saving and navigational equipment, steel plates and other plates to be used
in the construction, repair, etc of any merchant marine vessel operated or to be
operated in the domestic trade.
Re (t): said fuel, goods and supplies should be used exclusively or should pertain to the
transport of goods and/or passenger from a port in the Philippines directly to a foreign
port, or vice versa, without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for the purpose of
unloading passenger and/or cargoes that originated from abroad, or to load passengers
and/or cargoes bound for abroad.
o If any portion of such fuel, goods or supplies is used for purposes other than that
mentioned, such shall be subject to 12% VAT. (yari ka boy!)
Re (u): services of such banks, non-bank financial intermediaries performing quasi-
banking functions, and other non-bank financial intermediaries , like money changers or
pawnshops, are subject to percentage tax. (RR 4-2007)
Re (v): for purposes of the P1.9195m threshold, the husband and the wife shall be
considered separate taxpayers. However, the aggregation rule for each taxpayer shall
apply, for instance, if a professional, aside from the practice of his profession also
derives revenue from other lines of business which are otherwise subject to VAT, the
same shall be combined for purposes of determining whether the threshold has been
exceeded. Thus, the VAT-exempt sale shall not be included in determining the threshold.
Mickey Ingles 42
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Note: the sale of electricity is now VAT-able
Is copra exempt? Yes! Its considered a food product.
Are the fees, per diems, honoraria or allowances given to directors of corporations
exempt?
o YES, exempt since not considered derived from an economic or commercial
activity. Said fees are remunerations paid in the exercise of a right of an owner in
the management of the corporation.
o Not even liable for 3% percentage tax. (RMC 77-2008, Dec 9, 2008)
Is the transfer of real estate from one real estate dealer to another real estate dealer
exempt?
o No. Exemption from VAT has been deleted. (Atty. Salvadors syllabus)
Provided, that the input tax on goods purchases or imported in calendar month for use on trade or business for
wich deduction is allowed under this Code, shall be spread evenly over the month of acquisition and the 59
succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds
One million pesos (P1,000,000): Provided, however, that if the estimated useful life of the capital good is less than
5 years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period:
Provided, finally, That, in the case of purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or free.
Output tax
o Output tax is the value-added tax due ON the sale or lease of taxable
goods/properties/services by any person registered or required to register under
the VAT system.
o Output tax is what the taxpayer passes on to the purchaser.
Input tax
o Input tax is the value-added tax due FROM or PAID BY a VAT-registered person
in the course of his trade or business on importation of goods or local purchase of
goods/services (including lease or use of property), from a VAT-registered
person, including the transitional input tax.
o Input tax is what is passed on to the purchaser. If the purchaser is a VAT-
registered person, then he can use the input tax as credit to the output taxes
that he is liable to remit to the BIR.
The input tax credit on importation of goods or local purchases of goods, properties or
services by a VAT-registered person shall be creditable:
1. To the importer upon payment of VAT prior to the release of goods from customs
custody,
2. To the purchaser of the domestic goods or properties upon consummation of the
sale, or
Mickey Ingles 43
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
3. To the purchaser of services or the lessee or licensee upon payment of the
compensation, rental, royalty or fee. (RR 16-2005)
An input tax means the VAT due or paid by a VAT-registered person on importation of
goods or local purchases of goods, properties, or services, including lease or use of
properties, in the course of his trade or business.
o It shall also include the transitional input tax and the presumptive input tax.
o It also includes input taxes which
Can be directly attributed to transactions subject to the VAT, and
A ratable portion of any input tax which cannot be directly attributed to
either the taxable or exempt activity.
Any input tax on the following transactions evidence by a VAT invoice or official receipt
by a VAT-registered person in accordance with Sections 113 and 237 of the Tax Code
shall be creditable against the output tax:
1. Purchase or importation of goods
a. For sale, or
b. For conversion into or intended to form part of a finished product for sale,
including packaging materials, or
c. For use as supplies in the course of business, or
d. For use as raw materials supplied in the sale of services, or
e. For use in trade or business for which deduction for depreciation or
amortization is allowed under the Tax Code
2. Purchase of real properties for which a VAT has actually been paid,
3. Purchase of services in which a VAT has actually been paid,
4. Transactions deemed sale,
5. Transitional input tax,
6. Presumptive input tax,
Example
ABC Corporations has the following sales during the month:
To private entities subject to 12% - P100,000
Export sales - P100,000
Exempt goods - P100,000
To the Govt - P100,000
Total - P400,000
Mickey Ingles 45
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
The following input taxes were passed on by its VAT suppliers:
On taxable goods 12% - P5,000
On the exports - P3,000
On sale of exempt goods - P2,000
On sale to government - P4,000
On depreciable capital good, - P20,000
Not attributable to any specific activity
(60 month amortization)
From the facts, we can see that only the input tax on the depreciable capital good can not
be allocated to any specific activity. To get the input tax for that, you have to pro-rate it
among the transactions, using the following equation:
Output Input
Allocated Unallocated Total Creditable Net Vat Excess Refund/ Unrecoverable17
Payable15 Input Creditable16
12% 12k 5k 5k 10k 10k 2k 0 0 0
0% 0 3k 5k 8k 8k 0 8k 8k 0
Exempt 0 2k 5k 7k 0 0 0 0 7k
Govt 12k 4k 5k 9k 7k18 5k 0 0 2k
The input tax attributable to VAT-exempt sales shall not be allowed as credit against the
output tax but should be treated as part of cost or expense.
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: Provided, however, that any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112. (RA 9361)
(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over from the preceding
month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall
be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as
purchase returns or allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of
Internal Revenue but also those filed with other government agencies, such as the Board of Investments the
Bureau of Customs.
If at the end of any taxable quarter the output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person. (Known as the Net VAT payable)
If the input tax inclusive of input tax carried over from the previous quarter exceeds the
output tax, the excess input tax shall be carried over to the succeeding quarter or
quarters,
o Provided, that any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or applied for a tax credit certificate which
14
Either the VATable, export, exempt or the govt
15
Math column. Output Tax Creditable Tax
16
Law column. Sec 112
17
Total input Creditable Tax
18
Why 7? Because 5% has been withheld by the Govt.
Mickey Ingles 46
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
may be used in the payment of internal revenue taxes. (this is where you can get
input tax credit or refunds)
o In other words, any input tax, attributable to zero-rated sales may be:
Refunded, or
Credited against other internal revenue taxes of the VAT taxpayer.
(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may, within
two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input
tax which may be used in payment of his other internal revenue taxes.
(C) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of compete documents in support of the application filed in accordance with
Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.-
(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being countersigned by the Chairman, Commission on audit, the
provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the Commission on Audit.
There are two instances where one can avail of a VAT refund:
1. Zero-rated and effectively-zero rated sales
2. Cessation of business
For zero-rated and effectively zero-rated sales of goods, properties or services, the
application should be filed within 2 years after the close of the taxable quarter when
such sales were made.
o The two year period is 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. (CIR v Mirant Pagbilao Corp)
o Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year left to file a claim for refund
or tax credit of the unutilized creditable input VAT.
Take note of CIR v Aichi, 2010:
o The CIR has 120 days, from the date of the submission of the complete
documents within which to grant or deny the claim for refund/credit of input vat.
o Section 112 mandates that the taxpayer filing the refund must either wait for the
decision of the CIR or the lapse of the 120-day period provided therein before
filing its judicial claim. Failure to observe this rule is fatal to a claim. Thus,
Section 112 (A) was interpreted to refer only to claims filed with the CIR and not
appeals to the CTA given that the word used is application. Finally, the Court
said that applying the 2-year period even to judicial claims would render
nugatory Section 112 (D) which already provides for a specific period to appeal to
the CTA --- i.e., (a) within 30 days after a decision within the 120-day period and
(b) upon expiry of the 120-day without a decision.
o In case of full or partial denial by the CIR, the taxpayers recourse is to file an
appeal before the CTA within 30 days from receipt of the decision of the CIR.
Mickey Ingles 48
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
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.
Hence, if filed with CTA before the 120-day period expires, CTA will
dismiss for prematurity.
If filed with CTA after the 150-day (120 + 30 days), CTA will
dismiss for being late.
o Weird because it will dismiss even if still within 2 years.
o This only applies to credit input tax refunds. Why not to refunds in general?
o The Court added that the rules under Sections 204 (C) and 229 as cross-referred
to Section 114 do not apply as they only cover erroneous payments or illegal
collections of taxes which is not the case for refund of unutilized input VAT.
For cessation of business, a VAT-registered person whose registration has been
cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Sec. 106 (C), may within 2 years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which he may
use in payment of his other internal revenue taxes.
o Provided, that he shall be entitled to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate may be utilized.
More on cessation of business or change of status as VAT-registered person (RR 16-
2005):
o Subject to output tax:
Change of business activity from VAT taxable to VAT-exempt status.
Approval of a request for cancellation of registration due to reversion to
exempt status.
o Not subject to output tax:
Change of control of a corporation by the acquisition of the controlling
interest of such corporation by another stockholder or group of
stockholders. The goods or properties will not be considered sold,
bartered, etc.
Change in the trade or corporate name of the business.
Merger or consolidation of corporations. The unused input tax of the
dissolved corporation shall be absorbed by the surviving or new
corporation.
Mickey Ingles 50
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o payments which he expects or is scheduled to receive in cash or property (other
than evidence of indebtedness of the purchaser) during the taxable year of the
sale or disposition.
o It will include more than the down payment in the year of sale.
o It will not include the amount of mortgage on the real property sold which was
already there at the time of sale and which was assumed by the buyer,
EXCEPT when such mortgage exceeds the cost or other basis of the
property to the seller, in which case the excess shall form part of the
initial payments.
For example, the mortgaged assumed by the buyer was P600k,
and the cost to the seller was just P500k. The P100k excess will be
included as initial payments
If the initial payments exceed 25% of the selling price, the transaction shall be
considered a cash sale with a VAT at the time of the sale.
Take note that it is the agreed consideration which is used to determine the initial
payments, while it is the highest among the consideration, zonal value and FMV which is
used for the computation of the VAT.
VAT on Lease
All forms of property for lease, whether real or personal, are liable to VAT except when
gross annual sales do not exceed P1.9195m, in which case they will be exempt. (See
discussion on VAT-exempt)
Lease of property shall be subject to VAT regardless of the place where the contract of
lease or licensing agreement was executed if the property leased or used is located in
the Philippines.
See also rules just mentioned when lessor is a non-resident.
In a lease contract, the advance payment by the lessee may be:
1. A loan to the lessor from the lessee, or
2. Option money for the property, or
3. Security deposit to insure the faithful performance of certain obligations of the lessee
to the lessor, or
4. Pre-paid rental.
o If the advanced payment is #1, 2 or 3, not subject to VAT.
o If the advanced payment is #4, then such payment is taxable to the lessor in the
month when it was received, irrespective of the accounting method employed by
the lessor.
o If the security deposit (#3) is applied to rental, then it shall be subject to VAT at
the time of its application.
VAT Registration
Every taxpayer subject to the VAT must register with the BIR as a VAT taxpayer and pay
an annual registration fee of P500 for every separate and distinct establishment,
including facility types where the business is conducted.
Every taxpayer not subject to VAT but subject to the excise tax or percentage tax must
register with the BIR and pay an annual registration fee of P500 for every separate and
distinct establishment where the business is conducted.
o VAT exempt persons under Section 109 who did not opt to be registered as VAT
taxpayers must register as non-VAT taxpayers.
Mandatory Registration
Sec 236 (G) Persons required to register for Value-Added Tax
1) Any person, who in the course of trade or business, sells, barters or exchanges goods or properties, or
engages in the sale or exchange of services, shall be liable to register for VAT if:
Mickey Ingles 51
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
a) His gross sales or receipts for the past 12 months, other than those that are exempt under Section 109(A) to
(U) have exceeded One Million Five Hundred Thousand Pesos (P1,500,000); or
b) There are reasonable grounds to believer that his gross sales or receipts for the next 12 months, other than
those that are exempt under Section 109 (A) to (U), will exceed One Million Five Hundred Thousand Pesos
(P1,500,000);
2) Every person who becomes liable to be registered under paragraph (1) of this Subsection shall register with the
Revenue District Office which has jurisdiction over the head office or branch of that person, and shall pay the
annual registration fee prescribed in Subsection (B) hereof. If he fails to register, he shall be liable to pay the tax
under Title IV as if he were a VAT-registered person, but without the benefit of input tax credits for the period in
which he was not properly registered.
Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties, or engages in the sale or exchange of services shall be liable to register for
VAT if:
1) His gross sales or receipts for the past 12 months, other than those exempt under
Section 109 (A) to (U), have exceeded P1.9195m; or
2) There are reasonable grounds to believe that his gross sales or receipts for the next
12 months, other than those exempt under Section 109 (A) to (U), will exceed
P1.9195m
If a person who is mandated to register does not, he shall:
o Be liable to pay the tax as if he were a VAT-registered person, and
o Without the benefit of input tax credits.
Optional registration
(H) Optional Registration for Value-Added Tax of Exempt Person. -
(1) Any person is not required to register for VAT under Subsection (G) hereof may elect to resiter for VAT by
registering with the Revenue District Office that has jurisdiction over the head office of that person, and paying the
annual registration fee in Subsection (B) hereof.
(2) Any person who elects to register under this Subsection shall not be entitled to cancel his registration under
Subsection (F)(2) for the next three years.
For purposes of Title IV of this Code, any person who has registered VAT as a tax type in accordance with the
provisions of Subsection (C) hereof shall be referred to as Vat-registered person who shall be assigned only one
Taxpayer Identification Number (TIN).
Any person who is not required to registered as a VAT taxpayer may register for the
VAT.
He, however, cannot cancel his registration for the next three years.
o EXCEPT: franchise grantees of radio and TV whose annual GR do not exceed
P10m (perpetually irrecovable)
Compliance Requirements
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -
"(A) Invoicing Requirements. - A VAT-registered person shall issue:
"(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
"(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.
"(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated
in the VAT invoice or VAT official receipt:
"(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
Mickey Ingles 52
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
"(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax: Provided, That:
"(a) The amount of the tax shall be shown as a separate item in the invoice or receipt;
"(b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
"(c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or
printed prominently on the invoice or receipt;
"(d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT
zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its
taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale
shall be shown on the invoice or receipt: "Provided, That the seller may issue separate invoices or receipts for the
taxable, exempt, and zero-rated components of the sale.
"(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;
and
"(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made
to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of
the purchaser, customer or client.
"(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-
added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary of Finance.
A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties, and for every sale,
barter or exchange of services
If the sale is exempt from VAT, the term VAT-exempt sale shall be written or printed
prominently on the invoice or receipt
If the sale is subject to 0%, the term zero-rated sale shall be written or printed
prominently on the invoice or receipt
If the sale involves some which are subject to VAT and some which are zero-rated or
VAT-exempt, the invoice or receipt shall clearly indicate the break-down of the sale price
between the taxable, exempt and zero-rated components
o The calculation of the VAT on each portion of the sale shall be shown on the
invoice or receipt.
o But the seller may issue separate invoices or receipts for the taxable, exempt and
zero-rated components of the sale
The date of the transaction, quality, unit cost and description of the goods or properties
or nature of the services must also be indicated.
o Input tax cannot be credited against output tax when supported by an undated
official receipt or invoice. (Nesic Philippines Inc v CIR, May 6, 2010)
When the sale is P1000 or more to a VAT-registered person, the name, business style,
address and TIN of the purchaser, customer or client must also be placed in the receipt
or invoice.
What must be contained in the VAT receipt?
o Statement that seller is a VAT-registered person, followed by his TIN
o Total consideration indicating that such amount includes the VAT, which tax shall
be shown as a separate item
o If VAT-exempt or zero-rated, must also be indicated as either VAT-EXEMPT
SALE or ZERO-RATED SALE
o Clear breakdown of VAT, VAT-zero rated or VAT-exempt where applicable, or
separate invoices or receipts for the same
o Date of the transaction, quantity, unit cost, and description of the goods or
properties or nature of the service,
o In case of sales of P1,000 or more where the sale or transfer is made TO a VAT-
Registered person, the name, business style if any, address and TIN of the
purchaser, customer or client shall be indicated.
Mickey Ingles 53
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
VAT-liable taxpayers must have:
o Subsidiary sales journal, and
o Subsidiary purchases journal
In addition to the regular books of accounts
Percentage Taxes
Generally, percentage taxes are based on gross receipts.
The percentage taxes are payable by the seller of the services,
o EXCEPT the overseas communications tax, which is payable by the user of the
facilities of the seller.
The term gross receipts means cash actually or constructively received.
o Receivables, although income thereon is earned already, are not yet taxable.
o There are no deductions from gross receipts to arrive at the taxable gross
receipts.
Mickey Ingles 55
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Tax on domestic carriers
SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. - Cars for rent or hire driven by
the lessee, transportation contractors, including persons who transport passengers for hire, and other domestic
carriers by land, air or water, for the transport of passengers, except owners of bancas and owner of animal-drawn
two wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly
gross receipts.
The gross receipts of common carriers derived from their incoming and outgoing freight shall not be subjected to
the local taxes imposed under Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
In computing the percentage tax provided in this Section, the following shall be considered the minimum quarterly
gross receipts in each particular case:
Jeepney for hire -
1. Manila and other cities P 2,400
2. Provincial 1,200
Taxis -
1. Manila and other cities P 3,600
2. Provincial 2,400
19
RR 15-2011 (July 20, 2011) Gross receipts" shall include, but shall not be limited to, the total amount of
money or its equivalent representing the contract or ticket prize, excess baggage fees, freight/cargo fees, mail
fees, rental, penalties, deposit applied as payments, advance payments and other service charges and fees actually
or constructively received during the taxable quarter from the passage of persons, excess baggage, cargo and/or
mail, originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the passage documents.
Provided, that ticket revalidated, exchanged and/or endorsed to another international airline shall likewise form
part of the gross receipts if the passenger boards a plane in a port or point in the Philippines.
Provided, further, that for a flight which originates from the Philippines, but where transshipment of passenger
takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the Gross
Receipts.
Mickey Ingles 56
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
1. Transportation contractors on their transport of goods or cargoes, including persons
who transport goods or cargoes for hire;
2. Other domestic common carriers by land relative to their transport of goods or
cargoes;
3. Common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines.
The transport of passengers and cargo by air or sea vessels from the Philippines to a
foreign country is subject to 0% VAT.
Under the law, certain common carriers have statutory minimum quarterly gross
receipts (jeepneys, etc).
Franchise tax
SEC. 119. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding, there
shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000.00),
subject to Section 236 of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of
two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise:
Provided, however, That radio and television broadcasting companies referred to in this Section shall have an
option to be registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That once the
option is exercised, said option shall be irrevocable.
The grantee shall file the return with, and pay the tax due thereon to the Commissioner or his duly authorized
representative, in accordance with the provisions of Section 128 of this Code, and the return shall be subject to
audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding.
The franchise tax is:
1. On gross receipts covered by the law granting the franchise;
2. At the following rates:
a. On radio and/or television broadcasting companies whose annual gross
receipts of the preceding year did not exceed P10m: 3%
b. On gas and water utilities: 2%
Those whose annual gross receipts of the preceding year exceeded P10m shall be
subject to the VAT.
Mickey Ingles 57
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o If the gross receipts do not exceed P10m, they may opt to be registered under
VAT, but once they choose to, it cannot be revoked.
Mickey Ingles 58
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Provided, finally, that the generally accepted accounting principles as may be prescribed by the BSP for the bank or
non-bank financial intermediary performing quasi-banking functions shall be likewise be the basis for the
calculation of gross receipts.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities.
The tax base is the gross receipts from sources within the Philippines.
Tax rates are:
On interest, commissions and discounts from
lending activities as well as income from
financial leasing, on the basis of remaining
maturities of instruments from which such
receipts are derived:
5%
Maturity period is 5 years or less 1%
Maturity period is more than 5 years
On dividends and equity shares in net 0%
income of subsidiaries
On royalties, rentals of property, real or 7%
personal, profits from exchange and all other
items treated as gross income under the
income tax law
On net trading gains within the taxable year 7%
on foreign currency, debt securities,
derivaties and other similar financial
instruments
In case the maturity period is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination
Financial intermediaries are persons or entities whose principal functions include the
lending, investing, or placement of funds or evidence of indebtedness or equity
deposited with them, or otherwise coursed through them, either for their own account or
for the account of others.
Quasi-banking activities refer to borrowing funds from twenty or more lenders at any
one time, through issuance, indorsement or acceptance of debt instruments, or through
the issuance of certificates of assignments for the purpose of relending or purchasing
receivables and other similar obligations.
Mickey Ingles 59
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
maturities of instruments from which such
receipts are derived: 5%
Maturity period is 5 years or less 1%
Maturity period is more than 5 years
On interests, commissions, discounts and all 5%
other items treated as gross income under
the Income Tax Law
A pawnshop is a non-bank financial intermediary not performing quasi-banking
functions. (Tambunting v CIR)
o Hence, they are subject to 5% gross receipts tax, and not to VAT.
o Same rule with money changers. (RR 10-2004)
Mickey Ingles 60
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
authorized to transact on risks located in the Philippines for companies not authorized to transact business in the
Philippines shall pay a tax equal to twice the tax imposed in Section 123: Provided, That the provision of this
Section shall not apply to reinsurance: Provided, however, That the provisions of this Section shall not affect the
right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said
owner does not make use of the services of any agent, company or corporation residing or doing business in the
Philippines. In all cases where owners of property obtain insurance directly with foreign companies, it shall be the
duty of said owners to report to the Insurance Commissioner and to the Commissioner each case where insurance
has been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner required by
Section 123.
Every fire, marine or miscellaneous insurance agent authorized under the Insurance
Code to procure insurance as he may have previously been authorized to transact on
risks located in the Philippines, for companies not authorized to transact business in the
Philippines, shall pay a tax equal to twice the tax imposed on life insurance companies.
o So, 10%.
An owner of property can obtain directly for himself policies in foreign companies but he
must report to Insurance Commissioner and to the CIR, and pay a tax of 5% on
premiums paid.
Amusement taxes
SEC. 125. Amusement Taxes. - There shall be collected from the proprietor, lessee or operator of cockpits,
cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax
equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided, however, That boxing exhibitions wherein World
or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That
at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions
are promoted by a citizen/s of the Philippines or by a corporation or association at least sixty percent (60%) of the
capital of which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games as envisioned in Presidential Decree No.
871: Provided, however, That the tax herein shall be in lieu of all other percentage taxes of whatever nature and
description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective, of whether or
not any amount is charged for admission.
For the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee
or operator of the amusement place. Said gross receipts also include income from television, radio and motion
picture rights, if any. A person or entity or association conducting any activity subject to the tax herein imposed
shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor,
lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter, to
make a true and complete return of the amount of the gross receipts derived during the preceding quarter and pay
the tax due thereon.
Tax base: gross receipts
o Embraces all the receipts of the proprietor, lessee or operator of the amusement
place.
o It also includes income from TV, radio and motion picture rights, if any.
Tax on Winnings
SEC. 126. Tax on Winnings. - Every person who wins in horse races shall pay a tax equivalent to ten percent
(10%) of his winnings or 'dividends', the tax to be based on the actual amount paid to him for every winning ticket
after deducting the cost of the ticket: Provided, That in the case of winnings from double, forecast/quinella and
trifecta bets, the tax shall be four percent (4%). In the case of owners of winning race horses, the tax shall be ten
percent (10%) of the prizes.
The tax herein prescribed shall be deducted from the 'dividends' corresponding to each winning ticket or the "prize"
of each winning race horse owner and withheld by the operator, manager or person in charge of the horse races
before paying the dividends or prizes to the persons entitled thereto.
The operator, manager or person in charge of horse races shall, within twenty (20) days from the date the tax was
deducted and withheld in accordance with the second paragraph hereof, file a true and correct return with the
Commissioner in the manner or form to be prescribed by the Secretary of Finance, and pay within the same period
the total amount of tax so deducted and withheld.
Tax base:
o If a person wins in horse races and jai-alai, based on his winnings or dividends
(tax to be based on the actual amount paid to him for every winning ticket, after
deducting the cost of the ticket),
o If a person owns a winning race horse, based on the prize.
The tax shall be withheld from the dividends or prize by the operator, manager or
person in charge of the horse races or jai-alai.
Mickey Ingles 62
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(3) Option. - If any person has an option acquire stock, such stock shall be considered as owned by such person.
For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be
considered as an option to acquire such stock.
(4) Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the application of
paragraph (1) or (3) hereof shall, for purposes of applying paragraph (1) or (2), be treated as actually owned by
such person; but stock constructively owned by the individual by reason of the application of paragraph (2) hereof
shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the
constructive owner of such stock.
(C) Return on Capital Gains Realized from Sale of Shares of Stocks. -
(1) Return on Capital Gains Realized from Sale of Shares of Stock Listed and Traded in the Local Stock Exchange. -
It shall be the duty of every stock broker who effected the sale subject to the tax imposed herein to collect the tax
and remit the same to the Bureau of Internal Revenue within five (5) banking days from the date of collection
thereof and to submit on Mondays of each week to the secretary of the stock exchange, of which he is a member, a
true and complete return which shall contain a declaration of all the transactions effected through him during the
preceding week and of taxes collected by him and turned over to the Bureau Of Internal Revenue.
(2) Return on Public Offerings of Share Stock. - In case of primary offering, the corporate issuer shall file the
return and pay the corresponding tax within thirty (30) days from the date of listing of the shares of stock in the
local stock exchange. In the case of secondary offering, the provision of Subsection (C)(1) of this Section shall
apply as to the time and manner of the payment of the tax.
(D) Common Provisions. - Any gain derived from the sale, barter, exchange or other disposition of shares of stock
under this Section shall be exempt from the tax imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c)
of this Code and from the regular individual or corporate income tax. Tax paid under this Section shall not be
deductible for income tax purposes.
On the sale, barter, exchange or other disposition of shares listed and traded thru a local
stock exchange, other than by a dealer in securities
o Tax base: gross selling price or gross value in money of the shares sold,
bartered, exchanged or otherwise disposed of,
o Tax rate: of 1%
o Paid by: the seller
On the sale, barter, exchange or other disposition thru initial public offering of shares of
stock in a closely held corporation, in accordance with the proportion of the shares sold,
bartered, exchanged or otherwise disposed of to the total outstanding shares of stock
after the listing in the local stock exchange
o Up to 25% 4%
o 25% - 33.33% 2%
o over 33.33% 1%
o Paid by: the issuing corporation in primary offering, and the seller in the
secondary offering
For purposes of tax on initial public offerings, the term closely-held corporation means
any corporation at least 50% in value of the outstanding capital stock or at least 50% of
the total combined voting power of all classes of stock entitled to vote, is owned directly
or indirectly by or for not more than 20 individuals.
Mickey Ingles 63
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(b) The manner and time of payment of percentage taxes other than as hereinabove prescribed, including a
scheme of tax prepayment.
(4) Determination of Correct Sales or Receipts. - When it is found that a person has failed to issue receipts or
invoices, or when no return is filed, or when there is reason to believe that the books of accounts or other records
do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of
this Code, the Commissioner, after taking into account the sales, receipts or other taxable base of other persons
engaged in similar businesses under similar situations or circumstances, or after considering other relevant
information may prescribe a minimum amount of such gross receipts, sales and taxable base and such amount so
prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such
person.
(B) Where to File. - Except as the Commissioner otherwise permits, every person liable to the percentage tax
under this Title may, at his option, file a separate return for each branch or place of business, or a consolidated
return for all branches or places of business with the authorized agent bank, Revenue District Officer, Collection
Agent or duly authorized Treasurer of the city or municipality where said business or principal place of business is
located, as the case may be.
The taxpayer may file a separate return for each branch or place of business, or a
consolidated return for all.
General rule: every person liable to pay a percentage tax shall file a monthly return of
the amount of his gross receipts and pay the tax thereon, within 20 days after the end
of each taxable month.
Except:
1. 3% tax within 20 days after the end of the month, except when the tax was a final
tax through the withholding tax system
2. Overseas communications tax within 20 days after the end of the quarter
3. Amusement tax within 20 days after the end of the quarter
4. Tax on winnings remitted to the BIR within 20 days from the date withheld
5. Stock transaction tax of of 1% remitted to the BIR within 5 banking days from
the date withheld by the broker
6. Stock transaction tax of 4%, 2% and 1% on primary offering, within 30 days from
the date of listing in the local stock exchange
Dividends 0%
Mickey Ingles 64
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Tax on other non-bank Gross receipts from 1% and 5%
financial intermediaries lending/financial leasing
Excise Taxes
SEC. 129. Goods Subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax
imposed herein shall be in addition to the value-added tax imposed under Title IV.
For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any other
physical unit or measurement shall be referred to as "specific tax" and an excise tax herein imposed and based on
selling price or other specified value of the good shall be referred to as "ad valorem tax".
Excise taxes are applicable only to
1. Manufacturers, or
2. Importers
There are two kinds of excise taxes, namely:
1. Specific tax, and
2. Ad valorem tax
Specific taxes are those based on weight or volume capacity or any other physical unit
of measurement. Those subject to specific taxes are:
1. Alcohol products - proof liter (Sec 141-143)
2. Tobacco products - kilogram (Sec. 144)
3. Petroleum products - liter and kilogram (Sec. 148)
4. Coal and coke - metric ton (Sec. 151)
Ad valorem taxes are those based on the selling price or other specified value of the
article.
1. Automobiles importers/manufacturers selling price(Sec. 149)
2. Non-essential goods wholesale price or value of importation (Sec. 150)
Jewelry (real or imitation), opera glasses, lorgnettes
Perfumes and toilet waters
Mickey Ingles 65
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Yachts and other vessels intended for pleasure or sports
3. Other minerals, mineral products and quarry resources actual market value of
gross output (Sec. 151)
4. Cigars net retail price (Sec. 145)
5. Cigarettes packed by hand or machine net retail price per pack(Sec. 145)
For cigarettes pack by hand or machine, it is actually a hybrid because it is ad valorem
to the extent of selling price, but specific in its imposition (per pack)
"New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.
"'New brand' shall mean a brand registered after the date of effectivity of R.A. No. 8240.
"'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with
regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new brand against the net retail price as defined herein and determine
the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After
the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially
validated net retail price against the net retail price as of the time of revalidation in order to finally determine the
correct tax bracket under which a particular new brand of cigarettes shall be classified: Provided, however, That
brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of
December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and
December 31, 2003 shall not be revised except by an act of Congress.
"'Net retail price', as determined by the Bureau of Internal Revenue through a price survey to be conducted by the
Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which the cigarette is sold on retail in at least ten (10) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila,
the 'net retail price' shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and the value-added tax.
"The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set
forth in Annex 'D', including the classification of brands for the same products which, although not set forth in said
Annex ID', were registered and were being commercially produced and marketed on or after October 1, 1996, and
which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force
until revised by Congress.
Suggested net retail price apply to new brands to be introduced. Its the net retail
price at which new brands are intended to be sold on retail in major supermarkets or
retail outlets in Metro Manila.
Net retail price apply to those brands already in the market. It is the price at which the
goods are sold on retail in at least 10 major supermarkets in Metro Manila.
The classification freeze provision in Sec 145 was the main issue in the case of British
American Tobacco v CIR.
o To the issues raised by British American Tobacco, the Supreme Court stated All
in all, the classification freeze provision addressed Congress's administrative
concerns in the simplification of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues. Consequently, there can
be no denial of the equal protection of the laws since the rational-basis test is
amply satisfied.
o The Court, in answering the claim of unfair competition created by the
classification freeze, merely stated that the it wasnt conceived in a hostile
attitude against newer brands compared to older brands. And, respecting the
wisdom of the Congress as a co-equal branch of the government, the Court could
not strike down the provision as unconstitutional, even if it were imperfect.
Excise tax is basically an indirect tax imposed on the consumption of a specified list of
goods or products.
Mickey Ingles 66
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
The tax is directly levied on the manufacturer upon removal of the taxable goods from
the place of production but in reality, the tax is passed on to the end consumer as part
of the selling price of the goods sold.
o The main difference with VAT (which is also an indirect tax) is the ability of the
buyer to claim a refund.
In VAT, zero-rated buyers have express statutory basis which allows them
to claim refunds.
In excise tax, buyers cannot claim refunds because there is no statutory
basis. Hence, it is only the statutory taxpayer who can claim a refund (as
in the case of Silkair v CIR)
Mickey Ingles 67
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
SEC. 140. Removal of Tobacco Products Without Prepayment of Tax. - Products of tobacco entirely unfit for
chewing or smoking may be removed free of tax for agricultural or industrial use, under such conditions as may be
prescribed in the rules and regulations prescribed by the Secretary of Finance. Stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems, or midribs, and sweepings of
tobacco may be sold in bulk as raw material by one manufacturer directly to another without payment of the tax,
under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary of Finance.
"Stemmed leaf tobacco", as herein used, means leaf tobacco which has had the stem or midrib removed. The term
does not include broken leaf tobacco.
The following are exempt from paying excise taxes, or articles which can be removed,
without paying the excise tax, subject to a condition:
1. Wines and distilled spirits for treatment of tobacco leaf, but with prior approval of the
Commissioner and with corresponding bond
2. Domestic alcohol of not less than 180 degree proof (or 90% absolute alcohol), when
suitably denatured and rendered unfit for oral intake
3. Petroleum products sold to the following are exempt:
a. International carriers of Philippine or foreign registery on their use or consumption
outside the Philippines, provided that the petroleum products sold to these
international carriers shall be stored in a bonded storage tank, or
b. Exempt entities or agencies covered by tax treaties, conventions and other
international agreements for their use or consumption, provided that the country of
said foreign international carrier exempts from similar taxes petroleum products sold
to Philippine carriers, or
c. Entities which are by law exempt from direct and indirect taxes
4. Spirits requiring rectification upon filing of a bond
5. Fermented liquors removed by brewers from brewery to a bonded warehouse used
exclusively for the storage or sale in bulk of fermented liquors, not less than 1000 liters
at one removal
6. Damaged fermented liquor unfit for use removed by brewers upon approval by the
Commissioner. The damaged fermented liquor must be in distinct packages different
from those used for fermented liquors.
7. Tobacco products entirely unfit for chewing or smoking
The proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even if
he shifts the burden thereof to another.
o In the case of Silkair v CIR, the excise tax was imposed upon Petron as the
manufacturer of petroleum products. Silkair was claiming for the refund on the
basis of a tax exemption. However, the Court ruled that it was Petron, the
statutory taxpayer who was the propert party to claim the tax refund, not Silkair.
o The Court noted that even if Petron passed on to a tax-exempt airline the burden
of the tax, the additional amount billed to the latter for jet fuel is not a tax but
part of the price which the airline had to pay as a purchaser.
Mickey Ingles 68
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Who should pay? (Sec 130-131, didnt paste the codal, haba eh.)
For manufactured goods, the manufacturer or producer.
o But, if they are removed without paying the tax, the owner or person having
possession thereof shall be liable.
For imported goods, the importer or the owner.
o But, for tax-free articles brought or imported by persons exempt from tax which
are subsequently sold in the Philippines to non-exempt persons, the purchasers
shall be considered the importers and will have to pay the duty and tax due on
such importation.
SEC. 201. Effect of Failure to Stamp Taxable Document. - An instrument, document or paper which is required by
law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall
not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in
evidence in any court until the requisite stamp or stamps are affixed thereto and cancelled.
When and how to pay?
Mickey Ingles 69
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Return should be filed and the payment made within 10 days after the close of
the month when the taxable document was made, signed, issued, accepted or
transferred;
o In lieu of the above, by buying the required documentary stamp, affixing the
stamp on the document and canceling the stamp with indication of the date of
cancellation, or imprinting the amount of the required documentary stamp tax on
the document with the use of a special machine.
What if I fail to stamp the taxable document?
o An instrument, document or paper which is required by law to be stamped and
which has been signed, issued, accepted or transferred without being duly
stamped, shall
NOT be recorded, or
Any record of transfer of the same be admitted or used in evidence in any
court
until the requisite stamps shall have been paid.
o No notary public or officer authorized to administer oaths shall add his jurat or
acknowledgment to any document subject to the DST unless the proper
documentary stamps are paid.
Example A stock certificate was issued by Safari, Inc with a par value of P500. With the
rate of P1.00 on each P200 or fractional part thereof, the tax is P3.00. (500/200 = 2.5,
round up to 3. Multiply 3 x P1.)
Give some examples of documents not subject to the DST (Section 199, wont copy it here
since its quite long, below is some random examples from the code)
1. Insurance policies or annuities made or granted by a fraternal or beneficiary society,
order, association, etc operated on the lodge system or local cooperation plan organized
and conducted solely by the members for the exclusive benefit of each member and not
for profit
2. Certificates of oaths administered to any government official in his official capacity
3. Papers filed in court for and by the government
4. Affidavits of poor folk for the purpose of proving poverty
5. Certificates of lands, not exceeding P200 in assessed value furnished by the municipal
treasurer to applicants for registration of title to land
6. Borrowing and lending of securities executed under the Securities Borrowing and
Lending Program of a registered exchange or in accordance with regulations prescribed
by the appropriate regulatory authority
Mickey Ingles 70
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
7. Loan agreements or promissory notes the aggregate of which does not exceed
P250,000, executed by an individual for his purchase on installment for his personal use
a house, lot, motor vehicle, appliance or furniture
8. Assignment or transfer of any mortgage, lease or policy insurance, if there is no change
in the maturity period
9. Fixed income and other securities traded in the secondary market or through an
exchange
10. Derivatives
11. Interbranch or interdepartment advances within the same legal entity
12. All forbearances arising from sales or service contracts including credit card and trade
receivables
13. Bank deposit without a fixed term or maturity
14. All instruments related to the conduct of business of the BSP
15. Tax-free exchanges (Sec 40(c)2)
16. Interbank call loans with maturity of not more than 7 days to cover deficiency in
reserves against deposit liabilities irrelevant where the document was executed
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
When it comes to rulings, the Secretary of Finance can review the rulings of of the CIR
or his deputies.
o The taxpayer must go to the Sec of Finance within 30 days. (RMC 44-2001)
Not sure where you go from here, baka CTA.
o In fact, the Secretary of Finance can motu propio review rulings and issuances of
the BIR. (BIR Website)
When it comes to assessments, refunds, penalties and other matters, recourse should be
done to the CTA.
o See CTA rules.
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been
made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or
in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
Mickey Ingles 71
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or officer of the national and local governments, government
agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled
corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of multinational companies, joint accounts,
associations, joint ventures of consortia and registered partnerships, and their members; (
C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or
any person having possession, custody, or care of the books of accounts and other accounting records containing
entries relating to the business of the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and place specified in the summons and to produce
such books, papers, records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry;
and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with respect to which a tax is
imposed. The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed
as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F)
of this Code.
The Commissioner is authorized by law to do a whole host of things (see codal) in
o ascertaining the correctness of any return, or
o making a return when none has been made, or
o collecting any such liability, or
o evaluating tax compliance, or
o in determining the liability of any person for tax.
Take note of Sec 5 (b): the BIR can issue access letters addressed to a 3rd party in
relation to the investigation of a taxpayer.
The law allows the BIR access to all relevant or material records and data in the person
of the taxpayer. In fact, the BIR can accept documents which cannot be admitted in a
judicial proceeding where the Rules of Court are strictly observed. (Fitness by Design v
CIR)
The rule on the best evidence obtainable applies when a tax report is required by law
for the purpose of assessment and it is not available or when the tax report is
incomplete or fraudulent. (Sy Po v CTA)
The failure of the taxpayers to present their books of accounts for examination is a
reason for the CIR to resort to his powers.
SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for
Tax Administration and Enforcement. -
(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of
any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return
shall not prevent the Commissioner from authorizing the examination of any taxpayer.
Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or
amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has
in the meantime been actually served upon the taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by
law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time
fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete
or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall
be prima facie correct and sufficient for all legal purposes.
(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales and Receipts. -
The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer as a
basis for determining his internal revenue tax liabilities, or may place the business operations of any person,
Mickey Ingles 72
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring
his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for
assessing the taxes for the other months or quarters of the same or different taxable years and such assessment
shall be deemed prima facie correct.
When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections
113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this
Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other
persons engaged in similar businesses under similar situations or circumstances or after considering other relevant
information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so
prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such
person.
(D) Authority to Terminate Taxable Period. - When it shall come to the knowledge of the Commissioner that a
taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the
collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless
such proceedings are begun immediately, the Commissioner shall declare the tax period of such taxpayer
terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the
immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter,
or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be
subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the
Commissioner.
(E) Authority of the Commissioner to Prescribe Real Property Values. - The Commissioner is hereby authorized to
divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both
from the private and public sectors, determine the fair market value of real properties located in each zone or area.
For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of:
(1) the fair market value as determined by the Commissioner, or
(2) the fair market value as shown in the schedule of values of the Provincial and City Assessors.
(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and
Other Related Information Held by Financial Institutions. - Notwithstanding any contrary
provision of Republic Act No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of
the Philippines, and other general and special laws, the Commissioner is hereby authorized to inquire into the bank
deposits and other related information held by financial institutions of:
(1) A decedent to determine his gross estate.
(2) Any taxpayer who has filed an application for compromise of his tax liability under Sec. 204 (A)(2) reason of
financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and
until he waives in writing his privilege under Republic Act No. 1405, Republic Act No. 6426, otherwise known as the
Foreign Currency Deposit Act of the Philippines, or under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is a
signatory or a party of: Provided, That the information obtained from the banks and other financial institutions may
be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.
"In case of request from a foreign tax authority for tax information held by banks and financial institutions, the
exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
The Commissioner shall provide the tax information obtained from banks and financial institutions pursuant to a
convention or agreement upon request of the foreign tax authority when such requesting foreign tax authority has
provided the following information to demonstrate the foreseeable relevance of the information to the request:
"(a) The identity of the person under examination or investigation;
"(b) A statement of the information being sought including its nature and the form in which the said foreign tax
authority prefers to receive the information from the Commissioner;
"(c) The tax purpose for which the information is being sought;
"(d) Grounds for believing that the information requested is held in the Philippines or is in the possession or control
of a person within the jurisdiction of the Philippines;
"(e) To the extent known, the name and address of any person believed to be in possession of the requested
information;
Mickey Ingles 73
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
"(f) A Statement that the request is in conformity with the law and administrative practices of the said foreign tax
authority, such that if the requested information was within the jurisdiction of the said foreign tax authority then it
would be able to obtain the information under its law or in the normal course of administrative practice and that it
is conformity with a convention or international agreement; and
"(g) A statement that the requesting foreign tax authority has exhausted all means available in its own territory to
obtain the information, except those that would give rise to disproportionate difficulties.
"The Commissioner shall forward the information as promptly as possible to the requesting foreign tax authority.
To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to the requesting tax
authority and shall notify the latter of deficiencies in the request, if any, within sixty (60) days from the receipt of
the request.
If the Commissioner is unable to obtain and provide the information within ninety (90) days from the receipt of the
request, due to obstacles encountered in furnishing the information or when the bank or financial institution
refuses to furnish the information, he shall immediately inform the requesting tax authority of the same, explaining
the nature of the obstacles encountered or the reasons of refusal."
The term 'foreign tax authority', as used herein, shall refer to the tax authority or tax administration of the
requesting State under the tax treaty or convention to which the Philippines is a signatory or a party of.
(G) Authority to Accredit and Register Tax Agents. - The Commissioner shall accredit and register, based on their
professional competence, integrity and moral fitness, individuals and general professional partnerships and their
representatives who prepare and file tax returns, statements, reports, protests, and other papers with or who
appear before, the Bureau for taxpayers. Within one hundred twenty (120) days from January 1, 1998, the
Commissioner shall create national and regional accreditation boards, the members of which shall serve for three
(3) years, and shall designate from among the senior officials of the Bureau, one (1) chairman and two (2)
members for each board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon
the recommendation of the Commissioner.
Individuals and general professional partnerships and their representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of
Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the Secretary of
Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for
accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements. - The
Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in
connection with the submission or preparation of financial statements accompanying the tax returns.
Take note of the amendment by RA 10021 to Subsection F.
o Bank deposits can be examined by the CIR, in the following instances:
A decedent to determine his gross estate, or
Any taxpayer who has filed an application for compromise, or
Pursuant to an international convention or tax agreement, which the
Philippines is a signatory of.
Read with the amendment to Sec 71 and Sec 270.20
20
SEC. 71. Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers. - After the assessment
shall have been made, as provided in this Title, the returns, together with any corrections thereof which may have
been made by the Commissioner, shall be filed in the Office of the Commissioner and shall constitute public records
and be open to inspection as such upon the order of the President of the Philippines, under rules and regulations to
be presented by the Secretary of Finance, upon recommendation of the Commissioner.
"The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists containing
the names and addresses of persons who have filed income tax returns.
"Income tax returns of specific taxpayers subject of a request for exchange of information by a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is a
signatory or a party of, shall be open to inspection upon the order of the President if the Philippines under rules
and regulations as may be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.
SEC. 270. Unlawful Divulgence of Information. - Except as provided in Sections 6(F) and 71 of this Code and
Section 26 of Republic Act No. 6388, any officer or employee of the Bureau of Internal Revenue who divulges to
any person or makes known in any other manner than may be provided by law information regarding the business,
income, or estate of any taxpayer, the secrets, operation, style or work, or apparatus of any manufacturer or
producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by
him in the discharge of his official duties, shall, upon conviction for each act or omission, be punished by a fine of
not less than Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000), or suffer
imprisonment of not less than two (2) years but not more than five (5) years, or both.
Mickey Ingles 74
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers
vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules
and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner:
Provided, however, That the following powers of the Commissioner shall not be delegated:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand
pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to be
promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and
district officials, may be compromised by a regional evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions
and the Revenue District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax
are produced or kept.
The CIR may delegate the power to assess taxes to his subordinates. (Republic v Hizon)
o But he cannot delegate the power:
To recommend the promulgation of rules and regulations by the Sec of
Finance,
To issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the bureau,
To compromise or abate any tax liability
but if P500,000 or less, he can delegate
To assign or reassign officers to establishments where excise tax articles
are produced or kept.
Tax Assessment
SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporation. -
(A) Payment of Tax. -
(1) In General. - The total amount of tax imposed by this Title shall be paid by the person subject thereto at the
time the return is filed. In the case of tramp vessels, the shipping agents and/or the husbanding agents, and in
their absence, the captains thereof are required to file the return herein provided and pay the tax due thereon
before their departure. Upon failure of the said agents or captains to file the return and pay the tax, the Bureau of
Customs is hereby authorized to hold the vessel and prevent its departure until proof of payment of the tax is
presented or a sufficient bond is filed to answer for the tax due.
(2) Installment of Payment. - When the tax due is in excess of Two thousand pesos (P2,000), the taxpayer other
than a corporation may elect to pay the tax in two (2) equal installments in which case, the first installment shall
be paid at the time the return is filed and the second installment, on or before July 15 following the close of the
calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the
tax unpaid becomes due and payable, together with the delinquency penalties.
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c), 24(D),
27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed by the person
liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption
of capital gains under existing special laws, no such payments shall be required : Provided, further, That in case of
failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the
gains realized from the original transaction shall immediately become due and payable, subject to the penalties
prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax,
submits such proof of intent within six (6) months from the registration of the document transferring the real
property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for
such exemption.
In case the taxpayer elects and is qualified to report the gain by installments under Section 49 of this Code, the tax
due from each installment payment shall be paid within (30) days from the receipt of such payments.
"Any officer or employee of the Bureau of Internal Revenue who divulges or makes known in any other manner to
any person other than the requesting foreign tax authority information obtained from banks and financial
institutions pursuant to Section 6(F), knowledge or information acquired by him in the discharge of his official
duties, shall, upon conviction, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not more
than One hundred thousand pesos (P100,000), or suffer imprisonment of not less than two (2) years but not more
than five (5) years, or both
Mickey Ingles 75
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
No registration of any document transferring real property shall be effected by the Register of Deeds unless the
Commissioner or his duly authorized repre
sentative has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid.
(B) Assessment and Payment of Deficiency Tax. - After the return is filed, the Commissioner shall examine it and
assess the correct amount of the tax. The tax or deficiency income tax so discovered shall be paid upon notice and
demand from the Commissioner.
As used in this Chapter, in respect of a tax imposed by this Title, the term "deficiency" means:
(1) The amount by which the tax imposed by this Title exceeds the amount shown as the tax by the taxpayer upon
his return; but the amount so shown on the return shall be increased by the amounts previously assessed (or
collected without assessment) as a deficiency
, and decreased by the amount previously abated, credited, returned or otherwise repaid in respect of such tax; or
(2) If no amount is shown as the tax by the taxpayer upon this return, or if no return is made by the taxpayer,
then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a
deficiency; but such amounts previously assessed or collected without assessment shall first be decreased by the
amounts previously abated, credited returned or otherwise repaid in respect of such tax.
An assessment is an official action by an administrative officer to determine the tax due
of the taxpayer.
It consists of:
o a computation of the amount of tax that must be paid by the taxpayer,
o coupled with a demand to pay the tax within a specified period of time.
There are two kinds of assessment:
1. Self-assessment (Section 56 (A))
a. This is when the taxpayer files his return and pays
2. Deficiency assessment (Section 56 (B)
a. This occurs upon discovery of the BIR that the self-assessment was either
deficient, or when no return was made by the taxpayer
1. Tax assessment by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. (Sy Po v CTA)
2. However, assessments cannot be based on mere presumptions on the part of the
government. There must be a minimum effort on the government before the
presumption of correctness sets in. (CIR v Benipayo, wherein the Court said that a
charge of fraud against a taxpayer is a serious one and must be supported by clear and
convincing proof).
3. Mandamus does not lie to compel the CIR to impose a tax assessment not found by him
to be proper. (Meralco Securities v Savellano, a case where an informer wanted his
reward)
4. The assessment must always be addressed to the proper party.
Ok, youve got a deficiency tax assessment, what happens now? (RR 12-99, Reyes)
1. The revenue officer who audited the taxpayers records shall state in his report
whether or not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency taxes
2. The BIR will inform the taxpayer of the discrepancies and will call the taxpayer for a
conference, using a Notice of Informal Conference.
a. Taxpayer has 15 days from receipt of the Notice to respond. If he doesnt,
default
3. The finding of the examiner and the response of the taxpayer will be reviewed by the
Assessment Division of the Revenue District Officer
4. If there is sufficient basis for an assessment, the BIR will issue a pre-assessment
notice (PAN) stating the facts, laws, rules, regs, and jurisprudence on which the
proposed assessment is based
a. Taxpayer has 15 days from receipt of the PAN to respond. If he doesnt,
default.
Mickey Ingles 76
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
5. If the taxpayer is in DEFAULT or his response is NOT meritorious, the BIR will issue a
formal letter of demand and assessment. It too will state the facts, laws, etc etc.
6. The taxpayer must file a letter of protest within 30 days thereof. He too should state
the laws, facts, etc etc.
a. For issues which he did not raise, a collection letter shall be issue telling the
taxpayer to pay up.
b. For issues protested, the prescriptive period on assessment and collection will
be suspended.
c. If the taxpayer failed to file a valid protest within the period, the assessment
will become final, executory and demandable. (yari ka boy!)
7. The taxpayer must submit supporting documents within 60 days from filing his letter
of protest. If he doesnt, assessment shall become Final. Executory. And.
Demandable!!!!!!!!
8. If the protest is denied in whole or in part, appeal to the CTA division within 30 days
from date of receipt of decision via Rule 42.
a. But if the denial was by an agent of the Commissioner, protest first to the
Commissioner within 30 days.
b. If the commissioner or his agent fails to act on the taxpayers protest within
180 days from the submission of documents, the taxpayer has to appeal to
the CTA within 30 days from the lapse of the 180 day period. If not, yari ka
na naman.
9. Within 15 days from receipt of the decision of the CTA division, MR within 15 days.
10. If none still, petition for review with CTA en banc.
11. If talo pa rin, then SC en banc via Rule 45.
Compromise
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner
may -
(A) Compromise the Payment of any Internal Revenue Tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. The compromise
settlement of any tax liability shall be subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic
assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall
be composed of the Commissioner and the four (4) Deputy Commissioners.
The grounds for compromise are:
1. Doubtful validity of the claim against the taxpayer, or
2. Financial incapacity of the taxpayer
The BIR and the law allows compromise because may tulog (a 70s term that Atty.
Montero uses). In other words, the BIR would rather compromise than go to court
because there is a chance that once brought to court, they might not collect because of
some rabbit that the taxpayer might pull out of his hat.
A compromise is an extra-judicial settlement of the taxpayers criminal liability for his
violation and is consensual in character, hence, may not be imposed on the taxpayer
without his consent. (RR 12-99)
The cases which may be compromised are:
1. Delinquent accounts
2. Pending admin cases under admin protest after issuance of final assessment notice
to the taxpayer
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations
o EXCEPT if 1) already filed in court or 2) involving criminal tax fraud
The following cases can NOT be compromised:
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that
cast doubt on the taxpayers obligation to withhold. (Atty Montero asked why, dont
know why!)
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue
or his duly authorized representative
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments (taxpayer
already given a chance to pay in installments, gusto pang magcompromise, grabe
na!);
Mickey Ingles 78
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
5. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for the purpose. (taxpayer
already agreed to the reduction, gusto pang magcompromise, sobra na!)
6. Cases which become final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment
This was also the doctrine in Rovero v Amparo
7. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer (its not the taxpayer who will pay anyway, but the estate)
Mickey Ingles 79
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
a. issued within the period extended by the taxpayers execution of Waiver of
Statute of Limitations and
b. the waivers authenticity is being questioned and
c. there is strong reason to believe and evidence to prove that it is not authentic.
Tax Liens
SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account (cuentas en
participacion), association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may
accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, That this
lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed
by the Commissioner in the office of the Register of Deeds of the province or city where the property of the
taxpayer is situated or located.
When a taxpayer neglects or refuses to pay his internal revenue tax liability after
demand, the amount demanded shall be a lien in favor of the government from the time
the assessment was made by the CIR until paid with interest, penalties, and costs that
may accrue in addition thereto upon all property and rights to property belonging to the
taxpayer
However, the lien shall not be valid against any mortgagee, purchaser or judgment
creditor until notice of such lien is registered in the office of the RD.
Well-settled that the claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicted on a judgment. (CIR v NLRC)
upon real property and interest in rights to real property; and (b) By civil or criminal action. Either of these
remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of
such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of
tax involve is not more than One hundred pesos (P100). The judgment in the criminal case shall not only impose
the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the
Commissioner. The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by
means of civil or criminal action, including the preservation or transportation of personal property distrained and
the advertisement and sale thereof, as well as of real property and improvements thereon.
Collection by distraint and levy are known as summary, extrajudicial or administrative
enforcement remedies.
Mickey Ingles 81
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o They are distinguished from remedies of collection by civil and criminal actions,
where are judicial in nature.
However, the remedies of distraint and levy, as well as collection by civil and criminal
action may by be pursued singly or independently of each other or all of them
simultaneously.
Distraint is enforced on personal property.
Levy is enforced on real property.
Codal provisions for the process, each box corresponds to one step of the process
(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or delinquent
revenue to pay the same at the time required, the Commissioner or his duly authorized representative, if the
amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if the amount
Mickey Ingles 82
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the
personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights
to personal property of such persons ;in sufficient quantity to satisfy the tax, or charge, together with any
increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the distraining
officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner or
his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided, further, That a
consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary.
SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make
or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of
which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels,
or effects or other personal property were taken, or at the dwelling or place of business of such person and with
someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of
the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and
upon the president, manager, treasurer or other responsible officer of the corporation, company or association,
which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or
under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be
sufficient authority to the person owning the debts or having in his possession or under his control any credits
belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank
shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the
Government.
SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or his duly
authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules
and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith
cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the
distraint is made, specifying; the time and place of sale and the articles distrained. The time of sale shall not be
less than twenty (20) days after notice. One place for the posting of such notice shall be at the Office of the Mayor
of the city or municipality in which the property is distrained.
SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects
distrained shall be restored to the owner.
SEC. 209 (CONTINUED) At the time and place fixed in such notice, the said revenue officer shall sell the goods,
chattels, or effects, or other personal property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity
or stock exchanges.
In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall
deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks
or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or association shall make
the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and
issue, if required to do so, the corresponding certificates of stock or other securities.
Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the
owner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actual
expenses of seizure and preservation of the property pending ;the sale, and no charge shall be imposed for the
services of the local internal revenue officer or his deputy.
SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property under
distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles
offered for sale, the Commissioner or his deputy may purchase the same in behalf of the national Government for
the amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations
prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and
accounted for as internal revenue.
Mickey Ingles 83
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Codal provisions for the process, each box corresponds to one step of the process
(B) Levy on Real Property. - After the expiration of the time required to pay the delinquent tax or delinquent
revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the distraint
of personal property belonging to the delinquent. To this end, any internal revenue officer designated by the
Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name
of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force
of a legal execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the
same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the province or
city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his
agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of
the property in question.
In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on
personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the
Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to
the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the
Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That the
Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the Secretary
of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy issued in
accordance with the provisions hereof.
SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the proceedings
shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and
cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by
posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in
the barrio or district in which the real estate lies and ;by publication once a week for three (3) weeks in a
newspaper of general circulation in the municipality or city where the property is located. The advertisement shall
contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the
taxpayer against whom taxes are levied, and a short description of the property to be sold.
At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of
the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall
determine and as the notice of sale shall specify.
Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered
upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director.
The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out and deliver to
the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold
stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided,
however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over
to the owner of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance
an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code,
including ;the preservation or transportation in case of personal property, and the advertisement and subsequent
sale, both in cases of personal and real property including improvements found on the latter. In his monthly
collection reports, such advances shall be reflected and supported by receipts.
Mickey Ingles 84
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer,
or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes,
penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said
purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of
redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the
purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the
Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus
been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.
The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents
and other income thereof until the expiration of the time allowed for its redemption.
SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property exposed
for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and
costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in
satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and
the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds
concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property
forfeited to the Government without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property
by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall
become absolute.
SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real estate
obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs arising under
this Code or in compromise or adjustment of any claim therefore, and said Commissioner may, upon the giving of
not less than twenty (20) days notice, sell and dispose of the same of public auction or with prior approval of the
Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of the sale shall be
deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman of the
Commission on Audit.
SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected.
Forfeiture
SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any
sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of
real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or
criminal, as the case may require.
The difference between distraint/levy (or collectively, seizure) and forfeiture is
o In seizure, the residue after deducting tax liability and expenses shall go to the
taxpayer.
o In forfeiture, all the proceeds of the sale will go to the government.
Mickey Ingles 85
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Penalties and interests apply to ALL taxes, fees and charges imposed by the NIRC.
Tax laws imposing penalties for delinquencies are intended to hasten tax payments by
punishing evasions or neglect of duty in respect thereof.
It is mandatory to collect penalty and interest at the stated rate in case of delinquency.
(PRC v CA)
Civil penalties can be divided into two categories those with a 25% surcharge, and
those with a 50% surcharge.
A penalty of 25% on the amount due will be imposed in the following cases:
1. Failure to file any return AND pay the tax due
2. Filing a return with an internal revenue officer other than those with whom the
return is required to be filed
3. Failure to pay the deficiency tax within the time prescribed in the notice of
assessment
4. Failure to pay the full or part of the amount of tax stated in the return (or full
amount when no return is required) on or before the date prescribed for its payment
o Note: There is NO 25% surcharge when you file on time, pay the full amount
stated in the return, but subsequently find out that the return filed and the
amount paid was erroneous. See situation 4.1 and 4.2 below.
A penalty of 50% of the deficiency tax will be imposed in the following cases:
1. Willful neglect to file a return within the period prescribed by law
2. False or fraudulent return is willfully made
a. Prima facie evidence of a false and fraudulent return when substantial
underdeclaration of taxable income or substantial overstatement of
deductions (failure to declare an amount exceeding 30% for taxable income
or actual deductions)
Note on willful neglect: if the taxpayer voluntarily files the return, without notice from
the BIR, only 25% surcharge shall be imposed for late filing and late payment of the tax.
o But if the taxpayer files the return only after prior notice in writing from the BIR,
then the 50% surcharge will be imposed.
In other words, no demand on the BIR and the taxpayer pays, albeit late,
25%.
With demand by the BIR, 50%.
Mickey Ingles 86
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
The 25% surcharge for non-payment of the sales tax is not imposable where such non-
payment arose from a legitimate dispute on whether an article is subject or not to the
sales tax. (CIR v Republic Cement, wherein Republic Cements erroneous payment was
based on the original stand of the BIR regarding the classification of cement. CIR should
have abated the surcharge. This ruling seems to have been incorporated to RR 13-2001
on abatement)
o Where imposition of a tax statute was controversial, taxpayer may not be held
liable to pay surcharge and interest. It should be liable only for tax proper and
should not be held liable for the surcharge and interest. (Cagayan Electric v CIR)
Willful neglect to file the required tax return or the fraudulent intent to evade the
payment of taxes, considering that the same is accompanied by legal consequences, can
not be presumed. (CIR v Air India)
o The fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to give up some
legal right. (Aznar v CTA)
The mere fact of having an accountant prepare ones returns is not enough to show that
that there was no voluntary, intentional or deliberate failure to file.
o More importantly, the Court found no affirmative acts on the part of defendant
to make sure her obligation to file ITRs had been fully complied with given that
she testified that she does not even know how much her tax liabilities were. This
neglect or omission was considered tantamount to deliberate ignorance or
conscious avoidance. (People v Kintanar, which was actually a tax evasion
case)
2. Tax return filed on time, but filed through an internal revenue officer other than with
whom the return is required to be filed. (Paid in the wrong venue)
Rocky paid on April 15, but he paid to the wrong agent bank.
Penalties: 25% surcharge only
No interest charge because he paid on time, just at the wrong place
Result: Pay the surcharge (no need to pay the tax due, you paid it na eh)
3. Late filing and late payment due to taxpayers willful neglect; i.e. did not file, then BIR
notified him to pay by a certain time, and only then did he file and pay his tax.
Rocky didnt file on April 15. He didnt care until a demand letter was sent to him by the
BIR to pay by June 30. He paid on June 30.
Penalties: 50% surcharge
20% general interest from date due (not from demand) up to time paid
Result: Pay tax, plus penalties
Mickey Ingles 88
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Safari, Inc filed its return and paid on time tax amounting to P100,000. BIR disallowed
its deductions, so their taxable income went back up. They were sent a PAN stating that
the correct amount due was P170,000. They failed to protest. BIR sent them a formal
demand telling them to pay by June 30. They did.
Penalties: 20% deficiency interest imposed on deficiency tax from date due up to time
paid
No surcharge (No statutory basis for imposition of the 25% surcharge)
4.3 Paid on time, but return found to be false and fraudulent resulting to deficiency
tax.
McJonalds, Inc filed its return on time in April 15 and paid P175,000 for its income tax
(it declared a P500,000 net taxable income). However, the BIR discovered that it did not
report a taxable income of another P500,000 a clear case of false and fraudulent
return. This amounted to a deficiency income tax of another P175,000. They were
informed by a PAN, but they failed to protest. A formal letter of demand and assessment
notice was issued to them on May 31 demanding them to pay by June 30. They paid.
Penalties: 50% surcharge (deficiency tax is the base)
20% deficiency interest imposed on deficiency tax from date due up to time
paid
Based on 4.3, the amount due (the deficiency assessed plus the penalties) imposed on
McJonalds was P304,771.67. The corporation did not pay on June 30, the deadline for
the payment of the assessment. As such, the corporation shall be considered late in
payment of the said assessment. They pay on July 31.
Penalties: 25% surcharge on the P304,771.67 (i.e unpaid amount supposed to be
paid on June 30)
20% delinquency interest imposed on the P304, 771.67 (i.e. total unpaid
amount due on June 30), from the day after the payment was due until
time of actual payment
Mickey Ingles 89
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
6. Computation of 20% interest per annum in case of partial or installment payment of a tax
liability. (Based on Sec 249)
If a taxpayer requests to pay his income tax liability in installment and the request is
approved, no 25% surcharge shall be imposed for the late payment of the tax since its
deadline for payment has been duly extended.
However, 20% interest per annum for the extended payment shall be imposed, computed
based on the diminishing balance of the unpaid amount, pursuant to Section 249 (D).
If the taxpayers request for extension of the period within which to pay is made on or
before the deadline prescribed for payment of the tax due, no 25% surcharge.
But if the request is made after the deadline prescribed for payment, the taxpayer is already
late in payment, in which case, the 25% surcharge shall be imposed, even if payment of
the delinquency be allowed in partial amortization.
Analysis
Actual Liability: A Basis B Basis
P10m
On April 15 , 5m 0
paid:
1. Late, but No surcharge Filed on time, 25% surcharge Late filing, late
unilaterally pays 20% interest but error in 20% interest payment, no
the balance computation, BIR demand.
no BIR
demand.
2. BIR demands No surcharge Still filed on 25% surcharge Late filing, late
to pay on June 20% deficiency time and error 20% deficiency payment. BIR
30, paid on June interest in interest demands, but
30 computation. paid on time
BIR demands, required by
but paid on BIR, so 248
time required (A3) no
by BIR, so application.
248(A3) no
application.
3. BIR demands 25% surcharge BIR demands 25% surcharge BIR demands
to pay on June on unpaid but does NOT on unpaid but does NOT
30, but paid on amount pay on time amount pay on time
July 31 20% delinquency required by 20% delinquency required by
interest on BIR, 248 (A3) interest on BIR, 248 (A3)
unpaid amount applies. unpaid amount applies.
Analyzing the chart, if you compare situation 1 and situation 2, they are identical, there
is no additional violation. Why?
o Because surcharge is imposed on deficiency tax (plus penalties), only when it is
NOT paid by the date indicated on the demand period.
o So, if you pay within the period in the demand letter, you will not incur the
additional 25% surcharge on the unpaid deficiency tax (plus penalties).
Atty. Montero said the 50% surcharge is a matter of substance.
Also note that there is no 25% surcharge when you file and pay on time but its
subsequently discovered that there was an error. Only the interest will be imposed in
that case (Situation 1 above)
Delinquency tax v deficiency tax (417, Mamalateo)
Taxpayer is delinquent when:
Mickey Ingles 90
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Self-assessed tax per return filed by the taxpayer was not paid at all or was only
partially paid, or
o Deficiency tax assessed by the BIR became final and executory.
Deficiency is the:
o Amount by which the tax imposed by law as determined by the CIR or his rep
exceeds the amount shown as the tax by the taxpayer in his return, or
o If no amount is shown by the taxpayer, or if no return is made, then the amount
by which the tax as determined by the CIR or his rep exceeds the amounts
previously assessed (or collected without assessment) as a deficiency.
In terms of remedies:
A delinquent tax can immediately be collected administratively (distraint & levy) and/or
by judicial action.
Deficiency tax can also be collected through admin and judicial remedies but it has to go
through the process of filing the protest against the assessment by the taxpayer and
denial of such protest by the BIR.
In terms of filing a civil action:
o For delinquent taxes, filing in the ordinary court is a proper remedy.
o For deficiency taxes, filing of a civil action at the ordinary court for the collection
DURING the pendency of the protest may be the subject of a MTD.
In terms of penalties:
o Delinquent tax: subject to 25% surcharge, interest and compromise penalty
o Deficiency: generally not subject to the 25% surcharge; but subject to interest
and compromise penalty
Civil Action
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions and
proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the
Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be
conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal action for the recovery of
taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the
approval of the Commissioner.
Basic principle: No civil (or criminal action) for the recovery of taxes shall be filed
without the approval of the CIR.
The government can collect when the assessment has become final and unappealable.
This occurs when:
o The taxpayer fails to file an administrative protest with the BIR within 30 days
from receipt of assessment
o The administrative protest is denied (or not acted upon within 180 days), and he
fails to file an appeal with the CTA within 30 days from the receipt of the
decision, or from the lapse of the 180 day period
Criminal action
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal
revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:
xxx
(b) By civil or criminal action.
xxx
The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes
subject of the criminal case as finally decided by the Commissioner.
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions and
proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the
Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be
conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal action for the recovery of
taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the
approval of the Commissioner.
Again, no criminal action for the recovery of taxes shall be filed without the approval of
the CIR.
The judgment in the criminal case shall not only impose the penalty, but shall also order
payment of the taxes subject of the criminal case as finally decided by the
Commissioner.
Acquittal of taxpayer in a criminal case does not exonerate him from tax liability. His
legal duty to pay taxes cannot be affected by his attempt to evade payment. Said
obligation is not a consequence of the felonious acts charged in the criminal proceeding,
nor is it a mere civil liability arising from a crime that could be wiped out by the judicial
declaration of non-existence of the criminal acts charged. (Republic v Patanao)
Mickey Ingles 92
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Civil liability to pay taxes arises from the fact that, for instance, one has engaged
himself in business. His civil liability to pay taxes arises not because of any flony
but upon the taxpayers failure to pay taxes.
o The criminal liability arises upon failure of the debtor to satisfy his civil obligation.
Computation and assessment of deficiency taxes is not a pre-requisite for criminal
prosecution under the NIRC. Hence, protesting an assessment cannot stop criminal
prosecution under the NIRC. (Ungab v Cusi)
o A criminal complaint is instituted not to demand payment, but to penalize the
taxpayer for violation of the Tax Code. (CIR v Pascor)
o A crime is complete when the violator has knowingly and willfully filed a
fraudulent return, with intent to evade and defeat the tax. The perpetration of
the crime is grounded upon knowledge on the part of the taxpayer that he has
made an inaccurate return, and the governments failure to discover the error
and promptly to assess has no connections with the commission of the crime.
(Adamson v CA)
See discussion on page 97 for prescription of criminal cases.
Mickey Ingles 93
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Why whichever is later? This to benefit the government, so they
have more time to make the assessment on the taxpayer.
Exceptions:
1. False or fraudulent return with intent to evade taxes within 10 years from
discovery of the falsity or fraud
2. Failure or omission to file a return within 10 years after discovery of failure or
omission to file the return
3. Waiver of statute of limitations in writing, which must be made before the expiration
of the 3 year period of assessment of taxes period agreed upon
Our tax law provides a statute of limitations in the collection of taxes to safeguard
taxpayers from any unreasonable examination, investigation or assessment. Thus, it
should be liberally construed in order to afford protection to the taxpayers.
o As a corollary, the exceptions to the law on prescription should perforce be
strictly construed. (CIR v BF Goodrich, wherein the Court said that the negligence
or oversight on the part of the BIR with regard to make timely assessments
cannot prejudice taxpayers, considering that the prescriptive period was precisely
intended to give them peace of mind.)
In determining if prescription to assess has indeed set in, the important date to
remember is the date when the demand letter or notice is released, mailed or sent by
the CIR to the taxpayer. (Basilan Estates v CIR)
o Provided the release was effected before prescription sets in, the assessment is
deemed made on time even if the taxpayer actually receives it after the
prescriptive period.
o However, the fact that the assessment notice was mailed before prescription
period sets in must be proved with substantial evidence by the CIR. The
presumption that a letter duly directed and mailed was received in the regular
course of mail cannot be applied if there is no substantial evidence to prove that
the notice was indeed sent.
Deficiency income tax assessments cannot be enforced where the tax
collector cannot prove that said assessments were served on the
taxpayer. (Nava v CIR)
o Moreso, if the taxpayer makes a direct denial of receipt of a mailed demand
letter, such denial shifts the burden to the Government to prove that such letter
was indeed received by the taxpayer. (Republic v CA, 1987).
This is an exception to the general rule that there is a presumption of
receipt of the demand letter by the taxpayer. (But again, for the
presumption to arise, the government has to at least show with
substantial evidence that the demand was sent on time.)
o If the date on which the assessment is due to prescribe falls on a Saturday, the
following day being a Sunday, it is understood that the Government has until the
next succeeding business day or Monday within which to assess the tax. (CIR v
Western Pacific, ruling probably also applies to dates falling on a national non-
working holiday)
Sirs question: But what if the last day to assess falls on a local holiday
like Quezon City day is the national government allowed to send the
assessment the following work day?
Doctrines regarding fraud, falsity, and the imposition of the 10-year period
Fraud is a question of fact and the circumstances constituting fraud must be alleged and
proved in the court. Fraud is never lightly to be presumed because it is a serious charge.
Hence, if fraud is not proven, the Government can not use the 10-year period to make
the assessment. (CIR v Ayala)
o It is not enough that fraud is alleged in the complaint, it must be established.
(Republic v Lim De Yu, wherein the BIR was not even sure of the net income of
the taxpayer)
Claiming fictitious expenses as deductions is a proof of falsity or fraud in the income tax
return. (Tan Guan v CTA)
There is a difference between false return and fraudulent return. (Aznar v CTA)
o False return merely implies deviation from the truth. Its usually due to
mistake, carelessness or ignorance.
o Fraudulent return implies intentional or deceitful entry with intent to evade the
taxes due.
o Be it false or fraudulent, whats the point? Either way, the period to assess will be
10 years anyway. So, why make a distinction?
The importance lies in the application of the penalty surcharge.
Remember, Aznar also teaches that actual fraud, not constructive fraud, is
subject to the 50% penalty surcharge. For the surcharge to apply, it must
be intentional fraud, consisting of deception willfully and deliberately done
or resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by law.
The legal implications of this case are the following:
Just because the 10-year period kicks in, it doesnt necessarily
mean that the taxpayer will be slapped with the penalty surcharge.
This is what happened in Aznar the taxpayer was adjudged to
have filed a false return, but not a fraudulent one. So, the 10-year
period applies, but he wasnt slapped with the penalty surcharge.
If you were the government and you want to use the 10-year
period, it will be easier to impute falsity in the part of the taxpayer.
Falsity is easier to prove than fraud.
The 30% threshold we learned in surcharges doesnt necessarily
apply when it comes to prescription purposes, as it merely raises a
Mickey Ingles 95
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
presumption of fraud which must in the end be proven by the
government.
Speaking of surcharges, the case of CIR v Ayala Securities teaches that collection of
surtax on excess profits does not prescribe there being no law providing a prescriptive
period therefore.
General rule: The prescriptive period to collect the taxes due is 5 years from the date of
assessment.
Exceptions:
1. False or fraudulent return with intent to evade taxes within 10 years from
discovery without need for prior assessment. The government may file a proceeding
in court.
2. Failure or omission to file a return within 10 years from discovery without need for
assessment.
3. Waiver in writing executed before the 5-year period expires period agreed upon.
The prescriptive period to assess or collect deficiency tax is governed by the NIRC (a
special law) and not the Civil Code (a general law). (Guagua v CIR)
o The same can be said between the NIRC and the Rules of Court. Hence, claims
for taxes may be collected even after the distribution of the decedents estate.
Claims for estate taxes are exempted from the application of statute of non-
claims. (Vera v Fernandez)
Mickey Ingles 96
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
The general rule is that there must be an assessment made before collection is resorted
to by the government.
o The exception is found in Section 222 (A) of the NIRC wherein judicial action to
collect the tax liability is permitted without an assessment when the taxpayer
files a false or fraudulent return with intent to evade the tax or fails to file a
return. Collection must be done within 10 years after the discovery.
However, if an assessment is made against the taxpayer, the government
cannot avail of Section 222 (A). In Republic v Ret, the Court stated that
an assessment against the taxpayer takes the case out of the provisions
of Section 222 (A) and places it under Section 222 (C) or 5 years from
the assessment made.
The period for collecting a tax through a judicial proceeding, in case no
return has been filed, is 10 years from the discovery of the omission.
A letter by the CIR demanding the amount of a rubber-check previously paid by a
taxpayer, should be deemed to be an assessment if it declares and fixes the tax payable
against the party thereo and demands the settlement thereof. Hence, the five-year
period for collection of the tax due should commence anew from the time said letter of
demand was sent to the taxpayer. (Republic v Limaco)
Mickey Ingles 97
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o It must also contain the date when the waiver was executed (to know whether
the waiver was signed within the prescriptive period).
o These have been embodied in RMO 20-90, below:
RMO 20-90
1. The waiver must be in proper form prescribed by RMO 20-90. The phrase but not after_____19__ which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription, should be filled up;
2. The waiver must be signed by the taxpayer himself or his duly authorized representative;
3. The waiver must be duly notarized;
4. The Commissioner of Internal Revenue or the revenue official authorized by him must sign the waiver
indicating the BIRs acceptance and agreement to the waiver. The date of such acceptance by the BIR should be
indicated;
5. Both the date of execution by the taxpayer and the date of acceptance by the BIR should be prior to the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed; and
6. The waiver must be in three copies: the original copy to be attached to the docket of the case, the second
copy for the taxpayer, and the third copy for the Office accepting the waiver.
o Additionally, the waiver must not reduce the prescriptive period to less than that
granted by law to the detriment of the state. It should not diminish the
opportunity of the State to collect the taxes due it. (Republic v Lopez).
o The taxpayers waiver of statute of limitations does not cover taxes already
prescribed. (Republic v Lim De Yu)
What if the waiver was invalid (like the CIR didnt sign it) but the taxpayer still paid
within the extended period provided by the waiver, what happens?
o Taxpayer is estopped from questioning the waiver. It had impliedly admitted the
validity of the said waivers. Had it believed that the waiver was invalid and that
the period to assess had effectively prescribed, the taxpayer could have refused
to make any payment based on any assessment against it. (RCBC v CIR)
Mickey Ingles 98
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Reconsideration refers to a plea for a re-evaluation of an assessment on the basis
of existing records without need of additional evidence. This is basically a mere
re-evaluation of existing records. (CIR v Philippine Global)
o Reinvestigation refers to a plea for re-evaluation on the basis of newly-discovered
or additional evidence that a taxpayer intends to present in the reinvestigation.
o The distinction is essential because the suspension of the period only occurs
when the taxpayer requests for a reinvestigation and is granted by the CIR.
Why doesnt a request for reconsideration suspend the period? Because there
is nothing which prevents the BIR from collecting they have all the
documents they need. Since no new documents are to be presented in a
request for reconsideration, the next step for the BIR is to issue a decision
denying the taxpayers protest and to initiate proceedings for the collection of
the assessed tax, and thus, allow the taxpayer, should it so choose, to
contest the assessment before the CTA.
A mere request for reinvestigation WITHOUT corresponding action on the part of the
CIR will not interrupt the running of the period. The request must be granted by the
CIR.
o Granted means that the government acted upon the request, as seen in
Republic v Arache
The taxpayer is barred from invoking the defense of prescription because the
delay was due to his repeated requests for reinvestigation and for extensions
of time to pay, which the government acted upon. (Republic v Arache)
o Since this suspends the period (and prejudicial to the taxpayer), the burden of
proof that the request was actually granted shall be on the BIR.
o However, even when the request for reconsideration or reinvestigation is not
accompanied by a valid waiver or there is no request for reinvestigation that had
been granted by the BIR, the taxpayer may still be held in estoppel and be
prevented from setting up the defense of prescription on collection when, by his
own repeated requests or positive acts, the Government had been, for good
reasons, persuaded to postpone collection to make the taxpayer feel that the
demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by the Court in the Suyoc case. (BPI v CIR)
In computing whether the collection was done within the period prescribed by law,
do this:
o (Date of Collection) (Date of Assessment) (Period of Reinvestigation) </= 5
years
o The period starts to run again when the said request is denied, i.e. the BIR acted
upon the request but did not find it meritorious afterwards (CIR v Capitol)
There is also an important difference between a revised assessment and a ruling on
a reinvestigation.
o When the assessment has been revised, the period to collect begins from the
time of the revision. In other words, the period is reset.
o But in ruling on a reinvestigation, the BIR only considers a past assessment. The
period is not reset. The suspended period just starts from where it left off.
3. When the taxpayer cannot be located in the address given by him in the return filed,
unless he informs the CIR of the change of address
Both the periods for assessment and collection are suspended
4. When the warrant of distraint and levy is duly served upon the taxpayer or authorized
representative and no property could be located
Only the period for collection is suspended
5. When the taxpayer is out of the Philippines
Period for assessment and collection is suspended
Mickey Ingles 99
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
6. Those under the CTA law
Taxpayers Remedies
In General
The taxpayer is given two remedies:
1. Protest or dispute the assessment, or
2. Refund or recovery of erroneously or illegally collected taxes
The remedies are mutually exclusive.
To distinguish,
o In protest, the tax has not yet been paid, and what is being contested is the
governments claim that the tax is underpaid.
Protesting is the proper remedy when a FAN has been issued. You protest
the assessment and appeal it to the CTA, when proper.
o In refund, the tax has already been paid by the taxpayer and the claim of the
taxpayer is that the tax is overpaid.
Refund is proper when the taxpayer has paid the tax pursuant to a self-
assessment.
Protest (some of these have been discussed earlier, please check it out, so we dont waste
paper adding it all again in this section.)
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
RR 12-99 3.1.5
The taxpayer or his duly authorized representative may protest administratively against the aforeseaid
formal letter of demand and assessment notice within 30 days from the date of receipt thereof. If there are several
issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests
against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes
attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for
payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken
on the taxpayers disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said
undisputed taxes. The prescriptive period for assessment or collection of the tax or taxes attributable to the
disputed issues shall be suspended.
The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his
protest is based, otherwise, his protest shall be considered void and without force and effect. If there are several
issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment
is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to
pay the corresponding deficiency tax or taxes attributable thereto.
The taxpayer shall submit the required documents in support of his protest within 60 days from the date
of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The
phrase submit the required documents includes submission or presentation of the pertinent documents for
scrutiny and evaluation by the Revenue Officer conducting the audit. The said RO shall state this fact in his report
of investigation.
If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice
within 30 days from date of receipt thereof, the assessment shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the CTA
within 30 days from date of receipt of the said decision, otherwise, the assessment shall become final, executory
and demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized
representaive, the taxpayer may appeal to the CTA within 30 days from date of receipt of the said decision,
otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer
elevates his protest to the Commissioner within 30 days from date of receipt of the final decision of the
Mickey Ingles 101
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
Commissioners duly authorized representative, the latters decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized represntative fails to act on the taxpayers protest within 180
days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer
may appeal to the CTA within 30 days from the lapse of the said 180-day period, otherwise, the assessment shall
become final, executory and demandable.
Refund
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner
may -
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into
refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided,
That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate
revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given
resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and
House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating
therein the following facts and information, among others: names and addresses of taxpayers whose cases have
been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for
the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress
that shall be constituted to determine that said powers are reasonably exercised and that the government is not
unduly deprived of revenues.
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum
alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That
the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the
return upon which payment was made, such payment appears clearly to have been erroneously paid.
There is a distinction between a tax refund and a tax credit.
o In a tax refund, there is actual reimbursement.
o In a tax credit, a tax certificate or tax credit memo is issued to the taxpayer, and
this can be applied against any sum that may be due and collectible from the
taxpayer, except withholding taxes.
The requirements for a tax credit or refund are:
1. Written claim for credit or refund filed with the CIR (a return filed showing
overpayment shall be considered as a written claim), whether or not the tax has
been paid under protest, and
2. Filed within 2 years after the actual payment of the tax or penalty, regardless of the
existence of any supervening cause after payment
On bringing the claim to the CTA (take note of the different rule when it comes to refunds of
input taxes because of CIR v Aichi, 2010)
The taxpayer need not wait for the action of the CIR on the claim for refund before
taking his claim to the CTA.
Both the claim for refund and the appeal to the CTA must be done within the 2-year
period.
o Hence, if the period is about to expire, and the CIR has not acted upon the claim,
the taxpayer may file and appeal with the CTA, without waiting for the CIR.
o The suit or proceeding must be started in the CTA before the end of the 2-year
period without awaiting the decision of the CIR. (Gibbs v CIR 1960)
The taxpayers failure to comply with requirement regarding the institution
of the action or proceeding in court within 2 years after the payment of
the taxes bars him from recovery of the same, irrespective of whether a
Assessments
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary 5-day letter, are not valid substitutes for the mandatory notice in writing of
the legal and factual bases of the assessment. (CIR v Enron)
o The law requires that the legal and factual bases of the assessment be stated in
the formal letter of demand and assessment notice.
o The alleged factual bases in the advice, preliminary letter and audit working
papers did not suffice.
o Sir said that even if Enron made an intelligent protest, the CIR still has no
ground to stand on, given that the law states that the assessment without legal
and factual basis is void, not even voidable.
The authority to make tax assessments may be delegated to subordinate officers.
(Oceanic v CIR)
Assessment Refund
4/2 Filed this date, period starts Filed this date, period starts this day too
4/15
4/15 Filed this date, period starts Filed this date, period starts this day too
this date
4/20 Filed this date, period starts But if filed this date, period starts this day
this date too (not in favor of the government!)
Compliance Requirements
SEC. 236. Registration Requirements. -
(A) Requirements. - Every person subject to any internal revenue tax shall register once with the appropriate
Revenue District Officer:
(1) Within ten (10) days from date of employment, or
(2) On or before the commencement of business, or
(3) Before payment of any tax due, or
(4) Upon filing of a return, statement or declaration as required in this Code.
The registration shall contain the taxpayer's name, style, place of residence, business, and such other information
as may be required by the Commissioner in the form prescribed therefor.
A person maintaining a head office, branch or facility shall register with the Revenue District Officer having
jurisdiction over the head office, branch or facility. For purposes of this Section, the term 'facility' may include but
not be limited to sales outlets, places of production, warehouses or storage places.
(B) Annual Registration Fee. - An annual registration fee in the amount of Five hundred pesos (P500) for every
separate or distinct establishment or place of business, including facility types where sales transactions occur, shall
be paid upon registration and every year thereafter on or before the last day of January: Provided, however, That
cooperatives, individuals earning purely compensation income, whether locally or abroad, and overseas workers
are not liable to the registration fee herein imposed.
The registration fee shall be paid to an authorized agent bank located within the revenue district, or to the Revenue
Collection Officer, or duly authorized Treasurer of the city or municipality where each place of business or branch is
registered.
EVERY person subject to ANY internal revenue tax shall register once with the
appropriate RDO, but when?
o Within 10 days from date of employment, or
o On or before commencement of biz, or
o Before payment of any tax due, or
o Upon filing of a return, statement or declaration
A person who has a head office, branch or facilility shall register with the RDO having jd
over such head office, branch or facility.
o See codal for what facility includes.
Pay P500 for every separate or distinct establishment or place of business, including
facility types where sales transactions occur.
o Pay upon registration and every year thereafter.
Following are NOT liable for the registration fee:
o Individuals earning purely compensation income, whether locally or abroad
o OCWs
o Cooperatives duly registered with the CDA
o GAIs, in the discharge of their govt functions
Mickey Ingles 107
Ateneo Law 2012
Atty. Montero, with review notes from Atty. Salvador last updated: November 12, 2012
+
amdg
Taxation Two
o Marginal income earners
o LGUs, in the discharge of their govt functions
o Tax exempt persons such as those in Sec 30 in pursuance of tax-exempt
activities
o Non-stock/non-profit orgs NOT engaged in biz
o Persons subject to tax under one-time (big-time!) transactions, and
o Facility (or facilities) where no sales transactions occur. (all but the first 2
supplied by RR 11-08)
(C) Registration of Each Type of Internal Revenue Tax. - Every person who is required to register with the Bureau
of Internal Revenue under Subsection (A) hereof, shall register each type of internal revenue tax for which he is
obligated, shall file a return and shall pay such taxes, and shall update such registration of any changes in
accordance with Subsection (E) hereof.
You have to register for EACH type of internal revenue tax that you are obliged to file a
return and pay taxes for.
Registration for one type of tax is not automatic registration for another type of tax.
(D) Transfer of Registration. - In case a registered person decides to transfer his place of business or his head
office or branches, it shall be his duty to update his registration status by filing an application for registration
information update in the form prescribed therefor.
Basically, the taxpayer has to inform the RDO where he is registered if he transfers his
place of business or his heard office or branches.
o For an individual earning purely compensation income (like when he changes
jobs), the RDO of the place where the new employer is will effect the transfer of
the employees registration.
The old RDO can still institute collection on concluded audit cases at the time of transfer
of registration.
o The old RDO shall terminate all audit cases within 6 months from date of
transfer.
Once the transfer is effected by the old RDO, the filing of tax returns and payments of
taxes should be done in the new RDO.
o Both the old and new RDOs shall be responsible in notifying the taxpayer that the
transfer has been effected.
The taxpayer can actually be allowed to physically transfer its business to the new and
intended RDO, but the filing of its returns and payment of taxes in the old RDO shall still
bear the RDO code of the old RDO.
o No imposition of any surcharge for the wrong-venue filing of return in this case.
Registration of employees of the transferring employers shall simultaneously be
transferred to the new RDO once the transfer of registration of the employer is effected.
(RR 11-08)
(E) Other Updates. - Any person registered in accordance with this Section shall, whenever applicable, update his
registration information with the Revenue District Office where he is registered, specifying therein any change in
tax type and other taxpayer details.
Examples of updates (from Ateneo Bar Ops 2012):
o Business becomes exempt
o Change in the nature of business
o Cancellation of VAT registration for a person whose transactions are exempt from
VAT
o Cancellation or change in any of the tax types
(2) Cancellation of Value-Added Tax Registration. - A VAT-registered person may cancel his registration or VAT if:
(a) He makes written application and can demonstrate to the Commissioner's satisfaction that his gross sales or
receipts for the following twelve (12) months, other than those that are exempt under Section 109 (A) TO (U), will
not exceed P1,919,500.00; or
(b) He has ceased to carry on his trade or business, and does not expect to recommence any trade or business
within the next twelve (12) months.
The cancellation of registration will be effective from the first day of the following month.
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The Commissioner or
his authorized representative is hereby empowered to suspend the business operations and temporarily close the
business establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or
receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. - The temporary closure of the establishment
shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever
requirements prescribed by the Commissioner in the closure order.
What happens if you fail to comply with the um, compliance requirements?
o The CIR or his rep can come knockin on your door and temporary shut your biz
down for not less than 5 days.
o This can also be done in certain registration requirements for VAT.
In cases where a registered taxpayer dies, the administrator or executor shall register the estate of the decedent in
accordance with Subsection (A) hereof and a new Taxpayer Identification Number (TIN) shall be supplied in
accordance with the provisions of this Section.
In the case of a nonresident decedent, the executor or administrator of the estate shall register the estate with the
Revenue District Office where he is registered: Provided, however, That in case such executor or administrator is
not registered, registration of the estate shall be made with the Taxpayer Identification Number (TIN) supplied by
the Revenue District Office having jurisdiction over his legal residence.
cralaw
SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall
secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a
printer can print the same.
No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be
printed are serially numbered and shall show, among other things, the name, business style, Taxpayer
Identification Number (TIN) and business address of the person or entity to use the same, and such other
information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner. caw
All persons who print receipt or sales or commercial invoices shall maintain a logbook/register of taxpayers who
availed of their printing services.
The logbook/register shall contain the following information:
(1) Names, Taxpayer Identification Numbers of the persons or entities for whom the receipts or sales or
commercial invoices were printed; and
(2) Number of booklets, number of sets per booklet, number of copies per set and the serial numbers of the
receipts or invoices in each booklet.
SEC. 235. Preservation of Books and Accounts and Other Accounting Records. - All the books of accounts,
including the subsidiary books and other accounting records of corporations, partnerships, or persons, shall be
preserved by them for a period beginning from the last entry in each book until the last day prescribed by Section
203 within which the Commissioner is authorized to make an assessment. The said books and records shall be
subject to examination and inspection by internal revenue officers: Provided, That for income tax purposes, such
examination and inspection shall be made only once in a taxable year, except in the following cases:
(a) Fraud, irregularity or mistakes, as determined by the Commissioner;
(b) The taxpayer requests reinvestigation;