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Tax PDF
Tax PDF
Tax PDF
TAXATION LAW
Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court‘s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. “Power to tax is the power to
destroy” (Marshall Dictum) – refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy – sufficiency to
meet government expenditures and
2. “Power to tax is not the power to other public needs.
destroy while the Supreme Court sits” 2. Administrative Feasibility/
(Holmes Dictum) – the power to tax Convenience – capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice – based on the
taxpayer‘s ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the State‘s
purpose need of
unconstitutional.
through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue – basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens.
surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a results in the
As long as the legislature, in received by healthy form of just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the
TAXES ARE PERSONAL TO THE TAXPAYER the tax falls on one person but
1. A corporation‘s tax delinquency the burden thereof can be
cannot be enforced against its shifted or passed on to another.
stockholders. (Corporate Entity 3. As to purpose:
Doctrine) a. General Tax – levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax – levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax – the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax – tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax – levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax – levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax – rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax – tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax – based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax – taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll – amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax – assessed on used.
property of a certain class 2. Penalty – punishment for the
c. Excise Tax – imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty – amount
d. Customs Duties – duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment – levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax – both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee – regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
subdivision thereof is not included in in that capacity. Even where one enters
gross income and exempt from the territory of another, there is an
taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
5. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for a. The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity b. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donor‘s tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose 4. Non-Infringement Of Religious
taxes on a sovereign state and its Freedom And Worship (Art. III, Sec.
instrumentalities, as well as on its 5, 1987 Constitution)
property held and activities undertaken
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) OF not presumed.
THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
a. Constitutional – immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. c. He who claims exemption should
b. Statutory – those which emanate prove by convincing proof that he
from legislation is exempted.
different from the facts on which POWERS AND DUTIES OF THE BIR
the ruling is based. Assessment and collection of all
3. Where the taxpayer acted in bad national internal revenue taxes, fees,
faith. and charges
1. Enforcement of all forfeitures,
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN penalties, and fines connected
ADMINISTRATIVE INTERPRETATION THROUGH therewith
REENACTMENT 2. Execution of judgments in all cases
Where a statute is susceptible of the decided in its favor by the Court of
meaning placed upon it by a ruling of Tax Appeals (CTA) and the ordinary
the government agency charged with its courts
enforcement and the legislature 3. Give effect to and administer the
thereafter reenacts the provision supervisory and police powers
without substantial change, such action conferred to it by the Code or other
is to some extent confirmatory that the laws
ruling carries out the legislative purpose.
ASSESSMENT – a finding by the taxing
RULE OF NO ESTOPPEL AGAINST THE authority that the taxpayer has not paid
GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
Exceptions:
fair play, as where injustice will result
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
– internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate a. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs – customs law interests,
enforcement b. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers – local and c. In the establishment of tax liens,
real property taxes and
d. In estimating the revenues that may
ORGANIZATION AND FUNCTION OF THE be collected by government in the
BUREAU OF INTERNAL REVENUE (BIR) coming year. (Mamalateo,
BIR shall be under the supervision Victorino. Reviewer on Taxation,
and control of the Dept. of Finance (Sec. 2004)
2, NIRC)
not residing therein, and shall not ORDINARY EXPENSE – normal or usual in
exceed the aforementioned relation to the taxpayer‘s business and
amounts. NRANETB cannot claim the surrounding circumstance.
any personal or additional
exemptions. REQUISITES OF BUSINESS EXPENSE TO BE
DEDUCTIBLE
C. Change of Status [Sec. 35, NIRC] 1. ordinary and necessary;
1. If the taxpayer should marry or 2. paid or incurred w/in the taxable
should have additional year;
dependents during the taxable 3. paid or incurred in carrying on a
year, he may claim the trade or business;
corresponding exemptions in full 4. substantiated with official receipts
for such year. or other adequate records.
2. If the taxpayer should die during 5. if subject to withholding taxes proof
the taxable year, his estate may of payment to the Bureau of Internal
claim the corresponding Revenue must be shown.
exemptions as if he died at the 6. must be reasonable (when the
close of such year. expense is not lavish, extravagant or
3. If the spouse or any dependent excessive under the circumstances)
should die or any dependent 7. must not be contrary to law, public
should marry or become twenty- policy or morals.
one years old during the year, or
should become gainfully NOTE: While illegal income will form
employed, the taxpayer may part of income of the taxpayer,
claim the exemptions as if the expenses which constitute bribe,
spouse or dependent died or as kickback and other similar payment,
if such dependent married, being against law and public policy are
became twenty one years old or not deductible from gross income.
became gainfully employed at (Subsec. A, 1, c)
the close of such year.
4. For any other event and for CAPITAL EXPENDITURE – An expenditure
which there are no specific rules that benefits not only the current period
applicable from the above- but also future periods. It is not
mentioned, the status of the deductible but depreciable, except, if
taxpayer at the end of the year the taxpayer is a non-profit proprietary
shall determine his exemptions. educational institution which may elect
(strictly construed against the either to deduct the capital expense or
taxpayer) depreciate it.
Examples:
became legally separated – See Annex E – Business Expenses
can only claim P 20,000
25 years old child became See Annex F – Ceiling on
incapacitated – cannot claim ―Entertainment, Amusement and
additional exemption Recreational Expenses‖
REQUISITES FOR DEDUCTIBILITY (REV. REG. turns around and invests the loan
NO. 13-2000) proceeds in money market placements.
1. There must be an indebtedness; By imposing a limit as to the amount of
2. There should be an interest interest expense that can be deducted
expens e pai d or incurred upon from gross income, the previous practice
such indebtedness; of tax arbitrage was absolutely nullified.
3. The indebtedness must be that o f
the taxpayer; Tax Arbitrage – is a method of
4. The indebtedness must be connected borrowing without entering into a
with the taxpayer's trade, business debtor/creditor relationship, often to
or exercise of profession; resolve financing and exchange control
5. The interest expense must have been problems. In tax cases, back-to-back
paid or incurred during the taxable loan is used to take advantage of the
year; lower of tax on interest income and a
6. The interest must have been higher rate of tax on interest expense
stipulated in writing; deduction.
7. The interest must be legally due;
8. The interest arrangement must not Illustration:
be between related taxpayers; On June 1, 2000 Company X has:
9. The interest must not be incurred to 1. Obtained a loan from ABC Financing
finance petroleum operations; and Corporation in connection with the
10. In case of interest incurred to operation of its business and its
acquire property used in trade, interest expense on the loan
business or exercise of profession, amounted to P 120,000.
the same, was not treated as a 2. Deposit account in DEF Bank and
capital expenditure. derived interest income thereof
11. The interest is not expressly amounting to P200,000 on which the
disallowed by law to be deducted final tax of P40,000 has been
from gross income of the taxpayer. withheld.
Assume that Company X‘s net
RULES ON DEDUCTIBILITY OF INTEREST income before the deduction of
EXPENSE interest expense is P500,000.
General Rule - In general, the amount of
interest expense paid or incurred within The deductible expense shall be
a taxable year of indebtedness in computed as follows:
connection with the taxpayer's trade
business or exercise of profession, shall Year 2000
be allowed as a deduction from the
taxpayer's gross income. Net Income before
interest expense P500,000
Limitation - The amount of interest Less: Interest Expense P120,000
expense paid incurred by a taxpayer in Less: 38% of interest
connection with his trade, business or income from deposit
exercise of a profession from an existing (38% x P200,000) 76,000
indebtedness shall be reduced by an Deductible Interest
amount equal the following percentages Expense 44,000
of interest income earned which had Taxable Income P456,000
been subjected to final withholding
depending on the year when the interest
income earned, viz: Deductible Interest Expense
38% - beginning January 1, 2000 and 1. Interest on taxes, such as those paid
thereafter for deficiency or delinquency, since
taxes are considered indebtedness
Aim of Limitation: To discourage so- (provided that the tax is a
called ―back-to-back‖ loans where a deductible tax, except in the case of
taxpayer secures a loan from a bank, income tax). However, fines,
clause cannot claim deduction for whether the accounts of the taxpayer
such taxes paid by it pursuant to are kept and his returns filed upon the
such covenant. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer 1) The amount of credit in respect to
to deduct from income tax payable the the taxes paid or accrued to any
foreign income tax he has paid to his country shall not exceed the same
foreign country subject to limitation. proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT taxpayer‘s net income from sources
1. resident citizens of the Philippines within such country taxable under
2. resident aliens under the principle of Title II (income Tax) bears to his
reciprocity entire net income for the same
3. domestic corporations which include taxable year; and
partnerships except general 2) The total amount of the credit shall
professional partnership not exceed the same proportion of
4. beneficiaries of estates and trusts the tax against which such credit is
5. members of beneficiaries of local taken, which the taxpayer‘s net
partnerships income from sources without the
Philippines taxable under Title II
WHO ARE NOT ENTITLED TO TAX CREDIT (Income Tax) bears to his entire net
1. non-resident citizens income for the same taxable year.
2. resident aliens, if without
reciprocity D. LOSSES
3. resident aliens whose income is
derived solely from sources within LOSSES – refer to such losses which do
the Philippines not come under the category of bad
4. foreign corporations (resident and debts, inventory losses, depreciation,
non-resident) etc., and which arise in taxpayer's
profession, trade or business.
FORMULA FOR COMPUTING LIMITATION
1. Per country limitation REQUISITES FOR DEDUCTIBILITY
Taxable 1. Actually sustained during the taxable
income from year
foreign country X Phil. = Tax Credit
2. Connected with the trade, business
Taxable income income tax Limit
or profession
from all sources
3. Evidenced by a close and completed
transaction
2. Over-all limitation
4. Not compensated for by insurance or
Taxable
income from other form of indemnity
outside sources X Phil. = Tax Credit 5. Not claimed as a deduction for
Taxable income income tax Limit estate tax purposes
from all sources 6. Notice of loss must be filed with the
Bureau of Internal Revenue within
The allowable tax credit is the “lower 45 days from the date of discovery
amount” between the tax credit of the casualty or robbery, theft or
computed under No. 1 and No. 2. embezzlement.
WHEN CREDIT FOR TAXES MAY BE TAKEN NOTE: The taxpayer‘s failure to record
The credit for taxes provided by in his books the alleged loss proves that
Section 30(C)(3) to (9) may ordinarily be the loss had not been suffered, hence,
taken either in the return for the year in not deductible. (City Lumber vs.
which the taxes accrued or on which the Domingo and Court of Tax Appeals, GR
taxes were paid, dependent upon No. L-18611, January 30, 1964)
2) Recipient is a 2) Non-government
foreign or organizations
international
organization with
an agreement
with the
Philippine REQUISITES FOR DEDUCTIBILITY
Government on 1. The contribution or gift must be
deductibility, or actually paid.
in accordance 2. It must be given to the organizations
with special law. specified in the code.
3. The net income of the institution
must not inure to the benefit of any
3) Recipient is an 3) Recipient is an private stockholder or individual.
accredited non- accredited domestic
government corporation or
organization, association VALUATION
organized/ operated organized/operated Charitable contribution of property
for (purposes): for (purposes): other than money shall be based on the
acquisition cost of said property.
APPLIES TO:
1. Domestic corporations (DC) LIMITATIONS
2. Resident foreign corporations (RFC)
1. The MCIT shall apply only to
RATE OF TAX AND DATE OF EFFECTIVITY domestic and resident foreign
15% of the Gross Income effective corporations subject to the normal
January 1, 2000 corporate income tax (income tax
rates under Sec 27[A] of the CTRP).
CONDITIONS OR REQUIREMENTS 2. In the case of a domestic
1. A tax effort ratio of 20% of Gross corporation whose operations or
National Product activities are partly covered by the
2. A ratio of 40% income tax collection regular income tax system and partly
to total tax revenues covered under a special income tax
3. A VAT tax effort of 4% of GNP system, the MCIT shall apply on
4. A 0.9% ratio of Consolidated Public operations covered by the regular
Sector Financial Position (CPSFP) to corporate income tax system.
GNP 3. In computing for the MCIT due from
a resident foreign corporation, only
OTHER FEATURES the gross income from sources within
1. Available only to firms whose the Philippines shall be considered
ratio of: for such purpose.
2. Banks and other non-banks Financial 2. The fact that the earnings or profits
intermediaries (Sec. 29) of a corporation are permitted to
3. Insurance companies (Sec. 29) accumulate beyond the reasonable
4. Taxable partnerships (deemed to needs of the business shall be
have actually or constructively determinative of the purpose to
received the taxable income under avoid the tax upon its shareholders
Sec. 73D) or members unless the corporation,
5. General professional partnerships by the clear preponderance of
(exempt; taxable against the evidence, shall prove the contrary.
partners)
6. Non- taxable joint ventures and “Reasonable needs of the
7. Enterprises duly registered with the business” includes the reasonably
Philippine Economic Zone Authority anticipated needs of the business
(PEZA) under R.A. 7916, and such as:
enterprises registered pursuant to a. Allowance for the increase in the
the Bases Conversion and accumulation of earnings up to
Development Act of 1992 under R.A. 100% of the paid-up capital of
7227, as well as other enterprises the corporation as of Balance
duly registered under special Sheet date, inclusive of
economic zones declared by law accumulations taken from other
which enjoy payment of special tax years;
rate on their registered operations b. Earnings reserved for definite
or activities in lieu of other taxes, corporate expansion projects or
national or local. programs as approved by the
8. Foreign corporations [RR No. 02- Board of Directors or equivalent
2001] body;
c. Reserved for building, plants or
EVIDENCE OF PURPOSE TO AVOID equipment acquisition as
INCOME TAX approved by the Board of
Directors or equivalent body;
1. The fact that any corporation is a d. Reserved for compliance with
mere holding company or investment any loan covenant or pre-
company shall be prima facie existing obligation established
evidence of a purpose to avoid the under a legitimate business
tax upon its shareholders or agreement;
members. e. Earnings required by law or
applicable regulations to be
Instances indicative of purpose to retained by the corporation or in
avoid income tax upon respect of which there is legal
shareholders: prohibition against its
a. Investment of substantial distribution;
earnings and profits of the f. In the case of subsidiaries of
corporation in unrelated foreign corporations in the
business or in stock or Philippines, all undistributed
securities of unrelated earnings intended or reserved
business; for investments within the
b. Investment in bonds and other Philippines as can be proven by
long-term securities; corporate records and/or
c. Accumulation of earnings in relevant documentary evidence.
excess of 100% of paid-up
capital, not otherwise The controlling intention of the
intended for the reasonable taxpayer is that which is manifested at
needs of the business as the time of accumulation, not
defined in these Regulations. subsequently declared intentions, which
are merely the product of afterthought.
The following are considered as sale General Rule: Upon the sale or
or exchange of capital assets: exchange of property, the entire gain or
1. Retirement of bonds loss, as the case may be, shall be
2. Short sales of property recognized. [Sec. 40 (C, 1)]
3. Failure to exercise privilege or
option to buy or sell property Exceptions:
4. Securities becoming worthless 1. Transactions where gains and losses
5. Distribution in liquidation of are not recognized –
corporations a. Exchange solely in kind in
6. Readjustment of interest in a legitimate mergers and
general professional partnership. consolidation
TAX FREE EXCHANGES b. Transfer to a controlled
Sales or exchanges resulting in non- corporation [Sec. 40(C, 2)]
recognition of gains or losses:
B.I.R. within five (5) banking days taxable under Sec. 24 of the Code
from the date of collection. (does not include an estate or a
trust);
2. Not traded through the stock exchange c. The proceeds of which is fully
- It shall be paid by the seller on a per utilized in (a) acquiring or (b)
transaction basis upon filing of the constructing a new principal
required return within 30 days residence within eighteen (18)
following each sale or other calendar months from date of sale or
disposition of shares of stock. disposition;
d. Notify the Commissioner within
CAPITAL GAINS AND LOSSES thirty (30) days from the date of sale
or disposition through a prescribed
(REAL PROPERTY) return of his intention to avail the
tax exemption;
PERSONS LIABLE AND TRANSACTIONS AFFECTED e. Can only be availed of only once
every ten (10) years;
1. Individual taxpayers, estates and f. The historical cost or adjusted basis
trusts of his old principal residence sold,
Sale or exchange or other exchanged or disposed shall be
disposition of real property carried over to the cost basis of his
considered as capital assets. new principal residence
The said sale shall include "pacto g. If there is no full utilization, the
de retro sale" and other conditional portion of the gains presumed to
sale. have been realized shall be subject
2. Domestic Corporation to capital gains tax.
Sale or exchange or disposition
of lands and/or building which are GROSS INCOME FROM DIFFERENT SOURCES
not actually used in business and are (SEC. 42)
treated as capital asset. Please refer to Annex I.
EXCEPTIONS TO THE TAX ACCOUNTNG PERIODS AND METHODS OF
1. Gains derived by dealers in real ACCOUNTING
estate
I. ACCOUNTING PERIODS
RATE AND BASIS OF TAX A. General rule (Sec. 43)
A final tax of 6% is based on the Taxable income is computed
gross selling price or fair market value upon the basis of taxpayer‘s
or zonal value whichever is higher. annual accounting period (fiscal or
Note: Gain or loss is immaterial, calendar year) in accordance with
there being a conclusive presumption of the method of accounting
gain. employed.
If no method of accounting
See Annex G – Guidelines in
employed or method does not
Determining Whether a Real
clearly reflect the income,
Property is a Capital or an Ordinary
computation shall be made in
Asset.
accordance w/ such method as
the opinion of the Commissioner
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
clearly reflects the income.
CAPITAL GAINS TAX ON THE SALE OR
Taxable income is computed
DISPOSITION OF A PRINCIPAL RESIDENCE
based on calendar year if:
1. accounting period is other
Conditions:
than a fiscal year
a. Sale or disposition of the old
2. taxpayer has no accounting
principal residence;
period
b. By natural persons - citizens or aliens
3. taxpayer does not keep
provided that they are residents
books
6. The employer issues BIR Form 2316 REQUIREMENT OF BANKS FOR SUBMISSION OF
(Oct 2002 ENCS) version to each AN ITR FOR LOAN O R CREDIT CARD
employee APPLICATIONS
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED Banks may require the submission of
FILING (STILL REQUIRED TO FILE) BIR Form No. 1700 (for employees not
entitled to substituted filing of ITR).
1. Individuals deriving compensation However, for employees entitled to
from two or more employers substituted filing of ITR, the submission
concurrently or successively during of the Joint Certification will suffice.
the taxable year.
2. Employees deriving compensation JOINT CERTIFICATION - It is a sworn
income, regardless of the amount, statement made by the employer and
whether from a single or several employee, which serve the following
employers during the calendar year, purposes:
the income tax of which has not 1. It contains the employee's consent
been withheld correctly (i.e. tax due that BIR Form No. 1604CF may be
is not equal to the tax withheld) considered his substituted return, in
resulting to collectible or refundable lieu of BIR Form No. 1700, which the
return. employee no longer filed.
3. Employees whose monthly gross 2. It contains the employer's
compensation income does not certification that he has reported
exceed P5,000 or the statutory the employee's income to the BIR
minimum wage, whichever is higher, and that he has remitted the taxes
and opted for non-withholding of tax on the employee's income, as
on said income. indicated in BIR Form No. 1604-CF.
4. Individuals deriving other non- 3. It serves as proof of financial
business, non-profession-related capacity in case the employee
income in addition to compensation decides to apply for a bank loan or a
income not otherwise subject to credit-card, or for any other
final tax. purpose, as if he had in fact filed a
5. Individuals receiving purely BIR Form No. 1700.
compensation income from a single
employer although the income tax of INDIVIDUALS REQUIRED TO FILE AN
which has been correctly withheld, INFORMATION RETURN
but whose spouse falls under 1 to 4
above. Individuals not required to file an
6. Non-resident aliens engaged in trade income tax return may nevertheless be
or business in the Philippines required to file an information return
deriving purely compensation pursuant to rules and, regulations
income, or compensation income prescribed by the Secretary of Finance
and other non-business, non- upon recommendation of the
profession-related income. Commissioner.
TIME FOR FILING (PAY AS YOU FILE SYSTEM) parent shall be included in the
return of the parent, except:
April 15 – for those earning sole a. when donor‘s tax has been paid
compensation income or solely business, on such property, or
practice of profession or combination of b. when transfer of such property is
business and compensation. exempt from donor‘s tax
FILING OF RETURN (PAY AS YOU FILE SYSTEM) TIME TO WITHHOLD TAX AT SOURCE
Quarterly returns for the first three
(3) quarters on a strictly sixty (60) day - arises at the time an income is paid
basis and the final or adjusted return on or payable, whichever comes first. The
the 15th day of the fourth (4th) month term ―payable‖ refers to the date the
following the close of either a-fiscal on obligation becomes due, demandable or
calendar year. legally enforceable. (Sec. 2.54.4 Rev.
Regs. 2.98)
See Annex V for Illustration.
NATURE OF WITHHOLDING AGENT’S LIABILITY
WHO SHALL FILE? The withholding agent is directly
The return shall be filed by the and independently liable for the correct
president, vice-president, or other amount of the tax that should be
principal officer, and shall be sworn to by withheld from the dividend remittance.
such officer and by the treasurer or (Commissioner vs. Procter and Gamble,
assistant treasurer. GR No. 66838, December 2, 1991)
Multiply by: Tax rate (Sec. 84) 3. Shares, obligations or bonds issued
Estate Tax due by any foreign corporation eighty-
Less: Tax Credit [if any] (Sec. 86[E] or five per centum (85%) of the
110[B] business of which is located in the
Philippines;
Estate Tax Due, if any
4. Shares, obligations or bonds issued
by any foreign corporation, if such
shares, obligations or bonds have
GROSS ESTATE acquired a business situs in the
Philippines;
A DECEDENT’S GROSS ESTATE INCLUDES (SEC. 5. Shares or rights in any partnership,
85) business or industry established in
the Philippines.
RESIDENT & NON-
RESIDENT CITIZEN, NON-RESIDENT
RESIDENT ALIEN ALIEN DECEDENT INTANGIBLE PERSONAL PROPERTY, WITH A SITUS
DECEDENT IN THE PHILIPPINES, OF A DECEDENT WHO IS A
NON-RESIDENT ALIEN SHALL NOT FORM PART OF
1. Real property 1. Real property
wherever situated situated in the THE GROSS ESTATE IF (RECIPROCITY CLAUSE)
Philippines. (SEC. 104)
included in the gross estate if the 3. The transmission from the first heir,
beneficiary is: legatee or donee in favor of another
a. the estate of the decedent, his beneficiary, in accordance with the
executor or administrator will of the predecessor; and
(regardless whether the designation All bequests, devices, legacies or
is revocable or irrevocable); or transfers to social welfare, cultural and
b. a third person other than the estate, charitable institutions no part of the net
executor or administrator where the income of which inures to the benefit of
designation of the beneficiary is any individual; Provided, that not more
revocable. than 30% of the said bequests, legacies
or transfers shall be used by such
6. TRANSFERS FOR INSUFFICIENT institutions for administration purposes.
CONSIDERATION
The value to be included in the gross DEDUCTIONS ON GROSS ESTATE
estate is the excess of the fair market APPLICABLE TO
value of the property at the time of the RESIDENT ALIENS AND CITIZENS
decedent‘s death over the consideration (REVENUE REGULATIONS 2-2003)
received. This is applicable in cases of
transfer in contemplation of death, The following are deductible from
revocable transfer and transfer under the gross estate of citizens and resident
general power of appointment made for aliens:
a consideration but is not a bona fide 1. Expenses, losses, indebtedness,
sale for an adequate and full taxes, etc. (ordinary deductions)
consideration in money or money‘s 2. Transfer for public use
worth. 3. Vanishing deduction
4. Family home
7. PRIOR INTERESTS 5. Standard deduction equivalent to
All transfers, trusts, estates, one million pesos (P1,000,000)
interests, rights, powers and 6. Medical expenses
relinquishment of powers made, 7. Amounts received by heirs under RA
created, arising, existing, exercised or 4917 (Retirement Benefits)
relinquished before or after the 8. Net share of the surviving spouse in
effectivity of the NIRC. the conjugal or community property
PROPERTY RELATIONS BETWEEN HUSBAND AND
1. ORDINARY DEDUCTIONS
WIFE
The property relations between the
A. FUNERAL EXPENSES
spouses shall be governed by contract
The amount deductible is the lowest
(marriage settlement) executed before
among the following:
the marriage.
1. actual funeral expenses
2. 5% of the gross estate
In the absence of such contract, or if
3. P200,000.
the contract is void:
On marriages contracted before August
It includes the following:
3, 1988, the system of conjugal
1. Mourning apparel of the surviving
partnership of gains shall govern;
spouse and unmarried minor children
On marriages contracted on or after
of the deceased, bought and used in
August 3, 1988 (effectivity of the
the occasion of the burial.
Family Code of the Philippines), the
2. Expenses of the wake preceding the
system of absolute community of
burial including food and drinks.
property shall govern.
3. Publication charges for death
notices.
EXEMPT TRANSMISSIONS (SEC. 87)
4. Telecommunication expenses in
1. The merger of usufruct in the owner
informing relatives of the deceased.
of the naked title;
2. Fideicommisary substitution;
2. The total amount of the credit shall NOTE: The filing of a notice of donation
not exceed the same proportion of is not required, unlike in estate tax
the tax against which such credit is where notice of death is required.
taken, which the decedent‘s net gift
situated outside the Philippines PLACE FOR FILING OF RETURN AND PAYMENT OF
taxable under the NIRC bears to his THE DONOR’S TAX
entire net gift.
1. Resident
FORMULA OF TAX CREDIT LIMIT With an authorized agent bank, the
Revenue District Officer, Revenue
1. For donor’s taxes paid to one Collection Officer or duly
foreign country authorized Treasurer of the city or
municipality where the donor was
NG situated Tax domiciled at the time of the
in a foreign country X PDT = Credit transfer, or if there be no legal
Entire net gift Limit residence in the Philippines, with
the Office of the Commissioner.
(NG - Net Gifts; PDT - Phil. Donor's Tax) 2. Non-resident
Filed with the Philippine Embassy
2. For donor’s taxes paid to two or or Consulate in the country where
more foreign country he is domiciled at the time of the
transfer, or directly with the
NG outside the Phil. X PDT = Tax Office of the Commissioner.
Entire net gifts Credit
Limit TAX RATE
The allowable tax credit is the If the donee is a stranger, the rate of
lower amount between the tax credit tax shall be 30% of the net gifts.
limit under (a) and (b). If the donee is not a stranger,
the rate shall be from 2% to 15% of the
net gifts.
SETTLEMENT OF THE DONOR’S TAX
See Annex W - Donor‘s Tax
TIME FOR FILING OF RETURN AND PAYMENT OF
THE DONOR’S TAX
The donor‘s tax return is filed and C. TAX REMEDIES
the donor‘s tax due is paid within thirty UNDER THE NIRC
(30) days after the date the gift is made.
The return shall be under oath in
duplicate setting forth: I. TAX REMEDIES OF THE
1. Each gift made during the calendar GOVERNMENT
year which is to be included in
computing net gifts;
IMPORTANCE
2. The deductions claimed and
allowable;
1. They enhance and support the
3. Any previous net gifts made during
government‘s tax collection.
the same calendar year;
2. They are safeguards of taxpayer‘s
4. The name of the donee;
rights against arbitrary action.
5. Relationship of the donor to the
donee; and
TAX COLLECTION CANNOT BE RESTRAINED BY
6. Such further information as may be
COURT INJUNCTION (SEC. 218, 1997 NIRC)
required by rules and regulations
made pursuant to law.
Justification: Lifeblood Theory
MINIMUM COMPROMISE RATES (MCR) OF ANY accept anything less than what is
TAX LIABILITY adjudicated in favor of the
a. In case of financial incapacity: Government. By virtue of such final
MCR = 10% of the basic assessed tax judgment, the Government has
b. Other cases: already acquired a vested right.
MCR = 40% of the basic assessed tax
[Sec. 204(A), 1997 NIRC] NATURE OF A COMPROMISE IN EXTRAJUDICIAL
SETTLEMENT OF THE TAXPAYER’S CRIMINAL
APPROVAL OF THE COMPROMISE BY THE LIABILITY FOR HIS VIOLATION
EVALUATION BOARD IS REQUIRED WHEN
a. the basic tax involved exceeds It is consensual in character, hence,
P1,000,000.00, or may not be imposed on the taxpayer
b. the settlement offered is less than without his consent. The BIR may only
the MCR. suggest settlement of his tax liability
through a compromise. The extra-
NOTE: The MCR may be less than the judicial settlement and the amount of
prescribed rates of 10% or 40%, as the the suggested compromise penalty
case may be, provided it is approved by should conform with the schedule of
the Evaluation Board (composed of the compromise penalties provided under
BIR Commissioner and the four BIR the relevant BIR regulations or orders.
Deputy Commissioners).
REMEDY IN CASE THE TAXPAYER REFUSES OR
COMPROMISE OF CRIMINAL VIOLATIONS FAILS TO ABIDE THE TAX COMPROMISE
General Rule: All criminal violations
under the CTRP may be compromised. 1. Enforce the compromise
a. If it is a judicial compromise, it
Exceptions: can be enforced by mere
1. Those already filed in court execution. A judicial compromise
2. Those involving fraud [Sec. 204(B), is one where a decision based on
1997 NIRC]. the compromise agreement is
rendered by the court on request
EXTENT OF THE COMMISSIONER’S DISCRETION of the parties.
TO COMPROMISE CRIMINAL VIOLATIONS b. Any other compromise is
extrajudicial and like any other
1. Before the complaint is filed with contract can only be enforced by
the Prosecutor’s Office: The CIR court action.
has full discretion to compromise 2. Regard it as rescinded and insist
except those involving fraud. upon original demand (Art. 2041,
Civil Code).
2. After the complaint is filed with
the Prosecutor’s Office but before COMPROMISE PENALTY
the information is filed with the
court: The CIR can still compromise It is an amount of money that the
provided the prosecutor must give taxpayer pays to compromise a tax
consent. violation. This is paid in lieu of criminal
prosecution. A taxpayer cannot be
3. After information is filed with the compelled to pay a compromise penalty.
court: The CIR is no longer If he does not want to pay, the CIR must
permitted to compromise with or institute a criminal action.
without the consent of the
Prosecutor. (People vs. Magdaluyo, COMPROMISE VS. ABATEMENT
GR No. L-16235, April 20, 1961)
This is more so, when the court Compromise involves a reduction of
has rendered a final judgment. As a the taxpayer‘s liability, while abatement
mere agent of the Government, the means that the entire tax liability of the
Commissioner is not authorized to taxpayer is cancelled.
PROCEDURES FOR THE ACTUAL DISTRAINT OR Note: The warrant of distraint shall be
GARNISHMENT sufficient authority to the person owing
the debts or having in his possession or
I under his control any credits belonging
Commencement of distraint to the taxpayer to pay to the
proceedings Commissioner the amount of such debts
or credits.
II
Service of Warrant of Distraint
(Sec. 208)
III
Posting of Notice
With respect to: (Sec. 209, NIRC)
1. Personal property –
(a) upon the owner of the goods, Notice specifying the time and place
chattels, or other personal of sale and the articles distrained. The
property; or posting shall be made in not less than
(b) upon the person from whose two (2) public places in the city or muni-
possession such properties are cipality where the distraint is made.
taken. One place for posting of such notice is at
2. Stocks and other securities the Office of the Mayor of such city or
(a) upon the taxpayer; and municipality.
(b) upon the president, manager,
treasurer or other responsible
officer of the corporation,
company or association which
issued the said stock and IV
securities. Sale of Property Distrained
3. Bank accounts shall be garnished by
serving a warrant of distraint –
(a) upon the taxpayer; and
(b) upon the president, manager, THE TAXPAYER’S PROPERTY MAY BE PLACED
treasurer, or other responsible UNDER CONSTRUCTIVE DISTRAINT WHEN HE
officer of the bank.
Note: Upon receipt of the warrant of 1. is retiring from any business subject
distraint, the bank shall turn over to the to tax;
Commissioner so much of the bank 2. is intending to –
accounts as may be sufficient to satisfy a. leave the Philippines,
the claim of the government. b. remove his property therefrom,
4. Debts and credits – c. hide or conceal his property,
(a) persons owing or having in his 3. is performing any act tending to
possession the debts; obstruct the proceeding for
(b) or under his control such credits; collecting the tax due or which may
or be due from him (Sec. 223, 1997
(c) upon his agent. NIRC).
3. short description the property to be and interest thereon from the date of
sold. delinquency to the date of sale,
together with interest on purchase price
The advertisement shall be made at 15% per annum from the date of sale
within 20 days after the levy, and the to the date of redemption. (Sec. 214,
same shall be for a period of at least 30 NIRC).
days. It shall be effectuated by:
a. posting a notice at the main entrance FORFEITURE TO THE GOVERNMENT
of the municipal building or city hall
and in a public and conspicuous If there is no bidder in the public
place in the barrio or district in which sale or if the amount of the highest bid
the real property lies; and is insufficient to pay the taxes, penalties
b. by publication once a week for 3 and costs, the real property shall be
weeks in a newspaper of general forfeited to the Government.
circulation in the municipality or city
where the property is located (Sec. FURTHER DISTRAINT AND LEVY
213, CTRP).
The remedy of distraint and levy may
be repeated if necessary until the full
amount of the tax delinquency due
including all expenses is collected from
the taxpayer. Otherwise, a clever
IV taxpayer who is able to conceal most of
Sale the valuable part of his property would
escape payment of his tax liability by
sacrificing an insignificant portion of his
holdings.
DISTRAINT VS. LEVY
(4) TAX LIEN
DISTRAINT LEVY
DEFINITION: It is a legal claim or charge
Refers to personal Refers to real on property, either real or personal,
property property
established by law as a security in
default of the payment of taxes (51
Forfeiture by the Forfeiture is
government is not authorized AmJur 881). Generally, it attaches to
provided the property irrespective of ownership
or transfer thereof.
The taxpayer is not The right of
given the right of redemption is EXTENT AND NATURE
redemption with granted in case of
respect to distrained real property levied The tax, together with interests,
personal property. upon and sold, or penalties, and costs that may accrue in
forfeited to the
addition thereto is a lien upon all
government.
property and rights to property
Both belonging to the taxpayer.
Are summary remedies for the collection of
taxes; and The lien shall not be valid against
Cannot be availed of where the amount of any mortgagee, purchaser, or judgment
the tax involved is not more than P100 creditor until notice of such lien shall be
filed by the Commissioner of Internal
REDEMPTION OF PROPERTY SOLD Revenue in the Office of the Register of
Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
counted from the filing of the amended b. When the taxpayer requests for
return. But the said period shall run a reconsideration which is
from the filing of the original return if granted by the CIR;
the same is sufficiently complete to c. When the taxpayer cannot be
enable the Commissioner to make a located in the address given by
proper assessment. (Commissioner vs. him in the return, unless he
Phoenix Assurance Co., GR No. L-19727, informs the CIR of any change in
May 20, 1965) his address.
When Substantive: d. When the warrant of distraint or
a. substantial under declaration levy is duly served, and no
(exceeding 30% of that declared) property is located; and
of taxable sales, receipts or e. When the taxpayer is out of the
income, Philippines (Sec. 223, 1997
b. or a substantial overstatement NIRC).
(exceeding 30% of deductions)
(Sec. 248) A TAX RETURN IS CONSIDERED FILED
FOR PURPOSES OF STARTING THE
PRESCRIPTIVE PERIOD FOR THE RUNNING OF THE PERIOD OF
COLLECTION OF TAXES LIMITATIONS IF
Ten (10) years under Art. 1. Should be filed within five (5) years
1144(1) of the Civil Code and not three from the (a) day of the commission
(3) years under the NIRC. In this case, of the violation of the law, and if
the Government proceeds by court the same be not known, from the (b)
action to forfeit a bond. The action is discovery thereof and the institution
for the enforcement of a contractual of the judicial proceedings for its
obligation. (Republic vs. Araneta, GR investigation and punishment.
No. L-14142, May 30, 1961)
2. Illustrative case: (Lim vs. Court of
GROUNDS FOR SUSPENSION OF THE Appeals GR Nos. 48134-37, Ocober
RUNNING OF THE STATUTE OF 18 , 1990)
LIMITATIONS a. charge is failure or refusal to
pay deficiency income tax –
a. When the CIR is prohibited from committed only after the finality
making the assessment or of the assessment coupled with
beginning the distraint or levy or the taxpayer‘s willful refusal to
a proceeding in court, and for pay the taxes within the allotted
sixty (60) days thereafter; period. (i.e. cannot be
committed upon filing the
return)
criminal cases. (See Chapter VI - Court the civil action for the collection
of Tax Appeals.) of deficiency income tax that
the period to appeal
Substantive Remedies commenced to run
1. Questioning the constitutionality or (Commissioner vs. Union
validity of tax statutes or regulations Shipping Corp.)
2. Non-retroactivity of rulings (Sec.246, b. Referral by the Commissioner of
NIRC) request for reinvestigation to
3. Failure to inform the taxpayer in the Solicitor General (Republic
writing of the legal and factual bases vs Lim Tian Teng Sons)
of assessment makes it void (Sec. c. Reiterating the demand for
228, NIRC) immediate payment of the
4. Preservation of books of accounts and deficiency tax due to taxpayer‘s
once a year examination (Sec. 235, continued refusal to execute
NIRC) waiver (Commissioner vs. Ayala
Securities Corp.)
ASSESSMENT AND PROTEST d. Preliminary collection letter may
Assessment serve as assessment notice
General rule: Taxes are self assessing (United International Pictures
and thus, do not require the issuance of vs. Commissioner)
an assessment notice in order to
establish the tax liability of a taxpayer. ACTS OF BIR COMMISSIONER
Exceptions: CONSIDERED AS DENIAL OF PROTEST
1. Tax period of a taxpayer is WHICH SERVE AS A BASIS FOR APPEAL
terminated (Sec. 6(D), NIRC) TO THE COURT OF TAX APPEALS
2. Deficiency tax liability arising
from a tax audit conducted by 1. filing by the BIR of a civil suit for
the BIR (Sec. 56(B), NIRC) collection of the deficiency tax
3. Tax lien (Sec. 219, NIRC) (Commissioner vs. Union Shipping
4. Dissolving Corporation (Sec. Corporation, GR No. 66160, May 21,
52(c), NIRC) 1990)
2. indication to the taxpayer by the
Protest Commissioner ―in clear and
1. Direct denial of protest unequivocal language‖ of his final
Admnistrative decision on a disputed denial. (Commissioner vs. Union
assessment - The decision of the Shipping Corporation, GR No. 66160,
Commissioner or his duly authorized May 21, 1990)
representative shall (a) state the facts, 3. BIR demand letter reiterating his
the applicable law, rules and regulation previous demand to pay, sent to the
or jurisprudence on which such decision taxpayer after his protest of the
is based otherwise, the decision shall be assessment. (Surigao Electric Co.,
void, in which case the same shall not be Inc. vs. CTA, GR No. L-25289, June
considered a decision a disputed 28, 1974; Commissioner vs. Ayala
assessment and (b) that the same is his Securities Corporation, GR No. L-
final decision (Sec. 3.1.5, Rev. Regs. No. 29485, March 31, 1976)
12-99) 4. The actual issuance of a warrant of
distraint and levy in certain cases
2. Indirect denial of protest cannot be considered a final decision
a. Commissioner did not rule on the on a disputed settlement.
taxpayer‘s motion for (Commissioner vs. Union Shipping
reconsideration of the Corporation, GR No. 66160, May 21,
assessment – it was only when 1990)
respondent received the
summons on
ASPECTS OF LOCAL TAXING POWER POWER TO ADJUST LOCAL TAX RATE (SEC.
a. local taxation 191, LGC)
b. real property taxation Adjustment of the tax rates as
prescribed herein should not be oftener
FUNDAMENTAL PRINCIPLES GOVERNING LOCAL than once every five (5) years, and in no
TAXATION (SEC. 130, LGC) case shall such adjustment exceed ten
a. Shall be uniform in each local percent (10%) of the rates fixed under
sub-unit the LGC.
b. Shall be equitable and based as
much as possible on the POWER TO GRANT LOCAL TAX EXEMPTIONS
taxpayer‘s ability to pay (SEC. 192, LGC)
c. Levied for public purposes Local government units may,
d. Shall not be unjust, excessive, through ordinances duly approved,
oppressive, or confiscatory grant tax exemptions, incentives or
e. Shall not be contrary to law, reliefs under such terms and conditions,
public policy, national as they may deem necessary.
economic policy, or in restraint
of trade TAX EXEMPTIONS EXISTING BEFORE THE
f. Collection of local taxes and EFFECTIVITY OF THE LGC HAS BEEN ABOLISHED
other impositions shall not be (SEC. 193, LGC)
let to any person Unless otherwise provided in this
g. The revenues collected under Code, tax exemptions or incentives
the Code shall inure solely to granted to, or presently enjoyed by all
the benefit of, and subject to persons, whether natural or juridical,
disposition by, the LGU levying including government-owned or
the tax or other imposition controlled corporations are hereby
unless otherwise specifically withdrawn upon the effectively of the
provided therein
shall be based upon the total date until it is paid shall be added to the
property owned by them and the amount due.
total gross receipts or earnings
derived by them. A community tax certificate may
also be issued to any person or
B. Juridical Persons (Sec. 158) corporation not subject to the
Every corporation no matter how community tax upon payment of P1.00
created or organized, whether (Sec. 162, LGC).
domestic or resident foreign,
engaged in or doing business in the PRESENTATION OF COMMUNITY TAX
Philippines shall pay an annual CERTIFICATE ON CERTAIN OCCASIONS – (SEC.
community tax. 163)
A. Individual
Tax Rate = P500 and an annual 1. When an individual subject to
additional tax which in no case shall the community tax
exceed P10,000 in accordance with the acknowledges any document
following schedule: before a notary public;
1. For every P5,000 worth of real 2. takes the oath of office upon
property owned by it during the election or appointment to
preceding year based on the any position in the
valuation used for the payment government service;
of the real property tax - P2.00; 3. receives any license,
and certificate or permit from any
2. For every P5,000 of gross public authority; pays any tax
receipts or earnings derived by or fee;
it from its business in the 4. receives any money from any
Philippines during the preceding public fund;
year - P2.00. 5. transacts other official
business; or
The dividends received by a 6. receives any salary or wage
corporation shall, for the purpose of the from any person or
additional tax, be considered as part of corporation.
the gross receipts or earnings of said The presentation of the community tax
corporation. certificate shall not be required in
connection with the registration of a
THE FOLLOWING ARE EXEMPT FROM voter.
THE COMMUNITY TAX (SEC. 159)
1. Diplomatic and consular B. Corporation
representatives; and 1. receives any license,
2. Transient visitors when their stay in certificate or permit from any
the Philippines does not exceed public authority;
three (3) months. 2. pays any tax or fee;
3. receives money from public
PLACE OF PAYMENT: place of residence funds; or
of the individual, or in the place where 4. transacts other official
the principal office of the juridical business.
entity is located. The city of municipal treasurer
deputizes the barangay treasurer to
TIME OF PAYMENT: accrues on the 1st collect the community tax in their
day of January of each year which shall respective jurisdictions. (Sec. 164, LCG)
be paid not later than the last day of
February of each year. The proceeds of the community tax
actually and directly collected by the
PENALTIES FOR DELINQUENCY: an city or municipal treasurer shall accrue
interest of 24% per annum from the due entirely to the general fund of the city or
municipality concerned.
Unpaid realty taxes attach to the Claim for exemption must be filed
property and is chargeable against the with the assessor together with
person who had actual or beneficial use sufficient documentary evidence to
and possession of it regardless of support claim
whether or not he is the owner. To
impose the real property tax on the WHEN: within 30 days from the date of
subsequent owner which was neither the declaration of property.
owner nor the beneficial user of the
property during the designated periods IF PROPERTY IS DECLARED FOR THE FIRST TIME
would not only be contrary to law but – (SEC.222)
also unjust. (Estate of Lim vs. City of If Declared for the first time, real
Manila, GR No. 90639, February 21, property shall be assessed for back
1990) taxes:
For not more than 10 years prior to
date of initial assessment
PROCEDURE Taxes shall be computed on the basis
of applicable schedule of values in force
STEP 1: DECLARATION OF REAL during the corresponding period.
PROPERTY
STEP 2: LISTING OF REAL
DECLARATION BY OWNER OR ADMINISTRATOR PROPERTY IN THE ASSESSMENT
(SEC. 202-203) ROLLS (SECS. 205, 207)
File a sworn declaration with the
assessor
All declarations shall be kept and
- once every 3 years during
filed under a uniform
the period from January 1
classification system to be
to June 30.
established by the provincial, city
For newly acquired property –
or municipal assessor.
WHEN: Must file with the assessor within
60 days from date of transfer
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
For improvement on property
WHEN: Must file within 60 days upon DETERMINATION OF FAIR MARKET VALUE (FMV)
completion or occupation (whichever For land
comes earlier) Assessor of the province/city or
WHAT: Sworn statement containing the municipality may summon the
fair market value and description of the owners of the properties to be
property. affected and may take depositions
concerning the property, its
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
However, Sec. 218 of the Tax Code & Atlas Consolidated, GR No. 86785,
provides no court may grant November 21, 1991)
injunction to restrain collection of
any tax, fee or charge imposed by
Tax Code.
VII.VALUE–ADDED TAX
The provision in Tax Code refers to (VAT)
courts other than the CTA. (Blaquera TITLE IV OF NIRC
vs. Rodriguez, GR No. L-11295,
March 29, 1958) DEFINITION: The value-added tax is an
Appeal to the CTA does not indirect tax and the amount of tax may
automatically suspend collection be shifted or passed on to the buyer,
unless CTA issues suspension order at transferee or lessee of the goods,
any stage of proceedings. properties or services. This rule shall
likewise apply to existing contracts of
SIMULTANEOUS FILING OF AN APPLICATION FOR sale or lease of goods, properties or
REFUND OR CREDIT AND INSTITUTION OF A CASE services at the time of the effectivity of
BEFORE THE CTA ALLOWED Republic Act No. 7716.
The law fixes the same period of VAT replaced Sales Tax as imposed by
two (2) years for filing a claim for refund previous Tax Laws.
with the Commissioner and for filing a
case with the CTA. The two-year period HISTORY:
for both starts from the date after the a. Executive Order No. 273
payment of the tax or penalty, or from b. Republic Act No. 7716
the approval of the application for c. Republic Act No. 8241
credit. d. Republic Act No. 8424 (took
effect on 1 January 1998)
Observation: If we are not going to
allow the taxpayer to file a refund TRANSACTIONS COVERED BY VAT:
before the CTA and let him wait for the 1. Sale of Commodities or Goods (in
CIR‘s decision, and the latter failed to the course of trade or business
render a decision within the 2-year only)
period, the said taxpayer can no longer 2. Sale of Services (in the course of
file a refund before the CTA because his trade or business only)
right to appeal has prescribed. 3. Exportation (in the course of
trade or business only)
WEIGHT OF DECISION OF CTA 4. Importation (whether or not in
the course of trade or business)
Decisions of Tax Court have
persuasive effect and may serve as PERSONS LIABLE FOR VAT
judicial guides. They have more Any person who, in the course of
persuasive value than BIR Rulings. trade or business, sells barters,
CTA‘s findings of fact are entitled to exchanges, leases goods or properties,
the highest respect. (Raymundo vs. renders services, and any person who
de Joya, GR No. L-27733, December imports goods shall be subject to the
3, 1980) value-added tax (VAT) imposed in
The Supreme Court will not set aside Sections 106 to 108 of the National
conclusions reached by Tax Court Internal Revenue Code.
which by the very nature of its
function, is dedicated exclusively to “IN THE COURSE OF TRADE OR
the consideration of tax problems BUSINESS”
and has developed an expertise on The regular conduct or pursuit of a
the subject, unless there has been commercial or an economic activity,
an abuse or an improvident exercise including transactions incidental
of authority on its part. thereto, by any person regardless of
(Commissioner vs. Court of Appeals
"INPUT TAX" means the value-added tax reduced by the amount of claim for
due from or paid by a VAT-registered refund or tax credit for value-added tax
person in the course of his trade or and other adjustments, such as purchase
business on importation of goods or local returns or allowances and input tax
purchase of goods or services, including attributable to exempt sale.
lease or use of property, from a VAT-
registered person. It shall also include The claim for tax credit referred to
the transitional input tax determined in in the foregoing paragraph shall include
accordance with Section 111 of the NIRC. not only those filed with the Bureau of
Internal Revenue but also those filed
"OUTPUT TAX" means the value-added with other government agencies, such as
tax due on the sale or lease of taxable the Board of Investments or the Bureau
goods or properties or services by any of Customs.
person registered or required to register
under Section 236 of the NIRC. The Commissioner within 120 days,
in proper cases, from the date of
If at the end of any taxable quarter submission of complete documents in
the output tax exceeds the input support of the application shall grant a
tax, the excess shall be paid by the refund or issue the tax credit certificate
VAT-registered person. If the input for creditable input taxes.
tax exceeds the output tax, the
excess shall be carried over to the
Remedy in case of full, or partial
succeeding quarter or quarters. Any
denial, or failure on the part of the
input tax attributable to the
Commissioner to act upon the
purchase of capital goods or to zero-
application for tax credit or refund: the
rated sales by a VAT-registered
taxpayer affected may, within thirty (30)
person may at his option be
days from the receipt of the decision
refunded or credited against other
denying the claim or after the expiration
internal revenue taxes, subject to
of the one hundred twenty day-period,
the provisions of Section 112.
appeal the decision or the unacted claim
with the Court of Tax Appeals.
OPTIONS OF A TAXPAYER AS PROVIDED
IN SECTION 112: RETURN AND PAYMENT OF VAT
1. to claim for tax credit; or
2. to claim for refund Every person liable to pay the value-
added tax shall file a quarterly return of
The claim, which must be in writing, the amount of his gross sales or receipts
for both cases, must be filed within 2 within 25 days following the close of
years after the close of the taxable each taxable quarter prescribed for each
quarter when the sales were made for: taxpayer: Provided, however, That VAT-
a) the issuance of a tax credit registered persons shall pay the value-
certificate; b) refund of creditable input added tax on a monthly basis.
tax due or paid attributable to such
sales. Any person, whose registration has
been cancelled in accordance with
HOW TO DETERMINE CREDITABLE INPUT Section 236, shall file a return and pay
TAX the tax due thereon within 25 days from
The sum of the excess input tax the date of cancellation of registration:
carried over from the preceding month Provided, That only one consolidated
or quarter and the input tax creditable return shall be filed by the taxpayer for
to a VAT-registered person during the his principal place of business or head
taxable month or quarter shall be office and all branches.
reduced