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• -~-ATENEO
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VCENTRAL
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: I BAR OPERATIONS 20191

JORGE ALFONSO C. MELO

Bar Review Coordinator

LEILA S. LIM
Bar Review Secretariat

ATENEO CENTRAL BAR OPERATIONS

PATRICK EDWARD BALISONG

! ; Chairman
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I
l_ KATRINAY. COSCOLLUELA JONATHAN VICTOR NOEL CZARINA CHER CUERPO
GENICA THERESE ENDALUZ JOHN STEPHEN PANGILINAN BENIGNO ENCISO
!I · Administration Commitiee Heads Academics Committee Heads Hotel Operations Committee Heads

I•,. 1'.
ATTY. MICHAEL DANA MONTERO
A TTY. IGNATIUS MICHAEL ING LES
f. )' TAY-ATiON LAW Faculty Advisers

RITZ ANGELICA ALEJANDRO

OECE CHRISTINE FULACHE
,.f ;, JOHN JEFFRICK FRANCiSCO
RIO MEI UY
Il .
'1· STEPHEN DANIEL JAVIER
JOSHUA MANUEL MAGISTRADO
TAXATION LAW Subject Heads

I I EUNICE A. MALA YO
LJ
FRANCES CHRISTINE F. SAYSON
Central Bar Operations
Academics Understudies

KEVIN LUMBRE
TAXATION LAW.Understudies

f
"-- GIAMORDENO
JOHAN FABRIEL FABIA CASSANDRA POUNAR
TIFFANY SO
KJ ESGUERRA TOPHER.TAYLO
2YRAKEE
REMEDIAL LAW Volunteers

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ATENEO CENTRAL
BA~ OPERATIONS2019 TAXATION LAW

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I. GENERAL PRINCIPLESOF TAXATION' I
A. Power of Taxation as Distinguished from Police Power and Eminent Domain 3
r ··, B. Inherent and Constitutional Limitations of Taxation .4
l t
C. Requisites of a Valid Tax.. ~ ; ; 11
D. Tax as Distinguished from Other Forms of Exactions 11
E:'. Kinds of Taxes ' ; 12
f ..
l ' F. Doctrines in Taxation ;.~.- :·::· · , 13
1. Construction and Interpretation of Tax Laws, Rules, and Regulations ....•............ 13
2. _Prospectivity of Tax Laws .'. -.: '. ' 14
3. lmprescriptibility of Taxes , : 14
-4. Double Taxation _ _, ~ .'., ·; 14
·s. Escape from Taxation ; 15
a. Shifting of Tax Burden
b. Tax Avoidance
l 1 c. Tax Evasion
11 6. Exemption from Taxation .- ; 16
7. Equitable Recoupment ; 18
8. Prohibition on Compensation and Set-Off .. : .. ..........•............................... 18
9. Compromise and Tax Amnesty _ .' ...•......... , · . .; ~ .....•................. 18
. a) Nature and Concept
b)· As distinguished from a citizen's suit.
c) Requisites of a taxpayer's suit challenging the constitutionality of a tax measure
• or act of a taxing authority; concept of locus standi, doctrine of transcendental
importance and ripeness for judicial determination ·

I' "'i II. NATIONAL TAXATION (NATIONAL INTERNAL RE\(ENUECODE OF 1997, AS

AMENDED BY RA 10963 OR THE TAX REFORM FOR ACCELERATION ANO INCLUSION
ti LAW) .·
I I
tJ A. Taxing Authority ,.;: , , 23
1. Jurisdiction, Power; and Functions of the Commissioner of Internal Revenue 23
l1 a. lnterp'reti'ng Tax Laws and Deciding Tax Cases
b. Non-retroactivity of Rulings
f 1
L; 2. Rule-making Authority of the Secretary of Finance, , 26
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8. Income Tax .- .. : : : .. .- .. ·: 28
''- 1. Definition, Nature, and General Principles ....................•........ .- .•...... : 28
a. Criteria in imposing Philippine Income Tax 29
\
b. Types of Philippine Income Taxes 29
c. Taxable Period ~ 29
d. Kinds of Taxpayers "'··································30
2. lncome ., 35
a. Definition and Nature .........................................•...................................... 35
~t • b. When Income is Taxable , , , 35
1) Existence of Income
• 2) Realization and Recognition of Income
c. Tests in Determinir1g Whether Income is Earned for Tax Purposes .•....... ~ ..••.. 36
1) Realization Test
2) Economic Benefit Test, Doctrine of Proprietary Interest
3) Severance Test
d. Tax-free Exchanges .................•.................. _........................•........... _.....•.•. 37
e. Situs of Income Taxation •........................... -........................•.................•... 38
3. -Gross lncome ..•................•.......................................................................... 41
a. Definition _ 41
b. Concept of Income from Whatever Source Derived 42
c. Gross Income vs. Net Income vs. Taxable Income .•..................................... 42
d. Classification of Income Subject to Tax , : , 42
1) Compensation Income
2) Fringe Benefits
3) Professional Income
4) lncome from Business
5) Income from Dealings in Property
6) Passive Investment Income
7) Annuities, proceeds from Life Insurance or Other Types of Insurance
8) Prizes and Awards
9) Pensions, Retirement Benefit or Separation Pay
10) Income from Any Source
e. Exclusions and Exemptions _ 52
1 ) Rationale •
2) Taxpayers Who May Avail
3) Distinguished from Deductions and Tax Credits
4. Deductions fromGross Income ,. ..•..........•.. ,55
a. Concept as Return of Capltal.. 55
b. Itemized Deductions vs. Optional Standard Deduction 67
·c. Items -Not Deductible , _............•.... , 68
5. Income Tax on lndividuals _....•.•....................................•............. , ;68
a. Residents Citizens, Non-Resident Citizens; and Resident Aliens ...•.......•..•.. ~68
1) inclusions and Exclusions for Taxation on Compensation Income
2) Taxation of Business income/Income from Practice of Profession·
3) Taxation of passive Income
4) Taxation of Capital Gains
5) Capital Asset vs._ Ordinary Asset
b. Income Tax on Non-Resident Aliens Engaged in Trade or Business 71
c. Income Tax on Non-Resident Aliens Not Engaged in Trade or Business 71
d. Individual Taxpayers Exempt from income Tax 72
1) Senior Citizens
2) Minimum Wage Earners
3) Exemptions Granted under International Agreements
6. Income Tax on Corporations : 73
a. Income Tax on Domestic Corporations and Resident 73
1) Minimum Corporate Income Tax
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Fl
ri 2) Branch Profit Remittance Tax
3) "ltemized Deductionsvs. Optional Standard Deductions
\ '] 4) Taxation of Passive Income
..! 5) Taxation of Capital Gains
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b. Income Tax on Non·Resident Foreign Corporations .......•...........•• , 77
·,I c. Income Tax on Special Corporations .............•........... 1 ••••••••••••.••••••••••••••••••• 78
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1) ProprietaryEducational Institutions and Hospitals
2) Non-Profit Hospitals
3) Government-owned or Controlled corporations, Agencies,.or
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,..[ lnstrumentalltles · f :: .
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4) Domestic Depository Banks (Foreign Currency Depo~itUnits)
{ ·~r 5) International Carriers Doing Business in the Phlllpplnes
. 6) Off-shore Baking Units
tt 7) Resident Foreiqn Depository Banks (Foreign .Currency Deposit Units)
1 8) Regional or Area headquarters. and Regional operating Headquarters of
{
Multinational Companies
{ )
; d. Improperly Accumulated Earnings Tax (IAET) •...... • ..•.•••••.•••.••. ,. ·•······· 80
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' e. Exernpti~115from Tax on Corporations •...•.••..•.••.•.•.•..•.••••. , ..••• , ..•....•.•.....•...•. 81
l 1f f. Tax on Other Business Entities: General Partnerships, General Professional
Partnerships, Co-ownerships, Joint Ventures, and Consortia .•...• , ..•.............. 81
( 1j· 7. Filing of Returns.and Payment , ...........•••.. , .•.•.•...•....•.•... ;;;; 82
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a. Period within which to File Income Tax Return of Individuals and·Corporations
{ l b. S.ubstituted Filing .. : .••.......•..•.. , · ;.:-~:· ••. 83
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c .. Failure to.File Re.turns ,, , , ...•.•... u., ~,. .. 83
1 8. Withholding Taxes .•... , •.•.... - , ....•...•••.... , ..•....••. , ,.,,, 84
(]
a. Concept. .. ,. •... . ; . . .
, :· 84
b. Creditabje ys. Withholding Taxes , .......•.••.•• ,, •...•.....•........• ,: 85
c. Duties of a Withholding Agent
t] c. Transfer Taxes .. ~ ..........•............. , , ;.,,, , ·8.6
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1. Estate Tax , , · , ...........• 87
1. J a. Basic Principles, Concept, and Definition, , 87
~ 1 b. Classification of Decedent , ,, ~ , 88
'l c. Determination of Gross and Net Estate ......•.. , .........•. ~ 89
t j d, Deductions.and Exclusions from E:state.,;...•..•••.•.••....••....••••................•..... 91
e. Exemption of Certain Acquisitions and Transn,issions 91
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f. Period for Filing Estate Tax Returns ....•.....•....•.•.. , , , .•.......... 98

2. Donor's Tax , 99
~ ., a. Basic Principles, Concept, Definition 99
,.r b. Requisites of a Valid Donation 101
c. Transfers which may be Constituted as Donation , , 101
.1) Transfer of Property for Insufficient Consideration
2) Condonation/Remission of Debt
3) Bona fide Arms-Length Transfers
d. Determination of Gross Gift a,, .....................•.. 102
e. Exemption of Gifts from Donor's Tax 104
D. Value-Added Tax (VAT)
 1. Co11cept and Elements of Taxable Transactions .•........................................... 106
2. Impact and Incidence of Tax .....•................. ;.,J 107
3. Destination Principle; Cross-Border Doctrine, ; 108
4. Imposition of VAT on Transfer of Goods by Tax ExemptPersons ....................•
5. Transactions Deemed Sale Subject to VAT 109
6. Zero-rated and Effectively Zero-rated Sales of Goods or Properties 117
7. VAT-Exempt Transactions .....•..........................•............ : , 118 -
8. Input and Output Tax : · ; · 124
9. Tax Refund or TaxCredit ..............................................•... ; 127
a. San RoqueDoctrine ...................•........................ ; ....•.................. , 128
b. Enhanced VAT Refund System ..... , ......................................................•.. (118)
10. Filing of Returns and Payment .........•........................................................... 130
E. Tax Remedies under the NIRC ................................................................•........• 132
1. General Concepts ................•.......•....................•.........................................• 132
a. Requisites of a Valid Assessment ...........................................•..•.......•.•... 133
b. Tax Delinquency vs; Tax Deficiency 134
c. Prescriptive Period for Assessment .............•.....•......................•....•......... 134
i. False Returns vs. Fraudulent Returns vs. Non-Filing of Returns 135
ii. Suspension of the Running of Statute' of Limitations ...................................•... 136
2. Civil· Penalties ............................•... ; 139
a. A. New Rule on Delinquency Interest and Deficiency lnterest ..............•......• 139
b. · B .. Surcharge ; · : 140
c. :C. Compromise Penalty ·································~···········140
3. Assessment Process and Reglementary Periods .............•............................•. 140
a. A.'Letter of Authority ...•............. : ..: · .......................................•..... 141
b. B. Notice of Informal Conference.; 142
c. C. Issuance of Preliminary Assessment Notice , 142
d. · D. Issuance of Formal Letter of Demand/Final Assessment Notice .. , 142
e. E. Disputed Assessment , ......................•........... 143
4. Collection , .....................•................................. ; 144
a. A. Requisites
b. B. Prescriptive Periods
·F. Taxpayer's Remedies ....................•.....................•........•.........................•......•. 144.
1. Protesting an Assessment , ...........•......•...........•.. , '. ..................•• 144
a.. Period to File Protest ........................................................•......•......•...... 144
b. Submission of Supporting Documents ~·························'·······················145
c. Effect of Failure to File Protest ; .. 145
d. Decision of the Commissioner on the Protest Filed 146
i. Period to Act Upon or Decide on Protest Filed ; •................ 147
ii. Remedies of the Taxpayer in case the Commissioner Denies the protester Fails to
Act on the Protest 147
iii. Effect of Failure to Appeal.. .......................................................................•. 148
2. Compromise and Abatement of Taxes ...........................•.............................. 148
3. Recovery of Tax Erroneously or Illegally Collected 152 ''

a. Grounds, Requisites, and Period for Filing a Claim for Refund or Issuance of a
Tax Credit Certificate 152

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b. ProperParty to file Claim
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·f. dr. Refund or. Tax Credit.. ...... : ... .c ...... .: ••• '. •••••••••• 155
G. Government Remedies...........•.. ~-.; .. ; ..•............................ _ .................•.............. 156
rJ 1. Kinds , , ...•........ 156
{ ·1 2. Judicial Remedies , ; ..•.... 163
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Ill. LOCAL TAXATION (LOCAL GOVERNMENTCODEOF_1991, AS AMENDED)
•f A. Local Government Taxation · ·
1. Fundamental principles :7.: 168
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I. i- 2. Specific taxing powers of Local Government .Units .. ;_. :~:: ·.· '. 173
r 3. Common limitations on the taxing powers of LGUs '..'..· 180
i. 1 4. Procedure for approval and effectivity of tax ordinances .............•. , (170)
ti 5. Periods of assessment and. collection of local taxes, fees, C>r charges
6. Taxpayer's remedies _
180
181
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\ 1 a. Protest.of assessment'
.. b. Claim for refund of tax credit for erroneously or illegally collected taxes, fees, or
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7. Remedies of the LGUs'for collection of revenues ; 183
l 1; a. Administrative action
b. Judicial action
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B. Real property taxation
1. Fundamental principles · - .. 186
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( J 2. Exemption from real p;operty taxes 188
3. Collection of real property tax ~,192
{l a. Date of accrual ofreal property taxes and special levies
b. Collection of taxes
l} c. Periods within which to collect real property taxes
4.. Taxpayer's remedies
t1 a. Contesting an assessment ~
, 195
195
lJ i. Payment under protest
ii. File protest with treasurer
t1 iii. Refunds or credits of real property taxes
b. Contesting a valuation of real property 196
n i. Appeal to the Local Board of Assessment Appeals (LBAA)
- ii. Appeal to the Central Board of Assessment Appeals (CBAA)
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iii. Effect of payment of tax
5. Remedies of LGUs for collection of real property taxes ...............................•.... 198
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 IV. JUDICIAL REMEDIES (RA1125, ASAMENDED,AN[)THE REVISED RULES OF THe
COURT OFT AX APPEALS
A. Court of Tax Appeals (CTA} 200
1. _ Exclusive Original and Appellate Jurisdiction over Civil Cases
2. Exclusive Original and Appellate Jurisdiction over Criminal Cases
B. Procedures •........... _ ............•........................................................................... 203
1. Filing of an Action for Collection of Taxes
i. Internal RevenueTaxes
ii. Local Taxes
2. Civil Cases
i. Who May Appeal, Mode of Appeal, and Effect of Appeal
ii. Suspension of Collection of Taxes
111. Injunction Not Available to Restrain 'Collection
3. Criminal Cases
i. Institution and Prosecution of Criminal Actions
ii. Institution of Civil Action in CrimlnalAction
111. Period to Appeal
4. Appeal to CTA en bane
5. Petition for Review on Certiorari to the SC
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[) BAR OPERATIONS 2019 TAXATION LAW

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rl~~~~~~~~~~~~~~~~~•~~--1 Definition, Concept, and Purpose of Taxation
. I. General Principles of Taxation •
rJ Three Elements of Taxation:
·, I
TOPIC OUTLINE UNDER THE SYLLABUS 1. It is an enforced proportional contribution from
' s . persons and properties; .
.A.. Power of Taxation as Distinguished from Police Power 2, It is imposed by the State by vinue of its sovereignty;
and Eminent Domain 3. It is levied for the support of the government. (PCGG
8. Inherent and Constitutionallimitations of Taxation' v, Cojuangco, G.R. No. 147062-64, 2001)
'
l C. Requisites of a Valid Tax
Power inherent in every sovereign State to impose a
D. Tax as Distinguished from Other Forms of Exactions
E. Kinds of Taxes charge or burden upon persons, properties, or rights to
F. Doctrines in Taxation raise revenues-for the use .and support of the government
1. Construction and Interpretation of. Tax Laws, to enable it to discharge its appropriate functions.
Rules, and.Regulations
2. Prospectivity of Tax Laws Power by which an independent· State, through its
3. lmprescriptibility of Taxes lawmaking body; raises and accumulates revenue from its
4. Double Taxation inhabitants to pay the . necessary expenses of the
5. Escape from Taxation government. (51 Am. Jur. 341)
· a. Shifting of Tax Burden
b. Tax Avoidance Merely a. way of apportioning the cost of government
(1 c. Tax Evaslon: among those who in some measures are privileged to
6. Exemption from Taxation enjoy its. benefits and must bear its burdens. (71 Am. Jur.
7. Equitable Recouprnent 2d342)
8. Prohibition on Compensation and· Set-Off
{] 9. Compromise and Tax Amnesty Described as a destructive power which interferes with the
a) Natu~e and Concept · personal and property rights of the people and takes from
{) b) As distinguished from a citizen's suit them a portion of their property for the support of the
c) Requisites of a taxpayer's suit challenging the government (Paseo Realty & Devetopment-Cotporetion v.
f constltutionauty of a tax measure or act of a CA, G.R. No. 119286, 2004) In Sison v.Ancheta, (G.R. No.
taxing authority; concept of locus standi, L-.59431, 1984) however, the SC acknowledged that the
ll doctrine of. transcendental importance and due process clause may be invoked where a taxing statute
ripeness for judicial determination is so arbitrary that it finds· no support in the Constitution,
t) such as when the tax imposition amounts to a confiscation
of property.
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Purpose ofTaxation
1. Revenue-Raising: Taxation is the power by which the
sovereign raises revenue to defray the · necessary
expenses of government.

Taxes provide the funds or property With which to

promote the general welfare and protection of the
whole citizenry.

2. Non-Revenue/Special or Regulatory or Sumptuary.:

Taxation is also used for regulatory purposes. It is used
to attain non-revenue objectives and pursue policy
decisions.
t' l

Example: Taxation could be a tool to implement the

State's police power, such as imposing a tax on sale,
lease or disposition of videograms primarily to answer

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 ATENEO CENTRAL
BAR OPERATIONS 2019
the need the regulate the video industry due in part to
• rampant film piracy, violation of intellectual property
rights and proliferation of pornography. (Tio v.
Videogram Regulatory Board, G.R. No. 75967, 1987).
Taxation is done not merely to raise revenues to
support the government,· but also to provide means for
the rehabilitation and stabilization of a threatened
industry {like coco levy funds), which is so affected with
public interest. (PCGG v. Cojuangco, G.R. No. 147062-
64, 2001).
Nature and Characteristics of Taxation
1. The power of taxation is inherent in sovereignty as an
incident or attribute thereof, being essential to the
existence of independent government.
2. The right to tax exists apart from the Constitution and
is not being expressly conferred by the people.
3. It is legislative in character.
4. It is generally not delegated to the executive or
administrative departments.
Exceptions to item 4:
• To Local Government Units (LGUs) with respect to
matters of local concern. (Sec. 5, Art. X, Constitution);
• When it is allowed by the Constitution (Sec. 28[2], Art.
VJ, Constitution); and
• When the delegation reiates merely to an
administrative implementation that may call for some
degree of discretionary powers under a set of sufficient
standards expressed by law. (Pelaez v. Auditor
General, G.R. No. L-23825, 1965), or implied from the
policy and purpose of the law (Maceda v. Macaraig,
G.R.No. 88291, 1993).
It is subject to constitutional and inherent limitations.
It must be used for public purpose. A tax shall be
considered to have been utilized for public purpose if the
welfare of the nation or the greater portion of its population
has benefited from it. (Gomez v, Palomar, G.R. No. L-
23645, 1968; Phil Guaranty Co., Inc. v. CIR, G.R. No. L-
22074, 1965).
It is the strongest of all the inherent . powers of the
government. (Sison v. Ancheta, G.R. No. L-59431, 1984)
It is territorial in operations. The power to tax can only be
exercised within the territorial jurisdiction of a taxing
authority (51 Am. Jur. 88), except when there exists privity
of relationship between the taxing State and the object of
tax.
It is generally pecuniary in nature (i.e., payable in money).
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TAXATION LAW
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Scope of the Legislative Power of Taxation
The power to tax as a general rule is unlimited and plenary
in its range. Acknowledging in its very nature no limits, the
principal check against its abuse is to be found only in the
responsibility of the legislature. (Creba Inc. v. Romulo,
G.R. No. 160756, March9, 2010)
The legislature, therefore, basically determines:
1. The subjects (persons, property, occupation,
exercises, or privileges to be taxed);
2. Method of collection;
3. Purpose for which the tax shall be levied;
4. Apportionment of tax (whether for general application
or limited to a particular locality);
5. Amount or rate;
6. Kind of tax to be collected; and
7. Situs of taxation.
The legislature also grants legislative tax exemptions or
condonations, and specifies or· provides for the
administrative as well as the judicial remedies that either
the government or the taxpayer can. avail. (Petron v.
Tiangco, G.R. No. 158881, April 16, 2008)
The Power to Tax and the Power to Destroy
Justice Marshall in McCulloch v. Maryland (4 Wheat, 3.16 ' ...
4 L ed. 579, 607) said that the power to tax involves the
power to destroy. Taxation is a destructive power which
interferes with the personal and property right of the people •
and takes from. them a portion of their property for the
support of the government.
On the other hand, Justice Holmes in Penhandle Oil Co. v-:
Mississippi (277 U.S. 218) declared that "the power to tax
is not the power to destroy while this court sits."
If the power to tax is used to implement the State's police
power to discourage and ultimately prohibit certain
activities inimical to the public welfare, this is permissible
as a power to destroy. If the power to tax is solely for the
purpose of general welfare, or raising revenue, it can not
be used to destroy nor to confiscate. In this sense, this can
be attacked on the basis of constitutionality or a valid
exercise of legislative power.
Hence, in Roxas v, CTA, (G.R. L-25043, 1968), the
Supreme Court said: "The power to tax is sometimes called
the power to destroy. Therefore, it should be exercised with
caution to minimize injury to the proprietary rights of a
taxpayer."
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Cl BAR OPERATIONS 2019 TAXATION LAW

Cl A. POWER OF -TAXATION, AS DISTINGUISHED· FROM

POLICE POWER AND POWEROF EMINENT DOMAIN TAX
POLICE
. -__

EMINENT
..

,·· 1 POWER DOMAIN

[ _I

Contracts may be Contracts. may

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l . TAX
POLICE
POWER
EMINE~T
DOMAIN
impaired unless be impaired
(a) government is
party to contract
r Concept
granting
Power to enforce Power to. make Power to take I exemption; or (b)
contribution to and implement private property involves franchise
raise funds for laws for ' the for public use with
Government general Welfare just Benefits Received
Compensation
Protection and No direct or Just
Scope general benefits immediate . compensation
from the benefit but orily equivalent to fair
r "l Plenary, Broader in a
Merely power to government such ·- as · may · market - value of
comprehensive · application; · "take" private arise from the the property
General power property for maintenance of
to make and public use a healthy
I f implement laws economic.:
l .,
, standard - of
Exercising Authority
f1 society

IJ
National arid Local National
Governments
II
Government
May be granted
.or to public service
Relationship to Constitution·

. political , companies or Subject to certain Subjected to Subject to.certain

r1 - . I
subdivisions . public utilities constitutional
limitations
certain
constitutional
constitutional
limitations -
Purpose !_imitations _
Raise revenues Exercised to The taking of
promote public property for
.· _ welfare through public use. Theory and Basis of Taxation
regulation
{J
1. Lifeblood/Necessity Theory
Amount of Imposition
l. l The power of taxation proceeds _ upon the theory that
No limit ·. Limited to the No-limit imposed, the existence of government i& a
necessity; that it
4l. 1- cost of but the amount cannot continue without means to pay its . expenses;
regulation, should be based I and that for.those means, it has the :right to compel all
f t issuance of on the fair'rnarket citizens and property within its limits to contribute, .
l. J license. or value of the
surveillance 'property
t1 Without revenue raised from taxation, the government
will not survive, resl.llting in. detriment to society.
Effect-
Without taxes, the.qovernment would be paralyzed for
I
I
Becomes part of ~~s:raint on the Transfer of right
public fund mjunous use of to the property
II lack of motive power to activate and operate it.
re: .J property .I
(Commissioner v. Algue, G.R. No. L-28896, 1988)

Persons Affected 2. Benefits-Protection Theory

(: ; Applies to all
persons, property,
Applies to all Only
persons,
I
property
particular
· is
(Symbictic Relationship Theory)
The basis of taxation is found in the reciprocal duties of
' j
and excises that property. I
and covered - -
protection and support between the state and its
inhabitants. In return for this contribution, the taxpayer
l may be subject excises that
thereto may be subject
thereto
I
- · -
receives the genera! advantages and protection which
the government affords the taxpayer and his property.

Superiority of Contracts 3. Jurisdiction over Subject and Objects

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The person or property taxed must be within the
• competent authority's taxing jurisdiction. Tax is based
on the situs or source/territoriality (location of economic
activity, location of property, source of income),
citizenship, and residence.
Principles of a Sound Tax System
1. Fiscal Adequacy
The sources of tax revenue should coincide with and
approximate the needs of government expenditures
and their variations.
2. Administrative Feasibility
The tax system should be capable of being properly
and efficiently administered by the government and
enforced with the least inconvenience to the taxpayer.
Example: Creditable withholding tax which is a system
of advance collection of payee's income tax liability.
Non-observance of the canon of administrative
feasibility will not render a tax imposition invalid "except
to the. extent . that specific constitutional or statutory
limitations are impaired." (Diaz v. Secretary of Finance,
G.R!> No. 193007, 2011, which dealt with the
inconvenience of imposing VATon toll fees)
3. Theoretical Justice
The tax system should be. fair to. the average taxpayer
and be based upon the ability to pay.
B. SCOPE AND LIMITATIONS OF TAXATION
The power of taxation is the strongest of all the powers of
the government. Nevertheless, effective limitations
thereon may be imposed by the people through the
Constitution. Accordingly, no matter how broad· and
encompassing the power of taxation, it is still subject to
inherent and constitutional limitations.
1. INHERENT LIMITATIONS
a) Public Purpose
Test: Whether the proceeds will be 'used for something
Which is the duty of the State to provide.
The public purpose of the tax law must exist at the time of
its enactment. (Pascual v. Secretary of Public Works, GR.
No. L-10405, 1960)
Page4 of 206
TAXATION LAW
The term "public use" has acquired a more comprehensive
coverage. To the literal import of the term signifying strict
use or employment by the public has been added the
broader notion of indirect public benefit or
advantage. (Sumulong v. Guerrero, G.R. No. L-48685,
1987)
b) Inherently Legislative
General rule - Power oftaxation cannot be delegated.
Contemplates the power to determine kind, object, extent,
amount, coverage, and situs of tax.
Must ·be distinguished from power to assess and collect
which is exercised by the Executive through the BIR.
Exceptions: . . . ..
1. Delegation to local governments -.It is in line with
the principle that the power to create municipal
corporations for purposes of local self-government
carries with· it the power to confer the power to tax on
such local governments.
2. Delegation to the President -::- Certain aspects of the
J
taxing process that are, not legislative in character may
be vested to him, e.g. delegation of tariff powers by
Congress to the President under the flexible tariff
clause · (Section 28(2), Art. VI, Constitution), and
delegation of emergency powers (Section 23(2), Art.
VI, Constitution)
3. Delegation to administrative agencies
Administrative agencies are authorized to fix within
specified limits, tariff rates, import or export quotas,
tonnage and wharfage dues and other duties or
imposts.
c) Territorial (see discussions on situs of taxation below)
d) International Comity
Property of a foreign State or . government may not be
taxed by another Siate.
e) Exemption of Government Entities, Agencies, and
Instrumentalities
Rationale: If the government taxes itself or if Local
Government Units tax the national government, it wouid be
akin to taking money from one pocket to the other.
Entities or agencies exercisinq sovereign functions (acta
JI.ire imperit) are tax exempt, unless expressly taxed,
agencies performing . proprietary functions are. subject to
tax unless expressly exempted.
Government owned and controlled corporation performing
proprietary functions are subject to taxes, except those
 r ... ,
l l

CJ
ATENEO CENTRAL
[] . BAR OPERATIONS 2019 TAXATION LAW

r1 exempted under Section 27(C) of RA 8424 as amended by regressive system of taxation. A progressive system of
RA 9337 andRA 10963, namely: taxation means that as resources of the taxpayer become
r1 1. GSIS . higher, the tax rate likewise increases. It is based on the
·.2. SSS ability to pay.
(l . 3. PHIC
4. the local water districts (iii) Grant by Congress of authority to the President to
impose tariff rates (flexible tariff clause) (SfJc. 28 {2],
Instrumentality of the National Government is exempt from Arl. VI)
real property tax. (MIAA v. CA G.R. No. 155650, 2006)
However, . an instrumentality of the National Government Includes import and export quotas, tonnage and
[ ·.1' can be subject to tax if there is a statutory authority to do wharfage dues aside from tariffrates
'
so and if there is no express provision against such act. Delegated by Congress
Through a law; the Tariff· and Customs Code has
Chief Justice Hilc1rio Davide, Jr. in· the case of MC/AA v. provided for what has been termed as the "flexible
Marcos (G.R. No. 120082, 1996) has stated that"nothing tariff clause" authorizing the President to modify
can prevent Congress from decreeing .that even import duties (TCC, Sec. 401)
instrumentalities or agencies of the government Subject to Congressional limits arid restrictions
,l )
.I
performing governmental functions may be subject to tax." Within the framework of national development
program
2. CONSTITUTIONAL LIMITATIONS
(1
a} Provisions Directly Affecting Taxation:
[1
(i) Prohibition. against imprisonment for non-payment
r1 of poll tax (Sec. 20, Art. Ill)

·rJ Can still be made to pay . fines and penalties for non-
payment. .
• A •
t ..
1
Poll tax: cedula/resldence tax (but in the US, it usually
fJ means the payment of tax to exercise the right of suffrage.)

11 Taxpayer may be imprisoned for non-payment of other

kinds of taxes where the law so expressly provides.
lJ (iJ) Uniformity and equality of taxation (Sec. 28 (1), Art
tl VI) .

H Uniformity: all articles or properties of the same class

taxed at the same rate (Eastern Theatrical Co. v. Alfonso,
G.R. No. L-1104, 1949)

,: l Equality: apportionment must be more or less just in the · (iv) Prohibition against taxation of religious, charitable
·..~ J
iight of taxpayer's ability to shoulder tax burden , and educational entities/Exemption from real property
taxes (Sec. 28{3], Arl. VI)
The equal protection clause refers to like treatment in like
t l circumstances.
l l 'Nho What How
Non-stock Revenues Exempt as long as it is
The uniformity and equality clause refers to. the proper non-profit used actually, directly
relative treatment for tax purposes of persons in like
educational and exclusively (ADE)
circumstances. Section 28 (1), Art. VJ provides that
institutions I for educational

{ ..
Congress shall evolve a progressive .systern of taxation.
Hence, the Constitution does not really prohibit a
I I
Page 5 of206
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. '
Assets
purposes, regardiess of
its source.
NIRC, provided that its
gross
unrelated
income from
trade,
I
I
I
Exempt as long as they business or activity
are used ADE for does not exceed 50% of
educational purposes. its total gross income.

Non-stock Revenues Exempt from income Assets Exempt as long as the

non-profit tax if they are organized property is ADE used
hospitals and operated for educational or
exclusively for charitable purposes
charitable purposes.
Covers charitable institutions, churches, and parsonages
Assets Exempt as long as they or convents appurtenant thereto, mosques and non-profit
are used ADE for cemeteries and all lands, buildings and improvements
educational purposes. actually, directly and exclusively. used for charitable,
religious and educational purposes
Other non- Revenues Exempt provided that is
stock non- organized and operated Definition of Terms:
profit exclusively for (a) Charitable institution - essentially provide for free
charitable charitable purposes. foods and services to the public (to an indefinite
institutions number of persons) which would otherwise falls on the
Income from activities shoulders of the government. (CIR. v. St. Luke's, G.R.
conducted for profit, No. 203514, 2017)
regardless of the (b) Exclusive - is defined as possessed and enjoyed to the
disposition shall be exclusion of others; debarred from participation or
subject to ordinary tax. enjoyment; and 'exclusively' is defined, 'in a manner to
exclude; as enjoying a privilege exclusively.' .. The
words 'dominant use' or 'principal use' cannot be
Assets Exempt as long as the equated with 'used exclusively' (CIR v, St. Luke's .. G.R.

L
No. 203514, 2017)
for charitable purposes.
·.' · .
.'
_·--t----'----+-p-r_o_p_e-rty_·._is_i_t _A_D_E-us_e_d-l As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply
Propriety non- Revenues Exempt from income because it derives income from paying patients, whether
profit hospital tax if they are organized outpatient, or confined in the hospital, or receives
and and operated subsidies from the government, so long as the money
educational exclusively for received is devoted or used altogether to the charitable
institutions charitable purposes. object which it is intended to achieve; and.no money inures
to the private benefit of the persons managing or operating
If the non-profit the institution (CIR v. St. Luke's, G.R. No. 203514, 2017)
hospital/education
institution earns income The test is the actual, direct, and exclusive (ADE) use of
from its for-profit I the revenues for educational purposes, not the source of
said revenues. Thus, when an non-stock non-profit
activities, it will retain its
tax exemption for its educational institution proves that it uses its revenues ADE
charitable activities, but for educational purposes, it shall be exempted from income
the income from for- tax, VAT, and LBT. This is known as the utilization rule. Its
profit activities wiil be real property ADE used for educational purposes are also

II
subject to the exempt from RPT. (De La Salle University v. CIR, 2016)
preferential rate of 10%
under Section 27 (B),

Page 6of 206

{}
[)
ATENEO CENTRAL
fl BAR OPERATIONS 2019 TAXATION LAW

fl The test of exemption is not strictiy a requirement on the
• intrinsic nature OP character of the institution. The test
} requires that the institution use property in a certain
way, i.e., [ACTUAL USE] for a charitable purpose.
"\
Exemption pertains only to real estate tax.
( l
f -,, ' (v) Prohibition against taxation of non-stock, non-
l i profit [educational} institutions (Sec. 4[3&4], Art. XIV)
(ix) Grant of power to the local government. units to
create its.own sources of revenue (Sec. 5, Art. X)
Each local government unit shall have the power to create
its own sources of revenues' and to levy taxes, fees and
charges subject to such guidelines and limitations _as the
Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.

Exempts from taxes.all revenues and assets of non-stock, (x) Flexible tariff clause (Sec. 28 {2], Art. VI)
non-profit educational institutions actually, directly and
r1 exclusively used for educational purposes The Congress may, by law, authorize the President. to fix
within specified· 1imits, and subject to such Iirnitations and
l1 Exemption covers income, real estate tax, donor's tax, restrictions as it may impose, tariff rates, import and export
and customs duties (distinguished from the previous quotas, tonnage and wharfage dues, and other duties or
1
; provision which pertains only to real estate tax) imposts within the framework of the. national. development
program of the Government.
Income is exempt provided it is used for maintenance or
improvement of institution (indispensable or essential) (xi) No appropriation or use of . public money for
{ i religious purposes (Sec. 29 [2], Arl. VI)
The exemption is strictly personal (i.e., non-transferable)
r1 Distinguish tax treatment of:
No public money orproperty shall be appropriated,
applied, paid, or employed, directly or indirectly, for the
l. . 1--' . Proprietary educational institutions (Preferential use, benefit, Qr support of any sect, church, denomination,
tax rate of 10%), and s.ectarian institution, or system of religion, orof any priest,
CJ Government educational institutions (Tax-
preacher, minister, other religious teacher, or dignitary as
such, except when such priest, preacher, minister, or
f exempt, e.g., UP)
. i t
dignitary is assigned tothe armed forces, orto any penal
(vi) Majc:>rity vote of Congress for grant of tax institution, or government orphanage or leprosarium.
(1 exemption.(Sec, 28[4], Art. VI)
· Includes amnesties, condonations and refunds b) Provisions Indirectly Affecting Taxation
I. i Involves majority of all members voting separately
I.l
Relative majority (majority of quorum) is .sufficient to (i) Due process (Sec; 1, Art'. Ill)
withdraw exemption
SUBSTANTIVE- PROCEDURAL
(vii) Prohibition on use of tax l.evied .for special

H
l .....
purpose (Sec. 29 {3], Art. VI) I Should not be harsh,
. oppressive or confiscatory
.

assessment and
.
No arbitrariness in

Revenues derived for a special fund shall be (reasonableness) collection

administered for the purpose intended only.
' .,
Once the purpose is achieved, the balance, if any, is
I By authority of valid law
!
Right to notice and
hearing
to be transferred to the general funds of the I
government. j Must be for a public
purpose
(viii) President's veto power on appropriation,
Imposed within territorial
l ; revenue, andtarlff bills (Sec. 27 [2], Art. VI)
jurisdiction I
The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but It can also be invoked by the government (Province of
the veto shall not affect the item or items to which he does Abra v. Hernando, G.R. No. L-49336, 1981)
not object.

Page 7 of 206
 ATENEO CENTRAL
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• No state may tax anything not within its jurisdiction without
violating the due process clause; the taxing power of a
state does not extend beyond its territorial limits, but within
such it may tax persons, property, income, or business
(Manila Gas v. Collector, G:R. No. L-24780, 1936)
. (ii) Equal protection (Sec. 1, Art. Ill)
A!I persons subject to legislation shall be treated alike,
under like circumstances and conditions both in privileges
conferred and liabilities imposed. (Sison, Jr. v. Ancheta,
G.R. No. L-59431, 1984)
No violation of equal protection when there is proper
classification made
The classification to be valid must:
1. Reston substantial distinctions;
2. Be germane to the purpose of the law;
3. Not be limited to existing conditions only; and
4. Apply equally to all members of the same class.
Examples:
The sales tax is applied similarly on all goods and services
sold to the public, which are not exempt, at the constant
rate of 0% or 10%. (Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Piiipinas, Inc. v.
Tan, G.R. No. 81311,
1988).
The phrase "except customs brokers" is not meant to
discriminate. against customs brokers. Itwas inserted in
Sec. 103(r) to complement the provisions of Sec. 102 of
the Code which makes the services of customs brokers
subject to the payment of the . VAT and to distinguish
customs brokers from other professionals who are subject
· to the payment of an occupation tax under the Local Tax
Code. (Kapatiran ng mga Nagli/ingkod sa Pamahalaan ng
Pilipinas, Inc. v. Tan, G.R. No. 81311, 1988).
The equal protection clause recognizes a valid
classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary. Both the BIR
and the BOC are bureaus under the DOF. They principally
perform the special function of being the instrumentalities
through which the State exercises one of its great inherent
functions - taxation. Indubitably, such substantial
distinction is germane and intimately related to the purpose
of the law. Hence, the classification and treatment
accorded to the BIR and the 130C under RA No. 9335 fully
satisfy the demands of equal protection. (Bureau of
Customs Employees' Association vs. Teves, G.R. No.
181704, 201)
Page 8 of 206
TAXATION LAW
(iii) Religious freedom (Sec. 5, Art Ill)
The constitutional guaranty of the free exercise and
enjoyment of religious profession and worship carries with
it the right to disseminate religious information. (American
Bible Society v. City of Manila, G.R. No. L-9637, 1957)
Activities simply and purely for propagation of faith are
exempt.
Tax is unconstitutional if it operates as a prior restraint on
exercise of religion or favors a certain religion (non-
establishment of religion).
Income of religious organizations from any activity
conducted for profitor from any of their property, real or
personal, regardless of disposition of such income, is
taxable.
(iv) Non-impairmentof obligations of contracts (Sec.
10, Art. Ill)
Applies only when government Is party to the contract
granting exemption
Exception: ln case of franchise tax-exemption. The
Constitution provides that franchise is subject to
amendment, alteration, or repeal by Congress.
Contractual· tax exemptions, in the real· sense of the term
and where the non-impairment clause of the Constitution
can rightly be invoked, are those agreed to by the taxing
authority in contracts, such as· those contained in
government bonds or debentures, lawfully entered into by
them under enabling laws in Which the government, acting
in its private capacity, sheds its cloak of authority and
waives its governmental immunity. These contractual tax
exemptions, however, are not to . be confused with tax
exemptions· granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview
of the non-impairment clause of the Constitution.
(MERALCO v. Province of Laguna, G.R. No. 131359,
1999)
Example where impairment applies:
The provision "shall be in lieu of all taxes of every name
and nature" in the franchise, this Court pointed out that
such exemption is part of the inducement for the
acceptance of the franchise and the rendition of public
service by the grantee. As a charter is in the nature of a
private contract, the imposition of another franchise tax on
the corporation by the local authority would constitute an
 ATENEO CENTRAL
BAR OPERATIONS2019 TAXATION LAW

impairment of the contract between the government and ii. Bv a taxoaver other than the producer of
the co•rporation. (Province of Misamis Oriental v; Cagayan manufacturer. gains, profit, and income derived
Electric Power and Light Co., lnc., G.R. No. L-45355, from the purchase within and its sale without the
1990) Philippines, or from the purchase without and its
sale within shall be treated as derived entirely from
SITUS OF TAXATION sources within the country in which the personal
property is sold.
(a) Situs - place of taxation; power to tax is limited to the
f -~
t :
territorial jurisdiction of the taxing state. It is the place Exception: Gains from the sale of shares of stock in a
' l
or authority that has the right to impose and collect domestic corporation shall be treated as derived entirely
f \ taxes. (CIR v. Marubeni Corp. GR No. 137377, from sources within the Philippines regardless where the
' December 18, 2001) said shares are sold.
I 1
Exception: where privily of relationship exists, the State (2) From sources without the Philippines:
can exercise Us taxing powers over .its citizen outside its a) Interest other than those derived from sources within
territory, the Philippines.
[ lI b) Dividends other than those derived from sources
(b) Situs of Income. Tax Within the Philippines.
r Factors that determine the situs of income tax (Sec. :?3,
NIRC):.
c) Compensation for services performed without the
Philippines.
d) Rentals and royalties from property located without the
Il 1. Nationality Philippines or from any interest in such property
2. Residency including rentals or royalties for the use of or for the
1 3. Source ofIncome privilege of using without the Philippines, patents,
s

.
t
·r (1) From sources within the Philippines:
copyrights and other like properties.

a) interests on bonds, notes or other interest-bearing (3) Income partly within and partly without the
\ jl
f
· obligation·s of residents of the Philippines (residence of Philippines:
debtor rule ). . . . Items other than those specified above in (1) and (2) shall
b) Dividends · from domestic and resident foreign be treated as derived partly from sources within and partly
corporations. From a foreign corporation, if at least from sources without the Philippines.
I '! 50% of the foreign corporation's gross income for a
LI
three-year base period · is derived from Philippine (c) Situs of Property Taxes
.
l sources .
c) Compensation for services performed within the Real· Property Personal· Prop.erty
Philippines. Tangible Ir.tangible
d) Rentals and royalties from properties located in the Location of the
Location of the Domicile cf the
Philippines or. any interest in such property ipcluding Property
Property Owner
rentals or roya!ties for the use of or for the. privilege of
using. within the Philippines, patents, copyrights and
(d) Situs of Excise Tax
other like properties.
e) Sale ofreal property located in the Philippines. Estate Tax - Domicile of the decedent at the time of his
f) Sale of personal property - death
i. By the producer or manufacturer. sale of personal Donor's Tax - Domicile of the donor at the time of the
property produced by the taxpayer within and sold transfer
without the Philippines, or produced without and SUMMARY
sold within the Philippines, shall be treated as
derived from sources within and partly from OBJECT SITUS RULE
sources without the Philippines. Conversely, sale
Person Residence,
of personal property produced within and sold
I Domicile,
within the Philippines, or produced without and Citizenship
sold without the Philippines, shall be treated as
derived from sources entirely within the Philippines Real Property Location of the property
and entirely without the Philippines, respectively.
Page 9 of206
ATENEO CENTRAL
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H. STAGES OR ASPECTS OF TAXATION

• OBJECT SITUS
. RULE
Tangible Persona! Physical location although the 1. Levy
Property owner resides in another Enactment of a law by Congress, imposing a tax
jurisdiction
2. Assessment and Collection
Royalties Where the use of or right to use
is exercised. Act. of administration and implementation of the tax law by
·.
.. the executive department through the administrative
Income Citizenship agencies.
Residence
Source of Income 3. Payment
Transfer of
property
Citizenship
Residence
I Act of compliance by the taxpayer, including such options,
schemes or remedies as may be legally available to him
Location of Property
As a general rule, no court shall have the authority to grant
Business or Where the an · injunction to restrain the collection of any national
Occupation act/business/occupation is internal revenue tax, fee or charge. (Sec. 218, NIRC) As
performed/exercised
an exception, an injunction may be issued by the CTA to
restrain the collection of taxes "when, in the opinion of the
Court, the collection may jeopardize the interest of the
Government and/or the taxpayer, the Court at any stage of
the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed
or to fi!e a surety bond for not more than double the amount
with the Court:" (Sec. 11, RA 9282, as amended)

The prohibition on the issuance of a writ of injunction to

enjoin the collection of taxes is applied only to national
internal revenue taxes. not to local taxes. However, the
Supreme Court noted that such injunctions enjoining the
collection oflocal taxes are frowned upon. (Angeles City v.
Angeles Electric Corporation, G.R. No. 166134, 2010)

4. Refund
Recovery of any tax alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to
have been collected without authority, or of any sum
alleged to have been excessively, or in any manner
wrongfully, collected

A. Definition, Nature, and Characteristics of Taxes

A burden, charge, exaction, imposition or· contribution
assessed in accordance with some reasonable rule of
apportionment by authority of the sovereign State upon the
persons or properties within its jurisdiction, to provide
public revenues for the support of· the government, the
administration of the law, or the payment of public
expenses. (71 Am. Jur. 2d 343-346) ·

Taxes operate in invitum (against a person's will or

consent; by force of law irrespective of assent) and are in
"'
~
no way dependent upon the wi!I or contractual assent,
express or implied, of the person taxed.
Page 1 o of 206
 ATENEO CENTRAL
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Taxes are: • 3. License Fee

1. Enforced,
TAX LICENSE FEE
2. Proportional, and
3. Pecuniary contributions Source of Exercise of Emanate from the police
4. From persons and property authority Taxing power of the State
5. Levied by the law-making body of _ -power
6. The state having jurlsdictlon over the subject of the
Purpose Raise Regulation
burden
revenue
,rr 7. For the support of the government and all public needs.
f
i. (PCGG v. COCOFED. GR. No. 147062-64, 2001) Object Persons, Right to · exercise a
property and privilege
1·
;
; privilege
C. REQUISITES OF A VALID TAX
Amount No limit Only necessary to carry
"t out regulation
Requisites:
'
1. Must be for a public purpose;
Distinction lies in the primary purpose:
2. _ Should be uniform and equitable;
1 • The primary purpose of license fees is for regulation
i 3. Either the person or property.taxed is within the
and the excess of the amount collected, from the cost
-, jurisdiction of the taxing authority;
to carry out the regulation, should be minimal and
ll 4. Complies with the requirements of due process; and
incidental.
5. Does not infringe any constitutional or inherent
limitations. • Tax's primary purpose, or at least one of the real and
substantial purposes, is to raise revenue. ,
• If amount is too high for regulation and/or the amount
D. TAX AS DISTINGUISHED FROM OTHER FORMS OF levled is not related to costs otrequlanon, it would be
f, a tax.
l J
EXACTIONS
• Purpose of dlsflnction: limitations and exemptions
-· 1. Customs Duty/Tariff~ apply only to one and notto the other.( ex; Exemption
J
from taxation does not include exemption from fees).
TAX CUSTOMS DUTY
! lI Coverage More Importation or A non-stock not-tor-profit educational institution, which is
exempt from taxes, is not exempt from payment of Building
l comprehensive
than customs duty
export of goods
Permit Fee and Local Clearance Fee as the said charges
are regulatory fees and not taxes. _ (A~gefes Unl_versity v,
!
l l 1, Object Persons, prop, etc. Goods imported
City ofAngeles, G.R. No. 189999, June 27; 2012)
or exported
l Royalty fees are - regulatory fees. Clark Special Economic
~ 2.Toll Zone ("CSEZ") imposes payments - on _ the-. movement of
lJ
TAX TOLL petroleum fuel to and fromthe economic zone. Specifically,
CSEZ · provides for the payment of accreditation fees,
Kind of Demand of Demand of annual inspection fees, royalty fees and gate pass fees.
demand sovereignty ownership Chevron is a domestic company located within the
Purpose Support of Collection for the economic zone. CSEZ billed Chevron for royalty fees at
government use of property 0.50/liter. (Chevron Philippines v, BCDA, G.R. No. 173863,
September 15, 2010)
Amount No limit- Fair return of the
I depends on need
of the government
cost of the property The imposition of capital contribution componentof P10
I or improvement per bag was an exercise by the State of its taxation power.
While it is true that the power of taxation can be used as
an imp!ement of police power, 41 the primary purpose of
the levy is revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and
Page 11 of 206
ATENEO CENTRAL
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substantial purposes, then the exaction is properly called • Imposed upon the performance of an act, the
a tax. (Planters Products, Inc. v. Fertiphil Corp.,.G.R. No. enjoyment of a privilege or the engagement in an
166006, 2008) occupation, profession or business
• This is different from the excise tax of Title VI of
4. Special Assessment the NIRC
TAX SPECIAL Example: Income tax, VAT, estate tax, donor's tax
ASSESSMENT
Imposed on Persons, Only on land . 2. As to who bears the burden or incidence
a) Direct - imposed on the person who also bears the
properties, etc.
Why Regardless of Public burden thereof
imposed public improvement that Example: income tax, community tax, estate tax
improvement benefits the land .
Purpose Support of Contribution to b) Indirect - imposed on the . taxpayer who shifts the
government cost of public burden of the tax to another (Maceda v. Macaraig, Jr.,
1991) . ,
improvement
When Regular exaction Exceptional as to Example: VAT, specific tax, percentage tax, customs
imposed time and locality duties
Basis Necessity Benefits obtained
General Rule: The proper party to seek a refund is the
statutory taxpayer. (Silkair v. CIR, G.R. No. 173594, 2008)
5 Debt
TAX DEBT Exception: if the iaw confers exemption from both direct
Source Law; legal Based on or indirect taxes, claimant is entitled to a refund even if
obligation contract claimant is not the statutory taxpayer but only bears the
Nature Personal Assignable economic burden of the tax. (Philippine Airlines v. CIR,

Right to set-off- Generally not May be the . . G.R No. 198759, 2013)
subject to subject of 3. As to tax rates or determination of amount
compensation/ compensation/ a) Specific - tax imposed and based on a physical unit
set-off set-off of measurement, as by head, number, weight, length
,--.
Effect tmprisonrnent is No imprisonment or volume
sanction for non- for non-payment· Example: Tax on distilled spirits, fermented liquors,
payment cigars

b} Ad Valorem - tax of a fixed proportion of the value of

E. KINDS OFT AXES property with respect to which the tax is assessed;
requires intervention ofassessor.
1. As to subject matter or object Example: Real estate tax, excise tax on cars, non-
a) Personal, Capitation, or Poll Tax essential goods
• Fixed amount
..
• Individuals residing within specified territory c} Mixed
• Without regard to their property, occupation or
business 4. As to purposes
Example: Community Tax (Cedula) a) General, fiscal or revenue - imposed for the general
purpose of supporting the govemment
b) Property Tax Example: Income tax, percentage tax
• Imposed on property, real or personal
• !n proportion to its value or other reasonable b) Special or regulatory - imposed for a special
method of apportionment purpose, to achieve some social or economic '
1
Example:· Real estate tax objectives
Example: Protective tariffs or customs duties
c) Excise/Privilege tax

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r1 • 5. As to scope or authority to impose • Where the language of the tax statute is plain and
a) National - imposed by th~ national government there is no doubt as to the legislative intent.
r .i•
1 Ex<Jmple: National internal revenue taxes, custom • In such case, thewords employed are to be given their
duties ordinary meaning.
r l
'
b) Municipal or local - imposed by the municipal b) Tax Exemptions and Exclusions
corporations or local governments
Example: Real estate tax, occupation tax (i) General rule: Exemptions are not favored and are
1 construed strictissimi juris against the taxpayer.
6. As to graduation of rate (three systems of taxation) An exemption from the common burdeh cannot be
a) Progressive or graduated - tax rate increases as the permitted to exist upon vague implication or inference.
tax base or bracket increases
Example: Income tax; estate tax, donor's tax Taxation is the rule while exemption is the exception.
Therefore, whoever claims exemption must . be able to
r ~
I I b) Regressive - tax rate decreases as the tax base justify his claim or right thereto, - by a .grant expressed in
increases terms "too plain to be mistaken and too categorical to be
misinterpreted. 1'
c) Proportionate or Flat - based on a fixed percentage
of the amount of the property, income or other basis to If not expressly mentioned by law, it must at least be within
be taxed its purview by clear legislative intent.
Example: Real estate-tax, VAT, percentaqetax
Claims for refund partake of the nature of tax exemptions
('" 1
lr and will not be allowed unless granted in the most explicit
-, SOURC.ES OF TAX LAWS and categorical language. ·
( J
1 . Constitution; (ii) Exceptions: -
f] '2. Legislations or _ statutes, executive orders, - local • When the law itself expressly provides, for a
liberal
ordinances, tax treaties; construction; that is, in case of doubt, it shall be
[] 3. Administrative issuances by the GOF,, BIR or BOC; resolved in favor of exemption.
4: Rulings issued by the BIR.opinion~ oftheDOJ
f. 1 5. Judicial decisions by the Supreme Court • When. the exemption is in favor of the government itself
or its agencies because the general rule is that they
t1 are exempt from.tax
F.DOCTRINES IN TAXATION
I l • _ When the exemption refers to religious. char!table and
l J'
1. Construction and Interpretation of Tax Laws, Rules and educational institutions
(J Regulations
• When there is an express mention or when the
taxpayer falls Within the purview of the exemption by
ti a) Tax Laws
clear legislative intent, ·the rule on -stnct construction
,
.. j
~·
(i) Genera! rule: Tax laws are construed liberally in favor does not apply.
of the government and strictly against the taxing authority.
In case of doubt, tax statutes are construed strictly against c1 Tax Rules and Regulations
the government and liberally in favor of the taxpayer (see The construction placed by the office charged with
CIR v. CA. Central Vegetable, G.R. No.107135, 1999) implementing and enforcing the provisions of the NIRC
should be given controlling· weight unless such
r Taxes, being burdens, are not to be presumed beyond
l ; interpretation is clearly erroneous.
what the statute expressly and clearly declare. Taxpayers cannot be deprived of their entitlementto the
benefit of a treaty for failure to strictly comply with an
Tax statutes offering rewards are liberally construed in
administrative issuance requiring the prior. application for
favor of informers. tax treaty relief. At most, the application for a tax treaty
relief from the BIR should merely operate to confirm the
(ii) Exceptions:
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entitlement of the taxpayer 10 the relief. The denial· 6f a tax
relief based on a tax treaty due to the failure of a taxpayer
to comply with a RMO would impair the va!ue of the tax
treaty and the State's duty to comply in good faith with the
tax treaty. (Deutsche Bank AG Manila v. CIR, G.R. No.
188550, 2013)
Non- Retroactivity of Rulings. - Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or
any of the rulings or circulars promulgated by the
Commissioner shall not be. given retroactive application if
the revocation, modification or reversal will be prejudicial
to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document required
of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the
facts on which the ru!ingis based; or
. .
(c) Where the taxpayer acted in bad faith. (Sec. 246,
NIRC)
d) Penal Provisions ofTax Laws
Strict construction so as · not to extend the plain terms
thereof that might create offenses by mere implication not
so intended by the legislative I.Sody. (People v. Martin, G.R.
No. L-38019, 1980)
. 2. Prospectivity of Tax La,ws
This principle provides that a tax law must only be
applicable and operative prospectively.
Truces may be imposed retroactively by law, but unless so
expressed by such law. these taxes must only be imposed
prospectively. (Hydro Resources v. CA, G.R. No. 80276,
1990)
Ex post facto is not applicable for tax purposes. However,
when it comes to civil penalties like fines and forfeiture
(except interest), tax laws may provide and allow its
app!ication retroactively, unless it produces harsh and
oppressive consequences which violate the taxpayer's
constitutional rigt-,ts regarding equity and due process.
(Fernandez v. Fernandez, 99 Phil. 934, 1956; CIR v.
Filipinas Compeiies de Sequros, G.R. No. 14880, 1960)
3. lmprescriptibility of Taxes
Although the N!RC provides for the limitation in the
assessment and collection of taxes imposed, such will only
be applicable to those taxes where a tax return is required.
The prescriptive period shall start from the time the
taxpayer files the tax return and declares his liability.
Page 14 of 206
TAXATION LAW
(Bisaya Land Transportation Co. v. Collector of Internal
• Revenue, G.R. Nos. V12100 & L-11812, 1959).
Unless otherwise provided by the tax law itself, taxes in
genera! are not prescriptible. (CIR v. Ayala Securities
Corporation, G.R. No. L-29485, 1976)
The law on prescription being· a remedial measure should
be interpreted liberally in favor of the taxpayer in order to
protect the taxpayer. (Republic v. Ablaza, G.R. No. 'L-
14519, 1960)
4. Double Taxation
a) Direct Double Taxation (Strict sense):
The same property is taxed twice when it should be taxed
only once.
Both taxes must be imposed:
1. On the same property or subject matter;
2. For the same purpose;
3. By the same taxing authority;
4. Within the same jurisdiction er taxing district and during
the same period; and
5. They must be of the same kind or character of tax.
. (Villanueva v. City oflloilo, G.R. No. L-26521, 1968)
b) Indirect Double Taxation (Broad sense)
It means indirect duplicate taxation. It extends to ali cases
in which there are two or more pecuniary impositions. The
Constitution does not prohibit ·the imposition of double
taxation in the broad sense.
c) Constitutionality of Double Taxation
The ·sc held that there is no constitutional prohibition
against double taxation in the Philippines. (Villanueva v.
Cityoflloilo, GR.No. L-26521, 1968)
Therefore, it may not a valid defense against the validity of ~-
a tax measure. (Pepsi-Cola v. Tanauan, G.R. No. L-31156,
1976)
What is prohibited is direct double taxation.
There is no double taxation in the following cases:
• By taxing corporate income and stockholders'
dividends from the same corporation;
" Tax imposed by the State and the local government
upon the same occupation, calling or activity;
.:,_____
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f] • Rear estate tax and income tax collected on the same
real estate property leased for ea.ming · purposes
(Villanueva v. City of 1/oilo, 26 SCRA 578, .1968); and
r • Taxes are imposed on taxpayer's final productand the
s
t storage of raw materials used in the production of the
final product (Procter and Gamble Philippines v.
Municipality of Jagna, G.R. No. L-24265, 1979).
d) Modes of eliminating Double Taxation
1. Provide for exemptions or allowance of deduction or
r• tax credit for foreign taxes;
2. Enter into treaties with other states (e.g., former Phil-
Am Military Bases Agreements as to income tax); or
3. Apply the principle of reciprocity.
In the case of CIR v S.C. Johnson & Sons, Inc. G.R. No.
127105, June 25, 1999. International Juridical Double
Taxation is defined as.an .imposition of comparable taxes
in two or more States on the same taxpayer in respect of
the same subject matter and for identical periods. In order
to eliminate double taxation, a tax treaty i$ entered into by
the two. contracting States. The apparent rationale for
r1 doing away with double taxation is to encourage the free
flow of goods and services and the movement of capital,
r ·1 technology and persons between coumries. conditions
deemed Yi\al' in creating robust and dynarntc econpmies.
fJ
LJ s: Escape from Taxation
..
f a) Shifting of tax burden - The imposition of tax is
transferred from the statutory taxpayer to another
't without violatinq the law.
l (i} Ways of shifting the tax burden (FBO):
• Forward shifting: The transfer of. burden from the
tJ producer to distributor until it finally reaches the
ultimate purchaser or consumer
H • Backward shifting: The reverse of forward shifting,
e.g. the manufacturer has agreed to buy the supplier's
product only if the price is reduced by· the amount of
tax
• Onward shifting: The tax burden is shifted twice or
more either forward or backward
(ii) Taxes that can be shifted
1. VAT
2. Percentage tax
3. Excise tax on excisable articles
4. Ad valorem taxes that oil companies pay to BIR upon
removal of petroleum products from its refinery
Page 15 of 206
TAXATION LAW
{iii) Meaning of impact and incidence of taxation
Impact of Taxation - point on which the tax is originally
imposed or the one on whom the tax is formally assessed.
Incidence of Taxation - point on which the tax burden
finally rests or settles down.
Example: VAT is originally assessed against the seller
who is required to pay the said tax, but the burden is
actually shifted.or passed on to the buyer.
It is important to .know where the impact of taxation lies
(i.e. who the statutory taxpayer is) because it will
generally determine: ·
a
1. The proper party .to claim refund of erroneously
imposed indirect taxes; and .
2. Whether the· indirect taxes can be passed on lo an
exempt buyer.
b) lax a.voida!lce- also caHed tax minimization, is a tax
saving device that is legally permissible
The Court held thattax avoidance is the use of a tax savinq
device within the means sanctioned by law.. Any tax
avoidance scheme should be used by the taxpayer in good
faith and at arm 's length (CIR v Estate of
Benigno Toda Jr.
GR. 147188, 2004)
c) Tax evasion - connotes fraud through the use of
pretenses and forbidden devices . to lessen or defeat
taxes; must be willful and intentional
It connotes the inteqrationof three factors:
1. End to be achieved, i.e., the payment of less than that
known by the 'taxpayer to be legally due, or the non-
payment of tax when it is shown that a tax is due;
2. Accompanying state of mindwhich is described as
being "evil," in "bad faith," "willful," or "deliberate and
not accidental"; and
3. Course of action or failure of action, which is
unlawful. (Toda, Jr. v, CA, G.R. No. 78583, 1990).
Distinguish tax avoidance from tax evasion.
I TAX EVASION TAX AVOIDANCE I
I Other
Name
Tax Dodging Tax Minimization I
I
I Means Use lliegai means Use legal means I
 ATENEO CENTRAL
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Penalty

Object
Punishable by law . Nqt punishable by

To escape To
law
minimize
.
People
..
v, Kintanar

1. The accused is a person The

People v. Santos

elements of a
payment of taxes payment of taxes required to make or file a violation of Section 255 of
return; for failure to supply correct
Willful Blindness Doctrine 2. The accused failed to and accurate information
An individual or corporation can no longer say that the make or file the return at are:
errors on their tax returns are not their responsibility or that the time reqsired by law;
it is the fault of the accountant they hired. 3. The failure to make or 1. That a person is
file the return was willful. required to supply correct
An act is willful ifit is "voluntary, conscious and intentional." and accurate information;
Bad motive or intent to defraud need not be shown. 2. That there is failure to
supply correct and
The only lliing that needs to be shown is that the taxpayer accurate information at the
is aware of his/her obligation to file annual income tax time or times· required by
returns. but "she nevertheless, voluntarily, knowingly and law or rules and
intentionally failed to file the required returns." (People v. regulations; and
Kintanar, CTA E.B. No. 006, December 3, 2010, affirmed 3. That such failure to
by the SC in 2012) supply correct and
accurate information is
See, however, the case of People v. Judy Ann Santos done willfully.
(CTA Case No. 012, 2013), affirmed by the SC rn 2013, . .·

where the CTA Division acquitted Santos despite having TAX EVASION TAX AVOIDANCE
almost the same circumstances as Kintanar. Santos was Other Tax Dodging Tax Minimization
charged with failure to supply correct and accurate Name
information in her ITR. She claimedthat by virtue of trust, Means U~e illegal means Use legal means
respect and confidence, she entrusted her finances to her Penalty Punishable by law. Not punishable by
manager since she was a .child. Here, ttie CTA Division law
found thatthe eiement of willfulness and motive to commit
Object 1·0 entirely escape To merely minimize
fraud were wanting and that Santos vyas merely negligent.
payment of taxes payment of taxes

People v. Kintanar People v. Santos 6. Exemption from Taxation

Tax evasion connotes the integration of the three
factors. a) Tax Exemption - The grant of immunity to particular
All elements are present Lacks the element of persons or corporations or to persons or corporations
willfulness of a particular class from a .tax which persons and
"Willful'' in tax crimes The. element of willful corporations generally within the same state or taxing
means voluntary, failure to supply correct district are obliged to pay.
intentional violation of a and accurate information
known legal duty, and bad must be fully established It is an immunity or privilege; it is freedom from a financial
faith or bad purpose need as a positive act or state of charge or burden to which others are subjected.
I not be shown mind. It cannot be (Greenfield v. Meer, G.R. No. 156, 1946j
presumed nor attributed to
mere inadvertent or
I negligent acts. b) Natureof Tax Exemption
Involves non-filing of Involves failure to supply
Income Tax Return. correct and accurate Exemption from taxes is personal in nature and covers
information. Mere only taxes for which the taxpayer-grantee is directly liable.
The elements of a understatement of a tax is In any case. it cannot be transferred or assigned by the
t.

violation of Section 255 of not itse!f proof of fraud for person to whom it is given without the consent of the State.
the NIRC for failure to the purpose of tax
I
make or file a return are: I evasion.
Page 16 of 206

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[l Tax exemptions ai-a strictly construed against the cannot be extended to FELS. (Fels Enegry, Inc. v.
taxpayer because such provisions are highly disfav~red Province of Batangas, G.R. Nos. 168557 .& 170628, 2007)
r1 and may almost be said to be odious to the law. (Manila
Electric Company v. Vera. G.R. No. L-29987, 1975) d) Rationale/groundsfor exemption
. 1
I '

Exemptions are not presumed, but when public property
is involved, exemption is the rule, and taxation, the
exception.
General Rule: Exemptions are not presumed.
Exception: When public property is involved
exemption is the rule, and taxation, the exception)
There can be no simultaneous exemptions under two laws,
I one partial and the other total.
c) Kinds of Tax Exemption
A presumpfion that.the public interest will be subserved by
the exemption allowed. Grant ofexemption rests upon that
such will benefitthe body of the people and not upon any
idea of lessening the burden of the individual owners of
property.
(i.e.,
Purpose is some public benefit or interest, which the law-
making body. considers sufficient to offset the monetary
loss entailed in the grant of exemptions. ·
Created in a treaty on grounds ofreciprocity or to lessen
the rigors of the international double or multiple taxation.

j' (i) Express (or affirmative) - when certain persons, Equity is not a ground for tax exemption.
property or transactions · are, by express provision,
exempted from all or certain taxes, either entirely or in part. e) Revocation of tax exemption

r .•
• J,
r. . Examples of Statutory Tax Exemptions: Tax exemption is generally revocable.
4. lntercorporatedividends by a domestic corporation
from another domestic corporation 1 The congressional power to · grant an .. exemption
5. Section 105 of the Tariff and Customs Code necessarily carries with it the consequent power to revoke

l l of
6. Section 234 the local Government Code • the same. . .
7. Other special laws such asOmnibus Investment Code
In order t~ be irrevocable, the tax exemption must be
of 1987 and. Philippine Overseas Shipping Act
fl founded on a contract or granted by the Constitution.
(ii) Implied (or by omission) :..- when a tax is levied on
I l certain classes of person, properties or .transactions
By way of exception, a contractual tax exemption obtained
i ] without mentioning the plher classes. Every tax statute
makes exemptions since all those not mentioned are from the State for a valid and material consideration of a
··i;- deemed exempted. The omission may either be accidental mutual nature cannot be revoked without impairing the
j
or intentional. obligation of contracts under· the Consfitution. (Mactan
Cebu lnt7 AirportAuthority v. ·Marcos; G.R. No. 120082,
Li (iii) Contractual - those lawfully entered into by the 1996; MERALCO v. Province oflaguna, G.R.NiJ. 131359,
government in contracts under existing laws. These 1999)
t' -f
exemptions must not be confused with the tax exemptions
granted under franchises, which are not contracts within
the context of non-impairment clause of the Constitution.
(Cagayan Etectic Co. v. CIR, G.R. No. L-60126, 1985)

The mere undertaking of NPC under the Agreement, that

it shall be responsible for the payment of all real estate
taxes and assessments, does not justify the exemption of
FELS - a private company. The privilege granted to NPC

1
SEC. 27 (Di (4) Intercorporate Dividends. - Dividends received
by a domestic corporation from another domestic corporation
shall not be subject to tax.
Page 17 of 206
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7. Doctrine of Equitable Recoupment
When a taxpayer is entitled to a claim for refund but he was
not able to file a written claim within the prescribed time,
the taxpayer is allowed to credit the amount for refund
against his existing liability: This is not allowed in the
Philippines and is applied in common law countries.
8. Prohibition on Compensation and Set-off
Taxes are not subject to set-off or legal compensation
because the government and the taxpayer ate not mutual
creditor and debtor of each other. (Republic v. Mambulao
Lumber Co., G.R. No. L-17725, 1962; Caltex Phils. v.
GOA, G.R. No. 92585, 1992)
Taxes are not subject to set-off or compensation for the
following reasons:
1. Taxes are of distinct kind, essence and nature, and
these impositions cannot be classed in merely the
same category as ordinary obligations;
2. The applicable laws and principles governing each are
peculiar, not necessarily common, to each other; and
3. Public policy is better subserved if the integrity and
independence of taxes are maintained. (Republic v.
Mambulao Lumber Co., G.R. No. L-17725, 1962)
A person cannot refuse to pay tax on the basis that' the
government owes him an amount equal to qr greater than
the tax being collected. The collection of a tax cannot await
the results of a lawsuit against the government: (Phi/ex
Mining Corp. v. CIR, G.R. No. 125704, 1998; Francia v,
Intermediate Appellate Court, G.R. No. L-67649, 1988)
In several cases, as an exception to offsetting, the Court
have allowed the determination of the taxpayer's liability in
a refund case, thereby allowing the offsetting· taxes. In
these cases, offsetting was allowed. because the
determination of the taxpayer's liability is intertwined· with
the resolution for the claim of refund. But this situation is
not present in this case. TPC filed a claim for refund or
credit under Sec. 112 of the NIRC, where the issue to be
resolved is whether TPC is entitled of its unutilized input
VAT. And since it is not a claim for refund under Section
229 of the NIRC, the correctness of TPC's VAT returns is
not an issue. Hence, offsetting is not an issue also. (CIR v.
Toledo Power Company, G.R. No. 196415, 2015)
9. Compromise and Tax Amnesty
Compromise
Generally allowed and enforceable when the subject
matter thereof is not prohibited from being compromised
TAXATION LAW
• and the person entering such . compromise is duly
authorized to do so •
The law allows the following persons to do compromise on
behalf of the government:
1. BIR Commissioner as expressly authorized by the
NIRC subject to certain conditions;
2. Collector of Customs with respect to customs duties
limited to cases where the · legitimate authority is
specifically granted such as in the remission of duties
(Sec. 709, TCC); and
3. Customs Commissioner, subject to the approval of the
Secretary of Finance, in cases involving the imposition
of fines, surcharges, and forfeitures (Sec. 2316, TCC).
Tax Amnesty
a) Definition
It is the general or intentional overlooking by the State of
its authority to impose penalties on persons otherwise
guilty of evasion or violation, of a revenue ortax law.
It partakes of an absolute forgiveness or waiver of the
Government of its right to collect.
It is a way to give tax evaders who wish to relent and are
.
willing to reform a chance to do so.
It refers to the articulation . of the absolute waiver by a
sovereign of its right to collect taxes and power to impose
penalties or. persons or entities guilty of violating a tax law.
Tax amnesty aims to grant a general reprieve to tax
evaders who wish to come clean by giving them an
opportunity to straighten out · their records: Amnesty
taxpayers may immediately enjoy the privileges and
immunities under a Tax Amnesty Law, provided they fulfill
the suspensive conditions imposed therein. (CS Garment,
Inc. v. CIR, G.R. No. 182399, 2014)
A tax amnesty. much like a tax exemption, is never favored
or presumed in law. The grant of a tax amnesty, similar to
a tax exemption, must be construed strictly against the
taxpayer and liberally in favor of the taxing authority. (Asia
International Auctioneers v. CIR, G.R. No. 179115, 2012)
b) Distinguished from tax exemption
AMNESiY EXEMPTION
Scope of Immune from the Immunity from civil
immunity payments of liability only.
I
taxes, as well as
additions thereto,
and the
I
appurtenant civil, .
Page 18 of 206
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AMNESTY• EXEMPTION privileges under the law. (CS Garment. Inc. v. CIR, G.R.
criminal or Nfi. 182399, 2014),
administrative
penalties under Other Doctrines (Not includ_ed in the Syllabus)
the NIRC [Rule V,
.. I
Sec 10(1)] Taxpayer's Suit
.l
To whom General pardon To persons
a) Nature and Co11cept
granted given to all exempted by law.
Not every action filed by a taxpayer can qualify to
taxpayers. I
challenge the legality of official acts done by the
A · freedom from a
f} charge or burden
government. A . taxpayer's suit can prosper only if the
governmental . acts . being questioned involve
to which others are
disbursement of public funds upon the theory that the
subjected.
expenditure of public funds by an officer of the state
Application Applies only to Generally
fI past tax periods prospective in
for the purpose of administering an unconstitutional
· act constitutes a misapplication of such funds, Which
ri hence, application.
may be enjoined .at the request of .a taxpayer. (Dean
retroactive
1
Jose Joya v. PCGG, G.R. No. 96541, 1993) ·.
( • application.
I
Presence of Yes, there is. None, because A taxpayer's suit is properly brought only when there is an
Actual revenue loss there was no exercise of the spending or taxing power of Congress
Revenue since there · was actual taxes due as (Automotive Industry Workers A!lianc~. v. Romulo, G.R.
ri Loss · actually taxes the person
due but collection transaction
or
is
No. 157509, 2005). · -'"·

was waived by. · protected by tax

the government. exemption
There is no need to show proof of direct Injury 'as
a resul
of ihe action; it is sufficient fer the petitioner to have a
general interest common to all members of the public
"Shall cover . all (Maceda v, Macaraig, G.R. No. 88291, 1991)
national · internal
(l revenue taxe;=i for
··;;{

b) As distinqulshed from·a citizen's suit ... ,,..

the taxable year
il 2005 and prior
years" [Rule ll,
Sec3]
When enjoyment of the immunities . and privileges
begins:
Neither the 2007 tax Amnesty Law nor Department of
Finance (OOF) Order No. 29-07 (Tax Amnesty Law IRR)
imposes a. waiting period of one year before the applicant
can enjoy the benefits of the Tax Amnesty Law.
It can be surmised from the provisions of the law that the
law intended the immediate enjoyment of the immunities
and privileges of tax amnesty upon fulfillment of the
requirements.
Taxpayers are allowed to sue, for example, Where there is
a claim of illegal disbursement of public funds or
where a tax measure is assailed as unconstitutional
Voters. are allowed to question the ~alidity of election laws
because of their obvious interest m .the . validity·of .such
laws. . Concerned citizens can bring . suits · · if . the
constitutional question they . raise . is of
"transcendental importance" which must be · settled
early. Legislators are allowed to sue to question the validity
of any official action which they claim infringes their
prerogatives qua legislators. (l<ILOSBAYAN V: Morato,
G.R. No. 118910, 1995)
Case law in most jurisdictions now allows both "citizen"
and "taxpayer" standing in public actions. (De Castro v.
JBC, G.R. No. 191002, 2010)

The one-year period referred to in the law should The distinction was first laid down in Beauchamp v. Silk:
thus be considered only as a prescriptive period within • The plaintiff in a taxpayer's suit is in a different
which third parties (i.e., "parties other than the BIR or its category from the plaintiff in a citizen's suit.
r agents") can question the SALN - not as a waiting period • In the former, the plaintiff is affected by the expenditure
l '
during which the BIR may contest the SALN and the of public funds, while in the latter, he is but the mere
taxpayer prevented from enjoying the immunities and instrument of the public concern.
Page 19 of 206
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• As held by the New York Supreme Court in People ex.
rel Case v. Collins: In matter of mere public right, the
people are the real parties. It is at least the right, if not
the duty, of every citizen to interfere and see that a
public offense be properly pursued and punished, and
that a public grievance be remedied.
• With respect to taxpayer's suits, the right of a citizen
and a taxpayer to maintain an action in courts to
restrain the unlawful use of public funds to his injur1
cannot be denied (Terr v. Jordan)
c) Requisites of a taxpayer's suit challenging the
constitutionality of a tax measure or act of a taxing
authority; concept of locus standi, doctrine of
transcendental importance and ripeness for
judicial determination
Requisites of a taxpayer's suit challenging the
constitutionality of a tax measure or act of a taxing
authority
To constitute a taxpayer's suit, two requisites must be
met, namely, that:
• Publicfunds are disbursed by apolitical subdivision or
instrumentality and in doing so, a law is violated or
some irregularity is committed, and
• Petitioner is directly affected by the alleged ultra vires
act. (Anti-Graft League v. San Juan, G.R. No. 97787,
1996)
Concept of Locus Standi
Another requisite rooted in the very nature of judicial power
is locus standi or standing to sue. Thus, generally, a party
will be allowed to litigate only when he can demonstrate
that: · ·
1. . He has personally suffered some actual or threatened
injury because of the allegedly illegal conduct of the
government;
2. The injury is fairly traceable to the challenged action;
and
3. The injury is likely to be redressed by the remedy
being sought (Oliver Lozano v. Speaker Nograles,
G.R. No. 187883, 2009)
Doctrine of Transcendental Importance
Determinants whether a matter is of transcendental
importance:
1 . The character of the funds or other assets involved in
the case;
2. The presence of a clear case of disregard of a
constitutional or statutory prohibition by the public
respondent agency or instrumentality of the
government; and
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TAXATION LAW
.3. The lack of any other party with a more direct and
specific interest in the questions being raised. (CREBA
v. ERG and Mera/co, G.R. No. 174697, 2010); citing
(Senate of the Philippines v. Ermita, G.R. No. 169777
2006,j; and (Francisco v. Nagmamalasakit · na mga
Manggagawang Pi/ipino, Inc., G.R. No. 160261,
2003,), citing (Kilosbayan v. Guingona, G.R. No.
113375, 1994,)
Ripeness for judicial determination
An aspect of the "case-or-controversy" requirement is the
requisite of "ripeness."
The question before the court must be ripe for adjudication,
for example, that the government act being challenged
must have an adverse effect on the person challenging it.
(PACU v. Secretary of Education, 97 Phi. 806, 1955)
The case must fall within the purview of an actual
controversy that is ripe for judicial determination. The
apprehension of the respondent that it could be rendered
technically insolvent through the imposition . of the
iniquitous taxes was merely a speculation or conjecture. It
is arguing based on probabilities, not actualities. The Court
ruled that the action was prematurely filed, for a justiciable
controversy refers to an existing case. er controversy that
Is-appropriate or ripe for judicial deterrnlnafion, not one that
is conjectural or merely anticipatory. (Commissioner of
Internal Revenue v. Stendsratneurence Co., Inc., G.R. No.
219340, 2018)
Another approach is the evaluation of the twofold aspect
of ripeness:
1. The fitness of the issues for judicial decision; and
.2, rhe hardship to the parties entailed by withholding
court consideration.
In our jurisdiction, the issue of ripeness is generally treated
in terms of actual injury to the plaintiff. Hence, a question
i'
is ripe for adjudication when the act being challenged has
had a direct adverse effect on the individual challenging it.
(Oliver Lozano v. Speaker Nograles, G.R. No. 187883,
2009)
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11. NATIONAL TAXATION (National rnternal 3) Distinguished- from Deductions and Tax
Revenue Code of1997, as amended by R.A. •-credits
fl 10963 or the Tax Reformfor Acceleration and 4. Deductions from Gross Income
a. Concept as Return of Capital
1 lncluslon Law
( I b. Itemized Deductions vs. Optional Standard
Deduction
TOPIC OUTLINE UNDER THE SYLLABUS
c. Items Not Deductible
5. Income Tax qn Individuals
A. Taxing Authority
r a. Residents Citizens, Non-Resident Citizens, and
I 1. · Jurisdiction, Power, and functions of the
Commissioner ofInternal Revenue
Resident Aliens
1 ) I nclusions and Exclusions for Taxation on
l a. Interpreting Tax Laws and Deciding Tax Cases
Compensation Income
b. Non-retroactivity of Ruiings
2) Taxationof Business income/Income from
l }. 2. Rule-making Authorityofthe Secretary of Finance
Practice of Profession
B. Income Tax . . . ..
r1 1. Definition,. Nature, and General Principles
a. Criteria in imposing Philippine Income Tax
3) Taxation of passive Income
4) Taxation of Capital Gains
5) Capital Asset vs, Ordinary Asset
b. Types of Philippine Income Taxes
b. Income Tax on Non-Resident Aliens Engaged
c. Taxable Period
in Trade orBusiness
d. Kincis of Taxpayers
c. Income Tax on Non-Resident Aliens Not
2. Income
Engaged i,n Trade or Business
a. Definition and Nature
l } b. When Income i_s Taxable
d. Individual Taxpayers Exempt from Income Tax
1 )· · Senior Citizens ',
1) Existence of Income . .
( .si 2). Rea!izatiqn _a11d R~cogni.Uon of Income
2) Minimum Wage Earners . . · ,,.,,
3} Exemptions Granted under International
c. Tests in Determining Whether lncome is Earned
r l'
I
for Tax Purposes
Agreements
6. Income Tax on Corporations
1) Realization Test . ,
1 a. Income Tax on Domestic Corporations and
i J 2) Economic Benefit Test, Doctrine of
Resident.
Proprietary lriterest
i 1) Mini~um Corporate Income Tax
f .\. 3) Severance Test
2) Branch Profit Remittance Tax
d. tax-free Exchanges
·3) Itemized Deductions vs. Optional Standard
e. Situs of Income Taxation
Deductions .
3. Gross Income
. 4) Taxation of Passive Income
a. Definition .
5) Taxation of Capital Gains
b. Concept of Income from Whatever Source
b. Income Tax on Non-Resident Foreign
Derived
{ J Corporations
c. Gross Income vs. Net Income vs. Taxable
c. Income Tax on Special Corporations
l Income
f j
d. Classification of Income Subject to Tax
1 ) Proprietary Educational Institutions and
Hospitals
1) Compensation Income
H 2) Fringe Benefits
2) Non-Profit Hospitals
3) Governmerit-owned or Controlled
3) Professional Income
. ; 4) Income from Business
corporations, Agencies, or Instrumentalities
4) Domestic Depository Hanks (Foreign
5) Income from Dealings in Property
f Currency Deposit Units)
t 6) Passive Investment Income
5) International Carriers Doing Business in the
7) Annuities, proceeds from Life Insurance or
Philippines
Other Types of Insurance
6) Off-shoreBaklnqUnits
8) Prizes and Awards
f 7) Resident Foreign Depository Banks
i. 9) Pensions, Retirement Benefit or Separation
J
(Foreign Currency Deposit Units)
Pay
8) Regional or Area headquarters and
10) Income from Any Source
Regional operating Headquarters of
e. Exclusions and Exemptions
Multinational Companies
1) Rationale
d. Improperly Accumulated Earnings Tax (IAET)
2) Taxpayers Who May Avail
e. Exemptions from Tax on Corporations

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f. Tax on Other Business Entities: Gen~fal ', ii. Suspension of the Running of Statute of Limitations
Partnerships, General Professional 2.Civil Penalties
. Partnerships, Co-ownerships, Joint Ventures,
•
a. A. New Rule on Delinquency Interest and
and Consortia Deficiency lnterest .
7. Filing of Returns and Payment b. B. Surcharge .
a. Period within which to File Income Tax Return c. C. Compromise Penalty
of Individuals and Corporations 3. Assessment Process and Reglementary Periods
b. Substituted Filing a. A. Letter of Authority · ·
c. Failure to File Returns b. B. Notice of Informal Conference
8. Withholding Taxes c. C. Issuance of Preliminary Assessment Notice
a. Concept d. D. Issuance of Formal Letter-of Demand/Final
b. Creditable vs. Withholding Taxes Assessment Notice
c. Duties ofa Withholding Agent e. E. Disputed Assessment
C. Transfer Taxes 4. Collection
1. Estate Tax a. A. Requisites
a. Basic Principles, Concept, and Definition b. B. Prescriptive Periods
b. Classification of Decedent F. Taxpayer's Remedies
c. Determination of Gross and Net Estate 1. Protesting an Assessment
d. Deductions and Exclusions from Estate a. A. Period to File Protest
e. Exemption of Certain Acquisitions and b. B. Submission of Supporting Documents
Transmissions c. C. Effect of Failure to File Protest
f. Period for Filing Estate Tax Returns d. D. Decision of the Commissioner on the Protest
2. Donor's Tax Filed
a. Basic Principles, Concept.Definition i. Period to Act Upon or Decide on Protest Filed <
r
b. Requisites.of a Valid Domitian· ii. Remedies of the Taxpayer in case the '
c. Transfers which may be Constituted as Commissioner Denies the protest or Fails to Act on r
Donation the Protest
1) · Transfer of Property for Insufficient iii. Effect pf Failure to Appeal
Consideration 2. Compromise and Abatement of Taxes
2) Condonation/Remission of Debt 3. Recovery ofTax Erroneously or Illegally Collected
3) Bona fide Arms-Length Transfers a. Grounds, Requisites, and Period for Filin!:) a
d. Determination of Gross Gift Claim for Refund or Issuance of a Tax Credit
e. Exemption of Gifts from Donor's Tax Certificate
D. Value-Added Tax (VAT} b. ProperParty to file Ciaim for Refund or Tax
1. Concept and Elements of Taxable Transactions Credit
2. Impact and Incidence of Tax G. . Government Remedies
3. Destinatlon Principle; Cross-Border Doctrine 1. Kinds
4. Imposition of VAT on Transfer of Goods by Tax 2. Judicial Remedies
Exempt Persons
5. Transactions Deemed Sale Subject to VAT
6. Zero-rated and Effectively Zero-rated Sales of
Goods or Properties
7. VAT-Exempt Transactions
8. Input and Output Tax
9. Tax Refund or Tax Credit
a. San Roque Doctrine
b. Enhanced VAT Refund System
10. Filing of Returns and Payment
E. Tax Remedies under the NIRC
1 . General Concepts
a. Requisites of a Valid Assessment
b. Tax Delinquency vs. Tax Deficiency
c. Prescriptive Period for Assessment
i. False Returns vs. Fraudulent Returns vs. Non-Filing
of Returns
l -
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A. TAXING AUTHORITY • 4. To effect and administer the supervisory and police
1. Jurisdiction, Power and Functions of the
Commissionerof InternalRevenue
a) Powersand duties of the BIR: (NIRC, Sec. 2)2
I 1. To assess and collect national internal revenue taxes,
fees and charqes;
fl 2. To enforce all forfeiture, penalties, and fines
connected with the assessment and collection of
[l taxes, fees and charges;
3. To execute judgment inall cases decided in its favor
(l by the CTA and the ordinary courts; and
r J 2SEC. 2. Powers and Duties of the Bureau of Internal
Revenue - The Bureau of Internal'Revenue shall be under the
{l supervision and control of the Department of Finance and its
powers and duties shall comprehend the assessment and
( 1 collection of all national internal revenue taxes, fees, and
• J
charges, and the enforcement of al! forfeitures, penalties, and
fines conriectedtherewith, including the execution of judgments
{J in all cases decided in its favor by the Court of Tax Appeals and
the ordinary courts.
CJ The Bureau shall .give effect to and administer the supervisory
. and police powersconferredto it by this Code or other laws.
3SEC. 4. Power of the Commissioner to Interpret Tax Laws
r1 and to Decide Tax Cases - The powerto interpretthe provisions ,
of this Code and other tax laws shall be under the exclusive.and
r1 original jurisdiction of the Commissioner,subject to review by the
Secretary of Finance. ·
{l The power to decide disputed assessments,refunds of interna!
revenue taxes, fees or other charges, penalties imposed in
relation thereto,or other mattersarising under this Code or other
{ 1 laws or portions thereof administeredby the.Bureau of Internal
Revenue is vested in the Commissioner,subject to the exclusive
appellatejurisdiction of the Court of Tax Appeals.
4SEC.
5 Power of the Commissioner to Obtain Information,
f l and to Summon, Examine, and Take Testimony of Persons -
' ,. In ascertainingthe correctnessof any return,orin makinga return .
n when none has been made, or in determiningthe liability of any
person for any internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the Commissioner is
authorized:
• J (A) To examineany book, paper, record, or other data which may
be relevant or material to such inquiry;
(8) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
i j investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities,
including the BangkoSentralng 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
Page 23 of 206
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TAXATION LAW
powers conferred upor{it by the NIRC and other
special laws.
b) Powers of the Commissioner of Internal Revenue
(CIR} . . . .
1. Power to interpret tax laws .and decide tax cases (Sec.
4, NIRC)3
2. Power to obtain information and to summon/examine
and take testimony of persons (Sec. 5, NIRC)4
3. Power to make assessments and prescribe additional
requirements for tax administration and enforcement
(Sec. 6, NIRC)5 . .
multinational companies, , joint accounts,, associations, joint
ventures of consortia and registered partnerships, and their
members;
PROVIDED,· THAT. THE COOPERATIVE DEVELOPMENT
. AUTHORITY SHALL. SUBMIT TO THE BlJREAU A TAX
INCENTIVE REPORT, , WHICH SHALL INCLUDE
INFORMATION.ON·THE INCOME-TAX, VALUE ADDED TAX
AN OTHER TAX INCENTIVES AVAILED OF BY
COOPERATIVESREGISTEREDAND ENJOYINGINCENTIVES
UNDERREPUBLIC ACT N0.. 6936,AS AMENDED:PROVIDED
FURTHER. -THAT THE_ INFORMATION·· · Sl,IBMITTED BY
COOPERATIVES DEVELOPMENT AUTHORITY TO. THE
BUREAUSHALL BE INCLUDEDIN·THE DATABASECREATED
. UNER REPUBLIC ACT NO. 1070S; OTHERWISE KNOWN
ASTHE TAX INCENTIVES , MANAGEMENT. AND
TRANSPARENCYACT (i°IMTA). As amended b/RA .10963
CT~N~) • -
(C) To summonthe personliablefor tax or requiredto file a return,
or any officer or employeeof such person, or any person having
possession,custody, or care of the books of accountsand other
accounting records containingentries relatingto the business of
the · person liable for tax, or any other person, ·to. appear before
the Commissioneror his duly authorizedrepresentativeat a time
to
and place specifiedin the summonsand producesuch books,
papers, records,or other data, and to give testimony;
(D) To take such testimonyof the personconcerned, under oath,
as may be relevantor material to such inquiry; and ·
(E) To cause revenueofficers and employeesto make a canvass
fromtime to timeof any revenuedistrict or regionand inquireafter
and concerningall personstherein who may be liable to. pay any
internal revenue tax. and all personsowning or having the care.
managementor 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
Commissionerthe authority to inquire into bank deposits other
than as providedfor in Section 6(F) of this Code.
5SEC. 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
 ATENEO CENTRAL
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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:
NOTWITHSTANDING ANY LAW REQUIRING THE PRIOR
AUTHORlZA TION OF ANY GOVERNMENT AGENCY OR
INSTRUMENTALITY: 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 bewithdrawn:
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 RequiredReturns, Statements,Reporls 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 fi!es a false
or fraudulent return or either 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 /nventory-t3king, 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, · 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 ·J 13 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.
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TAXATION LAW
•
(D) Authority to Terminate Taxable Period - When it shall comEt
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 forthe 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 requestfor 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
mandatory consultation with competent appraisers both from
the private and public sectors, and with prior notice .to affected
taxpayers, determine the fair market value of real properties.
located in each Zone or area, subject to automatic adjustment
once every three (3) years through rules and regulations
issued by the secretary of finance based on the current
philippine valuation staandards: provided , that . no
adjustment of zonal · valuation shall be valid unless
published in a newspaper of general circulation in the
province, city, or municipality concerned, or in the absencde - !'.
thereof, shall be posted· in · the provincial capitol, city or
municipal hall and. hi two (2) other. conspicuous public
placed therein; provided, further, that the .basls of any
valuation, including th~ records of consultations ddone,
shall be public records open to the ir.quiry of any taxpayer.
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. as amended by R.A. No.
10963 .
(F) Authority ofthe Commissionerto inquire into Bank Deposit
Accounts ~ Notwithstanding any contrary provision of Republic
Act No. 1405 and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank
deposits of:
(1) A decedent to determine his gross estate; and
(2) any taxpayer who has filed an application for compromise of
his tax iiability under Sec. 204 (A} (2) of this Code by reason of
financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the i .
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 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.
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fl Power to interpret the NIRC and other tax laws •

Under the exclusive and original jurisdiction of the CIR, Other powers of the CIR: •
ri
subject to review by the Secretary of Finance (NIRC, Sec. 1. Power to Prescribe Real PropertyValues
4, ,r 1)6 • Authorized to divide the Philippines into different
f zones or areas
Under RMC No. 37-07, the authority of the CIR to sign • Mandatory consultation with competent appraisers
j
'
-:
rulings granting and/or confirming tax incentives, and tax both from public and private sectors
treaty relief through the ruiing process is now delegated to • With prior notice to affected taxpayers
f 1l
i -~ the Deputy Commissioner of the Legal and Inspection • The fair market value is subject to automatic
Group and to the Assistant Commissioner of the Legal adjustment once every three years
{ Service Group. • No adjustments in zonal valuation is valid unless
published in a newspaper otqeneral'clrculation in
i However, the CIR is empowered, motu propio, to reverse, in
the province, city or municipality, or the absence
ti
modify or alter any such ruling issued by the Deputy thereof, shall be posted in the provincial capitol,
i 1 Commissioner of the Legal and Inspection Group or the city or municipality and in two (2) other
Assistant Commissioner. of the Legal Service Group, conspicuous public places,
subject to the non-retroactivity rule. • the basis of any valuation, including the records
of consultations done, shall be public records open
-·i All rulirig!i offirst impression shall be signed by the CIR. to inquiry of any taxpayer.
( t 2. Power to Inquire into Bank Deposits
\ J Power to decide tax cases The Commissioner is authorized to inqui~e into the
bank deposits and other related information held by
fl Includes the power to decide: financial institution of:
1 . Disputed. assessments;
( l • A decedent to determine his gross estate
1.i 2. Refunds of internal revenue taxes, foes or other
• Any taxpayer who has filed . an application for
charges;
, compromise of his tax (jability dnder Section
3. Pen_alties imposed in relation to the above; and
· 204(A)(2) of this Code by reason of financial
4. · Other matters arising under the NIRC.
incapacity to pay his tax liability. . ::_.
~ In case a faxpayerln case a taxpayer files an
Note: Decisions ofthe CIR are subject to the exclusive
application to compromise the payment of his
appeliate jurisdiction of the CTA.
tax liabilities -on .his claim that his financial
t. j position demonstrates. a clear inability to pay
the tax assessed, his application shall not be
Power of the CIR to suspend the business operation of
considered unless and until he •. waives in
a taxpayer ~ See discussion underRemedie«
writing his privilege under Republic:; Act No.

boards may appeal such denial to the Secretary of Finance,who

(G) .Authority to .Accredit and Register Tax Agents - The shall rule on the appearwithin sixty (60) days from receipt of such
Commissioner shall accredit. and register, based on their appeal.
professional competence,integrity and moral fitness, individuals
and general professional partnershipsand their representatives Failure of the Secretary of Finance to rule on the Appeal within
who prepare and file tax returns, statements, reports, protests, the prescribed period shall be deemed as approval of the
and other papers with or who appear before, the Bureau for applicationfor accreditationof the appellant.
taxpayers.
{H) Authority of the Commissioner to. Prescribe Additional
Within one hundred twenty (120) days from January 1, 1998, the Procedural or DocumentaryRequirements- The Commissioner
Commissioner shall create national and regional accreditation may prescribe the manner of compliancewith any documentary
r boards, the membersof which shall serve for three (3) years,and or procedural requirementin connection with the submission or
._ -' shall designatefrom amongthe senior officialsof the Bureau,one preparationof financialstatementsaccompanyingthe tax returns.
(1) chairman and two (2) members for each board, subject to
such rules and regulations as the Secretary of Finance shall 6SEC. 4. Power of the Commissioner to Interpret Tax Laws
promulgate upon the recommendationof the Commissioner. and to Decide Tex Cases - The powerto interpretthe provisions
of this Code and other tax laws shall be under the exclusiveand
Individuals and general professional partnerships and their originaljurisdiction of the Commissioner,subject to review by the
representatives who are denied accreditation by the Secretaryof Finance.
Commissioner and/or the national and regional accreditation
Page 25 of 206
 ATENEO CENTRAL
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1405 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.
Revenue!ssuances
Those issuances officially released by the CIR.
Different kinds of revenue issuances:
1. Revenue Regulations (RRs) - formal interpretations
of the NIRC signed by the Secretary of Finance upon
the recommendation of the CIR; have the force and
effect of law and can only be repealed, modified or
amended by another . regulation or law; specify,
prescribe or define rules. and regulations for effective
enforcement of the provisions of the NIRC and related
statutes
2. Revenue Memorandum Orders (RMOs) - directives
outlining procedures which are necessary to carry out
programs or to achieve policy goals and objectives
3. Revenue Memorandum Rulings (RMRs) -rulings
affecting certain significant tax matters affecting
groups of taxpayers or an industry that are issue
without any request by the taxpayers, for the guidance
and compliance of the revenue personnel
4. Revenue Memorandum Circular (RMCs) - issued to
amplify the rulesvprecedents, .Jaws and other orders
issued by agencies other than the BIR, for the
. guidance and compliance of the revenue personnel
5. Revenue Bulletins (RBs) - periodic issuances,
notices and official announcements of the CIR that
· · consolidate the Bl R's position on certain specific
issues of law or administration in relation to the
provisions of the NIRC, relevant tax lawsand other
issuances for the guidance of the public
6, Rulings - less formal interpretations by the CIR or his
authorized representatives involving tax provisions
and regulations; include:
a. BIR Rulings;
. b. VAT Rulings;
c. Rulings issued by International Tax Affairs Division
(ITAD); and
d. Rulings issued thru delegated authorities or
7SEC. 244 Authority of Secretary of Finance to Promulgate
Rules and Regulations. - The Secretary of Finance, upon
recommendation of the Commissioner, shall promulgate all
needful rules and regulationsfor the effective enforcementof the
provisions of this Code.
8SEC.
245 Specific Provisions to be Contained in Rules and
Regulations. - The rules and regulations of the BIR shall, among
other things, contain provisions specifying, prescribing or
Page 26 of 206
TAXATION LAW
unnumbered rulings
•
2. Rule-making authority of the Secretary of Finance
a) Authority of the Secretary of Finance to promulgate
rules and regulations7
The Secretary of Finance, upon recommendation of the
CIR, shall promulgate all. needful rules and regulations for
the effective enforcernent of the provisions of this Code.
(NIRC, Sec. 244)
!' The power of the Secretary of Finance to review
rulings issued by the CIR, which includes the power to
reverse, revise or modify, is limited only to rulings that are
adverse to the taxpayers.
Kinds of administrative issuances:
1. Legislative rules; and
Legislative rules - in the nature of subordinate
legislation, designed to implement a primary legislation
by providing details thereof; generally required that
before a legislative rule is adopted there must be
hearing
2. Interpretative ruies.
Interpretative rules - designed to. provide guidelines
to the law that the administrative agency is in charge of
enforcing
In order to place Champion, Hope and More cigarettes
within the scope of RA 7654 arid subject them to an
. increased tax rate, RMC 37-93 was issued. In so doing the
BIR did not simply interpret the law; verily it legislated
under its quasi-legislative authority. The due observance
of the requirement of notice, of hearing and of publication
should not have been ignored. The Supreme Court
eventually found that the haslily promulgated RMC 37-93
fell short of a valid and effective administrative issuance.
(CIR v. CA, G.R. No. 119761, 1996)
b) Specific provisions to be contained in rules and
regulations.
Sec. 245 of the NIRC itemizes such provisions."
defining:
• The time and manner in which Revenue Regional
Director shall canvass their respective Revenue
Regions to discover of persons and property liable to
national internal revenue taxes;
• The forms of labels, brands or marks to be required on
goods subject to an excise tax, and the manner of
labelling;
• The condition that in which goods intended for export,

,,. \
! !
r1
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r1 BAR OPERATIONS 2019
r1
Sources of internal revenue taxes
f ! 3. Income tax- tax imposed on the net or the gross
income realized in a taxable year {CIR v. Solidbank
( 1 Corporation, G.R. No. 148191, 2003)
4. Estate tax-tax that is levied; assessed, collected, and
paid upon the transfer of estate of a decedent to his
heirs9
( 5. Donor's tax-tax imposed on the gratuitous transfer of
property between two or more persons who are living
f
i ] at the time of the transfer"
i
6. Percentage tax- tax measured by a certain
I percentage of the gross selling price or gross value in
money ofgoods sold, bartered or imported, or of the
{' gross receipts or earninqs derived by any person
(}
are not et exported would be subject to excise tax;
f taxpayer who satisfies any of the following criteria;
I • Conditions under which goods intended for storage in
bonded warehouse be stored and record keeping
( thereof;
.. The conditions under which denatured alcohol may be
removed and dealt in, the character and quantity of the
f; denaturing material to be used, the manner in which the
process of denaturing shaU be effected;
{ • The nianner in which revenue .shall be collected and
paid, the revenue stamps be affixed and the mode of
cancellation of the same;
• The manner in which the proper books and records be
kept; . . .
• The manner in which internal revenue taxes, such as
income tax, including withholding tax, estate and donor's
taxes, value-added tax, other percentage taxes, excise
taxes and documentary stamp taxes shall be paid
through the collection officers of the Bureau of Internal
fl Revenue or through duly authorized agent banks which
are hereby deputized to receiye payments of such taxes
and the returns, papers and statements that may be filed
by the taxpayers in connection with the payment of the
tax:
1l
Provided, however, That notwithstanding the other provisions of
H this Code prescribing the place of filing of returns and payment of
taxes, the Commissioner may, by rules and regu!ations, require
( ,. that the lax returns, papers and statements that may be filed by
Ii,,
the taxpayers in connection with the payment of the tax.
Provided, however, That notwithstanding the other provisions of
this Code prescribing the place of filing of returns and payment of
taxes, the Commissioner may, by rules and regulations require
that the tax returns, papers and statements and taxes of !arge
taxpayers be filed and paid, respectively, through collection
officersor through duly authorized agent banks:
Provided, further, That the Commissioner can exercise this power
within six (6) years from the approval of Republic Act No. 7646 or
the completion of its comprehensive computerization program,
whichever comes earlier:
Page 27 of 206
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TAXATION LAW
engaged in t~e sale of services (CIR v. So!idbank
Corporation, G.R. No. 148.191, 2003) •
7. Excise tax-tax applicable .to certain specified or
selected goods or articles manufactured or produced in
the Philippines for domestic sale or consumption or for
any other disposition and to things imported into the
Philippines (Silkair v. CIR, G.R. No. 184398, ·201 OJ
8. Value-added tax-is a uniform 1?% tax levied on evePy
importation of goods, whether or not in the course of
trade or business, or imposed on each sale, barter,
exchange or lease of goods. or properties or on each
rendition of services in the course of trade or business
as they pass along the production and distribution
chain, the tax being limited only to the value added to
such goods, properties or services by the seller,
transferor or lessor; an indirect tax that may be shifted
For the purpose of this Section, "large taxpayer" means a
(1) Value-Added Tax (VAT). - Business establishment with VAT
paid or payable of at. least One hundred thousand pesos
(P100,000) for any quarter of the preceding taxable year;
(2) Excise Tax. - Business establishment with excise tax paid or
payable of at least Orie million. pesos (P1,000,000) for the
preceding taxable year;
(3) Corporate Income Tax, - Business establishment with
annual income tax paid or payable of at least One mil\ion pesos
(P1 ,000,000) for the preceding taxable year, and ·
(4) Withholding Tax. - Business establishment with withholding
tax payment or remittance .of at least One million pesos
(P1 ,000,000) for the preceding taxable year.
Provided, however, That the Secretary of Finance, upon .
· recommendation ofthe Commissioner, may modify or add to the
above criteria for
determining a large taxpayer after considering
such factors. as inflation, . volume of business, wage and
employment !ev~ls, and similar economic factors.
9 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 va!ue of such net estate, as computed in
accordance withthe following schedule: xxx
10 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.
(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.
ATENEO CENTRAL
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or passed on to the buyer, transferee or lessee of the

GLOBAL SYSTEM
goods, properties or services (CIR v. Seagate
Technology, G.R. No. 153866, 2005) A system which imposes
9. Documentary stamp tax - tax levied on the exercise income tax upon the total
by persons of certain privileges conferred by law for income of the taxpayer
the creation, revision, or termination of specific legal
Emphasizes the burden
relationships through the execution of specific
allocation aspects
instruments (Philippine Home Assurance Corporation
v. CA, G.R. No. 119446, 1999)
Most equitable in
,B. INCOME TAX distributing tax burden, as
burden of an individual is
1. Definition, Nature and General Principles closely related to his
resources and his ability to
Income Tax Systems pay
SCHEDULARS"fSTEM
A system which imposes
various types of tax on
income producing activities
Emphasizes on revenue
and administrative aspects
Because of its multiple
rates, the tax burden of a
person does not respond to
his. income but rather fall
fortuitously on the type of
his income

Administration is not quite Administration is simple

1) Global (Unitary) Tax System - The total allowable
as easy as schedular being confined to each
deductions are deducted from the gross income to
because one has to transaction or activity .
arrive at the net taxable income subject to the relevant consider all income from
income tax rate. whatever sources

All items of gross income and deductions are reported

in one income tax return and a single tax is imposed
on all income received · or earned by a person
irrespective of the activities which . produced the
income (i.e. compensation income. net income from
business, trade or profession.)
(2) Schedular Tax System - Different types of income
are subjected to different sets· of graduated or flat
income tax rates. The applicable tax rates will depend
on the· classification of the taxable income and the
basis could be gross income or net income (i.e. capital
gains tax),
Note: Another way of differentiating global and schedular
is that under the global system, there is no need for
classification as all taxpayers are subjected to a single rate
while under. the scheduler system, there are different
categories of taxable income.
Global treatment is usually applied to corporations, as
corporations are taxed at a single rate, reqardless of the
tax base; while the schedular system is usually applied to
individuals as they are subjected to different tax rates
based on their tax bracket.

(3) Sami-Schedular or Semi-Global Tax System - The
compensation income, business or professional
income, capital gain and passive income not subject to
· final tax, and other income are added together to arrive
at the gross income and after deducting the sum of
allowable deductions; the taxable income is subjected
to the relevant income tax rate.
With respect to the income, the computation of income
is global while the scheduiar tax system applied to the
capital gains and passive income subject to final tax at
preferential tax rates.
Note: Philippine income taxation is a combination of both
systems but is more schedular for individuals while more
global for corporations.
Page
Features of the Philippine Income Tax Law
(1) Direct tax - Tax burden is borne by the income
recipient upon whom the tax is imposed.
(2) Progressive tax-Tax rate increases as the tax base
increases; direct taxes are to be preferred and as
much as possible, indirect taxes should be niiriimized.
(Tolentino v. Secretary of Finance, G.R. No. 115455,
1995)
(3) Comprehensive system - Adopts the citizenship
principle, residence principle, and the source principle.
(4) Semi-schedular or semi-global tax system -
Certain passive incomes and capital gains are subject
to final taxes at preferential rates while all other
incomes are added together to arrive at the gross
income. After deducting the sum of allowable
deductions, the taxable income is subjected to one set
of graduated tax rates for an individual or normal
corporate income tax rate for corporations.
28 of 206

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a. Criteria in Imposing Philippine Income Tax
(2) Citizenship principle - A citizen taxpayer is subject
to income tax: (a) on his worldwide income if he ·
resides in the Philippines; or (b) only on his income
from sources within the Philippines, if he qualifies as a
non-resident citizen.
(3) Residence principle -A resident alien is liable to pay
income tax on his income from sources within the
Philippines but exempt from tax on his income from
sources outside the Philippines.
(4) Source principle - A non-resident alien could be
subject to Philippine income tax if he derives income
from sources within the Philippines such as dividend,
' organized."
{ interest, rent or royalty.
' • Accounting period is other than a fiscal year
b) Types of. Philippine Income Taxes.
( • Taxpayer does not keep books
(1) Net Income Tax/Taxable Income (GI - Deductions)
(2) Gross Income Tax
( (3) Final Income Tax (on passive income and capital
• gains)
(4) Fringe Benefits Tax (amount ofbenefits to managerial
arid ·. supervisory employee paid by employer;
employee is taxed but burden is on employer)
(5) Capital Gains Tax (real property and shares of stock
not traded in stock market)
(6) Corporate Income Tax
11SECTION 43. General Rule. - The taxable income shall be
computed upon the basis. of the taxpayer's annual.accounting
period (fiscal year or calendar year, as the case may be) in
accordancewith themethod ofaccounnnq regularlyemployed in
keeping the books of such taxpayer; but if no such method of
accounting has been so employed, or if the method employed
does not clearly reflect the income, the computation shall be
made in accordancewith such method as· in the opinion of the
., I Commissioner clearly reflects the income. If the taxpayer's
LJ annual accountingperiod is other than a fiscal year, as defined in
Section 22(0), or if the taxpayerhas no annualaccountingperiod,
or does not keep books, or if the taxpayer is an individual, the
taxable income shall be computed on the basis of the calendar
, year.
12SEC. 52.(B) Taxable YearofCorporatiori. -A corporationmay
\•
• the approval of the Commissioner. changes the basis of
employ either calendar year or fiscal year as a basis for filing its
annual incometax return: Provided, That the corporationshall not
change . the· accounting period employed· without prior approval
from the Commissioner in accordance with the provisions of
Sectiun 47 of this Code.
13SEC.
22.(B) The term "corporation" shall include partnerships,
no matter how created or organized, joint-stock companies,joint
accounts (cuentas en participacion), associations, or insurance
companies, but does not include · general professional
partnerships and a joint venture or consortium formed for the
purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations
Page 29 of 206
...
TAXATION LAW
(7) Minimum Corporate Income Tax (2% of gross income)
(8) Improperly Accumulated Earnings Tax (IAET) •
(9) Branch Profit Remittance Tax
c) Taxable Period11 ·
General Rule: The accounting period of a taxpayer is a
period of twelve (12) months.
( 1) Calendar Year - accounting period from January 1 to
December 31 which is allowed if the: .
• Taxpayer is an individual
• Tax payer is a partnership
o Under Section 52(8) ofthe NIRC, 12 in relation
to Section 22(8),1.3 a "corporation" includes a
"partnership - no matter how created or
• Taxpayer has no accounting period
• Taxpayer is an estate or trust
(2) Fiscal Year14 - Accountinq period of twelve (12)
months ending on the last day of any month other than
December which is allowed only for corporations .
(3) Short Period 15 - A taxpayer may have a taxable
period of less than twelve (12) months when:
1. Taxpayer dies r
2. Corporation is newly orqanized
3. Corporation changes its accounting period
4. Corporation is dissolved
:".';:-
pursuant to an operating or consortium· agreement under a
service contract with the Government. "General professional
parlrierships" are partnerships formed by persons for the sole
purpose of exercising their common profession, no part of the
income of which is derived from engaging in any trade or
business.
14SEC. 22.(Q). - The term "fiscal year' means an accounting
period of twelve{12) monthsending on the last day of any month
other than December•
15SEC. 47. Final or Adjustment Returns for a Period of Less
than Twelve (12) Months. -
(A) Retums. for Short Period Resulting from Change of
Accounting Period. - If a taxpayer, other than an individual, with
computing net income from fiScal year to calendar year, a
separate final or adjustment return shall be made for the period
between the dose of the last fiscal year for which return was
made and the following December 31. If the change is from
calendar year to fiscal year, a separatefinal or adjustmentreturn
shall be made for the period between the close of the last
calendaryear for which returnwas madeand the date designated
as the close of the fiscal year. If the changeis from one fiscal year
to another fiscal year, a separate final or adjustment return shall
be made for the periodbetween the close of the former fiscal year
and the date designated as the ciose of the new fiscal year.
 ATENEO CENTRAL
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d) Kinds of Taxpayers
•
• I GPP itself.ls not taxable,
General
Professional
I Taxable
Income
however, individual
partners will be taxed TAXPAYER TAX BASE
TAXABLE ON
Partnership depending on INCOME
classification
Within and
Resident
Taxable Income without the
Citizen
Same basis as an Philippines
individual (depending on
Estate and Taxable . Ndriieside.rit • .
Trust Income
classification cit
decedent, if estate; Cititen
- -?· ". r .: .-.~·
truster, if trust)
Within the
Resident Alien Taxable Income
Philippines
Domestic Taxable Within and without the
Corporation Income Philippines

Resident
Taxable
Foreign Within the Philippines
Income
Corporation

Non~Resident
Gross
Foreign Within the Philippines Nonresident
Income
Corporation Alien not
engaged in Within the
Gross Income
trade or Philippines
business (180
days or less)
(1) Individual Taxpayers
i. Citizens
(a) Resident Citizen (RC) - citizen .of the Philippines
residing therein is taxable on all income derived from
sources within and without the Philippines.
(b) Nonresident Citizen 16 (NRC) - citizen of the
Philippines who is taxable only on his income from
sources within the Philippines if he:
• Establishes the fact of his physical presence
abroad with a definite intention to reside therein.

16SEC.
22.(E). The term "nonresident citizen" means:
(1) A citizen of the Phiiippines who establishesto the satisfaction
of the Commissionerthe fact of his physical presenceabroad wiih
a definite intentionto reside therein.
(2) A citizen of the Philippineswho leaves the Philippinesduring
the taxable year to reside abroad, either as an immigrant or for
employmenton a permanentbasis.
(4) A citizen who has been previously consideredas nonresident
citizen and who arrives in the Philippines at any time during the
taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresidentcitizen for the taxable year
in which he arrives in the Philippineswith. respect to his income
derived from sources abroad until the date of his arrival in the
Philippines.

(3) A citizen of the Philippines who works and derives income (5) The taxpayer shall submit proof to the Commissionerto show
from abroad and whose employment thereatrequires him to be his intention of leaving the Philippines to reside permanently
physically present abroad mosi of the time during the taxable abroad or to return to and reside in the Philippines as the case
year. may be for purpose of this Section.
Page 30 of 206

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n • Leaves the Philippines during the taxable year to
reside abroad, as immigrant or for employment on
[ l a permanent basis.
• Works & derives income from abroad & whose
employment requires him to be physically present
abroad most of the time (i.e. not less than 183
days) during the taxable year.
• Was previously considered as nonresident citizen
& arrives in the Philippines· at any time during the
taxable year to reside permanently in the
Philippines.
I
Examples of non-resident citizens.'
• Immigrant - one who leaves the Philippines · to
reside abroad as an immigrant for which a foreign
visa has been secured
• Permanent · employee abroad· - one· who leaves
the Philippines and works abroad on a more or
less permanent basis
Note:
The taxpayer shall submit proof to the CIR to show his
intention of leaving the Philippines to reside permanently
abroad or to return to and reside in the Philippines as the
case may be.
Non-resident citizens who are exempt from tax with .
respect to income derived from sources outside the
,· Philippines shall no longer be required to file information
I returns from sources outside the Philippines beginning
2001. (RR No. 5-2001; BIR Ruling No. [DA~261-05])
{ l
!
(c) Contract Worker or Overseas Contract worker
l. (Ocwi- one who leaves the Philippines on account of
a contract of employment which is renewed from time
to time under such circumstance as to require him to
be physically present abroad most of the time.
'
iJ . Note:.
· For OCWs, the time spent abroad is not material· for tax
exemption purposes. Ail that is required is for the worker's
employmentcontract to pass thmugh and be registered
with the POE.A.. (BIR Ruling No. 33-2000; BIR Ruling No.
[DA-428-04])
An OCW is a Fiiipino citizen who:
Holds P job outside the Philippines,
• Is physically present in that foreign country where the
job is.
o Is registered with the POEA,
17SEC.
22 (F). The term 'resident alien' means an individual
whose residence is within the Philippines and who is not a citizen
thereof.
Page 31 of 206
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TAXATION LAW
• Has a valid overseas employment certificate, and
• His/her salaries and wages are paid by an employer
abroad and are not borne by any entity orpersonln the
Philippines. (RRNo. '1-2011)
ii. Aliens
(a) R.~sident Alien 17 (RA) - an individual whose
residence is within the Philippines and who is not a
citizen thereof is taxable only on income derived from
sources within the Philippines.
One who comes to the Philippines for a
definite
purpose which in its nature wouldrequire an extended
stay, and makes his home temporarily in the country,
becomes a resident alien,
Length of stay is indicative of intention.
An alien actually present in the Philippines who is not
a mere transient or soiourner.Js a residentof the
Philippines for purposes of the income tax. Whether he
is a transient or not is determined by his intentions with
regard to the length and nature of his stay. ·
A mere floating intention, indefinite as to time, to return
to another country is not sufficient to constitute him a
transient
If he lives in the Philippines . and has. no definite
intention as to. his stay, he is· a resident One who
comes to the Philippines for .a definite purpose which
in its nature may be promptly accomplished is a
transient.
But if his purpose is of such a nature that an extended
stay may. be necessary for its accomplishment, and to
that end the alien makes.his hometemporarily in the
Philippines, he becomes a resident, though it may be
his intention at all times to return to his domicile abroad
when the purpose for which he came has been
consummated or abandoned,
Loss of residence by alien:
• '. An a!ien who has acquired residence in the
Philippines retains his status until he abandons the
same and actually departs from the Philippines.
• ·A mere intention to change his residence doesnot
change his status. An alien who has acquired a
residence is taxable as a resident . for the
A TENEO CENTRAL
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remainder of his stay in the Philippines. {Sec. 6, minimum wage in the non-agricultural sector where he/she
RR. No. 02-40) is assigned;
•
(b) Nonresident Alien 18 (NRA) - an individual whose His earnings (i.e. SMW, holiday, overtime, night-shift
residence is not within the Philippines and who is not differential and hazard pay) are exempt from income tax
a citizen thereof but doing business therein is taxable pursuant to the provisions of the NIRC and other laws,
only on income from sources within. general or special."

(1) Engaged in trade or business (NRA-ETB) - an (b) Aliens employed by regional or area headquarters
alien who comes and stays in the Philippines for and regional operating headquarters of
an aggregate period of more than 180 days during multinational companies in the Philippines.
any calendar year
(2) Not engaged in trade or business (NRA0NETB) The preferential tax rate of 15% is no longer applicable,
- an alien whose stay in the Philippines is 180 without prejudice to preferential rates under existing tax
days or less 19 treaties.

(c) Aliens employed by offshore banking units.

iii.Special Class of Individual Employees
(a) Minimum Wage Earner
His gross income is no longer subject to the preferential
tax rate of 15%, without prejudice to preferential rates
A worker in the private sector paid the statutory minimum
under existing tax treaties.
wage, or · an employee in the public sector with
compensation income of not· more than the statutory

18SEC. 22.(G) The term "nonresidentalienn means an individual

whose residence is· not within the Philippines and who is not a
citizen thereof. . Tax Schedule Effective January 1, 2023 and onwards:
19SEC.
~5.(A)(1) Iii· General. ., A nonresident alien individual
.
engaged in trade or business in fhe Philippines shall be subject Not over P250,000 0%
to an income tax in the same manner as an individual citizen and Over P250,000 but not over 15% of the excess over
a resident alien individual, on taxable income received from all P400000 P250,000
sources within the Philippines. A nonresident alien individual who Over P400,000 but not over P22,500 + 20% of the
shall come to the Philippines and stay therein for an aggregate P800,000 excess over P400,000
period of more than one hundred eighty (180) days during any Over P800,000 but not over P102,500 + 25% of the
calendar year shall be deemed a 'nonresident alien doing P2,000,000 excess over P800 00
business in the Philippines,' Section 22(G) of this Code Over P2,000,000but not over · P402,00 + 30% of the
notwithstanding. P8.0000QO · excess over P2,000,000
20SEC. 24. Ir.come Tax Rates. -
Over P8,000,000 P2,202,500 + 35% of the
(A) Rates of/ncome Tax on Individual Citizen and Individual excess over P8,000,000
ResidentAlien of the Philippines.
For married individuals, the husband and wife, subject to the
(2) Rates ofTax on Taxable Income of Individuals. The tax shall
provision of Section 51 (0) hereof, shall compute separately their
be computed in accordance with and at the rates established in
individual income tax based on their respective total taxable
the following schedule: ·
income:
(a) Tax Schedule Effective January 1, 2018 until December 31,
Provided.that if any income cannot be definitely attributed to or
2022:
identified as income· exclusively earned or realized by either of
the spouses, the same shall be divided equally between the
Not over P250,000 0% spouses for the purpose of determining their respective taxable
Over P250,000 but not over 20% of the excess over income.
P400,000 P250,000
Over P400,000 but not over P30,000 + 25% of the Provided, That minimum wage earners as defined in Section
P800,000 excess over P400,000 22 (HH) of this Code shall be exempt from the payment of
Over P800,000 but not over P130,000 + 30% of the income tax on their taxable income:
I P2,000,000 excess over P800,00
1
Over P2,000,000 but not P490,000 + 32% of the excess Provided, further, That the holiday pay, overtime pay, night
over PB,000,000 over P2,000,000 shift differentia! pay and hazard pay received by such
Over P8,000,000 P2,410,000 + 35% of the minimum wage earners shall likewise be exempt from
excess over P8,000,000 income tax.
Page 32 of 206

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r1 (d) A!iens employed by petroleum contractors and
subcontractors.
r1
His . gross income is no longer subject to the
preferential tax rate of 15%, without prejudice to
preferential rates under existing tax treaties.
(2) Corporations
A corporation shall include partnerships, no matter how
created or organized. lt includes joint stock companies,
joint accounts; associations, and insurance companies.
But does not include, for the purpose ofimposing the 30%
regular corporate income tax {RCIT):
1. General professional partnerships; and
2. Joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy
operations pursuant to an operating or consortium
agreement under a service contract with the
government. 21
Kinds of Corporations
(i) Domestic Corporation (DC)- created or organized in
the Philippines or under its· laws arid is liable for
income derived from sources within and without22
(ii) Foreign Corporation23 (FC) - organized ;:ind existing
under the laws of a foreign country, which includes:
ll
Kinds of foreign corporations
(i) Resident foreign corporation 24 (RFC) - foreign
corporation engaged in trade br - business within . the
Philippines and is liable from sourceswlthin,
( l There is no specific criterion as to what constitutes
"doing" or "engaging in" or "trarisacting" · business.
I !
21 SEC. 22.(B) - The term "corporation" shall include
partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participaCion).
associations, or insurance companies, but does not include
general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction
projects or engag1ng in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium
agreement under a service contract with the Government.
"General professional parlnerships" are partnershipsformed by
persons for the sole purpose of exercising !heir common
profession, no part of the income of which is derived from
.
'fi
, engaging in any trade or business.
22
SEC. 22.(C) - The term "domestic," when applied to a
corporation, means created or organized in the Philippines or
under its iaws.
23
SEC. 22.(D) - The term "foreign," when applied to a
corporation,means a corporationwhich is not domestic.
Page 33 of 206
{ l'
TAXATION LAW
Each case must be judged in the light of its peculiar
circumstances.
The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of
some of the functions normally incident to, and in
progressive prosecution of commercial gain or for the
purpose and object of the business organization.
In order that a foreign corporation may be regarded as
doing business within a State, there must be continuity
of conduct and intention to establish a continuous
business, such as the appointment of a local agent,
and not one of a temporary character ( CIR v>British
Overseas Airways Corp, GR No. L:;;65773-74, 1987.)
(ii) Nonresident.· foreign . . ~orpc;>ration . 25 - foreign
corporation not engaged in trade or business within the
Philippines
Joint Venture and Consortium
Joint venture is a commercial undertaking by two or more
persons, differing from a partnership that it relates to the
disposition of a single lot of goods or the completion of a
single project.
Consortium is an association, typically of several
business companies.
(3) Partnerships.
Taxed as a corporation26
All other partnerships no matter how created or organized
Includes unregistered joint ventures and business
partnerships
24SEC.22.(H)- The term "resident foreign corporation" applies to
a foreign corporation engaged in. trade or business within the
Philippines.
25 SEC. 22.(1). The term "nonresident foreign
corporation" applies to a foreign corporationnot engaged in trade
orbusiness within the Philippines.
26SEC. 22.(B) - The term "corporation" shall include
partnerships, no matter how created or organized,· joint-stock
companies, joint accounts (cuentas en partici,oacion),
associations, or insurance companies, but does not include
general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating consortium
agreement under a service contract with the Government.
"General professional partnerships" are partnershipsformed by
persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from
engagingin any trade or business.
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Exception: that joint ventures are not taxable as

NON-TAXABLE TAXABLE BUSINESS
corporatioss when the purpose is for:
PARTNERSHIP PARTNERSHIP
• Undertaking construction projects; or
• Engaging in petroleum, coal, and other energy
operation under a service contract with the
government.

Partners in a ' business partnership are considered

stockholders. Their distributive shares are taxed as
dividends, and thus subject to final income tax on their
gross distributive ,thare.

(4) General Professional Partnerships

Established solely for purpose of exercising common
profession and no part of income derived from engaging in
trade or business.

As an entity, it is not subject to income tax.

Partners are liable for income tax on their distributive share

(computed by dividing net income of GPP).

Each partner shal! report his distributive share as part of

his gross income.

Individual partners are subject to regular income tax rate

on their taxable income

NON-TAXABLE TAXABLE BUSINESS

PARTNERSHIP PARTNERSHIP

With regard to DISTRIBUTIVE: SHARE:

a. Distributive share is a partner's computed and
ascertained share in the net profits of the
partnership, .
b. Whether actually distributed to the partners or
not ,.
f
r:

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r1 (5) Estate and Trusts
• Estate~ property, rights, and obligations of a person which
are not extinguished by his death and those that accrue
thereto
Trust - arrangement created by agreement under which
title to property is passed to another for conservation or
'i , • investment with· the income and the corpus/principal
distributed in accordance with the directions of the creator;
to be taxable as a. separate. entity, grantor must have
absolutely and irrevocably given up control and benefit
· over the trust
(6) Co-ownership
Exists whenever the ownership of an undivided thing or
right belongs to different persons.for income tax purposes,
the individual co-owners are liable for the taxes due on
their respective shares and the co-ownership itself Is not
. considered as. a separate taxable entity
.· There ls .cQ~ownership in the following instances:
• Two or more heirs inherit an undivided property from a
I' I1 decedent; or
• A donor makes a. gift of an undivided property in favor
oftwo or more donees.
•
It is not taxable when the activities are limited merely to
. preservation of the co-owned property but the co-owners
"are liable for income tax in their separate and individuai
'capacities.
It is taxable when the income .ot the co-ownership is
invested by the co-owners in business creating a
partnership.
tJ
2. Income Tax
I l A tax on all yearly profits ansmg from .property,
professions, trades, or offices, or as a tax on a person's
ri income, emoluments, profits andthe like; Income tax is a
direct tax.
Income
a. Definition and Nature
Income, in the broad sense, means all wealth, which flows
r
into the taxpayer other than as a mere return of capital. It
.'
includes the forms of income specifically described as
gains and profits, including gains derived from the sale or
i . other disposition of capital assets. (Sec. 36, RR No. 02-40)
t the person who rendered the service without restrictions by
t. The essential difference between capital and income is
that capital is a fund; income is a flow. A fund of property
Page 35 of 206
••••
TAXATION LAW
existing at an instant of time is called capital. A flow of
services rendered by that capital by the payment of money
from it or any other benefit rendered by a fund of capital in
relation to such fund through a period. of time is called an
income. Capital is wealth, while income is the service of
wealth.
Property is a tree, income is the fruit; labor is a tree, income
is the fruit; capital is a tree, income is the fruit.
"Income," as here used, can be defined as "profits or
gains." (Madrigal v. Rafferty, G.R. No. L-12287, 1918)
b. Wilen Income is Taxable
i. Existence of income
For a taxable income to exist, gain or profit is. necessary.
Before a condonation otforgiveness of debt Will give rise
to a taxable income. there must be an increase iri the
assets of the debtor thereby emichirig the latter. The
condonation of debt will not be subject to income tax .if it
does not result ih the reduction of the taxable income of the
debtor or the .debtor is in a capital deficit position:after the
condonation. (BIR Ruling Np. DA~(C~335)815-09) ·
ii. Reall:zatlon of income
Tests c,fRealization .
Under the Realizatic,h Principle, revenue is generally
recognized when both of the following conditions are met:
1. The earning is complete or virtually complete; and
2. An exchange has taken place.
This principle requires that revenues must be earned
before they are received. Amounts received in advance are
not treated as revenue of the period in which they are
received, but as revenue of the future. period or periods in
which they are earned. These amounts are carried as
unearned revenue, that is, liabilities to . transfer goods or
render services in the future - until the earning process is
complete. (Manila Mandarin Hotels v. Commissioner, CT A
Case No. 5046, 1997j
Actual v. Constructive Receipt
Actual Receipt occurs when there is a physical transfer of
the money consideration or its equivalent to a person.
Constructive Receipt occurs when the money
consideration or its equivalent, is placed at the controi of
the payor.
 ATENEO CENTRAL
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• Examples:
• Deposits in banke which are made available to the
seller of service without restrictions;
• Issuance by the payor of a notice to offset any debt or
obligation and acceptance thereof by the seller as
payment for services rendered; and
• Transfer of amounts retained by the payor for the
account of the seller. (RR No. 16-2005, Secs 4.108~4)
iii. Recognition of income
Receipt of income for purposes of taxation may be actual
or constructive. (CIR v, BPI, G.R. No. 147375, 2006)
The law thus recognizes "income" as taxable even in the
absenceof actual/physical receipt. In fact, Sec. 4(e) of RR
No. 12-80 (on final tax) provides that income could be
recognized by the taxpayer either at the time of its actual
receipt or its accrual, depending on the accounting method
used by the taxpayer. The NIRC, in turn, recognizes
certain · principal accounting methods in recognizing
income or revenue. (Justice \/itug and Judge Acoste., "Tax
Law and Jurisprudence 2nc1 ed. 'J
iv. Cash method of accounting versus Accrual
method of. accounting
The accrual method relies. upon the taxpayer's right to
receive amounts or its obligation to pay them, in opposition
to actual receipt or payment,which characterizes the cash
method of accounting. Amounts of income accrue where
the right to receive them become fixed, where there is
created an enforceable liability. Similarly, liabilities are
accrued when fixed and determinable in amount, without
regard to indeterminacy merely of time of payment. (CIR v.
lsebel« Cultural Corporation, G.R. No. 172231, 2007)
c. Tests in determining whether income is
earned for tax purposes
l.. Realization test
See discussion on "Tests of Realization" in the previous
page.
While not new in Philippine jurisprudence, courts have not
fully adopted the doctrine.
Page 36 of 206
TAXATION LAW
ii. Economic benefit test, doctrine of proprietary
interest
The Economic Benefit Theory provides that anything,
which benefits a person materially or economically in
whatever way, is taxable under the law. (BIR Ruling No.
123-97)
As a general rule, in this jurisdiction. mere increase in the
value of property without actual realization, either through
sale or other disposition, is not taxable, the ohly exception
being that even without sale or other disposition, if by
reason of appraisal, the cost basis of property is increased
and the resultant basis is used as the new tax base for
purposes of computing the allowable depreciation
expense, the net difference between the original cost basis
and new basis due to appraisal is taxable under the
economic-benefit principle. (BIR Ruling No. 029-98)
iii. Severance test
Under the Severance Theory Test, income is recognized
when there is a separation of something which is of
exchangeable value. (£isner v. Macomber, 252 U.S. 189,
[1920])
The annual increase in value of an asset is not taxable
income because such increase hasnot yet been realized.
The increase in value i.e .• the gain, could only be taxed
when a disposition of the property occurred which was of
such a nature as to constitute a realization of such gain,
that is, a severance of the gain from the original capital
invested in the property. The same conclusion obtains as
to losses. The annual decline in the value of property is not
normally allowable as a deduction. Hence, to be allowable,
· the loss must be reaiized. (BIR Ruling No. 206-90 citing
Surre Warren, Federal Income Taxation, 1950, pp. 422-4)
iv. Claim of right doctrine or doctrine of ownership,
command or control
The "Claim-of-Right" Doctrine provides that if a taxpayer
receives earnings under a claim of right and without
restriction as to its disposition, he has received income
even though one may claim he is not entitled to the money.
Should it later appear that the taxpayer was not entitled to
keep the money. the taxpayer would be entitled to a
deduction in the year .of repayment. (BIR Ruling No. [DA-
(C-168)519-'0B citing the US case of North American Oil
Consolidated v. Burnet)
 ATENEO CENTRAL
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d. Tax-free Exchanges27 e. Situs of IncomeTaxation

Tax-tree exchanges refer to those instances enumerated Factors that determine the situs of income tax (NIRC, Sec.
r1 in Section 40{C}(2) of the NIRC that are not subject· to 23)
Income Tax, Capital Gains Tax, Documentary Stamp Tax 1. Nationality
and/or Value-added Tax. as the case may be. 2. Residency
3. Source of Income
f T
I In general, there are two kinds of tax-free exchange: (1)
transfer ta a controlled corporation; and, (2) merger or
consolidation.

a. Transfer to a controlled corporation

No gain or loss shall be recognized if property is
transferred to a corporation by a person in exchange for
·, stock or unit of. participation in such corporation of which
! as a result of such exchange said person, alone or together
with others, not exceeding four persons, gains control of
{ said corporation.

•( lI b. Merger or Consolidation
No gain or Joss shall be recognized if in pursuance of a
plan of merger or consolidation ---
a. a corporation, which is a party lo a merger or
consolidation, exchanges property solely for stock in a
corporation, which is a party to the merger or
l
' consolidation; .or
b. a shareholder exchanges stock in a corporation, which
is a party to the rrierger or consolidation, solely for the
stock of another corporation also a party to the merger
or consolidation; or
c. a security holder of a corporation, which is a party to
the merger or consolidation, exchanges his securities
in such corporation, solely for stock or securities in
another corporation, a party to the · rnerqer or
consolidation.
11
I J

27 another corporation also a party to the merger or consolidation;

SEC -. 40. Determinatlon of Amount and Recognition of
Gain or Loss. - · or

'
i (1) General Rule. - Except as herein provided, upon the sale or (c) A security holder of a corporation, which is a party to the
merger or consolidation, exchanges his securities in such
exchange or property, the entire amount of the gain or loss. as
l ' the case may be, shall be recognized. corporation, solely for stock or securities in such corporation, a
party to the merger or consolidation.
f
(2) Exception. - No gain or loss shall be recognized if in
l • pursuance of a plan of merger or consolidation - No gain or loss shall also be recognized if property is transferred
to a corporation by a person in exchange for stock or unit of
(a) A corporation, which is a party tc a merger or consolidation, participation in such a corporation· of which as a result of such
exchanges property solely for stock in a corporation, which is a exchange said person, alone or together with others, not
I party to the merger or consolidation; or exceeding four (4) persons, gains control of said corporation:
l , Provided, That stocks issued for services shall not be considered
(b) A shareholder exchanges stock in a corporation, which is a as issued in return for property.
party to the merger or consolidation, solely for the stock of
Page 37 of 206
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~ules on source of income in determining whether

INCOME TESTOF SOURCE OF
income is from sources witJlin or without the
INCOME
Philippines
Rentals Location of the
INCOME TEST OF SOURCE OF . property/interest in such
INCOME property

Interest Residence ot Debtor Royalties Place of use or location of

intangibles (such as patents,
Dividends a) From domestic trademarks, etc.) giving rise
corporation -income to royalties
within
b) From foreign
Gain on sale of real Location of property
corporation:
property
Income within if more
than 50% of the gross Gain on sale of Place of sale
income of such foreign personal property other
corporation for the 3-yr. than shares of stock in
period ending with the a domestic corporation
close of the taxable year purchased in on·e ·
prior to the declaration of country and sold in
dividends (or for such another
part of such period as the
corporation has been in
existence) was derived
Gain on sale of shares Philippines regard-less of
from sources within the
of stock in a domestic where sold
Philippines
I corporation

Extent:
Phil. GI• x Dividend =i Note:
Income within
Total GI
Royalties (from property or use of property located in
Philippines), include:
Income without, if less
1) Use of the right/privilege to use in the Philippines any ·
than 50%, of the gross
copyright, patent, design or model, plan, secret
income of such foreign
formula or process, goodwill, trademark, trade brand
corporation for the 3-yr.
or other like property or right
period ending with the
2) Use of/the right to use in the Philippines any industrial,
close of the taxable year
commercial or scientific equipment
prior to the declaration of
3) Supply of scientific, technical, industrial or commercial
dividends was derived
knowledge or information
from sources within the
4) Supply of any assistance that is ancillary and
Philippines. Therefore,
subsidiary to, and is furnished as a means of enabling
nothing of such
the application or enjoyment of, any such
dividends forms part of
property/right in 1. above, such equipment in 2. above
income within.
or knowledge/info in 3. above
Services Place of performance of 5) Supply of services by a nonresident person/his
(Compensation for service employees in connection with the use of
labor I personal property/rights belonging to, or the installation or
i
I
services) operation of any brand, machinery or other apparatus
purchased from such nonresident person

Page 38 of 206
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6)Technical advice, assistanceor services rendered in Philippines, orfrom the purchase without and its sale within
connection •with technical mgmt./admin. of any shall be treated as derived entirely from sources within the
r1
i l scientific, industrial or commercial undertaking, country in which the personal property is sold.
l
venture or project Exception: gains from the sale of shares of stock in a
i 7) The use of or the right to use: domestic corporation shall be treated as derived entirely
• Motion picture films from sources within the Philippines regardless where the
~ Films or video tapes for use·in connection with TV said shares are sold.
• Tapes for 'use in connection with radio
broadcasting General Rule:

Most-favored nation clause Gross Income

Royalty income paid · by a domestic corporation to a (within the Philippines)
nonresident foreign corporation which is a resident of a

1
Contracting State· with which the Philippines has an
effective tax treaty is general_ly subject to 15% final
tb.~~qi~i3~~ t t,, ::·Jik .
-.(attr:lf/>JJt~ijl ~;~I w1th!Jh ,: a;;r.. ''.f;;
··· · ···.r:'.·-'· . . ,~,~,.x~ ··~:.,.:·.· .. -~ ·,:',,\:'::·., . ~i-.': .·-,.:-;.:
withholding tax, but the rate may be reduced to 10% for
· Taxable Income
certain royalty payments or under the most-favored nation
.,. clause of the tax treaty, such as the Philippines-US Tax
r . j
Treaty. "Attributable" means that the expense can be identified as
the expense that generated the income.
The purpose of the clause in a tax treaty is to grant to the
other Contracting State a tax treatment that . is no less Example: ABC Corp. manufactures clothes and sells them
! 1 favorable than that which is granted to the "most favored" in the Philippines. It also sells shoes in the US. The cost of
·, am()ng other countries. manufacturing the clothes is attributable to the. income
~ generated from selling the clothes, Since the income from
It means each party to the treaty pledges that any tax the sale of clothes is income within, then the expense for
1, concession given to an,· other treaty countrywill also be manufacturing thern must be deducted from gross income
extended to the other party to the treaty; that is, it will not within. However, the cost of selling. the shoes may not be
l grant more favorable. terms to other. treaty countries
• without granting the same concession to the treaty partner
deducted from income within since it is not attributable to
income within. Rather, it is specifically attributable to
!l involved.
• income without.

f (1) Income from sources within the Philippines

I. Deductions:
Interest derived from sourceswithih the Philippines.
Expenses, losses and other deductions properly allocated
thereto and a ratable part of expenses, interests, losses
Dividends from domestic and foreign corporations (if 50%
and other deductions effectively connected with the
or more of the gross income of the foreign corporation [for
business conducted exclusively within the Philippines
the past 3 years] was derived from sources within the
which cannot definitely be allocated to some items or class
Philippines.) ·
of gross income
Compensation for services performed within the
•' • Philippines.
Allowed only if fully substantiated by all
information/documents necessary for.their computation
Rentals and royalties from properties located in the
Exceptions - No deduction for interest paid/incurred
Philippines or any interest in such property including
abroad shall be allowed unless:
rentals or royalties for the use of or for the privilege of using
within the Philippines, patents, copyrights and other like 1 . Indebtedness was actually incurred
'
i. >
properties. 2. Indebtedness must be that of the taxpayer
3. Interest must be legally due and stipulated in writing
Sale of real property located in the Philippines. 4. !nterest must be paid or incurred during the taxable
year
Sale of personal property - Gains, profit, and income 5. Indebtedness must be in connection with the conduct
derived from the purchase within and its sale without the or operation of trade/business iri. the Philippines

Page 39 of 206
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• (- ) Deductions
• (attributable to GI without)

Taxab!e Income
(2) Income from sources without the Philippines
Interest other than those derived from sources within the
Deductions:
Philippines.
Expenses, losses and other deductions properly
, apportioned/allocated thereto and a ratable part of
Dividends other than those derived from sources within the
expenses, interests, losses and other deductions which
Philippines.
cannot definitely be allocated to some items or class of
gross income
Compensation for services performed without the
Philippines. (3) Income partly within and partly· without the
Philippines
Rentals and royalties from property located without the Items other than those specified above in (1) and (2) shall
Philippines or from any interest in such property including be allocated or apportioned to sources within or without the
rentals or royalties for the use of or for the privilege of using Philippines.
without the Philippines, patents, copyrights and other like
properties. Covered are:
• Income from services rendered partly within and partly
Gross income and texebto income from sources without;
without the Philippines • Income from sale of personal· property produced (in
whole or in part) within ·. and sold without the
Gross income from sources without the Philippines Philippines; and
1. Interests ( other than those derived from sources within • Income from sale of personal property produced (in
r
the Philippines} whole or in part) without · and sold within the
2. Dividends ,(othe.r than those derived from sources Phllippines .
. within the Philippines)
3. Compensation for !abor or personal services
PERSONAL INCOME
performed without the Philippines
PROPERTY
4. Renta!; orroyalties from property located without the
Philippines or from any interest in such · property Manufacturing Business
including rentals/royalties for the use of or for the
privilege of using without the Philippines, patents, Produced here and sold Income partly within, partly
copyrights, secret processes & formulas, goodwill, without without
trademarks, trade brands, franchises & other like
Produced here and sold Income within
· properties
here
5. Gains, profits & income from the sale of real property
located without the Philippines Produced abroad and Income partly within, partly
.
r
sold here without
Note: The foregoing enumeration is merely the reverse of
the enumeration of gross income from sources within the Trading Business
Philippines. Hence, so long as you know which income is
Purchased without and Income within
considered as income within. all eise are income without.
sold within
TAXABLE income from sources without the Philippines Purchased within and Income without
sold without
General Rule:
Purchased within and Income within
sold within
Gross Income
~
(without the Philippines) i '

i .
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l. ...
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n• PERSONAL • fioyaltjes
r ., PROPERTY • .Qividend Income
\ j
• Gains derived from dealings in property
Taxpayer sells it abroad Income partly within, partly • fensions " . . .
1 through a sales office Without • fartner's distributiveshare from the netIncome pf the
GPP (distributive share from ordinary partnerships is
taxable as dividends; in this case, the ordinary
As for unallocated expenses, meaning those which are not partnership has already been subject to ordinary
entirely attributable to either income within or without, such corporate income tax)
expenses shall be altocatedusinq the following formula:
Example of transactions that may or. may not result in
Income taxable income:
(
without Deductions -.
Unallocated
{1 ------x
expense
= from income TRANSACTION TAXABLE?
Worldwide without
i::·'1'

income Recovery of damages (compensation Not taxable

for injury; from tortious acts) . ·.

Income Recovery of damages pertaining to Taxable

Deductions recovery or return of loss income or
within Unallocated
I x - from- income profit
\.
Worldwide expense
within
income
r. ] Recovery of items previously deducted · Taxable
.. , (iii) Classification of income from gross
. income
.
(tax
.\
benefit
. : .
rule)
{ .I 1. Gross Income
Forgiveness of indebtedness Not Taxable
2. Taxable Income
(if effect of entire transaction . is a
r J 3. Passive Income
reduction of purchase price of property
( l
! 3. Gross Income .. acquired in prior year)

Forgiveness ofindebtedness Taxable

f '' a) Definition28
All income derived from whatever source, including (but
(of a stockholder is equivalent to
dividend distribution)
I 1 not limited to the following items) (GRiP CA~D GPP):
L .
·• §ross income derived from the conduct of trade or F6rgiveness of indebtedness . Taxable
1 business or the exercise of a profession (in exchange of a servlce performed)
• Bent Income
Income derived from illegal business Taxable
I 1 • !nterestlncome
(gai.n)
• frizes & winnings .·
t l • ~ompensation for services in whatever form paid, Taxable
l j Recovery of lost earnings
including, but not limited to · fees, salaries, wages,
I
.J. '
commissions & similar items The transfer .of land made by ,a person to another in
• ,Annuities payment of services rendered in the form of attorney's fees

2esEC. 32. Gross Income. - (3) Gains derived from dealings in property;
(4) Interests;
(A) General Definition. - Except when other-wise provided in this (5) Rents;
II • Title, gross income means all income derived from whatever (6) Royalties;
source, including (but not limited to) the following items: (7) Dividends;
(8) Annuities;
(1) Compensation for services in whatever form paid, including, (9) Prizes and winnings;
but not limited to fees. salaries, wages, commissions, and similar (10) Pensions; and
items; (11) Partner's distributive share from the net income of the
(2) Gross income derived from the conduct of trade or business general professional partnership.
er the exercise of a profession;
Page 41 of 206
 ATENEO CENTRAL
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.
shall be c.onsidered as part of the gross income of the
. . . .
latter
.
valued at either the fair market value or the zonal valuation .•
in property; interests; rents; royalties; dividends; annuities;
prizes and winnings; pensions; and a partner's distributive
whichever is higher, in the taxable year received. (BIR share in the net income of a general professional
Ruling No. 017-03) partnership. (NIRC, Sec. 32 as cited in CIR v. PAL, Inc.,
G.R. No. 180066, 2009)
Doctrine of Involuntary Conversion of Property
This is a doctrine enunciated in the US case of Herder v. Net Income means . gross income less statutory
Helvering and Was adopted by the BIR in several of its .deductions. It is referred· to as "Taxable Income" under the
rulinqs, (106 F.2d 153) NIRC.

This doctrine states that if property (as a result of its

Taxable Income means the pertinent items of gross
destruction, in whole or in part, theft or seizure, or an
income specified in this Code, less deductions, if any,
exercise of the power of requisition or condemnation or the
authorized for such types of income by this Code or other
threat or imminence thereof) is compulsorily or involuntarily
special laws. {NIRC, Sec. 31, as amended)
converted into property. similar to the property so
converted, or into money, which is forthwith in good faith
expended in the acquisition of other property, or in the
d) Classification of income subject to tax
establishment of a replacement fund, no gain or loss shall
(1) Compensation income
be recognized. If any part ofthe money is not so expended, In general, the term "compensation" means all
the gain shall be recognized, but in an amount not in
remuneration for services performed by an employee for
excess of the money so expended.
bis employer under an employer-employee relationship,
b) Concept of income.from whatever source derived unless specifically excluded by the NIRC.
"Income from whatever sources derived" means
inclusion of all income hot expressly exempted within. the (2) Fringe benofits29
What are Fringe Benefits?
class of taxable income under the laws irrespective of the
voluntary or involuntary action of the taxpayer in producing Any good, service or other benefit furnished or granted in
:c~sh or in kind by an employer to an individual employee
the gains, and whether 'derived from legal or illegal
sources. (except rank and file employees) such as, but not limited
\o the following:
a. Housing
EXAMPLES OF INCOME EXAMPLES OF INCOME
ti. Expense account
FROM LEGAL. FROM ILLEGAL
c. · Vehicle of any kind
SOURCES SOURCES
d. Household personnel {such as maid, driver and
others)
Employee's salary, bonus, Gambling, kidnapping,
and commissions/ rebates extortion, smuggling, e. · Interest on loan at less than market rate to the extent
embezzlement of the difference between the market rate and actual
rate
f. Membership fees, dues and other expenses borne by
c) Gross income vis-a-vis net income vis-a-vis the employer for the employee in social & athletic clubs
taxable income or other similar organizations
Gross Income is described as income from whatever g. Expenses for foreign travel
source, including compensation for services; the conduct h. Holiday and vacation expenses
of trade or business or the exercise of profession; dealings

29SEC. 33.(B) Fringe Benefit Defined. -
For purposes of this Section, the term "fringe benefit" means any
good, service or other benefit furnished or granted in cash or in
kind by an employer to an individual employee (except rank-and-
file employees as defined herein) such as, but not limited to, the
following:
(5) Interest on loan at less than market rate to the extent of the
difference between the market rate and actual rate granted;
(6) Membership fees. dues and other expenses borne by the
employer for the employee in social and athletic clubs or other t
similar organizations;
(7) Expenses for foreign travel; a_' .

( 1) Housing; (8) Holiday and vacation expenses;

(2) Expense account; . (9) Educational assistance to the employee or his dependents;
(3) Vehicle of any kind; and i;
(4) Household personnel, such as maid, driver and others; (10) Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what ihe law allows.
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i. Edncational assistance to the employee or his 3. Medical cash allowance to dependents of employees
dependents • not.exceedinq P1 ,500 per semester or P 250 per
j. Life or health insurance and other non-life insurance month; (RRNo. 11-2018)
premiums or similar amounts in excess of what the law 4. Rice subsidy of P 2,000 or 1 sack of 50 kg rice
allows amounting to not more than P 2,000; (RR No. 11-2018)
5. Uniform and clothing allowance not exceeding P6,000
i. Special. treatment of fringe benefits per year; (RR No. 11-2018)
., Effective January 1, 2018 and onwards, a final tax of thirty- 6. Actual yearly medical benefits not exceeding P10,000;
i
five percent (35%) is hereby imposed on the qrossed-up
7. Laundry allowance of P300 per month;
monetary value of fringe benefit furnished/granted to the
·: employee by the employer, whether an individual or
8. Employee achievement awards, for len'gth of service
or safety achievement in the form of tangible personal
corporation.
{ property other than cash or gift certificate, with an
annual monetary value not exceeding P10,000
H. Definition
i 1 received by the employee under an established written
,. f Fringe benefit is an income of the employee subject to
plan which does not discriminate in favor of highly paid
Fringe Benefit Tax (FBT) but is payable by the employer.
l employees;
f. Employer can deduct FBTfrom its taxable income.
9. Gifts given'during Christmas and major anniversary
·1 celebrations not exceeding PS,000 per employee per
l Fringe benefits are only for . corporate
annum;
officers/management. For rank and file, it is: called an
10. Daily meal · allowance for overtime work and
"allowance." Allowances (benefits to rank and file) are not
night/grave'yard shift not exceeding 25% of the basic
subject to FBT but are rather treated as compensation
minimum wage on a per region basis; and
l1 suoject to the regular income tax.
11. Benefits received by virtue of a CBA and productivity
(} iii. Taxable and non-taxable fringe benefits incentive schemes provided that the totaLannual
monetary value received from both combined' do not
Fringe b~nefits not subject to FBT: •
rJ 1. Fringe benefit authorized and exempted from tax exceed P10,000 per employee per taxable year; {RR
No. 001-15)
under special laws;
r
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t
J 2. Contributions of employer for the benefit of the
employee to retirement, insurance and hospitalizations . Convenience of the Employer Rule .
When a fringe benefit is given solely for the convenience
i benefit plan:
of the employer, the fringe benefit is· exempt from FBT
3. Benefits given to the rank and file employees, whether
because. the employee· does not recognize · income from
IJ · granted under. a CBA or not; ·
the benefit.
4. Benefits received by virtue of a CBA and productivity
fl incentive schemes provided that the total annual
Example: Expenditure oh housing of engineer within
monetary value received from both combined do not
factory premises is not subject to FBT
l l exceed P10,000 per employee per taxable year; (RR
No. 01-15) , General Rule: If housing is located outside, it is subject to
f '
r-J 5. De minimis benefits; FBT.
6. If the grant of fringe benefits to the employee is
l '
4 required by· the nature of, or necessary to the trade, Exception: If the nature of the emp!oyer's business is
business or profession of the employer; or hazardous to health of employee, housing can be located
7. If the grant of the fringe benefit is for the convenience outside the factory without being subjectto FBT.
or advantage of the employer.
Example: If employee is given housing allowance in cash,
De Minimis Benefits: this will constitute compensation of the employee (income
I
i J
1 . Monetized unused vacation leave credits of private from whatever source). However, if it qualifies as a fringe
employees not exceeding 10 days during the year; benefit, then it will be subject to FBT and the burden is
2. Monetized value of vacation and sick leave credits paid shifted to employer.
to government officials and employees;

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(3) Professional Income • •
Income earned from the practice of profession provided
there is no employer-employee relationship between him
and his clients.
Profession is primarily any endeavor or work requmng
specialized· training in the field of learning, art, or science
engaged in as a means of livelihood or profit of an
individual or group ofindividuals.
(4) Income from business
In the case of manufacturing, merchandising, or mmmg
business, "gross income" means the total sales, less cost
of goods solo, plus any income from investments and from
incidental or outside operations or sources. In determining
gross income, deductions should not be made for
depreciation, depletion, selling expenses or losses, or for
items not ordinarily used in computing the cost of goods
sold.
In the case of sellers of services,. gross income is
computed by deducting "cost of services" which pertains to
all direct . costs and expenses exc!usiveiy and directly
incurred in relation to the revenue realized by such sellers.
These refer to costs. which are· considered indispensable
to the earning of the revenue such that without such costs,
no revenue can be generated. (RR No. e4-08)
(5) Income from dealings in property
i. Types of properties
Ordinary asset'" - assets that are used primarily in the ·
ordinary course of trade or business, such as:
• Stock in trade of taxpayer
• Property which would properly be included in an
inventory of the taxpayer, if on hand
• Merchandise inventory
• Depreciable assets used in the trade/business
• · Real property used in trade/business
Capital assets - properties of a taxpayer other than
ordinary assets, such as:
• Stock and securities held by taxpayers other than
deaiers in securities
• Interest in partnership and joint venture
• Goodwill
30SEC.
39.(A)(1) Capitai Assets. - The ·term ucapital assets"
means property he!d by the taxpayer (whether or not connected
with his trade or business), but does not include stock in trade of
the taxpayer or other property of a kind which would properly be
included in the inventory of the taxpayer if on hand at the close of
the taxable year, or property held by the taxpayer primarily for
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TAXATION LAW
Real property not used in trade or business like
residentlal house and lot
• Investment property
ii. Types of gains from dealings in property
Ordinary gain (loss) v. Capital gain (loss} ·
Ordinary gain is derived from the sale or exchange of
ordinary assets including gains from performance of
services and business; included in the gross income.
Ordinary loss is the excess of business expenses and
losses over the business income of the taxpayer derived
from the sale or exchange of ordinary assets; deductible
from gross income.
Capital gain is the excess of value received over the
determined cost from the sale or exchange of capital asset.
The following are the rules on the taxability of capital gains:
• Sale of unlisted shares of stock in a domestic
corporation - subject to CGT
• Gain derived from sale of real property in the
Philippines - subject to CGT .
• Other capital assets: excess of the gains from sales or
exchanges of other capital assetsover the losses from
.
such sales or exchanges; included in the gross income
Capital loss is the excess of the· tosses from sates or
exchanges of other capital assets over the gains from such
sales orexchanges; deductible only from capita! gains.
Actual gain v. Presumed gain
Actuai gain is the amount realized from the sale of the
asset in excess of the cost to the taxpayer.
Presumed gain is the presumption of the law of the
existence of a gairi from sale of real property which
subjects the said sale to CGT of 6% based on· the selling
price or FMV, whichever is HIGHER. Acquisition cost is not
taken in to account.
sale to customers in the ordinary course of his trade or business,
or property used in the trade er business, of a character which is
subject to the allowance for depreciation provided in Subsection
(F) of Section 34; or real property used in trade or business of the
taxpayer.
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Long-term capitat gain v, Short-term capital gain31

Acquired for iess Amount paid by the transferee
In case of individuals, the percentages of gain or lost to be than adequate
r 1 taken into account shall be: consideration
• 100% if the capital asset has been held for 12 months
or less; and
Property Basis of stock or securities received
. '
• 50% if the capital asset has been held for more than
12 months
acquired where
gain, or loss is
by transferor:

not recognized Same as the basis of property,

In case of a corporation. the holding period is not (tax-free stock/ securities exchanged
applicable. The capital gain and loss are to be reported in exchanges) ( 1 ) increased by:
the full amount regardless of the number of years the • dividends
capital asset is held. • amourit of any gain recognized
i ; by the exchange · ·
Net capital gain v. Net capital loss (2) decreased by:
( i Net Capital Gain - means the excess of the - gains from I • money received
sales or
exchanges of capital assets over the losses from • fair market value of the other
such sales or exchanges property received
• liability assumed by the
l
I Net Capital Loss - means the excess of the losses from transferee
sales or exchanges of capital assets over the gains from ,
I such sales or exchanges (Sec. 39, NIRC) Basis oUhe property transferred in
the hands of the transferee:
~. .,.
{l Net capital gain is added to ordinary gain.
Same as it would be in the hands of
the transferor increased l?Y the
l I Net capital loss isnot deductible from ordinary gain. amount of the gain recognized to the

r-r '
Basis for determming gain (loss) from salerdlsposltlon
. transferor on the transfer.

of property ·
' ·, iii. Net Capital Loss Carry-over
J Corporations cannot carry over a net capital loss.
MODE OF BASIS FOR DETERMINING
ACQUISITION GAIN/LOSS FROM If net capital loss is sustained in any taxable year, such
SALE/DISPOSITION OF loss is treated in the succeeding taxable year as a loss
! I PROPERTY from the sale/exchange of a capital asset held for not more
than 12 months (100% deduction)
IJ Purchase Cost of property acquired on/after
3/1/1913
· Such net capital loss that should be carried over should not
I I Inheritance Fair market value as of the date of exceed the net income for the. year Incurred (prior year's
acquisition (at the time of death) net income) -
t ·t
', Gift The cost to the donor or to the
previous owner who did not acquire Example:
it by gift; BUT, if 'SUCh basis > FMV =
Net income in 2011 P6,000
at the time of the gift, the basis shall =
Net capital loss in 2011 P10,000
be such FMV for the purpose of Amount deductible in 2012 is P6,000 only since it should
determining the loss not exceed the net income of the taxable year where the
loss was incurred. Note that the allowable capital loss to
be deducted in 2012 (i.e. P6,000) is only to the extent of
the capital gain for 2012. ·

~ .. 31SEC.
39.(B) Percentage Taken into Account. -In the case of a
taxpayer, other than a corporation, only the following percentages (1) One hundred percent (100%) if the capita! asset has been
of the gain or loss recognized upon the sale or exchange of a held for not more than twelve (12} months; and
capital asset shall be taken into account in computing net capital (2) Fiftypercent (50%) if the capital asset has been held for more
gain, net capital loss, and net income: than twelve (12) months;
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. . . . . .•
Net income should be understood as TAXABLE income
according E.O. 37.
iv. Income from dealings in real property classified as
capita! assets situated in the Philippines
(a) General rule
Involves the sale or other disposition of real property
classified as capital asset located in the Philippines by a
non-dealer in real estate
If the sale is made by a dealer in securities or if the real
property is an ordinary asset, the resulting gain or loss will
be considered in the computation of ordinary income.
Tax Rate: 6%
Tax Base:The HIGHER between
• Gross seliing price;
.. Prescribed zonal value of real properties as
determined by the CIR; or
• Fair market value as determined by the provincial and
city assessors. · presumed to have been realized shall be subject to
Note:
Gain or loss from the sale of a capital asset is immaterial
since there is a conclusive presumption of gain. · certification by the RPO that the proceeds of the sale
An individual taxpayer has the option to treat the capital
gain as subject to 6% CGT or.20-35% graduated 'tax IF the
buyer of the real property is the Government or any of its
political subdivisions or GOCCs.32
32SEC. 24.(D) Capital Gains from Sale of Real Property. -
( 1 ) In General. - The provisionsof Section39(B) notwithstanding,
a finaltax of six percent (6%) based on the gross selling price or
current fair market value as determined in accordance . with
Section 6(E) of this Code, whichever is higher, is hereby imposed
upon capital gains presumedto have been realized from the sale,
exchange, or other disposition of real property located in the
Philippines, classified as capital assets, incllJding pacto de retro
sales and other forms of conditional sales, by individuals,
including estates and trusts: Provided, That the tax liability, if any,
on gains from sales or other dispositions of real property to the
government or any of its political subdivisionsor agencies or to
government-owned or -controlled corporations shall be
determined either under Section 24(A) or under this Subsection,
at the option of the taxpayer;
33SEC. 24.(0) Capital Gains from Sale of Real Property. -
(2) Exception. - The provisions of paragraph (1) of this
Subsection to the contrary notwithstanding, capital gains
presumed to have been realized from the sale or disposition of
their principal residence by natural persons, the proceeds of
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-: tr TAXATION LAW
(b) Exception
Capital gains . presumed to have been realized from the
sale or disposition of their principal residence by· natural
persons, the proceeds of which is fully utilized in acquiring
or constructing a new principal residence within eighteen
(18) calendar months from the date of sale or disposition,
may be exempt from the capital gains tax, subject to
certain conditions.
Requisites:33
1, Sale or disposition of the old actual principal residence;
2. By a citizen or resident alien;
3. Proceeds of which . are utilized in acquiring or
constructing a new principal residence within 18
calendar months from date of sale or disposition;
4. Notice to the CIR within 30 days from the·date of sa!e
or disposition through a prescribed return of his
intention to avail· tax exemption;
5. Can be availed of only once every 10 years;
6. The historical cost or adjusted basis of his old principal
residence shall be carried over to the cost basis of his
new principal residence;
7. If there is no full utilization, the portion of the gains
capital gains tax; and
8. The 6% capital gains. tax due shall be deposited with
an authorized agent. bank subject to release upon
have been utilized.
The date of sale or disposition of a. property refers to the
date pf notarization of the document evidencing the
transfer of said property; (RR No. 13-99, as amended by
RR No. 14-00)
which is fully utilized in acquiring or constructinga new principal
residencewithin eighteen (18) calendar monthsfrom the date of
sale or disposition, shall be exempt from the capital gains tax
imposed under this Subsection: Provided, That the historicalcost
or adjusted basis of the real property sold or disposed shall be
carried over to the new principal residence built or acquired:
Provided, further, That the Commissioner shall have been duly
notified by the taxpayer within thirty (30) days from the date of
sale or disposition through a prescribedreturn of his intention to
avall oi the tax exemotion herein mentioned: Provided, still
further, That the said tax exemption can only be availed of once
every ten (10) years: Provided, finally, that if there is no full
utilization of the proceedsof sale or disposition, the portion of the
gain presumed to have been realizedfrom the sale or disposition
shall be subject to capital gains tax. For this purpose, the gross
semng price or fair market value al the time of sale, whichever is
higher,. shall be multiplied by a fraction which the unutilized
amount bears to the gross selling price in order to determine the
taxable portion and the tax prescribed under paragraph(1) of this
Subsection shall be imposedthereon.
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r1 • J 5. Prizes
(except if P10,000 or less, 20%
v. Dealings. in shares of stock of Philippine which shall be subjected to
I
20%-i
corporations graduated income tax rates)
·.
I
i (a) Listed and traded in the stock exchange (Stock 6. Winnings (except Philippine
Transaction Tax)34 Charity Sweepstakes and Lotto
l i Tax Rate- six-tenths ofone percent (6/10 of 1%) winnings amounting to P10;000 or
less; which ..shall
'
be exempt)
Tax Base - Gross selHng price or gross value in money
of the shares of stock sold, bartered. exchanged or 7. Dividend from a domestic 10%
otherwise disposed which shall be assumed and paid by corporation, or from a joint stock
the seller or transferor through the remittance of the stock company, insurance or mutual [20% for NRA-
( ·,
t l transaction tax by the seller or transferor's broker. (RMC fund company, and regional ETB)
No. 21-08) operating headquarters of
J multinational company or share in
{b] Not listed and not. traded in the stock exchange · the distributive net income after
(Capital Gains Tax) tax of a partnership (except GPP),
i ' Tax Rate-final tax at the rate of fifteen percent (15%) joint stock or joint . venture or
consortium · tax~ble as a
Tax Base - net capital gains realized during the taxable corporation
year from the sale, barter, exchange or disposition of Note:' Dividends from foreign
shares of stock not listed and not traded in the stock corporation
exchange ..
• Citizens - computed under .. ',.,.:..

Sec. 24(a) tax table

r (6) Passive Investment Income
I • Resident aliens - not taxable
As a rule, passive income subjected to final tax is no longer
(income derived from abroad)
ncluded in the computation of th~ annual taxable income.
r1 8. Interest on long-term deposit or Exempt ,,
TAX RA TE ON CERTAIN PASSIVE FINAL TAX investment in banks (with maturity
I J INCOME ON CITIZENS AND of 5 years or more)
RES!DENT ALIENS .
I1 ·.

1. Interest under the expanded 15%

i ] foreign currency deposit system· TAX RATE ON INTEREST FINAL TAX
INCOME FROM FOREIGN
f1 [NRC: Exempt] CURRENCY DEPOSIT [RR NO.
10-98]
[NRA<ETB: Exempt] ··-

lJ 1. Interest income actually 15%

2. Royalty from books, . literary 10%
1--I works, and musical compositions receivedbya resident citizen or
resident alien from FCD
3. · Royalty other than above 20%
:i I, 2. If deposited by an OCW or Exempt
4. Interest on any current bank 20% seaman or nonresident citizen
deposit, yield or other monetary
I benefits from deposit substitute, 3. If in a bank account in the joint 50% exempt
trust fund and similar names of an OCW arid spouse

!
i. •
I arrangement (resident) 50% FWT of 15%

I
l 34SEC. 127.(A) Tax on Sale, Barter or Exchange of Shares of dealer in securities, a tax at the rate ofsix-tenths of one percent
I Stock Listed and Traded through the Local Stock Exchange. - (6/10 of 1 % ) of the gross selling price or gross value in money of
l. There shall be levied, assessed and collected on every sale, the shares of stock sold, bartered. exchanged otherwise
barter, exchange or other disposition of shares of stock listed and disposed which shall be paid by the seller or transferor.
traded through the local stock exchange other than the sale by a
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4. Interest income actually 15% • Government debt instruments and securities are now
received by a domestic considered as deposit substitutes irrespective of the
corporation or resident foreign number of lenders at the time of origination. (Sec. 2, RR
corporation from FCD No. 14-2012)

· Interest income derived from deposit substitutes is subject

to 20% FWT, while that derived from any other debt
(a) Interest Income
instruments not within the coverage of deposit substitutes
Earned on currency bank deposits and yield or any other is subject to 20% CWT. (RR No. 14-2012, Secs. 2 and 7)
monetary benefit from deposit substitutes and from trust
funds and similar arrangement (b) Dividend Income
Any distributionrnade by a corporation to its shareholders
Rate of Final Tax out. of its earnings or profits and payable· to its
shareholders, whether in money or in other property.

Stock dividends represent the transfer of surplus to capital

account and shall not be subject to tax.
Interest income received by an individual (except a
nonresident individual) from a depositary bank under the However, if a corporation cancels or redeems stock issued
expanded foreign currency deposit system as dividend at such time and in such manner as to make
the distribution and cancellation or redemption, in whole or
Rate of Final Tax -- Exempt in part, essentially equivalent to the distribution of'a taxable
!nterest income from long term deposit or investment in the dividend, the amount so distributed in redemption or
form of savings, common or individual trust fund, deposit cancellation shall be considered as taxable income to the
substitutes, investment management accounts and other extent that it represents a distribution of earnings or profits.
· investments evidenced by certification in such form
prescribed by the BSP. . qeneral Rule: Cash and property divid.e11ds are taxable.
· Stock dividends are not taxable, ·
Rate of Final Tax:
For RC, NRC, RA, NRA-ETB . Property dividends:
I Held for 5 years or more Exempt • These are considered income in the amount of the
full market value as when received by the
4 years to less than 5 years 5% stockholder.
• If it was paid in stock of another corporation, it is
3 years to less than 4 years 12%
not. considered a stock dividend. It is still
Less than 3 years 20% considered property dividend.

For NRA-NETS - 25%

Liquidating dividends: taxable
"Deposit substitutes" are defined as ah alternative form of
obtaining funds from the public (meaning borrowing from • When a corporation distributes all its properties or
assets in complete liquidation, the gain realized is
20 or more lenders at any one time) other than deposits.35
taxable.
• Computation:

35SEC. 22 (Y). The term 'deposit substitutes' shall mean an
alternative from of obtaining funds from the public (the term
'public' means borrowingfrom twenty (20} or more individual or
corporate lenders at any one time} other than deposits, through
the issuance, endorsement, or acceptance of debt instruments
for the borrowers own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer. These
instruments may include, but need not be limited to bankers'
acceptances, promissory notes. repurchase agreements.
Page 48 of 206
including reverse repurchase aqreements entered into by and
between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificatesof assignmentor participation
and similar instrumentswith recourse:
Provided, however, Thal debt instruments issued for interbank
call loans with maturity of not more than five (5} days to cover
deficiency in reserves against deposit liabilities, including those
between or among banks and quasi-banks, shall not be
considered as deposit substitute debt instruments.
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r1 o When a corporation distributes-all of its assets

in complete dissolution and liquidation, there
f1 is no dividend income to the shareholder.
Instead, there is a sale or exchange of Other royalties:
f
i i property. (Sec. 256, RR No. 2-1940) RC, NRC, RA, NRA-ETB 20%
o When a corporation is dissolved and in
process of complete liquidation and its
shareholders surrendered their stock to it and
{1 paid the sums in question to them in (d) Rental income
exchange, a transaction took place, which Amount or compensation paid for the use or enjoyment of
was no different in its essence from a sale of a thing or a rightand implies a fixed sum or property
the same stock to a third party. (Wise v. Meer, amounting to a fixed sum to be paid at a stated time for the
GR. No. 48231, 1947) use of property
• The gain or ioss goes into the ordinary
income. Lease of personal property
Rental income on the lease of personal property located in
Individuals Rate of Final Tax: the Philippines and paid to a nonresident taxpayer shall be
Taxpayer Tax Rate taxed as follows:
l RC,NRC,RA.
l 10%
NRA-ETB 20% NRFC(RANO.
' NRA
NRA-NETB 25% · 9337, · Sec. 2)
rI l,
.!
·.

Tax Treatment on Corporations of income derived Vessel 4.5% 25%'

ri from dividends: '

.Aircraft,
machineries, and
7,5% 25%
.,

(a) If the dividends are from a domestic corporation:

f1 other equipment •
Domestic and resident foreign corporations are tax-

J exempt as they are treated as inter-corporate

dividends.
Other assets . '
32% 25%

l For non-resident foreign corporations, the dividend is

Lease of real property
The lease of real property shall be considered as conduct
1 subject to:
J of trade or business on the part of the lessor; hence, the
(1) Tax treaty rate, if applicable
rental income therefrom shall be considered as business
(2) 15% if no tax treaty but satisfies the tax-sparing
income which shall be included inthe computation of the
provision
year-end gross income of the lessor, and not as a passive
(3) 30% if no tax treaty and does not comply .with
investment income subject to withholding tax
the tax-sparing provision

Improvements made, by lessees are taxable as income on

(b) If the dividends are from a foreign corporation:
The income shall form part of the gross income of the
corporation but the situs of the income becomes
material · except for a domestic corporation which is
taxed on worldwide income.
(c) Royalty income
A payment or a portion of proceeds paid to the owner of a
right for the use of such right
From books, literary works and musical sources:
the part of the lessor provided that such buildings or
improvements are not subject to the removal by the lessee.
The lessor may either:
• Report the improvements as income at the time when
such improvements are completed based on their fair
market value [outright method]; or
• Spread over the life of the lease the estimated
depreciated value of the improvements at the
termination of the lease and report as income for each
year of the lease an aliquot part thereof [spread-out
method] (Sec. 49, RR No. 02-40)

jRC, NRC, RA, NRA-ETB 10% The US Supreme Court in Helvering V. Bruun (309 US
461, 1940) stated that it is not necessary for recognition of
Page 49 of 206
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taxable gain that the lessor be able to sever the Note: lfsuch amounts are held by the insurer under an
improvement begetting the gain from his original capital. agreement to pay interest, the interest peyrnents shall
be included in the gross income.
Any additional amount paid, directly or indirectly, by the • Proceeds of life insurance policies paid to the
lessee in consideration for the lease is considered rental. heirs/beneficiaries upon the death of the insured; (See
Therefore, taxes paid by the lessee on leased property are Sec. 32(8))
part of rental income of the landlord. • If such amounts are held by the insurer under an
agreement to pay interest, the interest payments shall
Prepaid or advance rental is taxable income to the lessor be included in the gross income
in the year received, if so received under a claim-of-right Note: The insured rnust.dieto avail of total exemption.
and without restriction as to its use, and regardless of the If he survives, there/s only partial exemption to the
method of accounting employed. Security deposit applied extent that the proceeds constitute return of. capital
to the rental of the· terminal month or period of contract (total amount of premiums previously paid).
must be recognized as income at the time it is applied.
(8) Prizes and Awards
Note: If the security deposit merely serves to ensure Amount in cash or in kind received by chance or through
compliance with the contract (security deposit with luck is generally taxable, unless otherwise provided by law.
acceleration clause), it is not income to the lessor until the
lessee violates any provision of the contract. If the prizes are derived from sources within:
P10,000 OR MORE THAN
Tax treatment of: TAX-PAYER
LESS P10,000
·.
o Income from Leasehold Improvements
When the lessee erected or built permanent improvements RC, NRC, RA,
5-32% 20%
on the leased property, which will become the property of NRA-ETB
the lessor upon the expiration of the lease, the value of the
NRA-NETB 25% 25%
improvements should be reported as income of the lessor
either through· the outright method or the spread-out Corporation ' 30% 30%
.
method.
• Advance payment/long-term lease .
If the advance payment is a prepaid rental without PCSO AND LOTTO WINNINGS
restriction as to use, the entire amount is taxable in the
P10,000 OR MORE THAN
year it is received. TAX-PAYER
LESS P10,000

If the advance payment is a security deposit which restricts RC, NRC, RA,
the lessor as to its use, such amount shall be taxable 'only Exempt 20%
NRA-ETB
at the time it is applied.
NRA-NETB Exempt 25%
If the advance payment is a loan deposit, or option money
Corporation Exempt 30%
for the property or a security deposit to ensure the faithful
performance of certain obligations of the lessee, such
amount shall not be taxable to the lessor unless the lessee If the prizes are derived from sources without - the said
violates the terms of the contract amount is included in the gross income for taxpayers who
are taxable within and without the Philippines.
(7) Annuities, proceeds from life insurance or other
types of insurance Prizes and awards made primariiy in recognition of
Annuity - installment payments of income or pension by religious; charitable, scientific, educational, artistic, literary
insurance companies during the life of a person or for a
guaranteed fixed period of time, whichever is longer.
Amounts excluded from gross income:
• Amount received by insured as return of premium
received either during the term or at the maturity of the
terms or upon surrender of the contract;

Page 50 of 206

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or civic achievement are excluded from the qross • Benefits received from a foreign government by
income36, but only if: resident or nonresid~nt citizens or aliens who reside
• Recipient was selected without any action or
his part; permanently in the Philippines
and • Veterans benefits
• Recipient not required to render substantial future • Benefits under SSS
services as a condition of receiving the prize/award. • Benefits received from GSIS,

Example: Nobel prize {10) Income fromany source'

i. Forgiveness of Indebtedness
Construed strictly; must be given in 1 of 7 given categories,
A GIFT ----' if the forgiveness of the debt is Not
which do not include athletic achievements
without any consideration whatsoever Taxable

Contemplates a rational selection process; cannotjust be

~i~t,tii~·!it~titl~
randomly selected
r
Prizes/awards in a sports competition sanctioned by
==......;.;:;.-'---"
national sports associations whetherheldin the Philippines
or abroad are also excluded from the gross income" A TAXABLE INCOME-. in exchange of a Taxable
1
j service performed
Contemplates. a particular competition, not a cumulative
1 achievement (e.g. Sportsman of the year award does not
' ii. Recovery of amounts previously written off
qualify for exernptlon) · Recovery of bad debts previously allowed as deduction in
{l the preceding years shall be included .as part ot'.gmss
(9) Pensions, retirement benefit or separation pay income in the year of recovery to the extent of the income
{] Pension - lump sum payment or on a staggered basis in tax benefit of such deduction (tax benefitrule )39 • '
consideration of services rendered given after an individual,
r. l ·1
reaches the age of retirement · iii. Receipt of tax refund or tax credit
.. -

Taxes. when refunded or credited, shall be included as part

ll Amounts excluded from gross income: of gross income in the year o1 receipt to the · extent of
• Retirement benefits received under RA 7641_ (Labor income tax benefit of said deduction."
[1 Code cf the Phiiippines)
• Retirement benefits received under a reasonable The following are non-taxable tax refunds (i.e., non-
fj private benefit plan36 deductible taxes):·
• Amount received as a consequence of separation for • In general.Philippine incometax
{ ) any cause beyond control (death, sickness -or other • Final taxes, being in the nature of income tax
physical disability)
lJ
f-j
36SEC. 32 (B) (7) (C) Prizes and Awards. - Prizes and awards the officials or employeesor both, for the purposeof distributing
made primarily in recognition of religious, charitable, scientific, to such officials and employeesthe earningsand principal of the
educational, artistic, literary, or civic achievementbut on!y if: fund thus accumulated,and wherein itsis provided in.said plan
-
""-
.
i
{i) The recipient was selected without any action on his part to
enter the contest or proceeding; and
that at no time shall any part of the corpus or income cif the fund
be used for, or be diverted to, any purpose other than fort
(ii) The. recipient is not . required to render substantial future 39SEC. 34 (E) (1) In (;eneral. - Debts due to the taxpayer actually
.
"
'
services as a conditionto receiving the prize or award. ascertained to be worthless and charged off within the taxable
Ii. 37 - SEC. 32 (B) (7) (d) Prizes and Awards in sports year except those not connected with• profession, trade or
Competition. - All prizes and awards granted to athletesin local business and those sustained in a transaction entered , into
l .I and international sports compeiitions and _tournamentswhether between parties mentioned under Section 36 (B) of this Code:
held in the Philippinesor abroad and sanctionedby their national Provided, That recovery of bad debts previously allowed as
sports associations. deduction in the precedingyears shall be includedas part of the
36
SEC. 32(B)(6)Retirement Benefits, Pensions, Gratuities, gross income in the year of recovery.to the extent of the income
( etc.-Reasonable private benefit plan means a pension, tax benefit of said deduction.
l. gratuity, stock bonus- or profit-sharing plan maintained by an 40sec. 34 (C) (1) (d). Taxes assessedagainst local benefits of a

employer for the benefit of some or all of his officials or kind tending to increase the value of the property assessed.
employees, whereincontributions are made by such employerfor
Page 51 of 206
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• Income tax imposed by authority of any foreign country
(except when the taxpayer signifies his desire to avail
of the tax credit for taxes of foreign countries)
• Estate and donor's taxes
• Taxes assessed against local benefits of a kind
tending to increase the value of the property assessed
• Speciat assessments
iv. Income from any source whatever
"Income from whatever sources derived" means inclusion
of all income not expressly exempted within the class of
taxable income under the laws irrespective of the voluntary
or involuntary action of the taxpayer in producing the gains,
and whether derived from legal or iliegal sources, such as:
• Gains from expropriation of property
• Income derived from illegal sources
• Compensation for damages if it represents payment
for loss of expected profits
e) Exclusions from gross income
( 1) Rationale for the exclusions
These are items not included in the determination of gross
income either because:
• They represent return of capital or are not income, gain
or profit;
• They are subject to another kind of internal revenue
tax; or
• They are . income, gain or profit that is expressly
exempt from income tax.
(2) Taxpayers Who may avail of the exclusions
All taxpayers may avail of exclusions from gross income.
(3) Exclusions distinguished from deductions and tax
credits
Exclusion: not included in the computation of gross
income; income received or earned but is not taxable as
income because of exemption by virtue of a law or treaty.
Deduction: inch.ided to compute the taxable income.
41SEC. 32 (B) (1) Life Insurance. - The proceeds of life insurance
policies paid to the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise, but if such
amounts are held by the insurer under an agreement to pay
interest thereon, the interest payments shall be included in gross
income.
42SEC. 32 (B) (2) Amount Received by Insured as Return of
Premium. - The amount received by the insured, as a return of
premiums paid by him under life insurance, endowment, or
annuity contracts, either during the term or at the maturity of the
term mentioned in the contract or upon surrender of the contract.
Page 52 of 206
TAXATION LAW
Tax Credit: paid befoi;ehand and is deducted from the tax
liability of the taxpayer. •
(4) Exclusions under the Tax Code
i. Proceeds of life insurance policies41
Proceeds of life insurance policies , paid to the
heirs/beneficiaries upon the death of the insured.
Insured must die to avail of total exemption. lfhe survives,
there's only partial exemption to the extent that the
proceeds constitute return of capital (total amount of
premiums previously paid.)
However, if such amounts are held by the insurer under an
agreement to pay interest, the interest payments shall be
included in the gross income.
ii, Amount received by insured as return of
premium42
The amount received by the insured, as a return of
premiums paid by him under life insurance. endowment or
annuity contracts, either during the term or at the maturity
of the term mentioned in the contract or upon surrender of
the contract are excluded from gross income.
iii. Amounts received under life. insurance,
endowment or annuity contracts43
Under life insurance, endowment, or annuity contracts,
amounts received either during the term or at the maturity
of the terms or upon surrender of the contract are excluded
from gross income.
iv. Value of property acquired by gifts, bequest,
devise or descent44
To be excluded from gross income, must be characterized
by disinterested generosity and pure liberality.
However, income from such property shall be included in
gross income.
43SEC. 32 (B) (2) Amount Received by Insured as Return of
Premium, - The amount received by the insured,·as a return of
premiums paid by him under life insurance, endowment, or
annuity contracts, either during the term or at the maturity of the
term mentioned in the contract or upon surrender of the contract.
44SEC. 32 (B) (3) Gifts, Bequests, and Devises. -The value of
property acquired by gift, bequest, devise; or descent: Provided,
however. That income from such property, as well as gift,
bequest, devise or descent of income from any property; in cases
of transfers of divided interest, shall be included in gross income.
4 .
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Difficult to establish gift situations if there is an employer-
employee relationship; a bonusfassistance in recognition
ri of service rendered is not exempt.
If given under a) constraining force of any morai or legal
duty, orb) from the incentive of an anticipated benefit of an
economic nature; or c) where it is a return for services
rendered, proceeds cannot qualify as a gift.
Most critical is the giver's intention or motive.
I . contract
Can be a giftifgiven on account offjlial relationship.
(J
v. Amount received through accident or health
r insurance plus damages received45
Received through AccidenUHealth Insurance or
{J Workmen's Compensation Act, as compensation for
personal injuries/sickness + amount of damages received
on account of such injuriesfsickness.·
Damages will be exempt only if they arise together with
personal injury; however, if damages only amount to return
of capital, it is exempt (e.g. damages from car accident
'
· exempt only if claim includes compensation for personal
injury; if no personal hijury, damages for car wreckage will .
} only be exempt to the extent of the amount of the actual
f1 damage as return of capital.)
Must be physical injury, not injury to rights.
.,
J vi. Income exempt under treaty
To the extent required by any treaty obligation binding
rJ upon the Philippine government46.
I r
! J v,i. · Retirement benefits, pensions, gratuities47
ll
{:.. .!
45SEC. 32 (B) (4) Compensation for Injuries or Sickness. -
i. J
Amounts received, through Accident or Health Insurance or
under Workmen's Compensation Acts, as compensation for
personal injuries or sickness, plus the amounts of any damages
received, whether by suit or agreement. on account of such
injuries or sickness.
46SEC.
32 (8}(5) Income Exempt under Treaty. - Incomeof any
kind, to the extent required by any treaty obligationbinding upon
the Governmentof the Philippines.
47
{ SEC. 32 (B) (6} (a) Retirement Benefits, Pensions,
l Gratuities, etc. -
.(a) Retirement benefits received under Repubiic Act No. ?641
and those received by officials and employees of private firms.
whether individual or corporate, in accordance with a reasonable
private benefit plan maintainedby the employer: Provided.That
the retiring. officiator employee has been in the service of the
same employer for at least ten (10) years and is not less than fifty
(50) years of age at the time of his retirement:
Page 53 of 206
TAXATION LAW
Retiroament benefits 'received under RA 7641 (amending
the Labor Code) and those received i~ accordance with a
reasonable private. benefit plan.
"Under RA 7641"
Conditions:
(a) At least 60 years old;
(b) 5 years of service at time of retirement; and
(c) Retirement upon reaching the retirement age
established in the CBA or other applicable employment
Availed if there is no.reasonable private benefit plan.
. Limited exemption: ~ month salary for every year of
service; in .a reasonable private benefit plan, all is
excludable.
"Reasonable private benefit plan"
Conditions:
(a) At least 50 years old; and
(b) In the service cf same employer for at least· 10 years at
time of retirement ···'"~
Must.be approved by the BIR
A pension, gratuity, stock bonus or profit-sharing plan
maintained by an employer for the benefit of some or all of
his officialsfemployees; wherein contributions are made by
such employer for the officials/employees, or both,.for the
purpose ofdistributing to. such officials & employees the
earnings & principal of the fund thus accumulated; no part
of.the.income shall be used for/be diverted to any purpose
other than. for the exclusive benefit of the .said officials &
employees.
Service must be continuous.
Provided, further, That the benefits granted under this
subparagraphshall be availed of by an official or employeeonly
once.
For purposes of this Subsection, .the term 'reasonable private
benefit plan' means a pension, gratuity, stock bonusor profit-
sharing.plan maintained by an employer for the benefit of some
or all of his officials or employees, wherein contributions are
made by such employer for the officials or employees, or both,
for the purposeof distributing to such officials and employeesthe
earningsand principal of the fund thus accumulated, and wherein
its is provided in said plan that at no time shall any part of the
corpus or income of the fund be used for, or be diverted to, .any
purpose other than for the exclusive benefit of the said officials
and employees.
 ATENEO CENTRAL
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Can be. availed of only once (once one has availed of
RPBP, he cannot avail of another RPBP); however, he can
avail of exemption under another ground such as SSS or
GSIS benefits.
The phrase "shall not have availed of the privilege under a
retirement benefit plan of the same or anotheremployer"
found in Sec. 32.(B)(6)(a) of the NIRC means that the
retiring official must not have previously received
retirement benefits from the same or another employer
who has a qualified retirement benefit plan. (BIR Ruling
No. 125-98)
viii.Amount received as a consequence of separation
for any cause beyond control of employee (death,
sickness or other physical disability)48
Sickness must be job threatening and must render
taxpayer incapable of working (excludes STD.)
Benefits from separation due to refrenchment come under
exemption (no choice/option); but if the employee avails of
an optional early retirement plan, he cannot reason that he
· was Separated for reasons beyond his control, therefore,
he cannot claim exemption of the benefits on this ground
but he can Claim under other grounds such as RPBP or RA
7641.
The terminal leave. pay of government employees whose
employment is coterminous is exempt since it falis within
the meaning of the phrase "for any cause beyond the
control of the said official er employee" found in Sec.
32(8)(6)(b) of the NIRC. (BIR Ruling No. 143-98)
ix. Benefits received from a foreign government by
residents or nonresident citizens or aliens who
reside permanently in the Philippines49
x. Veterans benefits50
xi. Benefits under sss=
48SEC. 32 (8) (6) (b). Any amount received by an official or
employee or by his heirs from the employer as a consequence of
separation of such official or employee from the service of the
employer because of death· sickness or other. physical disability
or for any cause beyond the control of the said official or
employee.
49SEC. 32 (B) (6) (c). The provisions of any existing law to the
contrary notwithstanding, social security benefits, retirement
gratuities, pensions and other similar benefits· received by
resident or non-resident citizens of the Philippines or aliens who
come to reside permanently in the Philippines from foreign
government agencies and other institutions, private or public.
50SEC.
32 (B) (5) (d). Payments of benefits due or to become due
to any person residing in the Philippines under the laws of the
Page 54 of 206
TAXATION LAW
•
xii. Benefits received from GSIS52
xiii. Income Derived by the Government or its Political
Subdivisions53
xiv. Winnings, prizes and awards
Prizes and awards in sports competition sanctioned by
national sports associations whether held in Philippines or
abroad.
Contemplates a particular competition, not a cumulative
achievement.
"Prizes and awards"
1. In recognition of religious, charitable, scientific,
educational, artistic, literary or civic achievement, but
only if:
• Recipient was selected without any action on his
part;and
• Recipient not required torender substantial. future
services as a condition of receiving the
prize/award
(6) Exclusions under special laws
RA No. 9505: Personal Equity and Retirement Account
(PERA) Act of 2008 (implemented by RR No. 17-11)
PERA shall refer to an employee-contributor's voluntary
retirement account established from the contributor's own
contributions and/or his employer's contributions, for the
purpose of being invested solely in qualified/eligible PERA
investment products.
PERA contributions from the employer to the employee's
PERA are excluded from the employee's gross income. On
the other hand, the employer can claim the actual amount
of his contribution as a deduction from his gross income,
but only to the extent . of his contribution that would
United States administered by the United States Veterans
Administration.
51SEC. 32 (B) (5) (e). Benefits received from or enjoyed under the
Social Security System in accordance with the provisions of
Republic Act No. 8282. Benefits received from or enjoyed under
the Social Security System in accordance with the provisions of
Republic Act No. 8282. ~
52SEC. 32 (B) (6) (f}. Benefits received from the GSIS under
Republic Act No. 8291, including retirement gratuity received by
government officials and employees.
53SEC. 32 (B) (7) (b). Income derived from any public utility or
from the exercise of any essential governmentai function
accruing to the Government of the Philippines or to any political
subdivision thereof_
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complete the maximum allowable PERA contribution of the specifically itlentifiable to the real property or shares of
employee. stock so!d or exchanged. •
(3) Sale of services - Generally, the return of capital is
I I
4. Deductions from Gross Income not allowed to be deducted from the gross. sales. Thus,
, I
' ,' the entire gross receipts are treated as part of income.
General rules
f
i To be deductible as a business expense: b) Itemized Deductions (BELT DID CPR)
1. The expense must be ordinary and necessary; 1. §.ad debts
2. It must be paid or incurred within the taxable year; 2. Business !;,xpenses
3. It must be paid or incurred in carrying on a trade or 3. ,bosses
business; (business test) and 4. !axes
4. It must be substantially proven by evidence or records 5. Qepreciation
I ·.
l J (Essa Standard Eastern, Inc. v. CIR,, G.R. No. L- 6. Interest ·
28508-9, 1989) 7. Qepletion of oil & gas wells & mines
8. £haritable & other contributions
~ Note: Any income payment which is otherwise deductible 9. fension-trusts
} under the NIRC shall be allowed as a deduction from the 10. Research & development
payor's grosl> income only if it is shown that the income tax
rl required to be withheld has been paid to the BIR.54 (1) Expenses
i. Requisites ford~ductibility55
! Note: The "all events test" is used to determine when an 1. Must be ordinary and necessary.
accrual of income or expense is permitted for claiming 2. Must have been paid or incurred during the taxable
( deductions. It requires: year. .
.:...:..~ . -

1 . Fixing of a right to income or liability to pay; and 3. Must have been paid · or incurred in carrylnq pn the
2. The availability, of the reasonable accurate trade or business of the taxpayer.
determination of such income or liability. 4. Must be supported by receipts, records or other
pertinent paper's. (CIR v. General Foods. Phils. ·· G:R.
Under this test, the amount of deduction need not be No. 143672; 2003)
l
j determined exactly as long as the same may be
f
determined with reasonable accuracy. The term Expenses to be deductible:
J "reasonable accuracy" clearly implies something less than • Amount must be reasonable
an exact or completely accurate amount. (CIR v. lsabela . • It must be substantiated
fI Cultural Corporation, GR. No. ·/72231, 2007) • , It is not contrary to law, public policy or morals .
• Tax required to be withheld must have been paid to
fJ a) Return of capital theBiR . .

{ j ( 1) Sale of inventory of goods by manufacturers and Ii. Substantiation requirements

dealers · of properties - The portion of the receipt
t·i representing the cost of goods manufactured and sold
(manufacturers) and cost of sales (dealers) are
ii. j deducted from the gross sales,
(2) Sale of stock in trade. by a real estate dealer and
dealer in securities - Generally, the return of capital
is not allowed to be deducted from the gross sales.
Taxpayers are required to deduct the total cost
Sufficient , evidence {i.e. official receipts, financial
statements or other adequate records) to substantiate:
• Amount of expense deducted; and
• Direct connection/relation of the expense to the
development, management operation and/or conduct
cf the trade, business or profession of the taxpayer.

., 54SEC.
34 (K) Additional Requirements for Deductibility of
Certain Payments. - Any 'amount paid or payable which is
' r otherwise deductible from, or taken into account in computing
t
gross income or for which depreciation or amortization may be
allowed under this Section, shall be allowed as a deduction only
if it is shown that the tax required to be deducted and withheld
therefrom has been paid to the Bureau of Internal Revenue in
accordance with this Section 58 and 81 of this Code.
Page 55 of 206
55SEC. 34 (A) Ordinary and Necessary Trade, Business or
Professional Expenses. -
(a) In General. - There shall be allowed as deductionfrom gross
income a!I the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on or which are directly
attributabte to, the development, management, operation and/or
conduct of the trade, business or exercise of a profession xxx
ATENEO CENTRAL
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iii. Classification of Expenses:
Ordinary expense - normal or usual in relation to the
taxpayer's business and the surrounding circumstances.
Necessar'j expense - appropriate and helpful in the
development of taxpayer's business and is intended to
minimize losses or to increase profits; day-to-day expense.
Note: While illegal income will form 'part of the income of
the taxpayer, expenses which constitute bribe, kickback,
and other similar payment, being aqainst law and public
policy are not deductible from gross income.
Business expense - expenditure re!ated to the business
that is deductible in the year incurred.
Capital expense - expenditure that improves or adds to
the value of the taxpayer's property or equipment; not
immediately deductible, i.e., deductible over time, taking
into account depreciation.
Private educational institutions - in addition to the
expenses ordinarily· allowed as deductions, a private
educational institution has the option to either:
1. Deductoutright those. otherwise considered as capital
outlays of depreciable assets for the expansion of
school facilities; or
2. Capitalize asset & deduct allowance for depreciation
iv. Advertising expense
There is yet to be a clear-cut criterion or a fixed test for
determining the reasonableness of an advertising
expense. There being no hard and fast rule, the right to a
deduction depends on a number of factors such as but not
limited to: the type and size of business in which the
taxpayer is engaged; the volume and amount of its net
earnings; the nature of the expenditure itself; the intention
of the taxpayer; and the general economic conditions. (CIR
v; General Foods Phils. G.R. No. 143672,.2003)
v. Salaries, wages & other forms of compensation for
personal services · actually rendered (including
grossed-up monetary value of fringe benefit); but
the fin a! tax should have been paid
Must be reasonable. ·
Must be for the personal services actually rendered.
vi. Travel expenses pursuit trade,
in of
business/profession
Travel expenses inciude transportation expenses, meals
and lodging incurred solely on business.
Page 56 of 206
TAXATION LAW
•
vii. Cost of materials
Taxpayers should include in expenses the charges for
materials and· supplies only to the amount that they are
actually consumed arid used in operation during the year
for which the return is made, provided that the cost of such
materials and supplies has not been · deducted in
determining the net income for any previous year. (Sec. 67,
RR No. 02-40)
If the materials or supplies are used directly or indirectly in
the production of the product, the related cost shall form
part of the cost of the product and will be deductible as
such when the product is sold.
viii. Rentals and/or other payments as lessee, user or
·possessor
On accrual basis, rent is deductible as expense when
liability is incurred during the period of use. On cash basis,
rent is deductible when incurredand paid ..
An advance payment is not deductible expense on the part
of the lessee until the same is used for the relevant period,
although the lessor may be required to report the amount
when received.
ix. Expenses under lease agreements
Lessor
Basic: All ordinary and necessary expenses paid or
incurred durinq the taxable year Which are attributable to
earning the lease income are deductible.
Lessee
Alf expenses which under the terms of the agreement the
lessee is required to pay to the lessor are allowable
deductions.
If the payments are so arranged as to constitute advance
rentals, the same shall be duly apportioned over the lease
term. In computing the term of the lease, all options to
renew shall be taken into consideration if there is a
reasonable expectation that such options will be exercised.
(Sec. 3, RR 19-86)
x. Repairs and maintenance
Incidental (minor) repairs are deductible from gross
income. They do not materially add to the value of the
property nor appreciably prolong its life, but keep it in an
ordinarily efficient operating condition.
Major repairs (replacement) are not deductible from gross
income. They prolong the life of the asset and thus should
be capitalized.
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fl developing or. upgrading the-productivity and efficiency of

xi. Expenses for professionals unskilled labor or for management development programs •
Amounts expended for books, furniture, and professional shall be granted to the taxpayer. provided:
,. instruments and equipment, the useful life of which is short, • Such training program is approved by the National
may be deducted. Manpower and Youth Council; and
• Such deduction shall not exceed 10 percent of direct
However, amounts expended for books, furniture, and labor wage (Sec. 10, /RR of the Labor Code, Book II,
professional instruments and equipment of a permanent ·Rule Ill)
character are not allowable as deductions.
Allowable training expenses
xii. Entertainment, amusement & recreation expenses The training expenses shall be in the form of personal
directly connected to the development, services, travelling expenses, equipment, training tools,
management & operation & conduct of trade, training supplies and materials; and a reasonable amount
I
business/ profesaion for contingencies. (Sec. 8, /RR of the Labor Code, Book II,
i Must be directly connected to the development, Rule Ill)
management and operation of the trade, · business of
profession of the taxpayer Non-applicability of incentive scheme ·
Training programs undertaken by training institutions
I '
l Subject to a limit of: and/or associations operating for profit shall not quaiify
• 0.50% of net sales (gross sales less sales under this incentive scheme. (Sec. 10, !RR.of.the Labor
returns/allowances & sales discounts) for taxpayers Code, Book II, Rule /!I)
engaged in sale of goods or properties; or
1 % of net revenue (gross revenue less discounts) for those 2. Interest
,. engaged in sale of services, including exercise of
i profession and use or lease of properties. (Sec. 5, RR No. i. Requisites for deductibility:
10-02) 1) There must be an indebtedness;
f1 2) There should be an interest expense paid or .
xiii. Political carnpalqn expenses incurred upon such.indebtedness:
.As a rule, campaign contributions are not included in the 3) Indebtedness must be that of the taxpayer;
taxable income of the candidate to Whom they were given. 4) Indebtedness must be connected with. the
taxpayer's trade, business or exercise of profession;
Unutilized campaign funds shall be subject to income tax. 5) Interest expense must have been paid or incurred
during the taxable year;
Any candidate (winner or loser) must file with the 6) Interest must have been stipulatedin writing;
COMELEC his/her statement of expenditures. If not, 7) Interest must be legally due;
he/she will be precluded from using such expendituresas 8) Interest paymentarrangement must not be between
deductions from his/her campaign contributions. As such, related taxpayers;
the entire amount of such contributions will be directly 9) Interest must not be· incurred to finance .petroleum
fI . !,. operations; ·
subject to income tax. (Sec. 2, RR No. 07-11)
10) In case of interest incurred to acquire property
~-
xiv. Training expenses used in trade, business or exercise of profession.
Ordinary and necessary expenses for education and the same was not treated as a capital expenditure;
training actually incurred by the taxpayer during the taxable (Sec. 3, RR No. 13-00) and
year may be deductible. 11) The interestis not expressly disallowed by law to
be deducted from gross income of the taxpayer
Incentive Scheme - according to the IRR of the Labor
Code: · ii. General Rule on Deduction of Interest Expense 56

An additional deduction from taxable income of one-half of

the value of labor tr1;1ining expenses incurred for

=sec. 34 (B.) Interest. - profession, trade or business shall be ailowed as deduction from
(1) In General. - The amount of interest paid or incurred within a gross income: Provided, however, That the taxpayer's otherwise
taxable year on indebtedness in connection with the taxpayer's allowable deduction for interest expense shall be reduced by an
Page 57 of 206
 ATENEO CENTRAL
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The amount of interest expense paid or incurred within a
taxable year of indebtedness in connection with the
taxpayer's trade, business, or exercise of profession shall
be allowed as a deduction from the taxpayer's gmss
income.
111. Limitation on Deduction of Interest Expense
A taxpayer's otherwise allowable deduction for interest
expense shall be reduced by 33% effective 1 January 2009
of the interest income subjected to final tax. (Sec. 3, RA
No. 9337)
Example: Year2012
Interest expense = P2,000
Interest income
subject to final tax = P1,500
Deductible
interest expense = P1,505
[P2,000 - (P1 ,500 x 33%))
The objective of the limitation is to discourage tax arbitrage
on back-to-back loans, the proceeds of which are invested
in income earning interest that is subject to 20% final tax.
Tax Arbitrage - a method of borrowing without entering
into a debtor/creditor relationship, often to resolve
financing · and exchang.e control problems; in tax cases,
back-to-back loan is used to take advantage of the lower
rate of tax on interest income and a higher rate of tax on
interest expense deduction.
iv. Deductible Interest Expense:
Interest on taxes, such as those paid for deficiency or
delinquency, since taxes are considered indebtedness
(provided that the tax is a deductible tax); however, fines,
penalties, and surcharges on account of taxes are not
deductible; interest on unpaid business tax shall not be
subjected to the limitation on deduction of 33%.
amount equal to the following percentages of the interest income
subjected to final tax: Forty-one percent (41 %) beginning January
1, 1998;. Thirty-nine percent (39%) beginning January 1, 1999;
and Thirty-eight percent (38%) beginning January 1, 2000;
(2) Exceptions. - No deduction shall be allowed in respect of
interest under the succeeding subparagraphs: (a) If within the
taxable year an individual taxpayer reporting income on the cash
basis incurs an indebtedness on which an interest is paid in
advance through discount or otherwise: Provided, That such
interest shall be allowed a a deduction · in the year the
indebtedness is paid: Provided, further, That if the indebtedness
Page 58 of 206
TAXATION LAW
Interest paid by a corporation on scrip dividends; (Sec. 78.
RR No. 02-40)
Interest on deposits paid by authorized banks of the BSP
to depositors, if it is shown that the tax on such interest was
withheld.
Interest paid by a corporate taxpayer which is liable on a
mortgage upon real property bf which the said corporation
is the legal or equitable owner, even though it is not directly
liable for the indebtedness. (Sec. 78, RR No. 02-40)
v. Non-deductible interest expense:
Interest paid in advance·through discount or otherwise (in
case of taxpayer on cash basis).
Allowed as deduction in the year the debt is paid.
If indebtedness is payable in .periodic amortizations,
interest is deducted in proportion of the amount Of the
principal paid.
Payments made:
• Indebtedness is incurred by a service contractor to
finance petroleum corporation
• Interest on preferred stock which in reality is dividend
• Interest on unpaid salaries and bonuses
• Interest· calculated for cost keeping on account of
capital or surplus invested in business which does not
represent charges arising under interest-bearing
obligation
• Interest paid when there is no stipulation for the
payment thereof
• Interest arising from transactions between related
parties are NOT deductible. ·
o Between members of a farnily (includes only
brothers & sisters, spouse, ancestors, & lineal
descendants)
o Between an individual & a corporation, more
than 50% in value of outstanding stock is
is payable in periodic amortizations, the amount of interest which
corresponds to the amount of the principal amortized or paid
during the year shall be ailowed as deduction in such taxable
year; (b) If both the taxpayer and the person to whom the
payment has been made or is to be made are persons specified
under Section 36 (B); or (c)lf the indebtedness is incurred to
finance petroleum exploration.
(3) Optional Treatment of interest Expense. - At the option of
the taxpayer, interest incurred to acquire property used in trade
business or exercise of a profession may be allowed as a
deduction or treated as a capital expenditure.

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owned by such individual (except in case of
distributions in liquidation)
o Between 2 corporations more than 50% in
value of outstanding stock owned by same
individual, if either one is a personal holding
company or a foreign holding company during
the taxable year preceding the date of
sale/exchange
o Between grantor & fiduciary of any trust
o Between fiduciary of a trust & the fiduciary of
another if same person is a grantor to each trust
o Between fiduciary & a beneficiary of a trust
vi. Interest subject to special rules
a) Interest paid in advance
b) Interest periodically amortized
c) Interest incurred to acquire property used in trade or
business
f \
• J d)-Reduction of interest expense/interest arbitrage
t=
l ; Ai the option of taxpayer, the interest may be allowed as:
• Expense (outright deduction)
{ · •· Capital expenditure (subject to amortization)
[ 3. Taxes57
(" The term "taxes" refers to national and local taxes
Deductible Taxes - All taxes, national or local, paid or
incurred during the taxable year in connection with the
taxpayer's profession, trade or business, are deductible
from gross income.
i. Requisites for deductibility:
1. It must be paid or incurred within the taxable year;
2. It must be paid or incurred in connection with the
taxpayer's trade, profession or business;
3. It must be imposed directly on the taxpayer; and
I
\ j· 4. It must not be specifically excluded by law from being
deducted from the taxpayer's gross income
ii. Non-Deductible Taxes:
57SEC. 34 (C) Taxes.
(1) In General. - Taxes paid or incurred within the taxable year in
connection with the taxpayer's profession, trade or business,
shall be allowed as deduction, except:
(a) The income tax provided for under this Title;
(b) Income taxes imposed by authority of any foreign country; but
this deduction shall be allowed in the case of a taxpayer who does
not signify in his return his desire to have to any extent the
Page 59 of 206
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TAXATION LAW
a) Philippine income tax •
b) Foreign income tax, unless the taxpayer does not
make use of.the tax credit privilege.
c) Final taxes, being in the nature of income tax
d) Estate & donor's taxes
e) Special assessments, i.e., taxes assessed against
local benefits of a kind tending to increase the value of
the property assessed
f) VAT
ii. Treatments of surcharges/ interests/ fines for
delinquency
Interest on taxes - incurred or. paid by a taxpayer on all
unpaid business-related taxes; fully deductible from gross
income and shall not be subject to the 33%-limitation on
deduction of interest expense. (Sec. 3, RA No. 9337)
Surcharges - non-deductible (Sec, 80, RR No. 02.:40)
Penalties or fines incident to delinquency - non-
deductible (Sec. 80, RR No. 02-40j
iii. Treatment of special Assessments
General rule: Special assessments are not dedUctible,
even though an incidental benefit may inure to the-;public
welfare.
Exception: When assessments are made for the purpose
of maintenance or repair of local benefits, the taxpayer
may deduct assessments paid as an expense incurred in
business, if the payment of such· assessments is
necessary to the conduct of his business. (SectionB3, RR
No. 02-40) . . .
iv. Tax Credit v. Deduction
Taxes, when refunded or credited, sh.al! be included as part
of gross income in the year of receipt to the extent of
income tax benefit of said deduction (tax benefit
\ .:
rule).
For NRA-ETB and RFC, taxes paid or incurred are allowed
as deductions only if and to the extent that they are
benefiis of paragraph (3j of this subsection (relating to credits for
taxes of foreign countries); ·
(c) Estate and donor's taxes; and
(d) Taxes assessed against local benefits of a kind tending to
increase the value of the property assessed.
Provided, That taxes allowed under this Subsection, when
refunded or credited, shall be included as part of gross income in
the year of receipt to the extent of the income tax benefit of said
deduction.
 ATENEO CENTRAL
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connected from income within the Philippines. (Sec. 80, Country Tl per country Philippine
• RR No. 02-40) Limit = (outside) x Income Tax
Tl from·all sources
Exception to the rule that only such persons on whom
the tax is imposed by law can claim deduction thereof Global limitation - Total amount of credit shall not exceed
- Taxes of shareholder upon his interest as such and paid same proportion of tax against which such credit is taken
by the corporation without reimbursement from him can be
cla,imed by the corporation as deduction. Global Total Tl from outside Philippine
Limit = x' Income
Tl from all sources
Exception to the exception - A corporation paying the tax Tax
for the holder of its bonds or other obligations containing a
tax-free covenant clause cannot claim deduction for such Note: Allowable tax credit shall be the LOWER of the
taxes paid by it pursuant to such covenant. actual tax paid to the foreign country, per country limitation
and global limitation.
Tax Sparing Rule .:.. a right of an income taxpayer to
deduct from income tax payable the foreign income tax he When credit for taxes may be taken:
has paid to his foreign country subject to certain limitations. The credit for taxes provided by Section 34(C)(3) to (7) of
the NIRC may ordinarily be taken either in the return for the
Who can claim tax deductions year in which the taxes accrued or on which the taxes were
• Citizen paid, dependent upon whether the accounts· of the
• . · Domestic Corporation taxpayer are kept and his returns flied upon the accrual
• Member of GPP basis or upon cash receipts and disbursements basis.
• Beneficiary of an estate or. trust Example:
ACTUAL PHiLINC.
PART!C- NET
Who cannot claim tax deductions FOREIGN TAX TAX DUE
ULARS INC.
PAID IN PHP AT30%
•. Alien individual (except resident aliens deriving income
Country A 50,000 18,000
· fT:om within & without the Philippines, if there is
CountryB . 40,000 11,000
.reciprocity) .
Phil-source 110,000
• ~ Foreign corporation income

Substantiation. Requirements Total NI 200,000. 29,000 60,000

The tax credit shall be allowed only if the taxpayer
establishes to the satisfaction of the CIR the following: A. PER COUNTRY LIMITATION
• The total amount of income derived from sources Country A: [(50,000/200,000 x 60,000)] = 15,000
without the Philippines; Country B: [(40,000/200,000 x 60,000)] = 12,000
** maximum tax credit limit
• The amount of income derived from each country, the
tax paid or incurred to which is claimed as a credit
B. GLOBAL LIMITATION
under said paragraph, such amount to be determined [(90,000/200,000x60,000)J =27,700
under rules and regulations prescribed by the
Secretary of Finance; and Computation of allowable tax credit
• All other information necessary for the verification and Tax Due on P200,000 60,000
computation of such credits
Less: Allowable Foreign Tax Credit
What amount may be taken as tax credit:
Country A P15,000 I
The amount of tax credit allowed is equivalent to the tax
Country B 11,000 26,000
paid or incurred to a foreign country during the taxable year P34 ooo
Tax Still Due
but not to exceed the following limits:
** Cannot exceed maximum tax credit limit
Per country limitation - Amount of credit to tax
paid/incurred to any country sha!I not exceed same NO TE: For limitation A, Country A, 15K is lower than the
proportion of the tax against which such credit is taken actual; Country B, 11K (actual) is the loweramount; get the
total of all per country amounts. For limitation B, 27. 71( is

Page 60 of 206
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n PARTIC- NET
ACTUAL PHIL INC. from gross income. (RRNo. 12-77, as amendedby ~R No.
FOREIGNTAX TAX DUE 10-79)
ULARS INC.
PAID IN PHP AT30%
The amount of loss deductible is·limited to the difference
between the value of the property immediately preceding
the loss and its value immediately thereafter but shall not
exceed an amount equal of the cost or other adjusted basis
4. Losses58 of the property, or depreciated cost reduced by any
insurance or other compensation received.
i. Requisites for deductibility of ordinary loss:
• · Must be of the taxpayer; Losses are deductible only by the person sustaining ihem.
• Actually sustained during the taxable year; They are purely personal and cannot be , used as
r o Not compensated for by insurance or other forms deductions by another.
of indemnity;
[ • Incurred in trade, business or profession OR In Tambunting Pawnshdp v. CIR, the Supreme Court
property connected with trade, business or disallowed claims for deductions due to losses for failure
l
I profession lost through fires, storm, shipwreck, to substantiate the losses. As to the auction - sale, the
other casualties, robbery, theft or embezzlement; taxpayer merely relied on entries made in its books. As to
• Evidenced by a completed transaction; the losses due to fire, the taxpayer failed to submit a Sworn
• Not claimed as a deduction for estate tax Declaration of Loss, which is required required 45 days
purposes; and from the discovery of the loss. - ·
• Notice of loss must be filed with the BIR within 30
{ } days but not more than 45 days ·from· the date of ii. Other types of losses
discovery of the casualty or robbery, theft or
[ J embezzlement ( a) Capital losses - deductions allowed only to the extent

r: i
of the gains from pertinent
. sales or exchanges
. . of ,
1 ' The taxpayer's failure to record in his books the alleged capital assets ·
loss proves that the loss had not been suffered, hence, not • Losses from sale or exchange of capital assets
{! deductible. (City Lumber v. Domingo, ,G.R .. No. L-18611, • Losses resulting from securities becorntnq
1964) worthless and which are capital assets
( l • Losses from short sales of property ·
Note: A declaration of loss should be filed with the BIR • Losses due tofallure to exercise privilege or option
I l within 45 days after the. occurrence of .the casualty, to buy or sell property
robbery; etc. Failure to submit.the declaration within the
l prescribed time will result in the disallowance of the loss. (b) Securities becomlnq worthless59
However, the mere filing of the declaration of loss does not
J · automatically entitle the taxpayer to deduct the alleged loss

t-·j
58SEC. 34 (0) Losses. Provided, however. That the time limitto be so prescribed in the
i ' (1} In General. - Losses actually sustained during the taxable rules and regulations shall not be less than thirty (30) days nor
i
year and not compensated for by insurance or other farms of more than ninety (90) days from the date of discovery of the
indemnity shall be allowed as deductions: casualty or robbery, theft or embezzlement giving rise to the loss.

(a) If incurred in trade, profession or business;
(b) Of property connected with the trade, business or profession,
if the loss arises from fires, storms, shipwreck, or other casualties,
I
i.. or from robbery, theft or embezzlement.
The Secretary of Finance, upon recommendation · of the
! 1 Commissioner, is hereby authorized to promulgate rules and
i. •
regulations prescribing, among other things, tho time and manner
by which the taxpayer shall submit a declaration of loss sustained
l i from casualty or from robbery, theft or embezzlement during the
taxable year:
Page
(c) No loss shall be allowed as a deduction under this Subsection
if at the time of the filing of the return, such ioss has been claimed
as a deduction for estate tax purposes in the estate tax return.
59SEC. 34 (E) (2) (2) Securities Becoming Worthless. - If
securities, as· defined in Section 22 · (T), are · ascertained to be
worthless and charged off within the taxable year and are capital
assets, the loss resulting therefrom shall, in the case of a
taxpayer other than a bank or trust company incorporated under
the laws of the Philippines a substantial part of whose business
is the receipt of deposits. -, for the purpose of thi:': Title, be
considered as a Joss from the sale or exchange, on the last day
of such taxable year, of capital assets.
61 of 206
 ATENEO CENTRAL
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Loss. resulting from securities'" becoming worthless shall
be considered loss from the sale or exchange of capital
asset.
Such loss shall be computed on the last day of the taxable
year.
General Rule; securities becoming worthless are
deductible
Exemption: not deductible in case of banks er trust
companies inco~porated under the laws of the Philippines,
a substantial part of whose business is the receipt of
deposits. (Sec. 5, RRNo. 05-99)
(c) Losses from wash sales of stock or securities
Wash sale is a sale or . other disposition of stock or
securities where substantially. identical securities are
acquired or purchased within a 61-day period, beginning
30 days before the sale and ending 30 days after the sale.
General rule: not deductible
Exception: unless claim· is made by a dealer in
stock/securities and made in ordinary course of business
(d) Wagering losses
Allowed only to the extent of the gains from such losses
.
(e) Net operating loss carry-over (NOLCO)
Net operating loss refers to the excess of allowable
deductions over gross income of the business for any·
taxable year, which has not been previously offset as
deduction from gross income.
The net operating loss ofa business shall be carried over
as a deduction from .gross income for the next 3
consecutive taxable years immediately following the year
of such loss.
The 3-year period shall continue to run notwithstanding
that the corporation paid its taxes under MClT, or that the
individual availed of the Optional Standard Deduction.
60SEC. 22 (T). The term "securities" means shares of stock in a
corporation and rights to subscribe for or to receive such shares.
The term includes bonds. debentures, notes or certificates, or
other evidence of indebtedness, issued by any corporation,
including those issued by a government or political subdivision
thereof, with interest coupons or in registered form.
61SEC. 34 (E) Bad Debts.
(1) In General. - Debts due to the taxpayer actuafiy ascertained
to be worthless and charged off within the taxable year except
those not connectedwith profession, trade or business and those
sustained in a transaction entered into between parties
mentioned under Section 36 (B) of this Code:
Page 62 of 206
TAXATION LAW
For mines, other than oil & gas wells, if loss is incurred in
any of the first 10 years of operation, it may be carried over
for the next 5 years.
Requirements:
• The taxpayer was not exempt from income tax in the
year of such net operating loss;
• The loss was not incurred in a taxable year during
which the taxpayer was exempt from income tax, and
• There has been no substantial change in the
ownership of the business or enterprise.
A merged with B, with A as the surviving corporation. A
cannot claim B's prior losses as deductions (PICOP v. CA).
There is no substantial change in the ownership of the
business when:
(i) Not<75% in nominal value of outstanding issued
shares is held by same persons
(ii) 'Not<75% of paid up capital of corp. is held by same
persons
Note: No actual change in ownership occurs:
(1) in case the transfer involves change from direct
ownership to indirect ownership, or
(2) merger of the subsidiary into the parent company.
If several corporations enter an agreement to integrate
their respective businesses, can each of the corporations
continue to carry-over their respective net operating
losses?
iF the separate corporations are not dissolved but are
merely integrated for a legitimate business purpose, then
the NOLCO of each separate corporations are preserved
after the proposed share swap. This is because there is no
substantial change in the ownership of the business. (BIR
Ruling 30-00).
5. Bad Debts61
Provided, That recovery of bad debts previously allowed as
deduction in the preceding years shall be included as part of the
gross income in the year of recovery to the extent of the income
tax benefit of said deduction.
(2) Securities Be.coming Worthless. - If securities,.as defined ,
in Section 22 (T), are ascertained to be worthless and charged i ·
off within the taxable year and. are capital assets, the loss
resulting therefrom shail, in the case of a taxpayer other than a
bank or trust company incorporated under the laws of the
Philippinesa substantial part of whose business is the receipt of
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Bad debts are debts due to the taxpayer actually (Collector v. Goodrich, G.R. No. L-22265, 1967): •
• ascertained to be worthless and charged off during the Taxpayer did in. fact ascertain the debt to be worthless in
l
! year may be claimed as a deduction. the year for which ihe deduction was sought.
Worthlessness is not determined by an inflexible formula
i. Requisites for deductibility: or slide rule calculation but upon the exercise of sound
1) There must be an existing indebtedness due to the business judgment.
taxpayer which must be valid and -legally
demandable; The determination of worthlessness must depend upon the
2) It. must be connected with the taxpayer's trade, particular facts and circumstances of the case. It must be
business or practice of profession; uncollectible even in the future.
3} It must not be sustained in a transaction entered
into between related parties; That in so doing, he acted in good faith. Good faith does
4) It must actually be charged off in the books of not require that the taxpayer be an incorrigible optimist but
accounts of the taxpayer as of the end of the on the other hand, he maynot be unduly pessimistic.
taxable year; and
5) It must actually beascertainedto be worthless and
uncollectible as of the end of the taxable year (RR
No. 05..;99, as amended by RR No. 25-02)
6) The bad debt must not be one contracted With a
related party

Bad debts arising from transactions. between related

l I parties are NOT deductible.
• Between members of a family (includes only
r ; . brothers & sisters, spouse, ancestors, & lineal
descendants)
[] • Between an individual & a corporation, more than
50% in value Of outstanding stock is owned by
J such individual (except in case of distributions in
liquidation)
l • Between 2 corporations more than 50% in value of
outstanding stock owned by same individual, if
either one is a personal holding company or a
foreign holding company during the taxable year
preceding the date of sale/exchange
• '3etwe€ln grantor. &. fiduciary of any trust
I I . • Between fiduciary of a trust & the fiduciary of
another if same person is a granter to each trust
• Between fiduciary & a beneficiary of a trust·

ii. Effects of recovery of bad debts

Tax Benefit Rule - Recovery of bad debts previously
aliowed as deduction in the preceding years shall be
included as part of gross income in the year of recovery to
the extent of the income tax. benefit of such deduction.
f
(Sec. 4, RR No. 05~99)
t

iii. Ascertainment of worthlessness

deposits, for the purpose of this Title, be considered as a loss

from the sale or exchange, on the last day of such taxable year,
of capital assets.
Page 63 of 206
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6. Depreciation62
•
Refers to the gradmil diminution in the service or useful
va!ue of tangible property due from exhaustion, wear and
tear and normal obsolescence; also applies to amortization
of intangible assets, the use of which in trade or business
is of limited duration.
62SEC. 34 (F) Depreciation.
(1) General Rule. - There shall be allowed as a depreciation
deduction a reasonable allowance for the exhaustion, wear and
tear (including reasonable allowance for obsolescence) of
property used in the trade or business .. In the case of property
held by one person for life with remainder to another person, the
deduction shall be computed as if the life tenant were the
absolute owner of the property and shall be allowed to the life
tenant. In the case of property held in trust, the allowable
deduction shall be apportioned between the income beneficiaries
and the trustees in accordance with .the pertinent provisions of
the instrument creating the trust, or in the absence of such
provisions, on the basis of the-trust income allowable to each.
(2) Use of Certain Methods and Rates. - The term 'reasonable
allowance' as used in the preceding paragraph shall include, but
not limited to. an .allowance computed in accordance with rules
and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commlssioner, under any of the following
methods:
(a) The straight-line method;
(b) Declininp-balance method,. using a rate not exceeding twice
the rate which would have been used had the annual allowance
been computed under the method described in Subsection (F)
(1 );
(c) The sum-of-the-years-digit method; and
(d) any other method which may be prescribed by the Secretary
of Finance upon recommendation of the Commissioner.
(3) Agreement as to Useful Life on Which Depreciation Rate
is Based. - Where under rules and regulations prescribed by the
Secretary of Finance upon recommendation of the
Commissioner, the taxpayer and the Commissioner have entered
into an agreement in writing specifically dealing with the useful·
life and rate of depreciation of any property, the rate so agreed
upon shall be binding on both the taxpayer and the national
Government in the absence of facts and circumstances not taken
into consideration during the adoption of such agreement The
responsibility of establishing the existence of such facts and
circumstances shall rest with the party initiating the modification.
Any change in the agreed rate and useful life of the depreciable
property as specified in the agreement shall not be effective for
taxable years prior to the taxable year in which notice in writing
by certified mail or registered mail ls served by the party initiating
such change to the other party to the agreement:
Provided, however, that where the taxpayer has adopted such
useful life and depreciation rate for any depreciable and claimed
Page 64 of 206
TAXATION LAW
i. Requisites for deductibility:
• The allowance for depreciation must be reasonable;
• It must be for property used for employment in trade or
business or out of its not being used temporarily during
the year;
• The allowance must be charged off; and
• Schedule on. the allowance must be attached to the
return
the depreciation expenses as deduction from his gross income,
without any written objection on the part of the Commissioner or
his duly authorized representatives, the aforesaid useful life and
depreciation rate so adopted by the taxpayer for the aforesaid
depreciable asset shall be considered binding for purposes of this
Subsection.
(4) Depreciation of Properties Used in Petroleum Operations.
- An allowance for depreciation in respect of all properties directly
related to production of petroleum initially placed in service in a
taxable year shall be allowed under the straiqht-line or declining-
balance method· of depreciation at the option of the service
contractor.
However, if the service contractor initially elects the declining-
balance method, it may at any subsequent date, shift to the
straight-line method. ·
The useful· life of properties used in or related to production of
petroleum shallbe ten (10) years of such shorter life as may be
permitted by the Commissioner.
Properties not used directly in the production of petroleum shall
be depreciated under the straight-line method on the basis of an
estimated useful life of five (5) years. ·
(5) Depreciation of Properties Used in Mining Operations. -
an allowance for depreciation in respect of all properties used in
mining operations other than petroleum operations, shall be
computed as follows:
(a) At the normal rate of depreciation if the expected life is ten
(10) years or less; or
(b) Depreciated over any number of years between five (5) years
and the expected life if the latter is more than ten (10) years, and
the depreciation thereon allowed as deduction from taxable
income:
Provided, That the contractor notifies the Commissioner at the
beginning of the depreciation period which depreciation rate
allowed by this Section will be used.
(6) Depreciation Deductible by Non-resident Aliens Engaged
in Trade or Business or Resident Foreign Corporations. - In
the case of a non-resident alien individual engaged in trade or
business or resident foreign corporation, a reasonable allowance
for the deterioration of Property arising out of its use or
employment or its non-use in the business trade or profession
shall be permitted only when such property is located in the
Philippines.
 1
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r·1 ii. Requisites for· deductibility on depreciation of
• land, vehicles capitalized by the taxpayer:
·1 • The taxpayer must substantiate the purchase of
·, vehicle with sufficient evidence;
l • On!y one vehicle for land transport is allowed for the
[ 1 use of an official or empioyee, the value of which
should not exceed P2.4 million;
• No 'depreciation .· shall be allowed for yachts,
helicopters, airplanes and/or aircrafts, and land
vehicles which exceed the above threshold amount,
unless the taxpayer's main line of business is transport
operations or lease of transportation equipment and
the vehicles purchased are used in said operations;
• All maintenance expenses on account of non-
depreciable vehicles for taxation purposes are
disallowed in their entirety; and
• The· input taxes on the purchase of non-depreciable
vehicles and all input taxes on maintenance expenses
incurred thereon are likewise disallowed for taxation
purposes. (Sec. 3, RR No. 12-12, as clarified by RMC
j
No. 02-13)
I
I.
.!
Note: Depreciation is deductible by NRA-ETB or NRC only
·1 when such property is located in the Philippines.
I
.. ,.
j
The BIR and the taxpayer may agree in writing on the
useful life of the property to be depreciated. The agreed
rate may.be modified if justified by facts or circumstances.
1
Ji The change shall not be effective before the taxable year
on which notice in writing by registered mail is served by
I 1 the party initiating.
I l
63SEC.
34 (H) Charitable and Other contributions.
I J (1) In General. - Contributions or gifts actually paid or made
within the taxable year to, or for the use of the Governmentofthe
Philippines or any of its agencies. or any political· subdivision
I! thereof exclusivelyfor public purposes,or to accrediteddomestic
corporation or associationsorganized and operated exciusively
for religious,charitable,scientific,youth and sports development,
cultural or educational purposes or for the rehabilitation of
veterans, or to social welfare institutions, or to non-government
[ . organizations, in accordance with rules and regulations
promulgatedby the Secretaryof finance, upon recommendation
of the Commissioner, no part of the netincorne of which inures to
the benefit of any private stockholderor individual in an amount
not in excess of ten percent (10%) in the case of an individual,
and five percent(%) in the case of a corporation,of !he taxpayer's
taxable income derived from trade, business or profession as
computed. without the benefit of · this and the following
subparagraphs.
.
r ;
(2) Contributions Deductible in Full. - Notwithstanding the
provisions of the preceding subparagraph, donations to the
following institutions or entities shall be deductible in ful!;
Page 65 of 206
TAXATION LAW
7. Charitable & other contributions63
i. Requisites for Deductibility (contributions subject
to limitations):
1. Contributions or gifts must be actually paid or made
within the taxable year;
2. To or for the use of the government or its agencies or
any political subdivision, exclusively for public
purpose; or
3. To accredited domestic corporations or associations
organized and operated exclusively for:
• Religious
..• Charitable
Scientific
• Youth & sports development
• Culturai or educational purposes
• Rehabilitation of veterans
• Social welfare institutions
• NGOs
No part of net income inures to the benefit of any private
stockholder or individual in excess of the f?.~(?wing
limitation: · .,
~ ,}·.;·.<\
For individual: not more than 10% of taxable income
before deducting the charitable contributions .
For corporation: not more than 5% of taxable income
before deducting the charitable contributions. ,,.,,;;.
(a) Donations to the · Government.· - Donations to the
Governmentof the Philippines or to any of its agenciesor political
subdivisions, including fully-owned govemmeht corporations,
exclusivelyto finance; to provide for, or to be used in undertaking
priority activities in education, health, youth and sports
development, human settlements, science and culture, and in
economic development according to a National Priority Plan
determinedby the NationalEconomic and DevelopmentAuthority
(NEDA), In consultation with appropriate government agencies,
including its regional development councils and private
philantrophic personsand institutions:
Provided, That any donationwhich is made to the Government or
to any of its agencies or political subdivisions not in accordance
with the said annual priority plan shall be subject to the limitations
prescribedin paragraph(1) of this Subsection;
(b) Donations to Certain Foreign Institutions or international
Organizations. - donations to foreign institutionsor international
organizations which are fully deductible in pursuance of. or in
compliance with agreements,treaties, orcommitments entered
into by the Government of the Philippines and the foreign
institutions or international organizations or in pursuance of
special laws;
 ATENEO CENTRAL
BAR OPERATIONS 2019
• ii. Amount that may be deducted
Valuation • organizations or in pursuance to special laws
The amount of any charitable contribution of property other
than money shall be based on the acquisition cost of said
property.
Contributions subject to limitations
(see requisites for deductibility)
Contributions deductible in full
• Donations to the government - to finance, to provide
for, or to be used in undertaking priority activities in
· education, health, youth & sports development, human
settlements science & culture & in economic
development according to National Priority Plan
determined by NEDA
If not in accordance with annual priority plan, donation
is subject to 10% / 5% limitation
• Donations to certain foreign institutions or international
organizations - in compliance with agreements,
treaties, or commitments entered into by Philippine
. [c) Donations to Accredited Nongovernment Organizations.
- the term 'nongovemment orpanlzatiorr means a non profit
. domestic corporation;
(1) Organized and operated exclusively for scientific, research,
educational, character-building and youth and sports
development, health, social welfare, cultural or charitable
purposes, or a combinationthereof, no part of the net income of
which inures to the benefit of any private individual;
(~) Whicll, not later than the 15th day of the third month after the
close of the accredited nongovemment organizations taxable
year in which contributionsare received,makes utilizationdirectly
for the active conduct of the activities constitutingthe purpose or
function for which it is organized and operated, unless an
extended period is granted by the Secretary of Finance in
accordance with the rules and regulations to be promulgated,
upon recommendationof the Commissioner:
(3) The level of administrative expense of which .shall, on an
annual basis, .conform with the mies and regulations to be
prescribedby the Secretary of Finance,'upon recommendation of
the Commissioner, but in no case to exceed thirty percent (30%)
of the total expenses;and
( 4) The assets of which, in the event of dissolution, would be
distributed to another nonprofit domestic corporation organized
for similar purposeor purposes, or to the state for public purpose,
or would be distributed by a court to another organizationto be
used in such manner as in the judgment of said court shall best
accomplish the general purpose for which the dissolved
organizationwas organized.
Page 66 of 206
TAXATION LAW
government and foreign institutions/international
• Donations to accredited NGOs - Organized &
operated exclusively for scientific, educational,
character-building & youth & sports development,
health, social welfare, cultural or charitable purposes
or combination thereof (no part of net income inures to
the benefit of any private individual)
Must be utilized not later than the 151h day of the 3rd
month after the close of the taxable year, directly for
the active conduct of activities constituting the purpose
of the organization, unless period is extended.
The level of administrative expense must conform with
the rules and regulations prescribed by the Secretary
of Finance but should not be greater than 30% of total
expenses.
Upon dissolution, assets would be distributed to another
nonprofit domestic corporation organized for similar
purpose or to the state for public purpose or to another
Subject to such terms and conditions as may be prescribed l;>y
the Secretaryof Finance, the term 'utilization' means:
(i) Any amount in cash or in kind (including administrative
expenses) paid or utilized to accornpusrr.one or more purposes
for which· the accredited nongovemment organization was
created or organized.
(ii) Any amount paid to acquire an asset used (or held for use)
directly in carrying out one or more purposes for which the
accredited nongovernment organization was created or
organized.
An amountset aside for a specific projectwhich comeswithin one
or more purposes of the accredited nongovernmentorganization
may be treated as a utilization,but only if at the time such amount
is set aside, the accredited· nongovemment organization has
established to ihe satisfaction of the Commissioner that the
amount wiil be paid for the specific project within a period to be
prescribed in rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the
Commissioner, but not to exceedfive (5) years, and the project is
one which can be better . accomplished by setting aside such
amount than by immediatepayment of .funds.
(3) Valuation. - The amount of any charitable contribution of
property other than money shall be based on the acquisitioncost
of said property.
(4) Proof of Deductions. - Contributions or gifts . shall be
allowable as deductions · only if verified under the · ruies and
reguiations . prescribed by the Secretary of Finance, upon
recommendationof the Commissioner.
 ATENEO CENTRAL
BAR OPERATIONS 2019
rJ organization to be used in the same purpose as the
dissolved corpbration.
8. Pension Trusts (Past Service Cost)54
r ·, Pension Trust Contributions - a deduction applicable
1 only to the employer on account of his contributions to a
private pension plan for the benefit of his employees;
purely business in character.
Normal Cost - the contributions during the taxable year to
cover the. pension liability accruing during such taxable
year; allowed as a deduction under Sec. 34(A)( 1) of the
N!RC as "expenses in genercfO'.
r health facility to comply with the Breast Milk Act is
\
Past Service Cost - amount in excess of the above
r contribution (covering pension liability pertaining to old
·, employees which accrued during the years previous to the
i establishment of the pension trust); allowed as deduction
only if all of the requisites below concur.
Requisites for deductibility of past service cost:
f l
l 1. The employer must have iestabiished a pension or
retirement plan to provide for the payment of
reasonable pensions to his employees;
2. The pension plan is reasonable and actuarially sound;
3. The pension plan must be funded by the employer;
4. The amount contrlouted must no longer be subject to
'
( j; the control and disposition of the employer;
, 5. The payment has not yet been allowed as a deduction;
1
l .l and •
6. The deduction is apportioned in equal parts over a
period of 10 consecutive years beginning with the year
in which the transfer of payment is made.
l] Nothing precludes the employer from making property
contributions {other than monetary contributions) to the
I 1 pension plan for as long as no part of.the corpus or income
of the fund shall be used for, or be diverted to, any purpose
tl other than for the exclusive benefit of the employees. The
transfer of property to the pension plan is neither a sale nor
1--l
l -~ a donation. (BIR Ruling No. [DA-486-04])
Summary rules on retirement benefits plan/pension
trust:
Exempt from income tax - employees' trust under Sec.
60(8) of the NIRC
64SEC. 34 (J) Pension Trusts. - An employer establishing or
maintaining a pension trust to provide for the payment of
reasonable pensions to his employees sha!I be allowed as a
deduction (in addition to the contributionsto such trust during the
taxable year to cover the pension liability accruing during the
year. allowed as a deduction under Subsection (A) (1) of this
Page 67 of 206
TAXATION LAW
Exclusion from grqss income - amount.received by the
empioyee from the fund upon compliance with certain
conditions under Sec. 32(8)(6) of the NIRC
Deduction from gross income .
If Normal Cost: as an expense under Section 34(A) of the
NIRC.
If Past Service Cost: as a pension trustunder Sec. 34(J)
of the NIRC
9. Deductions under Special Laws
RA 10028: expenses incurred by a private health and non-
deductibie up to TWICE of the actual amount incurred
(RMC No, 47-10)
RA 8502: additional deduction of 50% of expenses
incurred in training schemes in the jewelry. industry
approved by the appropriate agency (RMC No. 33-04)
RA . 8525: additional deduction . equivalent to 50% of
expenses incurred in joining the Adopt-a-School program
(RR No. 10-03) ,.,,.
RA 9999: for free legal assistance; taxpayers can deduct
the amountthat could have been collected from the client.
or up to 10% of gross income derived from the actual
performance of legal services, whichever is LOWER~,
RA 7277: private entities that employ disabled persons are
entitled to an additional deduction equivalent to'25% of the
total amount paid as. salaries and wages to disabied
persons; private entities that improved or modify · their
physical facilities in · order to provide reasonable
accommodation for disabled persons. shall also be entitled
to an additional deduction from their net taxable income,
equivalent to 50% of the direct costs of the improvements
or modifications.
Optional standard deduction (OSD) (as amended by
R.A. 10963)
• An individual, other than a nonresident alien, may
elect a standard deduction of 40% of his gross sales
or gross receipts.
Section a reasonable amount transferred or paid into such trust
during the taxable year in excess of such contributions, but only
if such amount (1) has not theretofore been allowed as a
deduction, and (2) is apportioned in equal parts over a period of
ten (10) consecutive years beginning with the year in which the
transfer or payment is made.
 ATENEOCENTRAL
BAR OPERATIONS 2019 TAXATION LAW

• In the case of a corporation, it may elect a standard • .. Between fiduciary of a trust & the fiduciary of
deduction of 40% of its gross income at defined in another if same person is a grantor to each trust.
Section 32 of the NIRC. 8. Non-deductible interest
• In case of general professional partnerships: 9. Non-deductible taxes
Non-deductible losses
That a GPP and the partners comprising such 10. Losses from wash sales ofstock or securities
partnership may avail of the OSD only once, either by
the GPP or the partners comprising the partnership. 5. Income Tax on Individuals
(as amendedby R.A 10963) · a) Income Tax on Resident Citizens, Non-resident
Citizens and Resident Aliens
Note: There is no need to substantiate OSD. Election for
OSD should be signified in the return and shall be (1) Coverage - Income from all sources within and
irrevocable for the taxable year for which the return was without the Philippines; exceptions
made.
TAXABLE ON
(b) Personal and Additional Exemptions TAXPAYER TAX BASE
INCOME
Repealed by RA 10963 or TRAIN
Resident Taxable Within and without
c) Items not deductible Citizen Jncorne the Philippines
1. General Rule - An expense will be allowed .as a
deduction only if the tax required to be deducted and Non-resident Taxable Within the
withheld therefrom has been remitted to the BIR; ·Citizen Income Philippines
2. Personal, ljving or family expenses;
3. Amounts paid out for new buildings or for permanent Resident Taxable Within the
improvements or betterments made to increase the Alien Income Philippines
value of any property or estate (not applicable to
intangible f:lrilling arid development costs incurred in Definitions for Resident Citizen, Non-Resident Citizen,
· · petroleum operation); and Resident Aliencanbe foundinPage 30and31.
4. Amounts expended in restoring property or in making
good the exhaustion thereof for which an allowance is The tax shall be computed in the following tax rates65:
or has. been made;
(As amended by RA 10963)
5. Premiums on life insurance policy when the taxpayer
is directly/indirectly a beneficiary under such policy;
Tax Schedule Effective January 1, 2018 until December
6. Interest expense, bad debts, and losses· from sales of
31, 2022:
property between related parties;
7. Losses from sales or exchanges of property
No loss shall be deducted if made: Not over P250 000 0%
• Between members of a family (include only Over P250,000 but not 20% of the excess over
brothers and sisters, spouse, ancestors, & lineal over P400,000 P250,000
descendants); Over P400,000 but not P30,000 + 25% of the
• Between an individual and a corporation more over PB00,000 excess over P400,000
than 50% in value of outstanding stock is owned Over P800,000 but not P130,000 + 30% ofthe
bysuch individual (except in case of distributions over P2,000,000 excess over P800,00
in liquidation); Over P2,000,000 but not P490,000 + 32% of the
• Between 2 corporations more than 50% in value of over P8,000,000 excess over P2,000,000
outstanding stock is owned by same individual, if P2,410,000 + 35% of
either one is a personal holding company or a the excess over
foreign holding company during the taxable year Over P8,000,000 P8,000,000
precedinq the date of sale/exchange;
• Between grantor & fiduciary of any trust; or Tax Schedule Effective January 1, 2023 and onwards:

65 SEC. 24 (A)(2).
Page 68 of 206
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In. general, the term "compensation" means all

Not overP250,000 . • 0% remuneration for services performed by an employee fo r
Over P250,000 but not 15% of the excess over his employer under an. employer-employee relationship,
over P400,000 P250,000 unless specifically excluded by the NIRC.
Over P400,000 but not P22,500 + 20% of.the
over P800,000 excess over P40Q,OOO
i P102,500 + 25% of the
' ;
Over P800,000 but not (i)Inclusions - monetary and non-moneta ry
over P2,000,000 excess over P800,00 compensation
Over P2,000,000 but not P402,00 + 30% of the Monetary benefits
overP8,000,000. excess over P2,000 000
p2,202.soo + 35% of
• Salaries, wages, emoluments and honoraria,
allowances, comrrussrons (e.g. transportation
the excess over
representation, entertainment and the like);.
Over P8,000,000 P8,000,000
• Fees includin g director's fees, if the director is, at th e
same time, an employee of the employer/corporation;
{ i Self-employed individuals and/or professionals whose
• Taxable pensions and retirement pay; and
gross sales/gross receipts and other non-operating
• Other income of a similar nature
income does not exceed the VAT . threshold of
P3,000,000 shall have the option to avail of an eight
Non-monetary benefits
'
t percent (8%) tax on gross sales or gross receipts and
other non-operating income in .excess of P250,000 in
• Taxable bonuses and fringe benefits, except those
,· lieu of the graduated income tax rates. 66
which are . subject to the Fringe Benefit Tax (FBT)
l under Sec. 33 oftheNIRC ·

Mixed Income Earners, those who are eaming both (ii) Exclusions - Fringe benefits subject to t~:x'; De
compensation income and income from . business or Minimis benefits; 13th month pay and other
practice of profession shall be subject to the following benefits and payments specifically excluded from
tax rates: • . taxable compensation income
r] I
(a) Ali income from compensation ~ graduated Fringe benefit subject to FBT68
rates Any good, service or other benefit furnished or granted in
r f:.
I (a) All income from business . or practice of cash or in kind by an employer to an individual empJoyee
profession ( except rank and file employees) such as, but not limited
[1 • Gross Sales and/or Gross Receipts and to the following: ·· ·
Other Non-Operating Income does not 1. Housing
I 1 exceed P3,000,000 - either the graduated 2. Expense account
rates or 8% income tax based on gross sales
3. Vehicle of any kind
1 or gross receipts and other non-operating
4. Household personnel (such as maid, driver and
others)
income.
t l " Exceeds P3,000,000 - graduated rates'"
5. lntere~t on loan at less than market rate to the extent
of the difference between the market rate and actual
rate
(1) Taxation on compensation income - Inclusion and
l ,
Exclusion ·

..
;!
66SEC. 24 (A)(2)(b) . (5) Interest on loan at less than market rate to the extent of the
67 SEC. 24 (A)(2)(c). difference between the market rate and actual rate granted;
68SEC. 33 (B). Fringe Benefit Defined. -
(6) Membership fees, dues · and other expenses borne by the
employer for the employee in social and· athletic clubs or other
For purposes of this Section, the term "fringe benefit' means any similar organizations;
good, service .or other benefit furnished or granted in cash or in (7) Expenses for foreign travel;
kind by an employer to an individual employee (except rank and

'
(8) Holiday and vacation expenses; .
file employees as defined herein) such as, but not limited to, the (9) Educational assistance to the employee or his dependents;
following:
, (1) Housing;
.and
(10) Life or health insurance and other non-fife insurance
(2) Expense account; premiums or similar amounts in excess of what lhe law allows.
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
Page 69 of 206
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6. Membership fees, du'is and other expenses borne by to the earning of the revenue such that withoutsuch costs,
the employer for the employee in social & athletic clubs • no revenue can be generated. (RR No. 024-08)
or other similar organizations
7. Expenses for foreign travel Professional income
8. Holiday and vacation expenses Income earned from the practice of profession provided
9. Educational assistance to the employee or his there is no employer-employee relationship between him
dependents and his clients.
10. Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the law Profession is primarily any endeavor or work requiring
allows specialized training in the field of learning, art, or science
engaged in as a means of livelihood or profit of an
De minimis benefits individual or group of individuals.
Benefits which are exempt from the fringe benefit tax shall,
in general, be limited to facilities or privileges furnished or (4) Taxation of Passive Income
offered by an employer to. his employees that are of Passive income subject to final tax
relatively small. value and are offered or furnished .by the
employer merely as a means of promoting the health, TAX BASE TAX RATE
goodwill, contentment, or efficiency of his employees. Interest from currency bank deposit · 20%
and yield or any other monetary
All other benefits given by the employer, which are not benefit from deposit substitutes and
included in the enumeration under RR Nos. 05-11, 08-12 from trust funds and similar
and 01~1s shall not be considered "de minimis" benefits. arrangements

13th month pay and other benefits Royalties on books and other literary 10%
13th month pay & other . benefits (i.e., productivity works and musical compositions
incentives & Christmas bonuses) the total of which does
not exceed P90,000. (as amanded by R.A. 10963) Royattles, except on books, other 20%
literary works and musical
If the benefit exceeds P90,000, only the excess will be composition
taxable. l?rizes and other winnings 20%
amounting to more than P10,000
Not applicable to self-employed individuals and income (except PSCO and Lotto winning
generated from business.
(RA 10653; RR No. 03-15) . amounting to P10,000 pesos or less).
Interest Income from Long-Term
Deposit or investment (held for 5 Exempt
(3) Taxation of business income/income from practice years or more)
of profession -
...
Income from business
In case of pre-termination: if held for:
In the case of manufacturing, merchandising, or mining 4 yrs to less than 5 years 5%
business, "gross income" means the total sales, less cost 3 yrs to less than 4 years 12%
of goods sold, plus any income from investments and from Less than 3 years 20%
incidental or outside operations or sources. In determining
gross income, deductions should not be made for
depreciation, depletion, selling expenses or losses, or for
I Interest income earned from deposit
NOTFCDU
7.5%

items not ordinarily used in computing the cost of goods 15% for
Interest income earned from deposit
sold. individuals and
FCDU
domestic
In the case of sellers of services, gross income is
corporation (as
computed by deducting "cost of services" which pertains to amended by
a!I direct costs and expenses exclusively and directly R.A. 10963)
incurred in relation to the revenue realized by such sellers.
(Exempt for
These refer to costs which are considered indispensable

Page 70 of 206
 ••
r ·,
i. )

['}

r1 ATENEO CENTRAL
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r1 • TAX BASE I
•
TAX RATE ·'
citizen thereof but doing business· therein is taxable only
non-resident on income from sources within.
t:
\ individuals)
Cash and/or Property Dividends 10% Engaged in trade or business .(NRA-ETB)..:. an alien who
.. ~
comes and stays m the Philippines for an aggregate period
(5) Taxation of capital gains of more than 180 days during any calendar year
TAX BASE TA)(RATE
NRA-ETB shall be subject to an income tax in the same
Capital Gains from Sale of Shares of
manner as an. in the same manner as an individual citizen
Stock Not Traded in the Stock
and a resident alien individual, on taxable income received
Exchange
from all sources within the Philippines; 70 (Please · see
discussion on "Income Tax on Resident Citizens, Non-
Net Capital Gains: Final tax of
resident Citizens and Resident Aliens onpag~ 32).
15%(as
amended by
As for the capital gains, the following are· the tax rate
R.A. 10963)
applicable·
Sale of shares of stocks traded in the
TAX RATES ON CAPITAL GAINS
Local Stock Exchange (Stock
Transaction Tax) On sale of shares of stock
(l I of a domestic corporation
Selling price or gross value in 0.6°/~ (as NOT traded through a
money of shares of stock sold, ·amended by local stock exchange held
bartered, exchanged, or RA:10963) as a capital asset
. otherwise disposed through the
local stock exchange Capital gains not over 5% of the .net ca~ital gain
...
-Capital gains on sale of Real i=>100,ooo
'
Property situated in the Philippines •
(J Capital gains in excess of 10% of the net ca~ital gain
Selling Price or FMV whichever Fina.f tax of 6% P100,000
(1 is HIGHER .. ·
Tncome from the sale, exchange or. Graduated On sale of real property in 6% of the gross selling
Il other disposition of capital assets. Income Tax the Philippines held as a price, or the current
Rate capital asset market value at the time of
LJ sale, whichever is higher.
Please see discussion on "Income from dealings in teal
I 1 property classified as capital assets situated in the General rules:
Philippines" on page 46. (i) A nonresident alien individual who shall come to the
l} Philippines and 'stay therein for an aggregate period of
I-'
b) Income tax on non-resident aliens engaged in trade more than 1.80 days during any calendar year
>

LJ
l
or business (ii) Shall be taxed on income earned within . the
TAXABLE ON · Philippines, in the same manner as an individual
TAXPAYER TAX BASE
INCOME citizen or a resident alien:
(iii) Except: a cinematographic film· owner who shall be
Non-resident Alien taxed at 25% on his gross income
engaged in trade or Taxable Within the
business (more than Income Philippines c) Income Tax on Non-Resident Aliens NotEngaged in
180 days) Trade or Business
'I.
Nonresident Alien 69 (NRA) - an individual whose
residence is not within the Philippines and who Is.not a

69
SEC. 22 (G). The term 'non-resident alien' means an 70SEC. 25 (A).
individual whose residence is not within the Philippines and who
is not a citizen thereof.
Page 71 of 206

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TAX • TAXABLE ON
TAXPAYER
BASE INCOME
Nonresident Alien
not engaged in trade Gross Within the
or business (180 Income Philippines
days or less)
Not engaged in trade or business (NRA-NETB) - an
alien whose stay in the Philippines is 180 days or less71
NRA-NETBs are taxed 25% of the their entire income
within the Philippines." They will not be allowed to have
any deductions. Their capital gains tax liabilities are the
same with NRA-ETB.
d) Individual Taxpayers Exempt from Income Tax
(1) Senior citizens
A Senior Citizen is:
• Any resident of the Philippines; and
• At least 60 years old.
General Rule: Qualified Senior Citizens (SC) deriving
income during the taxable year are required to file· their
income tax returns and pay income tax thereunder.
Exceptions:
• If income is in the nature of compensation income and
the SC qualifies as a MWE, he shall be exempt from
income tax on said compensation income, subject to
the rules of RA 9504 and RR No. 10-08 ..
• .lf the aggregate amount ofgross income earned by the
SC during the taxable year does not exceed the
71SEC. 25 (A) (1) IN GENERAL. - A non-residentalien individual
engaged in trade or business in the Philippines shall be subject
to an income tax in the same manner as ah individualcitizen and
a resident alien individual, on taxable income received from all
sources within the Philippines. A non-resident alien individual
who shall come to the Philippines .and stay therein for an
aggregate period of more than one hundred eighty (180) days
during any calendar year shall be deemed a 'non-resident alien
doing business in the Philippines'. Section 22 (G) of this Code
notwithstanding
72SEC. 25 (B) Nonresident Alien Individual Not Engaged in
Trade or Business Within the Philippines. - There shall be
levied, collected and paid for each taxable year upon the entire
income received from all sources within the Philippinesby every
nonresident alien individual not engaged in trade or business
within the Philippines as interest, cash, and/or propertydividends,
rents, salaries, wages, premiums. annuities, compensation,
remuneration. emoluments,or other fixed or determinable annual
or periodicor casual gains, profits, and income, and capital gains,
· Page 72 of 206
.. ,.-;
TAXATION LAW
amount of basic and. a,dditional exemptions, he shall be
exempt from payment of income tax and filing of an
ITR.
Note: The tax exemption granted to SCs does not
necessarily extend to income subject to final tax (e.g.,
interest income from bank deposits and dividends) and
ca p ital g ains tax. (RA 9994;RRNo. 07-10
Compliance Requirements forIncome Tax Exemption:
(i) Must first be qualified as such by the CIR or the HOO
· by submitting a certified true copy of his OSCA ID; and
(ii) Must file a sworn statement on or before January 31 of
every year that his annual taxable income does not
exceed the poverty level.
(2) Minimum wage earners
Compensation income of· MWEs shall be exempt from
income tax and consequently from withholding tax on
compensation .if they work:
In the private sector and being paid the SMW; or
In. the public sector and being paid compensation of
. not more than the SMW in the non-agricultural sector73
Definition of statutory minimum wage (SMW)
Refers to the. rate fixed by. the Regional Tripartite Wage
and Productivity Board (RTWPB), as defined by the
Bureau of Labor and Employment Statistics (BLES) of the
Department of Labor and Employment (DOLE); the
RTWPB of each region shall determine the wage rates in
the different regions based on established criteria and shall
be the basis of exemption from income tax forthis purpose.
Other income of MWEs Which are tax-exempt: holiday
pay, overtime pay, night-shift differential, and hazard
pay74 · ·
a tax equal to twenty-five (25%) of such income. Capital gains
L
realized by a nonresidentalien individual not engagedin trade or
business in the Philippinesfrom the sale of sharesof stock in any
domestic corporation and real property shall be subject to the
income tax prescribed under Subsections(c) and (d) of Section
24.
73SEC. 22 (HH). the term 'minimum wage earner' shall refer to a
worker in the private sector paid the statutory minimumwage, or
to an employeein the pubiic sector with compensationincome of
not more than the statutory minimumwage in the non-aqncultorsl
sector where he/she is assigned.
74SEC. 24 Income Tax Rates.
xxx xxx xxx
Provided,That minimum wage earners as defined in Section 22
(HH) of this Code shall be exempt from the payment of income
tax on their taxable income: Provided, further, That the holiday
pay, overtime pay, night shift differential pay and hazard pay
received by such minimum wage earners shall likewise be
exempt from income tax.
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Cl Holiday pay, overtirne pay, night shift differential pay and
hazard pay earned by MWE shall likewise be covJred by
fl the above exemption,
MWEs.receiving.other income,.such as income from the
conduct of trade, business. or practice of profession,
\
'
j EXCEPT income subject to final tax. in addition to
compensation income are NOT exempted from income tax
sales .. · Clearly, the capital is not being taxed. Thus, MCff
is constitutional. (Chamber of Real Estate and Builo'ers'
Associations, Inc. v. Romulo, G.R. No. 160756, 2010)
I
!
When applicable: Beginning on the 4th taxable. year
immediately following the year in. which such corporation
commenced its business operation.

! i on their entire income earned during the taxable year. Commencement of business operation = Issuance of BIR
However, the SMW, holiday pay, overtime pay, night Certificate of Registration
f
I shift differential pay and hazard pay shall still be
exempt from income/ withholding tax. When imposed: When the corporation has .zero or
negative taxable income or when -2% of the corporation's
MWEs do not lose their tax-exempt status even· though gross income is greater than 30% of its taxable income
[ l they have received other benefits in excess of the statutory (RR No. 12-07)
limit of P30,000. (Soriano v. Secretary of Finance, G.R. No.
184450, 2017). When computed/paid: At the time of filing of quarterly
corporate income tax as prescribed under Secs. 75 and 77
.,) (3) Exemptions granted under international of the NIRC (RR No. 12-07)
agreements75
-.f
. 6. Income Tax on Corporations·
Rationale: Designed to prevent corporations from
escaping tax by including frivolous expenses in their
l} statement of income (e.q., over-statement of depreciation
a) Income Tax on Domestic Corporations and expense). · ·
r·i
l l Resident Foreign· Corporations
Carry Forward of Excess MCIT
. I .
(1) Regular Tax I Regular Corporate Income Tax Excess of. MCIT over the normal income tax shall be
(RCIT) . . carried forward and credited against normal income tax for
[J the 3 succeeding years
The regular domestic tax rates are:
I1 YEAR APPLICABLE TAX RATE
Note: You can deduct MCIT Carry Forward only if RCIT is
greater than MCIT.
2009 onwards 30%
Relief from MCIT
!
i , 2006-2008 35% MCIT may be suspended by the Sec. of Finance when
corporation's losses are due to:
Before 2006 32%
I J • Prolonged labor dispute
• Force majeure
J--i
t j • Legitimate business reverses
(2} Minimum Corporate Income Tax (MCIT)
Imposition of MCIT Note: Gross Income (for purposes of applying MCIT):
i '
=
MCIT Rate 2% of gross income (Gl)76
.
r '
The MCIT is not a tax on capital. It is imposed on gross
Gross income shall mean gross sales(-) sales returns •
discounts and allowanc.es (-) cost cf goods sold.
income which is arrived at by deducting the capital spent
by a corporation in the sale of its goods, i.e., the cost of
goods and other direct expenses from gross
i .•

75
SEC. 32 (B) (5} !ncome Exempt under Treaty. - Income of corporation taxable under this Title, beginning on the fourth
any kind, to the extent required by any treaty obligation binding taxable year immediately following the year in. which such
upon the Governmentof the Philippines. corporation commenced its business operations, when the
76SEC. minimum income tax is oreater than the tax computed under
27(E) (1) Imposition of Tax. - A minimum corporate
income tax of two percent (2%) of the gross income as of the end Subsection(A) of this Section for the taxable year.
of the taxable year, as defined herein, is hereby imposed on a
Page 73 of 206
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Cost of goods sold shall mean all business e~penses

directly incurred to produce the merchandise to bring them
Rb!T 't>r Mc:1r>
\(.wttlchev~r is
to their present location and use. Hi~HER) ...

For taxpayers engaged in the sale of services, gross Less: Excess of 10,000
income shall mean gross receipts (-) sales returns, MCIT over RCIT
discounts and allowances(-) cost of services

Cost of services shall mean all direct costs and expenses

necessarily incurred to provide the services required by the
customers and clients.
Determination of Excess of MCIT over RCIT
Example: The following dates are available for X: Corp:
• SEC Registration - December 17, 2010
• BIR Registration - January 4, 2010
• Start of operations - January 1, 2012
Excess of MCIT over P 10,000
The MCIT will be imposed on X Corp starting taxable year RCIT
2015.
Excess of MCIT over RCIT p 10,000
Computation ofRCIT (PHP)
2014 . 2015 2016 Corporations Exempt from MCIT
• Resident foreign corporations engaged in business as
Gross Sales 3,000,000 4,000,000 5,000,000 international carriers
Cost of Goods • Resident foreign corporations engaged in business as
.Sold
1,500,000 2,000,000 ,
2,500,000 offshore banking units • .
• Resident foreign corporations engaged in business as
Gross.Inc. 1,500,000 2,000,000 2,500,000 . regional operating headquarters
Operating
Expenses
1,450,000 1,900,000 2,100,000
I •

•
Firms that are taxed under a special income tax regime
(like those unde~ PEzA or other economic zones)
Proprietary educational institutions
Net Taxable
P 50,000 P100,000 P400,000 • Non-profit hospitals or depositary banks under the
Inc.
FCDUiEFCDU or Real Estate Investment Trusts
RCIT Rate 30% 30% 30% (REITs)
• Nonresident foreign corporations
RCIT P 15,000 P30,000 P120,000
Applicability of the ·MCIT where a corporation is
Computation of MCIT governed both under the regular tax system and a
special income tax system
In the case of a domestic corporation whose operations or
activities are partly covered by the regular income tax
system and partly covered under a special income tax
system, the MCIT shall apply on operations covered by the
regular income tax system. For example, if a BOl-
registered enterprise has a "registered" and an
"unregistered" activity, the MCIT shall apply to the
Note: The MCIT is not applicable in 2014 since it has r:ot unregistered activity. (RR No. 9-98)
yet reached the "fourth taxable year" requirement.
(3) Branch Profits Remittance Tax
Determination of Tax Due and Payable Any profit remitted by a branch to its head office shall be

I 1 2014 I· 2015 J 2016

subject to a tax of 15% which shall be based on the total

Page 7 4 of 206

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r1 profits applied or earmarked tor remittance without any return such financial statements-otherwlse required under
deductions. tnis Code;
r1
.. (4) Allowable deductions Provided, further, That a general professional partnership
.(l l' (GPP) and the partners comprising such partnership may
. (ij Itemized deductions avail of the OSD only once, either by the GPP or the
1 Pertains to the items in Sec. 34 of the NIRC as discussed partners comprising the partnership.
under Deductions from Gross Income
Provided, finally, That except when the . Commissioner
When itemized deductions is mandatory otherwise permits, the said individual shall keep such
The following are corporations, -partnerships and other records pertaining to his gross sales or gross receipts, or
., non-individuals that are mandated to use the itemized the said corporations hall keep such records pertaining to
( }
-, deductions: his gross income, as defined, during. the taxable year, as
a. Those exempt under the NIRC (i.e., exempt may be required by the rules promulgated by the Secretary
r1 corporations under Sec. 30 and GOCCs under Sec. of Finance.
27(C)] and other special laws, with no other taxable
r income;
b. Those with income subject to special/preferential tax
t 1
I .I rates; and
c. Those with income partially subject to income tax rate
( 1. under Secs. 27(A) and 28(A)(1) of the NIRC and
partially subject to special/preferential tax rates. (Sec.
r -,,
\.J 5, RRNo. 02-14) .

[1 The following are individual taxpayers who are mandated

to use only the itemized deductions:
(l a. Those exempt under the NIRC and other special laws.
with no other taxable income (e.g. Barangay Micro
r ' Business Enterprise [BMBI=]);
tJ
b. Those with income subject to special/preferential tax
I. I rates; and · ·
c. Those with income partially subject to income tax rate
t.1 under Sec. 24 of the NIRC and partially subject to
special/preferential tax rates. (Sec. 5, RR No. 02-14)
tl
(ii) Optional Standard Deduction
fJ An amount not exceeding forty percent (40%) of gross
income
1-j
., "Gross income" shall mean gross sales less sales returns,
discounts and allowances and cost of goods soid.

A taxpayer who elected to avail ofthe OSD shall signify in

his/its. return such intention. Otherwise, he/it shall be
considered as having availed himself of the itemized
deductions.

Once the election to avail the OSD is signified in the return,

it shall be irrevocable for the taxable year for which the
return is made.

Provided, That an individual who is entitled to and claimed

for the OSD shall not be required to submit with his tax
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(5) Taxation of Passive Income • TAX BASE TAX RATE

•
TAX BASE TAX RATE Capital gains on sale or
exchange of . lands and/or
Interest from Deposits and buildings located in the
Yield or any other Monetary Philippines
Benefit from Deposit Selling Price or FMV Final Tax
Substitutes, Trust Funds and whichever is HIGHER ,5%
Similar Arrangements and
Royalties
Interest income earned
from deposit NOT 20%
FCDU
Interest income earned
from deposit FCDU 15%

Income Derived under the

Expanded Foreign Currency
Deposit System
Income derived by a
depository bank under
the FCDU system from
foreign currency
transactions with local
commercial banks (i.e.
branches of foreign 10%
banks authorized by
the BSP to transact
business with FCDU).
Interest income from
·.
foreign currency loans
granted by depository
banks under the FCDU
system to residents,

lntercorporate Dividends Exempt

· (6) Taxation of Capital Gains

TAX BASE TAX RATE

Capital Gains from sale of

shares of stock not traded in
the Stock Exchange
I
Net Capital Gains: Final Tax
15%

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r1 • deemed to have been paid in the Philippines equivalent to

b) Income Tax on Non-Resident Foreign 15% of the dit,idends. .
fl Corporations 77
General Rule:
A foreign corporation not engaged in trade or business in
the Philippines shall pay a tax equal to 30% of the gross
f )
( I income received from all sources within the Philippines.
·,
i Tax on certain income
(1) Interest on Foreign Loans
A final tax at the rate of 20% is imposed on the amount of
interest on foreign loans contracted on or after August 1,
(} 1986. However, said income may be exempt from income
tax or partially exempt pursuant to a treaty obligation to

'
I which the Philippine government is bound.

(2) lntercorporate Dividends

A final tax at the rate of 15% is imposed on the amount of
(- .l
' cash and/or property dividends received from a domestic
corporation. subject to the reciprocity rule.
Ll
Reciprocity Rule: The country in which the non-resident
{ 1, ., foreign corporation is domiciled shail allow a credit against
the tax due from the nonresident foreign corporation taxes

77SEC. 28 (B) Tax on Non-resident Foreign Corpbration. - (5) Tax on Certain· Incomes Received by a Non-resident
Foreign Corporation; -
(1) In General. - Except as otherwise provided in this Code, a (a) Interest on Forei.9n Loans. - A final withholding tax at the
foreign corporation , not engaged in trade or business in the rate of twenty percent (20%) is hereby imposed on the amount of
Philippines shall pay a tax equal to thirty-five percent {35%) of the interest on foreign loans contracted on or after August 1, 1.966;
gross income received during each taxable year from all sources

.
I J
within the Philippines, such as interests, dividends, rents,
royalties, salaries, premiums (except reinsurance premiums),
annuities, emoluments or other fixed or determinable annual,
periodic or casual gains, profits and income, and capital gains,
tl except capital gains subject to tax under subparagraph 5(c):
Provided, That effective January 1, 2009, the rate of income tax
(} shall be thirty percent (30%). · resident foreign corporation taxes deemed to have been paid in
{j · (2) Non-resident Cinematographic Film Owner, Lessor or
Distributor. - A cinematographic film owner, lessor, or distributor
shall pay a tax of twenty-five percent (25%) of its gross income
from all sources within the Philippines.
(3) Non-resident Owner or Lessor of Vessels Chartered by
Philippine Nationals. - A non-resident owner or lessor of vessels
shall be subject to a tax of four and one-half percent (4 1/2%) of
gross rentals, lease or charter fees from leases or charters to
{
Filipino citizens or corporations, as approved by the · Maritime
i.. .> Industry Authority.
(4) Non-resident Owner or Lessor of Aircraft, Machineries
and Other Equipment. - Rentals, charters and other teas derived
by a non-resident lessor of aircraft, machineries and other
equipment shall be subject to a tax of seven and one-half percent
(7 1/2%) of gross rentals or fees.
Page
(b} Inter-corporate Dividends. - A final withholding tax at the
rate of fifteen percent (15%) is hereby imposed on the amount of
cash and/or property dividends received from .a domestic
corporation, which shall be collected and paid as provided in
Section 57(A) of. this Code, subject to the condjtion that· the
country in which the non-resident foreign corporation is
domiciled, shall allow a credit against the tax due from the non-
the Philippines equivalent to twenty percent (20%), which
represents the difference between the regular income. tax of
· thirty-five percent (35%) and the fifteen percent (15%) tax on
dividends as provided in this subparagraph: .
Provided, That effective January 1, 2009, the credit against the
tax due shall be equivalent to fifteen percent (15%), which
represents the difference between.the.regular income tax of thirty
percent (30%) and the fifteen percent (1.5%) tax on dividends;
(c) Capital Gains from Sale of Shares of Stock not Traded in
the Stock Exchange. - A final tax at the rates prescribed below
is hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other disposition
of shares of stock in a domestic corporation, except shares sold,
or disposed of through the stock exchange:
Not over P100,000. ,,_,.., , 5%
On any amountin excess of P100,000 __ 10%
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c} IncomeTax on Special Corporati.ons
(1) Domestic Corporations
(i) Proprietary educational institutions and
hospitals78
(ii) Non-profit hospitals
TAX RATE BASIS
10% On reiated trade, business or
activity;
30%(2009 IF total gross income from
onwards) unrelated trade, business, or
activity exceed 50% of total
income
Proprietary Non-Profit Educational Institution - any
non-profit private school maintained & administered by
private individuals or groups with an issued permit to
operate from DepEd, CHED, or TESDA; "proprietary" and
"non-profit" must concur
Taxable at 10% on taxable income, except on certain
passive income (which shall be subject to final tax)
Predominance Test: if gross income from unrelated
trade/business/other activity > 50% of the total gross
income from all sources, entire taxable income shall be
subject to RCIT of 30%
Distinguish between proprietary educational institution and
non-stock non-profit educational institution .. The latter is
exempt from tax on revenues and assets actually, directly
and exclusively used for educational purposes (Sec. 30(H),
NIRC, RMC 76-03)
Sec. 27(8) of the NIRC does not remove the income tax
exemption of proprietary non-profit hospitals under Sec.
30(E) and (G). Sec. 27(8) on one hand, and Sec. 30(E)
78 SEC. 27 (B) Proprietary Educational Institutions and
Hospitals. - Proprietary educational institutions and hospitals
which are nonprofit shall pay a tax of ten percent (10%) on their
taxable income except those covered by Subsection (0) hereof:
Provided, that if the gross income from unrelated trade, business
or other activity exceeds fifty percent (50%} of the total gross
income derived by such educationalinstitutionsor hospitals from
al! sources. the tax prescribed in Subsection (A) hereof shall be
imposed on the entire taxable income. For purposes of this
Subsection, the term 'unrelated trade, business or other activity'
means any trade. businessor other activity, the conduct of which
is not substantially related to the exercise or performancebysuch
educational institution or hospital. of its primary purpose or
function. A 'Proprietary educational institution' is any private
school maintained and administered by private individuals or
groups with an issued permit to operate from the Department of
Page 78 of 206
and (G) OJl the. other hand, can be c:onstrued together
without the removal of such tax exemption .•
Sec. 27(8) oftheNIRC imposes a l0%preferential tax rate
on the income of (1) proprietary non-profit educational
institutions, .and (2) proprietary non-profit hospitals. The
only qualifications for. hospitals are that they must be
proprietary and non-profit
"Proprietary" means private, fqllowing the .definition of a
''proprietary educational institution" as "any private school
maintained and administered by private individuals or
groups" witha government permit. .
"Non-pmfif means that no net income or asset accrues to
or benefits' any member or spetific person, with all the net
income or asset devoted to the institution's purposes and
all its activities conducted not for profit. (CIR v. St. Luke's
Medical, G.R. No. 195909, 2012)
{iii) Govehunent-owned or controlled corporations,
agencies and ·iristrumentalities79
TAX RATE BASIS·
30% (2009 onwards) Same tax rate upon their
taxable income in a similar
I .
business, industry, or activity
General Ruie: . All corporations, aqencles, or
·instrumentalities owned or controlled by the government
are taxable. ' '
Exceptions:
(a) GSIS
(b) SSS
(c) PHIG.
( d) the locai water districts.
Education, Culture and Sports (DECS), or the Commission on
Higher Education(CHEQ). or the Technical Educationand Skills
Development Authority (TESDAj, as the case may be, in
accordance with existing laws and regulations.
79 SEC.
27 (C) . Government-owned or Controlled-
Corporations, Agencies . orInstrumentalities. - Theprovislons
of· existing special or generai -taws to .the: contrary
notwithstanding, all corporations." agencies, or instrumentalities
owned or controlled by the Government.except the Government
Service Insurance System (GSIS). the Social Security System
(SSS). the Philippine Health Insurance Corporation (PHIC). and
the local water districts shall pay such. rate· of tax upon jheir
taxable incomeas are imposed bythisSectlon upon corporations
or . associations engaged in s similar business, industry, or
activity.
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(iv) Depository banks (foreign currency deposit units]

With non-residents, OBUs, local banks and other (ii} Off-shore banking ufiits
depositary banks under the expanded foreign currency Income derived by OBUs from foreign currency
deposits system shall be exempt from all taxes, except net transactions with nonresidents, other • OSUs, local
income from such transactions as maybe authorized by the commercial banks shall be exempt from all taxes, except
Secretary of Finance shall be subject to regular income net income from such transactions as maybe authorized by
tax, provided that any income derived from foreign the Secretary of Finance shall be subject to regular income
currency loans granted to residents other than OBUs or tax, provided . that any income derived from foreign
r1 local commercial banks shall be subject to final tax of 10% currency loans granted to residents other than OB Us or
local commercial banks shall be subject to final tax of 10%.
{l (2) Resident Foreign Corporations
General Rule: same rules as domestic corporations for (iii) Resident depository banks (foreign currency
Cl regular income. deposit units)
With non-residents. OBUs, local banks and other
r ·1
l ! With respect to their income from sources within the depositary banks under the expanded foreign currency
Philippines deposits system shall be exempt from all taxes, except net
f I income from such transactions as maybe authorized by the
Secretary of Finance shall be subject to regular income
On taxable income 30%
!) j
from all sources within (2009 onwards)
tax, provided that any income derived from foreign
currency loans granted to residents other than OBUs or
rJ the Philippines.
local commercial banks shall be 'subject to final tax of 10%

[] (iv) Regional or Area Headquarters and Regional

(i) International carriers doing business in the Operating . Headquarters of Multinational
r _j
I Philippines
International carriers can either be:
Companies

· 1) International air carrier - !ts Gross Philippine Billings" ,

rJ from carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and
(J uninterrupted flight, irrespective of the place _of issue arid
] the place of payment of the ticket or passage document
· (NIRC Section 28 (A)(3)(a))
IJ 2) International vessels - refers to international shipping
1 gross Philippine billings whether for passenger, cargo or
. I .J
mail originating from then Philippines up to · final
destination, regardless of piace of sale or payments of the
fJ passage or freight documents.
tj A foreign airline selling tickets in the Philippines
f t through their local agent shall be considered as
l j
Resident Foreign Corp engaged in trade or business
,! in the Philippines. The absence of flight operations
• within the Philippines cannot change the fact that the
income is considered as derived from activities within
the Philippines. The test of taxability is the source and
t. the source is that activity which produced the income.
l ; (Air Canada v. CIR, CTA cases No 6572, 2004)
Regional or Area Headquarters· shall_ not be subject to
income tax. Regional or area headquarters shall mean a
branch established in the. Phtlippines by · multinational
companies and which headquarters do not earn or.derive
income from the Philippines and which act as supervisory,
communications and coordinating center for their affiliates,
subsidiaries, or branches in the Asia-Pacific Region and
other foreign rnarkets.s?
Regional Operating Headquarters shall pay a tax of 10%.
Regional Operating .Headquarters shall_ mean a branch
established in the Phi!ippines by multinational companies
which are engaged in the following services: general
administration and pianning; business planning and
coordination; sourcing and procurement of raw materials
and components; corporate finance advisory services:
marketing control and sales promotion; training and
personnel management; logistic services; research and
development services and product development; technical
support and maintenance; data processing and
communication and business development.81
(3) Improperly Accumulated Earnings Tax {IAET)82

80SEC. 22 (DD). a25Ec. 29 Imposition of Improperly. Accumulated Earnings

I ,
C ... : Tax-
81 SEC. 22 (EE).

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(RR No. 02-01; RfvtC No. 35-11)
Rule: There is imposed for each taxable year, in addition
to other taxes, a tax equal to 10% of the improperly
accumulated taxable income of closely-held domestic
corporations.
Rationale: If the earnings and profits were distributed, the
shareholders would then be liable for income tax. If the
distribution were not made to them, they would incur no tax
in respect of the undistributed earnings and profits of the
corporation. It is a tax in the nature of a penalty to the
corporation for the improper accumulation of its earnings,
and a deterrent to the avoidance of tax upon shareholders
who are supposed to pay dividends tax on the earnings
distributedto them.
Exception: The use of undistributed earnings and profits
for the reasonable needs of the business would not
gen'erally make the accumulated or undistributed eamings
subject to the tax. What' is meant by "reasonable needs of
the business" is determined by the Immediacy Test.
Immediacy Test - 1.t states that the "reasonable needs of
the business" are the immediate needs of the business,
including reasonably anticipated needs (e.g., expansion).
(A) In General, - In addition to other taxes imposed by this Title,
there is hereby imposed for each taxable year on the improperly.
accumulated· taxable income of each corporation described in
Subsection a hereof, an improperly accumulated earnings tax
equal to ten percent (10%) of the improperly accumulatedtaxable
income.
(B) Tax oh Corporations Subject to Improperly Accumulated
Earnings Tax. -
(1) In· General. ~ The improperly accumulated earnings tax
· imposed in the precedingSection shall apply to every corporation
formed or availedfor the purpose of avoiding the income tax with
respect to its shareholders or the shareholders of any other
. corporation, by permitting earnings and profits to accumulate
instead of being divided or distributed
(2) Exceptions. - The improperly accumulated earnings tax as
provided for under this Section shail not apply to:
(a) Publicly-held corporations;
(b) Banks and othernonbank financial intermediaries; and
(c) Insurance companies.
(C) Evidence of Purpose to Avoid Income Tax. -
(1) Prima Facie Evidence. - the fact that any corporation is a
mere holding company or investment company shall be prirna
facie evidence of a purpose to avoid the tax upon its shareholders
or members.
Page 80 of 206
TAXATION LAW ,
(a) Composition: Th.e following constitute accumulation
of earnings for the reasonable needs of the business:
(ILL ABE)
(1) Allowance for the increase in the accumulation of
earnings up to 100% of the paid-up capital of the
corporation as of Balance Sheet date, inclusive of
accumulations taken from other years;
(2) Earnings reserved for definite corporate
gxpansion projects or programs requiring
considerable capital expenditure as approved by
the Board of Directors or equivalent body;
(3) Earnings reserved for §uilding, plant, or
equipment acquisition as approved by the Board
of Directors or equivalentbody;
(4) Earnings reserved for compliance with any ,boan
covenant or pre-existing obligation established
under a legitimate business agreement;
(5) Earnings required by ,baw or applicable
regulations to be retained by the corporation or in
. respect of which there is legal prohibition against
its distribution; and
(6) In the case of subsidiaries of foreign corporations
in the Philippines, all undistributed earnings
intended or reserved for [nvestrnents within the
Philippines as can be proven by corporate records
and/or relevant documentary evidence.
(2) Evidence Determinative cf Purpose. · - The fact that the
earnings or profits of a .corporation are permitted to accumulate
' beyond the reasonable needs of the busin~ss shail be
· determinative .ot the' purpose to avoid the · tax upon its
shareholders or members unless. the corporation, by the clear
preponderanceof evidence, shall prove to the contrary.
(D) Improperly AccumulatedTaxablelncome. ~ For purposes
ofthis Section.the term 'improperlyaccumulatedtaxable income' ' f
means taxable income' adjusted by:
(1) Income. exempt from tax;
(2) Incomeexcluded from gross income;
(3) Incomesubject to filial tax; and
of
(4) The amount net operating loss carry-overdeducted;
And reduced by the sum of:
(1) Dividends actually or constructively paid; and
(2) Income tax paid for the taxable year.
Provided, however, that fer corporationsusing the calendar year
basis, the accumulated. earnings under tax shall not apply on
improperly accumulatedincome as .of December31, 1997. In the
case of corporations adopting the fiscal year accounting period,
the improperlyaccumulatedincome not subject to this tax, shall
be reckoned, as of the end Of the month comprising the twe!ve
(12)-monthperiod of fiscal year 1997-1998.
(E) Reasonable Needs of the Business. - For purposes of this
Section, the term 'reasonable needs of the business' includes the
reasonably anticipated needs of the business
 I 1
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collocting the income therefrom or investing the same, and

(b) Covered corporations: where the earnings or profits of a corporation are permitted
(1) Only closely-held domestic corporations are liable to accumulate beyond the reasonable needs of the ·
forlAET. business.
11
• (2) Closely-held corporations are those:
At least 50% in value of the outstanding capital stock; (f) Prima facie instances of accumulation of profits
or beyond the reasonable needs of a business and
At least 50% of the total combined voting power of all indicative of purpose to avoid income tax upon
classes of stock entitled to vote; shareholders
is owned directly or indirectly by or. for not more than (1) Investment of substantial earnings and profits of the
20 individuals. corporation in unrelated business or in stock or
Domestic corporations not falling under the aforesaid securities of unrelated business;
definition are, therefore, publicly-held corporations. (2) Investment in bonds and other long-term securities;
and
(c) Exempt corporations (3) Accumulation of earnings in excess of 100% of paid-
The IAET shall not apply to the following corporations: up capital, not otherwise intended for the reasonable
(BIG-PEN-TI needs of the business.
(1) ~anks and other non-bank financial intermediaries; The controlling intention of the taxpayer is that which
{1 (2) Insurance companies; is manifested at the time of accumulation.
(3) fublicly-held corporations; (4) Ideally, the working capital should be .equal to the
i
l. j (4) Iaxable partnerships; current liabilities and there must be 2 units of current
(5) general professional partnerships; assets for every unit of current liability ("2 to 1" rule). A
(1 (6) !fan- taxable joint ventures; and 2:1 Debt-to-Equity ratio (i.e., current assets ·over
(7) §.nterprises that are registered: current liabilities) is indicative of the liquiditf' of a
er with the Philippine Economic Zone Authority (PEZA)
under RA 7916;
corporation, and further accumulation would expose it
to the IAET. (Cyanamid Phils. v. CA, G.R. No. 108067,
rJ pursuant to the Bases Conversion and Development
Act of 1992 under RA 7227; and
zdo» •

t under special economic zones declared by law which

enjoy payment of special tax rate on their registered
(4) Exemptions from Tax on Corporat!ons. ~·
See previous discussion on Exempt Corporations. ···•
I 1 operations or activities in lieu of other taxes, national
or local. (5) Tax on other Business Entities: General
( 1 Partnerships, General Professional Partnershlps,
(d) Period for payment of dividend or IAET: Co-ownerships, Joint Ventures and Consortia
I I
I J The dividends must be declared and paid or issued not (i) General Partnership
later than 1 year following the close of the taxable year. A partnership wherein part or all of its income is derived
LJ Otherwise, the IAET, if any, should be paid within 15 days
thereafter.
from the conduct of trade or business

t-j Guidelines on the tax liability of a general partnership:

(e) Determination of purpose to avoid income tax
f : The fact that a corporation is a mere holding company or
i. >
investment company shall be prima facie evidence of a
l ' purpose to avoid the tax upon its shareholders or
members.
A "holding or investment company" is a corporation having
\ j
practically no activities except holding property, and
• . For taxation purposes, the general partnership is
considered as a corporation liable to pay the RCIT.
• A general partnership is also subject to MCIT.
• The profit distribution to the partners is treated as
distribution subject to· a finai . tax of 10% since the
partners are considered as stockholders.
(ii) General Professional Partnerships (GPP)83

63SEC. 26 Tax Liability of Members of General Professional professional partnership shall be liable for income tax only in thelr
Partnerships. - A general professional partnership as such shall separate and individualcapacities.
not be subject to the income tax imposed under this Chapter.
Persons engaging in business as · partners in a general
Page 81 of 206
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A.GPP is one formed by two or several persons for the sole
purpose of exercising their common profession of which no
part of income is derived from engaging in any trade or
business.
The GPP is not a taxable entity for income tax purposes
since it is only acting as a·"pass-through" entity where its
income is ultimately distributed/taxed to the partners
comprising it. (RR No. 02-10)
Income payments made to a GPP in consideration of its
professional services are not subject to
income/withholding tax: GPPs are not required to secure a
tax exemption certificate or ruling to prove the same. (RMC
I
No. 60-14)
It is the partners that declare their distributive share in the
profits of the GPP and pay income tax thereon.
In case of income payments made periodically or at the
end of the taxable year by a GPP to the partners; such as
drawings, advances, sharinqs, allowances, stipends and
the like, are subject to
15% CVVT if such payments to the
partner for the current year exceeds· PhP 720,000, and
10% CWT if otherwise. (RMC No •. 03-12)
Guidelines on the tax liability· of a GPP:
a) Who is Liable
A GPP, as an entity, shall not be subject to income tax.
The partners in a GPP shall be liable for income tax in their
separate and individual capacities.
Note: Each partner shall report his distributive share,
actually or constructively received, in the netincome of the
partnership as gross income. The share of the partner shall
be subject to 15% CWT if such distribution to the partner
for the current year exceeds PhP 720,000, and 10% CWT
if otherwise.
b) How computed:
For purposes of computing the distributive share of the
partners, the net income of the partnership shall be
computed in the same manner as a corporation.
All expenses, which are ordinary and necessary. incurred
or paid for the practice of profession, are allowed as
deductions.
For purposes of computing the distributive share of the partners,
the net income of the partnership shall be computed in the same
manner as a corporation.
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TAXATION LAW
•
Since the taxable income is 'in the hands of the partner,
apart from the expenses claimed by the GPP in
determining its net income, the individual partner can still
claim· deductions incurred or paid by him that contributed
to the earning of the income taxable to him.
If the GPP availed of the itemized deductions, the partners
may still claim itemized deductions from their distributive
share. However, they cannot claim the same · expenses
already claimed by the GPP.
If the GPP availed of itemized deductions, the partners are
not allowed to claim the OSD from their distributive share
because the OSD is a proxy for all the items of deductions
allowed in arriving at taxable income.
If the GPP availed of OSD, the partners can NO longer
claim further deductions from their distributive share. (RR
No. 02;.10)
c) Compliance requirements .
Every GPP shall file a
return of its income and shall set
forth the following:
The items of gross income arid· allowable deductions:
and
The names, TIN, addresses arid shares of each of the
partners.
.
7. Filingof Returns and Paymentoflncome '
Tax
a) Definition of a Tax Return and Information Return
Tax Return
The BIR form which contains a report by the taxpayer to
the BIR of all gross Jncorne received during the taxable
year, the allowable deductionspersonal exemptions, and
the net taxable income, the income tax rate, the income tax
due, the income tax withheld, if any and the income tax still
to be paid or refundable.
Annual Information Return
Every employer required to deduct and withhold the taxes
in respect of the waqes of his employees shall, on or before
January 31st of the succeeding year, submit to the CIR an
annual information return containing a list of employees the
total amount of compensation income of each employee,
total amount of taxes withheld therefrom during the year,
containing information as are necessary.
Each partner shall report as gross income his distributive share,
actually or constructively received, in . the net income of the
partnership.
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Cl 2. income is received from only one employer in the

b) Period within which to file Income Tax Return of Philippines for the calendar year; and •
r·1
I . Individuals and Corporations 3. the income tax of which-has been withheld .correctlyby
Individuals the said employer (tax due equals tax withheld)
1 Period to File Annual Income tax return - The certificate of withholding filed by the respective
April 15 of the following year employers, duly stamped 'received' by the BIR, shall be
1I tantamount to the substituted filing of income tax returns
I "1
Corporations by said employees.
I! f' Period lo file annual income tax return -
On or before the 15th day of the 4th month following the (2) Corporate taxpayers
l,
taxable year. Corporations
Every corporation subject to tax shall render, in duplicate,
l c) Persons liable to file Income Tax Returns return which shall be filed by the president, vice president
or other principal officer, and shall be sworn to by such
[1 (1) Individual taxpayers officer a11d the treasurer of the corporation.
(i) General rule and exceptions
• Resident Citizen - on his income from all sources The return shall be the quarterly income tax return and final
• Non-resident citizen - on his income derived from _ or adjustment return. '
sources within the Philippines
• Resident Alien - on his income derived from sources General Professional Partnerships
within the Philippines Every GPP shallfile a return of its income except income
• Non-resident alien engaged in trade or business in the under Section 32 (B) NiRC. Setting forth the items of gross
( 1.j Philippines - on his income derived from sources · income and of deductions allowed and the shares of other
within the Philippines. 'partners.

The following .shall not be required to file an income tax d) Where to file Income Tax Returns
{) return: The return shall be fiied with the authorized agent bani<,
• An individual whose taxable income does not exceed Revenue District Officer, Collection Agent or duly
fJ two hundred fifty thousand pesos (P250,000): authorized Treasurer of the city or municipality in·which
Provided, That a citizen of the Philippines and any such person has his legal residence or principal place of
I l alien individual engaged in business or practice of business in· the Philippines, or if there will be no legal
profession within the Philippines shall fi!e an income residence of place of business in the Philippines with the
Ll · tax return, regardless of the amount of gross income. Office of the Commissioner.
• Individual with pure compensation income derived
fj from sources within the Philippines e) Penalties for Non-filing of Returns
Should - the taxpayer fail to file arid/or pay on time, a
• An individual whose sole income has been subjected
tJ to final withholding tax
25% surcharge, and 12% interest per annum both on
the amount due shall be imposed pursuant to Sections
• Minimum wage earners
tj 248 and 249 of the Tax Code, as amended. Further,
RMO No. 07-15 states that there shall also be a
Note: The above may be required to file an information
' '' corresponding compromise penalty for failure to
J return instead.
withhold or remit withheld taxes at the time or times
required by law or regulations.
(ii) Substituted filing84
Individual taxpayers shall not be required to file an annual
f) Payment and Assessment of Income Tax
income tax return, provided:
When a tax due is in excess of two thousand pesos
1. they are receiving purely compensation income,
(P2,000), the taxpayer, other than a corporation, may elect
regardless of amount;

f
• J
84
SEC. 51-A. Substituted Filing of Income Tax Returns by correctly by the said employer(tax due equalstax withheld) shall
Employees Receiving Purely Compensation Income. - not be required to file an annual income tax return.The certificate
lndividuai taxpayers receiving purely compensation income, of withholding filed by the respective employers, du!y stamped
reqardless of amount, from only one employer in the Philippines 'received' by the BIR, shall be tantamount to the substitutedfiling
for the calendar year. the income tax of which has been withheld of income tax returns by said employees.
Page 83 of 206
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to pay the tax in two 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 October 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 delinquency penalties.
8. Withholding Tax
(RR No. 2-98, as amended)
a) Conceptof withholding taxes
Withholding tax is a method of collecting income tax in
advance from the taxable income of the recipient of
income.
In the operation of the withholding tax system, the payee
is the taxpayer· (the person on whom the tax is imposed),
a
while the payor, separate entity, acts no more than an
agent of the government for the collection of the tax in
order to ensure its payment. (Bank of America v,
Commissioner, G.R. No: 103092, 1994)
Timing of Withholding
Withholding tax shall be deducted · and withheld by the
withholding agent when the income payment is paid or
payable or accrued or the income payment is accrued or
recorded as an expense or asset, whichever is earlier.
Withholding Agent (WA)
A separate entity acting no more. than an ageht of the
government for the collection oftax in order to ensure its
payments.
He is merely a tax collector, not a taxpayer. If a withholding
agent was assessed· for deficiency withholding tax under
the NIRC as such, it is being held liable in its capacity as a
withholding agent and not in its personality as a taxpayer.
(CIR v. CA, 242 SCRA 289, 1995)
The following persons are constituted as withholding
agents:
85 SEC. 58. Returns arid Payment of Taxes Withheld at
Source. -
(A) Quarterly Returns and Payments of Taxes Withheld. - Taxes
deducted and withheld under Section 57 by withholding agents
shall be covered by a return and paid to, except in cases where
the Commissionerotherwise permits, an authorizedTreasurer of
the city or municipalitywhere the withholding agent has his legal
residenceor principalplace of business,or where the withholding
agent is a corporation,where the principal office is located.
The taxes deducted and withheld by the withholding agent shall
be held as a special fund in trust for the government until paid to
the collectingofficers.
Page 84 of 206
TAXATION LAW
1. Juridical persons, whether or not engage(J in trade or
business
2. Individuals, with respect to payments made in
connection with his trade or business
3. Individual buyers with . regard to taxable sale,
exchange, or transfer of real property, although not
engaged in trade or business
Returns and Payments of Taxes Withheld at Source85
Taxes deducted and withheld by withholding agents shall
be covered by a return and paid to, except in cases where
the CIR otherwise permits, an authorized agent bank,
RDO, Co(lection Agent, or duly authorized Treasurer of the
city or municipality wherethe withholding agent has . .his/its
legal residence or principal place of business.
The taxes deducted.and withheld by the withholding agent
shall be· held as a special fund in trust for the government
until paid to the collecting officers.
· Note: The payment of taxes is simultaneous with the filing
ofthe returns(pay-as-you-fi!e) except in ca~es. of Large
and Non-Large Taxpayers who file through the Electronic
Filing and Payment System (EFPS).
Consequences for Failure to Withhold
Liable for surcharge or penalties
Liable upon "conviction to a penalty equalto the total
amount of the tax not withheld or not accounted for and
remitted86
Any income payment which is otherwise deductible from
the W A/payor's gross income will not be allowed if it is
shown thatthe income taxrequired to bewlthheld is not
paid to the BIR. (Sec. 2.58:5, RR No. 2-98)"
No deduction will also be allowed notwithstanding
payments of withholding tax at the time of the audit
investigation or reinvestigation/ reconsideration in
The return for filial and creditablewithholding taxes snau be fiied
and the payment made not later than the last day of the month
following the close of the quarter during which withholding was
made. · · ·
86SEC. 251.Failure of a Withholding Agent to Collect and
Remit Tax. - Any person required towithhold, account for, and
remit any tax imposed . by this Code or who willfully fails to
withhold such tax, or account for and remit such tax, or aids or
abets in any manner to evade any such tax or the payment
thereof,sha!I, in additionto other penaltiesprovidedfor under this
Chapter, be iiable upon conviction to a penalty equal to the total
amount Of the tax not withheld, or not accountedfor and remitted
 : \ :•

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cases where the withholding of tax was not timely made. The liability for payment of-the tax rests primarily on the
1
. (Sec. 2.58.5, RRNo. 2-98, as amended by RR No. 12-13) payor as a withholding agent. Thus, in case of his failure to •
l withhold the tax or in case of under withholding, the
b) Kinds of Withholding Tax: deficiency tax shall be collected from the. payor/withholding
agent.
FINAL WITHHOLDING CREDITABLE
TAX WITHHOLDING TAX
The payee is not required to file an income tax return for
the particular income. Note, however, that individual and
Amount of Tax Collected corporate taxpayers will now be required to declare in the
ITR items which have been subjected to final tax.
!l ''
l Full and final payment of Intended to equal or at
the income due from the least approximate the The finality of the withholding tax is limited only to the
payee on the said income tax due from the said payee's income tax liability on the particular income. It
payee on the said does· not extend to the payee's other tax· 1iability on said
[ l income income, e.g., percentage tax.

Formula:
Gross Income p
xxx .·

I
r1
\~, .Jlf~~~·
Final Tax
._._..
p
_··...:.

xxx
Payee is not required to Income recipient is still
file an income tax return required to file an
. l
I .l for the particular income income tax return and/or
pay the difference Note: Deductions and/or personal exemptions are not
J between the tax withheld
and the tax due on the
allowed.

income.
I l Fringe benefit tax .
A final withholding tax is imposed on the grossed-up
monetary value of fringe benefit furnished, granted or paid
'l by the employer to the non-rank and file employees except
t. l · All income subject to Those income payments
when: (1 j the fringe benefit is required by the nature of or
necessary to the trade,' business or profession of the
final taxes (i.e. passive covered by EWT (RR 2-
income, gross income 98) employer; or (2) when the fringe benefit · is for the
of NRA-NETB) Examples: convenience or advantage of the employer.
Fringe benefit
Informer's reward to Professional fees, The tax imposed under Sec. 33 of the NIRC sha!I be
persons instrumental to talent fees treated as a final income tax on the employee, which shall
the discovery of Income payments to be withheld and paid by the employer oh a calendar
vioiations of the NIRC partners of GPP
quarterly basis.
and the discovery and
, seizure of smuggled
1 (2) Creditable Withholding Tax
• goods
Taxes withheld on certain income payments are intended
to equal or at least approximate the tax due of the payee
on said income.
(1) Fir.al Withholding Tax
The amount of income tax withheld by the withholding The payer endorses the pertinent Certificate of Creditable
agent is constituted as a full and final payment of the Tax Withheld at Source to the payee for use by the payee
income tax due from the payee on the said income. against his tax liability at the end of a taxable year.

Page 85 of 206

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The income. recipient is still required to file an income tax Comparative Table: Estate Tax vs. Donor's Tax
return to report the income and/or pay the difference 'ESTATE TAX D_QNOR'STAX
between the tax withheld and the tax due on the income. Tax on privilege to transfer
Tax on privilege to transfer
property upon one's death property during one's
The following are creditable withholding taxes: I lifetime
• Expanded Withholding Tax (EWT) on certain .income Individuals are liable Individuals and
payments corporations are liable
• Withholding Tax on Compensation Imposed on donations Imposed on donations
• Withholding Tax on money payments to the mortis causa inter vivos
government Tax rate is 6% on net Tax rate is 6% of total gifts
estate in excess of Php 250,000.
C. TRANSFER TAXES Amount exempt None Amourit exempt: · Up to
Php 250,000 per year
Transfer taxes in general Deductions allowed No deductions allowed
A transfer tax is a tax imposed on the privilege of (NIRC, Sec: 86).
transferring properties, real or personal, without Requirement of filing a Requirement of filing a
consideration. return: return:
1. Transfers subject · to
Nature of a. transfer tax estate tax AILtransfers by gift except
A transfer tax is an excise tax or privilege tax that is .2. Estate consists of those which, under NIRC,
imposed on the act of passing ownership of property, and registrable property Sec. 101, are exempt from
is not a tax on the property transferred. regardless of the value of tax
~e gross estate:
Kinds of transfer tax: File return within 1 year File return wlthln 30 days
5. Estate tax is a tax that is levied, assessed, collected, from death (N/RC, Sec. after the date the gift is
and paid upon the transfer of the net estate of a 90[8]) made (NJRC, Sec. 103[8])
decedent to his or her heirs.·
6. Donor's tax is an excise tax levied, collected, and Extension allowed: not No extension allowed
paid upon (1) the privilege of transferring property exceeding · 30 days iri
gratuitously by way of gift inter vivas by any person, meritorious cases -. (NIRC,
resident or non- resident and (2) transfers for less Sec. 90[CJ)
than adequate consideration. Time of payment at the Time of payment at the
time the return is filed by time the return is filed -
the executor, that is, within 30 days after
Differences between estate tax and donor's tax administrator, or the heirs the date the gift is made
1. Estate .tax is a tax on the privilege. to transfer property - that is, within 1' year from (NIRC, Sec; 103[8))
upon one's death (mortis causa). death (NIRC, Sec. 91[A]j
Extension: . for 'time of,
Donor's tax is a tax on the privilege to transfer property Extension for time of payment not allowed
during one's lifetime (inter vivosj. -. payrnentisallowed (NIRC,
I Sec. 91[8])
2. The tax rate of estate tax is 6% on net estate.
Transfer taxes distinguished from business taxes
The tax rate of donor's tax is 6% of net gifts in excess of
Php 250,000. Transfer taxes are taxes imposed on the privilege of
transferring properties, real or personal, without
3. Estate tax is computed on the basis of the net estate consideration. On the other hand, business taxes are
transferred at the time of death of the decedent. imposed upon a person, who is engaged in trade or
business or in the exercise of profession.Jndudinq but not
Donor's tax is computed on the basis of net gifts given limited to value-added tax, other percentages taxes, excise
during a calendar year. taxes and documentary stamp.
1. ESTATE TAX
Page 86 of 206
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i--1 The value of an estate of a decedent is based on its value

a) Basic principles, concept and definition
I Basic principles
Accrual of estate tax - the right to transmit accrues at the
1,
time · of the death of the decedent. (Lorenzo v Posadas,
at the time of his death regardless of any post-death
development affecting its value (Dizon v, CTA, G.R. No.
140944, 2008)

.
(
i
'
G.R. No. L-43082, 1937) In Dizon in his capacity as administratorofthe estate of the
deceased Fernandez v. CTA and CIR,· the subject estate
The accrual of the tax is distinct from the obligation to pay tax return indicated zero estate tax liability as the
the same. Upon the death of the decedent, succession deductions claimed exceeded the decedent's gross estate.
takes place and the right of the State to tax the privilege to A tax clearance was . subsequently issued to allow the
r , transmit the estate vests instantly upon death.
i transfer of the properties. included in . the gross estate.
However, a deficiency estate tax assessment was
Concept and definition of Estate tax subsequently issued that reduced the allowable
Estate tax is the tax on the right to transmit property at deductions with respect to certain claims of decedent's
death and on certain transfers by the decedent during his creditors on the ground that these claims were
lifetime, which is made by the law equivalent of subsequently compromised. Hence, the issue is whether
i f. testamentary dispositions. or not the actual claims of decedent's creditors may be fully
allowed as . deductions from his gross estate despite the
b) Nature, Purpose and Object fact that the· .said claims were reduced or .condoned
Nature through compromise agreements entered into by the
An excise tax imposed upon the privilege to transmit Estate with its creditors.
property at the time of death. The tax should not be
[} construed as a direct tax or. the property of the decedent The SC nullified the deficiency estate tax assessment
although the tax is based thereon. made by the BIR on two grounds as follows: .
1. There is no law which disregards the date-of-death
The estate tax applies to: a) citizens of the Philippines; b) valuation principle and particularly provides that post-
residents of the Philippines; and c) non-resident aliens with death developments mus! be considered in determining
properties in the Philippines. the net value of the estate; and
(
. . . .
!
Purpose or object of Estate tax 2. Claims as generally construed under Rules on Special
I i Benefits-received theory - The tax is in return for the Proceedings refer to debts or demands of a pecuniary
services rendered by the State in the distnbution of the nature Which could have been enforced against the
estate of the decedent and for the benefits that accrue to deceased in his lifetime, or liability contracted by the
the estate and the heirs. deceased before his death.

State-partnership relationship theory - The tax is the
J share of the State as a passive and silent partner in the
accumulation of property ..
!- --+.
I J
Ability to pay theory - The tax is based on the act that
the receipt of inheritance creates the ability to pay and
contribute to governmental income.
Redistribution of wealth theory - The tax is imposed to
help reduce undue consideration of wealth in society to
which the receipt of inheritance tax is a contributing factor.
Hence, the amount deductible is the debt which could have
been enforced against the deceased in his lifetime. (Dizon
v. CTA and CIR, G.R. No. 140944, 2008)
The right to transmit accrues at the time of the death of the
decedent (Lorenzo v. Posadas, G.R. No. L-43082, 1937)
However, the Register of Deeds shall. not transfer the title
to the properties without ihe Certificate of Authority to
Register (CAR) issued by the RDO evidencing the filing
and payment of the estate tax. (RR No. 24-02)

c) Time and transfer of properties Governing law

Date-of-Death Valuation Rule - The properties and rights Estate taxation is governed by the law in force at the time
are transferred to the successors at the time of death. (Civil of death of !he decedent. (RR No. 2-2003, Sec. 3)
Code, ert. 777)
Decedent's residence

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For estate . tax purposes, residence refers to the not residing in that. foreign country. (Sacdalan-
• permanent home, the place to which whenever absent, for Casasola, NIRC Annotated Volume 2, 698, 2013)
business or pleasure, one intends to return, and depends
on facts and circumstances, inthe sense that they disclose e) Gross estate and net estate
intent. (Corre v. Tan Corre, G.R. No. L-10128, 1956)
Estate Tax Formula:
Estate tax planning xx
Gross Estate (Sec. 85, NIRC)
It ls a device to achieve a transfer of properties from the
testator to the heirs at the least tax as possible. Less:
(1) Deduction (Sec. 86; NIRC) xx
The legal right of a taxpayer to decrease the amount of
what otherwise could be his taxes or altogether avoid (2) Net share of the surviving
xx
them, by means which the law permits, cannot be doubted spouse
(Delpher Trades Corp v. /AC, G.R. No. L~69259, 1988) Net Taxable Estate xx
d) Classification of decedent87 Multiply by: Tax Hate (Sec: 84,
6%
NIRC)
a: Residents and citizens Estate Tax Due xx
The gross estate of a decedent shall comprise of all the
Less: Tax Credit (if any) (Sec. 86 [EJ
properties; · real or personal, tangible or J intangible, xx
or 110 [BJ, NIRC)
· wherever situated and any interest therein at the time of
his' death, including . revocable· transfers and transfers for Estate Tax Due (if any) xx
insufficient consideration.
a. Valuation
b, Non-residentaliens
The gross estate of a decedent shall comprise only ofthe i. Real Property-Fair market value (FMV) asdetertnined
propernes situated in the Philippines, provided that with by the CIR or FMV shown in schedule of values fixed by
respect to intangible personal property, its inclusion in the the city or provincial assessors, whichever is.HIGHER.
gross estate is subject to the. rule of reciprocity.
.
Note: The rule of reciprocity provides that only intangible
.
If there is no zonal value, use the :FMV in the latest Tax
Declaration:
personal property located in the Philippines shall be
taxable unless exempted on the basis of the following: ii. Shares of Stock
a. The forelgn country where the resident alien was a Listed · shares: average of the HIGHEST and LOWEST
citizen at the time of his death did not impose estate quotations at date of death (or the date nearestto the date
fax in respect of intangible personal property of citizens of death, if no quotation is· available at the time of death).
of the Philippines not residing in that foreign country;
or Unlisted shares: use BOOK value for COMMON stocks
b. If the laws of the foreign country of which the decedent while PAR value for PREFERRED stocks.
was a citizen and resident at the time of his death
allows a similar exemption from estate taxes of every iii. Personal Property - FMV at date of death.
character or description in respect of intangible
personal property owned by citizens of the Philippines b. Special rules on intangible properties ·
The following intangible personal properties are
considered with situs in the Philippines:88

67SEC. 85 Gross Estate. - the value of the gross estate of the

decedent shall be determined by including the va!ue at the time

of his death of all property, real or personal, tangible or intangible, SEC. 104 Definitions. - For purposes of this Title., the terms
68

wherever situated: Provided, however, that in the case of a 'gross estate' and 'gifts' .include real and personal property,
nonresident decedent who at the time of his death was not a whether tangible or intangible, or mixed, wherever situated:
citizen of the Philippines, only that part of the entire gross estate Provided, however, That where the decedent or donor was a
which is situated in the Philippines shali be included in his taxable nonresident alien at the time of his death or donation, as the case
estate. may be, his real and personal property so transferred but which
Page 88 of 206
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r1
Franchise, which must be exercised in the Philippines;
!' ·1
Shares, obligations or . bonds issued by any
r
l corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its
laws;
Shares, obligations or bonds issued by any foreign
corporation, 85% of the business of which is located in
( } the Philippines;
(l Shares, obfjgations or bonds issued by any foreign
corporation, if such shares, obligations or bonds have
(1 acquired a business situs in the Philippines; and
Shares, rights in any partnership business or Industry
established in the Philippines.
l
J Note: Non-resident aliens are not entitled to special
c. Reciprocity Clause (Sec. 104, N/RC)
{ ·1 Intangible personal properties shall not form part of the
gross estate for purposes of Philippine estate tax if:
[} i. The decedent, at that time of his death, was a
citizen and resident of a foreign country; and
Il ii. (a) The foreign country, at the time of his death,
did net impose a transfer tax or death tax of any
r. l .) character in respect of the intangible personal
property of citizens of the Philippines not residing
(J in thatforeign country; or
(b) The law of the foreign country of which the
IJ
- are situated outside the Philippinesshall not be included as part
f1 of his 'gross estate' or 'gross gift':
,.: J. Provided, further, That franchise which must be exercised in the
Philippines; shares, obligations or bonds issued by any
{J corporation or sociedadanonima organized or constitutedin the
Philippines in accordance with its laws; shares, obligations or
bonds by any foreign corporation eighty-fivepercent (85%) of the
fj business of which is located in the Philippines; shares,
obligations or bonds issued by any foreign corporation if such
i .i 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:
t !
l otherwise repaid in respect of such tax, or (b) if no amount is
Provided, still further, that no tax shall be collectedunder this Title
in respectof intangiblepersonal property:
i assessment) as a deficiency, but such amounts previously
(a) ifthe decedentat 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 intangibie personal
property of citizens of the Philippinesnot residing in that foreign
country, or
Page 89 of 206
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TAXATION LAW
decedent was a citizen and resident at the rime of
his death:
Allows a similar exemption from transfer tax or
death tax of every character;
In respect of the intangible personal property
owned by citizens of the Philippines not residing in
that foreign country.
f) Determination of gross estate and net estate
If the decedent is a citizen, or a resident alien - Net
estate is equal to gross estate less ordinary and special
deductions and exclusions allowed by law (RR No. 2-2003,
Sec. 6)
If the decedent is a non-resident alien - Net estate is
equal to gross estate less ordinary deductions and
exclusions allowed by law (RR No. 2-2003, Sec. 7)
deductions
g) Items to be included in the gross estate
Items included in gross estate:
1) Decedent's Interest
2) Transfer in Contemplation of Death
's: ..:: ..
3) Revocable Transfer ·.'
4) Property Passing under General Power of
Appointment
5) Proceeds of Life Insurance
(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 exemptionfrom transfer or death taxes
of every characteror descriptionin respectof intangiblepersonal
property owned by citizens of the Philippinesnot residing iri that
foreign country.
The term 'deficiency' means: (a) the amount by which tax
imposed by this Chapter exceeds the amount shown as the tax
by the donor upon his return; but the amount so shown on the
return shall first be increasedby the amount previouslyassessed
(or Collected without assessment) as a deficiency, and
decreased by the amounts previously abated, refunded or
shown as the tax by the donor, then the amount by which the tax
exceeds the amounts previously assessed,(or collected without
assessed, or collected without assessment, shall first be
decreased by the amount previously abated, refunded or
otherwise repaid in respect of such tax.
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6) Prior Interests
7) -Y.ransfers for Insufficient Consideration
Note:· The capital of the surviving spouse of the decedent
shall not be deemed part of his gross estate.
1) Decedent's lnterest89
To the extent of the interest therein of the decedent at the
time of his death
Example: Real and personal properties owned by the
decedent In case the property (e.g., lot) is owned in
common with other persons, the. gross estate shall include
only the value of the decedent's share in said property and
not the value of the whole property.
2) Transfer In Contemplation of Death90
Transfers impelled by the thought of an impending death
(i.e., the motivatinq factor or controlling motive is the
thought of death), without regard of the state of health of
the transferor
Transfers made before the decedent's death wherein
decedent retained:
i. the possession or enjoyment cf, or the right to the
income of
the property; and
ii. the right either alone or in conjunction with any
person-to designate the person who shall possess
89SEC. 85 (A) Decedent's Interest. - To the extentofthe interest
therein of the decedentat the time of his death;
90SEC. 85 (B) Transfer in Contemplation of Death. - To the
extentof any interest thereincf which the decedent has at any
time made a transfer, by trust or otherwise,in contemplationof or
intended to take effect in possession or. enjoyment at or after
death, or of which he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or for any
period which does not in fact end before his death (1) the
possession or enjoymentof, or the right to the income from the
property, or (2) the right, either alone or in conjunctionwith any
person, to designate the person who shal! possess or enjoy the
property or the income therefrom; except in case of a bona fide
sale for an adequate and full considerationin money or money's
worth.
9'SEC. 85 (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
safe for an adequate and full cqnsiderationin 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
Page 90 of 206
TAXATION LAW
or enjoy the property orits income
Example: X donated his property to his friend Y, but the
deed of donation was executed under the condition that
while X lives, he retains the rights over the property and its
income. ·
3) Revocable Transfer"
Transfers made by the decedent by trust or otherwise,
where the enjoyment was subject at the date of his death
to any change through the exercise bf a power by the
decedent alone or in conjunction with any other person, to
alter, amend, revoke, or terminate, or where any such
power is relinquished in contemplation of the· decedent's
death
The power to alter, amend or revoke shall be considered
to exist at the date of the decedent's death even if:
i. The exercise is subject to the requirement of giving
· prior notice; or
ii. The alteration, amendment or revocation takes
effect only on the expiration of a stated period after
the exercise of the power.
Example: A creates a trust to pay income to B for life, with
remainder to C. However, A also reserves the right to take
back the property altogether provided that the same shall
take effect only upon the lapse of 1 year counted from the
time the revocation is made.
exercise of a power (in whatever capacity exercisable) by the
decedent alone or by the decedent in conjunctionwith any other
person (without regard to when or from what source the decedent
acquired such power), to 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 exercisedon or before the
date of his
death, such notice shaltbe considered to have been given. or the
power exercised, on the date of his death.

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• However, these transfers do not include bona fide sales for
an adequate and full consideration in money or money's
worth.
i 1
• !
r t
4) Property Passing under General Power of
I
< I Appointment (GPA)92
• GPA is the power to designate, without restrictions, the
persons who shall receive, succeed to, possess or enjoy
the property or its income received from the estate of a
prior decedent.
The GPA is exercised by:
i. Will;
ii. Deed executed in contemplation of death; or
iii. Deed under which he has retained for nis life or for
any period which does not in fact end before his
death:
The possession or enjoyment of, or the right to the
income from, the property or
The tight, either aione or in conjunction with any
[ l person to designate the persons who shall possess or
enjoy the· property or the income therefrom EXCEPT
[1 bona fide sales for an adequate and full consideration
in money or money's worth.
rJ
NOTE: The transfers from (b) to (d) above all admit of the
( 1
(_j • exception where it is proven that the transfer was a bona
fide sale for an adequate and full consideration in money
.or money's worth.
f 1 5} Proceeds of Life lnsurance93
· Form part of the gross estate only when:
I } (1) The beneficiary - is the estate, executor or
administrator, whether the designation is revocable
f l
92SEC. 85 (D} Property Passing Under General Power of
Appointment. - To the .extent of any property passing under a
general power of appointment exercisedby the decedent: (1) by
will,.or (2) by deed executed in contemplation of, or intended to
take effect in possession or enjoyment at, or after his death, or
(3) by deed under which he has retained for his life or any period
not ascertainablewithout reference to his death or for any period
which does not in fact end before his death (a) the possessionor
enjoyment of, or the right to the income from, the property, or (b)
f the right, either alone. or in conjunction with any person, to
l ;
designatethe personswho shall possessor enjoy the property or
the income therefrom; except in case of a bona fide sale for an
adequate and fuli consideration in money or money'sworth.
93SEC.
85 (E) Proceeds of Life Insurance. - To the extent of the
amount receivable by the estate of the deceased, his executor,
or administrator, as insurance under policies taken out by the
Page 91 of 206
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or irrevocable; or 0
(2) The beneficiary is other than the estate, executor or
administrator and the designation is revocable.
6) Prior Interest
Items (2}, .(3} and (5) 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 oflhe NIRC
7) Transfers for insufficient Consideratlon'"
The amount includible in the gross estate is the excess of
the FMV at the time of death over the value of the
consideration received.
Example: X's property has a historical cost of P100,000.
Such property, which is .classified as not a real property
treated as capital asset, is now worth P500,000. Prior to
his death, X sold the property but only for P150,000, In
such a case, PS0,000 (150,000 - 100,000) will be
considered as income subject to income · tax, while
P350,000 (500,000 .:..150,000} Will be included in the gross
estate, subjectto. estate tax.
h) Deductions and exclusions from gross estate '}
Deductions for Estate of a Citizen or a Resident '(Sec.
86, NIRC; RR No. 02-2003)
1} ~xpenses, .bosses, Indebtedness, and !axes (ELIT):
a) Claimsagainst the estate;
b) Claims against insolvent persons included in the
gross estate;
decedent upon his own life, irrespective of whether or not· the
insured retained the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the
designation of the beneficiary is irrevocable.
94SEC. 85 (G) Transfers of Insufficient Consideration. - If any
one of the transfers, trusts, interests, rights or powers
enumeratedand describedin Subsections (B), (C) and (0) 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 er money's
worth, there shali 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 includedon accountof such transaction, over the
value of the consideration received therefor by the decedent.
 ATENEO CENTRAL
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• c) Unpaid mortgages or indebtedness upon
property; • enforceable in court;
d) Unpaid taxes; and
e) Losses incurred during the settlement of the
estate.
2) Transfers for Public Use ~ transfers to the Government
or any of its political subdwision thereof, exclusively for
public purposes
3) Vanishing Deductions
4 j Special Deductions (FSA)
i. family Home - Fair value but not to exceed
P10,000,000
ii. .§.tandard Deduction - P5,000,000 ·
iii. Amount Received by Heirs Under RA 4917
5) Net Share of the Surviving Spouse in the Conjugal
Property
1) Ordinary Deductions
a) Claims against the estate95
Claims against the estate are debts or demands of a
pecuniary nature which could have beet1 enforced against
the deceased in his lifetime .and could have been reduced
to simple money judgments: •
Requisites for Deductibility:
1. A personal obligation of .the deceased existing at the
time of his death except unpaid obligations incurred
which are incidental to his death such . as unpaid
funeral expenses and unpaid medical expenses which
are classified under a different category of deductions;
2. Contracted in good faith and for adequate and full
consideration in money or money's worth;
95SEC. 86 (A) (1) (c). For claims against the estate: Provided,
That at the time the indebtedness was incurred the debt
instrument was duly notarized and, if the loan was contracted
within three (3) years before the. death of the decedent, the
administrator or executor shall submit a statement showing the
disposition of the proceeds of the loan;
96 SEC. 86 (A) (1) (d). For claims of the deceased against
insolvent persons where the value of decedent's interest therein
is included.in the value of the gross estate; and
97 SEC. 86 (A) (1) (e). For unpaid mortgages upon, or' any
indebtedness in respect to, property where the value of
decedent's interest therein, undiminished by such mortgage or
indebtedness, is included in the value of the gross estate. but not
including any income tax upon income receivedafter the death of
Page 92 of 206
TAXATION LAW
3: Must be a debt or claim which is .valid in law and
· 4. Must not have been condoned by the creditors or the
action must not have prescribed; and
5. Duly substantiated.
Substantiation Requirements:
1. Notarized at the time incurred, except loans from
financial institutions where notarization is not part of
business practice or policy;
2. Includes a statement under oath executed by the
administrator or executor of the estate reflecting the
disposition of the proceeds of the loan if said loan was
contracted within three (3} years prior to the death of
the decedent.
b). Cl~ims against insolvent persons96
Condition for Deductibility: The claim against the
insolvent person should be included as part of the gross
estate of the decedent.
Example: X has P500,000 worth of receivables, but a
portion of which amounting to P40,000 is a claim against
Y, an .insolvent person, The P40;000 may be allowed as
deduction from X's gross estate provided that the P40,000
has been included in X's gross estate. Hence, the total
amount of receivables forming part of the gross estate
must be for P500,QOO; not just P460,000. The allowable
deductions, onthe other hand, shall include P40,000 being
· a claim against an insolvent person.
c), Unpaid mortgage97
Conditions for Deductibility:
1. The value of the decedent's interest over the property
encumbered is included as part of the gross estate
.· undiminished by the amount of mortgage.
the decedent, or property taxes not accrued before his death, or
any estate tax. The deduction hereinallowed in the case of claims
against the estate, unpaid mortgages or any indebtedness shall,
When founded upon a promise or agreement, be limited to the
extent that they were contracted bona fide and for an adequate
and full consideration in money or money's worth. 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
riot compensatedfor 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.
 I ,
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2. The deduction shall be limited to the extent that the e) Losses'"

• mortgage was - contracted bona fide and for an Requisites for Deductibility:
adequate consideration. 1. Losses should arise from fire, storm, shipwreck, or
other casualty, robbery, theft or embezzlement;
Other Rules: 2. Losses should not be compensated by insurance or
1. Determine/verify who the recipient or beneficiary of the otherwise;
loan is; ·3. Losses should not be claimed as deduction in the
2. If loan was merely an accommodation made by the income tax return of the taxable estate;
decedent in favor of another person, then the balance 4. The losses should occur during the settlement of the
of the loan shall be considered as receivable from that estate; AND
person and part of gross estate. 5. The losses should occur before the last day for the
3. If there is a legal impediment to recognize the same as payment of the estate tax (last day to pay 6 months
(a le
receivable of the estate, the unpaid obligation shall not after the decedent's death)
be allowed as a deduction from the gross estate.
r I NOTE: If the loss to the property/asset occurred before the
d) Taxes death, the same only results into the reduction of the value
Deductible Taxes: income taxes, real estate or property of the asset included in the gross estate.
taxes due at the time of death which were unpaid as of
1 the time of death 2) Transfer for Public Use99
Requisites for Deductibility:
Non-deductible Taxes: estate taxes, income tax on 1. The disposition is in the last will and testament;
r- income received after death or property taxes not accrued 2. · To take effect after death;
! before death 3. In favor of the Government or any political subdiJision
thereof; ·
[ 4. Exclusively
. forpublic purpose; and ··~·

[
. l
J
·- 5. The value of property given is included in the gross
estate.

( j The transfer also contemplates bequests, devices, or

transfers to social - welfare, cultural and charltable
f J institutions.

f j

1J 3) Vanishing Deductions (Property Previously

lJ
98SEC.
86 (A) (1) (e). xxx There shall also be. deducted losses
lj incurred during the settiement of the estate arising from_ fires,
storms, shipwreck,or other casualties,or from robbery, theft or
embezziement,when such losses are not compensatedfor by
insuranceor otherwise, and if at the time of the filing of the return
-).· such losses have not been claimedas 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 prescribedin Subsection(A) of Section 91.
99SEC.
86 (A) (3) Transfers for Public Use. - The amount of all
the bequests, legacies, devises or transfers to or for the use of
the Governmentof the Republicof the Philippines, or any political
subdivision thereof, for exclusivelypublic purposes.
100SEC. 86 (A) (2) Property Previously Taxed. _ An amount
equal to the value specified below of any propertyforming a part
Page
Taxed)100
of the gross estate situated in the Philippinesof any person who
died within five (5)_years prior to thedeath of the decedent, or
transferredto the decedentby gift within five (5) years prior to his
death, where such property can be ident.ified as having been
receivedby the decedentfrom the donor by gift, or from such prior
decedent by gift, bequest, devise er inheritance,or which_ can be
identified as having been acquired in exchange for property so
received:
One hundredpercent (100%) of the value, if the prior decedent
died within one (1) year prior to the death of the decedent, or if
the propertywas transferredto 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;
Sixty percent (60%) of the value, if the prior decedent died
93 of 206
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.Nature and Purpose
Vanishing deductions are <1eductions allowed for
properties which were already subjected to transfer taxes
(i.e., estate and donor's tax).
The purpose is to minimize the effect of double taxation
within a short period of time since the same property will
be again subjected to tax in the form of estate tax. These
are allowed provided the corresponding donor's or estate
tax.in the previous transfers have been paid.
Requisites for Deductibility:
1. The present decedent died within 5 years from receipt
of the property from a prior decedent or donor;
2. The property on which 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 donor's
tax on the gift must have been finally determined and
paid;
5. The property on which vanishing deduction is being
taken must be identified as the one received from the
. prior decedent, or from the donor, or something
acquired in exchange therefore; and
· 6. ' No vanishing deduction on the property was allowable
· to the estate of the prior decedent
Examples:
a. On January 15, 2000, A donated to B two properties,
one located in the Philippines, and the other located in
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
tci the death of the decedent, or if the propertywas 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 mere 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
. determinedas the value of such property in determining the value
of the gift, or the gross estate of such prior decedent,and oniy 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
Paqe 94 of 206
TAXATION LAW
Japan. B died on July 30, 2006 .. Vanishing deduction
is not allowed for the property located in the Philippines
because 5 years have already lapsed. Vanishing
deduciion cannot also be claimed for the property in
Japan because such deductions apply only to
properties located within the Philippines.
· b. C inherited the property in Japan from B's estate. C
died on February 15, 2009. Vanishing deduction is still
not allowed because the property is located in Japan.
c. D inherited B's property which is located in the .
Philippines. D died on March 30, 2010. Vanishing
deduction amounting to 40% of the. value of the
property shall be allowed since the prior decedent B
died more than .3 years but less than 4 years.
d. E inherited the property from D, but E died on April 15,
2014. Vanishing deduction is not allowed because
such deduction was already availed of by D's estate.
__ 4) Special Deductions
i. Family Home 101
Family home is the dwelling house, including the land on
which it is situated, where the husband and wife, or a head
of the family, and members of their family reside as
certified by Barangay Captain of the locality .
The family home is deemed constituted on the house and
!ot from the time it is actually occupied as a family
residence and is considered as such for as long as any of
its beneficiaries actually resides therein.
the estate of the prior decedent, no .deduction was allowable
under paragraph(2) in respectof the property or properties given
in exchange therefor. Where a deduction was allowed of any
mortgageor other lien in determiningthe donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in part prior
to the decedent'sdeath, 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'sestate, 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.
101sec. 86 (A) (7) 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 Ten million pesos (P10,000,000), the excess shail be
subject to estate tax.
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Actual occupancy of the house. or house and lot as the

family residenbe shall not be considered interrupted or Condition for Deductibility:
abandoned in such cases as the temporary absence from Such amount is included in the gross estate of the
the constituted family home due to travel or studies or work decedent.
abroad, etc.
5) Net Share of the Surviving Spouse in the Conjugal
The family home is generally characterized by Property
permanency, that is,'the place to which, whenever absent The net share of the surviving spouse in the conjugal
for business or pleasure, one still intends to return. partnership property as diminished by the obligations
properly chargeable to such property shall, for the purpose
Conditions for Deductibility: of this Section, be deducted from the net estate of the
1 . The family home must be the actual residential home decedent. [Sec. 86(C), N/RCJ
r of the decedent and his family at the time of his death,
as certified by the Barangay Captain of the locality
rI where the family home is situated;
2. The total value of the family home must be included as
part of the .gross estate of the decedent; and
3. Allowable deduction must be in an amount equivalent
to the current FMV of the family home as declared or
included in the gross estate, or the extent of the
decedent's interest (whether conjugal/community or
exclusive property), whichever is lower, but not
... ~
f exceeding P10,000,000.

:: . :'
I Note: The family home must be part of the properties of
the absolute community or of. the conjugal partnership, or
(j of the exclusive prop~rties of either spouse, depending
upon the classification of the property (family home), and
[ I theproperty relations prevailing on the properties of the
husband and wife. ft may also be constituted by an
unmarried head of a family on his or her own property.

For purposes of availing of a family home deduction to the

extent allowable, a person may constitute oniy one family
home.

ii. Standard Deduction 102

A deduction in the amount of P5,000,000 shall be allowed
' '
,r-·~
ll. ; as additional deduction without need of substantiation.
This deduction is not allowed to a nonresident alien
.. -
t " estate.

f iii . . Amount-Received by Heirs under RA 4917103

Amount received by the heirs from the decedent's
employer as a consequence of death of the decedent
employee in accordance with RA 4917.
l
102SEC. 86 (A) (1) Standard Deduction. -An amount equivalent decedent-employee in accordance with Republic Act No. 4917:
to Five million pesos (PS,000,000). Provided, That such amount is included in the gross estate of the
decedent.
1035EC. 86 (A) (8) Amount Received by Heirs Under Republic

Act No. 4917. - Any amount received by the heirs from the
decedent's employer as a consequence of the death of the
Page 95 of 206

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Deductions for Nonresident Aliens 104
(for property situated in the Philippines) • The following are excluded from the gross· estate of the
a. Expenses, Losses, Indebtedness, and Taxes (ELIT) -
Only the proportion of the total expenses, losses
indebtedness and taxes which the value of such part
bears to the value of his entire gross estate wherever
situated; . •
b. Property Previously Taxed;
c. Transfers for Public Use;
d. Net Share of the Surviving Spouse in the Conjugal
Property
Note: For the estate of a non-resident alien to be allowed
deductions, the executor, administrator or heir must
include in the return to be filed, the value of the gross
estate not situated in the Philippines.
104SEC. 86 (B) Deductions Allowed to Nonresident Estates. -
In the case of a nonresident not a citizen of the Philippines, by
deducting from the value of that part of his gross estate wliich at
the time bf his death is situated in the Philippines:
(1) Standard Deduction. -An amountequivalent to Five hundred
thousand pesos (P500,000);
(2) That proportion ofthe deductions specified in paragraphs (2),
(3), and (4) of Subsection (A) of this section Section which the
value ofsuch part bears to the value of his entire gross estate
wherever situated; · · of the gift, or the gross estate of such prior decedent, and only to
(3) Property Previously Taxed. - An amount equal to the value
specified below of any property forming 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;
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
Page 96 of 206
/
TAXATION,LAW
Exclusions from gross estate
decedent:
• Proceeds from life insurance where the beneficiary is
other than the estate, executor or administrator AND
the designation is irrevocable;
SSS death benefits;
• Properties held in trust by the decedent;
• Benefits received by beneficiaries residing in · the
Philippines Linder laws adminlstered . by the US
Veterans Administration; and
• Separate or exclusive properties of the surviving
spouse.
to the death of the decedent, or if the property was transferred to
him by gift Within the same period prior tohis deam: and
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 underthi.s Title is 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
the extent that the value of such property is included in that part
of the decedent's gross estate which at the time of his death is
situated in the Philippines; and only if, in determining the value of
the net estate of the prior decedent, no deduction is allowable
under paragraph (2) of Subsection (B) of this Section, in respect
of the property or properties.given in exchange therefore. ·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
paragraph shall be reduced by the· amount so paid. Such
deduction allowable shall be reduced by an amount ljvhich 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 PhiUppines. 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.
(4J 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.
r t __ I
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,-1. i) Tax crediUor estate taxes paid iii a foreign a. Merger of usufruct in the owner of the naked title
country105 •
( l Estate tax credit is a remedy against international double b. Transmission or delivery of the inheritance or legacy
taxation to, minimize the onerous effect of trucing the same by the fiduciary heir or legatee to thefldelcornmlssary
property twice.
The substitution must not go beyond one degree from the
Who may avail of estate tax credit heir originally instituted.
Only the estate of a citizen or a resident.at the time of the
death can claim tax credit for any estate taxes paid to a The fiduciary or first heir must be both living at the time of
foreign country. Thus, nonresident alien estates are not the testator's death.
entitled to avail of the tax credit.
Jxample
What amount of tax credit may be claimed A dies and leaves in his will a lot to his brother B who is
The estate tax imposed by the Philippines shall be credited entrusted with the obliqation to transfer the lot to C, a son
with the amounts of any estate tax imposed by the of A, when Creaches legal age.Bis the fiduciary heir and
authority of a foreign country, subject to the following C is the fideicornmissary, The transfer from A · to B is
limitations: subject to estate tax. But the transmission or delivery to C
( upon reaching legal age shall be ·exempt from estate tax.
I Per .country limitation - net estate within a foreign
country c. Transmission from the first heir, legatee or donee in
{ favor of another beneficiary, in accordance with the
Net estate,
r) foreign
Phil. Estate
Max d.
desire of the predecessor
Bequests, devises; legacies or transfers to social
.
l
,r· Net estate,
world
x Tax
= amt. of
credit
welfare, cultural and charitable institutions, no part of
the net income of which inures to the· benefit of any
I -J, individual; Provided not more than 30% of the transfers
shall be_ used by such institutions for adtllinistr~tion
-Global limitation
f,. . purposes.
Total Net
(J estate, Max
outside Phil. Estate
( !
x Tax = amt. of
i J Net estate, credit
world
fJ
The final allowable amount shall be the LOWER AMOUNT
{J between the country and global limitation amounts.
# - -~
t j
j) Exemption of certain acquisitions and transmissions
tf (NIRC, Sec. 84 and 87)
i The following are acquisitions and transfers expressly
declared as exempt from estate tax:

105SEC. 86 (D) Tax Credit for Estate Taxes paid to a Foreign
Country. -
(1) In General. - The tax imposed by this Title shall be credited
,:..,ith the amounts of any estate tax imposed by the authority of a
_ foreign country.
(2) Limitations on Credit. - The amount of the credit taken under
this Section shall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any
Page 97 of 206
country shall not exceed the same proportion of the tax against
which such credit is taken; which the decedent's net· estate
situated within such country taxable under this. Title bears to
his entire net estate; and
(b) The total amount of the credit shall not exceed the same
proportion of the tax against which such credit is taken, which
the decedent's net estate situated outside the Philippines
taxable under this Title bears to his entire net estate.
 ATENEO CENTRAL
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k) Estate tax return106 • ( 5) years in
• or two (2fyears in case it is settled ~xtr~-judicially .
An estate tax return is required to be filed when the estate
is:
a, Subject to estate tax;
b. Regardless of amount of the gross estate, where the
said gross estate consists of registered or registrable
property such as 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. (RMC
No. 34-2013)
Time of Filing of Estate Tax Return
It must be made within one ( 1} year after the death of the
decedent. However, the Commissionermay, in. meritorious
• cases, grant an extension not exceeding thirty (30) days.
Time of Payment ot Estate Tax
The estate tax shall be paid at the time the return is filed
by the executor, r;tdministrator or the heirs. However, when
the Commissionerfinds that the payment of the estate tax
or of any part thereof would impose undue hardship upon
the. estate or any of the heirs, he may extend the time for
payment of S\JCh tax or any part thereof notto exceed five
i06SEC, 90 Estate Tax Returns. 0 ..
(A) Requirements. • In aU cases of transfers subject to the lax
imposed herein, 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 cif 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 returnsshowinga gross value
exceeding five million pesos (PS,000,000) shall be supported
with a statementduly certified to by a Certified Public Accountant
containing the following:
(a) Itemized assets of the decedent with their ccrresponding
gross value at the. time of his death, or in ihe case of a
nonresident. not a citizen of the Philippines, of that part of his
Page 98 of 206
TAXATION LAW
case the estate is settl~d · through the courts,
Payment by Installment
In case the available cash of theestate is insufficient to pay
the total estate tax due, payment by installment shall be
allowed within two (2) years from the statutory date for its
• payment without penalty and interest
Place of Filing andPayment
The heirs/; authorized · .representative/ administrator/
executor shall file the estate tax return and pay the
. corresponding estate tax with the Authorized Agent Bank
(AAB), Revenue Collection Officer {RCO) . or duly
authorized Treasurerof the city or municipality in the RDO
having jurisdiction over the place of, domicile of the
decedent at.the time of his death.,
In case of a non-resident decedent, with executor or
administrator in the Philippines, the estate tax return shall
be filed with the AAB of the RDO where such
executor/administrator is registered or is domiciled, if not
yet registered with the BIR.
gross estate situated in the Philippines; ·
(b) Itemizeddeductions from gross estate allowed lrr $ectio11
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 providedfor in Section 84 ofthis Code, the estate 'lax return
required under the preceding Subsection(A) shall be filed within ·
ONE (1) YEAR from the decedent'sdeath.
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 promulgationof such order.
(C) Extension of Time. - The Commissionershan nave authority
to grant, in meritorious cases; a reasonabie extension not
exceedingthirty (30) days for filing the return.
(D) Place of Filing. - Except in cases where the Commissioner
otherwise permits,the return requiredunder Subsection(A) shall
be filed with an authorized agent bank, or Revenue District
Officer, CollectionOfficer,or duly authorizedTreasurerof the city
or municipalityin which the decedent was domiciled atthe time
of his death or if there be no legal residence in the Phi!ippines,
with the Office of the Cornrnissioner,
 ( : .-
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For fion-resident decedent with no executor or out of gratitude for. his past services is subject - to the
administrator in the Philippines, the estate tax return shall donees' gift.tax. (Pirovano v. CIR, GR. No. L-19865, 1965)
: :I

' l be filed with the MB under the jurisdiction of RDO No. 39-
South Quezon City. (RMC No. 34-2013).
2. DONOR'S TAX
I ·'
a) Basic . Principles, Concept and ' Definition
Donor's tax is a tax on the privilege of transmitting one's
property or property rights to another or others without
adequate and full valuable consideration; an act of
liberality .. (Tuazon v, CIR, G.R. No. L-30403, 1969)
b) Nature, Purpose and Object
Nature of Donor's Tax
f - It is an excise tax imposed on the exercise of donor's right
'i during his lifetime to transfer property to others in the form
of gift.
The subject of donor's tax. is a gift or donation. A gift or
donation is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another who
accepts it. (Civil Code, Art. 725)
Inheritance tax is imposed upon the gift inter- vivas that
plaintiff ~eceived from the donor if this was. really an
LJ advancement upon the inheritance to which onewould be
entitled upon the death of the latter. (Dison v, Posadas,
(} G.R No. L-36770, 1932)
·r
f I Note: In Dison v. Posadas, the SC made a distinction
.reqardinq inter vivas transfers to forced heirs and to
fl voluntary heirs. For forced. heirs, . the transfer was an
advancement upon the inheritance which the donee would
be entitled . to receive upon the death of the donor and,
therefore, it is subject to estate tax. Transfers to voluntary
( l heirs, on the other hand, was subjected to donor's tax.
Purpose and Object of Donor's Tax
The purpose of donor's tax is to complement estate tax by
prevent!ng tax-free depletion of the transferor's estate
during his lifetime.
Illustration
. In the 1940s, Enrico Pirovar.o was President and General
Manager of de la Rama Steamship . Co. The corporation
insured · the life. of Pirovano with various insurance
. Differences between a donation inter vivos and a
companies designating itself as the beneficiaries of said donation mortis causa, as illustrated in jurisprudence:
policies. When Pirovano died, the corporation received a
certain sum as proceeds of the life insurance policies. If the donation is made in contemplation of the donor's
Such amount was later donated by the corporation to death, meaning that the full or naked ownership of the
Pirovano's minor children. The Court held that a donation donated properties will pass to the donee only because of
made by a corporation to the heirs of a deceased officer
Page 99 of 206
It also serves to prevent avoidance of income tax through
the device of splitting income among numerous donees,
who are usually members of a family or into many trusts,
with the donor thereby escaping· the effect of the
progressive· rates of income tax.
Governing law
The gift is perfected from the moment of acceptance by the
donee, and it is completed at the time of delivery. The
delivery can either be constructive or actual. Hence, it is
the law at the time of the perfection and/or completion that
will govern the imposition of the donor's tax.
Applicability of Laws Governing the Imposition of
Donor's Tax (RR No. 02-03)
The donor's tax applies to a completed gift. The transfer is
perfected from the moment the donors knows of the
acceptance by the donee; it is completed by the delivery,
either actual or constructively, of the donated property to
the donee. The law in force at the time of'."'the
perfection/completion of the donation shall govern the
imposition of donor's tax based on the FMV of the property.
A gift that is . incomplete because of. reserved powers
becomes complete when either: .. 9
a; The donor renounces the power; or ·.'?
b. His right to exercise ceased because of the
happening of some event or contingency or the
fulfillment of some condition, other than the death
of the donor ..
c) Time and transfer of properties
Kinds of Donations
a. Donation inter vivos Is a donation made between living
persons and is perfected at the momentwhen the donor
knows of the acceptance of the donee except in case of
donations of immovable properties. It is subject to
donor's tax.
b. Donation mortis causa is a donation which takes effect
upon the death of the donor. It is subject to estate tax.
ATENEO CENTRAL
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the donor's death, thenit is at thatJime that the donation
takes effect, and . it is a donation mortls causa which
should be embodied in a last will and testament (Bonsato
v. CA, G.R. No. L-6600, 1954)
But if the donation takes effect during the donor's
lifetime or independently of the donor's death, meaning
that the full or naked ownership (nuda proprietas) of the
donated properties passes to the donee during the
donor's lifetime, not by reason of his death but because
of the deed of donation, then the donation is inter vivos
(Castro V; CA, G.R. No. L-50974q5, 1969)
In Alejandro v. Geraldez, the Supreme Court held that the
donation in that case was a donation inter vivos, upon
examination of the warranty, acceptance, and reservation
clauses ofthe deed.
Particularly as regards the acceptance clause, the
Supreme Court said: The acceptance clause is another
indication that the donation is inter vivas: Donations mortis
causa, being in the form of a will, are never accepted by
the donees during the donors' lifetime. Acceptance is a
requirement for donations inter vivos. (Alejandro v.
Gera/de7., G.R. No. L-33849, 1977)
In the case of Gestopa v. CA, Diega Danlag owned six
parcels of land. With the consent of his wife, he executed
a deed of donation over said parcels of land in favor of his
illegitimate child, Mercedes Danlaq. Controversy arose as
to whether the deed of donation was inter vivos or mortis
causa. The Supreme Court held that the deed of donation
was a donation inter vivos for the following reasons:
a. The granting clause of the deed showed that
Diego donated the properties out of love and
affection for Mercedes:
b. The reservation clause in · respect of the lifetime
usufruct indicated that Diego intended to transfer
the naked ownership over the properties;
c. Diego reserved sufficient properties for his ·
maintenance in accordance with his standing in
society: and
d. Mercedes accepted the donation .. (Gestopa v. CA,
G.R. No. 111904, 2000)
In Austria-Magat v. CA, sometime in 1975, Basilisa
Cornerciante, mother of 5, executed a document entitled
"Donation" in favor of her 4 living children. The Supreme
Court laid out the characteristics of a donation mortis
causa, to wit
a. lt conveys no title or ownership to the transferee
before the death of· the transferor: or, what
Page 100 of 206
TAXATION LAW
amounts to the same thing, that the transferor
• should retain the ownership (full or naked) and
control of the property while alive:
b. That before his death, the transfer should be
revocable by the transferor at will, ad nutum; but
revocability may be provided for indirectly by
means of a reserved powerin the donor to dispose
of t.he properties conveyed; and
c. That the transfer should be void' ifthe transferor
· should survive the transferee.
In that case, the Supreme Court categorized the donation
as one inter vivos, since the above characteristics were not
present. The prohibition to alienate in said donation did not
necessarily defeat the inter vivos character ofthe donation.
(Austria-Magat v. CA, G.R. No. 106755, 2002)
In def Rosario v · Ferrer, in August 1968, the Gonzales
Spouses executed a document entitled "Donation Mortis
Causa" in favor of their 2 children, Asuncion and Emiliano,
and granddaughter, Jarabini, covering a property. The
deed specifically stated that the donation was irrevocable
and contained an acceptance clause. In September 1968,
the wife died. In December 1968, the husband executed a
deed of assignment of his rights and interests in the subject
property to. their daughter Asuncion. The husband died in
June 1972. •
The Supreme Court ruled . that although · the deed was
denominated as'Donatlon Mortis Causa,'' 'irrevocabitity" is
a quality absolutely incompatible with the idea of
conveyances mortis causa, where "revocability" is
precisely the essence ofthe act. Given that the donation in
this case was irrevocable or one ·given · inter vivos, the
husband's subsequent assignment of his . rights and
interests in the property to Asuncion should be regarded.
as void for, by then, he had no more rights to asslqn, He
could not· give what he no longer had. (def Rosario v.
Ferrer, GR No. 187056, 2010)
In Puig v. Penaf/orida, Dona Ubalde expressly' and
consistently declared her conveyance to be one of
donation mortis causa and further forbade the registration
of the deed until after her death. The Supreme Court held
that "all these features concordantly indicated that the
conveyance was not intended to produce any definitive
effects, nor to finally pass any interest to the grantee,
except from and after the death of the grantor." (Puig v.
Penafforida; GR No. L-15939, 1966)
BIR Ruling No. 089-2011 addressed the issue of whether
a general renunciation made by the sole heir of the
decedent, which made the four grandchildren the heirs
 ATENEO CENTRAL
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next in line as the tiirect heirs, created a taxable event for
which donor's tax should be paid. The BIR ruled that.in the
transaction above, there was no donation to speak of.
Hence, no donor's tax could be assessed on the
transaction.
Note: The rule is different when the renunciation is specific
as the same attracts donor's tax.
r
i '
Special Rules for Husband and Wife
I , Husband and wife are considered as separate and distinct
taxpayers for purposes of the donor's tax.
However, if what was donated is a conjugal or community
property and only the husband signed the deed of
donation, there is only one donor for donor's tax purposes,
without prejudice to the right of the wife to question the
validity of the donation without her consent pursuant to the
pertinent provisions of the Civil Code of the Philippines and
the Family Code of the Philippines.
Net Gift
It is the net economic benefit from the transfer that accrues
to the donee.
Accordingly, if a mortqaqed property is transferred as a gift; •
f ··-,
'I ''
but imposing upon the donee the obligation to pay the
mortgage liability; then the net gift is measured. by
deducting from the FMV of the property the amount of•
mortgage assumed. ·
d) Requisites of Valid Donation
Generally, the following are the requisites for a valid
donation (C-1-D_-A):
a. fapacity of the donor;
l j b. !ntent to donate;
_c. Qelivery of the subject gift, whether actual or
ti constructive; and
d. ~cceptance by the done.
However, the following requisites apply in-case of donation
of immovable properties:
a. Donation must be made in a public instrument specifying
the property donated;
b. It must be accepted during the lifetime of the donor,
which may be made either in the same or separate public
instrument; and
c. lfthe acceptance is made in a separate instrument, the
donor must be notified in an authentic form, and the same
must be noted in both instruments.
e) Transfers Which May Be Constituted as Donation
(1) Sale/ExchangefTransfer of Property for Insufficient
Consideration
Please see discussion in succeeding number (3).
(2) Condonation or Remission of Debt
If a creditor merely desires to benefit a debtor and without
any consideration therefore cancels .the debt, the amount
of the debt is a gift from the creditor to the debtor and need
not be included in the latter's gross income. (Sec. 5ifRR
No. 02-40)
The following are other transfers which may be considered
as donations:
'·-··
a. Transfers made in trust for another person; and
b. Renunciation by . the surviving . spouse of. his/her
share in the conjugal partnership or absolute
community after the dissolution of the marriage in
favor of the heirs of the deceased spouse or any
other person.
However, a general renunciation by an heir, including the
surviving spouse, of his/her share in the hereditary estate
left by the decedent is not subject to donor's tax, unless
specifically and categorically done in favor of identified
heir/s to the exclusion or disadvantage of the other co-heirs
in the hereditary estate. (RR No. 02-03)

However, see Estate of Reyes (CTA Case No. 6747,

2006): the repudiation by the heirs of an inheritance was
held not to be a donation.

i
Note: Without a source of income or acceptable form of
' j
acquisition of substantial amount to purchase properties,
the inclusion of the names of minor children in the
certificates of title of properties sha!I be deemed an implied
donation, which is subject to donor's tax. (sos. Hordon H.
Evono and Maribel C. Evcno vs. CIR, et. al., CTA EB No.
705 [CTA Case No. 7573], 2012)

Page 101 of 206

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For resident . citizen I non-resident citizen I resident

•
(3) Transfer For Less Than Adequate And Full alien: · •
Consideration a. Real property within and without the.Philippines:
Where property, other than a real property that has been b. Tangible persona! property within and without the
subjected to the final capital gains tax, is transferred for Philippines; and
less than an adequate and full consideration in money c.. lntanqibte personal property within and without the
or money's worth, then the amount by which the fair Philippines.
market value of the property at the time of the execution
of the Contract to Sell or execution of the Deed of Sale For Non-resident alien:
which is not preceded by a Contract to Sell exceeded the a. Real property within the Philippines;
value of the agreed or actual consideration or selling b. Tangible personal property within the Philippines;
price shall be deemed a gift, and shall be included in and
computing the amount of gifts made during the calendar c. Intangible personal property within the Philippines.
year.

The absence of donative intent, if that be the case. does

not exempt the sales of stock transaction from donor's tax
since Sec. 100 of the NIRC categorically states that the
amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed
a gift. Thus, even if there is no actual donation, the
difference in price is considered a donation by fiction of
law .. (Phi/am v. Secretary of Finance, G.R. No. 210987,
2014)

The amount by which the book value of shares, not listed

and traded in the stock exchange, exceeds the value of the
consideration shall be deemed a gift. (Phi/am v. Secretary
of Finance, G,.R. No. 210987, 2014) ·

Note: In the case of real properties considered as capital

assets, the difference between the FMV and the actual
'.
value received in transfers for less than the adequate or
full consideration shall NOT be subject to donor's tax.

The rationale is that under Sec. 24( d) of the N IRC, the FMV
itself, if higher than the gross selling price, is the base for
the computation of capital gains tax. In essence, what the
seller avoids in the payment of donor's tax, it pays with the
capital gains tax.
r•
f) Classification of Donor
a. Resident citizen
b. Non-resident citizen
c. Resident alien
d. Non-residentalien

g} Determination of Gross Gift ' .

Gross gift refers to all property, real or personal, tangible

or intangibie, that is given by the donor to the donee by
way of gift, without the benefit ofany deductions.

h) Composition of Gross Gift

Page 102 of 206
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tl Special Rules on Intangible Properties107 that foreign country. ·
The following intangible personal properties are •
l
J considered with situs in the Philippines: (Sec. 104, NIRC) i) Valuation Of Gifts Made In Property
-, o Franchise, which must be exercised in the Philippines; Personal property- It is the FMV at the time of donation.
'I o Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or Real Property - It is the FMV as determined by the CIR or
constituted in the Philippines in accordance with its the FMV in the latest schedule of values of the
laws; city/provincial assessor, whichever is HIGHER.
o Shares, obligations or bonds issued by any foreign
corporation, 85% of the business of which is located in j) Tax Credit For Donor's Taxes Paid To A Foreign
the Philippines; Country
o Shares, obligations or bonds issued by any foreign Who may avail tax credits
corporation, if such shares, obliqations or bonds have Only resident or citizen donors are entitled to claim taxes
acquired a business situs in the Phjlippines; and paid to a foreign country.
o Shares, rights in any partnership business or industry
established in the Philippines. What amount of tax credit may be claimed
The donor's -tax imposed by the Philippines · shall be
Reciprocity Clause (Sec. 104,. NIRC) credited with the amounts of any tax imposed by the
Intangible personal properties shall not form part of the authority of a
foreign country, subject to the following
gross gift for purposes of Phiiippine donor's tax if: limitations:
a. The donor at the time of the donation was a citizen and
resident of a foreign country; and limitation A (per country):
b. (i) The foreign country, at the time of the donation, did
not impose a donor's tax in respect of the intangible · Net gifts, foreign
x Phil. Donor's
personal property of citizens of the Philippines not . country
Tax
residing in that foreign country; or Net gifts, world
· (ii) The law of the foreign country of which the donor
was a citizen and resident at the time of the donation:
}
1. Allows a similar exemption from donor's tax;
2. in respect of the 'intangible personal property
I l owned by citizens ofthePhllippines not residing in

[l 107
SEC. 104 Definitions. - For purposes of this Title, the terms
'gross estate' and 'gifts' include real and personal property,
whether tangible or intanqible: or mixed, wherever situated:
I l Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case
H 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 Jaws; shares, ob!igations or
bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines; shares,
obiigations 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 Phiiippines, 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
Page 103 of 206
the time_ of his death or the donor at the time of \he 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 ihtahgible 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.
The term 'deficiency' means: (a) the amount by which tax
imposed by this Chapter exceeds the amount shown as the tax
by the donor upon his return; but the amount so shown on -the
return shall first be increased by the amount previously assessed
(or collected without assessment) as a deficiency, and decreased
by the amounts previously abated, refunded or otherwise repaid
in respect of such tax, or (b) if no amount is shown as tax by the
donor, then the amount by which the tax exceeds the amounts
previously assessed, (or co:tected without assessment) as a
deficiency, but such amounts previously assessed, or collected
without assessment. shall first be decreased by the amount
previously abated, refunded or otherwise repaid in respect of
such tax. ·
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Limitation B.(by total):
Net gifts, ALL
foreign x Phi!. Donor's
countries Tax
Net gifts, world
The final allowable amount shall be the lower amount
between the two limits computed above.
108 SEC. 101 Exemption of Certain Gifts. - The following gi,fts or
donations shall be exempt from the tax provided
Chapter: ·
for
iri this
(A) In the Case of Gifts Made by a Resident. -
(1) Gifts made to or for the use ofthe National Government or
any entity created by any. of its agencies which is not conducted
for profit, or to any political subdivision of the said Government;
and
(2) Gifts in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, accredited
nonqovernment organization, trust or philanthropic organization
or research institution or organization: Provided, however, That
not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes. For the purpose of this ·
exemption, a · 'non-profit educational and/or charitable
corporation, institution, accredited nongovemment
organization, trust or philanthropic organization and/or
research institution or organization' is a school, college .or .
university and/or charitable corporation, accredited .
nongovemment organization, trust or philanthropic organization
;:)nd/or research institution or organizaiion, incorporated as anon-
.stock entity, paying no dividends, governed l:>y trustees who
receive no compensation, and devoting all its income, whether
.students' fees or gifts, donation, subsidies or other forms of
philanthropy, to the . accomplishment and promotion of · the
purposes .enumerated in its Articles of Incorporation
(B) In the Case of Gifts Made. by a Nonresident not a Citizen
of the Philippines. -
(1) Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not conducted·
for profit, or to any political subdivision of the .said Government.
(2) Gifts in favor of an educational and/or charitab!e, reiigious,
cultural or social welfare corporation, institution, foundation, trust
or philanthropic organization or research institution or
organization: Provided, however. That .not more than thirty
percent (30% of said gifts shall be used by such donee for
administration purposes.
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title upon a donor who
was a citizen or a resident at the time of donation shall be credited
with the amount of any donor's tax of any character and
description imposed by the authority ofa foreign country.
(2) Limitations on Credit. - The amount of the credit taken under (1) In General. - The tax imposed by this Title upon a donor who
Page 104 of 206
TAxATION LAW
. k) Exemption Of Gifts From Donor's Tax1oa
•
The exemptions are not to be treated as exclusions from
the gross gifts of the donor. They partake of the nature of
deductions and are therefore,' deductible from the gross gift
in order to arrive at the net taxable gift.
Made by a Resident
a. Gifts made to the Government or any entity created by
this Section shall be subject to each of the following limitations:
(a) The amount of the credit in respect 'to the tax
paid to any
country $haH not exceed the same proportion ofthe tax against
which such credit is taken, which the netgifts situated within such
country taxable·underthis Title bears to his entire netgifts; and
(b} The total amount of the credit shall not exceed the same
proportion of the tax against which .such credit is taken, which the
donor's net gifts situated outside the Philippines taxabte under
this title bears to his entire net gifts.
(A) lri the Case of Gifts Made by a Resident. ~ ··
(1) Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not conducted
for profit, or to any political subdivision of the said Government;
and
of
(2) Gifts in favor an educational and/or charitable, religious,
cultural or social welfare corporation; institution, accredited
/nonqovernrnent organization, trustor philanthropic o~ganization
or research. institution or organization: Provided; however, That
not more than thirty percent(30%) of said gifts shall .be used by
such donee for administration purposes. 'For the purpose of this
exemption, a 'non-protlt educational end/or charitable
. corporation, · institution, accredited nongovernment
organizaticm, trust or philanthropic .organization and/or
research institution or organization' is a school, college or
university and/or charitable corporation, accredited
nongovemment organization, trust or philanthropic organization
. and/or research institution or organization, incorporatedas a non-
stock entity, paying .no dividends, governed by .trustees who
receive no compensation, and devoting all its income,. whether
students' fees or gifts, donation, subsidies or other forms of
philanthropy, to .the accomplishment and promotion .of the
purposes enumerated in its Articles otlncorporation
(B) In the Case of Gifts Made by a Nonresident not a Citizen
of the Philippines. -
(1) Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not conducted
for profit, or to any political subdivision of the said Government.
(2) Gifls in favor of an educational and/or charitable, religious.
cultural or social welfare corporation, institution, foundation, trust
or philanthropic organization or research institution or
organization: Provided, however, That not more than thirty i.
percent (30% of said gifts shall be used by such donee for
administration purposes. t•
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. -
 r .:
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fl any of its agencies which is not conducted forprofit, or
to any political subdivision of the Government
r; ·1
b. Gifts in favor of a nonprofit educational and/or
charitable, religious, cultural or social welfare
corporation, institution accredited non-government
organization, trust or philanthropic organization or
research institution or organization; provided that not
more than 30% shall be used by such donee for
administration purposes.
Note: Non-profit Educational and/or Charitable
Corporations are corporations incorporated as a non-stock
entity paying no dividends, governed by trustees who
receive no compensation, and devoting all their income to
the accomplishment and promotion of the purposes
- enumerated in their respective Articles of Incorporation.
There are other donations exempt from donor's tax based
on the law supporting the said donee institution such as
I j
donations made to foster care institutions, University of the
I , Philippines, National Book. Development Trust Fund, etc.
c. Encumbrances oh the property donated if assumed by
.the donee in the deed of donation · In terms of income tax, the campaign contrlbutions shall
d. Donations made to entities as exempted under special
laws (e:g. IBP, IRRI, · National Museym, National
Library)
e. Donations not exceeding P250,000 per year (Sec.
99[A],NIRC)
f. Amount specifically · provided by the donor as a
I ] .Qiminution of the property donated.
g. Athlete's .e_rizes and Awards (PA 7549)
Ll
Benefit to donor engaged in business in case donee is
accredited by the Philippine Council . for NGO
Certification (PCNC)
1. Donation is exemptfrom donor's tax; and
I l
.---..
'l .• 2. Donor may claim donation as deduction (as business
expense), provided that:
a. Donor gives a Notice of Donation on every
donation worth at least P50,000 to the Revenue
District Office which has jurisdiction over his place
was a citizenor a resident at the time of donation shall be credited
with the amount of any donor's tax of any character and
description imposed by the authority of a foreign country.
I donor's net gifts situated outside the Philippines taxable under
l this title bears to his entirenet gifts.
(2) Limitations on Credit. - The amountof the credit taken under
.
I '
this Sectionshall be subject to each of the following limitations:
(a) The amount of the credit in respect to the tax paid to any
country shall not exceed the same proportion of the tax against
which such credit is taken, which the net gifts situated within such
Page 105 of 206
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TAXATION LAW
of business within 30 days after receipt of the
quaiified donee institution's duly issued Certificate
of Donation, which shall be attached to the said
Notice of Donation; and
b. The Certificate of Donation states that not more
than 30% of the said donation/gifts for the taxable
year shall be used by such qualified donee
institution' for administration purposes pursuant to
the provisions of Sec.. 101 (A)(3) and (8)(2) of the
NIRC. (RR No. 02-03)
Contents of Certificate of Donation
The Certificate of Donation must indicate/contain (1) donee
certification, and (2) donor's certificate of values. (RMCNo.
86-14)
Tax Treatment of Campaign Contributions and
Expenditures
Contributions in cash orinkind to any.candidate or political
party or coalition of parties for campaign purposes,
provided that such are duly reported to the Commission on.
Elections, are exempt from donor's tax. (RR B-2009)
,,.:iii':,
not be included in the candidate's taxable income, as'!ong
as it is used in the pampaign. However, unutilized/excess
campaign funds must be included in a candidate's taxable
income. (RR 7-2011) .?'t
Any candidate who fails to file with the COMELEO*°the
appropriate Statement of Expenditures required under the
Omnibus Election Code shall be automatically precluded
from claiming such expenditures· as deductions from
his/her campaign contributions. Thus, the entire amount
received as campaign contribution shall be subject · to
income tax.
Made by a Nonresident Alien
a. Gifts made to the Government or any entity created by
any of its agencies which is not conducted for profit, or ·
to any political subdivision of the Government;
b. Gifts in favor of an educational and/or· charitable,
country taxable under this Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same
proportionof the tax againstwhich such credit is taken, which the
 ATENEO CENTRAL
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religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic
organization or research institution or organization;
provided that not more·than 30% shall be used by such
donee for administration purposes
I) Person Liable
Any person, resident or non-resident, transferring a The tax rate for each calendar year shall be 6% computed
property by gift, may be held liable for donor's tax.
The donor's tax return must be filed within thirty (30) days
after the gift is made. The return is filed where the donor
was domiciled at the time ofthe donation.
gift· is gi~en in one calendar year and the other gift was
given the following calendar year even ifd<.nations are only
several days apart, there is no iegal justification for treating
the two gifts effected in two separate calendar years as
one gift, (Sacdalan°Casasola, NIRC Annotated Volume 2,
760, 2013)
Donor's Tax Rates
on the basis of the total net gifts in excess bf Two hundred
fifty thousand pesos (P250,000) exempt gift made during
the calendar year.
D. VALUE-ADDEDTAX

m)TaxBasis 1. Concept, characteristics/elements of VAT-taxable

transactions
· Sample Computation of Donor's Tax
Concept
Ori the 151 donation of the year: Value-Added Ta1< (VAT) is a tax on consumptlon.levied on
the sale, barter, exchange or lease ofgoods or properties
Gross Gift xx . and services in the Philippines and on importation of goods
Less: Deductions xx into the Philippines.

Net Gift xx
Seller is the one statutorily liable for the payment of the tax
Multiply by: Tax Rate 6% but the amount of the tax may be shifted or passed on to
Donor's Tax xx the buyer, transferee or lessee of the goods, properties or
services.
On subsequent donation/s during the year:
In the case of importation, the. importer is the one liable for
the VAT.
Gross Gift xx
Less: Deductions xx Characteristics of a. VAT-Taxable transaction
Net Gift xx (Mamalateo)
Add: Prior net gift/s xx
Aggregate Net Gifts xx
a
a. It is tax on the value added of a taxpayer.
b. It is a transparent form of sales tax meaning that the
Multiply by: Tax Rate 6% amount of tax is segregated to be apparent to/seen by
Total Donor's Tax for the year xx the taxpayer.
c. It is a broad-based tax on consumption of goods,
Less: Prior donor's tax paid xx
properties, or services in the Philippines as it applies to
Donor's Tax to be paid on this date xx all stages of manufacture, production, and distribution
of goods and services.
The computation of donor's tax is on a cumulative basis d. It is an indirect tax.
over a period of one calendar year. The purpose of this e. The Philippines adopted the "separate indication of tax
aggregation rule is to deter gift-splitting such as when a method".
donor makes separate gifts such that the amount of each f. There is no cascading in the valueadded tax system and
gift is below the threshold of taxable gifts. is thus not considered a tax on tax.

Note, however, that the aggregation rule applies only to CIR v, COMASERCO, G.R. No. 125355, 2000
gifts that are made within the same calendar year. if one

Page 1 06 of 206
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[1 VAT is a tax on transactions, imposed at every stage <:!. the a. It Involves any f.erson;
distribution process on the sale, barter, exchange ofgoods b. There must be a ~aie (unless the same is a "deemed
[1 or property, and in the performance of services, even in sale" transaction), barter, exchange, lease of goods or
the absence of profit attributable thereto. properties, or rendering of service;
J c. It must be done in the ordinary course of trade or
The term "in the course of trade or business'.' requires the §usiness;
{ l regular conduct or pursuit of a commercial or an economic . d. The transaction is done in the fhilippines.
activity, regardless of whether or not the entity is profit- e. It must neitherbeVAT-gxemptorVAT zero-rated.
[ l oriented.
[ 2. Impact and incidence of tax
Hence, it is immaterial whether the primary purpose of a The impact of VAT is on thesetler because itis the one
corporation indicates that it receives payment for services who is statutorily liable for the payment of the tax.
I rendered to its affiliates on a reimbursement-on-cost basis However, in the case oflrnportation, the importer is the one
only, without realizing profit, for purposes of determining
(1 liability for VAT on services rendered.
liable for VAT.

The incidence of the tax, on the other hand, is on the final

As long as the entity provides service for a fee, consumer where the tax comes to rest. VAT is an indirect
remuneration or consideration, then the service tax which may be · shifted or passed on to the buyer,
rendered is subject toVAT. transferee or lessee of qoods, properties or services.
r Association dues, membership fees, and other
(Sacdalan-Casasola, NIRC Annotated Volume 2, 760,
2013)
. assessment and charges collected by a condominium
l 1 corporation/homeowrier's association is subject . to. VAT VAT is an indirect. tax levied on goods and services; not on
I·~,r because , they constitute income . payment or persons. and ultimately paid by consumers in the form of
compensation for the beneficial services the higher prices.
condominium corporation/ homeowners' association .
f1 provides for its tenants and members. (RMC 65~2012)
· 3. Tax Credit Method
Under such method that relies on invoices, an entity can
Note: In Officemetro Philippines, Inc. \I.. CIR (CTA. Case credit against or subtract from theVATcharged on its sales
i l No. 8382, June 3, 2014), CTA ruled that the condominium. or outputs the VAT paid on its purchases, inputs and
dues billed to Officemetro are not subject to withholding imports.
{J tax. The case, however, does not involve the issue on VAT
and the CTA did not rule .on the validity of the said RMC.
If at the end of a taxable quarter the output taxes charged
LJ CIR v. Sony Philippines, Inc., G.R. No.178797; 2010
by a seller are equal to the input taxes passed on by the
suppliers, no payment is required. However, when the
l} The fact that the advertising expense is subsidized· or output taxes exceed the input taxes, the excess thereof
reimbursed by Sony International, the offshore affiliate of has to be paid.
tj Sony Philippines; does not render the same automatically

.
I ;'
subject to output VAT. There was no sale; barter or
exchange of goods or properties from the questioned
transaction. Neither was there an exchange of service.
Jf, on the other hand, the input taxes exceed the output
taxes, the excess shall be carried over to the succeeding
quarter or quarters.

Considering· that there is no sale, barter or exchange of

Should the excess input taxes result from zero-crated or
goods or properties in the instant case, the imposition of
effectively zero-rated transaction, any excess over the
output VAT on subsidized advertising expense has no leg
output taxes shall instead be refunded to the taxpayer or
to stand on. In order that VAT may be imposed, there must
credited against other internal revenue taxes. (CIR v.
be the existence of a transaction that is subject to VAT.
Seagate Technology Philippines, G.R. No. 153866, 2005)

Elements of a VAT-taxable transaction {PSBPE):

Note: Excess input VAT resulting from acquisition of
I.' (NIRC, Sec. 105)
capital assets can no longer be refunded.

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4. Destination Principle I Cross Border DoctriM '.
Destination· Principle;' VAT is imposed in the country in
which the products or services are actually consumed or
used (i.e., exports exempt, imports taxable).
Actual ·shipment of the goods from. the Philippines to a
foreign country is a precondition ofan export sale following
the destination principle being adhered to by our VAT
system.
Origin Principle: only national taxpayers .would be
exposed to the tax, without distinguishing between
transactions "consumed" locally or abroad (i.e., Exports
taxable, imports exempt; Situs: country of production)
Cross-border Doctrine; NoVAT shall be imposed to form
part of the cost of goods sold destined fol' consumption
outside of the territorial border of the taxing authority.
CIR v. AMEX, G.R. No. 152609, 2005
General Rule: The VAT system uses the destination
·. principle as a basis for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where
they are consumed.
Exception: The supply ofservice shall be zero-rated when
the following requirements are met:
a. The service is performed in the Philippines;
109SEC. 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 subjectto the value-addedtax (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 iease of goods, properties or services
atthetime of the effectivity.ofRepublic Act No. 7716.
The phrase 'in the course of trade or business' means the
regular conduct or pursuit of a commercial or an economic
activity, including transactions mcidentalthereto, by any person
regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the
disposition of its net income and whether or not'it sells exclusively
to membersor their guests), or governmententity.
The rule of regularity, to the contrary notwimstandinq, services as
defined in this Code rendered in the Philippines by nonresident
foreign persons shall be considered as being ccurse of .trade or
business. ·
Page 108 of 206
TAXATION LAW
•
Note: The services should be rendered to ·a person or
entlty Who is doing business outside the Philippines. (CIR
v. Burmeister, G.R. No; .153205, 2007)
b. The service falls under any of the categories provided in
Section 108(8) of the Tax Code; and
c; It is paid for in acceptable foreign currency that is •
accounted for in accordance with BSP rules.
5. Persons Liable109
a. Any person who, in the course of trade or business
i. Sells, barters, or exchanges goods or properties
(seller or transferor):
ii. Leases goods orproperties (lessor); OR
iii. Renders services (service provider);
b. Any person, whether or hot made in thecourse of trade
or business, imports goods (importer)110; ·
c. Any non-resident persons who · perform services in the
. Philippines as theya·re deemed to be. making sales in the
course of trade or business, even if the performance of
their services is not regular; or .
d. Any person who issues VAT-registered Invoices and/or.
Official Receipts even if their transaction 'is not subject to ·
VAT.
Definition of "in the course of trade or business" (Rule
· of Re~ularity) .
110sec. 107 Value.::AddedTax on Importation of Goods.
. (A) hi General. ~ There shall be levied, assessed and collected
on every importation of goods a· value-added tax equivalent to
twelve percent(12%) based on the total value used by the Bureau
of Customsin determiningtariff and customsduties plus customs
duties, excisetaxes; if any, and other charges,such tax to be paid
by the importer prior to the release of such goods from customs
custody: Provided, That where the customs · duties are
determined on the basis of the quantity or volume of the.goods,
the value-added tax shall be based on. the landed cost.plusexcise
taxes, if any
(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
subsequentlysold, transferredor exchangedin the Philippines to
non-exempt persons or entities, ·the purchasers. transferees or
recipientsshall be consideredthe importers thereof, .whp 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 aH charges or liens on the goods, irrespective of the
possessorthereof.
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The phrase "in the course of.trade or business" means: Th'a term "course of business" or "doing business"
a. The regular conduct or pursuit of a commercial or an connotes regularity of activity. Any Sale, barter, exchange
economic activity; of goods or services not in the course of trade or business,
b. Including transactions incidental thereto; is not subject to VAT. - (CIR v, Magsaysay Lines, G.R. No.
l
\ i c. Regardless of W/N the person engaged therein is a 146984, 2006)
nonstock, nonprofit private organization (irrespective
-. of the disposition of its net income and whether or not An isolated transaction may be considered an incidental
it sells exclusively to members or their guests), or transaction for purposes of VAT liability. Mindanao ll's
government entity (NIRC, Sec. 105) business is to convert the steam supplied to it by PNOC-
Non-resident persons who perform services in the EDC into electricity and to deliver the electricity to NPC. In
1 ;
Philippines are deemed to be making sales in the course the course of its business, Mindanao II bought and
of trade or business, even if the performance of services is eventually sold a Nissan Patrol (i.e., part of Mindanao ll's
not regular. property, plant and equipment prior to the sale). Therefore,
the sale of Nissan Patrol is an incidental transaction made
PROFIT IS NOT AN ESSENTIAL MOTIVE/ ELEMENT in the course of business which should be subject to VAT.
FOR TAXABILITY (Mindanao II Geothermal v. CIR, G.R. No. 1.93301, 2013)
Even a non-stock, non-profit, organization or government
entity, is liable to pay VAT on the sale of goods or services. · Exceptions to the rule of regularity
The term "in the course of trade or business" requires the . Services rendered in the Philippines by. non-resident
reguiar conduct or pursuit of a commerciai or an economic foreign persons shall be considered as be'ing rendered in
I activity, regardless of-whether or not the entity is profit- the course of trade or business.
oriented. (CiR v. COMASERCO, G.R. No. 125355, 2000)
f 1 6; Imposition of VAT
a) On Sale of Goods or Properties111

111SEC. 106 Value-Added Tax on Sale of Goods or Properties. tax, if any, on such goods or properties shali form part of the gross
selling price. ·

(A) Rate and Base of Tax. -There shal! be levied, assessed and
collected on every sale,. barter or exchange of goods or
properties, value-added tax equivalent to twelve percent (12%) of
the gross selling price or gross value in money of the goods or
properties sold, .bartered or exchanged, such tax to be paid by
the seller or. transferor. ·
_ (1} The sale and actual shipment of goods from· the Philippines
•
J (1) "Goods or Properties" - The term 'goods' or 'properties'
shall mean all tangible and intangible objects which are capable ·
.
I ~l of pecuniary estimation and shall include:
(a) Real properties held primarily. for sale to customers or held
ti for lease in the ordinary course of trade or business;
(2) "Zero rated Sales of G_oods and Properties" • The
following sales by VAT -reqistered persons shall be subject to
zero percent(0%) rate:
(a) Exp<;>rt Sales. - The term 'export sales: means:
.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 paid for in
acceptable foreign currency or its equivalent in goods or services,
and accounted· for ih accordance with the rules and regulations
· of the Bangko Sentral ng Pilipinas (BSP);

(b) The right or the privilege to use patent, copyright, design or (2) Vetoed

.
t
'
.I'
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.
The term 'gross selling price' means the total amount of money
or its equivalent which the purchaser pays or is obliqated 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
Page 109 of 206
(3) Sale of raw materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented enterprise to
be used in manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(4) Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy percent
(70%) of total annual production;
 ATENEO CENTRAL
BAR OPERATIONS 2019
Every sale, barter or exchanqe of goods or properties shall
be subject to 12% VAT based on the gross selling price or
gross value in money·of the goods or properties sold.
Goods refer-to all tangible and intangible objects which are
capable of pecuniary estimation.
It includes:
a. Real properties held primarily for sale to customers or
held for lease in the ordinary course of business
(5) Those considered export sales under Executive Order NO.
226, otherwise known as the Omnibus Investment Code of 1987
and other special laws. and · · ' course ofbuslness;
(6) The sale of goods, supplies, equipment and fuelto persons
engaged in international shipping or international air transport
operations: Provided, That the goods, supplies, equipment and
fuel shall be used for international shipping or air transport
operations
Provided, That subparaqraphs (3), (4), and (5) hereof shall be
subject to the twelve percent {12%) value-added tax and no
longer be considered export sales subject to zero percent (0%)
VAT rate upon satisfaction of the following conditions:
("I) The successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable
input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the
eftectivity of item no. 1, all applications filecl fromJanuary 1, 2018
shall be processed and must be decided within ninety (90).days
from the fi!ing of the VAT refund application; and
(2) Al! pending VAT refund claims as ofOecomber 31, 2017 shall
be fully paid in cash by December 31, 201.9.
Provided, That the Department of Finance shall establish a VAT
refund center in the Bureau of Internal Revenue (BIR) and in the
Bureau of Customs (BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total VAT
.collection of the BIR and the BOC from the immediately preceding
year . shall be automatically appropriated annually and shall be
treated as a special account in the General Fund or as trust
receipts for the purpose of funding claims for VAT refund:
Provided, That any unused fund, at the end of the year shall
revert to the General Fund.
Provided, further, That the BIR and the BOC shall be required to
submit to the Congressional Oversight Committee on the
Comprehensive Tax Reform Program (COCCTRP) a quarterly
report of all pending claims for refund and any unused fund.
(b) 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.
(B) Transactions Deemed Sale. - The following transactions
shail be deemed sale:
Page 110 of 206
TAXATION LAW
b. The right or the privilege t~ 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,
film tapes and disc
e. Radio, television, satellite transmission, and cable
television time
(1) Transfer, use or consumption not in the course of business
of goods or properties originally intended for sale or-tor use in the
(2) Distribution or transfer to:
(a) Shareholders or investors as share ih the profits of the VAT-
registered persons; or
(b) Creditors in paymentof debt;
(3) Consignment of goods if actuat sal~ 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.
(C) Changes in or Cessation of Status of a VAT-registered
Person. - The tax imposed in Subsection (A) of this Section shall
also apply to goods disposed of or existing as of .a. certain date if
under circumstances to be prescribed in rules and regulations to
be promulgated by the Segretary of. Finance, upon
recommendation of the Commissioner, the status.of a person as
a VAT-registered person changes ~r is terminated.
(D) Sales Returns,.Allowance and Sales Discounts. The value
of goods or properties . sold and subsequently. returned or for
which allowances were granted by a VAT-registered person may
be deducted from the gross sales or receipts for the quarter in
which a refund is made .or a credit memorandum or refund is
made or a credit memorandum or refund is issued. Sales discount
granted and indicated in the invoice atthe time of sale and the
grant of which does not depend upon the happening of a future f.-
event may be excluded from the gross sales within the same ,.
quarter it was given. · , ·
(E) Authority of the Commissioner to Detennine 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.
.!
1..
 [ }

fl
ATENEO CENTRAL
[l BAR OPERATIONS2019 TAXATION LAW

r1 IT IS ESSENTIALTHAT THERE IS A SALE OF GOODS
OR SERVICES
} Reimbursements received by a mali owner for advances it
had made for the payment of electric, water, and telephone
f l
i l bills and for the janitorial services provided were held to be
not subject to VAT since the taxpayer was not engaged in
the business of providing electricity, water, security, and
janitorial services to the lessees. It is not the taxpayer who
directly supplied the goods and services to the lessees.
(Tourist Trade & Travel Corp. v. CIR, G.R. No. 164365,
1j 2007)
However; a HMO was considered as engaged in business
as a service contractor and was held liable to pay VAT
although the actual health care services were rendered by
independent health care providers. In this VAT ruling, the
taxpayer sold health care services through independent 3rd
·. parties who ac;tually performed. the services on the
taxpayer's behalf (VAT Ruling No. 18-98)
GROSS SELl.,.ING PRICE (GSP)
The total amount of money or its equivalent which the
} b. Sale on a deferred-payment basis:
purchaser pays · or is obligated to pay to the seller in
consideration of sale, barter or exchange ofthe goods or
[1 properties, excluding the VAT. The excise tax, if any, of
such goods or properties s,haU form part of the GSP.
l 25% of the GSP):
In the case of sale, barter or exchange of real property
i l subject to VAT, GSP shall mean the higher amount
between:
I 1 a. Consideration stated in the sales document; or
[ i b. FMV as determined by the CIR (zonal value) or FMV as
shownin the schedule of values of the Provincial and
,·l City Assessors.
\ Note: If the VAT is not billed separately in the document of
.I
sale, the selling price or the consideration stated therein
i--1. shall be deemed to be inclusive of VAT. However, if the
gross seliing price 'is based on the zonal value or market
I, value of the property, the zonal or market value shall be
deemed exclusive of VAT. Thus, the zonai/market value,
;1
·,, net of the output VAT, should still be higher than the
consideration in the document of sale, exclusive of the
VAT.
Sale of Real Properties
Sale of real properties held primarily for sa!e to customers
or held for lease in the ordinary course of trade or business
of ihe seller shall be subjectto VAT.
Sale of real p:·operties may either be on an installment
•
basis or a deferred-payment basis.
a. Sale of real property on installment plan:
Sale of real property by a real-estate dealer, the initial
payments of which in the year of sale do not exceed 25%
of the GSP. In this case, the VAT shall be collecte~ on
the installment payments.
Initial payments covers any down payment made and
includes all payments actually or constructively received
during the year of sale.
It excludes amount of mortgage on the real property sold
except when such mortgage exceeds the cost or other
basis of the property to the seller, in which case the excess
shall be considered part of the initial payments.
It also excludes notes or other evidence ofindebtedness
issued by the purchaser to the seller at the time of the sate.:
)-:.
The transaction shall be treated as cash sale Which makes
the entire selling price taxable in the month of 'sale
(sale of realproperty where the initi.al payment excee.ds
,
,. . . . :,:,
. The real· estate dealer shall be subject to VAT on )he
installment payments, including interest and penalties,
actually and/or constructively received by the seller.
Correspondingly, the buyer can claim the input tax in the
same period ~hat the seller recognized the output tax.
"Real estate dealer" includes any person engaged in the
business of buying, developing, selling, exchanging real
properties as principal and holding himself out as a full or
part-time dealer in real estate.
Sale of residential lot with gross selling price exceeding
ell919$M. residential house and lot or other dwellings with
~~~~s selling price exceeding P3;19-92.IV( where the
instrument (whether the instrument is nominated as a deed
of absolute sale, deed of conditional sale, or otherwise) is
executed on or after November 1, 2005 shall be subject to
12% VAT. (RR 16-2011). Note that as provided by TRAIN,
beginning January 1, 2021, the VAT exemption shall only
apply to sale of house and lot, and other residential
dwellings with selling price of not more than Two million
pesos (F'2,000,000).

Page 111 of 206

 A TENEO CENTRAL
BAR OPERATIONS 2019
Where the instrument · of sale was executed ipr1or to
November 1, 2005, the price needs only to exceed P1
million for the installment saie of residential house and lot
or other residential dwellings to be subject to 10% VAT.
Transmission of property to a trustee shall not be subject
to VAT if the property is to be merely held in trust for the
trustor and/or beneficiary. However, if the property
transferred is one for sale, lease or use in the ordinary
course of trade or business and the transfer constitutes a
complete gift, the transfer is subject to VAT as a deemed
sale transaction. - ·
b) VAT on Importation of Goods
12% VAT shall be levied, assessed and collected on every
importation of goods based on the following:
a. total value used by the Bureau of Customs (BOC) in
determining tariff and customs duties;
'b, customs duties;
c. excise taxes, if any; and
d. other charges.
Such tax shall be paid prior to the release of such goods
from customs custody.
If the customs duties are determined on the basis of
quantity or volume of the goods, the 12% VAT shall be
based on the landed cost plus excise taxes, if any. _
112 SEC. 108. Value-added Tax on Sale of Services and Use
or Lease of Properties; • . - sales of electricity by generation companies, transmission, and
(A) Rate and Base of Tax.- There shall be levied, assessedand
collected, a value-addedtax equivalentto twelve 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 .of services in the Philippinesfor 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 rea!; warehousing
services; lessorsor distributors of cinematographic films; persons
engaged in milling processing, manufacturing or repacking goods
for others; proprietors,operatorsor keepersof hotels, motels, rest
houses, pension houses, inns, resorts; proprietorsor operators of
restaurants, refreshmentparlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods
or cargoes, includingpersonswho transportgoods or cargoes for
hire another domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or cargoes from
Page 112 of 206
TAXATION LAW
(1) 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. (NIRC, Sec. 107{8])
c) VAT on Services
12% VAT shall be levied, assessed and collected on gross
receipts - derived from the sale or exchange of services,
including the use or lease of properties.
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 VAT.
Section 108112 provides a list of services subject to 12%
VAT. . - ' --
one place in the Philippinesto another_place in the Philippines;
distribution companies; services of franchise grantees of electric
utilities. telephone and telegraph, radio • - and television
broadcastingand a!I other franchisegrantees 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
regardlessof whether or not the performancethereof 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 er 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,
commercialor scientific equipment;
(3) The supply of scientific, technical, industrial or commercial
knowledgeor information;
(4) The supply of any assistance that is anciliary 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 _
 (1
ATENEO CENTRAL
r1 BAR OPERATIONS 20.19
r--l Note that said enumeration is not exclusive and VAT is
imposed on all kinds of services. (Diaz vs. Secretary of
r i Finance, G.R. No. 193007, 2011)
r For sale of services to be VAT zero-rated, the recipient of
\
For VAT zero-rating of services rendered to anon-resident
foreign corporation under Section 108(8)((2) of the NIRC,
it is not enough that the recipient of services be proven to
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
belohging 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 comrnerclal
undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of Qr 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
(l Philippines.
The term "gross receipts" means the total amount of money or its
! equivalent representing the contract price, compensation, service
fee, rental orroyalty, including the amount charged for materials
!J 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.
(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.
I l
( 1) Processing, manufacturing or repacking goods for other
f---t
•.. j
persons doing business outside the Philippines which goods are
subsequentiy 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~ . added tax collection of the BIR arid the BOC from the immediately
• l
(2) Services other than those mentioned in the preceding
paragraph, rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are
i .
• I
performed, the consideration for which is paid for in acceptable
.
t
foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP)
(3) Services rendered topersons 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; ·
Page 113 of 206
TAXATION LAW
be a foreign corporation, rt must be proven to be a non-
resident foreign corporation. •
service must be doing business outside the Philippines.
The documents presented by GHI merely substantiated
the existence of sales, receipt of foreign currency
payments and inward remittance of the proceeds of such
(4) SeiVices rendered to persons engaged in international
· shipping or international air transport operations, .including leases
of property for use thereof; Provided. That these services shall be
exclusively for international shipping or air transport operations;
(5) Services performed by subcontractors and/or contractors in
processing, converting, ofmanufacturinq 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 fl foreign country; and
(7) Sale Of power or fuel generated through renewable · sources
of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging
·
energy sources using technologies such as fuel cells and
hydrogen fuels.
Provided, That subparaqraphs (8)(1) and (8)(5) hereof shall be
subject to the twelve percent (12%) value-added fax and no
longer be subject to zero percent (0%) VAT rate upon. satisfaction
of the following conditions:
(1) The successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable
input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the
effectivity of item no. 1, al! applications filed from January 1, 2018
shall be processed and must be decided Within ninety (90) days
from the filing of the VAT refund application; and
(2) All pending VAT refund claims as of December 31, 2017 shall
be fully paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT
refund.center in the Bureau of Internal Revenue (BIR) and in the
Bureau of Customs (BOC) that Will handle the processing and
granting of cash ;efunds-ofcreditable inputtax.
An amount equivalent to five percent (5%) of the total value-
preceding year shall be automatically appropriated annually and
shail be treated as a special account in the General Fund or as
trust receipts for the purpose of funding claims for VAT Refund:
Provided, That any unused fund, at the end of the year shall
revert to the General Fund.
Provided, further, That the BIR and the BOC shall be required to
submit to the COCCTRP a quarterly report of all pending claims
for refund and any unused fund.
 ATENEO CENTRAL
BAR OPERATIONS 2019 TAXATION LAW

sales. There is no evidence that the clients were doing a) Transfer, use or consumption notInthe course of.
business outside the Philippines. (Accenture v. CIR, G.R. business of goods or properties originally intended for
No. 190102, July 11, 2012) . sale or for use in the course of business.

ENHANCED VAT REFUND SYSTEM (introduced by Transfer of goods or properties not in the course of
TRAIN) business can· take place when VAT-registered person
Subparagraphs (8-)(1) and (B )(5) of Section 108 of NI RC shall be withdraws goods from his business for personal use.
subject to the 12% VAT and no longer be subject to 0% VAT rate
upon satisfaction of the following conditions: ·
b. Distribution or transfer to:
{ 1) The successful establishment and implementation of an
i. Shareholders or investors' share in the profits of VAT-
enhanced VAT refund system that grants refunds of creditable
input tax within ninety (90) days from the filing of the VAT refund registered persons-er
application with the Bureau: Provided, That, · 10 determine the ii. Creditors in payment of debt or obligation
effectivity of item no. 1, all applications filed from January 1, 2018
shall be processed and must be decided within ninety (90) days
from the filing of the VAT refund application; and c} Consignmert of goods if actual sale is not made
within 60 days from date of consignment
(2)AII pending VAT refund claims as ofOecember 31, 2017 shall Consigned goods returned by the consignee within the 60-
be fully paid incash by December 31, 2019.
day period are not deemed sold. (NIRC, Sec. 106[8])
The Department of Finance shall establish a VAT refund.center
in the Bureau of Internal Revenue (BIR) and in the Bureau of d. Retirement from or cessation of business, with
Customs (BOC) that will handle the processing and granting of
respect to inventories on hand
cash refunds of creditable input tax.

7. transactions deemed sale113 i. Change of ownership of the business (when a .single

For transactions deemed sales, . the output tax shall be
based on the market value of goods deemed sold as of
the time of .the occurrence of the transaction. In the case
of a sale where the .GSP is unreasonably lower than the
. fair market value. the actual market value shall be the tax
base.
Note: The gross selling price is "unreasonably lower" than
the fair market value ifit is lower by more than 30% of the
actual market value. (RR No. 16-2005; RR No. 4-2007)
proprietorship incorporates or the proprietor of a single
· proprietorship sells his entire business); or.
ii. Dissolution of a . partnership and creation of. a new
. partnership which takes over the business
Note: · For retirement or cessation of business, the tax .
base shall. be the acquisition cost or. the currenLmarket
price of the goods or properties, whichever is lower.
8. Chanqe or Cesaatlon of Status as VAT-registered
Person114

113SEC. 106 (B) Transactions Deemed Sale. - The following 114 REVENUE REGUl,.ATIONS NO. 16-2005,as amended by
transactions shall be deemed sale: Rev. Reg. No. 10-2011 ·

(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 lo
inventories of taxable goods existing as of such retirement or
cessation.
SEC.4.106-8.Change or Cessation of Status as VAT-
RegisteredPerson. .:...
(a) Subjectto output tax
The VAT provided for in Sec. 106 of the Tax Code shall apply to
goods or properties originally intended for sale or use in business,
and capital goods which are existing as of the occurrence of the
following:
(1) Change of business activity from VAT4axable status to VAT-
exempt status. An example• is a VAT-regisiered person
engaged in a taxable activity like wholesaler or retailer who
decides to discontinue such activity and engages instead in
life insurance business or in any other business not subject
to VAT;

Page 114 of 206

 t f
ATENEO CENTRAL
BAR OPERATIONS 2019
a) Subject to VAT
The VAT provided for the sale of goods or properties (Sec.
106) shall also apply to goods or properties originally
intended for sale or use in business, and capital goods
which are existjng as of the occurrence of the following:
f ! ( 1) Change of business activity from VAT-taxable status to
I VAT-exempt status;
(2) Approval of request for canceliation of a registration
J due to reversion to exempt status;
(3) Approval of request for cancellation of registration due
{
to desire to revert to exempt status after lapse of 3
consecutive years. . . shall be subject to 0% rate 115:
I ~
I (2) Approval of a request for cancellation of registration due to .
reversion to exempt status.
(3) Approval of a request for cancellation of registration due to a
desire to revert to exempt status after the lapse of three (3)
consecutive years from the time of registration by a person
who voluntarily registered despite being exempt undet Sec.
109 (2) of the Tax Code.
(4) Approval of a request for cancellation of registration of one
who commenced business· with the expectation of gross
., sales or receipts exceeding P1 ,500,000.00 (now 3,000,000),
but who failed to exceed this amount during the first tweive
...I
months of operation. ·
r 1 (b) Not subject to output tax
The VAT shall not apply to goods or properties existing as of the
I l occurrence of the following:
( 1 ) Change of control of a corporation by the acquisition of the
l controllinq interest of such. corporation by another
stockholder or group of stockholders. The goods or
I l properties used in business or those comprising the stock-
in-trade of the corporation, having a change in corporate
I l control, will not be considered sold, bartered or exchanged
despite the change in the ownership interest in said
corporation.
''
•
. (2) Change in the trade or corporate name of the business;
(3) Merger or consolidation of corporations. The unused input tax
of the dissolved corporation, as of the date of merger or
i J
consolidation, shall be absorbed by the surviving or new
corporation.
115SEC/1~!i
(A) (2) Zero-rated Sales of Goods or Properties -
The following sales by VAT-registered persons shall be subject
, to zero percent (0%) rate:
l ;
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment 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 paid for in
acceptable foreign currency or its equivalent in goods or services,
Page 115 of 206
:,-
TAXATION LAW
•
b. NOT SubjecUo VAT
The VAT shall not apply to goods or properties existing as
of the occurrence of the following:
(1) Change of a control of a corporation;
(2) Change in the trade or corporate name;
(3) Merger or consolidation of corporations.
9. Zero-rated Sales of Goods or Properties, and
Effectively Zero~rated Sales of Goods or Properties
a. The following sales by VAT-REGISTEREDpersons
and accounted for in accordance with the rules and regulations
of the Banqko Sentral ng Pilipinas (BSP);
(2) Vetoed
(3) Sale of raw materials or.packaging materials to a .nonresident
buyer for delivery to a resident local export-oriented enterprise to
be used in manufacturing, processing, packing· or repacking in
the Philippines of the said buyer's 'goods and paid for in
acceptable foreign currency and accounted fer in accordance
with the ruies and regulations of the Bangko Sentral ng Pilip1nas
(BSP);
(4) Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy percent
(70%) of total annual production; ·
(5) Those considered export sales under Executive Order NO.
226, otherwise known as the Omnibus Investment Code of 1987,
and other special laws, and
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in. international shipping ,or intematlonel air transport
operations: Provided, That the goods, supplies, equipment and
fuel shall be used for international shipping or air transport
operations
Provided, That subparagraphs (3), (4), and (5) he.r.eqf .shall be
subject to. the twelve percent (12%) value-added tax and no
longer be considered export sales suojecito.zero percent {0%)
VAT rate upon satisfaction of the following conditions:
(1) The successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable
input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the
effectivity of item no. 1, all applications filedfrom January 1, 2018
shall be processed and must be decidedwithin ninety (90) days
from the filing of the VAT refund application: and ·
(2) All pending VAT refund claims as of December 31,.2017 shall
be fully paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT
refund center in the Bureau of Internal Revenue (SIR) and in the
 ATENEO CENTRAL
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For Goods
• same .
1. The sale and actual shipment of goods from the
Philippines to a foreign country
a. Irrespective of any shipping arrangement;
b. Paid for in acceptable foreign currency or its equivalent
in goods or services; and ·
c. Accounted for in accordance with the rules and
regulations of the BSP,
2. Sale of raw materials or packaging materials by a VAT~
registered entity to a nonresident buyer
a. For delivery to a resident local export-oriented
enterprise;
b. Used in the . manufacturing, processing, packing,
repacking in the Philippines of the said buyer's goods;
c. Paid for in acceptable foreign currency; and
d. Accounted for in accordance with . the rules and
regulations of the BSP
3. Sale of raw materials or packaging materials to export-
oriented enterprise whose export· sales exceed 70% of
total annual production ·
4. Those considered export sales under the Omnibus
lnvestr'hent Code of 1987 and other special laws
5. Saie of goods, supplies, equipment and fuel' to persons
engaged in international shipping or international air
transport operations.
Under .Omnibus Investments Code:
1. The Philippine port F.O.B. value determined from
invoices, bills of lading, inward letters of credit, landing
certificates, and other commercial documents, of export
products exported directly by a registered export
producer, or · exported are considered export sales.
2. The net selling price of export products so!d by a
registered export producer to another export producer,
Bureau of Customs (BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total VAT
collection ofthe BIR and the BOC from the immediatelypreceding
year shall be automatically appropriated annually and shall be
treated as a special account in the General Fund or as trust
receipts for the purpose of funding claims for VAT refund:
Provided, That any unused fund, at the end of the year shall
revert to the General Fund.
Page 116 of 206
TAXATION LAW
or to an export trader. that· subsequently exports the
3. Provided, that sales of export products to another
producer or to an export trader shall only be deemed
export sales when actually exported by the latter, as
evidenced by landing certificates 'or similar commercial
documents;
Constructive Exports:
1. Sales to bonded manufacturing warehouses of export-
oriented manufacturers;
2. Sales to export processing zones
3. Saie to enterprises duly registered and accredited with
the Subic Bay Metropolitan Authority pursuant to RA
7227;
4. Sales to registered export traders operating bonded
trading warehouses supplying raw materials . in the
manufacture of export products under guidelines to be
set by the Board in consultation with the Bureau of
Internal Revenue (BIR) and the Bureau of Customs
(BOC);
5.. Sales to diplomatic missions and other agencies
and/or instrumentalities granted tax immunities, of
locaUy manufactured, assembled or repacked
products whether paid for in foreign currency or not.
Note: For purposes of zero-rating export sales of
registered export, traders shall include commission
income.
Exportation of goods on consignment shali not be deemed
export sales until the export products .consigned are. in fact
sold by the consignee. · ·
Provided, finally, that sales of goods, properties or services
made by a VAT-registered supplier to a SOI-registered
manufacturer/producer whose products are 100%
Provided, further, That the BIR and the BOC shall be required to
submit to the Congressional Oversight Committee on the
Comprehensive Tax Reform Program (COCCTRP)· a quarterly
report of ail pending claims for reiund and any unused fund.
(b) 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.

[1
[l
r"J .}; ATENEO CENTRAL
BAR OPERATIONS 2019
r··,
I I A certification to this effect must be issued by the Board of .
Investment (BO!) which shall be good for one year unless
1 subsequently re-issued by the 801.
f l The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or internationa,I air
transport· operations are zero rated provided that these are - -
limited to goods, supplies, equipment and fuel pertaining
to or attributable to the transport of goods· and passengers
from a port in the. Philippines directly to a foreign port
without docking or stopping at any other ports in the
l Philippines
l properties and services by a VAT-registered seller/supplier
EXEMPT-PERSONS.OR-ENTITIES
r I 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.
ll
(1 The most prominent example of this is sales to PEZA-
registered er:terprises as the said sales are considered as
I l being made "outside the customs territory".
I. .,
Hence, the following rules govern the VAT treatment_
· of transactions involving PEZA~registered entities:
{l
1. Any sale of goods, property or services by a VAT.-
registered supplier from the customs-territory to any
Ecozone-registered . enterprise . - reqardless of
incentive availed ·- is zero-rated on the part of the
VA T-registcred seller because ecozones are foreign
(
I soil by fiction and thus the sale is considered an export
sale.
2. Sales to an ecozone enterprise made by a non-VAT
or unregistered supplier would only be exempt from
1 VAT and the supplier shall not_ be able to -daim
credit/refund for its input VATbecause; under Section
I I
Ll 109(0) of the Tax Code, export sales by persons who
are not VAT-registered are exempt transactions.
3. If the ecozone-enterprise is an exporter, its input VAT
are subject to refund not because of the incentives it
availed· but because of the nature· of _its transactions
( export sales).
f 1
4. Any sale of goods or property by an ecozone-
registered enterprise to a buyer in the customs
territory shall be subject to 12% VAT because it shall
be considered an importation. The tax is imposed on
the buyer/importer.
5. The sale of service or lease of properties by PEZA-
· distinction between automatic. and effectively zero-rated
reqistered enterprises to a customer or lessee from
the customs territory shall be exempt from VAT if
the service is performed within the ecozone. The lease
Page 117 of 206
(• :'
TAXATION LAW
of properties will be exempt if the property is lecated
within the ecozone. However, if the properties are
located outside of- the ecozone, payments to such
enterprise shall be considered as royalties and subject
to final withholding VAT of 12%. (RMC 74-99) _
b. Automatic v. Effectively Zero-Rated Sale
Although both are taxed similarly, automatic zero-rated
transactions differ from effectively zero-rated transactions
as to their source.
Automatically zero-rated sale refers to a sale of goods,
that is regarded as' either an export .sale or a foreign
currency denominated sale under Section 106 of the Tax
Code of 1997. (RMC50-2007)
Effectively zero-rated sale refers to the local sale of
goods, properties and services by a VAT-registered person
to an entity that was granted indirect tax exemption under
special laws or international agreements: Since the buyer
is exempt from indirect tax, the seller cannot pass on the
VAT and therefore, the exemption enjoyed by the buyer
shali extend to the seller, making the sale effectively zero-
rated. (RMC 50-20.07)
CIR v. Seagate Technology Philippines (G.R. No.
153866, 2005)
Automatic zero-rated transactions generally refer to the
export sale of goods and supply of services: The tax rate
is set at zero. When applied - to the tax base, such rate
obviously results in i no tax chargeable against the ·
purchaser. Th.e seller of such transactions charges no
· output tax, but can claim a refund of tax credit certificate
for the VAT previously charged by supplier. -
Effectively zero-rated transactions,' however, refer to sale
of goods or supply of services to persons or entities whose
exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects
such transactions to zero-rate. Again, as applied to the tax
base, such rate does not yield any tax chargeable against
the purchaser. The seller who charges output tax on such
transactions can also claim a refund or tax credit certificate
for VAT previously charged by suppliers.
Note: RR 4-2007, dated February 7, 2007, removed the
transactions found in prior Revenue Regulations (including
RR 16-2005) with respect to prior application.
ATENEO CENTRAL
BAR OPERATIONS 2019
ENHANCf.D VAT REFUND SYSTEM {introduced by
TRAIN) . a. VAT f;xemptions; In general
Subparagraphs (3), (4), and',(5) of Section (A)(2)(a) of NIRC
shall be subject to the ~'2% VAT and no longer be considered
export sales subject to 0%VAT rate upon satisfaction of the
following conditions:
(1) The · successfpl establishment and . implementation of an
enhanced VAT refund system t.hat grants refunds of creditable
input tax within ninety (90) d~ys from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the
effectivity of item no. 1, all applications filed from January i, 2018
shall be processed and must be decided within ninety (90) days
from the filing of the VAT refund application; and
(2)Allpending VAT refund claimsas of December 31, 2017 shall
be fully paid in cash by December 31, 2019.
The Department of Finance. shall 'establish a VAT refund center
in the Bureau of Internal Revenue (BIR) and in the Bureau of
Customs (BOC) that will handle the processing and granting of
cash refunds of creditable input tax.
116 SEC. 109 · Exempt Transactions. - (1) Subject to the
provisions of subsection (2) hereof, the following transactions
shall be exemptfrom the value-added tax: · Customs may, upon the production of satisfactory evidence
(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; cjrying, salUng, broiling, roasting, smoking
or -stripping. Polished and/or husked rice, com 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 househo!d effects belonging to
the residents of the Philippines retuming 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, tools
of trade, occupation or employment, wearing apparel,
domestic animals, and personal and household effects
belonging to persons corning to settle in the Philippines or
Filipinos or their families and descendants .who are now
residents or citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in quantities
and of the class suitable to the profession, rank or position
of the persons importing said items, for their own use and not
Page 118 of 206
TAXATION LAW
10. VAT-Exempt Transactions116
Refer to the sale. of goods or properties and/9r services
and the use or lease of properties that are 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 -subjectto VAT.
b. Exempt transactions, enumerated.
i. Sale or importation of agricultural and marine food
products in their origin'al·. state, livestock and poultry of a
kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic
materials therefore
for barter or sale; accompanying such persons, or arriving
within a reasonable time: Provided, That the Bureau of
that such persons are actually coming to settle in the
Philippines and that the goods are brought from their former
.· place of abode, exempt such. goods from payment of duties
and taxes: Provided, further, That vehicles, vessels,
aircrafts, machineries and other .similar goods for use in
manufacture, s.hall not fall within this classification and shall
therefore be subject to duties, taxes and other charges;
(e) Services subject to percentage tax under TitleV;
(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
(DEPED), 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 indi1,1iduals 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 Phiiippines is a signatory or under

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ATENEO CENTRAL
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Cl Livestock: cows, bulls and calves, pigs, sheep, goats and
t
• rabbits
! food products are considered in their original state even if
Poultry: fowls, ducks, geese and turkey
Does not include fighting cocks, race horses, zoo animals
\ J
and other animals generally considered as pets.
Marine food products: fish - and crustaceans, such as but
not limited to, eels, trout, lobster, shrimps, prawns, oysters,
mussels and clams
special laws; except those - under Presidential Decree No.
529.; - newspaper, magazine, -review or bulletin whichappears at
(1) Sales by agricultural cooperatives duly registered With the
r
I
ii Cooperative Development Authority to their members as well
as sate of their produce, whether in its original state or
processedform.fo 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-
{ l purpose cooperatives duly registered with the Cooperative
Development Authority;
-,
{ f
j
(n) sates by non-agricuitural, non-electrtc and non-credit
·1 • cooperatives duly _ registered with the - Cooperative
( J Development Authority: Provided, That the share capital
contribution of each member does riot exceed Fifteen
r1 thousand pesos (P 15,000) 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 iot valued at. One million
five hundred thousand pesos (fl'1,500,000) and below,
house and lot, and other residential dwellings valued at Two
million · five hundred thousand pesos · (P2,500,000) and
below: Provided, That beginning January 1, 2021, the VAT
exemption _ shall only apply to saie of real properties not
primarily held for sale to customers or held for lease in the
ordinary course · of trade or business, sale of real property
utilized for socialized housing as defined by Republic Act No.
7279, sale of house and lot, and other residential dwellinas
with selling price of not more than Two million pesos
(fD2,000,000): Provided, further, That every three (3) years
''. thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as published
by the Philippine Statistics Authority (PSA);
\ I
(q) Lease of a residential unit with a monthly rental not
exceeding Fifteen thousand pesos (1"15,000);
Page 119 of 206
( :•
TAXATION LAW
"
Meat, fruit, vegetables and other agricultural and marine
they have undergone the simple process of preparation or
preservation for the. market: freezing, drying, salting,
broiling, roasting, smoking or stripping, shrink wrappings in
plastlc, vacuum packing, tetra-pack, and other similar
packaging methods
(r) Sale, importation, printing or publication. of books and any
regular intervals-.with fixed prlcesforsubscription and sale
and which is not devoted principaity to the publication of paid
advertisements; · · · ·
(s) Transport of passengers.by international carrier;
(t) Sale, importation or lease of passenger or cargo vessels and
i;iircraft,-including engine, equipment and spare parts thereof
for domestic or international trahsportoperations;
(ujlmportation of fuel, goods and supplies by persons eniiaged
in international sh!pping or air transport operations;Provided,
That the fuel, goods, and supplies shall be_ used zfor
international shipping or air transport operations; ·
(v) Services of banks, non-bank financial intermediaries
performing quasi-banking functions. and other non-bank
financial intermediaries: ·
{w) Sale or lease of goods and services to senior citizens~nd
· persons with disability, as provided_under Republic ActNos,
9994 (Expanded Senior Citizens Act of 2010) and 10754 (An
Act Expanding the· Benefits and Privileges of Persons With
Disability), respectively; ·
(x) Transfer of property pursuant to Section 40(G)(2) of the NIRC,
- as amended;.
(y)AssOciation dues, membership fees, and other assessments
and charges collected by homeowners associations and
condominium corporations;
(z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
(aa) Sale of drugs and medicines prescribed for diabetes, high
cholesterol, and hypertension beginning January 1, 2019;
and
(bb) Sale or !ease 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 Three Million Pesos (P 3,000,000).
(2) A VAT-registered person may elect that Subseciion (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.
ATENEO CENTRAL
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Polished ahd/orhusked rice, corn grits and raw cane sugar
and molasses, ordinary-salt and copra shall be considered
as agricultural product in their original state
PRODUCTS CONSIDERED NOT CONSIDERED "IN
IN THEIR ''ORIGINAL THEIR ORIGINAL STATE" I
STATE" HAVE UNDERGONE ·
SIMPLE PROCESSES OF
PREPARATION OR
PRESERVATION
1. Coffee beans (VAT Ruling 1. Dried parings - a by-
No. 049, May 29, 1991) product of ' 'dessicated
2. Ordinary salt or marine coconuts (VAT Ruling No.
solar salt 244, Sept. ;;12, 1989)
3. Century Eggs, Balut, 2. Iodized. salt (VAT Ruling
Penoy (BIR Ruling No. 025- No. 059-2003,Dec.15, 2003)
2000, May 25, 2000) · . 3. The foliowing processed
4. Roastedand ground coffee · foods: · fingerlings, fish, prawn, livestock and poultry feeds,
except when packed or a) Dried fruits (e.g., mangoes,
placed in bottles or cans and papaya) - made from fresh
sold (BIR Ruling No. 012. fruits which are dried using a
Feb. 2, 1988) locaily fabricated dryer; sold
5. Dried fruits and vegetables . towholesalers/repackers
(BIR Ruling No. 071, March b) Dried and groundfruits and
4, 1988) tubers (e,9,1 guava, tamarind,
6. Frozen. sliced potato (BIR · Ube) - made by blanching,
Ruling No. _ 135, Apri! · 14, slicing, drying and grinding
1988) . tl;ie fruits/tubers; sold to·
blenders for the manufacture
of soup. mixes and other
'products
c) Fruits preserved in syrup
(e.q, jackfruit, banana,
mango) - made by adding
sugar to raw fruits then heat
sterilizing, packing and
chilling the same; sold to
manufacturers· of ice · cream
and other products. (VAT
Ruling No. 071, July 5, 1991)
d) Herbal products which
. have undergone drying,
pulverizing and
encapsulation or tea. bagging
(BIR Ruling No. 003-06, April
10,2006
4. Patis (BIR Ruling No. 070,
march4, 1988)
5. Fried green peas, peanuts
and "patani" beans (BIR
Ruling No. 092, May 2, 1981)
6. Hamburger patties (VAT
Ruling No. 065, June 27,
1991)
Page 120 of 206
TAXATION LAW
Sugar whose content of.sucrose by weight, in the dry state:
parameter reading of 99:5 arid above are presumed to be
refined sugar
Bagasse is not included in the· exemption provided for
under this section.
"Raw sugar" refers to sugar produced by the simple
process of conversion of sugar cane without need of any
mechanical or similar device. Raw sugar refers only to
muscovado sugar. (RR No. 13-2013)
Centrifugal process of producing sugar is not a simple
process, and thus not exempt from VAT. (RRNo. 13-2013)
ii. Sale or importation of fertilizers, seeds, seedlings and
including ingredients, whether locally produced or
imported, used in the manufacture . of finished feeds
(except specialty feeds for race "horses, fighting cocks,
aquarium fishes, zoo animals and other animals generally
considered as pets)
iii. Importation of personal and household effects
belonging to residents of the Philippines returning from
abroad and non-resident citizens coming _to ,:esettle in the
Philippines
.: . .
Such goods are exempt from customs duties under the
· Customs Modernization and Tariff Act.
iv. Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household. effects.
• belonging to persons coming to settle in the
Philippines, . or· Filipinos or their families and
descendants who are now residents or citizens of
other countries, such parties hereinafter referred
to as overseas Filipinos, in quantities and of the
class suitable to the profession, rank or position of
the persons impo'rting said items;
• For their own use and not for sale, barter or
exchange;
• Accompanying such persons or arriving·. within a
reasonable time;
• Upon the production of evidence satisfactory to the
CIR thatsuch persons are actually corning to settle
in the Philippines; ·
• The change of residence is bona fide.
 f --1
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ATENEO CENTRAL
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r·
I
1

(\ .l
I
.
v. Services subject to percentage
.
tax
Does not include seminars, in-service training, review
vi. Services by agricultural contract growers and milling for classes and other.sirnilar services rendered by. persons
others of palay into rice, corn into grits and sugar into raw who are not accredited by the DepED, the CHED and/or
sugar TES DA
r
. '
1
}
BIR has cl~rified that toll processing or toll dressing, which ix: Services rendered by individuals pursuant to an
are covered by the VAT exemption of services by employer-employee relationship
agricultural contract growers under Section - 109(F) of the
I • Tax Code of 1997, pertain to toll processing services for x. Services rendered by reqionalor area HQ established in
l clients fromwhich growing of animals were contracted. the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for
f i
Thus, the activity of preparing and packaging hogs/chicken their affiliates, subsidiaries or branches in the Asia Pacific
ready for delivery after producing or growing is considered Region and do not earn or_ derive income from the
within the purview of agricultural contract growing, which is Philippines
exempt from VAT under Section 109(F) of the Tax Code of
1997, as amended. However, if the toll processing/toll xi. Transactions which are exempt under international
dressinq/toll manufacturing service is performed agreements to which the Philippines is a signatory, except
independently from growing poultry, livestock, or other those under PD 529 (Petroleum Exploration
agricultural .and marine food products, the activity is not Concessionaires under the Petroleum Act of 1949)
[
covered by the agricultural contract growing and therefore
subject to VAT under Section 108of the Tax Code of 1997,
"l '- !
as-amended.(RMCNo. 97-2010)
xii. Sales - by agricultural cooperatives duly reqistered.and
in good sta11dingwith. the CDA to their members, as well
r1 vii. Medical, dental, hospital and veterinary services,
as sale for their produce, whether in its original state' or
processed form, to non-members their importation of direct
( 1 except those'rendered by professionals _ farm inputs, machineries and equipment, including spare
l .J
parts thereof, to be_ used directly and exclusively in the
I } Laboratory services are exempted. production and/or proc;essing of their produce

I If the hospital or clinic operates a pharmacy or drug store.
·the sale of drugs and merchandise is subject to VAT.
I 1 However, sales of drugs to in-patients of .hospitals are
considered part of hospital services, which are exempt _
I from VAT ..
I.
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. If the cooperative is
not the producer (e.q., trader), then only those satesto its
members shallbe exempted from VAT;

f However, the· sale or. importation of agricultural food

A healthcare company which does not actually provide
'•--1 medical and/or hospital services, but merely arranges. for
Ll the same is not VAT-exempt. (CIR v. Philippine Health
Care Providers, Inc., G.R. No. 168129, 2007)
HMOs gross receipts shall be the total amount of money
or its equivalent representing the service fee actually or
!( t
constructively received during the taxable period for the
i J services performed for another person, excluding the
(
value-added tax. (Maxicare Healthcare Corp. v. CIR, C. T.A
i Case No. 8441, May 5, 2015)
products in their original state .is exempt from VAT
irrespective of the seller and buyer
xiii. Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered and in good standing
with the CDA
xiv. Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with and in good standing with
the CDA

viii. Educational services rendered by private educational Share capital contribution of each . member does not
r
,-
institutions duly accredited by the DepED, CHED and exceed 15,000 and regardless of the aggregate capital and
t TESDA and those rendered by government educational net surplus ratably distributed among the members
institutions
Page 121 of 206
 ATENEO CENTRAL
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lnJportation of machineries and equipment, including spare
parts thereof, to be used by them ase subjectto VAT
xv. Export sales by persons who are not VAT-registered
xvi. The following sales of real properties are exempt from
VAT:
• Not primarily held for sale to customers or held for
lease in the ordinary course of trade or business
• Sale of real properties utilized for low-cost housing
• A subdivision or a condorninium' registered and
licensed by the HLURB
• Und~rtaken by the government or private developers
• Utilized for socialized housing
• Residential lot valued at P1,919,500 and below, or
house and lot and other residential dwellings valued at
P3, 199,200 and below (as amended by RR No.16-
2011 ).
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 riot exceed 1 ;9195M.
Such adjacent real properties althouqh covered by
separate titles and/or separate tax declaratiens, when sold
to· one and the same buyer, whether .covered by one or
separate deeds 'of conveyance, shall be presumed as a
sale of one residential lot, house and lot or residential
dwelling. (as amended by RR No. 16-2011 and RR No.
13~2012)
The sale of parking lots in a condominium is a separate
and distincttransaction and is not covered by the rules on
· threshold amount not being a residential lot, house· and lot,
or a residential dwelling. Thus, it is subject to VAT
regardless of amount of selling price: (RR No. 13:2012)
Note: Beginning January 1, 2021,the VAT exemption shal!
only apply to sale of real properties not primarily held for
sale to customers or held for lease in the ordinary course
of trade or business, sale of real property utilized for
socialized housing as defined by Republic Act No. 7279,
sale of house and lot, and other residential dwellings with
selling price of not more than Two million pesos
(P2,000,000).
xvii. Lease of residential units
Monthly rental: not exceeding P15,000
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TAXATION LAW
Gross receipts from rentals exceeding P15,000 per month
per unit shall be subject. to VAT if the aggregate annual
gross receipts from said units only (not including the gross
receipts from units leased for not .rncre than P15,000)
exceed 3M, otherwise; these gross receipts are subject to
3% percentage tax.
xviii. 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 which is notdevoted principally to the
publication .of paid advertisements
The abovementioned provision does not indude e-books
or e-journals. The terms "book," "newspaper," "magazine,"
"review" and "bulletin" shall refer to printed materials in
hard copies and do not include those in digital or
electronic format or computerized versions Hence, the
same is not exempt from VAT(RMC No. 75-2012)
xix, Transport of passengers by international carriers doing
business in the Philippines (R.A. No. 10378)
The transport of cargo by international carriers is VAT-
exempt, but subject to percentage tax. (RR No. 15-2013)
xx. Sale; importation, or lease· of passenger or cargo
vessels and aircraft, including·· engine, equipment and
spare parts· thereof for domestic or international transport
operations
Exemption is limited to aircrafts or vessels which are 150
tons and above, including engine and spare parts
To be exempt it must comply with the" age limit
. requirement. . (Age is counted from the date of
commissioning up to the date of acquisition)
Passenger/cargo vessels: 15 years old
Tankers: 10 years old
High-speed passenger crafts: 5 years old
Exemption shall be subject to the provisions of The
Domestic Shipping Development Act
xxi -. Importation of life-saving equipment, safety and rescue
equipment and communication and navigational safety
equipment, steel plates and other rnetal plates including
marine-grade aluminum plates, used for shipping transport
operations; Provided, that the exemption shatlbe subject
to the provisions of Section 4 of Republic Act No. 9295,
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Cl otherwise known as The Domestic Shipping Development
Act of 2004';(no1 in Section 1()9 of the Tax Code but
fl mentioned in Section 14 of RR No. 4-2007)
(
xxii. Importation of capital equipment- machinery, spare
parts, life-saving and naviqatlonalequipmentsteel plates
and other metal plates including marine-grade .alumlnum
, r plates to be used in the construction, repair, renovation or
I '
I .l alteration of any merchant marine vessel operated or be to
operated in the domestic trade. Provided, that the
exemption shall be subject to the provisions of Section 19
of Republic Act No. 9295, otherwise known as 'The
Domestic Shipping Development Act of 2004'; (not in
Section 109 otthe Tax Code.but mentioned in Section 14
i of RR No. 4-2007)
xxiii. Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
{ !
operations
xxvi. Association dues, membership fees. and other
assessments and charges collected by homeowners
associations· and condominium corporations;
xxvii. Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
xxviii. Sale of drugs and medicines prescribed for diabetes,
high· cholesterol, and hypertension beginning January 1,
2019;and
xxix. Sale or tease of goods or properties or the
performance of . services . other than the transactions
mentioned in the precedinq paragraphs, the gross annual
sales and/or receipts do not exceedthe amount of Three
Million Pesos (P 3,000,000)
. .
For purposes of the threshold of P3,000,000, the husband
and wife shall be considered separate taxpayers.

( The aggregation rule for .each taxpayer shall apply

·Shall be used exclusively or shall pertain.to the transport
For instance, if a professional, aside from the. practice of
r of goods and/or passengers from a port in the Philippines
directly to a foreign port without stopping at any other port
his profession, also derives revenue from other line~'~bf
business which are otherwise subject toVAT, the same
]J in the Philippines
]' shall be combined for purposes of determining whether the
threshold has been. exceeded. Thus, the VAT-exempt
fj Provided further, that if any portion of such fuei, goods or
supplies is used for purposes other than that mentioned in
sales shall not be included in determining the threshold.
(RR No. 4-2007) . ,
1 this paragraph, such pprtion of fuel, goods and supplies ·t;'.,· ..

i
shall be subject to 12% VAT starting February 1, 2006 (RR
Note: A VAT~registered person may elect that Jhe
No. 4-2007)
exemption shall not apply to his sales of goods or
services or properties. Said choice is irrevocable for a
1 xxiv. Services of banks, non-bank financial intermediaries
performing quasi-bankinq functions, and other non-bank
period of3 ye~r~.
LIST OFVATEXEMPTTRANSACTIONS IS EXLCUSIVE
financial intermediaries subject to percentage tax
J The Court ruled that the fact that the services. offered in a
business engaged in tollway operations is .not in Section
Money changers and pawnshops are treated as non-bank 109 is enoughbasis to impose VAT on the same even if it
financial intermediaries, hence they are VAT-exempt, .but is not covered under Section 108 of the Code. This implies
are subject to percentage tax, (RR 4-2007) (H .. Tambunting that Section 109 (i.e., VAT exempt transactions) is an
Pawnshop, Inc. v. CIR. 2010) exclusive list while Section 108 is not. (Diaz vs. Secretary
of Finance, G.R. No. 193007, 2011)
xxiv. Sale or lease of goods and services to senior citizens
and persons with disability, as provided under Republic Act Zero-Rated v. VAT-Exempt Transactions (CIR v. Cebu
Nos: 9994 (Expanded Senior Citizens Act of 2010) and Toyo Corporation, 451 SCRA 447, 2005)
10754 {An Act Expanding the Benefits and Privileges of
' '
Persons With Disability), respectively;
ZERO-RATED VAT-EXEMPT

xxv, Transfer of property pursuant to Section 40(C)(2) of No output tax

the NIRC, as amended; Input tax on purchases of
a VAT-registered person
with zero-rated sales may
Page 123 of 206
Seller in an exempt
transaction is not entitled
to any input tax on his
purchases despite the
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be allow~d as tax issuance of a VAT invoice . Input VAT or input tax . represents the actual payments,
credits or refunded or receipt • costs, and expenses . incurred by a VAT-registered
Persons engaged in Registration is optional · taxpayer in connection with his purchase of goods and
transactions which are for VAT exempt persons
0 services. Thus, input tax· means the value-added tax paid
zero-rated, being subject but if they do register then by a VAT-registered person/entity in the course of his/its
to VAT, are required to their transactions are trade or business on the importation of goods or local
register subject to VAT. purchases of. goods or services from a VAT-registered
. ·person.,

Exempt Transaction v. Exempt Party
(CIR v. Seagate · Technology (Philippines),
153866, 2005)
EXEMPf iRANSACTION
Involves goods or.
services which, by their
nature, are specifically
listed and expressly
exempted from the VAT
under the NIRC, without
regard to the tax status
(VAT exempt or not} of the
party to the transaction
Such transaction is not
subject to VAT, but the
seller is not allowed any
tax refund of cir credit. for
any input taxes paid
G.R. No.
·. tax. Hence, output tax is the value added tax on the sale
EXEMPT PARTY
A person or an entity
granted VAT exemption
under the NIRC, a special
law or .an international
agreement to which the
Philippines is a signatory,
and by virtue of which its
taxable transactions
become exempt from VAT
Such party is also not
subject to VAT since it
may be zero-rated, 'b'llt
may be entitled to a . tax
refund or credit for input
taxes paid, depending .on
its registration as a VAT or
non-VAT taxpayer
When that person or entity· sells his/its products or
services, the VAT-registered taxpayer generally becomes
liable for 12% of the Selling price as output VATor output
of taxable goods or services by any. person registered or
• required to register under the Tax Code.
b) Sources of input tax - The following are sources of
input VAT:
(1)Purchase or-importation of goods:
i. For sale; ·
ii. For conversion into or intended to form part of a
finished product for sale including packaging
materials; ·
iii. For use as supplies in the course of business;
iv. For use as materials supplied in the sale of service;
or
v. For use in trade or business for which deduction for
depreciation or amortization is allowed under this
Code.
(2) Purchase of real properties for which a VAT has
actually been paid

11. lnputand Output Tax . (3) Purchase of services · in which •VAT, has actually
been paid
a) Definition
The term "lnput tax" means the value-added tax due from (4) Transactions deemed sale
or paid by, a VAT-registered person in the course of his
trade or business on importation of goods or 'local
(5) Presumptive input tax
purchase of goods or services, including lease or use of
property, from a VAT~registered person. It shall also
The following shall be entitled to a presumptive input tax
creditable against the output tax equivalent to four percent
include the transitional input tax determined in accordance
(4%) of the gross value in money of their purchases of
with Section 111 of the NIRC.
primary agricultural products which are used as inputs to
their production of firms engaged in either:
The term "output tax" means the value-added tax due on
(a) processing of sardines, mackerel and milk; or
the sale or lease of taxable goods or properties or services
(b) manufacturing refined sugar and cooking oil,
by any person registered or required to register under
Section 236 of the NIRC. ·
(6) Transitional input: · Ali input tax on the beginning
inventory of goods, materials and supplies equivalent to
CIR v. Benguet Corp., G.R. No. 145559, 2006
two percent (2%) of· the value of such inventory or the
actual value-added tax paid on such goods, materials and
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.· .
r·-1 . supplies, whichever is higher, which. shall be creditable Sale to private entities subject to Php 100,000.00
against the output tax shall be allowed for: '.. 12%VAT
r (1) A person who becomes liable to VAT: or Sale to private entities subject to 100,000,00
r (2) Any person who elects to be a VAT-registered person. 0%VAT
~
Sale of VAT-exempt goods 100,000.00
T he transitional input VAT shall be subject to the filing of .
Sale to government subject to 5% 100,000.00
a n inventory according to rules and regulations prescribed ·
final VAT withholding
by the Secretary of finance, upon recommendation of the
com missioner. Tota! sales for the month 400,000.00

Fort Bonifacio Development Corporation v, CIR, G.R. The following input taxes were passed on by its VAT-

r: No. 173425, 2012; Fort Bonifacio Development

Corporation v. CIR, G.R. Nos. 175807, 180035, 18109,
registered.suppliers:
Input tax on taxable goods (12%) Php 5,000.00
2014 Input tax on zero-rated sales 3,000.00
There is nothing in the NIRC which indicates that prior Input tax on sale of exempt goods 2,000.00
payment of taxes Js necessary for the availment of the
Input tax on sale to government 4,000.00
transitional input tax credit. All that is required is for the
taxpayer to file a beginning inventory with the BIR. Input tax on . depreciable . capital 20,000.00
good not attributable to any specific
activity (monthly amortization for 60
c) Persons who can avail input of tax credits: The input
tax credit on importation of goods or local purchases of I months) _
goods, properties or services by a VAT-registered person
shall be creditable: · The creditable input tax for the month shall be computed
(1) to the importer upon payment of VAT prior to the as follows:
, release of goods from customs <!uty;
r1 · (2) to the purchaser of the domestic goods or properties
upon consummation of the sale; or
Total sales (0% and 12%)
Total sales
X Amount of input
tax not directly
(3) to the purchaser of services or'the lessee or licensee attributable to
upon payment of the compensation, rental, royalty or any sales
( i fee. (RR 16-2005)
. }

Php 200,000.00
d). Determination of output/input tax; VAT payable; X P20,0QO.OO
400,000.00
excess input tax credits
l
l (1) Determination of output tax - In a sale of goods or
The.amountof P10,000.00 allocated to 12% and 0% VAT
properties, the output tax is computed by multiplying the
I J gross selling price by the regular rate of VAT. For sellers
sales shall be considered in the computation of total
creditable input tax for the month. Hence, total creditable
of services, the output tax is computed by multiplying the
input tax is P18,000.00. · -
tl gross receipts by the regular rate of VAT.
d
j (4) Determination of the output tax and VAT payable
J
(2) Determination of creditable input tax- see previous
and computation of VAT payable or excess tax credits
discussion.
~
. '
- see previous discussion. (RR 16-2005)

(3) Allocation of input tax on mixed transactions - if

e) Substantiation of input tax credits
any input tax cannot be directly attributed to either a VAT
taxable or VAT-exempt transaction, the input tax shall be Input taxes for the importation of goods or the domestic
pro-rated to the VAT taxable and VAT-exempt transactions purchase of goods, properties or services is made in the
and only the ratable portion pertaining to transactions course oftrade or business, whether such input taxes shall
subject to VAT may be recognized for input tax credit. be credited against zero-rated sale, non-zero-rated saies,
or subjected to the 5% Fihal Withholding VAT. must be
f,
t Illustration: "A" Corporation has the following sales during
substantiated and supported by the fol!owingdocuments
the month:
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and must be reported in tbe information returns required to
be submitted to the Bureau: • ofValueAdded Tax Withheld (BIRForm 1600) filed by
a. Importation of goods - import entry or · other
equivalent document showing actual payment of VAT
on the imported goods.
b. Domestic· purchase of goods . and properties - ·
invoice showing the information required under Secs. ·
113 and 237 of the Tax Code
c. Purchase of real property - public instrument i.e.,
deed of absolute sale, deed of conditional sale,
contract/agreement to sell, etc., together with VAT
invoice issued by the seller
d. Purchase of services - official receipt showing the
information required under Secs .. 113 and 237 of the
Tax Code. · . ·
A cash register machine tape issued to a reigistered buyer
shall constitute valid proof of substantiation of tax credit
only if it shows the information required under Secs. 113
and 237 of the Tax Code.
e. Transitional input tax - to be supported by an
inventory of goods as shown in a detailed list to be
submitted to the. BIR
f. Input tax on "deemed sale'' transactions -invoice
required under Sec. 4, 1,13-2 of these Regulations.
g. Input tax from payments made to non-residents
(such as for services, rentals and royalties) - to be
117SEC. 112 Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated 'may, within two (2) years after the close of the taxable
quarter when the sales were. made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax:
Provided, .however, That inlhe case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)('I} and
(2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and
regulations of the. Bangko Sentral ng Pllipinas (BSP): Provided,
further, That where the taxpayer is engaged in. zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of
goods of properties or services, and 'the amount of creditable
input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately
on the basis of the volume of sales. Provided, finally, That for a
person making safes that are zero-rated under Section 108(8)
(6), the input taxes shall be allocated ratably between ·his zero-
rated and non-zero-rated sales;
(B} Cancellation of VAT Registration. - A person whose
registration· has been cancelled due to retirement from or
cessation of business, er.due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from
Page 126 of 206
. TAXATION· l,AW
supported.by a copyof the Monthly Remittance Return
the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld
by the payor.
h. Advance VAT on sugar • .to be supported by the
Payment Order showing payment of the advance VAT.
Note: The input tax credit above enumerated shall be
creditable as follows:
a. Importer of goods - upon payment of VAT prior to the
'release of goods from customs custody;
b. Purchaser ofdomestic goods or properties - upon
consummation of sale; and
. c. Purchaser of services or lessee or licensee - upon
payment .of the compensation; rental. royalty or fee.
(RRNo. 16-2005, as amended)
A taxpayer cannot be permitted to substitute vital and
material documents such as VATofficiaheceipts andVAT
returns with secondary evidence like' financial statements.
(Luzon Hydro Corporation · v, CIR, G.R. No. · 188260,
November 13, 2013)
12, Refund or tax credit of excess input tax117
the date of cancellation, apply for the issuance of a tax credit
certificate for any unused inputtax 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 for creditable input taxes within ninety (90) days from
the date of submission of the official receipts or invoices and other
documents. iri support. of the application filed in accordance with
Subsections (A) and (B) hereof: Provided, That Should the
Commissioner find that the grant of refund is not proper, the
Commissioner must state iri writing the legal and factual basis for
the denial.
In case of full orpartial denial of the claim for tax refund or tax
credit, within thirty (30) days from the receipt of the decision
denying the claim, appeal the decision with the Court of Tax
Appeals: Provided, however, That failure on the part of any
official, agent, or employee of the 8lR to act on the application
within the ninety (90)-day period shall be punishable under
Section 269 of this Code.
(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:
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n a) WM may claim for refund/apply for issuance of tax
credit certificates • ·
I 1
I I Any VAT-registered person whose sales are zero-rated or
effectively zero-rated may within 2 years after the close of
the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of the
creditable input tax due or paid attributable to such sale.
The creditable input tax allowed to be refunded does not
.
I
'
·,
include transitional input tax.
In case the taxpayer is engaged both in zero-rated and
i taxable or exempt sale, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated
1 proportionately on the basis of the volume of sales:
!
Lt..(zonHydro Corporation v, CIR, G.R. No. 188260, 2013
In the Luzon Hydro case, the Supreme Court reiterated the
requisites fora clairnfor refund or tax credit for unutilized
{ 1 input VAT, thus:
1. The taxpayeris VAT-registered;
I 1 2. The taxpayer is engaged in zero-rated or
effectively zero-rated sales;
3. The input taxes are due or paid;
4. The input taxes arenot transitional input taxes;
5, .. The. input taxes have not been applied against
output taxes during and in the succeeding
quarters;
6. The input truces claimed are attributable to zero-
.1
l rated or effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1)
{ j and (2); 106(8); and 108(8)(1). and (2), the
acceptable foreign currency exchange proceeds
I I have been duly· accounted for in accordance
with the rules and regulations of the Bangko
Sentral ng Pilipinas:
8. Where there are both zero-rated or effectively
zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely
attributable to any of these sales, the inpuUaxes
shall be proportionately allocated on the basis
of sales volume; and
9. The claim is filed within two years after the close
of the taxable quarter when such sales were made.
Provided, That refunds under this paragraph shall be subject to
post audit by the Commission on Audit.
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TAXATION, LAW
Coral Bay<Nickel Corporation v. CIR, G.R. No. 190506,
2016
In case of an erroneous pass-on of VAT to a PEZA-
registered enterprise, the right to recover the same is
against the supplier who erroneously passed-on the VAT
amount.
Unutilized creditable input taxes attributable to zero-rated
sales can only be recovered through the application for
refund or tax credit. The practice of claiming as an outright
(income tax) expense accumulated and unapplied input
VAT credits after the expiration of the 2~year period to
process the. claim does not have any legal basis (RMC
057-2013).
b. Period to file claim I apply for the issuances of tax
credit certificates
The CIRshall grant aTCC/refund for creditable input taxes
within 90 days fromthe date of submission of complete
documents in support of the application,
Taxpayer may appeal to the CTA within .30 days 1r.<:im
receipt of said denial. ·
If no action on the claim for refund has been taken by the
Cl Rafter the 90-day period from the date of submission of
the application with complete documents,· the· taxpayer.
may appeal to the CTA within 30 days from the lapse of the
90-day period. Provided, however; That failure on the part
· of any official, agent, or employee of the BIR to act on the
application within the 90-day period shall be punishable
under Section 2.69 of NIRC. ·
Note:. J:!ieifj2Q:gayL ~~\~?·lOC~f1q;,f.iJ~,nfa~:~fqi~Q'id~§}~
~fu~b'g~d 6,y?t)mlij. . .
CIR v. Aichi Forging Company, G.R. No. 184823, 2010
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.
In case of full or partial denial by the CIR, the taxpayer's
recourse is to file an appeal before the CTA within 30 days
from receipt of the decision of the CIR.
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Otherwise,. 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 CTAwithin
30days.
Hence, if the taxpayer filed with CTA before the 120-day
period expires, CTA will dismiss the appeal on the ground
of prematurity. If filed With CTA after the 150-day (120 + 30
days). CTA will dismiss for being late. This only applies to
creditable input tax refunds.
CIR v. Sen.Roque; G.R. No. 187485, 2013
PERIOD WHEN
AOMINISTRA TIVE APPLICABLE DOCTRINE
CLAIM FILED WITH
CIR
Before June 8, 2007 Verba Legis Rule - 2
year · period should be
counted from the close .of
the taxable quarter when
the sates were made
June 8, 2007 to Atlas Doctrine - 2 year
September 11, 2008 period. should be counted
from the date of filing of
the return and payment of
the output, VAT
Mirant 'Doctrine (verba
On or after September
11,2008 legis rule)
PEl'{IOD WHEN
APF>'L.ICA8LE DOCTRINE
JUDIGIAL CLAIM
FILED WITH CTA
Before December 10, 120+30 day periods are
2003 mandatory and
jurisdictional·
December 20, 2003 BIR Ruling· No. DA-489-
to October 6, 2010
03 . Taxpayer-claimant
does not need to wait for
the lapse of the 120-day
period before it could
seek judicial relief with
the CTA by way of
'Petition for Review
(120+30 day periods are
merely permissive, not
jurisdictional) ·
On or after October 6, Aichi Doctrine (120+30
2010 day periods
are
mandatory and
L-. I jurisdictional)
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Two exceptlons to th~ mandatory . and jurisdictional
treatments of the 90-day period as pronounced in the Aichi
case, as follows:
i. If the, ,Commissioner, through a specific ruling,
· misleads a particular taxpayer to prematurely file a
judicial c!aim with the CTA Such specific ruling is
· applicable only to such particular taxpayer. '
ii. If ~e Commissioner, through a general
interpretative rule issued under Section4 of the
· Tax Code, misleads all taxpayers into filing
prernaturejudicial clai~s with the CTA.
In these cases, the Commissioner cannot be allowed to
later on question the CTA's assumption of jurisdiction over
suchclaim since equitable estoppal has set in.as expressly
· .· authorized under Section 246 of theTax Code.
Strict compliance with the 120+30 day period is necessary
tor.such claim to prosper.iexcept for the period from the
issuance of BIR Ruling No. DA-493-03 on 10 December
2003 to 6 October 2010 when the Aichi, doctrine. was
adopted, which. agairi reinstated the. 120+30. day periods
as mandatory and jurisdictional.
Team Energy Corpora(ion v. Co;,,missioner of Internal
Revenue, G:R, No. 190928, 2014
Ttie 30-day period giverl;to the taxpayer within which to file
an appeal before the CTA need not necessarily fall within
the two-year'prescriptlve period on applying for TCC or
refund, as. long as, the administrative claim Js filed within
the two-year prescriptive period.
SUMMARY OF RULES
(Commissioner of, lntemal Revenue v, Mindanao II ! .
GeotnermelPsttnership, G.R. No: 191498, 2014) I
A. Twq-Year Prescriptive Period
It is only the administrative claim that must be filed within s-
iL
the two-year prescriptive period. (Aichi)
The proper reckoning · date for the two-year prescriptive
period is the close of the taxable quarter when the relevant
sales were made. (San Roque)
The only other rule is the Atlas ruling, which is applicable
only from 8 June 2007 to 12 September 2008. Atlas states
that the two-year prescriptive period for filing a claim for tax
refund or credit of unutilized input VAT payments should
be counted from the date of filing of the VAT return and
payment of the tax. (San Roque)
B. 90+30 Day Period
 r ·1
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r1
. J The taxpayer can ffie an appeal in one of two ways: ( 1) file
•
the judicial claim within thirty days after the Commissioner
denies the claim within the 90-day period, or (2) file the
judicial claim within thirty days from the expiration of the
90-day period if the Commissioner does not act within the
90-day period.
The taxpayers are reminded that that when the 90-day'
period lapses and there is inaction on the part of the CIR,
they must no longer wait for it to come up with a .
! l
decision thereafter. The CIR's inaction is the decision
itself. It js already a denial of the refund claim. Thus, the ·
taxpayer must file an appeal within 30 days from the
lapse of the 90..:day waiting period.
l J
The 120-day (now 90 days) period is counted from the
! submission of complete documents and not from the filing
of the claim. (CIR vs. GST Phils., Inc., G.R. No. 190872,
1 October 17, 2013)
! As of June 11, 2014, all claims must already attach · ·
complete supporting documents and this fact · must be
[l attested under oath. As such, the 120-day period already
runs on the date the claim is filed in all instances.
r (Philippine Total Gas, Inc. v. CIR, GR. No. 207112,
December 8, 2015)
{ goods or properties; and
the 30°day period · always applies, whether there is a .
I I denial or inaction on the part of the C!R.
L r As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional. (Aichi and San Roque)
Ll
The exception is that premature filing is allowed only if filed
I. between 10 December 2003 and 5 October 2010, when
BIR Ruling No. DA-489-03 was stjll in force. (San Roque)
I l
Late filing is absolutely prohibited, even during the time
when BIR Ruling No. OA-489-03 was in force. (San Roque)
c) Manner of giving refunds
Refund shall be made upon warrants drawn by the CIR or
by his duly authorized representative without the necessity
. of being countersigned by the Chairman of COA.
Refunds under this paragraph shall be subject to post audit
Q •
by the COA.
VAT TCC Monetization Program (RMC No. 21-2012,
May 2, 2013)
Page 129 of 206
TAXATION LAW
VAT TCC Monetization Program is ·adopted in order to give
qualified VAT0registered taxpayers the cash equivalent of
their outstanding TCCs under the following options:
1. Collect in advance from a trustee bank a discounted
cash value of their TCCs; or
2, Collect the full cash value of the TCCs upon a certain
to
maturity date, be determined by the BIR or the BOC,
as the case may be, pursuant to the. implementing
· rules and regulations that will be issued to implement
Executive Order No. 68.
The VAT TCC monetization programwill be spread over a
five-year period from 2012-2016.
Beginning 2012. BIR and BOC shall no longer issue TCCs
for VAT refund, unless· applied for by the VAT taxpayer.
d) Destination principle or cross-border doctrine (see
previous discussion)
13. Invoicing Requirements
a) In general .:
A VAT-registered person shall issue:
a. VAT invoice for every sale, barter or exchange of
b. VAT official receipt for every lease of goods ·or
properties, and for every sale, barter or exchange of
,-:;.:;.
services.
Only VAT-registered persons are required to print their Tl N
followed by the word ·v AT" in their invoice or official
receipts. Said documents shall be considered as a "VAT
Invoice" or VAT official receipt. All purchases covered by
invoices/receipts other than VAT lnvoiceNAT Official
Receipt Shall not give rise to any input tax.
VAT invoice /official receipt shall be prepared at least in
duplicate, the originai to be given to the buyer and the
duplicate · to be retained by the seller as part of his
accounting records.
Information contained in VAT invoice or VAT official
receipt
The following information shall. be indicated:
c1. A statement that the selier is a VAT-registered
person, followed by his TIN;
b. The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the VAT; Provided, That:
 ATENEO CENTRAL
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i. The amount of tax shall be shown as a.separate
item in the invoice or receipt;
ii. If the sale is exempt from VAT; the term "VAT-
exempt sale" shall be written or printed
prominently on the invoice or receipt;
iii. If the sale is subject to zero percent (0%) VAT, the
term "zero-rated sale" shall be written or printed
prominently on the invoice or receipt;
Having the words "zero-rated" stamped in the VAT invoice
I official receipt is sufficient compliance With the !aw. The
same need not be printed. (Commissioner of Internal
Revenue v. Toledo Power Company, G.R. No. 183880,
January 20, 2014)
iv. 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 break-down of the
sale price between its taxable, exempt and zero-
rated components, and the calculation of the VAT
on each portion of the sale shall be shown on the
invoice or receipt. The seller has the option to
issue separate invoices or receipts for the taxable,
exempt, and zero-rated components of the sale.
c. The date of transaction, quantity, unit cost ' and
description of the goods or properties or nature bf the .
service; and .
d. 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 TIN of the purchaser,
customer or client, shall also be indicated. (see Section
4.113-1(8),-RR 16-2005)
The change of petitioner's hame to "Bonifacio GOE Water
Corporation," being unauthorized and without approval
of the SEC, and the issuance of official receipts under that
name which were presented to support petitioner's claim
for tax refund, cannot be used to allow the grant of tax
refund or issuance of a tax credit certificate in petitioner's
favor. The absence of official receipts issued in its
name is . tantamount to non- compliance with the
substantiation requirements provided by · law.
(Bonifacio Water Corporation v. CIR, GR No. 175142,
2013)
Page 130 of 206
TAXATION LAW
b) Deemed sale transactions
a. Transfer; use oreorrsumptlon not in the course of
business of·goods or properties originally intended for
sale or use in the course of business - a memorandum
entry in the subsidiary sales journal to record
withdrawal of goods for personal use is required
b. Distribution or transfer to shareholders · or
creditors - An invoice shall be prepared at the. time of
the occurrence of the transaction, which should
include all the necessary information: The data
appearing in the invoice shall be duly recorded in the
subsidiary sales journal. The total amount of "deemed
sale" shall be included in the return to be filed for the
· month or quarter.
c. Consignment of goods - similar to "b".
d. Retirement from or cessation of. business - an
inventory shall be prepared and submitted to the RDO
who has jurisdiction over the taxpayer's principal place
of business not later than 30 days after retirement or
cessation from business,
An invoice shall be prepared forthe entire inventory, which
f
shall be the basis of the entry intd the subsidiary sales '.i
journal. The invoice need not enumerate the specific items
appearing in the inventory; but it must show the total
amount.
c) Consequences of is$uing erroneous VAT invoice or
VATofficial receipt · ·
1. lfa person who is not VAT -reqistered issues an invoice
or receipt showing his TIN, followed by the word "VAT',
the erroneous issuance shall result to the following:
a. · The Non-VAT person shall be liable to the:
i. Percentage taxes applicable;
ii. VAT due on the transactions without the
. benefit of any input tax credit; and
111. 50% surcharge as penalty.
b. The VAT shall, if the other requisite information
required is shown on the invoice or receipt, be
recognized as an input tax credit to the purchaser.
2. If a VAT-registered person issues a VAT invoice or
VAT official receipt for a VAT,-exempt transaction, but
fails to d!splay prominently on the invoice or receipt the
term "VAT-exempt Sale, the issuer shall be liable to
account for the VAT imposed. The purchaser shall be
entitied to claim an input tax credit on said purchase.
~
a .
14. Filing of Return and Payment
Time of Filing and Payment
Monthly VAT Declarations shall be filed and the taxed due
thereon shall be paid not later than the 201h day following
the end of each month.
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• Percentage tax is a business tax which is based on a given
A Quarterly VAT return shall be filed within· 25 · days
following the close of taxable quarter. The term "taxable
quarter" shall mean the quarter that is synchronized to the
income tax quarter of the taxpayer.
Amounts reflected in the monthly VAT Declarations for the
first 2 months of the quarter shall still be included in the
quarterly VAT return which reflects the cumulative figures
for the taxable quarter.
.. 1
I , Note: Beginning January t. 2023, the filing AND payment
\ ;
of VAT shall be done within twenty-five. (25) days following
the close of each taxable quarter.
1 Place of Filing and Payment
ii
Monthly VAT Declarations and quarterly VAT returns shall
)
j be filed with, and VAT due thereon paid to.ian AAB under
the jurisdiction of the RDO or BIR office where the taxpayer
[l is required to. be registered. . b.
)
Lt 15. Withholding of finai VAT on Sales to Government
The government or any of its politic;al subdivisions,
f instrumentalities or agencies, · including government-
owned or controlled corporations (GOCCs) shall, before
-~
.,t making payment on account of each purchase of goods
and/or of services taxed at 12% VAT pursuant to Secs. 106
and 108 of the Tax Code, deduct and withhold a final VAT
due at the rate of five percent (5%) of the gross payment
thereof. · ·
II
rr. j The 5% final VAT withholding rate shall represent the net
VAT payable of the seller. The remaining seven percent
l I (7%} effectively accounts fer the standard input VAT for
sales of goods 'or services to government or any of its
IJ political subdivisions, instrumentalities or agencies
including GOCCs, in lieu of the actual input VAT directly
• T.
rr attributable or ratably apportioned to such sales. Should
actual input VAT exceed seven percent (7%) of gross
payments, the excess may form part of the seilers'
expense or cost. On the other hand, if actual input VAT is
less than 7% cf gross payment, the difference must be
ciosed to expense or cost. ·
Note: Beginning January 1, 2021, the VAT withholding
system referred above shall shift from final to a creditable
system.
i,.
PERCENTAGETAXES {not included in the Bar Syllabus}
1'!, Concept
Page 131 of 206
TAXATION LAW
fatio between the gross sales or receipts and the burden
imposed upon the taxpayer, (City of Manila v. Inter/sf and
Gas, G.R. No. L-8799, 1956)
Unlike income tax, percentage tax is not subject to
withholding. (CIR v. Solldbank Corporation, G.R. No.
148191, 2003)
To be subject to the 3% percentage tax, the person must
be exempt under Section 109(1)(v) and is not a VAT-
registered person.
All exempt transactions enumerated in subsection ( 1} (A to
U} of Section 109, except subsection (1)(E), referring to
services subject to percentage tax under Title V, are
exempt both from VAT and percentage tax.
2. Other Percentage Taxes
a. Tax on persons exempt from VAT
Carrier's Tax
c. Franchise Tax
d. Tax on overseas dispatch, message, or conversation
e. Tax on life insurance premiums
f. Tax on agents of foreign insurance companies
g. Amusement Tax
h. Tax.on winnings
i. Stock transaction tax ·
j. Ti.'X on banks and non-bank financial intermediaries
k. Tax on other non-bank financial intermediaries
EXCISETAX (not Included in the Bar Syllabus
1. Concept ,
Excise tax refer to taxes applicable to certain specified or
setectedqoods or-articles manufactured or produced in the
Philippines .for.dornestic sale or consumption or for any
other disposition and to things. imported into. the
Philippines.
"Specific tax" ..:.. excise taxes imposed and based on
weight or volume capacity or any other physica! unit of
measurement.
"Ad valorem tax" - excise tax imposed and based on
selling price or other specified value of the goods.
2. Nature
Although they may be considered taxes on production,
being collected only from manufacturers and producers,
they are really taxes on property as they are imposed
ATENEO CENTRAL
BAR OPERATIONS 2019
directly on certain specific goods. (Silkair [Sin_gapore] Pte. •
Ltd. V. CIR, G.R. No. 173594, 2008)
A tax is not excise where it does not subject directly the
produce or goods to tax but indirectly as an incident to, or
in connection with, the business to be taxed.
Excise taxes, whether under the specific or ad valorem tax
system is basically an indirect tax impose on consumption
of certain types or class of goods, whether locally
manufactured or imported. While the tax is directly levied
upon the manufacturer/producer/importer upon removal of
the taxable goods from its place of production or from the
customs custody in reality, the tax is actually passed on to
the end consumer as part of the transfer value, or selling
price of the goods sold, bartered or exchanged. (Silkair
[Singapore] Pte. Ltd. V, CIR, G.R. No. 173594, 2008)
Goods subject to excise taxes, unless otherwise provided,
are subject to VAT.
DOCUMENTARYSTAMP TAXES (not included in the Bar
Syllabus
1. Concept
Documentary stamp tax (DST} is a tax on documents;
instruments and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right, or
property incident thereto ... It is actually an excise tax
because it is imposed on the transaction rather than on the·
document. (Phii. Banking Corp. v. CIR, G.R. No. 170574,
2009)
The liability to the tax and the amount thereof are
determined from the fact of the document itself, i.e., by the
form and face thereof,· and cannot be affected by proof of
facts outside of the same. The name given by the parties
is not controlling. However, in case of doubt, construction
is in favor of exemption. (US v. Isham. 84 U.S. 496 fl 873)).
The stamps must be affixed on the original document but
if for some reason the original is not available, then on the
duplicate which has been used in place of the original.
2. Nature
DST is an excise tax on the exercise of a right or privilege
to transfer obligations, rights or properties incident thereto.
In general, DSTs are levied on the exercise by persons of
certain privileges conferred by law for the creation,
revision, or termination of specific legal relations through
the execution of specific instruments. Hence, in imposing
Page 132 of 206
TAXATION LAW
the DST,· not only the document but also the. nature and
character of.the transaction i.; considered. (Phil. Banking
Corp. v. CIR, G.R. No. 170574, 2009)
DST is not a tax on the business transacted but on the
privilege, opportunity, or facility offered at exchanges for
the transaction of the business. It is an excise tax on the
facilities used. in the. transaction of ,the. business. separate
and apart frorn the •. business .itselt, (Phil .. Health Care
Providers, Inc. v. CIR, G.R,. No. 167330, 2008)
Being an excise tax, DST is paid on,ly once. Since DST is
not a tax on income, an exemption from income tax does
not include DST. .
. E. TAX REMEDIES UNDER THE NIRC
1. General Concepts
Power of the Commissioner of lhternal Revenue to
Make Assessments
An assessment is· relevant in the proper pursuit of judicial
and extrajudicial. remedies to enforce taxpayer liabilities
and certain matters that relate to is, such as the imposition
of surcharges and interest.' arid · in the application of
statutes of limitations and ln the establishment of tax !iens.
iTupei: v. Ulep, G.R. No. 127777, 1,999)
, Note: The Commissioner, under Se~ 6 of the NIRC, has
the. power to make assessments.
After a return has been 'fi!ed · as. required under the
provisions of this Code, the Cornmlssloner or his duly
authorized representative may authorize the examination
of any taxpayer and the assessment of the correct amount
of tax.
Failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer: (NIRC,
Sec. 6[AJ)
a) Requisites of a Valid Assessment. ·
Definition of Assessment
Any notice sent to the taxpayer demanding the tax liability
within a prescribed period is an assessment. Ital so signals
the time when penalties and interests begin to accrue
against the taxpayer.
An assessment contains not only:·
1. A computation of tax liabilities, but also;
2. A demand for payment within a prescribed period (CIR
v. Pascor Realty & Oev't Corp, G.R. No. 123895, 1999)
The assessment must be in writing. (N/RC, Sec. 228)
An assessment must be sent to and received by the
taxpayer, and must demand payment of the taxes within a
 r l
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. . .

[1
ATENEO CENTRAL
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BAR OPERATIONS 2019 . TAXATION LAW

prescribed period (CIR v, Pascor Realty & 1'ev't Corp, G.R.
No. 123895, 1999)
Assessment of taxes due may be by reason of either
deficiency or delinquency.
How Taxesare Assessed
1. Self-Assessment: System under which taxpayer
makes a declaration in the return on the basis of his
assessment and calculate the tax due. It is usually
·~
) accompanied by payment.
l
j Pay-as-you-file system: The tax payment system is
self-assessing, i.e., "pay-as-you-file system." Thus, if
tax is properly paid, no assessment is necessary
(NIRC, Sec. 56[A][1])
·,. 2. Deficiency Assessment: It is an assessment made by
i the BIR after the conduct of an investigation or audit
·, when it. finds that the tax. return filed by the taxpayer
contains, for example, an under-declaration of income,
' or when the taxpayer does .not at all file a tax return.
Distinction in relation to compromise: The Court
( ·1 made a distinction between a self-assessed tax and a
BIR-assessed tax in relation to ~mounts for
1 ·1 compromise, to . wit: where tax liabilities are self-
assessed, the compromise payment shall be based on
f"l the tax return filed by the taxpayer; on the other hand,
where the BIR already issued an ·assessment, the
{] compromise payment shall be computed based .on the
tax due on the assessment notice. (Philippine National
[ l Oil Company v. CA, G.R. No. 109976, 2005,1
{ 1 Kinds of Assessments
1. Self-Assessment - one in which the tax is assessed
Ll by the taxpayer himself (N!RC, Sec. 56[AJ[1])
M Examples: income tax, capital gains tax, estate tax,
donor's tax, VAT, DST
2. Deficiency Assessment - made by tax assessor
•... ; whereby the correct amount of tax is determined
through examination or investigation (NIRC, Sec.
s
. 56[8])
a. Comply with audit arid investigation requirements;
anl
b. Substantiate any or all claims, deductions or
credits in his return. (R.R. No. 30-2002, Sec.
3[1][a])
a) It is usually issued when statutory prescriptive
periods for the assessment or collection of taxes
are aoout'to lapse due principally to the taxpayer's
fault.
4. Disputed Assessment - a taxpayer questions a
deficiency assessment and asks the SIR to reconsider
or cancel the assessment.because he believes that he
is not liable therefor (St. Stephen's Ass'n v, CIR, G.R.
No. L-11238, 1958)
Instances When Assessment Maybe Required
1. Taxable period of the taxpayer is terminated by the CIR
for reasons such as when a taxpayer is retiring his
business subject to tax. (NIRC, Sec. 6[0])
2. Tax deficiency is found by the CIR after the filing of
return. (NIRC, Sec. 56[8])
3. A corporation contemplating dissolution"·',,.-or
reorganization. (NIRC, Sec. 52[C])
Requisites for Valip Assessment
1. It must have been issued within the prescriptive period
for the issuance of assessment notices; ..
. 2. As a general l"ule. it may be issued only after a)ire-
assessment notice (PAN) has been served upoi(the
taxpayer; ·
3. It shall state, in writing, the law and the facts on which
the assessment is made (NtRe, Sec. 228); and
4. The assessment must be served on and received by
the taxpayer (CIR v. Pascor.Realty & Dev't Corp, G.R.
No. 123895, 1999)
Not all documents coming from the BIR containing a
computation of tax liability can be deemed · assessments.
An affidavit, which was executed by revenue officers
stating the tax liabilities of a . taxpayer and attached to a
criminal complaint for tax evasion, cannot be deemed an
assessment that can be questioned before the CT A. ( CIR
v. Pascor Realty and Development, G.R. No. 128315,
1999)

3. Jeopardy Assessment - a tax assessment made by Assessment must be based on "actual facts"
an authorized Revenue Officer without the benefit of An assessment should not be based on mere
{
' ,.
I
complete or partial trial in light of the Revenue Officer's presumptions, no matter how logical said presumptions
belief that assessment and collection of iax will be may be. (CIR v. Benipayo, G.R. No. L-13656, 1962)
l
r
( ~. jeopardized by the delay caused by the taxpayer's
failure to: Sources of information may be from

Page 133 of 206

ATENEO CENTRAL
BAR OPERATIONS 2019 TAXATION LAW >
Examination of books, · papers, records, or other data; b] Tax 0(!1inque~cy vs. Tax Deficiency
subpoena 'duces tecum; subpoena ad testificandum; tax •
mapping; examination of returns; . best evidence Tax: Delinquency
obtainable; inventory-taking, surveillance, and 1. Entails failure to pay tax due on any return required to
presumptive gross sales and receipts; termination of be filed, or tax due for which no return is required;
taxable period; fixing of real property values; inquiry of 2. Subject to administrative penalties such as 25%
bank deposits; accreditation and registration ottax agents; surcharge, interestand compromise penalty; and
prescribe additional procedural or documentary 3. Can be immediately collected through administrative
requirements (NIRC, Sec. 5) action with the issuance of distraint and· levy and/or
judicial action through filing of an action to collect
Authority to Issue Assessment Based on "Best before the regular court.
Evidence Obtainable"
CIR may use the best evidence obtainable to issue an Tax: Deficiency
assessment under the following circumstances: 1. Refers to the amount by which the tax imposed or
1. When a report required by law as a basis for the required to be paid exceeds· the amount shown in the
assessment of any national internal revenue tax shall taxpayer's· return and/or paid by him; the amount
not be forthcoming within the time fixed by laws or rules shown on the return shall be increased by the amounts
and regulations; or previously assessed as a deficiency, and decreased by
2. When there is reason to believethat any such report is the amount 'previously abated, credited, return or
false. incomplete or erroneous (NIRC; Sec. 6[8]) repaid ,
2. If the taxpayer disagrees, he rnust go thru the· process
Presumed· Correctness of Tax Assessments · of filing a protest (administrative remedy) and/or filing
General Rule: Ali presumptions are -in favor of the an action before the CT A (judtclal remedy)
correctness. of tax assessments. When the assessment is
made by the CIR or his duly authorized gents, the same is c) Prescriptive Period for Assessment
presumed correct and made in good faith. The taxpayer Secs: 203 and 222 of the· NIRC provide for a statute of
has the duty to prove otherwise. (CIR v. Wyeth Suaco limitations dli the assessment and collection of internal
Leboretories, G.R. No. 76281, 1991) revenue taxes, and exceptions therefrom, in Order to
Exception: The prima . facie correctness of a tax safeguard the interest . of the taxpayer ~ against
assessment does not apply to "naked assessments", which unreasonable investigation.
are · assessments without any foundation, the
determination of the tax due is without rational basis (CIR Unreasonable investigation contemplates 'cases where
v. Hentex. Ttading, G.R No. 136975, 2005) the period for assessment extends indefinitely because
Assessment is discretionary; not compellable by this deprives
.
the taxpayer of the assurance that it will no
'

mandamus longer be subjected to further investigation for taxes after

General Rule: Mandamus will not lie for it will constitute
judicial encroachment on executive functions. (Mera/co
Securities v. Savellano, G.R. No. L-36181, 1982)
Exception: Mandamus will lie if the CIR acts with grave
abuse of discretion. (Mera/co Securities v. Savellano, G.R.
No. L-36181, 1982)
the expiration of a reasonable period of time.
Construction of Statutory Provision on Prescription
The law on prescription, being a remedial measure, should
be interpreted in a way conducive to bringing about the
beneficent purpose of affording protectionto the taxpayer.
(Phil. Journalists, Inc. v. CIR .. G.R. No. 162852, 2004)

Prescriptive Period
The assessment must be made 3 years after the date the
return is flied or tax is due or the tax is actualiy paid,
whichever is later.

Note: A return filed before the last day prescribed by law

for filing shall be considered as filed on the !ast day. (NIRC,
Sec. 203)

Page 134 of 206

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BAR OPERATIONS 2019 TAXATION LAW

• Burden of Proof that Return was Filed to Apply J~Year The Administrative Code, not Art. · 13 of the· Civil Code

•• Prescriptive Period .
The taxpayer has the burden to prove that a return had
been filed by him in order that the 3-year period can apply.
(Republic v. Marsman Dev't, G.R. No. L-18956, 1972)
governs. A year is composed of 12 monthsand the number
of days is irrelevant. (CIR v. Primetown Property Group,
G.R. No. 162155, 2007)
Amendment of Tax Return

•• Prescription of the government's right to assess taxes is an

affirmative defense. (Tagaliman Lumber v, CIR, G.R No.
L-15716, 1962)
General Rule:
1. Substantial Amendment - The. counting of the
prescriptive period shall be reckoned on the date the
· substantial amendment was·made ,

• When to Raise the Defense of Prescription

Example: Amendment of an original income tax return

•
showing a net loss to . show more losses (CIR v.
A taxpayer can raise the defense of prescription for the first
Phoenix Assurance. G.R. No. Ld9727, 1965)
time on appeal to CTA En Banc, Rule IX, S~ction 1 'of the

•• Revised Rules on Civil Procedure provides that if the

pleadings and evidence on record show thatthe claim is
barred by prescription, the court must dismiss the claim on
the ground of prescription. (Rule IX,· Section 1 bf the
2. Superficial Amendment - The cqunting · of the
prescriptive period shall still be the original period (CIR
v. PnoenixAssurence, G.R. No. L-19727, 1965)

•• · Revised Rules on Civil · Procedure; China Banking

Corporation vs. CIR, G.R. No. 172509, 2015)
Exception: If the return is sufficiently complete to
enable the CIR to intelligently determine the . proper
amount of the tax to be assessed, the . prescriptive

•.,
Requisites In Order That a Return May Be Considered
period for assessment starts from the filing of the
Filed f?r · Purposes of Starting the Running of the original return (AL Ammen Trenspottetlon ' v,
Prescriptive Period ·
Collector, CTA Case No. 540, 1965) ·
1.. The return must be valid - it mustcomply substantially

••
with:the requirements of the law; and ·
Note: If a return for a different tax is filed, the effect is as if
a
2. The return· must be appropriate-It is return for the NO RETl)RI\I was filec:I, and thus, the applicable
particular tax required by law (i.e. income tax return is
prescriptive is 10 years from discovery of the omission to
NOT the equivalent of the VAT return) (ButuanSawmill file a return, rather than the 3-year prescriptive period
v. CTA, G.R. No. L:20601, 1966)

••
(Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601; '''28
February 1966)
Metho~ of Sending Assessment toTaxpayer
Exce1>tions to the General Prescriptive Period
Notice of the assessment must be released, mailed or sent
to the taxpayer within the 3-year period. Itls not required
1. False/frauc:lulent return or no return - to-year

••
prescriptive period (NIRC, Sec. 222[a])
that the notice be received by the taxpayer within the
2. Waiver of prescriptive period (NIRC,•Sec. 222[b])
prescribed period. But the sending of the notice must
3. Suspension bf prescriptive period - CIR is prohibited
. clearly be proven. (Basilan Estate v. CIR, G.R. No. L-
22492, 1967) . from assessing or collecting, plus 60 days (NIRC, Sec,

•
223) .
If the taxpayer denies having received the assessment, the
i) False Returns vs. Fraudulent Returns vs. Non-filing
CIR must then prove by competent evidence that such
I notice was indeed received by the addressee. The onus
of Returns ·

•• pr~band; has shifted to the BIR to show by contrary

evidence that · the taxpayer indeed received the
assessment. While a mailed letter is deemed received by
t~e addressee in the course of mail, this is merely a
..
Prescriptive Periods
1. Failure to file return: 10 years from date of discovery of
the omission to file the return

•
2. False return orfraudulentreturn with intention to evade
disputable presumption, the direct denial of which shifts the
the tax: 10 'years from the date of the discovery of the
burden to the sender to prove that the mailed letter was
falsity or fraud
received by the addressee. (CIR·. v. GJM Manufacturing
I Inc. G.R. No. 202695, 2016) '
Note: The law should be interpreted to mean a separation
•
I • of the three different situations of false return, fraudulent
Computing the Prescriptive Period return with intent to evade tax. and failure to file a return is
I strengthened immeasurably by the last portion of the
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provision which segregates the situation into three different

classes; namely "falsity," "fraud," and "omission." (Aznar v.
CTA, GR. No. L-20569, August 23, 1974j
Note: Nothing . in . Sec. 222(A) shall be construed to
authorize the examination and investigation or inquiry into
any tax return filed in accordance with the provisions of any
••
•
tax amnesty law or decree.
False Return

••
Contains wrong information due to mistake, carelessness, ii) Suspension of the Running of Statute of
or ignorance (Aznat v. CIR, G.R. No. L-20569, 1974) Limitations
A substantial under-remittance of withholding tax on The running of the statute of limitations. on the making of·
compensation constitutes falsity to warrant the 10-year assessment or commencing of collection shall be

•
prescriptive period (Samar-1 Electric Cooperative v; CIR, suspended, arid for sixty days thereafter:
G.R. No. 193100, 2014) 1. When the · CIR is prohibited from making the

•
assessment or beginning the distraint or levy or a
Fraudulent Return proceeding in court - during such period and for 60·

•
Fraud must be alleged and proved as a fact. It must be the days thereafter;
product of a deliberate intent to evade taxes. It may be
When a case is on appeal to the CTA, the CIR is

••
established by:
1. Intentional and substantial understatement of the prevented from filing an ordinary. action to collect· the
taxpayer's sales, receipts or income by more than 30%; tax in the regular courts; the . filing of the petition for
or review in the CTI\ interrupts the running of the

•••
2. Intentional and substantial overstatement of deductions prescriptive period for collection, until its termination in
. by more than 30%. (NIRC, Sec. 248[8]) the Supreme· Court. (Republic v. Ker, G.R. No. L-
21609, 1966) ,
Such fact in a fraud assessment which has already
become final and executory shall be~ judicially taken 2. When tlie taxpayer requests for a reinvestiqation
cognizance of in a civil or criminal action· for the collection
thereof. (NIRC, Sec. 222[a]) ·
which is granted by the CIR;
•
Note; Mere understatement ofgross earnings does not of
There must be a request for reinvestigation; not a
request for reconsideration. (CIR v. Philippine Global ••
itself prove fraud. (Yutivo Sons v. CTA, GR No. L-13203,
1961)
Commc'n, G.R. No. 167146, 2006)
•
False vs Fraudulent Return
. CIR must have granted or acted upon the request for
reconsideration. (BPI v. CIR, GR. No. 1.74942, 2008) •
FALSE RETURN FRAUDULENT RETURN
Note: The burden of proof that the taxpayer's request •
Deviation from the truth Intentional/deceitful entry
whether intentional or not · with intent to evade tax due
for reinvestigation had been actually granted is with the
CIR. (BPI v. CIR, G.R. No. 139736, 2005) •
50% surcharge penalty 50% surcharge penalty
3. When the taxpayer cannot be located in the address •
does not apply applies

I
given by him in the return. unless he informs the CIR of
•
••
T~x~ayer is not subject to T~x~ayer may be subject to any change in his address;
cnmmal penalty · criminal penalty
This rule does not apply if the taxpayer failed to follow
10-year prescriptive period applies to both
the process for the notification on the change of
address but there is proof that BIR is in fact aware of
Failure to File Return - Instances
A deficient return which prevented the CIR from
the whereabouts of the taxpayer. (CIR v. BASF Coating
+ Inks Phils., tnc., G.R. No. 198677, 2014) •
computing taxes due; such return is the same as if no
return is filed at all (CIR v. Gonzales, G.R. No. L-19495, 4. When the warrant of distraint or levy is duly served and •
1966) no property is located; and
•
•
Failure to report income in the returns which were clearly
.
·,.
not exempted from tax - CTA did not treat.lt tis a simple 5. When the taxpayer is out of the Philippines. (NIRC,
.
omission since it involved. substantial sums (Standard SEc. 223)
Chartered Bankv. CIR, CTA EB Case No. 731, 2012)
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[1· Nature of Waiver of Statute of Limitations • b.
A waiver of the statute of limitations, being a derogation of
the TP's right · to security against prolonged and
·1
unscrupulous investigations, must be carefully and strictly
l construed (CIR v. Philippine Daily Inquirer, G.R. No.
213943, 2017)
General Rule: Taxpayer and CIR may agree to waive the
. prescriptive period if they comply with the requirements of
a valid waiver
Only upon a written agreement between the CIR and the
taxpayer executed before the expiration of the three-year .·
period (NIRC, Sec. 222[b]) · since the waiver is not a mere untlateral act. (RMO 20-
Requirements of a· Valid Waiver of the Statute of
Limitations (R.M.O. 14-2016)
1. The waiver may not necessarily be in the form
r ·1 prescribed by. RMO 20-90 or RDAO 05-01, provided
that the following conditions are complied with:
ll a. The waiver is executed before the expiration of the
period to assess or to collect taxes;
l.Jl b. The waiver is signed by the taxpayer himself, his
duly authorized representative, or by any of the
(1 responsible officials for corporations; and
c. The expiry date of the period agreed upon. ts,
{1 assess/collect the tax after the three-year period of
prescription.
i ·1 2. The waiver need not specify the taxes to be assessed
nor the amount thereof except in cases of waiver for.
1.1 collection of taxes. It may simply state "All internal
revenue taxes" except for waiver of collection of taxes
l! which shall indicate the particular taxes assessed.
3. The taxpayer has the burden to ensure that the waiver
i1 is validly executed by its authorized representative. The
waiver cannot thereafter be invalidated on the ground
(} that the taxpayer's representative who participated in
the conduct of the audit is not authorized to sign the
M waiver. . notarized. (CIR v. Kudos Metal Corp., G.R. No. 178087,
4. Notarization of the waiver is now optional. However, it
is sufficient that the waiver is in writing as specifically
provided by the NIRC, as amended.
r 5. The waiver shall take legal effect and be binding on the
[. .;
The expiry date of the period the-taxpayerwaives
the statute of limrtations.
Before the expiration of the period set on the previously
executed waiver, the period earlier set may be
extended by subsequent waiver made in accordance
with this Order. (RM.O. No. 14-2016)
Note: The waiver must be executed in 3 copies, the
original to be attached to the docket, the second copy
for the taxpayer and the third copy· for the Office
accepting the waiver. Taxpayer must be furnished a
copy of the waiver in order to perfect the agreement
90; See also CIRv. Stanley Works Sales (Phifs.), tnc.,
G.R. No.. 187589, 2014)
The following rules must also be followed:
1. The waiver shall be executed before. the expiration
of period to assess or collect taxes. The date of
execution shall be specifically indicated in the waiver.
2. · The waiver shall be signed by the taxpayer himself
or his duly authorized representative, The taxpayer is
charged with the burden of ensuring that the waiver is
validly executed by its authorized representative; The
authority of the taxpayer's representative who
participated in the audit or.investigation shall not be
thereafter contested to invalidate the waiver. ,
3. The expiry date of the• period agreed upon to
assess/collect the tax after·the regular 3-yearperiod of
prescription should be indicated.
The waiver must be signed by the taxpayer _himself o.U1is
duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated by
the taxpayer to a representative, such delegation should
be in writing and duly notarized. The waiver should be duly
2010)

taxpayer upon its execution thereof.

.r 6. The waiver can be accepted by the Commissioner on
Internal Revenue, the Commissioner's authorized
(
representative as prescribed in existing regulations, the
t
revenue district officer, or the group supervisor
designated in the Letter of Authority for the audit.
7. There are only two dates that need to be present on the
[ waiver, nameiy:
a. The date of execution; and

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Summary.of Requirements of a Valid Waiver· Both parties. knew tlv.l infirmities of the Waivers yet they
RM020~90 ·' continued dealing with each other based on · these
It must be in the proper form prescribed by the BIR documents. ·The waiver should have been void for being
Signed by the taxpayer himself or his duly authorized defective but due to peculiar circumstances, this is an
representative. · exception and the waivers are valid because the parties
For Corporations, it must be signed by any of its are in Pari deticto. (CIR II. Next Mobile, lnc., G.R. No.
responsible officials 212825, 2015) .
Signed by the proper authority indicating that the BIT
has accepted and agreed to the waiver Partial Payment
(CIR must personally sign for tax cases involving P1 M Partial payment of the assessment issued within the
and above) extended period to assess as provided in the Waiver of
Date of acceptance by the BIR should be indicated Defense of Prescription is an implied admission of the
validity of the waiver. (RCEJC v. CIR, G.R. No. 170257,
Both the date of execution by the taxpayer and date of . 2011)
acceptance by the BIR should be before the expiration
of the original prescription period BUT SEE: A taxpayer, by paying the other tax
Must be executed in 3 copies (original attached to the assessments covered by a Waiver of the. Statute of
docket; copy for taxpayer and the BIR respectively) Limitations, is not estopped from questioning the
It cannot cover tax which had already prescribed .. validity of said walver'{on the basis thatCIRdid not sign
Must be duly notarized . · · it and some dates' were lacking)· with· respect to the other
··- covered but unsettled· assessments. In this case, the
With respect to theserequisltes, the BiR issued HMO 14- taxpayer did not waive the prescription of the other
2016 which provided these clarifications: deficiencies as it continued to raise the issue of
· · 1. The date of execution AND the date of expiry of prescription i'n its' Pre-Trial Brief, Joint -Stipulations, direct
the period agreed upon must also be indicated; testimonies, and Memorandum filed. (CIR · v. Standard
2. In c~se the authorized representative signs for the . Chartered Bank, G.R. No. 192173, 2015)
taxpayer, the latter has the burden ofensuring that
the. waiver is validly executed by such
representative;
3. The waiver need not specify the taxes to be
assessed, EXCEPT. for waiver of collection of
taxes which shall indicate the particular taxes
assessed;
4. The notarization requirement is not mandatory.
RMO 14-16 provides that it is sufficient that itbe in
writing;
5. The taxpayer has the duty to submit the du!y
executed waiver to the CIR or official/s previously
designated in existing issuances or the concerned
revenue district officer designated in the Letter of
Authority

Exceptions to Waiver

Doctrine of Equitable Estoppel ( CIR v. Next Mobile,

G.R. No. 212825, 2015)
CT A found the following flaws in multiple waivers executed
by the taxpayer: (i)lack of notarized board authority; (ii) s-
s
dates of acceptance by the BIR not indicated; (iii) fact of
receipt by the TP not indicated. However, SC ruled that the
"
waivers were va!id, in contrast to its ruling in Kudos Metal

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r1 2. Civil Penalties118 • • Accrues from

the date
1 a) New Rule on Delinquency Interest and Deficiency 12010 prescribed for
lnterest119 tc p.a. ·1
r 'l interest 1 5 payment
.\ t Collection of interest is not punitive in nature, but Deficiency imposed on until full
compensatory; it is compensation to the State for the delay Interest Basic Tax the deficiency payment
in the payment of the tax. (Republic v. Heras, G.R. No. (249[8]) in the basic OR Upon
26742, 1970) tax due • issuance of
{1 notice
demand
and
by
I l %OF ACCRUAL OF _the CIR ·.
l, ,l TYPE TAX BASE
INTEREST INTEREST

ri
118 SEC. 248 Civil Penalties. -
l) 119 SEC. 249 Interest. -

(A) There shall be imposed, in addition to the tax required to be

(l paid, a penalty equivalent to twenty-five percent (25%) of the
amount due, in the fcillowing cases:
(1) Failure to file any return and .pay the tax due thereon as
(1 required under the provisions of this Code or rules and
regulations on the date prescribed; or
[.
{ j
(2) Un.less otherwise authorized by the Commissioner, filing a
return with an internal revenue officer other than those with whom
the return is required to be filed; or ·
Cl (3) Failure to pay the deficiency tax within the time prescribed for
. prescribed in Subsection (A) hereof, which interest shall be
its payment in the notice of assessment; or
{_ J
(4) Failure to pay the fun orpart of the amount of tax shown on
any return required to be filed under the provisions of this Code ·
or rules and regulations, or the full amount of tax due forwhich
no return is required to be filed, on or before the date prescribed
(A) lo General. - There shall be assessed and collected oil any
unpaid amount of tax, interest at the. rate of double. the legal
interest rate for loans or forbearance of any money Jn the
absence of an express stipulation as set·by the Banqko
Sentral nq Pi!lplnas from the date prescribed for payment
until the amount is fully paid: Provided, That in no case.shall
the deficiency and the d<:linquency1nterest prescribed under
Subsections (B) and (C) hereof, be imposed simultaneously.
·-r··
(B) D,eficiency Interest. - Any deficiency in the.tax due; as the
term is defined in this Code; shall be subject to the interest
assessed and collected from the. date prescribed for its payment
until the full payment thereof, or upori issuance of a notice and
demand by the Commissioner of Internal revenue, which~ver
comes earlier. ·

. for its payment. (C) Delinquency Interest. - In case of failure to pay:

·,
t I (B) In case of willful neglect to file the return within the period
prescribed by this Code or by rules and regulations, or in case a
false or fraudulent return is willfully made, the penalty to be
imposed shall be fifty percent ( 50%) of the tax or of the deficiency
lH • tax, in case, any payment has been made on the basis of such
return before the discovery of the falsity or fraud: Provided, That
a substantial underdeclaration of taxable sales, receipts or
t
•,
income, or a substantial overstatement of deductions, as
determined by the Commissioner pursuant to the rules and
. regulations to be promulgated by the Secretary of Finance, shall
constitute prima facie evidence of a false orfraudulentreturn:
Provided, further, That failure to report sales, receipts or income
in an amount exceeding thirty percent (30%) of that declared per
return, and a claim of deductions in an amount exceeding (30%)
of actual deductions, shall render the taxpayer liable for
substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.
Page 139 of 206
. (1) The amount of the tax due on any return to befiled, or
(2) The amount of the tax due for which no.refumis required, or
(3) A deficiency tax, or any surcharge or interest thereon on the
due date sppearinq in the notice and demand of the
Commissioner, there shall be assessed and collected on the
unpaid amount, interest at the tale prescribed in Subsection (A)
hereof until the amount is fully paid, which interest shall form part
of fhe tax .
(D) Interest on Extended Payment. - If any person required to
pay the tax is qualified and elects to pay the tax on installment
under the provisions of this Code, but fails to pay the tax or any
installment hereof, or any part of such amount or installment on
or before the date prescribed for its payment, or where the
Commissioner has authorized an extension of time within which
to pay a tax or a deficiency tax or any part thereof; there shall be
assessed and collected interest at the rate hereinabove
prescribed on the tax or deficiency tax or any part thereof unpaid
from the date of notice and demand until it is paid.
 ATENEO CENTRAL
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b) SurchaJge
I 12% , p.a.
Due date
•
imposed in
appearing in Penalty: 25% of the amount due, in additlon to the tax
Basic Tax case of failure
the notice
Delinquency + Accrued to pay a required to be patd.Jn case of.the following: (RI02)
and demand
Interest (249[8}) deficiency 1. Failure to file any Return and pay the tax on the date
(i.e.,
(249[CD interest + tax, or any prescribed; or.
FAN/FLO),
Surcharge surcharge or · full 2. Filing a return with an !nternal revenue officer other
until
interest than those with whom the return is required to be filed,
payment
thereon
unless otherwise authorized by the CIR; or
3. Failure to pay the Qefic1ency tax within the time
Deficiency Interest prescribed fof i~s paymentin the notice of assessment;
A deficiency interest at the rate of 12% per annum shall or
be imposed on any unpaid amount of tax from the date 4. Failure to pay on or before the Qate prescribed for its
prescribed for payment until the amount is fully paid. payment:
(a) The full or part of the amount oftax shown on any
A higher rate of deficiency interest may be prescribed by return required to be filed; or · ·
rules and regulations. (b) The full amount of tax due for which no. return is
' ' required tobe filed. ' '
Delinquency Interest
Delinquency interest shall be imposed in case of failure to Surcharge Penalty
. pay: 50%,ofthe amountdue in caseof; (Fifa) .
1. Tax due on any return required to be filed, or . 1. Willful neglect to File the return ·. within the period
2. Tax due for which no return is required, or prescribed; or
3. A deficiency tax, or anysurcharqe or interest thereon 2. False or fraudulent return is willfully made, in. case any
on the due date appearing in the notice and demand
of the CIR.
payment has been made onthe basis of, such return
before the discovery of the falsity or fraud.'

Delinquency interest shall be at the rate of 12%, per
annum on the unpaid amount until the ainount is fully paid.
· Interest shall form part of the tax. ·
Note: Pursuant to Sec. 249 of the NIRC, the imposition of
interest on delinquency is mandatory. {Jemore v. Meer,
G.R. No.L-48129, 1942)
Note: TRAIN. AMENDMENT - In NO case shall the
Deficiency and Delinquency interest be imposed
simultaneously
The following shall be prim,J tecie evidence of a false
or fraudulent return:
(a) Substantial under-declaration of taxable sales,
receipts orincome - failure to report sales, receipts
or income in an amount exceeding 30°(o of that
declared per return; or.
(b) Substantial over-statement ofdeductlons - claim
of deductions in an amount exceeding 30% of
actual deductions.
c) Compromise Penalties

Interest on Extended Payment
1. Any person who is qualified and elects to pay the tax
on installment but fails to pay the tax or any installment,
or any part thereof, on or before the date prescribed; or
2. Where the CIR has authorized an extension oftime
within which to pay a tax or a deficiency tax or any part
thereof, from the date of notice and demand until it is
paid.
Imposed in all cases of criminal violations of the NIRC, not
involving commission of fraudulent act.
Violations which are commonly resorted to by taxpayers as
means of tax evasion are deleted . from the coverage of
compromise penalties, for having met the requirements of
the definition of fraudulent acts. (RMO No. 07-15)
3. Assessment Process 120 and Reglementary Period

of his findings: provided, however, That a pre-assessment notice

120 SEC. 228 Protesting of Assessment. • When the shall not be required in the followinQ cases: · · ·
Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer
Page 140 of 206

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Cl years" is prohiblted and thus, void. (CIR v. Sony

Assessment Process, Generally Philippines, tnc., G.R. No. 178697, 2010) •
• Issuance of a Letter of Authority;
• Tax Audit or Investigation; However, in the 2016 case of De La Salle vs.
Commissioner . of Internal Revenue, 121 Justice Brion
• Notice of Informal Conference
( I
opined that a LOA which . states a particular year and
• Issuance of Preliminary Assessment Notice
'
t. J' includes unverified taxable years is not entirely void:122The
(PAN);
assessment for the year specifically mentioned is l?alid
o Issuance of Formal Letter of Demand I Final even if the others are not.
Assessment Notice (FAN);
,
•' ·"'>
'' ,' • Administrative Action I. Inaction on Disputed Letter of Notice (LN)
Assessment It is a discrepancy notice issued by the CIR after
conducting data matching processes, informing the
a) Letter of Authority taxpayer of findings of discrepancy, e.g. undeclared sales
In a tax audit, revenue officers examine the books of or overclaimed purchases. Compared with an LOA, the
account and . other accounting records of taxpayers to coverage of an LOA is more comprehensive than an LN.
determine the correct tax liability, on the strength of a
Letter of Authority. A LN shall be treated as a notice of audit or investigation
in the absence of evidenterror or clear abuse of discretion.
Letter of Authority (LOA) (RMO No. 55,10)As such, when an LN has been served
l1 An official document that empowers a revenue officer to upon a taxpayer, such taxpayer shall be disqualified from
examine and scrutinize a taxpayer's books of accounts and amending any -return which is subject of the audit or
lJ other accounting records, in order to determine the investigation . .(RMC No. 40-03) ,..
taxpayer's correct internal revenue tax liabilities. (CIR v.
C! Lancaster PH, CTA [En Banc] EB No. 352, 2008) A"tentative tax return" shall be considered as c:f''final
it is valid for 120 days but can be extended through return, unless a final amended return is filed. by· t~e
(} revalidation. The revalidation is done by issuing a new taxpayer. However, once a notice of audit or investigation
LOA. (RR No. 38-88) is received. the· taxpayer is barred from ma~ing
ll amendments to the tentative tax return filed. (RMC N0:"50-
A LOA should cover a taxable period not exceeding 13) -·--·
u one taxable year .. A LOA covering audit of "unverified prior

il (a) When the finding for any deficiency tax is the result of
mathematical. error in the computationofthe tax as appearing
t. l on the face of the return; or
(b) When a discrepancy has been determined betweenthe 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 automaticallyapplied the
same amount claimed against the estimatedtax liabilitiesfor the
taxable quarter or quarters of the succeedingtaxable year; or
{d) When the excise tax due on excisable articles has net been
paid; or
I I
Within a period- to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said
notice. ff the taxpayer fails to respond, the Commissioner or his
duly authorizedrepresentativeshall issue an assessmentbased
on his findings.
·-Such assessment may be protested administratively by filing a
request for reconsiderationor reinvestigation within thirty (30)
days from receiptof the assessmentin such form and manner as
may be prescribed by implementing rules and regulations.
Within sixty (60} days from filing of the protest, all relevant
supportingdocumentsshall have been submitted; otherwise, the
assessment shall become final.

\. -' (e) When the article locally purchasedor imported by an exempt

person, such as, but not limited to, vehicles, capital equipment,
, r machineries and spare parts, has been sold, traded or
~ .. J
transferredto non-exemptpersons.
( The taxpayersshall be informed in writingof the law and the facts
on which the assessment is made; otherwise, the assessment
t shall be void.
Page 141 of 206
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court or Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.
121 De La Salle v, CIR, G.R. No. 196596,2016
122 Id.
ATENEO CENTRAL
BAR OPERATIONS 2019
b) Notice of Informal Conference
A Notice of Informal- Conference is a written notice
informing a taxpayer that the findings of the audit
conducted on his accounting records indicate that
additional taxes or deficiency assessment has to be paid.
The informal conference shall not extend beyond 30 days
from the taxpayer's receipt of the Notice.
R.R. No. 7-2018 has restored the requirement for the
Notice of Informal Conference.
c) Issuance of Preliminary Assessment Notice (PAN)
Preliminary Assessment Notice (PAN)
A PAN is the communication issued by the BIR informing
a taxpayer of-its findinQs after audit. The PAN shall be in
writing, and shall show in detail the facts and the law,
rules and regulations, or jurisprudence on which the
assessment is based. Otherwise, the assessment is void.
(NIRC, Sec. 228; R.R. No. 18~2013)
Prior to the issuance of the PAN, the taxpayer may be
allowed to make voluntary payments of probable
deficiency taxes and penalties. (R.M.C. No. 11-2014)
Under RR No. 12~99, it is clear that the.sending of a PAN
to taxpayer toinform him of the assessment made is but
part of the "due process requirement in the issuance of
a deficiency tax assessment," the absence of which
renders nugatory any assessment made by the tax
authorities. (CIR v. Metro Star Supereme, G.R. No.
185371, 2010)
The assessment must have- been conducted within the
scope of the authority given by a valid Letter of Authority.
(CIR V. Sony, G.R. No. 178697, 2010)
Issuance of.PAN as Pre-Requisite to FAN
General Rule: The BIR may not issue a FAN without first
issuing a PAN. Lack of PAN is fatal.
The use of the word "shall" in subsection 3.1.2 [of Rev.
Regs. 12-99] describes the mandatory nature of the
service of a PAN" (CIR v. Metro Star Superama, G.R. No.
185371, 2010)
Exceptions: When PAN shall not be necessary and an
FLO/FAN (defined below) shall be issued outright: (MET
DC)
1 . When the finding for deficiency tax is a result of
Mathematical error in the computation of tax appearing
on the face ofthe return;
2. Qiscrepancy is determined between the tax withheld
and the amount . actually remitted by the withholding
agent;
Page 142 of 206
TAXATION LAW
3. A taxpayer who opted to claim a refunq or tax credit
was determined to have garried over and applied the
amount against succeeding tax liabilities; '
4. J;.xcise tax has not been paid; or
5. An article locally purchased or imported by an exempt
person has been sold, traded or Iransferred to non-
exempt persons (NIRC, Sec. 228)
Scenarios After Issuance of PAN
• Taxpayer may pay the assessment;
• Taxpayer may file a reply; or
• Taxpayer may ignore PAN (i.e. not reply)
Reply/Protest to PAN
If the taxpayer disagrees with the PAN, he has 15 days
from receipt of the PAN to file a written · reply to contest the
proposed assessment. (R.R. No. 12-99, Sec. 3.1.1., as
amended by R.R. No. 18-2013)
Failure to reply to thePAN.wi!I put thetaxpayerin default
and will warrant the issuance of FLO and/or FAN. (NIRC,
. Sec. 228, ,r 3) -
Note: Taxpayer can still protestthe FLD/FAN.
. d) Issuance of Formal Letter of Demand (FLO) and/or
Final Assessment Notice (FAN) ,.
FLD/FAN
A FLD/FAN is a formal letter of demand where a
declaration of deficiency taxes is issued to a taxpayer who
fails to respond to a PAN within 15 days from receipt of
the PAN, or whose reply Jo the PAN was found to be
without merit.
Note:The issuance of the FLO/FAN before the expiration
of the period to respond to the PAN is a violation of due L
process and makes the FLD/FAN void. (CIR··v.· Pacific
Bayview, CTA EB No. 1677)
Requirement to State the Facts and Law on Which the
Assessment is Based On
The FLO/FAN shall be issued by the CIR or his duly
authorized representative, and shall state the facts, the
law, rules and regulations, or jurisprudence on which
the assessment is based. Otherwise; the assessment
shall be void. (R.M.C. No. 18-2013)
"i..
The law requires that the legal and factual bases of the
assessment be stated in the formal letter ofdemand and
 (l
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r1 assessment notice pursuant to RR 12-99. (CIR v, Enron · e) Disputed Assessment

r ·1 Subic Power Corporation, G.R. No. 166387, 2009)
The decision of the CIR or his . duly authorized
r l
representative shall state:
1. the facts, the applicable law, rules and regulations, or
jurisprudence on which such decision is based
(otherwise, the decision shall be void), and
2. that the same is his final decision. (RR No. 18-13)
•
. If the taxpayer disagrees with the FAN, he has 30 days
from receipt of the FAN to file a written protest to contest
the proposed assessment
Faiiure of the TP to appear and/or present evidence during
the PAN stage or even during the protest period does not
mean waiver of the right to present evidence to dispute the
FAN.

However: The taxpayer is not denied due process when Such failure is not equivalent to an implied admission.
the FAN and demand letter issued were not accompanied
by a written explanation of the legal and factual bases of 4. Collection Process
the deficiency taxes assessed but were instead
explained at full length when the CIR responded to the a) Requisites
taxpayer's protest. There is no violation of due process Collection via Assessment: Requisites
when the CIR fully informed the taxpayer in writing the 1) There must be a valid assessment made;
· factual and legal bases of the assessment which enabled .2) Such assessment must be final, executory and
·1
lJ the taxpayer to file an "effective" protest. (Semer-i Electric demandable; and
Cooperative v. CIR, G.R. No. 193100, 2014) 3) Collection must be made within 5 years following the
l1 finality of the assessment of the tax
When FAN .is,Deemed Made
General Rule: FAN is deemed made on the date when the Instances When Assessed Tax Becomes CoUectible
demand letter or notice of assessment is released, mailed, The government can collect . when the assessment
rl or sent, even if the same is actually received by the becomes final and executory for:
taxpayer after the expiration of the prescriptive period.
• Failure to protest FLD/FAN. within the prescribed
() (Basi/an Estates v. CIR, G.R. No. L-22492, 1967)
period;
• Failure . to · appeal · Final Demand on Disputed
fI Exception: However, if the taxpayer denies receipt of the
Assessment (FDDA) ,within the prescribed period; or
FAN, the burden of proof is shifted to the BIRto prove that
• Failure to appeal an adverse decision of the court
Ll tne FAN was actually mailed within the period and actually
within the prescribed period ·
received (even if after the period expires). (Republic v. CA,
l.1 G.R. No. L-38540, 1987; Barce/on Roxas Securities v.
CIR, G.R. No. 1'57604, 2006)
(}
While it is true that an assessment is made when the notice
} is sent within the prescribed period, the release, mailing, or
{ J
sending of the same must still be clearly and satisfactorily
ti proved. {CIR v. GJM PHL Manufacturing, G.R. No.
202695, 2016)

Issuance of F'LD/FAN as Disputed Assessment

r ' The issuance ofFLD/FAN reiterating immediate payment
'- l
of assessment previously made in the PAN is a denial of
the PAN protest and is thus a decision on a disputed
assessment which may be appealed. (R.R. No. 18-2013)

Scenarios After Issuance of FLO/FAN

i • Taxpayer may pay the assessment;
• Taxpayer fails to file a protest; or

• Taxpayer may file a protest

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How Tax May Be Collected
1. Summary Remedies: Distraintand Levy
Distraint and levy proceedings are validly begun by
issuance of · warrant and service thereof on the
taxpayer (BP! v. CIR, GR. No. 13Q736, 2005)
2. Judicial Remedies: Civil or Criminal
Judicial remedies: When the government files the
complaint with the proper regular trial court, or where
the assessment is appealed to the CTA, by filing an
answer to the taxpayer's petition for review wherein
payment of the tax is prayed for. (PNOC v. CA, G.R.
No. 109976, 2005)
Collection via Court Proceedings
General Rule: No proceeding in court without assessment
for' the collection of tax shall be commenced (NIRC, Sec.
203)
Exception: A proceeding in court for the collection of tax
may be filed without prior assessment in the following
cases:
1. False or fraudulent return with intent to evade the tax;
or
2; Failure to file return (NIRC, Sec. 222[a])
b]. Prescriptive Periods
General Rule: 5 years from date of Final assessment
(N/RC,. Sec. 222[cj)
Exception: 10 years 123 .
3. False or fraudulent returns (NIRC, Sec. 222[a]);
123SEC. 222 Exceptions as to Period of Limitation of
Assessment and Collection of Taxes.
(a} In !he case of a false or fraudulent return with intent to evade
tax or of failure to file a return, the tax may be assessed, or a
preceding in .court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission:
Provided,That in a fraud assessmentwhich has becomefinal and
executory, the fact of fraud shall be judiciallytaken cognizance of
in the civil or criminal action for the collectionthereof.
(b) If before the expiration of the time prescribed in Section 203
for the assessment of the tax, both the Commissionerand the
(e) Provided,however,That nothing in the immediatelypreceding
taxpayer have agreed in writing to its assessment after such time,
and paragraph (a) hereof shall be construed to authorize the
the tax may be assessed within the period agreed upon. The
examination and investigationor inquiry into any tax return filed
period so agreed upon may be extended by subsequent written
in accordance with the provisions of any tax amnesty law or
decree.
Page 144 of 206
TAXATION LAW
4. Failure or omission to file return (NIRC, Sec. 222[a]); Qr
5. Execution of waiver in writing executed· within the 5-
year period (NIRC, Sec. 222{d]).
Suspension of Running of Statute of Limitations - see
discussion above on Section 223
F. TAXPAYER'S REMEDIES
1. Protesting an Assessment
Protest in General
A protest is a vital document which is a formal declaration
of resistance of the taxpayer. It is. a repository of all
arguments. It · is also the formal · act of the taxpayer
questioning the. official actuations of the CIR. This is
equivalenfto a pleading.
a) Period to File Protest
A written request •· for reinvestigation or reconsideration
must be filed within 30 days from receipt of the FAN. (R.R.
No. 12-99, as amended by R.R. No, 18-2013)
Failure to file any protest to the FAN shall render the
assessrnentfinal, exeeutory and dernandabte.
Requisites of a valid protest
· A protest is considered valid if it satisfies the following '
conditions: ·
1. It is made in writing, addressed to the CiR arid made
within the prescribed time (i.e., 30 days from receipt of
the FAN); . • ..
2. It is accompanied by a waiver · of the statute of
limitations (BPI v. CIR, G.R. No: 139736, 2005)
agreement made before the expiration of the period previously.
agreed upon.
(c) Any internal revenue tax which has been assessedwithin the
period oflimitation as prescribed in paragraph (a) hereof may be
collected by distraint or levy or by a proceedingin court within five
(5) years following the assessmentof the true
(d) Any internal revenuetax, which has been assessedwithin.the
period agreed upon as provided in paragraph (b) hereinabove,
may be collected by distraint or levy or' by a proceeding in court
within the period agreed upon in writing before the expiration of
the five (5) -year period. The period so agreed upon may be
extended by subsequent written agreements made before the
expiration of the period previouslyagreed upon.
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r1
, I 3. R.R. No. 18-2013 reiterates that the taxpayer shall b) Submission of Relevant Supporting Documents
state in his protest:
ri (a) Nature of protest, whether reconsideration or Submission of Documents After Protest
( ', reinvestigation, specifying newly discovered or Only applies to requests for reinvestigation, i.e., the 60-day
I 1 additional evidence he intends to present if it is a period for submission of all relevantsupportinq documents
request for reinvestigation; shall not apply to requests for.reconslderation (R.R. No.
1;
\ (b) Date of the assessment.notice: and 18-2013)
(c) App!icable law, rules and regulations, or Relevant Supporting Documents
] jurisprudence on which his protest is based. The taxpayer· shall submit all relevant supporting
documents in support of his request for reinvestigation
r ~:
l Effect of Non-Compliance with Requirements within 60 days from date of filing of such written request.
Otherwise, his protest shall be considered void_and Otherwise, the FAN shall become final. (NIRC, Sec. 228,
f without force and effect. R.R. No. 18-2013)
''Relevant supporting documents" refers to those
{ 1 Request . for Reconsideration v. Request for documents necessary to support the legal and factual
Reinvestigation basesin disputing a tax assessment as determined by the
r1 taxpayer. (R.R. No. 18-2013)
Submission of relevant supporting documents within the
REQUEST FOR REQUEST FOR
( l J 60-day period is optional to the taxpayer. The relevant
RECONSlDERA TION REINVESTIGATION
supporting documents mentioned in the law refer to such
t• ·1 A plea of re.-evaluation of A plea of re-evaluation of documents which the taxpayer feels would be necessary
-. an assessment on the basis an assessment on the to support his protest and not whatfhe.CIR feels should
I J of existing records without basis of newly discovered BIR's action on the protest to the FAN be submitted.
need of additional or additional evidence that Otherwise, the taxpayer would always be at the mercy of
{J evidence. a taxpayer intends to the CIR which may require production of such documents
present in the which taxpayer could not produce. (Standard Chartered
t} reinvestigation. Bank v.CTA, CTACase No. 5696, 2001f
The BIR cannot demand what. type of. supporting
l
f J It may involve a question of It may involve a question documents should be submitted (CIR v.· First Express
fact or oflaw or both. of fad or of law or both. Pawnshop Company, G.R. No. 172046, 2009)
l ] Taxpayer has to present
.·Effect of Non-Submission of. Relevant Supporting
Documents
Taxpayer does not need to
Ll relevant supporting The assessment becomes · final (R.R. No. · 12-99, as
present additional evidence
·documents amended by R.R. No. 18-2013)
[J Statute of limitations is
Statute of limitations is not tolled if acted upon by the c) Effect of Failure to File Protest
tl tolled CIR (BPI v. CIR, G.R. No, Failure to file the protest renders the assessmentfinal and
unappealable. ·
139736, 2005)
H
180-day period d) Decision of the Commissioner on the protest filed
ff 180-day period
l commences from the Scenarios After Protest Filed:
commences from the filing
submission of complete 1. CIR denies the protest to the FAN (directly or
( of the protest
1 supporting documents indirectly); or
, 2. Does not act on such protest.
!
l Note: Undoubtedly, a reinvestigation, which entails the
Direct Denial: Final Decision on Disputed Assessment
(
reception and evaluation of additional evidence, will take (FDDA) .
l more time than a reconsideration of a tax assessment,
The nomenclature of the BIR's denial of the protest to the
c which will be limited to the evidence already at hand. This
FAN could vary. It may be called a Final Decision on a
! justifies why the former can suspend the running of the
Disputed Assessment (FDDA), among others. (R.M.C.
statute of limitations on coilection of the assessed tax,
No. 18-13)
whilethelattercannot. (BP/v. CIR, G.R. No. 181836,2014j
Requisites of a Valid FDDA
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1. Must be .issued by the CIR or. his duly authorized determination on the disputed assessment (Surigao
• representative; Electric Co. Inc. v. OTA, G.R. No.
L"-25289, 1974)
2. Must contain the facts, law, and rules on which the Inaction by the CIR or Duly Authorized
decisiorfis based; Representatives
Void FDDA constitutes inaction: If the FDDA itself does
This is the same rule applied for the assessment itself not conform to the requirements. It is· as if no decision was
although it is clear that the · assessment and the rendered. The effect therefore is that what is appealable to
decision are two distinct documents A FDDA that does the CTA is the inaction of the CIR or the duly authorized
not contain the facts and law does NOT invalidate the representative.· (CIR v. Liquigaz Philippines. Corporation,
underlying !=AN. The !=DOA is void which is tantamount G.'R. No. 215557, 2016)
to inaction by the CIR (CIR v. Liquigaz, 2016)
Differences between PAN; FAN and FDDA
3, Must be served personally to the taxpayer; and
PAN FAN FDDA
4. Muststate thatthe same is his final decision (R.R. No.
12-99, as amended by R.R. No. 18·2013)
A communication A declaration of Decision of the
Ratlonaler To avoid· any confusion that could issued by the deficiency taxes· CIR or his duly
adversely affect the rights and interestsof the taxpayer Regional issued to a authorized
(Allied Banking Corporetionv. CIR, G.R. No. 175097, Assessment taxpayer who representative
2010) Division or by the fails to respond that states the
CIR or his duly to a PAN within facts and the law,
Indirect Denial: (without FDDA) authorized · the · · prescribed rules · and
Examples ofIndirect Denial . representative period; or whose regulations or
1.· · Civil collection instituted during pendency of protest informing the reply is found to jurisprudence on
(CIR v, Union Shipping, G.R. No. 66160, 1990; Yabes taxpayer Who has be without merit which the
v. Flojo, G.R. No. 46954, 1982) been audited of decision is
the findings of the based;
2, Issuance of warrant of distraint and levy to, enforce Revenue · Officer otherwise, it is
collection (CIR v. Int'/ Pharmaceuticals, CTA E.f3. No. following the void.
608, 2011) ·review and
3. Referral by the CIR of request for reinvestigation to evaluation of
Solicitor General (Republic v. Lim Tian Teng Sons, these findings
G.R. No. L-21731, 1966)
4. Final demand for payment of delinquent taxes Shall be in writing Shall be in
and shall show in writing and shall
This Court has considered the following detail the facts show in detail
communications sent by the CIR to taxpayers as and the law, rules the facts and the
embodying rulings appealable to the CTA: · and 'regulations or law, rules and
1. A letter which stated the result of the reinvestigation jurisprudence on regulations or
requested by the taxpayer and the consequent which the jurisprudence on
modification of the assessment; proposed which the
2. A letter which denied the request of the taxpayer for assessment is proposed
the reconsideration, cancellation, or withdrawal of the based; otherwise, assessment is
original assessment; the assessment is based;
3. A letter which contained a demand on the taxpayer for void. otherwise, the I
the payment of the revised or reduced assessment; assessment is I
and void.
4. A letter which notified the taxpayer of a revision of
previous assessments 15 days to reply 30 days to fife
protest after
The CIR should ALWAYS indicate to the taxpayer in clear receipt of FAN
and unequivocal language whenever his action on an
assessment questioned by a TP constitutes his final
Page 146 of 206
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r1 Note: No request for reinvestigation shall be allowed in
Response is Protest must be
Ll general due to comprehensive
administrative appeal; and only issues raised in the
decision ofthe CIR's duly authorized representative shall
shorter time. does that explains ihe
not necessarily legal and factual be entertained by the CIR (R..R No. 12~99, as amended)
The administrative appeal filed with the CIR will toll the 30-
tackle specific basis why the
{l findings assessment is. day period to the CTA.
2. Appeal to CTA within 30 days from receipt of FDDA
wrong and must
(} present all
Denial by FDDAlssued by CIR
documentary
1. File motion for reconsideration with CIR; or
f] evidences
(Fishwealth Canning Corp. v, CIR, G.R. No. 179343,
2010)
r~ Filing of reply is Filing of protest
directory ismandatory Note: MRwili not toll the 30-day period to appeal to CTA.
2. Appeal to CTA within 30 days from receipt of FDDA
fl Non-filing of reply Failure to file
will warrant protest to FAN Indirect Denial of the Protest by CIR's Authorized
(1 issuance of Final will make the Representative or CIR
Assessment assessment final Same remedies as above.
I
J Notice (FAN) and · executory Inaction by CIR or Duly Authorized Representative
and the taxpayer 5. Appeal to the CTA within 30 days from lapse of 180-
I l loses its right to day period; or
seek judicial 6. Await the decision of the CIR's authorized
I} remedy representative, in which case the taxpayer may appeal
to the CTA within 30 days from receipt of the a1R's
r :i decision or elevate the protest through motion.
reconsideration to the CIR within30 days from receipt
for
,· 1
1.
i) Period to Act Upon or Decide, on Protest Filed
of the BIR's decision (i.e., administrative appeal) '
Protest for Reconsideration
One hundred and eighty (180) days from filing of the Note: In case of inaction on protested FAN. the op'tion
protest. of the taxpayer to either file a petition in the CTA or
await the decision of the CIR's autho~i~ed
Protest for Reinvestigation representative or of the CIR are mutually exclusive.
If the protest is denied in whole or in part, or is not acted Resort to one bars the application of the other.
upon within one hundred and eighty (180) days from (Lascona Land v, CIR, G.R. No. 171251, 2012)
submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the CTA within Compliance with requirements to dispute an
thirty {30) days from receipt of the said decision, or from assessment - assessment not final, executory and
the lapse of one hundred eighty (180)-day period; demandable
otherwise, the decision shall become final, executory and After the company submitted its letter-reply stating that
demandable. {NIRC, Sec. 228) it would not comply with the presentation ofthe proof
ii) Remedies of _ the Taxpayer in Case the of DST payment, no reply was then heard from the CIR
Commissioner Denies the Protest or Fails to Act on The company has compiled with the requisites in
t
i._ the Protest disputing an assessment, which provides that in case
the protest is not acted upon within i80 days fromthe
Taxpayer's Remedies from BIR's Denial on Protest to submission of the documents, the taxpayer adversely
FAN(FDDA): affected may appeal to the CTA within 30 days from
t •
l ., Denial by FDDA Issued by CIR's Authorized the lapse of the 180-day period. Thus, the tax
Representative assessment cannot be considered as final, executory
1. Administrative appeal to CIR within 30 days from and demandable. (CIR v. First Express Pawnshop
receipt of the FDQA through request for Company, tnc., G.R. No. 172045-46, 2009)
reconsideration;

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Motion to Suspend Collection of Tax During Protest
While tile TP is appealing the decision denying the protest
.to the CTA, and the BIRissues a Warrant of Distraint and
Levy to enforce collection, the Taxpayer may file a "Motion
to Suspend Collection of Tax" on the ground that the
collection of the tax will jeopardize the interest of the TP
(RA 1125 § 11) and post bond in an amount not more than
twice the amount being collected
Rule on Prior Payment When Protesting Assessment
General Rule: No prior payment of assessed internal
revenue tax is required when protested or disputed.
Exception: when there are several issues involved 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. No action shall be · taken on the
taxpayer's disputed issues until the taxpayer has paid the
deficiency tax or taxes attributable to the said undisputed
issues. (R.R. No. 12-99) ·
Preservation of Books
All taxpayers are required to preserve their books of
accounts and other accounting records (including invoices,
receipts, vouchers, and other source documents) for a
period of ten. (10) years reckoned from the day following
the deadline in•fiiing a .return or if filed after the deadline,
from · the date of · actual filing. If . there is a pending
examination due to an assessment or a filed refund claim,
the records are to be preserved unti! the case is finally
resolved. (R,R, No. 17~2013)
· 4. CTA in division de!lial of MR-Jappeal to CTAen bane
2. Compromise
Authority of the CIR to Compromise Taxes
1. Criminal cases, other than those already filed in court
Page 148 of 206
TAXATION LAW
iii) Effect of Failure to Appeal
Effect of Failure to Appeal to CTA: The decision shall be
final. executory and demandable
Summary: Instances When Assessment Becomes
Final, Executory, andDemandable
1" Failure of taxpayer to file a valid protest within 30 days
from receipt of the FLO/FAN;
2. Failure to submit all relevant supporting documents in
support of his protest (request for reinvestigation)
within 60 days from date of filing thereof;
3. Failure of taxpayer to appeal to the CIR or CT A within
30 days from the date of receipt of the FDDAissued by
CIR's dulyauthorized representative:
4. Failure of taxpayer to appeal to CTA witl;lin 30 days
from the date of receipt of the FDOA issued by CIR;
5. Failure of taxpayer to. file a MR or new trial before the
CTADivision, orfailure to appeal to CTA En Banc and
Supreme Court based on existing Rules of Procedure;
or
6. Failure of taxpayer to receive any assessment notices
because it was served in the address indicated in the
BIR's registration database and the taxpayer
transferred to a new address or closed/ceased
operations without updating and transferring, or
cancelling its BIR registration, as the case may be
(R.M. 0. No. 26~2016)
Summary of Appeals: Assessments
1. PAN?FAN?F>rotest (30 days)?Submit supporting
docs (60 days, if "request for reinvestigatibn'.')?BIR
action (180 days)
2. If protest denied in whole or in part-eappeal to CTA in
· division (30 days}
3. CTA in dlvlsiondecision-efile MR (15.days)
(15 days}
5. CTA en bane decision?Petition for Review with SC or
Motion for Extension to File Petitlon (15 days)
and Abatement of Taxes
or those involving tax fraud ·
(a) Before the complaint is filed with the
prosecutor's office, the CIR has full discretion to
enter into a compromise.
(b) After the complaint is filed with the
prosecutor's office but before the' information
is filed with the court, the CIR can still enter into
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a compromise.' provided· the prosecutor gives 2. Financiai Incapacity. (NIRC, Sec. 204) .
• consent.
[l (c) After information is filed with the court, the CIR Instances Constituting Doubtful Validity

r I is no longer permitted to enter into a compromise,

with or without the consent of the prosecutor.
Compromise may be entered into when it is shown that:
1. The delinquent account or disputed assessment is one
(People v. Magdaluyo, G.R. No. 16235, 1961) resulting from a jeopardy assessment;
2. The assessment seems to be arbitrary in nature,
2. Civil cases · appearing to be based on presumptions · and there. is
f (a) The CIR is expressly authorized by the NIRC to reason to believe that it is looking in legal and/or factual
compromise taxes subject to certain conditions.124 basis; ·
{ t (b) The compromise settlement shall be subject to the 3. The taxpayer failed to file an administrative protest on
· following minimum amounts: account of the alleged failure , to receive notice of
assessment and .· there is reason to believe that the
assessment is lacking in legal and/or factual basis;
ll GROUND MIN. COMPROMISE RATE
4. The taxpayer failed to file a request for
Financial reinvestigation/reconsideration within 30 · days from
fl Incapacity
10% of the basic assessed tax receipt of the FAN and there ls reason to believe that
the assessment is lacking in legal and/or factualbasis;
l' Jl Other Cases 40% bf the basic assessed tax 5. The taxpayer faiied to elevate tothe CTA an adverse
decision of the CIR, or his authorized representative,
[1 Instances When the Compromise shall be Subject to within 30 days from receipt thereof and there is reason
the Approval of the Evaluation Board· ( composed of the to believe that the assessment is lacking in legal aqd/or
·· CIR and 4 Deputy Commissioners): factual basis; ··
1. The basic tax involved exceeds PhP 1 rnillion; or 6. The assessments were issued on or after January 1,
2. The settlement offered is less than the prescribed 1998, where the demand notice allegedly · failed to.
• minimum· rates.' comply with the formalities prescribed under Sec, .228
f) oftheNIRC;

rJ . Leave of Court Required

It is · possible, at any stage of litigation before final
7. Assessments made based on the "Best Evidence
Obtainable Rule" and there is reason to believe thai the
judgment, to compromise taxes, provided there is leave of same can be disputed by suffitient and competent
LJ _court. (Pampanga Sugar bev. Corp v. CIR, G.R. No. L- evidence;
13118, 1961) . 8. An assessment based on "Best Evidence Obtainable
tl Rule" should not be automatically considered as a
Compromise Cannot be Entered Into After Final doubtful. assessment. The surrounding circumstances
Judgment that led to the issuance of such assessment must be . ·
Reason: By virtue of such final judgment, the Government thoroughly evaluated. (R.M.C. No. 34-14)
[} had already acquired a vested right. (Rovero v. Amparo, 9. The assessment was issued within the prescriptive
G.R. No. L-5482, 1952) period for assessment as extended- by the taxpayer's
rJ Instances When the CIR may Compromise Taxes execution of Waiver of the Statute of Limitations the
,1 1 1. Doubtful validity of the assessment; and validity or authenticity of which is being questioned or
~

124 SEC. 204 (A). Compromise the payment of any internal For cases of finaneial incapacity, a minimum compromise rate
revenue tax, when: equivalentto ten percent (10%) Of the basiCassessed tax; and

(1) A reasonabledoubt as to the validity of the claim against the For other.cases, a minimum compromiserate equivalentto forty
F taxpayer exists; or percent (40%) of the basic assessed tax.
l I

(2) The financial position of the taxpayer demonstratesa clear
inability to pay the assessedtax.
The compromise settlement of any tax liability shall be subject to
the followingminimum amounts:
Where the basic tax involved exceeds One million pesos
(P1,000.000) orwhere the settlement offered is less than the
prescribedminimum rates. the compromise shall be subject to
the approvai of the Evaluation Board which shall be composed of
the Commissioner and the four ( 4) Deputy Commissioners.

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at issue and there is strong reason to believe and
evidence to prove that it is not authentic; and
10. The assessment is based on an issue where a court of
competent jurisdiction · made an adverse decision
against the BIR, but for which the Supreme Court has
not decided upon with finality. {added by RR No. 08-04)
Instances Constituting F,inancial Incapacity
Compromise may be entered into When it is shown that:
. 1. The corporation ·. ceased. operation or is already
dissolved (however, the tax liabilities for the assets
distributed to the stockholders as return of capital
cannot be compromised);
2. Taxpayer has a surplus deficit resulting to capital
impairment by at least 50% (provided that amounts
payable or due to stockholders other than business-
related transactions which are properly includible in the
regular "accounts payable" are by fiction of iaw
considered as part .ot capital and not liability, and
provided further that the taxpayer has no sufficient
liquid asset.to satisfy th~ tax liability);
3 · Taxpayer is. suffering from a net worth .deficlt (i.e.,
total liabilities exceed total assets) computed by
deducting total liabilities from total assets (provided that
in the case of an individual taxpayer, he has no other
leviable properties under the law.other than his family
home); • 2.
4. The taxpayer is a compensation incomeearner with no
other source ofincome, and the family's gross monthly
compensation income does not exceed the levels
of . compensation Income provided . for. under Sec.
4.1.1 of RR No. 30-02, and it appears that the
taxpayer possesses no other !eviable or
dlstralnable.assets, otherthan hisfamily home; or
5, The taxpayer has been declared by any competent
tribunal, authority, body, or government agency as
bankrupt or insolvent, (R.R. No. 30~2002, Sec. 4) ·
Additional Notes: Grounds for Compromise
. The CIR shall not consider any offer for compromise
settlement on the ground of financial incapacity of a
taxpayer with Tax Credit Certificate (TCC), on hand or in
transit, or with pending claim for tax refund or tax credit
with the BIR, or with existing finalized agreement or
prospect of future agreement with any party that resuited
or could result to an increase in the equity of the taxpayer
at the time of the offer for compromise or at a definite future
time.
Moreover, no offer of compromise shall be entertained
unless and until the taxpayer waives in writing his
privilege of the secrecy of bank deposits under RA
1405 or under other general or special laws, and such
Page 150 of 206
TAXATION LAW
waiver shall constitute as the authority of the CIR to inquire
intothe.bank deposits of the taxpayer.
Taxpayers seeking a compromise settlement pf unsettled
tax obligatiqns n,ust now. pay the compromise offer upfront
before their applications are processed. No application for
compromise settlement shall be processed without the full
settlement of the offered amount. (R.R. No. 09-13)
Cases Which may be Compromised
1. Delinquent accounts..,
2. Cases under .administratlve protest after issuance of
the FAN to the:t~payer which are still pending in the
Regional Offices, · Revenue District Offices, Legal
Service, Larg~ Taxpayer Service (LTS); Collection
Service, Enforcement Service and other offices in the
National Office; · · ·
3: Civil tax cases being disputed before the courts; ·
4. Collection cases filed in courts; and
5. Criminal violations, other than those already filed in
court or those involving tax fraud. (R.R. No. 30-02)
Cases that may NOT be. Subject of Compro~i$e.
1. Withhoiding tax cases, unless. the applicant-taxpayer
invokes provisions of law that cast doubt on the
taxpayer's obligation to withhold; . .
Criminal tax fraud cases confirmed as such by CIR or .,
his duly authorized representative;
3. Criminal violations already file<:l in court;
. 4.. Delinquent accounts with duly approved schedule of
installmentpayments; . ·... . . .· ·
5., Cases , where final reports of reinvestigation or
reconsideration' . have been issued . resulting to
reduction in the original assessment and ttie taxpayer
is aqreeabte to. su?h decision by signing the required
agreement form for the purpose; other protested cases
shall be handled by the Regional Evaluation Board
(REB) or the National Evaluation Board (NEB) on a
case to case basis;, ·
6. Gases which become final and executory after final
judgment ofa court, where compromise is requested
on the ground of doubtful validity of the assessment;
and
7. Estate tax cases where compromise is requested on
the ground offinancial incapacity of the taxpayer. (R.R.
No. 30-02)
 ... ·1
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ATENEO CENTRAL
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r·1
.
Abatement
.
125

The diminution or decrease in the amount of tax imposed,"

(e) Offsetting of taxes of the same kind, i.e.,
overpayment in one quarter/month is offset
l ' such that to abate is "to nullify or reduce in value or against underpayment in another quarter/month;
,· 1 amount." "In abatement or cancellation, no mutual (f) Automatic offsetting of overpayment of one kind of
i J
concessions between the taxpayer and the CIR are made." withholding tax against the underpayment in
(People v. Sandigayanbayan, G.R. No. 152532, 2005) another kind;
(g) Late remittance of withholding tax on
Coverage of Abatement compensation of expatriates for services rendered
(1 General Rule: Surcharge and compromise penalties only in the Philippines pending the issuance by the
Securities and Exchange Commission of the
Exception: In meritorious instances, the CIR may abate license to · the Philippine branch office or
I ' the interest as well as. basic tax assessed, provided, subsidiary, provided; however, that the abatement
l
however, that cases for abatement, cancellation of tax, shall only cover the surcharge and the
r l- penalties, and/or interest by the CIR shall be coursed compromise penalty and not the interest;
i l through certain officials (R.R. No. 13-01, Sec. 4) (h) Wrong use of Tax Credit Certificate (TCC) where
Tax Debit Memo (TOM) was not properly applied
Grounds for Abatement for; and ·
f l 1 . The tax or any portion thereof appears to be unjustly or (il Such other. instances which the Commissioner
' .I excessively assessed; or may deem analogous to the enumeration above.
2. Theadministration and collection costs involved do not • Other cases similar or analogous thereto.
justify the collection of the amount due .. (NIRC, Sec.
204[8]) *Note: In items 4 and 5 above, abatement will only cover
the surcharge and compromise settlement, and not the
Instances Where there Exists an Unjust or Excessive interest.
Assessment: (R.R. No. 13-01, Sec. 2)
f1 )..r 1.· Filing of the return/payment was made at the wrong Instances When the Administration and Collection
venue; Costs are More Than the Amount Sought to be
2. Taxpayer's mistake in payment of tax was due to Collected · ·
erroneous written advice of a revenue officer; 1. Abatement of penalties on assessment confirmed by
3. Taxpayer's non-compliance is due to a difficult iower court but appealed by the taxpayer to a higher
interpretation of a law; court;
4. Faiiure to pay on time due to substantial losses from 2. Abatement of penalties on withholding tax assessment
prolonged labor disputes, force majeure and legitimate under meritorious circumstances;
business reverses:" 3. Abatement of penalties on delayed installment
5. Failure to pay because of circumstances beyond the payment under meritorious circumstances; ·
taxpayer's control;* 4, Abatement of penalties on assessment reduced after
f
Ii
·1 6. Late payment of tax under meritorious circumstances reinvestigation but taxpayer is still contesting reduced
such as: (R.R. No. 04-12) assessment; and
H
fl .. , (a) Use of wrong tax form but correct amount of tax 5. Such other instances which the CIR may deem
was remitted; analogous to the above. (R.R. No. 13-01, Sec. 3)
{b) Filing an amended return under meritorious
circumstances, provided, however, that
abatement shall cover only the penalties and not
the interest;
(c) Surcharge erroneously imposed;
(d) Late filing of return due to unresolved issue on
{ . classification/valuation of real property (for capital
gains tax cases, etc.):

125SEC. 204 (B). Abate or cancel a tax liability, when: (2) The administration and collection costs involved do notjustify
(1) The tax or any portion thereof appears to be unjustly or the collection of the amount due.
excessively assessed; or All criminal violations may be compromised except (a} those
already filed in court, or (b) those involving fraud.
Page 151 of 206
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• 3. Recovery of Tax Erroneously
Tax Refund asDistinguish~d from Tax Credit
TAX REFUND
Tax refund takes place
when there is actually a
reimbursement of tax.
A "refund" is a written
claim for the payment · of
cash for taxes erroneously
or illegally ·. paid by the
taxpayer to the
government.
or Illegally Collected Grounds for Filing a Claim for Refund
Taxpayer files in writing with the CIR a claim fortax refund
•
for:
TAX CREDIT
The government issues a 1. Taxes. erroneously or illegally received;
Tax Credit Certificate Erroneous Assessment
covering the amount An erroneous assessment . "presupposes that the
determined to be taxpayer is subject to the tax but is disputing the
reimbursable, which is correctness of the amount. assessed." With an
applied after proper erroneous assessment, the taxpayer, claims that the
. verification against any local assessor erred in determinlnq any of the items for
sum thatmay be due to the computing the real property tax, i.e., the value of the
taxpayer. real property or the portion thereof subjectto tax and
the proper assessment levels
May be applied against
any internal revenue tax, Nature of Erroneous.ly Paid Tax/Hlegally Assessed
except withholding taxes Collected
Taxes are erroneously paid when a taxpayer pays
Original copy is under a mistake of fact, such as when t,e is not aware
surrendered to the of an existing exemption in his favor at.the time that
revenue officer payment is made.

No tax refund will be given
resulting from availment of
incentives granted by law
where no actual payment
was ma'l:Je (NIRC. Sec
204[C])
The following must be established: .~
Taxes are illegally collected when payments are made
under duress.
Refunds for input VAT are NOT in the nature of
erroneously paid tax/illegally. assessed/collected. (CIR
v. Aichi Forging Company of Asia, Inc., G.R No.
184823, 2010

1. Thattherewas an actual cellection and receipt of the 2. Penaltiesjmposed without c1uthority;

government of the tax to be recovered and this
· requires actual proof; and
2. That there is a legal basis for granting the refund or
credit including the verification of compliance with
the statutory requirements relative to the filing of the
claims within the reqlementary two-year period.
Forfeiture of cash refund/tax credit:
3. Any sum alleged to have been excessively or in any
manner wrongfully· coUected .{CIR it. Pilipinas Shell,
G.R. No. 188"197, 2012);
4. Value of internal revenue stamps when returned in
good condition by the purchaser; and
5. Value of unused stamps rendered unfit)or use upon
proof of destruction, in the discretion of the CIR.

1. Forfeiture of refund in favor of the. government
when a refund check or warrantremains unclaimed
or uncashed within 5 years from date of mailing or
delivery
2. Forfeiture of Tax Credit - a tax credit certificate
which remains unutilized after 5 years from date of
issue, shall be invalid, unless revalidated. (N/RC,
Sec. 230)
a) Grounds, Requisites and Period for Filing a Claim
for Refund or Issuance of a Tax Credit Certificate
Page 152 of 206
Requlsites for Claims for Tax Refund
1. Necessity of written claim for refund;
Exceptions: No written claim is needed
(a) A return filed showing an overpayment shall be
considered as a written claim for credit or refund
(NIRC, Sec. 204[C))
(b) On the face of the return upon which the payment
was made, such payment appears clearly to have
been erroneouslypaid (N/RC, Sec. 229)
2. Claim must contain . a categorical demand for
reimbursement (Bermejo v. CIR, G.R. No. L-3029,
1950); and
3. Fi!ing of administrative claim for refund and the
suit/proceeding before the CTA. both within. 2 years
 ATENEO CENTRAL
BAR OPERATIONS 2019 TAXATION LAW

from dllte of payment regardless of any Start of 2-Year Prescriptive Period

rJ supervening cause. Genera! Rule: From the payment of tax

Note: The suit may be maintained whether or not such CASE START OF 2-YEAR
tax/penalty/sum has been paid under protest; PERIOD
l Prescriptive Period for Filing Claims for Refund From date tax was paid
Internal RevenueTaxes, in General Tax is iliegally
(J erroneously collected
or (CIR v. Victorias Milling,

r .,
KIND OF FILE G.R. No. L-24108, 1968)
PERIOD TO FILE
! CLAIM WITH
From date of the last or
Administrative If the tax. is paid in final installment or (CIR
Within 2 years from installment or only in part v. Prieto, G.R. No. L-
Claim (N!RC, BIR
payment of tax 13912, 1960)
Sec. 204)

Judicial Claim If the taxpayer merely made From conversion of the

(NIRC, Sec. CTA (see below table) a deposit deposit to payment
229)

From date it falls due at the

" If tax has been withheld
l end of the taxable year
Note: The taxpayer must file an administrative claim from source (through the
(Gibbs v CIR, G.R. No. L-
before filing a judicial claim {NIRC, Sec. 204, in reteiion to withholding tax system)
i} Sec. 229)
17406, 1965)

[1 SCENARIO WHEN TO APPEAL TO CTA

At the earliest, on the date
Taxpayer must file an appeal with the of the actual filing of the
rJ CTA, whichever is earlier between: Corporate taxpayer
adjusted final return at the
BIR decides· end of the taxable y:ear
{J on the claim [1'] Within 30 days from receipt of the
{CIR v. CA, 'G.R. No.
117254, 1999)
for refund decision, or
t .l [2] within the 2-year .period under Sec.
229 of the NIRC
NOTE: If a Rev. Reg: provides for a prescriptive period
[1 .different from the NIRC, then the regulation is invalid and
TP· need not wait for. a decision and the NIRC period should be used. (PBCom v. CIR, G.R. No.
Inaction on the
J BIR's part re:
must file an appeal with the CTA when 112024, 1999)
the 2-year period is about to lapse.
! l claim for
Failure to appeal bars recovery (Gibbs
J
il..

1--t
refund
v. CIR, G.R. No. L-13453, 1960)
i. J
BERNABE:
Verily, the primary purpose offi!ing an administrative claim
was to serve as a notice of warning to the CIR that court
action would follow unless the tax or penalty alleged to
( ,• have been collected erroneously or illegally is refunded. To
I
a, clarify, Sec. 229 of the Tax Code, however, does not mean
that the taxpayer must await the final resolution of its
I. I
administrative claim for refund, since doing so would be
tantamount to the taxpayer's forfeiture of its right to seek
judicial recourse should the 2-year prescriptive period
i. _;
expire without the appropriate judicial claim being filed.
(CIR v. Goodyear Philippines, Inc., G.R. No. 216'130,
2016)
I BERNABE:
The 2-year prescriptive period commences to run from the
time the refund is ascertained, i.e., the date such tax was
paid, and not upon the discovery by the taxpayer of the
erroneous or excessive payment of taxes. (Metropolitan
Bank and Trust Company v. CIR, G.R. No. 182582, 2017)
Option for Corporate Taxpayers
In case of corporate taxpayers, itthesum of the quarterly
tax payments made during the taxabie year exceeds the
total tax due on the entire taxable income of that year, the
corporation shall either:
1. File a claim for refund;
2. Avail a tax credit; or
3. Carry over the excess credit in the succeeding taxable
periods.

Page 153 of 206

 ATENEO CENTRAL
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..
Once the option
·.
either to file a claim
.
for tax refund/credit or . ·
carry-over the excess credit .has been made, such option
shall be considered irrevocable for that taxable period.
(N/RC, Sec. 76)
Statutory Basis and Proof of Claim for Refund or Tax
Credit
Civil Code Provisions
Broadly speaking, tax refunds are based on the legal
principle of quasi-contracts or solutio indebiti.
1. Certain lawful, voluntary and unilateral acts give rise to
the juridical relation of quasi-contract to the end that no
one shall be unjustly enriched or benefited at the
expense ofanother, (New Civil Code, Art. 2142)
2. If something is received when there is no right to
demand it; and it was unduly delivered throuqh
mistake, the· obligation to return it arises. (New Civil
Code, Art. 2154)
126.SEC.
204 ,(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 fer 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
Wiiting 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 ari overpayment shall be
considered as a written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions oftt)is
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.
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
Page 154 of 206
TAXATION LAW
.!
NIRC Provisions: Secs. 204 & 229126
Necessity of Proof for Claim or Refund
Prior payment of the tax must be proven. There must be
actual collection and. receipt by the. government of· the tax
sought to be recovered and this requires factual proof. (CJ
v. Li Yao, _GR. No. L-11861, 1963)
The burden of proof is on the taxpayer claiming the refund
that he is entitled to the same. (CIR v. Tokyo Shipping Ltd.,
G.R. No. L~68252, 1995),
A tax refund partakes of the nature of an exemption and is
strictly construed against the claimant. (CIR y. Tokyo
ShippingUd., G.R. No. L-68252, 1995)
Special Rule for Prescriptive Periods to File Refund of
Input VAT for Zero-Rated Sales
General Rule: The CIR has 90 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.
. wro11gfully 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, Tnatthe 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.
SEC. 112(C) Refunds or Tax Credits of Input Tax. -
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
withinonehundred twenty (120) days from the date ofsubmission
of complete documents in support of the application filed in
accordance with SubsectionsIn) 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 '
i.
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 o~ Tax Appeals.
t .
 r: ·1
I .
t . I

ATENEO CENTRAL
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In case of full or partial denial by the CIR, the taxpayer's the two-year prescriptive period (Team Energy
recourse is to file an appeal before the CTA within 30 days Corporation v. CIR, G.R. No. 190928, 2014)
from receipt of the decision of the CIR
Otherwise, if after the 90-day period the, CIR fails to act on Taxpayer must not wait for CIR decision to file appeal
l 1 the application for tax refund/credit, the remedy of the regarding refund claim
taxpayer is to appeal the inaction of the CIR to CTA within
When the 120-day period lapses and there is inaction on
f 1 30 days.
.
Hence, if the taxpayer filed with CTA before the 90-day
the part ofthe CIR, they must no longer wait for it to come
up with a decision thereafter. The CIR's inaction is the
I J
period expires, CT A will dismiss the appeal on the ground decision itself. It is already a denial of the refund claim.

r of prematurity. · Thus, the taxpayer must file an appeal within 30 days from_
the lapse of the 120-day waiting period." (Rohm Apollo
If filed with CTA after the 120-day (90 + 30 days). CTA will Semiconductor v. CIR, GR. 168950, 2015) [Note: the 120-
dismiss for being late. · day period is now 90 days, under TRAIN}

r This only applies to creditable input tax refunds. Rules Re: Submission of Supporting Documents for
Claims of Un utilized Input VAT
{ 1 FILE
KIND OF CLAIM PERIOD TO FILE
WITH For claims filed before June 11, 2014:
( 1
' j 1. If the claimant has no additional supporting documents,
, Within 2 years from the
1 then the 120-day period begins to run on the date the
.I
close of the taxable
Administrative quarter when the sales claim is filed;
BIR 2. Claimant has 30 days from filing of the claim to submit
Claim were made (CIR v.
Mirant Pagbilao Corp., supporting documents unless the CiR extends the
GR 172129, 2008) period; and
r ·1 . .I,
Within 30 days from
.3. Upon filing of the supporting documents or upon expiry
of the period provided, the CIR has 120 days to act on
f)' "denial of claim or from
the ctairn; and · · _
the lapse of the 90 day
4. In all cases, the claim must be completed within the 2-
l period without any
action from the BIR year period.
'.. ·1
Judicial Claim CTA (CIR v. Aichi Forging
fJ _ Company, G.R No. For claims filed after June 11, 2014:
184823, 2010) [Under 1. All claims must already attach complete supportinq
l~ TRAIN, the 120-day documents and this fact must be attested to under oath.
period has been As such, the 120-day period already runs on the date
reduced to 90 days.] the claim is filed in au instances.(Pilipinas Total Gas,
Inc. v. CIR, G.R. No. 207112, 2015)
{J Exception: The exception to the 120+30 day rule does not
require that the San Roque decision nor the 2003 BIR b) Proper Party to File Claim for Refund or Tax Credit
ti ruling be cited-by the claimant. If the claim falls within the
exception period (i.e. Dec. 10, 2003 to Oct. 6, 201 O); the A claim for tax refund or issuance of a tax credit certificate
l .l 120+30 day ruie is relaxed and taxpayers who did not wait may be filed by:
for the expiry of the ·120 days to appeal the inaction of the 1. Taxpayer;
'
iL CIR shall not be faulted. In short, the San Roque ruling is
automatically applied to all taxpayers who filed their claims
2. Statutory taxpayer; or
3. Withholding agent.
within the exception period (CIR v. AirLiquide Philippines,
tnc., G.R. No. 210646, 2015) Taxpayer's Remedies When Not Acted Upon or Denied
'
t, 1. If the CIR takes time in deciding the claim and the
In VAT Returns, 30-day period to - appeal need not period of the 2 years is about to end, the · suit or
necessarily fall within 2-year period proceeding must be started in the CTA before the end
The 30-day period given to the taxpayer within which to file of the two-year period without awaiting the decision of
an appeal before the CT.A. need not necessarily fall within the CIR (CIR v. Victorias Miffing, GR. No. L-24-/08,
the two-year prescriptive period on applying for TCC or 1968)
refund, as long as the administrative claim is filed within
Page 155 of 206
 ATENEO CENTRAL
BAR OPERATIONS 2019
2. If the claim is depied by the CIR within the two-year
period; the taxpayer has 30 days from receipt of Jhe
denial within which to appeal to the CTA (R.A. No.
1125, Sec. 11)
Other Considerations Affecting Tax Refunds
Payment Under Protest is NOT Necessary Under the
NIRC
A suit or proceedings for tax refund may be maintained
whether or- not such tax, penalty or sum has been paid
under protest or duress.
Similarly, payment under protest is not necessary in refund
for local taxes. (LGC, Sec. 196)
However, payment under protest is necessary in certain
casei real property taxes (LGC; Sec. 252)
Note: The CIR may, even without a written claim, refund or
credit a tax, where on the face of the return upon which
payment was made, payment appears to be erroneous.
Question:. If a taxpayer hadlost his riqhtto dispute the
validity of a tax assessment in view of his failure to appeal
the CIR's decision to CTA, may he be.qranted a refund?
Answer: No. The expediency of an appeal from .a denial
of a tax request for cancellation of warrant of distraint and
levy cannot be utilized for the purpose of testing the legality
of an assessment, which had become conclusive and
binding on the taxpayer, there being no appeal, the
procedure set forth in Section 306 (now Sec. 204 (C) and
Sec. 229) of the NIRC is not available to revive the right to
contest the validity of an assessment once the same had
been irretrievably lost not only by the failure to appeal· but
likewise by the lapse of the reglementary period Within
which to appeal · could· have been taken. (CIR v.
Concepcion, G.R. No. L-23912, 1968)
G. GOVERNMENT REMEDIES
Remedies Available to the Government (NIRC, Sec.
205) . upon demand (N/RC, Sec. 219)
1. Administrative Remedies; and
a. Distraint; and
b. Levy
Note: Distraint and levy are unavailable when tax
liability is not more thanPhP 100
127SEC.
219 Nature and Extent of Tax Lien. - If any person,
corporation, partnership, joint-account (cuentas en paiticipacion),
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
Page 156 of 206
TAXATION LAW
2. ';Judicial Remedies .
a. Civil; and
b. Criminal Actions
Pursuing SEC. 205 Remedies Simultaneously
The · above remedies may be pursued singly or
• simultaneously at the discretion of the revenue authorities
(NIRC, _ S~c:. 205)
Must the Assessment be Final and Executory Before
the CIR may Collect the Tax Deficiency?
It depends on the remedy sought.
1. Summary Remedies of pistraint and Levy: The
assessment need not be final and executory (R.A
I
No. 1125, as amended by R.A No. 9282, Sec. 13)
.. 2. Civil Case for Collection: The assessment must be
final and executory (Yabes v. Flojo, 198,2; San Juan v.
Vasquez, 1961; RA. No. 1125 as amended, Sec.
· 7(b)(2)(c))
· Note: in the case of a false or fraudulent return with
intent to evade tax or of failure to file a return ... a (civil
or crinlinal) proceeding in court for the collection of
such tax may be filed without assessment (NIRC, Sec.
222[a])
• 1. Admlnlstratlve Remedies
a) Taxlien1i7 ·,
· · Definiti.cm ·.
A legal claim or charge on property, either real or personal,
established by law as a security in_ default of the payment
.of taxes (The Hongkong and Shanghai Bank v. Rafferly, ·
G.R. No: L-13188, 1918)
· Nature ofTax'Lien
A lien in favor of the Government of the Phillppines when
a person liable to pay a tax neglects or refuses to do so
Duration
Lien exists from the time assessment is made by the CIR
until paid, with interests, penalties and costs that may
accrue in addition thereto; generally, it attaches to the
property irrespective of ownership or transfer thereof.
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 'i
creditor until notice of such lier: 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.
 ...
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r1 • taxpayer's assets when delinquency sets in ~· hence,
•
r1
I )
Extent of Lien no actual delinquency in payment is necessary
Upon all property and rights to property belonging to the
taxpayer Effecting Constructive Distraint
Effectivity Against Third Persons Constructive distraint of personal property shall be
Not valid against any mortgagee, purchaser, or judgment effected by requiring the taxpayer or any person having
creditor until notice of such lien is filed by the CIR in the possession or control of such property:
Register of Deeds in the province/city whe're · the property a. · To sign a receipt covering the property
is situated distrained; and
b. To obligate himself to preserve the same intact
Note: A tax lien is superior to a judgment claim of a private and unaltered and not to dispose of the same
person in any manner whatever, without the express
authority of the C!R. (NIRC, Sec. 206)
r• .J. b) Distraint and Levy
(1) Summary Remedy of Distraint of Personal Property Instances when the CIR can place property of a
Including Garnishment · taxpayer under constructive distralnt:
{} (a) Delinquent taxpayer;
( Distraint (b) Taxpayer is retiring from any business subject to
\ Involves the seizure by the government of personal tax;
property, tangible or intangible, to enforce payment of (c) Taxpayer is intending to leave the Phiiippines;
taxes; followed by the public sale of such property, if the (d) Taxpayer is intending to remove his property from
taxpayer fails to pay the taxes voluntarily. the Philippines; .
l l (e) Taxpayer is intending to hide or concea-C~his

r ·;, .l
A remedy whereby . the collection of delinquent taxes is
enforced on the goods, chattels, or effects and other
property; or ~, .
(f) Taxpayer is intending to perform any act tending to
personal property of whatever character of lhe taxpayer. obstruct the proceedings for collecting the tax due
f) (NIRC, Sec. 205[a]) · or which may be due from him.

fj Kinds of Distraint Purchase by the Government at Sale Upon Distraint

When the amount bid for the property under distraint is not
1. Actual Distraint - resorted to when there is actual equal to the amount of the tax; or is very much less than
·, delinquency in tax payment (NIRC, Sec. 207[AJ) the actual market value ofthe articles offered for sale,
i
It consists in the actual seizure of the personal property The Commissioner or his deputy may purchase the same
I
:t of the taxpayer. If tax due is in excess of PhP 1 million, in behalf of the national Government for the amount of
. the CIR will commence the proceeding; otherwise, for taxes, penalties and costs due thereon.
tax due less than PhP 1 million, it shall be the Revenue
·. District Officer. Property so purchased · may be resold and the net
proceeds there from shall be remitted to the National
2. Constructive Distraint 128 - . a preventive remedy Treasury and accounted for as internal revenue. (NIRC,
•· .I which aims at forestalling a possible dissipation of the Sec. 212)

12a SEC. 206. Constructive Distraint of the Property of A
Taxpayer. - To safeguard the interest of the Government, the
Commissioner may place under constructive distraint the
property of a delinquent taxpayer or any taxpayer who,. in his
l i
opinion, is retiring from any 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 to perform any act tending to
l obstruct the proceedings for collecting the tax due or which may
be due from him.
The constructive distraint of personal property shall be affected
by requiring the taxpayer or any person having possession or
control of such property to sign a receipt covering the property
Page 157 of 206
distrainec! and obligate himself to preserve the same intact and
unaltered and not to dispose of the same ;in any manner
whatever, without the express authority of the Commissioner.
In case the taxpayer or the person having the possession and
control of the property soughtto be placed under constructive
distraint refuses or fails to sign the receipt herein referred to, the
revenue officer effecting the·constructive distraint shall proceed
to prepare a list of such property and, in the presence of two (2)
witnessed, leave a copy thereof in the premises · where the
property distrained is located, after which the said property shall
be deemed to have been placed under constructive distraint.
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•
Procedure for distraint and garnishment
1. Report on the distraint
(a) By the distraining officer - submitted to the
Revenue District Officer or Revenue Regional
Officer within 10 days from receipt of the warrant
(b) by the Revenue Regional· Director - a Sale of Property . Distrained . and Disposition of
consolidated report shall be prepared and
submitted as may be required by the CIR
The order of distraint may be lifted by the CIR or his
duly authorized representative .. (NIRC, Sec. 207[AJ)
2. .Service of warrant of distraint
(a) Goods, chattels, effects, or other personal
pro party
A copy of the warrant of distraint shall be left either
with the owner or person from whom the property
was taken, or at the dwelling or place of business
of such person and with someone of suitable age
and discretion;
Together with a statement of the sum demanded
and note of lhe time and place of sale
·. (b) Stocks and other securities
A copy of the warrant of dlsjralnt shall be served
upon the taxpayer AND . upon the president,
manager, treasurer or other responsible officer of
the issuing corporation
( c) Debts and credits
A copy of the warrant of distraint shall be left with
the person owing the debts or having in his
possession such credits or his agent
(d) Bank accounts
A copy of the warrant of garnishment shall be
served upon the taxpayer AND upon the president,
manager, treasurer or other responsible officer of
.the bank
The bank shall turn over to the CIR so much of the
bank accounts as may be sufficient to satisfy the
claim of the government (N/RC, Sec. 208)
3. Posting of notice
(a) Notice shall specify the time and place of sale and
the articles distrained.
129
SEC. 211. Report of Sale to Bureau of Internal Revenue. -
Within two (2) days after the sale, the officer making the same
shall make a report of his proceedings in writing to the
Page 158 of 206
· TAXATION LAW
(b) The posting shall be made in not less than 2 public
• places in the city or municipality where the distraint
is made, one of which shall be the offloe of the
mayor of such city or municipality. (NIRC, Sec.
209)
Proceed!i
The time of sale shall not be less .than 20 days after
notice/posting.
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 bili 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.
Within 5 days after the sale, , a return ,by the
distraining/levying officer of the proceedings shall be
entered upon the records of the relevant BIR officers. In
case the proceeds of the sale. exceed the claim and
cost of sale, the excess shall be turned over to the
owner of ~he property. (NIRC, Sec. 213)
Report of Sale to the BIR129
Within 2 days after the sale, the officer making the same ·
shall make a report of the proceedings in writing to the CIR
and shall preserve a copy of the report as an pfficial record.
(NIRC, Sec. 211) .
f
Further Distraint (not .always applicable) ·
The remedy by distraint/levy may be repeated if necessary
until the full amount due, including ail expenses, is
collected. (NIRC, Sec. 217)
Summary Remedy of Distraint is Available Pending
Appeal
The BIR may issue. a Warrant of. Distraint and Levy to
enforce collection while the TP is appealing the decision
denying the protest to the CTA. No appeal taken to the ",_
CTA ... shall suspend the payment, levy, distraint and/or
sale of any property of the taxpayer for the satisfaction of
Commissioner and shall himself preserve a copy of such- report
as an official record ..
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ATENEO CENTRAL
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his tax liability (R.A. No. 1125, as amended by f.A. No.
9282, Sec. 11)
r1
(2) Summary Remedy of Levy on Real Property
l
Levy
Involves the seizure by the government of real property to
r enforce payment of taxes: followed by the public sale of
• such property, if the taxpayer fails to pay the taxes
voluntarily
! 1
Real property may be levied upon before, simultaneously
' or after the distralnt of personal property. {N/RC, Sec.
207[8]) - /
r1
r Procedure for Levy:
1. Report on the levy
(a) By the levying officer - submitted to the CIR or his
duly authorized representative within 10 days from
receipt of the warrant
r r
(b) By the Revenue Regional Director - a consolidated
report shall be prepared and submitted as may be
required by the CIR
[J
The order of, levy may be lifted by the CIR or his du~,
r1 authorized representative. (NIRC, Sec. 207[8])
f] 2. Service cf warrant of levy
• A revenue officer shall prepare a duly authenticated
I 1 certificate showing:
(a) the name of the taxpayer;
!1
13°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
lj necessary to satisfy the claim and cost of sale; and such
advertisement shall cover a period of a least thirty (30) days. It
,, r
'!"---.: shall be effectuated by posting a notice at the main entrance of
i -'
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· 1evied,
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
shaf determine and as the notice of sale shall specify.
Page 159 of 206
TAXATION LAW
(b) the amounts due; and
-- (c) a description of the property upon which levy is
made.
• Said certificate shall operate with the force of a legal
execution throughout the-Philippines.
• The certificate shall be:
- served upon the delinquent taxpayer: or if he be
absent from the Philippines, to his agent or the
manager of his business to which the liability arose,
or ifthere be none, to the occupant of the property in
question; and
- mailed to or served upon the Register of Deeds of
the province or city where the property is located.
3. -Advertisement and sale 1~0
• Advertisement $hall contain:
(a) statement of the amount due;
(b) the time and place of sale;
( c) name of the taxpayer; .and
(d) short descriptionofthe property to be sold.
• Advertisement shall be made within 20 days after the
levy, and for a period of at least 30 days. It shc1_l_Lbe
effected by:
(a) Posting a notice at the main entrance of the
municipal building or the - city hall .and in public
and conspicuous place in the barrio or district
where the property is located; and
(b) By publication once a week for 3 consecutive
weeks in newspaper of general circulation in the -
municipality or city where the property is located,
Within five (5) days after the sale; a ff,turn 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.
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i. Within 5 days after the sale, a return by the
distralning/levying offk:er.of the proceedings shall be
entered upon the records of the relevant BIR officers.
In case the proceeds of the sale exceed the claim and
cost of sale, the excess shall be turned over to the
owner of the property. (NIRC, Sec. 213)
4. Redemption of property sold131 .
• At any time before the day fixed for the sale, the
taxpayer may discontinue all proceedings by paying
the amount due. (NIRC, Sec. 213)
• Otherwise, within 1 year from the date of sale, the
taxpayer or any one for him . may redeem · the
property ..
• Breakdown of amount to be paid shall be:
1. Taxes, penalties and interest computed from
the date of delinquency to the date of sale; and
2. Intereston above purchase price at the rate of
15%,per annum from the date of sale to the
date of redemption.
• The owner shall not be deprived of the possession
of the property and shali be entitled to the rents and ·
other income thereof until. the expiration of the
redemption period.
sale/destruction of the property
•
Forfeiture of Real Property: enforced by a judgment of
condemnation and sale in a legal action (NIRC, Sec. 224)
In case of forfeiture of personal property. the owner
desiring to contest the validity of such forfeiture may: (a)
before the sale/destrucfon of the property, may bring an
:
.. action. to. recover
. . . . . . the same,
. .
and
. . upon
. giving
. .bond, may·
. enjoin the sale/destructiqn;·or (b) after the sale and within
6 months, may bring an action to recover the net proceeds
realized at the sale. (NIRC, Sec. 231)
Forfeited property shall· not be destroyed until at. least 20
days after seizure. (N/RC; Sec. 225)

5. If the property is notredeemed;

Final deed of sale to the purchaser
• If the property is not redeemed, a .final deed' of sale
shall be issued to the purchaser.
..
6. Further levy
• . The remedy by distraint/levy may be repeated if
necessary until the full amount due, including all
expenses, is collected. (NIRC, Sec. 217)

c) Forfeiture of Personal/Real Property

Definition of Forfeiture
Forfeiture is the divestiture of property without
L
compensation, in consequence ofa default or offense. t.

Enforcement of the Remedy of Forfeiture

Forfeiture of Personal Property: enforced by seizure and

131 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 lo 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 shail 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
Page 160 of 206
redeemed the property, and the Revenu.e District Officer shall
forthwith pay over tothe 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 untii the expiration of the time allowed for its •[ '
redemption.
 , ..
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ATENEO CENTRAL
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Cl Forfeiture to Gover11ment•tor Want of Bidder132 • The CIRmay:
! i In case: (a) there is no bidder; or (b) the highest bid is • i. Upon the giving of not !ess than 20 days notice, sell
I J
insufficient to paythe amount due, the revenue officer shail and dispose of the same at public auction; or
lJ declare the property forfeited to the government in ii. With prior approval of· the Secretary of Finance,
•
' . satisfaction of the claim. dispose of the same at private sale.
• In either case, the proceeds of the sale shall be
Title to the forfeited property shall be transferred to the deposited with the National Treasury, and ari
government without the necessity of an order from a accounting of the same shall be rendered to the
competent court. Chairman of the Commission on Audit.

f Within 1 year from the date of forfeiture, the taxpayer or

' ' When Property to be Sold or Destroyed135
any one for him mayredeem the property. Otherwise, the Forfeited property shall not be destroyed until at least 20
forfeiture shall become absolute. (NIRC, Sec. 215) days from seizure.
,.
i Remedy of Enforcement of Forfeiture

r 1. Action to contest forfeiture ofchattel133

2. Resale of real estate taken for taxes+"
• The CIR shall have charge of any real estate
obtained by the government in payment or
satisfaction of taxes, penalties or costs arising under
the NIRC or in compromise or adjustment ofany
t claim therefor.
l
132
SEC. 215. Forfeiture to Government for Want of Bidder. - compromise or adjustment of any claim therefore, and said
In case there is no bidder forreal property exposed for sale as Commissioner may, upon the giving of not less than twenty (20)
herein above provided or if the, highest bid is for an amount da5'sJ1otice,sell and dispose of the. same of public auction or with ·
I1 insufficient to pay the taxes, penalties and· costs, the Internal prior approval of· the Secretary of Finance, dispose of the same
Revenue Officer conducting ,tie sale shall declare the property at private sale. Inelther case, the proceeds of the sale shall be
f forfeited to the Government in satisfaction of the claim in question deposited with ttie National Treasury. and an accounting of the
and within two (2) days thereatter, shall make a return of his same shall rendered to the Chairman of the Commission on
proceedings and the· forfeiture which shall be spread upon the Audit.
records of his office. It shall be the duty of the Register of Deeds 135SEC. 225 When Property to be Sold or Destroyed .. - Sales

1 concerned, upon registration with his office of any such
• declaration of forfeiture. · totransfer the title of the property
forfeited to the Government without the necessity of an order from·
! l
·• .J a competent court. · as are prescribed for sales of personal property distrained for the
lJ 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.
133SEC.
231 Action to Contest Forfeiture of Chattel. - In case
of the seizure of personal property under claim of forfeiture, the
owner desiring to contest the validity of the forfeiture may, at any
time before sale or destruction of the property, bring an action
against the person seizing the property or having possession
thereof to recover the same, and upon giving proper bond, may
enjoin the sale; or after the sale and within six (6) months, he may
bring an action to recover the net proceeds realized at the sale.
of forfeited Chattels and removable fixtures shall be effected, so
far as practicable, in the same manner and under the same
conditions as the public notice and the time and manner of sale
non-payment of taxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured
products of tobacco, and all apparatus used in or about the illicit
production of such articles may, upon forfeiture, be destroyed by
order of the Commissioner, when the sale of the same for
consumption or use would be injurious to public health or
prejudicial to the enforcement of the law.
All other articles subject to excise tax, which have been
manufactured or removed in violation of this Code, as weli as dies
for the printing or making of internal revenue stamps and labels
which are in imitation of or purport to be lawful stamps, or labels
may, upon forfeiture, be sold or destroyed in the discretion of the
Commissioner.

134SEC.
216 Resale of Real Estate Taken for Taxes. - The Forfeited property shall not be destroyed until at least twenty (20)
Commissioner shall have charge of any real estate obtained by days after seizure.
the Government of the Philippines in payment or satisfaction of
taxes, penalties or costs arising under this Code or in
Page 161 of 206
 ATENEO CENTRAL
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Disposition of Funds Recovered in Legal Proceedings
•
or Obtained from Forfeiture 136
• The Revenue District Officer or his duly authorized
representative, other. than the officer referred to in
Section 208 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 fess 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 saleshall 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.
• 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 certlficates . 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
136 SEC. 226 Disposition of funds Recovered in Legal
Proceedings or Obtained from Forfeitures. - all judgments and
monies recoveredand receivedfor taxes, costs, forfeitures,fines
and penalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required to be paid, and
except as specially provided, shall be accounted for and dealt
with the same way.
137SEC. 115 Power of the Commissioner to Suspend the
Business Operations of a Taxpayer. - The Commissioneror his
authorized representative is hereby empoweredto suspend the
business operations and temporarily close the business
establishment of any person for any of the followingviolations:
(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
Page 162 of 206
. -- --··--------------------------
TAXATION LAW
shall embrace only the actual expenses of seizure and
preservation of the property pending, t.he.saie,.and no
charge shall be imposed for the. services of the local
internal revenue officer or his deputy.
d) Suspension of Business Operations137
• The CIR or his authorized representative may suspend
the business operations and temporarily close the
business establishment of a VAT -registered person for
failure to issue receipts or invoices, or failure to file
VAT returns, or understatement of taxable sales or
receipts by 30%
• CIR is also empowered to suspend · the business
operations of any person , for failure to register as
required under Sec. 236
• Duration oftemporary closure shall be for a period of
notless than 5 days
• Closure shall be lifted upon compliance with . the
requirements in the closure order
e) No rt-availability of Injunction to Restrain ·Collection
ofTax138
General Rule: No court can issue an injunction to restrain
collection of tax. (NIRC, Sec. 218)
Exception: When in the opinion of the CTA, the collection
'of tax mayjeopardize the interest of the government and/or
· the taxpayer, the CTA may suspend said Collection and
require the taxpayer to deposit the amount .clairned or file
. a surety bond (R.A. No. 9282, Sec: 1.1)
Note: GTA has the power to provjde injunctive relief and
dispense with the bond requirement in cases ~here the
court determines that the method employed by the CIR in
. the collection of tax is not sanctioned by law. However, the
CT A must preliminarily determine if the collection is
Section 114; or ,,
(3) Understatementof 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. Registeras 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 ciosure order.
138SEC. 218 Injunction not Available to Restrain Collection of
Tax. - No court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee or
charge imposed by this Code.
 r1
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BAR OPERATIONS 2019 TAXATION LAW
fl compliant with the law. (Sps. Pacquiao v~ CTA & CIR, G.R. All violations of any provision of the N!RC shall prescribe
No. 213394, 2016) •
after 5 years. (NIRC, Sec. 281)
I
J

QUESTION: Will the amendment of the administrative
claims serve to extend the period to appeal the inaction
with the CTA?
ANSWER: The claims that merely relied on the same
f ' unamended VAT returns cannot be used since both
versions of the claim relied on the figures reflected in the
VAT returns. On the other hand, the claims that were
revised relied as well on amendments made to the VAT
{ returns themselves and as such are considered as validly
justified amendments. (Miramar Fish Company, Inc. v.
r I CIR, G.R. No. 185432, 2014)
J 2. Judicial Remedies
Civil and Criminal Actions
1. Must be brought in the name of the Government of the
· Philippines;
2. Must be conducted by legal officers of the B!R;
ri 3. In case of actions for recovery of taxes or enforcement
of a fine, penalty or forfeiture, must be filed with the
f approval of the CIR (NIRC, Sec, 220) ·
f) a) Civil Action
In cases of a decision against the BIR in Petitions for
[] Review brought by a taxpayer on disputed assessment
before the CTA, the remedy of the BIR is appellate - it may
( l first file a MR with the same division, then appeal the
decision of the CTA in Division to the CTA En bane via a
I 1 Petition for Review. If the CTA En Banc still renders a
decision against the BIR, the BIR mayappeal the same
with the SC through a Petition for Review on Certiorari
under Rule 45 of the Rules of Court.
However, BIR may initiate collection proceedings with the
H regional trial courts.
{
ll ' BIR can file a civil action for collection pending decision of
the administrative protest. The civil suit will in effect be a
(, I
l. ; denial of the question for reinvestigation and
reconsideration (CIR v. Union Shipping; G.R. No. L-66160,
(
!I. 1990)
b) Criminal action
Criminal actions may only be initiated through a
recommendation of the filing of an Information by the OOJ
for offenses found in the NIRC.
Criminal Cases
Page 163 of 206
Prescriptive Period - When ltBegins to Run
1. From the day of the commission of the violation of the
law; or
2. If the same not be known at the time, from the
discovery thereof AND the institution of judicial
proceedings for the investigation and punishment
(NIRC, Sec. 281)
Interruption of Prescriptive Period
1. When proceedings are instituted against the guilty
persons; or
2. When the offender is absent from · the Philippines
(NIRC, · Sec. 281); or
. Examples of Punishable Crimes
1. Attempt to evade or defeattax (NIRC, Sec. 254); and
2; Failure to file return; supply correct and accurate
information, pay tax, withhold and remit tax and refund
excess taxes withheld on compensation (NIRC, Sec.
255) ·-;:
Elements: Non-Filing of Tax Return
1. The accused. was a person required to make or file a
return;
2. The accused failed to make or file the return at the time
required by 1aw; and · ···
3. The failure was willful '~
Elements: Failure to Supply Correct Information
1. The accused is a· person required under the NIRC or
by rules andreqelatlon to pay any tax, make a return,
keep any · record or supply correct and accurate
information;
2. The accused failed to supply correct and accurate
information; and
3. Such fallure was willful .
"Willful Blindness" Doctrine
"Willful" in tax crimes means voluntary, intentional violation
of a known legal duty, and bad faith or bad purpose need
not be shown
The "Willful Blindness" doctrine means neglect or omission
(to ensure filing of ITR, to know how much taxes are due,
or inquire on the facts surrounding the ITR) is tantamount
to "deliberate ignorance or conscious avoidance.
Thus, an experienced businesswoman's reliance on her
husband to file their ITRs is not a valid reason to justify her
non-filing, considering that she knew from the start that she
 ATENEO CENTRAL
BAR OPERATIONS 2019 TAXATION LAW

and her husband are mandated by law to file their ITRs the ~IR, is presumed to be the actual wholesale price,
(People v. Kintanar; CTA EBCrim No. 006, 2010) therefore, not fraudulent and unless end until the BIR
has made a final determination of what is supposed to
"Willfulness" cannot be presumed from mere inadvertent or be the correct taxes, the taxpayer should not be placed
negligent acts. Whil.e the TP is negligent, such is enough in the crucible of criminal prosecution. {CIR v. CA, CTA
to convict. . & Fortune Tobacco, G.R. No. 119761, 1996)

Example: TP entered showbiz at 8 yrs. old; at 12 yrs .• Note: The CIR does not always have to approve the filing
enqaqed services of Tito Alfie Lorenzo as manager. TP of tax criminal cases. The Tax Coderequirement of having
entrusted all her transactions to manager, e.g .• contract the CIR approve the filing of civil and criminal cases is a
negotiations, signing, handling of fees, etc: Signed delegable power.As the filing in this case was done after
contracts Without reading them; checks were issued in the recommendation by the Regional· Director who js at least
name of manager. so TP had no idea how much she was the rank of a division chief, the requirement is deemed
earning per project (she simply trusted manager to make complied with. (People v; Valeriano)
proper accounting). As custodian of records, manager took
care of all financial matters, including compliance with tax Summary of Tax Remedies . for Taxpayers and the
obligations (People v. Judy Anne Sentos, CTA Crim. Case Government
No. 0-012, 2013).
• Remedies of the Taxpayer
Filing of. Criminal Action Against the Taxpayer Before Payment ofTaxes
• A criminal action may be filed during the pendency of • AdministrativeRemedies
an administrative protest in the BIR • Protest against assessment
• It is nota requirement for the filing thereof that there • Compromise
be a precise computation and assessment of the tax, • Redemption of property after sale at public
since what is involved in the criminal action is not the . auction
collection of· tax but a criminal prosecution for the Judicial Remedies
violation of the NIRC, provided, however, that there is ~ ' Ordinary civil action
a prima facie showing of a willful attempt to evade .• Filing of petition before the CT A
taxes. AfterPayment of Taxes
o An assessment of a deficiency is not necessary to a (1) Administrative Remedies
criminal prosecution for willful attempt to defeat and (1) Claim for refund ortax credit
evade the income tax. A crime is complete when the (2) Judicial Remedies
violator has knowingly· and willfully filed a fraudulent (1) fmng of Petition before the CT A
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
.. Remediesof the Government
1) . Administrative Remedies
inaccurate return, and the government's failure to i. To make deficiency assessments within 3 or
discover the error and promptly to assess has no 10 years
connections with the commission of the crime. (Ungab ii. .To enforce deficiency assessments and .'
v. Cusi, GR. No. 41919-24, 1980; CIR v. Pascor collect taxes within 5 years -
Realty, G.R. No. 128315, 1999)
• However, in the case of CIR v. CA, CTA, & Fortune
• To effect distraint of personal property

Tobacco (G.R. No. 119761, 1996), the Court held that

• Tc effect levy on re,al property ,.
• To pursue judicial proceeding to collect '
before the tax liabilities are finally determined, it cannot .
be correctly asserted that the taxpayer had willfully
. To compromise, abate, or cancel taxes

attempted to evade or defeat the taxes sought to be • To enforce tax liens

collected. In plain words, before one is prosecuted • To enforce statutory penal provisions
• To enforce forfeiture or property l.
for willful attempt to evade or defeat any tax, the
fact that a tax is due must first be proved. 2) Judicial Remedies
• In Ungab, there was a willful attempt to evade tax. o Civil and criminal l
Fortune's situation is quite apart factually since the '
MISCELLANEOUS ITEMS L
registered wholesale price of the goods, approved by

Page 164 of 206

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r1 (1) Statutory Offenses and Penalties139
(1) Attempt to evade or defeattax
f (2) Failure to file return, supply.correct and accurate
y information, pay tax, withhold and remit tax and
' refund excess taxes withheld on compensation
Other Statutory Offenses: (Sections 253-282)
1. Unlawful pursuit of business
I i 2. Illegal collection of foreign payments.
3. Unlawful possession of cigarette paper in bobbins or
f rolls, etc.
4. Unlawful use of denatured alcohol
l 5. Shipment or removal of liquor or tobacco products
under false name or brand or as an imitation of any
f I existing or otherwise known product name or brand
r 6. Unlawful possession or removal of articles subject to
i excise tax without payment of tax
139SEC. 254 General Provisions. -
(a) Any person convicted of a crime penalized by this Code shall,
in addition to being liable for the payment of the tax, be subject to
the penalties imposed herein:
Provided, That payment of the tax due after apprehension sball
r1 not constitute a valid defense in any prosecution for violation of
any provision of·this Code or in any action for the forfeiture of
fl untaxed articles.
j {b) Any person who willfully aids or abets in the commission of a
crime penalized herein or who causes the commission of any
such offense by another shall be liable in the same manner as
il the principal.
fJ (c) If the offender is not a citizen of the Philippines, he- shall be
deported immediately after serving the sentence without further
I l proceedings for deportation. If he is a public officer or employee,
the maximum penalty prescribed for the offense shall be imposed
H and, in addition, he shall be dismissed from the public service and
perpetually disqualified from holding any public office, to vote and
to participate in any election. !f the offender is a Certified Public
Accountant, his certificate as a Certified Public Accountant shall,
. upon conviction, be automatically revoked or cancelled.
( Ten thousand pesos (P10,000) and suffer imprisonment of not
(d) In the case of associations, partnerships or corporations, the
penalty shall be imposed on the partner, president, general
manager, branch manager, treasurer, officer-in-charge, and the
I employees responsible for the violation.
l .J
( ( e) The fines to be imposed for any violation of the provisions of
l •
this Code shall not be lower than the fines imposed herein or
twice the amount of taxes, interest and surcharges due from the
taxpayer. whichever is higher.
SEC. 254. Attempt to Evade or Defeat Tax.- Any person who
Page
TAXATION LAW
7. Failure or refusaJ to issue receipts or sales or
commercial invoices, violations related to the printing
of such receipts or invoices or other violations
8. Offenses relating to stamps
9. Failure to obey summons
10. Declaration under penalties of perjury
11. Other crimes and offenses ,
• Misdeclaration or . misrepresentation· of
manufacturers subject to excise tax
12. Forfeiture of property used in unlicensed business or
dies used for printing false stamps
13. Selling, transferring, encumbering, or in any way
disposing of property placed under constructive
distraint
14. Failure to surrender property placed under distraint or
levy
15. Procuring unlawful diVulgence of trade secrets
willfully attempts in any manner to evade or defeat any tax
imposed under this Code or the payment thereof shall, in addition
to other penalties provided by law, upon conviction thereof, be
punished by a fine not less than Thirty thousand (P30,000) but
not more than One hundred thousand pesos (P100,000). and
suffer imprisonmentof not less:toon two (2) years but not more
. than four (4) years:
Provided, That the conviction or. acquittal obtained under this
Section shall not be a bar to the filing of a civil suit for the
collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and
Accurate Information, Pay iax Withhold and Remit Tax and
Refund Excess Taxes Withheld on Compensation.- Any
person required under this Code or by rules and regulations
promulgated thereunder to pay any tax make a return, keep any
record, or supply correct the accurate information, who willfully
fails to pay such tax, make such return, keep such record, or
supply correct and accurate information, or withhold or remit
taxes withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or rules and
regulations shall, in addition to other penalties provided by law,
upon conviction thereof, be punished by a fine of not less than
less than one (1) year but not more than ten (10) years.
Any person who attempts to make it appear for any reason that
he or another has in fact filed a return or statement, or actually
files a return or statement and subsequently withdraws the same
return or statement after securing the official receiving seal or
stamp of receipt of internal revenue office wherein the same was
actually filed shall, upon conviction therefor, be punished by a fine
of not less than Ten thousand pesos (P"I0,000) but not more than
Twenty thousand pesos (P20,000) and suffer imprisonment of not
less than one (1) year but not more than three (3) years.
165 of 206
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Offenses · Cornrnitted by Government Enforcement • Certifies .financial statements containing an

Officers (Sections 269-273) - essennal misstatement of facts or ornlsslors
• Any person who:
1. Extortion or willful oppression • Not being an independent CPA, examines or
2. Demanding or receiving a fee etc. other or greater audits books of accounts of taxpayers
sums that are authorized by law, or for the
performance of any duty • Offers to sign and certify financial statements
3. Willfully neglecting to give receipts without audit
4. Offering or undertaking to accomplish, file or submit a • Offers any taxpayer the use of accounting
report or assessment on taxpayer without the bookkeeping records for internal revenue .
appropriate examination of books, or offering or purposes not in conformity with the prescribed
undertaking to submit· or report an · assessment less requirements · .
than the amount due for any consideration or • Knowingly makes any false entry or enters any
. compensation, or conspiring or colluding with others to false or fictitious name in the books of accounts
defraud the revenues or violate the provisions of the • Keeps 2 or more sets ofrecords or books of
NIRC accounts
5. Neglecting or by design permitting the violation of the
law by any other person
• Fails to keep the books of accounts or records
mentioned in' Sec. '232 in a native language or
6. Making or signing any false entry or false certificate or whose books kept in a native language are
return
found to be at material variance with books kept
7. Allowing or conspiring or colluding with another to
in another language
allow the unauthorized retrieval, withdrawal or recall of
• Willfully attempts to evade or defeat any tax
any return etc. after the same has been officially
imposed or knowingly uses fake or falsified
received by the BiR
revenue official receipts, Letters of Authority,
8. Failure to report such knowledge or information of any
Tax Credit Certificates etc.
violation of the NIRC or of any fraud committed on the
• Fine {P50,00CrP100,000) and lrnprisonment (2-6: •
revenues coltectibteby the BIR
years) .
9. Demanding or accepting or attempting to collect as
payment any sum of money or otherthing for value for
• CPA: Certificate as a CPAshall
. be
revoked or cancelled upon conviction ·
automatically
. .·
compromise, adjustment or settlement of any charge
• Foreigner: Conviction results · in immediate
or complaint, without the authority of law
deportation after ser,1ing· sentence, without further
10. Unlawful divulgence of trade secrets
proceedings
11. Unlawful interest of revenue law enforcers in business
12. Violation of withholding tax provisions
13. Failure to issue and execute warrant

(2) Penal Liability of Corporations

• Any corporation, association or general co-partnership
liable for any acts or omissions penalized under the t.:
i.
NIRGshall be punished bya fine (P50,000-P100,000)
.• In addition to penalties imposed upon responsible
corporate officers, partners, or employees
"e

Penal Liability for Making False Entries, Records or

Reports, or Using Falsified or ·Fake Accountable
Forms
• Any financial officer or independent CPA engaged to
examine and audit books of accounts
• Willfully falsifies any report or statement bearing
on any examination or audit
• Renders a report which has not been verified by
.
' .
him personally or under his supervision

Page 166 of 206

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r··, (3) Informer's Reward140 Disqualified persons: •
For violations of the NIRC 1. BIR official or employee or any other incumbent public
C1 • 10% of the revenues, surcharges or fees recovered official or employee

r1 and/or fine or penalty imposed and collected; or

• One million pesos (P1 ,000,000), whichever is lower.
2. Relative within the 6th civil degree of consanguinity of
a BIR official or employee
• Any person who voluntarily gives definite and sworn 3. BIR officials or employees or other public officials who
information, not yet in the possession of the BIR - acquired information in the course of Jhe performance
, .. 1
resulting in the recovery of revenues, surcharges and of their duties during their incumbency, though already
I I retired or separated from service
fees and/or the conviction of the guilty party and/or
the imposition of any fine or penalty
• Reward shall also be given to an informer where the Note: Cash rewards of informers shall be subject to
offender has offered to compromise and his offer has income tax: Final withholding tax of 10%.
been accepted by the CIR and collected from the
f j offender ---- end of topic----
• Informer shall not be entitled to a reward when no
ri revenue, surcharges or fees have been actually
collected
(J • Information shall not refer to a case already pending
or previously investigated
r For discovery and seizure of smuggled goods
'.I_ _l' • Cash reward equivalent to 10% of the fairmarketvalue
of the smuggled arid confiscated goods; or
r; • One million pesos (P1 ,000,000), whichever is lower.

·1.
{ J,

ff
140SEC.
I J 282 Informer's Reward to Persons Instrumental in
the Discovery of Violations of the National Internal Revenue
{l Code and in the Discovery and Seizure of Smuggled Goods.
(A) For Vic:>lations of the National Internal Revenue Code. -
u• ,I Any person, except an internal revenue official or employee, or
other public official or employee, or his relative within the sixth
f} degree of consanguinity, who voluntarily gives definite and sworn
information, not yet in the possession of the Bureau of Internal
H Revenue, leading to the discovery of frauds upon the internal
revenue laws or violations of any of the provisions thereof,
..
Provided, further, That the information mentioned herein shall not
_ refer to a case already pending or previously investigated or
examined by the Commissioner or any of his deputies, agents or
examiners, or the Secretary of Finance or any of his deputies or
· ·agents:
Provided, ·finally, That the reward provided herein shall-be paid
_ under rules and reguiations issued by the Secretary of Finance,
upon recommendation of the Commissioner.

thereby resulting in the recovery of revenues, surcharges and
fees and/or the conviction of the guilty party and/or the imposition
of any of the fine or penalty, shall be rewarded in a sum
equivalent to ten percent (10%) of the revenues, surcharges or
fees recovered and/or fine or penalty imposed and collected or
{
"- ; One Million Pesos (P1 ,000,000) per case, whichever is lower.
(B) For Discovery and Seizure of Smuggled Goods. -To
encourage the public to extend full cooperation in eradicating
smuggling, a cash reward equivalent to ten percent (10%) of the
fair market value of the smuggled and confiscated goods or One
Million Pesos (P1 ,000,000) per case, whichever is lower, shall be
given to persons instrumental in the discovery and seizure of

'
such smuggled goods.
The same amount of reward shall also be given to an informer
' where the offender has offered to compromise the violation of law The cash rewards. of informers shall be subject to income tax,
( ! committed by him and his offer has been accepted by the collected as a final withholding tax, at a rate of ten percent (10%).
\ J
Commissioner and collected from the offender:
The provisions of the foregoing Subsections notwithstanding, al!
Provided, That should no revenue, surcharges or fees be actually public officials, whether incumbent or retired, who acquired the
recovered or collected, such person shall not be entitled to a information in the course of the performance of their duties during
reward: their incumbency, are prohibited from claiming informer's reward.
Page 167 of 206

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Ill. LOCAL GOVERNMl=NT CODE OF 1991, AS A. LOCAL GOVERNMENT TAXATION

AMENDED •
1. Fundamental Principles
2019 BAR SYLLABUS
The fundamental principles governing the exercise of the
A. Local Government Taxation taxing and other revenue-raisinq powers of LGUs are
1. Fundamental principles (ULIP]:
2. Specific taxing powers of Local Government Units
(exclude rates) 1. Taxation shall be .!::!niform in each locai
3. Common limitations on the taxing powers of LGUs government unit;
4. Procedure for approval and effectivity of tax
ordinances Taxes, fees. charges, and other impositions shall
5. Periods of assessment and collection of local taxes, (~PuJuL): ·
fees, or charges Be gquitable and based as far as practicable on
6. Taxpayer's remedies .· the taxpayer's ability to pay;
a. Protest of assessment B~ levied and collected only for f ublic purposes;
b. Claim for refund of tax credit for erroneously or Not be unJust, excessive, oppressive, or
illegally collected taxes, fees, or charges confiscatory;
7. Remedies of the LGUs for collection of revenues Not be contrary to !:aw, public policy, national
a. Administrative action economic policy, or in the restraint of trade;
b. .Judicial action
2. Collection of local taxes, fees, charges shall notbe
B. Real property taxation .bet to any private person;
1. Fundamental principles
2. Exemption from real property taxes 3. The revenue collected. shall Inure .solely to the
3. Collection of real property tax benefit of the local government uhit levying the tax,
a. Date of accrual of real property taxes and special fee, charge or other imposition unless otherwise .'

levies specifically provided herein; and,

b. Collection of taxes
c. Periods within which to collect real property
taxes
4. Taxpayer's remedies
a. Contesting an assessment
i. Payment under protest
ii. File protest with treasurer
iii.. Refunds or credits of real property taxes
b. Contesting a valuation of real property
i. Appeal to the Local Board of Assessment
Appeals (LBM)
ii. Appeal to the Central Board of Assessment
Appeals (CBAA)
iii. Effect of payment of tax
5. Remedies of LGUs for collection of real property
taxes
4. Each !ocal government unit shall, as far as
practicable; evolve afrogressive system of
taxation. (LGC. Sec, 130)
Equality and uniformity ih local taxation means that all
taxable articles or kinds qfproperty.ofttie same class shall
be taxed at the same rate within the territorial jurisdiction
of the taxing authority or local government unit. In fine,
uniformity is required only within the geographicallimits of
the taxing authority. (Punsalan v, City of.Manila, G.R. No. L
l
L-4817, 1954)
A city can validly tax the sales to customers outside the city
as long as the orders were booked and paid for in the
company's branch office in the city. A different
interpretation would defeat the tax ordinance in question or
encourage tax evasion by simply arranging for the deiivery
at the outskirts of the city. (Philippine Match Company v.
City of Cebu, G.R. No. L-30745, 1978)
,.
Nature and Source of Taxing Power L

a) Grant of local taxing power under the Local

Government Code
Page 168 of 206
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I )
Each local government unitshall have the power tocreate
its own sources of revenues and to levy· taxes, fees and
'1
charges subjectto such guidelines and lirnltatlons as the
Congress may provide, consistent with the basic policy of
locai autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments. (1987
Constitution, Article X,. Section 5)
Each local government unit shall exercise its power to
create its own sources of revenue and to levy taxes, fees,
and charges subject to the provisions herein, consistent
with the basic policy of local autonomy. Such taxes, fees,
and charges shall accrue exclusively to the local
government units.
Ll
{ l
b) Authority to Prescribe Penalties for Tax Violations
and Limitations Thereon · or relief.
The Sanggunian is authorized to prescribe fines or other
penalties for violations of tax ordinances
• In no case shall fines be less than P1 ,000 nor more
than P5,000
• Nor shall the imprisonment be less than one month nor
(
I. more than six months
• Such fine or other penalty shall be imposed at the
discretion of the court. ·
.('
\. J
The Sangguniang Barangay may prescribe a fine of not
~
.· }.
I
less than P100 nor more than P1 ,000 .
I );
c) Authority to Grant Local Tax Exemptions
LGUs, may through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary. (Sec. 192, LGC)
Tax exemptions shall be conferred through the issuance of
a non-transferable tax exemption certificate.
f--} d) Withdrawal of Exemptions
t s Unless otherwise provided by the LGC, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including. GOCCs are hereby
withdrawn upon the effectivity of the LGC except the ff:
3. Local water districts,
4. Cooperatives duly registered under RA 6938, and
5. Non-stock and non-profit hospitals and educational
institutions. (Sec. 193, LGC)
· Tax Exemptions riot applicable to Regulatory Fees
The power to grant tax exemptions, tax incentives, and tax
reliefs shall not apply to regulatory fees which are levied
under the police power of the LGU.
Page 169 of 206
TAXATION LAW
Guidelines for the Granting of Tax ExemptJons, Tax
Incentives and Tax Reliefs (IRR of LGC, Art. 282 [BJ)
On the grant of tax exemptions or tax reliefs:
• The same · may be granted in cases of natural
calamities, civil disturbance, general failure of crops,
or adverse economic conditions such as substantial
decrease in prices or agricultural or aqri-based
products.
• The grant shall be through an ordinance.
• Any exemption or relief granted to a type or kind of
business shall applyto all business similarly situated.
· • The same shall · take effect only during the next
calendar year for a period notexceedinq 12 months as
may be provided by the ordinance.
• In the case of shared revenue, the exemption or relief
shall only extend to the LGU granting such exemption
On the grant of tax incentives
• The same shall be granted only to new investments in
the locality and the ordinance shall prescribe the ·
terms and conditions therefore.
o The grant shall be for a definite period not exceeding
· 1 calendar year.
• The grant shall be by ordinance passed prior to the
1st day of January of any year.
• Any grant to' a type or kind of business shall apply to
all businesses similarly situated.
e) Authorltytc Adjust Local Tax Rate .
LGUs are authorized to adjust the tax rates as prescribed
herein not oftener than once every 5 years, and in no case
shall such adjustment exceed 10% of the rates fixed under
the LGC:
Section 191 of the LGC presupposes that the following
requirements are present for it to apply: (i} there is a tax
ordinance that already imposes a tax in accordance with
the provisions of .the LGC; and (ii) there is a second tax
ordinance that made adjustment on the tax rate fixed by
the first tax ordinance. (Mindanao Shopping v Duterte.
G.R. No. 211093, June 6, 2017)
f} Residual Taxing-Power of Local Governments
LG Us have the power to levy taxes, fees or charges on any
base or subject NOT:
.. Specifically enumerated in LGC
• Taxed under the provisions of the N!RC, as amended,
or
• Other applicable laws.
Conditions:
That the taxes, fees or charges shall not be unjust,
 ATENEO CENTRAL
BAR OPERATIONS 2019
excessive, oppressive, confiscatory or contrary to declared
national policy.
• The ordinance levying such taxes, fees or charges
shall not be enacted without any prior public hearing
conducted.for the purpose. (Sec. 186, LGC)
Limitations of the Residual Power
1. Constitutional limitations on taxing power
2. Common limitations prescribed in Sec. 133 of LGC
3. Fundamental principles governing the exercise.of the
taxing power of the LGUs prescribed under Sec. 130 of
theLGC
4. The ordinance levying such residual taxes shall not be
enacted without.any prior public hearing conducted for
the purpose, and
5. The principle of preemption 14.1
g) Authority to Issue Local Tax Ordinance .
The power to impose a tax, fee or charge or to generate
revenue is exercised by . the Sanggunian of the LGU
concerned through an appropriate ordinance. (LGC, Sec.
132) .· .
Sangguniang Panlalawigan - for provinces
Sanggunlang Panqlunqsod -for cities ·
Sangguniang Pambayan - for municipalities
Barangay Council - tor baranqays I barrios (LGC, Sec.
41[b]) . • Percentage taxes under.Sec. i 16,,Nl~C
Local Taxing Authority
a) Power to . Create . Revenues Exercised through
Local GovernmentUnits
Each local government unit has the power to:
1. Create its own sources of revenue and
2. Levy taxes, fees, and charges subject to the provisions
hereiri, consistent with · the basic policy of local
autonomy. (LGC, Sec. 129)
Such taxes, fees, and charges shall accrue exclusively to
141
The principle of preemption refers to an instance where the
national government elects to tax a particular area, impliedly
withholding from the local govemment the delegated power to
tax the same field. (Victorias.Milling Co, tnc. v. Municipality of
Victorias Milling, G.R. No. L~21183, 1968)
142SEC.
187 (LGC) Procedure for Approval and Effectivity of
Tax, Ordinances and Revenu.e Measures; Mandatory Public
Hearings.- The procedure for approval of !ocal tax ordinances
and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be
conducted for the purpose prior to the enactment thereof:
Provided, further, That any question on the constitutionality or
Page 170 of 206
TAXATION LAW
the local government units. . _, •
Note:As distinguished frorn i.hternal revenue taxes that do
not accrue exclusively to the national government but are
shared to. the locaLgovernrnents in the form ot internal
, revenue allotments. (See NIRC of 1997, Title XI) .
Other Sources of Revenues:
Internal Revenue Allotment (IRA)
National internal revenue collected and not applied as
hereinabove provided' or otherwise. specially disposed of
by lawsha]] accrue tothe NationalTreasuryand shall be
available f~; the general purposes of the Government, with
the . exception of the.
. amounts set apart by. way of allotment
as provided for under the Local GovemmentCode of 1991.
(NIRC, Sec. 382)
Local government units shall have a40%. share in the
national.internal revenue taxes based on the collection of
the third fiscal year preceding the currentflscalyear. (LGC,
Sec. 2(J4)
' ..
50% share in collections for the ff: (NIRC, Sec. 283 [2])
• VAT on sale of goods pr properties under Sec. 106,
NIRC
• VAT on sale of services and use or lease of properties
under Sec. 108, NIRC . ·
b) Procedure . for approval and effec;tivity · of tax
ordinances
The power to impose a tax, fee or charge or to generate
revenue ls exercised by the Sanggunian of the. LGU
concerned through an appropriate ordinance. (LGC,. Sec.
132)
The procedure applicable to, local government ordinances
in qenerai.should be observed. 142 .
Procedural details: L
• Necessity of quorum
legalityoftax ordinances or revenue measures maybe raised
on appeal within thirty (30) days from the effectivitythereof to the
Secretaryof Justice who shall. render a decision within sixty (60)
days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the
effectivity of the ordinance and lhe accrual and payment of the
tax, fee, or charge levied therein: Provided, finally, That within
thirty (30) day~ afterreceipt of the decision or theJapse of the
sixty-day period without the, Secreiary of Justice actingupon the
appeal: the aggrieved party may fite appropriate proceedings
with a court of competent jurisdiction.
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• Submission for approval by the local chief
executive143
• The matter of veto and overriding the same 144
143
SEC. 54 (LGC) Approval of Ordinances.-
(a) Every ordinance enacted by the sangguniang panlalawigan,
sangguniang panlungsod, or sangguniangbayan shall be
presented to the provincial governor or city or municipal mayor,
( i
as the case may be. If the local chief executive concerned
,,
approves the Same, he shall affix his signature on each and
f. '~ every page. thereof; otherwise, he shall veto it and return the
I same with his objections to the sanggunian, which may proceed
to reconsider the same. The sanggunian concerned may
override the veto of the local chief executive by two-thirds (2/3)
vote of all its members, thereby making the ordinance or
,.. 1
' 1 resolution effective for all legal intents and purposes.
(b} The veto shall be communicated by the local chief executive
concerned to the sanqqunian within fifteen (15) days in the case
of a province, and ten (10) days in the case of a city or a
municipality; otherwise. the ordinance shall be deemed
approved as if he had signed it.
(c) Ordinances enacted by the sangguniang barangay shall,
f 1
upon approval by the majorlty of all its members. be signed by
the punong barangay.
144 SEC. 55 (LGC) Veto Power of the Local Chief Executive.
J province, posting of such ordinances shall be made in all
(a) The local chief.executive may veto any ordinance of the
sanggunian pan!alawigan. sangguniang panlungsod, or
sanggunian bayan on the ground that it is ultra vires or
preJudicial to the public welfare, stating his reasons therefor in
writing.
(b) The local chief executive, except the punong barangay, shall
have the power to veto any particular item or items of an
appropriations ordinance, an ordinance or resolution adopting a
local development plan and public investment program, or an
.
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'
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ordinance directing the payment of money or creating liability. In
such a case, the veto shall not affect the item or items which are
· notobjected to. The vetoed item or items shall not take effect
unless the sanggunian overrides the veto in the manner herein
provided; otherwise, the item or items in the appropriations
ordinance of the previous year corresponding to· those vetoed, if
any, shall be deemed reenacted.
(c) The local chief executive may veto an ordinance or resolution
only once. The sanggunian may override the veto of the local
i chief executive concerned by two-thirds (2/3) vote of ali its
i '
members. thereby making the ordinance effective even without
the approval of the local chief executive concerned.
145SEC.
59 (LGC) Effectivity of Ordinances or Resolutions. -
(a) Unless otherwise stated in the ordinance or the resolution
approving the local development plan and public investment
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• Ttie publication and effectivity145
e Public hearings are required before any local tax
•
ordinance is enacted 146
program, the same shall take effect after ten ( 10) days from the
date a copy thereof is posted in a bulletin board at the entrance
of the provincial capitol or city, municipal, or barangay hall, as
the case may be, and in at least- two (2) other conspicuous
places in the. local.government unit concerned.
(b) The secretary to the sanggunian concerned shall cause the
posting of an ordinance or resolution in the bulletin board at the
entrance of the provincial capitol and the city, municipal, or
bararigay hall in at least two (2) conspicuous places in the local
government unit concerned not later than five (5) days, after
approval thereof.
The text of the ordinance or resolution shall be disseminated and
posted in Filipino or English and in the language understood by
the majority of the people in the local government unit
concerned, and the secretary to the sanggunian shall record
such fact in a book kept for the purpose, stating the dates of
approval and posting.
(c) The gist of all ordinances with penal sanctions shall be
published in a newspaper of general circulation within the
province where the local iegislative body concerned belongs. In
the absence of any newspaper of general circulation within the
municipalities and, cities of the province where the sanggunian
of origin is situated. ·
(d) In the case of highly urbanized and independent component
cities, the main features .of the ordinance or resolution duly
enacted or adopted shall, in addition to being posted, be
published once in a local newspaper of general circulation within
the city: Provided; That in. the absence thereof the ordinance or
resolution shall be published in any newspaper of general
circulation.
146SEC. 187 (LGC) Procedure for Approval and Effectivity of
Tax, Ordinances and Revenue Measures; Mandatory Public
Hearings. - The procedure for approval of local tax ordinances
and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be
conducted for the purpose prior to the enactment thereof:
Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised
on appeal within thirty (30) days from the effectlvity thereofto the
Secretary of Justice who shall render a decision within sixty (60)
days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the
tax, fee, or charge levied therein: Provided, finally, That within
thirty {30) days after receipt oi the decision or the lapse of the
sixty-day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings
with a court of competent jurisdiction.
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• Within 10 days after their approval, publication in
full for 3 consecutive days in c,t. newspaper of
general circulation. In · the absence of such
newspaper in the province, city or municipality, the
ordinance may be posted in at least two
conspicuous and publicly accessible places.147
Scope of Taxing Power
Grant of taxing power under existing law
Each local government unit shall exercise its power to
create its own sources of revenue and to levy taxes, fees,
and charges subject to the provisions herein, consistent
with the basic policy of local autonomy. Such taxes, fees,
and charges · shall accrue exclusively to . the local
government units. (LGC, Sec.129)
For provinces, they are limited to what is prescribed .in the
LGC, as the word is "only." (LGC, Sec'. 134)
Power to prescribe penalties for tax violations and
exemptions
The sanggunian of a local government unit is authorized to
147Section 188 (LGC) Publication of Tax Ordinances and
Revenue Measures. - Within ten (10) days after their approval,
certified true copies of ali provincial, city, and municipal tax
ordinances or revenue measures shall be published in full for
three (3) consecutive days in a newspaper of local circulation:
Page 172 of 206
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TAXATION LAW
prescribe fines or other penalties for Violation of ta,s
ordinances but in no case shall such fines be less than One
thousand pesos (P1 ,000.00) nor more than Five thousand
pesos (P5,000.00), nor shall. imprisonment be less than
one (1) month nor more than six (6) months. Such fine or
other penalty, or both, shall be imposed at the discretion of
the court. The sangguniang barangay,may prescribe a fine
of not less than One hundred pesos (P100.00) nor more
than One thousand pesos (P1 ,000.00). (LGC, Sec. 516)
Power to grant local fax exemptions
Local government units may, through ordinances duly
approved, grarit tax exemptions, incentives or reliefs under
such .terrns and conditions as they may deem necessary.
(LGC, Sec. 192)
Power to adjust local tax rates
Local government units shall have the authority to adjust
the tax rates as prescribed· herein not oftener than once
every five (5) years, but in no case shall such adjustment
exceed. ten percent ( 10%) of the rates fixed under this
Code. (LGC, Sec. 191)
;·
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Provided. however, That in provinces. cities and municipalities
where there are no newspapers of local circulation, the same
may be posted in
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2. Specific Taxing Power of LGUs •

I
I
Taxing Powers of Provinces
t 1
TYPE OF TAX RATE EXCEPTIONS NOTES
Tax on Transfer of Real Property Not more than 50% Sale, transfer or other It shall be the duty of the
Ownership. of the 1% of the total disposition of real seller, donor, transferor or
The province may impose a tax on the consideration or of property pursuant to administrator to pay the tax
sale, donation, barter, or on any other the fair market R.A. No. 6657 (CARL}. imposed within 60 days from
mode of transferring ownership or title value, whichever is the date of the execution of
of real property. higher the deed or from the date of
the decedent's death.
Tax on Business of Printing and · Not exceeding 50% Newly started business,
Publication. of 1 % of the gross the tax shall not exceed
The province may impose a tax on the annual receipts for 1 /20 of 1 % of the capital
1 business of persons engaged in the the preceding investment. School
i'
printing and/or publication of books, calendar year. texts or references,
cards, posters, leaflets, handbills, prescribed by the DECS
certificates, receipts, pamphlets, and shall be exempt from
others of similar nature. the tax.
Franchise Tax. Notwiihstanding any Not exceeding 50% Newly started business,

r
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l,
. I
exemption granted by any law or other of 1 % of the gross the tax shall not exceed I
special law, the province may impose annual receipts for 1 /20 of 1 % of the capital
a tax on businesses enjoying a the preceding investment.
franchise. calendar year,
within its territorial
jurisdiction.
Tax on Sand, Grave! and Other Not more than 10% The permit to extract
Quarry Resources. The province of fair market value resources · shall be issued
mayJevy and collect taxes on ordinary in _the locality exclusively by the provincial
stones, sand, gravel, earth, and other governor, pursuant to the
quarry resources extracted from ordinance of the
public lands or from the beds of Sangguiliang Panlalawiqan.
seas, lakes, rivers, streams, creeks, Proceeds distributed as
t and other public waters within its follows:.-·
territorial jurisdiction. Province -30% ..
I l Component City or
Municipality where the quarry
w
I 1 resources are extracted -
30%
Barangay where the quarry
resources are extracted -
I 40%.

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Professional Tax. At such amount and Professionals To be paid to the province

The province may levy an annual reasonable exclusivelyemployed in where · he/she practices
• professional tax on each person classification as the the governmentshall be his/her profession or where
engaged in the exercise or practiceof Sangguniang exempt from the he/she maintains principal
his profession requiring government Panialawigan may payment of this tax. In office in case the practice is in
examination. To be paid on or before determine but shall instances where an several - places. Provided,
the 31°1 day of January. _Any person in no case shall individual exercises two after oaymenthe/she shall be
~rst beginningto practice a profession exceed P300.00. professions. two entitled to practice his/her
after the month of· January must, separatetaxes are due. profession in any part of the
however, pay the full tax before Phils.. w/out being subjected
engagingtherein. to any other national or local
tax, license. or fee for the
practice of the profession.
Amusement Tax. Not more than 30% The holding of . operas, The proceeds from the
The provincemay levyan amusement of the gross receipts concerts, , dramas, amusement tax shall be
tax to be collected from the from admission recitals, paintingand art shared equally by the
proprietors, lessees or operators of fees. exhibitions, flower province and the municipality
theaters, cinemas, concert halls, shows, musical where. such amusement
circuses, boxing stadia, and other programs, literary and places are located.
places of amusement oratorical
presentations, except
pop, rock, or · similar·
I
concerts shall be ·
exempt. .
Annual Fixed Tax For Every Amount· not They shall be exempt from
Delivery Truck or Van of exceeding P500.00. tax on peddlers which may be
Manufacturers or Producers, , Imposed on municipalities
Wholesalersof, Dealers, or Retailers (LGC, Sec. 141[b})
of. Certain Products. The province
may levy an annual fixed tax for every
truck or any ·. vehicle used by
manufacturers, producers,
wholesalers, dealers or retailers in the
delivery of distilled spirits, soft drinks,
cigars and cigarettes, and other I

productsas may be determinedby the

sanggunian, to . sales outlets, or
consumers, whether directly or
indirectly, within the province. .
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Page 174 of 206

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n Taxing powers of Cities • On contractors and other independent contractors
r ·-i SCOPE: The city may· levy the taxes, fees, and
charges which the province or municipality may
•
•
On banks and other financial institutions,
On peddlers engaged in the sale of any merchandise
impose. or article of commerce
l • On any business, which the Sanqqunian concerned
The tax rates that the city may levy may exceed the may deem proper to tax. For businesses subject to
I 1 maximum rates allowed for the province or municipality by the excise, value-added or percentage tax, the tax
not more than 50% except the rates of professional and
r1 amusement taxes. (LGC, Sec. 151)
rate shall not exceed 2% of gross . sales of the
preceding calendar year.
i] Taxing powers of Municipalities MUNICIPALITY WITHIN A PROVINCE
SCOPE: Municipalities may levy taxes, fees and
r1 charges not otherwise levied by provinces.
PROVINCE May levy only taxes, fees and
charnes on Sec 135 - 141
'j MUNICIPALITY May levy only taxes, fees and
a) Tax on Various Types of Businesses charqes on Sec 143 - 149
The municipality may impose taxes on the following: CITY WITHIN A PROVINCE
IJ • On manufacturers, assemblers, repackers, PROVINCE May levy only taxes, fees and
processors, brewers, distillers, .rectifiers, and charges onSec 135 -141
! compounders of liquors, distilled spirits, and wines or CITY May levy taxes, fees and
charges on Sec 135-141
·, manufacturers of any article of commerce of whatever
and Sec 143.-149 (LGC,. Sec
! kind or nature.
151)
r} • On wholesalers, distributors, or dealers in any article
of commerce of whatever kind or nature.
HIGHLY URBANIZED AND INDEPENDENT
COMl=>ONENT CITIES
• On exporters, and on manufacturers, millers, CITIES May levy taxes, fees and ... ;.
r ·1l producers, wholesalers, distributors, dealers or charges on Sec 135 - 141
retailers of the foilowing essential commodities and Sec 143 -149 (LGC; $ec
f} (where the rate prescribed is oniy % of the regular 151)
rate) (LGC; Sec. 143[C])
[ .. Rice and corn; b) Ceiling on Business Tax Imposable on
• Wheat or cassava flour, meat, dairy products, locally ·. Municipalities .
manufactured, processed or preserved food, sugar, Municipalities within the Metropolitan Manila Area may
salt and other agricultural, marine, and fresh water levy higher tax rates than those municipalities outside
products, whether in their original state or not; · MM, as long as these rates do not exceed 50% the
. maximum rates prescribed in the previous section,
• Cooking oil and cooking gas;
·• Laundry soap, detergents, and medicine;
.
1
• Agricultural implements, equipment and post-harvest
The Sanggunian concerned may prescribe a s~hedule of .
graduated tax rates but in no.case shall exceed the rates
facilities, fertilizers, pesticides and other farm inputs;
prescribed in the LGC.
Ll
l J
• Poultry feeds and other animal feeds;
• Schoolsupplies;and
,,. . • Cement.
The tax is payable for every separate or distinct
establishment or place wherebusiness is conducted.148
• On retailers
, .
n
a.

148SEC. 146 (LGC) Payment of Business Taxes. - which are subject to the same rate of tax, the tax shall be
computed on the combined tota! gross sales or receipts of. the

[ . {a) The taxes imposed under Section 143 shall be payable for
every separate or distinct establishment or place where
business subject to the tax is conducted and one line of business
said two (2) or more related businesses.

(c) In cases where a person conducts or operates two (2) or

does not become exempt by being conducted with some other more businesses mentioned in Section 143 of this Code which
qusiness for which such tax has been paid. The. tax on a are subject to different rates of tax, the gross sales or receipts of
t1usiness must be paid by the person conducting the same. each business shall be separately reported for the purpose of
computing the tax due from each business.
(,P) In cases where a person conducts or operates two (2) or
more of the businesses mentioned in Section 143 of this Code
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. . .
A tax that. bears a direct relation to the volume of sales (or
· when thereis a set ratio on the volume of sales and the
amount of tax) may not be imposed by the local
government since these . amounts .to percentage tax on
sales. (Serafica v. Treasurer of Ormoc City, G.R. No. L-
24813, )969)
However, if the tax is based on past quarterly sales, these
. could be valid.
c) Tax on Retirement of Business
A business subject .to municipal tax shall, upon
termination thereof, submit a sworn statement of its
gross sales or receipts for the current year. If the tax paid
during the year be less than the tax due on said gross
sales or receipts of the current year, the difference shall
be paid before the business is considered officially retired.
(LGG, Sec. 145)
Local business tax is paid for the privilege of tarrying a
business durihg the year it is paid, and net for the previous
year. If the tax paid is more than the tax due on said gross
sales or receipts of the current year, the business is
entitled to a tax credit. (Mobil Philippines Ii. The City
TreasurerofMakati, .G.R. No-. 154092,2005)
d) Rules on payment of business taxes
It shall be payable for every separate or · distinct
establishment or place where the business subject to the
149SEC. 147 (LGC) Fees and Charges. - The municipality may
impose and collect such reasonable fees and charges on·
business and occupation and. except as reserved to the
province in Section 139 of this Code, on the practice of any
profession or calling, commensurate with the cost of regulation,
inspection and licensinqbefore any person may engage ln such
business or occupation, or practice such profession or calling.·
150 SEC. 148 (LGC) Fees for Sealing and Licensing of
Weights and Measures. - ·
(a) The municipality may levy fees for the sealing and licensing
of weights and measures at such reasonable rates as shall be
prescribed by the sangguniang bayan.
(b) The sangguniang bayar. shall prescribe the necessary
regulations for the use of such weights and measures, subject
to such guidelines as shali be · prescribed by the Department of
Science and Technology. The sanggunian concerned shall, by
appropriate ordinance, penalize · fraudulent practices and
unlawful possession or use of instruments of weights and
measures and prescribe the criminal penalty therefor in
accordance with the provisions of this Code. Provided, however,
That the sanggunian concerned may authorize the municipal
treasurer to settle an offense not involving the commission of
fraud before a case therefor is filed in court, upon payment of a
Page 176 of 206
TAXATION LAW
tax is conducted. One line of business does not become
exempt by being r.onducted with some other business for
whichsuch tax has beenpaid,
The tax on a business must be paid by the person
conducting the same.
In cases where a persop.conducts or operates 2 or more
. . of the businesses mentioned- in Section 143 of LGC, the
tax shall be computed as follows:
• If these are subject to the same rate of tax, the tax
shall be computed ori the combined total gross sales
or receipts of the said 2 or more related businesses.
• If these are subject to different rates of tax, the. gross
sales or receipts of each business shall be separately
reported for the purpose of computing the tax due
from each business.
e) · Fees and Charges for Regulation and Licensing
Municipai1ties may impose: ·
• Such reasonable fees and charges on business and
occupation except professional taxes reserved for
provinces.149
• Reasonable fees for the sealing and licensing of
weights and measures.P?
• Fishery rentals, fe.es and charges, including the
authority to grant fisl'lery privileges within municipal·
waters, as well as issue licenses for the operation of
fishing vessels of thcee tons or less.151
compromise penalty of not less than. Two hundred pesos
. (P200.00).
· 1s1sEC. 149 (LGC) Fishery Rentals( Fees and Charges. -
(a) Municipalities sha!I have the exclusive authority to grant. ·
fishery privileges in the municipal waters and impose 'rentals.
fees or charges therefor in accordance wit.h the provisions of this
Section.
(b) The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals, oysters, mussels
or other aquatic beds or bangus fry areas, within a definite zone
of the municipal waters, as determined by it: Provided, however,
That duly registered organizations and cooperatives of marginal
fishermen shall have the preferential right to such fishery
privileges: Provided, further, 'Ihat the sangguniang bayan may
require a public bidding in conformity with and pursuant to an
ordinance for the grant of such privileges: Provided, finally, That
in the absence of such organizations and cooperatives or their
failure to exercise their preferential right, other parties may
participate in the public biddihg in conformity witti the above
cited procedure.
(2) Grant the privilege to gather, take or catch bangus fry, prawn
 ATENEO CENTRAL
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•r·, Situs of Local Taxation
• J
Situs According to the Cases:
Excise Tax - not dependent on the domicile of the
I , taxpayer, but on the place in which the act is performed or
• the occupation is engaged in; not upon the location of the
office, but the place where the act is perfected. (Allied
Thread Co., inc. v. City Mayor of Manila, G.R. No. L-
40296,1984)
Sales Tax - it is the place of the consummation of the
sale, associated with the delivery of the things which are
the subject matter of the contract that determines the situs
·, of the contract for purposes of taxation, and not merely
. ( i the place of the perfection of the contract. (Shell Co., Inc.
v. fv1unlcipality of Sipocot, Camarines Sur, G.R. No, L-
{ 12680, 1959)
Truck sales were made independently of transactions in
l
i the main office. The delivery trucks were not used solely
for the purpose of delivering softdrinks. They served as
selling units. Thus, the corporation was engaged in the
separate business of selling or distributing softdrinks
i1 independently of its business of bottling them. The situs of
the act of distributing must be withincity limits before the
[i entity can be taxed. (lloifo Bottlers Inc v. ,City of 1/oilo, GR-
No-L-52019, 1988)
Situs According to Section 150 of LGC
Rule 1: For purposes of collection of the. taxes under
Section 143 (tax or. business), businesses maintaining or
'l operating branch or sales outlet elsewhere shall record
I
the sale in the branch or sa!es outlet making the sale or
.1 transaction, and the tax thereon shall accrue and shall be
paid to the municipality where such branch or sales outlet
i is located.
iJ N.ote: A branch/sales office is a fixed place in a locality
which conducts operations or the business as an extension
• I
0 of the principal office. It doesNof include displayoffices
used as display areas where no stocks or items are stored
for sale, although orders for the products may be received
thereat. · ·
fry or kawaq-kawaq · or fry of other species and · fish from the
municipal waters by nets, traps or other fishing gears to marginal
fishermen free of any rental, fee, charge or any other imposition
whatsoever.
(3) Issue licenses for the operation of fishing vessels of three (3)
tons or less for which purpose the sar.ggur.iangbayan shall
promulgate rules and regulations regarding the issuances of
such licenses to qualified applicants under existing laws.
Page 177 of 206
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TAXATION LAW
A warehouse is place where the goods are stored. If it •
accepts orders and/or issues sales invoices independent
of a branch or sales office, it shall-be considered a sales
office.
Rule 2: If there is no-branch or sales outlet in the city or
municipality where the sale was made, the sale shall be
recorded in the principal office and the taxes due ~gall
accrue and be paid to.such city or municipality.
Rule 3: · The following sales allocation for sales recorded
in the principal office of businesses with factories, project
office, plant, and plantations:
• 30% of all sales recorded in the principal office shall
be taxable· by the city · or . municipality where the
principal office is located; and
• 70% of all sales recorded in the principal office shall
be taxable by the city or municipality where the
factory, project office, plant, or plantation is located.
Rule 4: Where the plantation is located at a place other
than the place where the factory is located, the .above
mentioned 70% shall be divided as follows: · ··
• 60% to the city or municipality where the factory. is
located; and . .
• · 40% to the city or municipality where the plantation is ' '"
located.
Rule 5: Where there are 2 or more factories, project
offices, plants, or plantations located in different localities,
the above mentioned 70% shall be prorated among the
localities where the factories, project offices; plants, and
plantations are located in proportion to their respective
volumes of production during the period for which the tax
is due. (LGC, Sec. 150)
Illustration:
A company maintains its principal office ·in·c Cubao,
Quezon City. It has branches/sales offices in Cebu arid
Davao. Its factory is located in Marikina Citywhere most -·
of its workers live. Its principal office in Quezon City is also
Provided, however, That the sanggunian concerned shall, by
appropriate ordinance, penalize the use of explosives, noxious
or poisonous substances. electricity, muro-ami, arid other
deleterious methods of fishing and prescribe a criminal penalty
therefor in accordance with the provisions of this Code:
Provided, finally, That ihe sanggunian concerned shall have the
authority to prosecute any violation of the provisions of
applicable fishery laws.
 ATENEO CENTRAL
BAR OPERATIONS 2019
a sales office.
Sales. of finished products for calendar year 2009 in the
amountof P10M were made at the following locations:
i. Cebu branch - 25%
ii. Davao branch - 15%
iii. Quezon City Branch - 60%
Where should the local truces be paid?
Suggested Answer. The local taxes must be paid in Cebu,
Davao, and Quezon City. The sales were made in the
branch offices in Cebu and Davao and the sales office in
Quezon City. (Bar 2010)
For purposes of identifying the LGU entitled to collect
taxes, the location stated in the certificate of title should
be followed, until amended through proper judicial
proceedings. (Municipality.of Cainta v City of Pasig, G.R.
No. 176703. June 28, 2017)
Note:
In cases of manufacturers or producers which engage the
services of an independent contractor to produce or
manufacture. some of their products, these rules shall
apply except that the f~ctory or plant and. warehouse of·
the contractor utilized for the production and storage of
the manufacturers' products shall be considered as the
factory or plant and warehouse of the manufacturer. (A. 0.
270, Art. 243 [b] [7})
The cily or municipality where the port of loading is located
shall not levy and collect reasonable fees unless the
. exporter maintains in said city or municipality its principal
office, a branch, sales office, or warehouse, factory, plant
or plantation in which case, the rule on the matter shall
apply accordingly.(A.0. 270, Art. 243 [c])
Taxing Powers ofBarangays
Scope of Taxing Powers: The barangays may levy the
following taxes and charges, which shall exclusively
accrue to them: (TOBS)
1. Taxes - On . stores or retailers with fixed business
;stablishments with gross safes of receipts · of the
preceding calendar year of P50.000.00 or less for
cities and P30,000.00 or less, in the case of
municipalities, rate =
not exceeding 1 % en gross
sales or receipts.
2. Service Fees or Charges for services rendered in
'Zonnection with the regulations or the use of
barangay-owned properties or service facilities such
as palay, copra, or tobacco dryers.
3. ~arangay Clearance. - No city or municipality may
issue any license or permit for any business or activity
Page 178 of 206
TAXATION LAW
unless a clearance is first obtained from the ~~rangay
where such business or • activity is located or
conducted.
4. Other fees and Charges. ~ The barangay may levy
reasonable fees and charges: (CRB)
• On commercial breeding of fighting t.ocks and
cockpits;
• On places of Recreation which charge admission
fees; and
• On §.illboards; signboards, neon signs, and
outdoor ads. (LGC, Sec; 152) ·
Common Revenue-Raislnq Powers of LGUs (SPT)
a) .§erviceFees and Charges for services rendered
b) fublic Utility Charges for the operation of public
utilities owned, operated and maintained by LGUs
within theirjurisdiction.
c) Toll Fees or Charges for the use of any publicroad,
pier, or wharf, waterway, bridge, ferry or
telecommunication system funded and constructed
by the LGU concerned.
, Exception to collection of toll fees or charges:
• Officers and ehlisted men of the Ai=P andPNP on
mission, and post office personnel delivering niail,
• Physically handicapped, and disabled citizens who
are sixty-five {65) years or older. · •
3. Common Limitations on the Taxing Powers of LGUs
. LGUs cannot Levy:
a. Income tax, except on banks and. other financial
institutions;
b. Documentary stamp tax; . .
c. Estate Tax. inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise
provided; .
d. Customs duties, registration foes of vessel and
wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges arid dues; except
. wharfage on wharves constructed and maintained by
the local government unit concerned; .
e. Taxes, fees and charges and otherimpositions upon
goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or
otherwise;
f. Taxes, fees or charges on agricultural and aquatic
products when sold by marginal farmers or fishermen;
g. Taxes on business enterprises certified to by the
Board of Investments as pioneer or non-pioneer for a
period of 6 and 4 years; respectively from the date of
registration; · .
h. Excise taxes on articles enumerated under the NIRC,
 r ·-i,

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rr as amended, taxes, and guidelines as set . forth in· said statutory pro"'visions.
i. Fees or charges on petroleum products; (Alta Vista Golf& Country Club v, City of Cebu, 2016)
j. Percentage or VAT on sales, barters or exchanges or Section 133(a) of the LGC expressly provides that the
similar transactions on goods or services except as taxing powers of provinces, cities, municipalities, and
otherwise provided; barangays shall not extend to the levy of income tax,
except when levied on banks and other financial
k. Taxes on the gross receipts of transportation
t 1 contractors and persons engaged in the
institutions. Section 131 (e) defines "banks and other
financial institutions," which excludes holding companies.
transportation of passengers or freight by hire and
[1 common carriers by air, land or water, except as
Section 3.A.02(h) of the Revised Makati Revenue Code
imposes an LBT on the dividend income of banks and
provided in the Code; other financial institutions. Section 3.A.02(p), however,
[1 I. Taxes on premiums paid by way of reinsurance or makes holding companies, such as MHI, liable for the.
retrocession; same business tax. Section 3.A.02(p} of the Revised
[1 m. Taxes, fees or charges for the registration of motor Makati Revenue Code violates the limit set by Section
vehicles and for the issuance of all kinds of licenses 133(a) of the LGC, which prohibits the imposition of income
[l or permits for the driving thereof, except tricycles; tax except when levied on banks and other financial·
institutions. The said provision is theretore an ultra vires
n. Taxes, fees, or other charges on Philippine products
{1 actually exported, except as otherwise provided;
exercise of local taxing power that cannot be given effect
without violating the principle that an ordinance must
o. Taxes, fee, or charges, on Countryside and Barangay confirm with and can neither amend nor repeal a. statute.
ll · Business Enterprises and cooperatives duly (Michigan Holdings, Inc. v City Treasurer of Makati, CTA
registered under RA. 6810 and RA. 6938 · Case No: 1093, 2015)
r1 (Cooperative Code ofthe Philippines); and
p. Taxes, fees or charges of any kind on the National
l) Government, its agencies and instrumentalities, and A municipal tax ordinance Which prescribes a set ratio - .
· local government units. between the amount of the 'tax and the volume of saiei:of
fJ the taxpayer imposes a sales tax and is null and Void for
Section 186 allows a province to levy taxes other than being beyond the power of a municipality to .enact.
t•"l those specifically enumerated. under the. Code, subject to (Arabay, Inc'. If. Cfl of Zamboanga, GR. No. L-37~84,
the conditions specified therein. This finding, nevertheless, 1975)
{. _) affords cold comfort to petitioners as they are still
prohibited from imposing taxes on stones, sand, gravel, Franchise tax
11 earth and other quarry resources extracted from private
lands. The. tax imposed by the Province of Bulacan is an
A franchise tax is a tax on the privilege of transactinq
excise tax, being a tax upon the performance, carrying on, business in the state and exercising corporate franchise
11 or exercise of an activity .. (Province ot Bulacan v. CA, granted by the state. The tax covers special or secondary
1998) . - franchises which refer: to the .right or privileges conferred ·
I l The language of Section 133 (h) makes plain that the upon an existing corporation such as the right to use the
prohibition with respect to petroleum products extends not streets of a municipality to lay pipes of tracks, erect poles
(J only to excise taxes thereon, but all "taxes;. fees and ·or string wires. · \
charges." While local government units are authorized to
H burden all such other class of goods with "taxes, fees and
charges", excepting excise taxes, a specific prohibition is
To be covered by franchise tax, two requisites must be
satisfied:
imposed barring the !evying of any other type of taxes with
a) It has a "franchise" in the sense of a secondary or
respect to petroleum products. (Petron Corporation v.
Tiangco, 2008) special franchise; and
• 1
i.J A local government unit may exercise its residual power to b) It is exercising its rights or privileges under this
tax when there is neither a grant nor a · prohibition by franchise within the territory of the LGU (NAPOCOR
r
i statute; or when such taxes, fees, or charges are not v. City of Cebenetuen, G.R. No. 149110, 2003)
otherwise specifically enumerated in the Local
t Government Code, National Internal Revenue Code, as Simultaneous imposition of franchise tax and local
amended, or other applicable laws. In the present case, business tax
I ; Section 140, in relation to Section 131 (c}, of the Local
Government Code already explicitiy and clearly cover
A business tax is imposed on. the privilege of engaging in
the business of contracting a system of communications,
! amusement tax and respondent Cebu City must exercise
[ its authority to impose amusement tax within the limitations
whereas a franchise tax is imposed for the exercise of
enjoying a franchise. While the city tax and franchise tax
r
I are both imposed by the same taxing authority, on the
Page 179 of206

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same subject matter and for the same taxing period, the
imposition thereof does not consntute double taxation as
they are not of the same kind.or character (Sky Cable v.
Quezon <;ity, CTA AC No. 102, 2014)
Amusement tax
Places where provinces/cities cannot impose amusement
tax (because the NJRC already imposes amusement tax):
1. Cockpits
· 2. Cabarets
3; Night or day clubs
4. Boxing exhibitions
5. Professional basketball games
6. Jal-Alai: and . A province may impose a tax on quarry , resources
7. Racetracks (NIRq, Sec. 125)
Other bu~inesses hot subject to amusement tax
1. Resorts, swimming pools, ba~h:houses, hot springs,
and tourist spots (PelizloyRealty v. Province of
Benguet, G.R. No. 18313,7,.:got 3)
2. Professional basketball games - they do not fall
within "other places of amusement" (PBA v. CA, G.R.
No. 119122, 2000)
Section 133 of the L.GC prohibits LGUs from imposing
taxes on the gross receipts qfJransportation contractors,
persons engaged in the transportation of passenqers or
frei9ht by hire, and csmmon carriers by air, land, or water.
This is an exception to the grant of taxing power given to
municipatltles and cities per Section 142(h) of the LGC •.
(see City of Manila~- Colet, GR. No. 120051, 2014)
Classification of Common Limitations
Taxes which .
are levied under the NIRC
. ·, ':·;,· . . ·.
provided by the LGC (*a, b, C;. h, I, k)
unless otherwise
··•< ' months.
Taxes~fees, etc. which are ihlposed under the CMtAf'd}'··
Taxes, fees and charges where. the imposition of which ..
contravenes existing governmental policies or which are .
violative of the fundamental principles of taxation (*e, f, g,
I, n, o)
Taxes, fees and charges imposed under special laws. (*n)
Note: The imposition of 5% tax on the gross receipts on
rentals or lease of space in. privately-owned public
markets is not income tax, rather, these constitutes as
valid license fees for the regulation of the business.
(Progressive Dev't Corp. v. Quezon City, G.R. No. L-
30681, 1989)
Principle of Preemption or Exclusion
Where the national government elects. to tax a particular
Page 180 of 206
TAXATION LAW
area, it impliedly withholds from the local governmentthe
delegated power to tax the same· field. This doctrine
principally rests. on the intention of Congress.
Exclu.ded impositions pursuant to the doctrine of
preemption
• Taxes which are levied under the NIRC, unless
otherwise provided by LGC of 1991;
• Taxes, fees, etc. which areimposed under the TCC;
• Taxes.fees, etc, the imposition of which contravenes
existing governmental policies or which violates the
fundamental principles of taxation;
extracted from public lands but not on private lands.
(Lepantov, Arnbanloc,.GR. No.,180369, 2010)
. ' .
5. Periods of Assessment and Collection· of
Business Taxes
a) Taxable Period and Manner of Payments--The tax
. period ofall local taxes, fees and charges shall be the
calendar year, · unless otherwise provided in the
Code. Taxes, fees, and charges may be paid in
quarterly installments. ·
b) Accrual ofTax t: All local taxes, fees, and charges
accrue on the first day ofJanuary of.each year, unless
otherwise provided in the Code.
c) Time of Payment -All local taxes, fees, and charges
shall be paid within the first twenty (20). days of
January or of each subsequent quarter, as the case
· may· be, unlessotherwlse .provided in the .code. The
sanggunian concerned may, for ajustttlable .cause.
. extend the time tcir paym~rit of such taxes, without
·~ , surcharges or penalty for a: period not exceedinq 6 '!
d) Surcharges and Penalties on Unpaid Taxes, Fees,
or Charges. - The Sanggunian may impose a
surcharge not exceeding twenty five percent (25%} of
the unpaid taxes, fees or charges not paid on time.
They may impose interest.at the rate not exceeding (....
f.. .•
two percent (2%} per month of the unpaid taxes, fees
or charges including surcharges, until such amount is
fully paid but in no case shall the total interest on the
unpaid amount or portion thereof exceed thirty six (36)
months.
Interest on other unpaid .revenues - On any other
source of revenue, LGUs are authorized to impose an
interest of a maximum of 2% per month, maximum of 36
months, on the amount unpaid. ·
e) Authority of treasurer in collection and inspection
of books
Only the treasurer of the LGU imposing the tax, fee, or
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charge, may examine the books of accounts and pertinent
• records of businessmen in order to ascertain, assess, and
collect the correct amount of taxes, fees, and charges.
The treasurer may, by himself or through any of his
r deputies duly authorized in writing, examine the books,
l accounts, and . other. pertinent records of any person,
partnership, corporation, or association subject to local
{ 1 taxes, fees, and charges.
ll The examination shall be made during regular business
hours not oftener than once a year for every tax period,
which shall be the year immediately preceding the
examination, and shall be certified by the examining
official. Such certification shall be made of record in the
books of accounts of the taxpayer examined.
-, In case . the examination is made by a duly authorized
j
deputy of the local treasurer, the written authority of the
deputy concerned shall specifically state the name.
tl address, ~nd business of the taxpayer whose books,
accounts, and pertinent records are to be examined, the
i. ) date andplace of such examination, and the procedure to
be followed in conductinq. the same;
f l,
• Collection of Revenues by the Local Treasurer
r} All local taxes, fees and charges shall be collected by the.
provincial, city, municipal or barangay treasurer, or their
I .1 • duly authorized deputies.
I 1 The provincial, city or municipal treasurer may designate
the barangay treasurer or his deputy to collect local taxes,
f } fees or charges. In case a bond is required for the
-purpose, the provincial city or municipal government shall
I } pay premiums thereon in addition to. the premiums of the
bond that may be required under the Code.
rI
City Treasurer cannot be compelled by mandamus to
ti accept payment of taxes, . if. in. his reasoning and
.'·
'
'
,
assessment, the payment is incorrect · or deficient. {San
Juan v. Castro; 541 SCRA 526, 2007) ·
p treasurer {Sec. 196, LGC). It is to be noted that,
' l
152SEC. 187 (LGC) Procedurefor Approval and Effectivity of
Tax. ordinances. and Revenue Measures; Mandatory Public
•
~ . Hearings. - The procedurefor approval of local tax ordinances
and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be
conducted for the purpose prior to the enactment thereof:
Provided, further. That any question on the constitutionalityor
legality of tax ordinances or revenue measures may be raised
on appeal within thirty (30) days from the effectivitythereof to the
Secretary of Justice who shall render a decision within sixty (60)
Page 181 of 206
TAXATION LAW
6. Taxpayer's Remedies •
a) Periods of assessment and collection of local
taxes, fees or charges
• Administrative
Before assessment
Protesfagainst a newly enacted ordinance - any question
on constitutionality or legality of tax ordinance within 30
days from effectivity thereof to Secretary of Justice (LGC,
Sec. 187). Such appeal shall not have the effect of
suspending the effectivity of the ordinance and the accrual
and payment of tax.152
The Secretary of Justice can declare an ordinance void
for not having followed the requirements of the law but he
cannot replace it with his own law or he cannot-say that is
unwise. When the Secretary alters or modifies or sets
aside a tax ordinance, he is not allowed to substitute his
own judgment for the judgment of the LGU that enacted
the measure since he only exercises supervision and not
control. (Drilon v. Lim, G.R. No. 112497, 1994)
in Reyes v. CA (December 10, 1999), the secretary.ot
Justice dismissed an appeal assailing the constitutionality
of the tax ordinances of the Municipality of San Juan on . l·l
the ground that it was filed out of time. The failure of:~he
petitioners in the case to appeal to the Secretary within 30
days from the date of effectivity is fatal to their cause.,
While the appeal to the DOJ is mandatory and fatal tb,-the
taxpayer if not availed of, if the issue is on pure questions
of law, the appeal to 'the DOJ is not mandatory and the
case can be brought straight to the RTC. (Alta Vista Golf
and Country Club v. Cebu, G.R. No. 180235, 2016)
After Assessment
• Protest - within 60 days from receipt of
assessment (Sec. 195, LGC). Payment under
protest is notnecessar:y.
• Payment and subsequent refund or tax credit -
within 2 years from payment of tax to local
days from the date of receipt of the appeal: Provided, however,
That such appeal shall · not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the
tax, fee, or charge levied therein: Provided, finally, That within
thirty (30) days after receipt of the decision or the lapse of the
sixty-day period without the Secretaryof Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings
· with a court of competentjurisdiction.
 ATENEO CENTRAL
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unlike in internal revenue taxes, the supervening

• cause applies in· l~cal taxation because the period In the eveilt)hat the protest is finally decided in favor of
for the filing of the claims for refund or credit of the. taxpayer, Jhe amount or portion· of the tax protested
local taxes is counted not necessarily from the shall be re.funded to the taxpayer, or applied as tax credit
date of payment but from the date of taxpayer is against his existfng or future tax liability. It is not necessary
entitled to a tax credit. for petitionerto move for the issuance of the writ of
execution because the remedy has already been provided
b) Protest of assessment153, by law. (Coca-Co/a. Bottlers Philippines, Inc. v. City of
The Local Treasurer or his duly authorized representative Manila, 72,1 SCRA 1, 2014)
shall issue a notice of assessment stating. the nature of
the tax, fee, cir charge, the amount of deficiency, REMEDIES GROUNDS PROCEDURE
surcharges, interests and penalties. . QUESTION Any question L Appeal within 30
Within 60 days from the receipt of the . notice of THE NEWLY on the days from
assessment, the taxpayer may file a written protest with ENACTED constitufionalit effectivity of the
the Local Treasurer contesting the assessment (otherwise ORDINANCE y or legality of ordinance to the
the assessment shall become final and executory). {LGC, SEC tax ordinances Secretary of
The Local Treasurer shall decide the protest within 60 187 & 188) or revenue Justice
measures 2. Secretary must
days from the time of filing of the written protest
render a
If the protest is found to be· meritorious, he shall issue a ·decision within
notice cancelling wholly or partially the assessment. 60 days from
.If the assessment is found to be wholly or partly correct, receipt of the
the Local Treasurer shall deny the protest wholly or partly appeal
with notice to the taxpayer. 3. Within.30 days
The taxpayer has. 30 days from the receipt of the denial of from the lapse of
the protest or from the lapse of the 60-day period the· 60 days
prescribed herein within which to appeal with the court of withotit any
action from the
competent jurisdiction (otherwise the . assessment
secretary of
· becomes concluslve and unappealable). (LGC, Sec.
Justice, OR
195) .
.within.' 30 days
from receipt of
c) Claim for refund of tax credit for erroneously or the decision, the
illegally collected tax, fe~ or charge154 . aggrievE3d
. A written claim for refund. or credit must be filed with the taxpayer may go
Local Treasurer for the recovery of any tax, fee, or charge to court
erroneouslyorilleqally collected .. ' . .PROTE$T The 1. Taxpayer will
AGAINST AN correctness of issue an
ASSESS MEN the amount of assessment
The claim must be filed within 2 years from the date the
taxpayer is entitled to a refund or credit(LGC. Sec: 196)
T (LGC, Sec the 2. Taxpayer witi file
195 assessment a written rote st

153SEC. 195 (LGC)

.
I

Protest of Assessment. - When the local
treasurer or his duly authorized representativefinds that correct
taxes, fees, or charges have not been paid, he shall issue a
notice of assessment stating the nature of the tax, fee, or charge,
the amount of deficiency, the surcharges, interests and
penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protestwith the local
treasurer contesting the assessment; otherwlse, the
assessment shall become final. and executory. The local
treasurer shall decide the protest within sixty (60) days from the
time of its filing. If the local treasurerfinds the protestto be wholly
or partly meritorious, he shall issue a notice cancellingwholly or
partially the assessment.However, .if the local treasurerfinds the
assessment to be whoily or partly correct, he shall deny the
protest wholly or partly with notice to the taxpayer. The taxpayer
Page 182 of 206
shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty .(60) day .period prescribed
herein within which to . appeal with the court of competent
jurisdiction otherwise the assessmentbecomes conclusive and
unappealable.
154SEC. 196 (LGC)Claim for Refund of Tax Credit- No case
or proceeding shall be maintained in any court for the recovery
of any tax, fee, or charge erroneouslyor illegally collected until
a written claim for refund or credit has been filed with the local
treasurer. No case or proceeding shall be entertained in any
court after the expiration of two (2) years from the date of the
payment of such tax, fee: or charge, or from the date the
taxpayer is entitled to a refund or credit.
rJ
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[1 with the local 15. Civil Remedies by the LGU for the Collection of
• treasurer within Revenues
r1 60 days from the
receipt of the a) Local government's lien for delinquent taxes, fees
··1
l notice of or charges
assessment,
1 otherwise it shall
become final
Local taxes, fees, charges and other revenues are
provided a lien, superior to all liens, changes or
1 and executoiy
3. The treasurer
encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only upon
r ·1 has to decide
l l within 60 days any property onights therein which may be subject to lien
from the time of but also upon property used in business, occupation,
l 1 its filing. practice of profession or calling, or exercise of privilege
Treasurer will with respect to which the lien is imposed.
Ll either cancel or
deny the The lien may only be extinguished upon full payment of
assessment the delinquent iocal taxes, fees, and charges including
4. Taxpayer has 30
.. days from
related. surcharges and interest.
I. j receipt of denial,
b) Civil ~emedies, in general
or 30 days from
( J lapse of the· 60- (1) By administrative action - through distraint of
day period personal property and by levy upon real property
11 within which to • Distraint of personal property
appeal to the • Levy of real property, pmcedure
proper court of • Further distralnt or levy
competent • Exemption of personal property from distraint or levy
jurisdiction.
• Penalty on local treasurer for failure to issue and
Otherwise, the
execute warrant of distraint or levy
,-·} assessment
I shall become (2} Judicial action
final and local Government's Lien - Local taxes, fees, charges
f) executory and other revenues, constitute a lien, superior to all liens,
5. Taxpayer will charges or encumbrances in favor of any person,
l then appeal to enforceable. by any appropriate administrative or judicial
I
the CTA within action
30 davs
1. Written claim Note: Either of these remedies or all may be pursued
CLAIM FOR Taxes
erroneously filed with the concurrently or simultaneously at the discretion of the
{ REFUND OR
l
TAX CREDIT paid local treasurer LGU concerned.

..i--:; (LGC, Sec

196)
2. Filed within 2
years from:
a. Date of
paymen
t, or
i . I b. Date
wher.

II taxpaye
r is
entitled
to a
!
refund
( or credit

Page 183 of 206

ATENEO CENTRAL
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0 Procedure for Administrative Action

•
(i) Distraint of personai property
• Deficiency
I
evy o rea prope y ore, s1mu aneous y or
. Deficiency after distraint of personal property belonging to the
delin ent tax er

Local treasurer shall prepare a duly authenticated

certficate showing the name of the taxpaery and
Seizure or confiscation of personal property . amount of tax, fee and penalty due him
belonging to the person subject to tax orsujbect
to lien in sufficient quantity to satisfy the liability
Written notice of levy to the assessor, register of
deeds of the province or city where the property is
located and the delinquent taxpayer.

Accounting for distrained goods

I Report on: levy within .10. days from levy by the
leVYing officer.

Posting of nonces of the sale of disfrained

properties in not less than 3 public and
. conspicuous places, including the office of the .
chief executive in the territory of the LGU
· concerned ·
• weeks in a newspaper of general circolation in
The sale shall be scheduled in not !es,s than 20
davs after notice to the owner or possessor of the
property and the publication and posting the
property shall be sold to the highest bidder. The
local treasurer shall make a report of the
proceedings within 5 days from the sale.
, Advertisrnent ottne sale of the property thmugh
·· .
sale or auction within 30 days after levy. The
advertisement shall be effected by: (a) posting a
notice in the main entrance of the municipal
building or city hall and a conspicuou~ place in
the barangaywhere the real property rs located;
(b) publication once a week for 3 c~msec~llv~
the province, city'. or municipality where the
. property is located.
Sale oflevied property.

Issuance of the certifcate ofsale to the purchaser. The

owner of the proeprty has 1 year from date ofsale to
·Disposition of the proceeds of the s~le by . redeem, .
application of such proceeds to the delinquency
· and expenses of sale and return of the balance to
· the owner. r If property redeemed, a certificate of redemption will "l
· be issued.
If not redeemed a final deed of sale shall be issued to
' the purchaser.
r
If the property is not disposed of within 12q days from
The local treasurer shall purchase the property on
date bf distraint. the property shall be considered sold
behalf of the LGU if: (a) there is no bidder for the real
to the LGU concerned for the amount of the property (b) the highest bid is insufficient to pay the
assessment made thereon by the Committee on
deficiency tax. In this case, the owner also has ·1 year
Appraisal. The tax delinquency shall be cancelled to
to redeem.
the extent of such amount.
i'

(3) Further distraint or levy

(ii) Levy of real property, procedure
Page 184 of 206
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rl (4) Exemption of personal property from distraint or
levy • execute warrant of distraint or levy
r) The following property shall be exemptfrom distraint and
r ·1 the levy, attachment or execution thereof for delinquency
in the payment of any local tax, fee or charge, including
rL I the related surcharge and interest:
i
a. Tools and the implements necessarily used by the
delinquent taxpayer'in his trade or employment;
b. One (1) horse, cow, carabao, or other beast of
burden, such as the delinquent taxpayer may select,
{"1 and necessarily used by him in his ordinary
occupation;
fl c. His necessary clothing, and that of all his family;
d. Household furniture and utensils necessary for
{l housekeeping and used for that purpose by the
delinquent taxpayer, such as he may select, of a value
{l not exceeding Ten thousand pesos (P10,000.00);
u e. Provisions, including crops, actually provided for
individual or family use sufficient for four (4) months;
J i f. The professional libraries of doctors, engineers,
t ' lawyers and judges; ·
g. One fishing boat and net, not exceeding the total
value of Ten thousand pesos (P-10,000.00), by the
lawful use of which a fisherman earns his livelihood;
l] and
h. Any material or article forming. part of a house or
(} improvement of any real property. (LGC, Sec. 185)
[J
1] 155SEC. 177 (LGC) Penalty for Failure to Issue and Execute
Warrant. - Without prejudice to criminal.prosecution under the
II Revised Penal Code and other applicable laws, any local
treasurer who fails to issue or executethe warrant of distraint or·
levy after the expirationof the time prescribed, or who is found
IJ guilty of abusing the exercise thereof by competent authority
shall be· automatically dismissed from the service after due
{ J notice and hearing.
156SEC.
H 187 (LGC) Procedure for Approval and Effectivity of
Tax ordinances and Revenue Measures; Mandatory Public
. If Hearings. - The procedurefor approval of local tax ordinances
~ l
and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearingsshall be
conducted for the purpose prior to the enactment thereof:
Provided, further, That any question on the constitulionalityor
legality of tax ordinances or revenue measures may be raised
on appea! within thirty (30) days from the effectivitythereofto the
Secretary of Justice who shall rendera decision within sixty (60)
days from the date of receipt of the appeal: Provided,however,
That such appeal shall not have the effect of suspendingthe
effectivity of the ordinance and the accrual and payment of the
tax, fee, or charge levied therein: Provided, finally, That within
thirty (30) days after receipt of the decision or the lapse of the
sixty-day period without the Secretaryof Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings
Page 185 of 206
TAXATION LAW
(3) Penalty on local treasurer for failure to Issue and
The Local Treasurer who:
1. Fails to issue or execute the warrant of distraint or levy
after the expiration of the time prescribed, or
2. Is found guilty of. abusing the exercise thereof, by
competent 'authority
Shall be automatically dismissed from the service
after due notice and hearing without prejudice to
criminal prosecution under the Revised Penal Code and
other applicable laws. 155 '
o Procedure for judicial action
Court action
Within 30 days after receipt of decision or lapse of 60
days of Secretary of Justice's inaction 156
Within 30 days from receipt when protest of assessment
is denied157
If no action is taken by the treasurer in .refund cases.and
the 2-year period is about to lapse158
If remedies available do not provide plain, speedy and
adequate remedy
with a court of competentjurisdiction.
,s7~EC. 195 (LGC) Protest of Assessr:nent. - When the local
treasureror his duly authorized representativefinds that correct
taxes, fees, or charges have not been paid, he shall issue a
notice of assessmentstating the natureof the tax, fee or.charge,
the amount of deficiency, the surcharges, interests and
penalties. Within sixty (60) days from the receipt of the notice of
assessment, the taxpayer may file a written protest with the local
treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. The local
treasurer shall decide the protest Within sixty (60) days from the
time of its filing. If the local treasurerfinds the protestto be wholly
or partly meritorious, he shall issue a notice canceling wholly or
partially the assessment. However, if the local treasurerfinds the
assessment to be wholly or partly correct; he shall deny the
protest wholly or partly with notice to the taxpayer.The taxpayer
shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day period prescribed
herein within which to appeal with the court of competent
jurisdiction otherwisethe assessmentbecomes conclusive and
unappealable.
158SEC. 195 (LGC) Id.
 ATENEO.CENTRAL
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. .
Injunction. - if irreparc;1ble
.
damage would be caused
the taxpayer and no adequate remedy is available.
.·
to
.
Jurisdiction of Courts Over Local Taxation Cases
With the amendment brought by RA No. 9282, the Court
of Tax Appeals now has appellate jurisdiction over local
taxation cases decided by the RTC in the exercise of its
appellate or. original jurisdiction.
RegUiar judicial courts are not prohibited from enjoining
the collection of local taxes, subject to Rule 58
(preliminary injunction} of the Rules of Court. '
Note: Unlike the NIRC, the Local Tax Code does not
contain any specific provision prohibiting courts from
· enjoining the collection of local taxes. Such statutory
lapse or intent may have allowed preliminary injunction
where local taxes are involved. But it cannot negate the
procedural rules and requirements under Rule 58 ofthe
.. · Rules of Court(Va//ey Trading Co. v. CF/ of lsabela, 171
SCRA 501, 1989)
r appraisal, assessment, levy and collection. of Real
159SEC. 198 (LGC) Fundamental Principles. - The appraisal,
assessment, levy· and • collection of real property tax. shall be
guided by the following fundamental principles:
(a) Real property shall be appraised at its current and fair market
value;
(b) Real property shall be classified for assessment purposes on
the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform
Page 186 of 206
TAXATION LAW
B. REAL PROPERTYTAXATION
1. Fundamental Pririciples159 (CUANE)
• . ~URRENT and fair market va!ue is the basis of
.· appraisal
• Y.NIFORMITY in classification. in each local
government unit should be observed
• ACTUAL USE of the property should be the basis of
classification
• . · Appraisal, assessment, levy and collection should
NOT BELETto any private person
• · · §.QUITABLE appraisal and assessment
Nature ofReal Property Tax
Real Property Tax is a direct tax on ownership of lands
and buildings or other· improvements . thereon payable
regardless of whether the property is usedor not; although
the value may vary in accordance with such factor.
Real property truces are direct taxes imposed on the
privilege to use real property such as· land, building,
machinery, and other improvements; unless. specifically
exempted {Province of Nueve Ecija Ii. Imperial Mining,
G.RNo. L-59463, 1982)
Real Property Taxation covers the administration,
Property Tax; i.e. tax on· land and building and other
structures and improvements on it, including machineries.
.,
(Subject to the definition given by Art. 415 ofthe Civil
Code.)
Improvement .; valuable addition made to a property or
amelioration in its condition amounting to more than a
mere replacement ofparts involving capital: expenditures
and labor.
classification within each local.government unit;
(d) The appraisal, assessment, levy and collection of real
property tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be
equitable.
1 .
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r1 • Imposition of Real Property 1ax · Properties Liable for Real Property Tax
According to the Local Government Code; Real
fJ a. Power to Levy Real Property Tax Properties subject to Real Property tax are:
f ; • Land
i I
Characteristic of Real Property Tax(LIPAD) • Buildings
I 1. Qirect tax on the ownership ofreal property • Machinery and
\ 2. Ad Valorem tax : the assessed value is the tax base • Other improvements not· otherwise exempted under
3. froportionate - the tax is calculated on the basis of a said code (LGC, Sec. 232)160
'
l certain percentage of the value of the property
·

assessed Note: Although the term real property has not been
C! 4. !ndivisiblesingle obligation· expressly defined in the LGC, early decisions of the
~ ·1 5: .bocal Tax Supreme Court in Mindanao Bus Co. v, City Assessor of
I
I ;
Cagayan de Oro; Board of Assessment Appeals v.

ri 1:,,GUs that may· levy RPT (imposing authority}

1. Province;
2 .. City; and
Mera/co; Manila Electric Co. v, Board of Assessment
Appeals, seem to suggest that Art. 415 of the Civil Code

r1 3. Municipality within Metro Manila (LGC, Sec. 232)

could also be controlling.

However, .in Mera/co v. City Assessor and City Treasurer

l'l Extent of Taxi,..g Powers
. of Lucena (G.R. No.. 1$6102,
. 2015), the SC stated that the
LG Us do not only have the power to .levy real estate taxes
( •t definition of machinery in the L,GC prevails over the
but they may also fix real estate tax rates.
definition of . immovables· in the Civil Code, for. RPT
purposes. Hence, transformers, electric posts may qualify
lJ No need for public hearing
as "machinery" underlhe LGC, even if they wouldn't have
No public hearing .shall be required before the enactment
been considered "immovables" in' the Civil Code (because
l] of a.local tax ordinance levying the basic real property tax
they weren't placed in the tenement by the owner of the
(/RR of LGC, Art. 324)in comparison with local business
tenement and destined for use in the industry or work in
!1 'tax ordinances which require public hearing (LGC, Sec.
the tenement).
187)
f (. J Machinery
While a LGU is authorized under several laws to collect
It embraces machines. equipment, mechanical
i } · real estate tax on properties falling under its territorial
contrivances, instruments, appliances or apparatus,
jurisdiction, it is imperative to first show . that these
which may or may not be attached, permanently or
fJ properties are unquestionably within its geographical
boundaries (Sta. Lucia Realty v. City of Pasig, _GR. No.
temporarily, to the realproperty. It includesthe.physical
facilities for production, the installations and appurtenant
tl 1668313, 2011)
service facilities, those which are. mobile, · self-powered or
self-propelled, and those not permanently attached to the
l i real property which ate actually,' directly, and exclusively
used to meet the needs of the particular industry, business
r~ .J or activity and which by their very nature andpurpose are
;, . ~~ designed for, or necessary to its manufacturing, mining,
I J logging, commercial, industrial or agricultural purposes.161

..
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t H,oSEC. 232 (LGC) Power to Levy Real Property Tax. - A for production, the installations and appurtenant service
province or city ora municipalitywithin the MetropolitanManila facilities, those Which are mobile, self-poweredor Seif-propelled,
( ' s Area my levy an annual ad valorem tax on real propertysuch as and those not permanently attached to the real property which
, land, . building, machinery, and other improvement not are actually, directly, and exclusively used to meet the needs of
'
f hereinafter specificaHy exempted. the particular industry, business or activity and which by their
~
161
very nature and purpose are designed for, or necessary to its
SEC. 199 (0) (LGC) "Machinery.. embraces machines, manufacturing, mining, logging, commercial, industrial or
equipnient, mechanicalcontrivances, instruments,appliancesor agriculturalpurposes;
apparatus which may of may not be attached, permanently or
temporarily, to the real property. It includesthe physical facilities
Page 187 of 206
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Machinery which are of genpral purpose use including

but not limited to office equipment, typewriters, telephone • Except when b~'neficial use has been granted:to a taxable
equipment, breakable or easily damaged containers person
(glass or cartons), microcomputers, facsimile machines,
telex machine, cash dispensers, furniture and · fixtures, Parcels of land owned by the State but leased to a private
freezers, refrigerators, display cases or racks, fruit juice or commercial establishment are 'subject- to RPT since
beverage automatic dispensing machines which are not private commercial establishments are· the, taxable
directly and exclusjyely used to meet the needs of a beneficial users of the parcels of land owned by the State.
particular industry, business or activity shall not be (City of Pasig vs, Republic of the Philippines, GR. No.
considered within the definition of machinery. (/RR of 1850~3. 2011)
LGC, Sec. 290 {o])
2. Charitable : institutions; churches; parsonages,
Summary of Rules on machinery convents appurtenant thereto, mosques, non-profit or
1. If permanently attached - subjec;t to RPT religious cemeteries, buildings and improvements
2. If not permanently attached: . actually directly and .· exclusively used· for religious,
a. Essential and principal element of an industry charitable or educational purposes
wlthout which such industry, work or activity
cannot function - subject to RPT · Improvements · do· not· include machinery:>· Hence,
b. Not cm essential and principal element of an machinery that · is permanently attached . to . land and
industry, work, or 8ctivity - not subject to. RPT buildings is subject to.·RPT; even though 'this is -actually,
(e.g. · Parking lots, Courts for sports and directly, and exclusively used forreliqious, charitable or
recreational purposes) · · educational purposes. (Lo·cal Finance Circular Nd.' 01-
2001)
Classification of L~tid. for · Purposes . of
Assessinent(CARMITS) For non~std<::k, · non~profit educational · ·institutions,
1. ~ommercial · machinery used. actually, directly, and' exclusively for
2. 8gricultural . educational purposes is NOT subject to real
property tax.
3. fiesident,al (CIR. ii. DLSU, G.R. No. 196596, Nov: B; 2016) · ·
4. Mineral
5. [ndustrial The hospital, even though it was a charitable institution,
6. Iimberland was not exempt from real property tax oh the pohi6ris of
7. .§pecial its property not actually, directly; and'excluslvefy used for
charitable purposes. Those leased out fer-commercial
Special Classes of Real Property purposes are subject to real property tax: (Lung Center of
1. Hospitals . . . . · •· the Philippines vQi.JezoHCity, GR No. 11404, ~une 29,
2. Cultural and scientitlc purposes . 2004)
3. Owned and used by local water districts
· 4. GOCCs rendering essennat public services in the Being an instrumentality of the national government, the
supply and distribution of water and/or generafion or PEZA cannot be taxed by local government units.
transmission of electric: power . . Although a body corporate vested with some corporate
powers, the PEZA is not a government-owned or
2. Exemption from Real Property T3-x (Go CoChEW) controlled corporation taxable for real property taxes. (City
of Lapu-Lapu v Philippine Economic Zone Authority, GR.
1. Owned by the Government or any of its poiitical No. 184203 November 26, 2014)
subdivisions.
Note: Properties owned by GOCCs (except those 3. Machinery and equipment actually, directly, and
engaged in water of electric supply) are subject to RPT exclusively used by local water districts and GOCCs
since they are not enumerated herein, unless they fall engaged in the- supply and distribution of water and/or
under other exceptions, · generation and transmission of electric power

Compare these with properties owned . by government The privilege of exemption .from RPT .granted to NPC
instrumentalities (iike PEZA)which are exempt from RPT. cannot be extended to. another. contracting .party by
(City of Lapu-Lapu v. PEZA, G.R. No. 184293, 2014) entering into an agreement. (Fels energy, Inc. v, Province
Page 188 of 206
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rl of Batangas, GR No. 168557, February 16 .• 2007) Proof of Tax, Exemption:
(I 1J Every person by or for whom real property is declared who
The contractual provision would appear to make the NPC shall claim the exemption shall tile with the provincial, city
liable and give it standing to protest the assessment. But or municipal assessor within· 30 days from date of
the RPT tax liability imposed is the liability arising from law declaration of real property sufficient documentary
r -, that the local government unit can rightfully and evidence in support of such claim (i.e. corporate charters,
1 J successfully enforce, not the contractual liability that is title of ownership, articles of incorporation, contracts,

r1 enforceable between the parties to a contract. By law, the

tax liability rests on Mirant based on its ownership, use,
affidavits, etc.)

r-' ·'
and possession of the plant and its machineries, not on
NAPOCOR. (NAPOCOR v Province of Quezon, July 15,
4. Appraisal and Assessment of Real Property Tax

-1 2009) . a) Rule on Appraisal of Real Property at Fair Market

f . '' Value
In a contract wherein one party assumes the tax liabilities Real property shall be classified, valued and assessed on
of another, and the latter operates and uses the property the basis of actual use regardless of where located,
in question, the former does not have legal interest to whoever owns it, and whoever uses it.
(l protest the tax imposed by law on the latter, (NAPOCOR Unpaid realty taxes attached to the property and are
v Province of Quezon, January 25, 2010) chargeable against the person who had actual or
J I beneficial use and possession of it, regardless of whether
4. Realproperty owned by duly registered Cooperatives or not. he is the owner'. To impose the RPT on the
{J under RA 6938 subsequent owner which was neither the owner nor the
beneficial user of the property durlnq the designated
f1 Section234 of the LGC exempts ail real property owned periods would not only.be contrary to law but also unjust.
by cooperatives without distinction. Nothing in the law (Estate of Lim v. City of Manila, G.R. No. 90639, 1990)
CJ suggests that the real property tax exemption only applies The suit on the boundary dispute between two LGUs is a
when the property is used by the cooperative. itself. prejudicial question which must be resolved before
() Leasing of the property to another is not a ground for determining theRPT liability of the property subjectof the
withdrawal of tax exemption. (Provincial Assessor of dispute. It is an exception to the general rule that
Agusan Del Sur v. Filipinas Palm Oil Plantation, Inc., G.R. prejudicial questions only apply when a civiland a criminal
No. 18$416, 2016) . action is involved. (Sta. Lucia Mall vs. City of Pasig, G.R.
(J No. 166838, 2011)
5. Machinery & equipment for pollution control and b) Declaration of real property
1] Environment protection Sworn statement declaring the true value. of property,
which is the current and fair market value
t- l Note:.
Exemptions previously . granted (not falling within the Filed with provincial, city or municipal assessor once
ll above enumeration) are withdrawn. • every three (3) years
Although powerless to grant RPT exemption, LGUs in
l--,".
_) Metro Manila can exempt the 5% ad valorem tax on idle Refusal or failure to make such declaration:
lands.162 Assessor shall declare the property in the name
of the defaulting owner or against an unknown
y •
LGUs (within and outside MM) may also grant owner and assess the property for taxation
t condonation, which actually partake of exemption.

. '
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162 SEC. 238. (LGC) Idle Lands Exempt from Tax. A province circumstance which physicaliy or legally prevents the owner of
or city or a municipality within the Metropolitan Manila Area may the property or person having legal interest therein from
exempt idle lands from the additional levy by reason of force improving. utilizing or cultivating the same.
majeure, civil disturbance. natural calamity or any cause or
Page 189 of 206
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c) Listing of real property in assessment rolls 163
d) Preparation.of schedules of fair market value164
(1) Authority ot.assesserte take evidence165
Local assessors. may:
• Summon owners or persons having legal interest
or witnesses
• Administer oaths, or
• Take depositions
(2) Amendment of schedi.JIEt'ot fair:market value 166
Local assessors may recommend amendments to correct
errors in valuation
e) Classes of Real Property for Assessment
purposes
•· Residential
163 SEC. 205 (LGC) Ljsting . of Real Property in· the
Assessment Rolls. - (a) In every province and city, including
themunicipalities within the Metropolitan. Manila Area,. there
shall be prepared and maintained by the provincial, city or
municipalassessor an assessmentroll wherein shall be listed all
real property, whether· taxable or exempt.' located within the
territorial jurisdiction of the local government unit concerned.
Real property shall be listed, valued and assessed in the name
of the owner or administrator,or anyone having iegal interest in
the property.
a
(b} The undivided real property of deceased person may be
listed; valued and assessed in the name of the estate or of the
heirs and devisees without designating them individually; and
undivided real property. otherthan that owned by a deceased
may be listed,valued and assessed in the name of one or more
co-owners: Provided, however, That such heir, devisee, or co-
owner shall be liable severally and proportionately for all
obligation::;imposed by this Title and the payment of the real
property tax with respectto the undivided property,
(c) The real propertyof a corporation,partnership,or association
shall be listed, valued and assessed in the same manner as that
of an individual.
(d) Real property owned by the Republic of the Philippines, its
instrumentalitiesand political subdivisions, the beneficial use of
which has been granted, for consideration or otherwise, to a
taxable person, shall be listed, valued and assessed in the name
of the possessor,grantee or of the public entity if such property
has been acquired or held for resale or lease.
164SEC. 212 (LGC) Preparation of Schedule of Fair Market
Values. - Before any general revision of property assessment is
made pursuant to t_he provisions or this Title, there shall be
prepared a schedule of fair market values by the provincial, city
and the municipal assessors of the municipalities within the
Metropolitan Manila Area for the different classes of real
Page 190 of 206
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. TAXATION LAW
• Agricultural
• C~mmercial
• Industrial
• Mineral
Timberland
..
0
Special16?
Types of Real Property Tax
1; Basic real· property tax
Specia] levies: ,
Special Educ::ation Fund (SEF)168 ~a province or city, or
a municipality of Metropolitan Manila area may levy and
collect an annual tax of 1 % on the assessed value of real
property in addition to the basic· real property tax. (LGC,
Sec. 235)
property. situated _in their respective. local government units for
enactment by ordinance of the sanggunial') concerned. The
scheduleof fair marketvalu7s shall be published· in· a newspaper
of general circulation in the province, city or municipality
concerned, or in the absence thereof; shall be posted in the
provincial capitol, · city or municipal hall · and in two other
conspicuouspublicplaces therein.
165SEC. 213 (LGC) ~uthofity of Assessor to Take Evldence,
- For the purpose of obtaining informalicn on which to base the
market value ~f any real property,the assessorof th~ province, '·
city or municipality or his deputy may summon theowners .of the
propertiesto be affectedor personshav,ng·legaHnteresttherein
and witnesses, administer oaths, and take deposition
concerning the property, its ownership, amount; nature, and
value.er
166SEC.
214 {LGC) Amendment of Schedule of Fair M.arket
Values. - The provincial, city or municipal assessor may
recommend to the sanggunfan concerned amendments . to
correct errors in valuationiil the schedule of fair market values..
L
The sanggunian concerned shall, by ordinance, act upon the l.
recommendationwitl:lin ninety (90) days from receipt thereof.
,.
167SEC. 216 (LGC) Special Classes of Real Property. - All ,.
lands, buildings,public services in the supply and distribution of
water and/or generationand transmissionof electric power shall
be classifiedas special.
168SEC. 235 {LGC) Additional Levy on Real Property for the
Special Education Fund. - A province or city, or a municipality
within the Metropolitan Manila Area, may levy and collect an
annual tax of one percent (1%) on the assessed value of real
•·
propertywhich shall be in addition to the basic real property tax. i
The proceeds thereof shall exclusively accrue to the Special
Education Fund (SEF).
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• •
A province, city or municipality within the Metropolitan
•
Manila Area can impose Special Education Fund (SEF) at
f l a rate of less than 1 %. There is no limiting qualifier under
' !
Section 235 of the local Government Code to the
articulated rate of 1 % which unequivocally indicates that
'any and all special education fund collections must be at
such rate. (Demaala v. COA, G.R. No. 199752, 2015)
Additional Ad Valorem on idle lands 169- not exceeding
5% of the assessed value of.the property (LGC, Sec. 236)
fi Special Assessments 170 - on lands specially benefited
by public works, projects or improvements funded by the
rl LGU
• May be imposed even by municipalities outside MM
tl provided:
• Special levy shall not exceed 60% of the actual cost
of such projects and improvements, including the
costs of acquiring land and such other real property in
connection therewith not apply to lands exempt from
basic real property tax and the remainder of the land
had been donated to the local government unit
concerned for the construction of said projects. (LGC,
Sec. 240)
{J What are Considered Idle lands (LGC, Sec. 237)
I l
t. .JI Agricultural lands-> More than 1 hectare if more than~ of
which remain unculti'vated or unimproved by the owner of
the property or person having legal interest therein.
Cl Not Idle lands:
• Agricultural lands planted to permanent or perennial
a' lJ crops with at least 50 trees to a hectare
LI 169SEC. 236 (LGCJAdditionai Ad Valorem Tax on Idle Lands.
- A province or city, or a· municipality within the Metropolitan
H Mani!aArea, may levy an annual tax on idle lands at the rate not
exceeding five percent (5%) of the assessed value of the
property which shall be in.addition to the basic real propertytax.
110sec. 240 (LGC) Special Levy by Local Government Units.
- A province, city or municipality may impose a special levy on
the lands comprised within its territorial jurisdiction specially
· benefited by public works projects or improvementsfunded by
the local government unit concerned: Provided, however, That
the special levy shall not exceed sixty percent (60%) of. the
actual cost of such projects and improvements. including the
costs of acquiring land and such other real property in
connection therewith: Provided, further, That the special levy
shall not apply to lands exempt from basic real propertytax and
t~e remainder of ihe land portions of which have been donated
to the local government unit concerned for the constructionof
Page 191 of 206
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Lands actually used for grazing purposes
Non-Agricultural Lands - More than 1,000 sq. m. in area
if more than Y, of which remain uncultivated or
unimproved by the owner of the property or person having
legal interest therein
Under Sec. 238 of the LGC, idle lands may be exempt
from tax by reason of force majeure, civil disturbance,
natural calamity or any cause, which physically or legally
prevents the owner of the property or person having legal
interest therein from improving the land
f) Actual use of property as basis of assessment
Real properties are classified, valued and assessed
based on its actual use, regardless of location or owner
g) Assessment of property
Assessment- the act or process of determining the value
of a property, or proportion thereof subject to tax, including
. the discovery, iistirig, classification, and appraisal of
properties
Assessment levels 171 - the percentage applied to the fair
market value to determine the taxable value of-vthe
property
• Assessed Value or Taxable Value - the fair market
value multiplied by the assessment level
• Market Value x Assessment Level (%) = Assessed
Value
• Assessed Value x Tax Rate(%)= RPT
(1) General revisions of assessments and property
classlflcation'F
· (2) Date of effectivity of assessment or
reassessment173
such projectsor improvements.
171SEC. 218 (LGC) Assessment Levels. - The assessment
levels to be applied to the fair market value ofreal property to
determineits assessedvalue shall be fixed by ordinancesof the
sangguniang panlalawigan, sangguniang panlungsod or
sangguniang bayar. of a municipality within the Metropolitan
ManilaArea, at the rates not exceedingthe following: xxx
172SEC. 219 {LGC} General Revision of assessments and
Property Classification. - The provincial, city or municipal
assessor shall undertake a general revision of real property
assessmentswithin two (2) years after the effectivityofthis Code
and every three (3} years thereafter.
173 SEC. 221 (LGC) Date of Effectivity of Assessment or
Reassessment. - All assessments or reassessments made
after the first (1st) day of January of any year shall take effect on
the first (1st) day of January of the succeeding year: Provided,
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h) Assessment of.property subject to back taxes 174
. a) Collecting authority
j) Notification of new.or revlsedassessment'j'' -
3. Collection of Real Property Tax
a. Date of accrual -of real property tax and _ special
levies176
• First day of January
• RPT shall constitute a lien from such date and shall
be extinguished only upon payment of delinquent tax' / · " : Within 5 years
b. Collection of tax
however, That the reassessment of real property - due to - its
partial or total destruction, orto a major change in its actual use,
or to any great and sudden inflation or deflation ,of real property
values, or to the gross illegality of the assessment when made
or to any other abnormal cause, sha!I be made within ninety (90)
days from the date any such cause or causes occurred, and shall
take effect at the beginning of the quarter next following the
reassessment. . . - 178SEC. 249 (LGC) Notice of Time for Collection of Tax. - The
174SEC. 222 (LGC) Assessment of Property Subject to Back
Taxes. - Real property declared for the first t_ime s_hall be
assessed for taxes tor the period during which it would have
been liable but in no case for more than ten (10) years prior to
the date of initial assessment Provided, however, That such
taxes shall be computed on the basis of the applicable schedule
of values in force during the corresponding period. If such taxes
are paid on or before the end of the quarter following the date
the notice of assessment was received by the owner or his
representative, no interest for delinquency shall be imposed
thereon; otherwise, such taxes shall be subject to an interest at·
the rate of two percent (2%) per month or a fraction thereof from
the date of ttie receipt of the assessment until such taxes are
fully paid.
175 SEC. 223 (LGC) Notification of _ (l,(ew or Revised
Assessment. ~ When real property is assessed for the first time
or when an existing assessment is increased or decreased, the
provincial, City or municipal assessor shall within thirty (30)days
give written notice of such new or revised assessment to the
person in whose name the property is declared. The notice may
be delivered personally or by registered mail or through the
assistance of the punonq baranqay to the last known address of
the person to be served,
176SEC. 246 (LGC) Date of Accrual of Tax. - The real property
tax for any year shall accrue on the first day of January and from
that date it shall constitute a lien on the property which shall be
superior to any other lien, mortgage, or encumbrance of any kind
whatsoever, and shall be extinguished only upon the payment of
the delinquent tax.
177SEC.
248 (LGC) Assessor to Furnish Local Treasurer with
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/TAXATION LAW
• City or municipal ~reasurer
• May deputize barangay treasurer to collect
b) Duty of assessor to furnish local treasure with
assessment rolls 177
c) Notice oftime for collection-of tax178 -
c. Periods within which to collect RPT179
from the datethey bee-Orne due
In case of fraud, within f O years from discovery of fraud
or intent to evade
Assessment Roll. - The provincial, city or municipal assessor
shall prepare and submit to the treasurer ofthe. local government
unit, on or before the thirty-first (31st) day. of December ,each
year, an assessment roll, containing a list.of all persons whose
real properties have been_ nev,ily assessed or reassessed and
the values qt such properties. . .
city or municipal treasurer shall, on or before the thirty-first (31st)
day ofJanuary each year, in.the case orthe basic real property
tax and the additional tax for the Special Education Fund (SEF)
or on any other date to be. p,rescribed by the sanggunicm
concerned in the case of any other tax levied under this - Title,
post the notice of the dates when the tax may be paid without
interest at a conspicuous and 'publicly accessible place at the
. city or municipal hall, Said notice Shall lik~wise be published in
a newspaper of general circulation in the locality once a week
for two (2) consecutive weeks. ·
179SEC. 270 {LGC) Periods Within Which To Collect Real
Property Taxes. - The basic real property tax and any other tax
levied under this Title shall be collected within five{S) years from
the date they become due. No action for the collection of the tax,
whether administrative or judicial, shall be instituted after the
expiration of such period. In case of fraud or intent .to evade
payment of the tax, such action may be instituted for the L
collection of the same within ten (10) years from the discovery
of such fraud or intent to evade payment. The period of
prescription within which to collect shall be suspended for the
time during which:
(1) The local ireasurer is legally prevented from collecting the
tax;
(2) The owner of the property or the person having legal interest
therein requests for reinvestigation and executes a waiver in
writing before the expiration of the period within which to collect;
and
(3) The owner of the property or the person having legal interest
therein is out of the country or otherwise cannot be located.
192 of 206
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r1 • ~TEP 1: DECLARATION OF REAL PROPERTY
Suspension of period:
rJ c Local treasurer is legally prevented from collecting the 1) Declared by Owner or Administrator {LGC, Secs. 202-
·1 tax 203)
• Owner or the person having legal interest requests for If newly acquired property - file with the assessor within
.\ reinvestigation and executes a waiver in writing
before the expiration of the period.
60 days from date of transfer . a sworn statement
containing, FMV and description of property
) • Owner of the property or the person having legal
l
interest is out of the country or cannot be located If improvement on real property - file wiin 60 days upon
(
·l
-~. >
completion or occupation (whichever is earlier) a sworn
i. Special rules on payment statement of FMV and description of property

180
a) Payment in installments 2) Declared by Provincial I City I Municipal Assessor
(LGC, Sec. 204)
I J b) Interests on unpaid RPT181 This is done only when the person under Sec 202
{1 c) Condonation ofRPT182
refuses or fails to make the Declaration within the
prescribed time. No oath by the assessoris required.
,. i The sanggunian concerned, by ordinance, and upon
l. i
recommendation of the Local Disaster Coordinating Note:
Council may condone or reduce the real property tax and If filing for exemption under Sec. 206 of LGC, the person
fJ interest in the following instances: claiming exemptions must file. with assessor sufficient
• General failure of crops documentary evidence . to support claim within ..30 days
f. )
• Substantial decrease in the price of agricultural or from the date of declaration of property.

rI •
agri-based products
Calamity
If the required evidence is not submitted within 30 days,
the property will be listed as taxable. .

r1 The President may condone or reduce the real property

tax and interest when public interest so requires.
tJ
Steps in the Assessment and Collection of RPT
l corresponding periods.
j l
t . .I 180 Sec. 250 (LGC) Payment of Real Property Taxes in
Installments. - The owner of the. real property or the person
tl having legal interest therein may pay the basic real property tax
and the additional tax for Special Education Fund (SEF) due
4
'l.
·1 thereon without interest in four (4) equal installments; the first
instalimentto be due and payable on or before MarchThirty-first
H (31st); the second installment, on or before June Thirty (30); the
third installmeht,on or beforeSeptemberThirty (30); and the last
installmenton or before DecemberThirty-first (31st), except the
special levy the payment of which shall be governed by
ordinance of the sanggunian concerned. The date for the
payment of any other tax imposed under this Title without
interest shall be prescribed by the sanggunian concerned.
Payments of real property taxes shail first be applied to prior
years· delinquencies,interests, and penalties, if any, and only
k l after said delinquencies are settled may tax payments be
credited for the current period.
161SEC.
255 (LGC) Interests on Unpaid Real Property Tax.. -
In case of failure to pay the basic real property tax or any other
tax levied under this Title upon the expiration of the periods as
provided in Section250, or when due, as the case may be, shall
subject the taxpayerto the payment of interest at the rate of two
Page 193 of 206
If property jg declared for the first time, Sec. 222 of LGC
states that. the property shall be assessed for back taxes
for not more than 10 years prior to the date of initial
assessment. The taxes shall be computed on the basis of
applicable· schedule of values in force during ·the
percent (2%) per month on the unpaid amount or a fraction
thereof, until. the delinquent tax shall have been fully .paidr
Provided, however, That in no case shall the total intereston the
unpaid tax or portion thereofexceed thirty-six (36) months.
182 SEC. 276 (LGC) Condonafion or Reduction of Real
Property Tax and Interest.- In case of a generalfailure of crops
or substantialdecreasein the price of agriculturalor agri-based
products, or calamity in any province, city, or municipality, the
sanggunian concerned, by ordinance passed prior to the first
(1st) day of January of any year and upon recommendationof
the Local Disaster Coordinating Council, may condone or
reduce,wholly or partially,the taxes and interestthereon for the
succeeding year or years in the city or municipalityaffected by
the calamity.
SEC. 277 (LGC). Condonation or Reduction of Tax by the
President of the Philippines. - The Presidentof the Philippines
may, when public interest so requires, condone or reduce the
real propertytax and interestfor any year in any province or city
or a municipalitywithin the MetropolitanManila Area.
ATENEO CENTRAL
BAR OPERATIONS 2019
STEP 2: LISTING OF REALPROPERTY IN THE
ASSESSMENT ROLLS {LGC, • Secs. 205. & · 207)
Listing of all Real · Property whether taxable or exempt
within the jurisdiction of LGU.
All declarations shall be kept and filed under a uniform
classification system to be established by the provincial,
city or municipal assessor.
STEP.3: APPRAISAL ANO VALUATION OF REAL
PROPERTY [LGC, Secs. 212~214; For machineries:
224-225]
How to determine Fair Market Value:
For land
• Assessor of the province/city or municipality may
summon the owners of the properties to be affected
and may take depositions concerning the property, its
ownership, amount, nature.and value.
• Assessor prepares a schedule of FMV for different
classes of properties
• Sanggunian enacts an ordinance
• The schedule of FMV is published in a newspaper of
general circulation in the province, city or municipality
concerned or in the absence thereof, shall be posted
in the provincial capitol, city or municipal hall places
therein.
For machinery
• For brand new machinery:
FMV is equivalent to acquisition cost
• In all other cases:
Remaining
FM __:E::.c:...:o:..:.n...:o..:...m..:...ic~L-ife_·_
v Estimated
Economic Life
TAXATIONtAW
..
STEP 4: DETERMINE ASSESSE~VALUE (LGC, Sec.
218)
Procedure
• Take the schedule ofFMV
• Assessed value = FMV x Assessment level
• Tax = Assessed value x Tax rate '
STEP 5: PAYMENT AND COLLECTION OFT AX
• When:
· January 1 of everyyear (LGC, Sec. 24.6)
• How:
Basic real prop tax in 4 equal installments (Mar
31, Jun 30, Sep 30, Dec 31)
Special levy~ governed by ordinance
Note:,
. Interest for late payment .
• · Two percent (2%) each month on unpaid amountuntn
the delinquent amount is paid,
e Provided in no case shall the total interest exceed
thirty-six (36) months
Ad~ance and prompt payment
• · _ Advance payment - discount not exceedinq 20% of
annual tax (LGC, Sec. 251)
• Prompt payment - discount not exceeding 10% of
annual tax due (/RR ofLGC, Art. 342)
Who collects
• The provincial, city, municipal or baran!;lay treasurer
.: Period within which to collect: (LGC, Sec. 270)
. • Within five (5) years' from the date they become due
X Estimate • Within ten (10) years from discovery of fraud, in case
d Cost - there is fraud or intent to evade
Period of prescription shall be SUSPENDED when:
(LGC, Sec. 270)
• Local treasurer is legally prevented to collect tax
• The owner of property requests for reinvestigation
and writes a waiver before expiration of period to
collect
• The owner is out of the country or cannot be located
Page 194 of 206
 ' •"
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Cl •
4. Taxpayer's Remedies
•
f] Pay the tax under protest
1. Contesting an Assessment
Il
File written protest with local treasurer (within 30
rj days from payment of tax)
L Payment of real property tax under protest183

r1 No protest shall be entertained unless the taxpayer pays

the tax first. Treasurer decides (within 60 days from receipt of
( .· L. protest)
Prior payment under protest is applicable if a taxpayer
l1 disputes the reasonableness of an increase in a real tax

(J
estate tax assessment.

However, prior payment is not required when the taxpayer

Approved II Denied

(J is questioning the very authority and power of the

.[}. Ji
assessor to impose the assessment and of the treasurer Apply for tax refund Appeal with the LBAA
{1 to collect the tax. (Jardine Davies Insurance Brokers, Inc. or tax credit · (in case of denial or
inaction of the
v. Aliposa, 398 SCRA 176, 2003)
treasurer after the
fJ lapse of 60 days)
Likewise, posting a surety bond that covers the tax in
{J question is substantial compliance of the requirement of
payment under protest. (Mera/co v, City Assessor and
rJ City TreasurerofLucena City, G.R. No. 166102, 2015) Appeal with the
· CBAA (within 30 days
from receipt of
[} II. Procedure adverse decision of .
. LBAA)
l. -
,- i 1. File protest with local treasurer
2. Appeal to the LBAA
Il 3. Appeal to the CBAA
Appeal to CTA (within
4. Appeal to the CTA
30 days from receipt
1-l 4. Appeal to the CTA of adverse decision of ..
5. Appeal to. the SC CBAA)
I l
(1
Appeal to SC (within
H 15 days from receipt
of adverse decision of·
CTA)

183SEC. 252 (LGC) Payment Under Protest. 0

(a) No protest
shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under
protest". The protest in writing must be filed within thirty (30)
[ j
days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within
[ Metropolitan Manila Area, who shall decide the protest within
sixty (60) days from receipt.
( ' (b) The tax or a portion thereof paid under protest, shall be held
in trust by the treasurer concerned.
(c) in the event that the protest is finally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be
refunded to the protestant, or applied as tax credit against his
existing or future tax liability.
(d) !n the event that the protest is denied or upon the lapse of
the sixty day period prescribed in subparagraph (a), the taxpayer
may avail of the remedies as provided for in Chapter 3, Title II,
Book !I of this Code.

Page 195 of 206

 ATENEO CENTRAL
BAR OPERATIONS 2019
Ill. Refund or Credit of Real Property Tax
{LGC, Sec. 253)
1. Payment under protest1"4
2. Repayment of excessive collections
• The taxpayer may file a written claim for refund or
credit with the provincial or city treasurer within 2
years from the date the taxpayer is entitled to such
reduction or adjustment
• Provincial or city treasurer should decide the claim
within 60 days from receipt of the claim.
• In case of denial of refund or credit, appeal to LBAA
within 30 daysas in protest case.
Redemption of Real Property
(LGC, Sec. 261)
Within 1 year from the date of sale; the owner of the
delinquent real property, or person having legal interest or
his representative, shall have the right to redeem the
, property upon payment to the local treasurer the following:
Amount of delinquent tax
Interest thereon
Expenses of sale from date of delinquency to date
of the sale
Interest of not more than 2% per month on the
purchase price from date of sale to date of
redemption
A certificate of redemption shall be issued, and the
certificate of sale · issued to the purchaser shall be
invalidated.
The period of redemption of tax delinquent properties
should be counted notfrom the date of registration of the
certificate of sale, but on the date of sale of the tax
delinquent property (City of Davao v Intestate Estate of
Amado Da/isay, G.R. No. 207791, July 15, 2015)
184SEC. 252 (LGC) Payment Under Protest. • (a) No protest
shall be entertained unless the taxpayer first pays the tax. There
shall . be annotated on the tax. receipts the words "paid under
protest". The protest in writing must be. filed within thirty (30)
days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within
Metropolitan Manila Area, who shal! decide the protest within
sixty (60) days from receipt.
(b) The tax ora portion thereof paid under protest, shall be held
in trust by the treasurer concerned.
Page 196 of 206
TAXATION LAW,
2. Cohtesting a valuation of real property
•
A taxpayer who has lega! interest in the property may
contest an assessment
"Persons having legal interest in the property" - an entity:
In whose name the real property shall be listed, valued.
and assessed;
Who may be summoned by the local assessor to gath,er'
information on which to base the market value of the r,eal
.property;
Who may protest the tax assessment before. the LBAA
and may appeal the latter'sdecision to the CBAA;
Who may be liable. for the idle land tax, as· well as who
may be exempt from the same;
.Who shall be notified of any proposed ordinance imposing
a special levy, as well as who may object the proposed
· ordinance;
.Who may pay the real property tax;
Who is entitled ?o be notified of the warrant of levy and
against whom it may be enforced;
Who may s~ay the public auction upon payment of the
delinquent tax, penalties and surcharge; and
Who may redeem the property after it was sold· at the
public auction for delinquent taxes
Note: It does not include an entity that assumes another
person's tax iiability by contract. (NAPOCOR v. Province
of Quezon, G.R. No. 171586, 2010)
a) Appeal to the Local Board of Assessment Appeals
(LBAA)1ss
(c) !n the event that the protest is finally decided in favor of the
taxpayer, the amount or portion of the tax protested shall be
refunded to the protestant, or applied as tax credit against his
existing or future tax liability.
(d) In the event that the protest is denied or upon the. lapse of
the sixty day period prescribed in subparagraph (a), the taxpayer
may avail of the remedies as provided for in Chapter 3, Title II,
Book II of this Code. · · .
1sssec. 226 (LGC) Local Board of Assessment Appeals. -
Any owner or person having legal interest in the property who is
 I I
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ATENEO CENTRAL
[1 BAR OPERATIONS 2019 TA}4:\TION LAW
r·1 .. and classification notice of
By any owner or person having legal interest in the on the re~I property assessment
fl property who is not satisfied with the assessment
2. Tho LBAA
has 120 days
from receipt of
[l Within 60 days from the date of receipt of the written the appeal to
notice of assessment decide
I\ 1.,
b) Appeal to the Central Board of Assessment
. 3. If
unsatisfied,
appeal to the
still

Appeals (CBM)186 CTA en bane

rr c) Effect of appeaLon the payment of tax187 PAYMENT When there is a 1.

within 30 davs
Pay first and

f I UNDER
PROTEST AND
question on the
reasonableness or
ca1,.1se
annotation
the

{"]
An appeal on assessments does not suspend the
collection of the realty taxes on the property involved.
TAX REFUND
OR CREDIT
correctness of the
amount assessed I 2.
·~aid
protest"
Protest
under

in
writing within
(1 30 days. from
payment with
REMEDIES GROUNDS PROCEDURE the local
[ l REMEDY · To question an act 1. Appeal to the treasurer

AGAINST of the assessor, LBBA within
f] ASSESSMENT e.g. the assessor
· makes an appraisal
60 days from
date of receipt
of the written ·
i]
rJ not satisfied with the action of the provincial, city or municipal.
assessor in.the assessment of his property may, within sixty (60)
days from the date of receipt of the written notice of assessment,
f} appeal to .the Board of Assessment appeals of the province or
city by filing a petition under oath in the form prescribed for the
fJ purpose, together with copies of. the tax declarations and such
affidavits or documents submitted in support of the appeal.
tl
186SEC. 230 (LGC) Central Board of Assessment appeals.-
The Central Board of. Assessment appeals shall be composed
tJ of a chairman and two (2) members to be appointed by the
President, who. shall. serve for a term of seven (7) years, without
L} reappointment. Of those first appointed, the chairman shall hold
office for seven (7) years, one member for five (5) years, and the
tl other member for three (3) years. Appointment to any vacancy
shall be only for the unexpired portion of the term of the
predecessor. In no case shall any member be appointed or
H designated in a temporary or acting capacity. The chairman and
the members of the Board shall be Filipino citizens, at least forty
(40) years old at the time of their appointment, and meml.Jers of
the Bar or Certified Public Accountants for at least ten (10) years
r provided by law, the annual appropriations for the Central Board
immediately preceding their appointment. The chairman of the
' '
Board of Assessment appeals shall. have the salary grade
(
equivalent to the rank of Director 111
~-
under the Salary Standardization Law exclusive of allowances
and other emoluments. The members of the Board shall have
the salary grade equivalent to the rank of Director II under the
i under the provisions of this Code shall, in no case, suspend the
l Salary Standardization Law exclusive of allowances and other
emoluments. The Board shall have appellate jurisdiction over all
assessment cases decided by the Local Board of Assessment
appeals. · prejudice to subsequent adjustment depending upon the final
l
3. Treasurer has
60 days to
resolve the
protest
There shall be Hearing Officers to be appointed by the Central
Board of Assessment, appeals pursuant to civil' service laws,
rules and regulations; one each :foc Luzon, Visayas and
Mindanao, who. shall hold office in Manila, Gebi.rCity and
Cagayan de Oro City. respectively, and who shall serve for a
term of six (6) . years, without reappointment until their
successors have been appointed and qualified. The Hearing
Officers shall ha~.e the same qualifications as tha.t .6f the Judges
of the Municipal Trial Courts. .
The Hearing Officers shall each have the salary . grade
equivalent to the rank of Director I under: the Salary
. Standardization Law exclusive of allowances and other
emoluments. The Hearing Officers shall try and receive
evidences on the appealed assessment cases as may be
directed bythe Board. ·
The Central Board Assessment appeals, in the performance of
its powers and duties, may establish and organize staffs, offices,
· units, prescribe the titles, functions and duties ottheir members
and adopt its own rules and regulations. Unless otherwise
of Assessment appeals shall be included in the annual budget
of the Department of Finance in the corresponding General
Appropriations Act.
187SEC. 231 (LGC) Effect of appeal on the Payment of Real
Property Tax. - Appeal on assessments of real property made
collection of the correspondinq realty taxes on the property
involved as assessed by the provincial or city assessor, without
outcome of the appeal. · ·

Page 197 of 206

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 ATENEO CENTRAL
BAR OPERATIONS 2019
4. In case of
denial or
lapse of 60
days, appeal
to the LBAA
within 60 days
5. Appeal to the
CBAA. within
30 days
6. Appeal to the
CTA En Banc
within 30 da s
5. Remedies of LGUs for th~ Collection of Real
Property Tax
a) Issuance of notice of delinquency of RPT
payment188
1116SEC. 254 (LGC) Notice of Delinquency in the Payment of
the Real Property Tax. - (a) When the real property tax or any
other tax imposed under this Title becomes delinquent, the
provincial, city or municipal treasurer shall immediately cause a
notice of the delinquency. to be posted at the main entrance of
the provincial capitol, or city or municipal hall and in a publicly
accessible and conspicuous place in each barangay of the local
goVE;1rnment unit concerned. The notice of delinquency shall also
be published. once a week for two (2) consecutive weeks, in a
newspaper of general circulation in the province, city, or
municipality.
( b) Such notice shall specify.the date upon which the tax became
delinquent and shall 'state that personal property may be
distrairied to effectpayment. It shall fjkewi~e state. that at any
time before .the distraint of personal property, payment of the tax
with surcharges, interests · and penalties may be made in
accordance with the next fpllowing Section, and unless the tax,
surcharges and penalties are paid before the expiration of the
year for which the tax is due except when the notice of
assessment or special levy is contested administratively or
judicially pursuant to the provisions of Chapter 3, Title II, Book II
of this Code, the delinquent real property will be sold at public
auction, and the title. to . the property Will·. be vested in the
purchaser, subject, however, to the right of the delinquent owner
of the property or any person having legal interest therein to
redeem the propertywithin one (1} year from the date of sale.
189SEC.
257 {l,.GC) Local Governments Lien. - The basic reai
property tax and any other tax levied under.this Title constitutes
a lien on the property subject to tax, superior to alt liens, charges
or encumbrances in favor of any person, irrespective of the
owner or possessor thereof, enforceable by administrative or
judicial action, and may only be extinguished upon payment of
the tax and the related interests and expenses.
190SEC.
256 (LGC) Remedies For The Collectlori Of Real
Property Tax. - For the collection, of the basic; real property tax
and any other tax levied under this Title, the local government
Page
TAXATION LAW
•
b) Local government's lien189 •
c) Remedies i!l.general190
d) Resale of · real estate taken for· taxes, fees or
charges191
e) Further levy until fulfpayfllent ofamountdue192
Administrative
a .. Lien (LGC, Sec. 257) - superior to all liens, charges
or encumbrances and. is , · enforceable by
.admintstrative orjudicial action. It is extinguished only
upon payment of tax arid other expenses.
b. Levy193 (LGC, Sec. 258)
unit concerned may avai,I .ofthtf remedies by adrriinistrative
; action thru levy on real prc;:>pef\y.br by judicial action.. . · ·
. '
191SEC. 264 (LGC). Re.sale pf Refill Estate Taken .for Taxes,
Fees, or Charges. - The sanggunian concerned may, by
ordinance duly approved, and 'upon notice of not less than
twenty (20)days, sell and .: dispose ofthereal property' acquired
under the preceding section at public auction. The proceeds of
the sale shall accrue to the gen~ral fund of the local government . !
unit concerned. · · · · · ·
192SEC. 265 (LGC) Furthej Distraint or Levy. - Levy may be
,.
repeated if necessary until the full amount due, .including all
expenses, is collected. ' ·
193 SEC. 258 (LGC) Levy on Real Property. ~ After the
expiration of the time.required to pay the basic real property tax
or any other tax levied· under this Titie, real property subject to
such tax may be levied upon through.the issuance of.awarrant
· on or before, or simultaneously with, the institution of the civil
action for the collection of the :delinquent tax. The provincial or
city treasurer, or · a treasurer of a .municipality within the
Metropolitan Manila Area, as the case may be; when issuing a L
warrant of levy shall prepare a duly authenticated certificate
showing the · name of the delinquent owner of the . property or
person having legal interest therein/ the description · of the
property, the arnountof the tax due and the interest thereon. The
warrant shall operate with ,thP- force. of a legal execution
throughout the province, city or a municipality within· the
Metropolitan Manila Area. The warrant shall be mailed to or
served upon the delinquent awrier of the· real property· or person
having legal interest therein, or in case he is out of the country
or cannot be' 'located, to the administrator or occupant· of the
property. At the same time, written notice of the levy with the
attached warrant shallbe mailed to orserved upon' the assessor
and the Registrar of Deeds of theprovim:e, city ora
municipality
within the Metropolitan Manila Area where the property is
located, who shall annotate the levy ori the tax dectaration and
certificate of title of the property, respectively. The levying officer
198 of 206
l ..
 I1
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BAR OPERATIONS 2019 TAXATION LAW
r1
•
r -, Issuance of warrant by the LGU treasurer {on or before
or simultaneously with the institution of civil action for
; "l collection of delinquent tax)

)
[ J
Advertise. sale or auction (within 30 days after service
1
( l of warrant) by posting and publication
··-r r

f J
r] Sale·
r1
Report of sale (within 30 days after sale). Preparation of
certificate of sale containing the name of the purchaser,
l1 description of the property, amount of delinquent tax and
its interest, and expenses.
fi )

[l
Redemption (withir. l year fromdate of sale)
f]
LJ issuance of Final Deed to purchaser (upon the
..
.1
, .
delinquent taxpayer's failure to redeem)

tl Purchase of property by localtreasurer for want of

bidder in case there is no bidder for the real property
f l advertised or if the highest bid is insufficient to pay the
I J
RPT and other costs. ·
f l
( j
The proceeds of the sale in excess of the delinquent tax,
the interest due thereon and the expenses of the sale shall
H be remitted to the owner of real property or person having
legal interest.
(;
c. Distraint (l.GC, Sec. 254) - with notice of delinquency
posted and published. Persona! property may be
distrained to effect payment.
f
'
Lj ------- end of topic----
q
l .J

shall submit a report on the levy to the sanggunian concerned the property or person having legal interest therein.
within ten (10) days after receipt of the warrant by the owner of
Page 199 of 206
~-
ATENEO CENTRAL
BAR OPERATIONS 2019
IV. JUDICIAL REMEDIES; REPUBLICACT 11is,·•
AS AMENDED, AND THE REVISED RULES OF
THE COURT OF TAX APPEALS
NATURE OF THE COURT OF TAX APPEALS
Laws Governing the Court of Tax Appeals
1. RA 1125, enacted June 16, 1954, created the Court of
Tax Appeals (CTA)
2. RA 9282, enacted March 30, 2004, amended RA 1125
3. RA 9503, enacted June 12, 2008, further amended RA
1125
4. RA 9282 expanded the jurisdiction of the CTA and
elevated it to the level of the Court of Appeals
5. RA 9282 also provided, among others, that appeals
from the decision of the CTA En Banc shall now be
made before the Supreme Court
6. RA9503 provided for the increase in the number of the
CT A Justices from 6 to 9, .increased the number of .·
Divisions from 2 to 3. with each division composed of 3
justices
Features of the CTA
1. Regular Court, vested with exclusive appellate
jurisdiction over cases arising out of the NIRC and
CMTA (C/Rv. CA, G.R. No. 104151, 1995)
2. A highly specialized body specifically created. for the
purpose of reviewing tax cases. (Philippine Refining
Companyv. CA, G.R. No. 118794, 1996)
3. A Court of special or limited jurisdiction, and as such, it
can only take 'cognizance of such matter clearly within
its jurisdiction (Ker v. CTA, G.R. No. L~12396, 1962)
4. Proceedings are judicial in nature, although the CTA is
not bound by.the technical rules of evidence (.R.A. No.
1125, as amended, Sec. 8)
Page 200 of 206
TAXATION LAW
A. JURISDICTION OFTHE COURT.OF TAX APPEALS
1. Exclusive Original and Appellate Jurisdiction over
Civil Cases
Cases Within the Jurisdictiori df the Court En Banc
1. Decisions or resolutions on MRs or MNTs of the Court
in Division in the exercise of its exclusive appellate
jurisdiction over:
a. Cases arising from administrative agencies;
b .. Local tax cases decided by the RTCs in the
exercise of their original jurisdiction;
c. Tax collectlon cases decided by RTCs in the
exercise of their original jurisdiction involving final
and executory assessments tor taxes, fees,
charges, and. penalties, where the principal
amount of taxes and penalties claimed :is less
than P1 ,000,000; or
d. Criminal offenses arising from violations of the
NIRC o~. TCC and other laws administered by the
BIR or BOC.
. .
2. Decisions, resolutions or orders on MRs or MNTs· of the
Court in Division ih the · exercise of its exclusive
· original jurisdictibn over:
a. Tax collection cases; or
b. Cases involving criminal ··Offenses arising from
violations of the NIRC or TCC and other laws
administered by the B.IRor BQC ·
3. Decisions, resolutions or orders • of the RTCs in the
exercise of its appellate jurisdiction over:
a. Local tax cases
b. Tax collection cases; or . ·. ··.·, . . .:
c. Criminal offenses arising from violatibn$ of the
NIRC or TCC and other laws administered by the
BIR or BOC
Real property tax cases decided by the RTC are not under
the CTA'sjurisdiction. Decisions, orders, and resolutions
of the RTC in local tax cases do not include real property
tax which is an ad valorem tax. The jurisdiction of the CTA
involves only those real property tax cases originally
decided by the CBM in the exercise of. its appellate
jurisdiction (,'-iabawel v. CTA; GRNo. 174759, 2011)
4. Decisions of the CB.AA in the exercise of its appellate
jurisdiction over cases involving assessment and
taxation of real property originally decided by the
provincial or city board of assessment appeals. (Sec. 2,
,
Rule 4, A.M. No. 05-11-07-CTA) (

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Cases Within the Jurisdiction of the Court in Divisions
1. Decisions of or inaction of the CIR
I I a: In cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges,
penalties in relation thereto; or
.. t )
b. · Other matters arising under the NIRC or other laws
, l administered by the BIR
I \
CTA Jurisdiction Covers CIR Inaction
The jurisdiction of the CT A has been expanded to include
I r not only decisions or rulings but also inaction as well of
' the CIR. (RCBC v. CIR, G.R. No. 168498,2007)
lJ The inaction by the CIR within the 180-day period under
Sec. 228 of the NIRC is deemed a denial for purpose of
allowing the taxpayer to appeal with the CTA but it does
(
not necessarily constitute the CIR's formal decision
l (Revisec:JRules of the Court of Tax Appeals "RRCTA", Sec.
3[a][2], Rule 4)
f I
In case the CIR fails to act on the disputed assessment
f] within the 180-day period from date of submission of
documents, a taxpayer can either:
I 1!: 1. File a petition for review with the CTA within 30
t -i days after the expiration of the 180aday period, or
i J 2. Await the fi11al decision of the Commissioner or
the disputed assessments and appeal such final
Ci . decision to the CTA within 30 days after receipt of
a copy of such decision.
I ]
However: These options are mutually exclusive, and
I J resort to one bars the application of the other.
J Definition of "Other Matters"
The term other matters is limited only by the qualifying
a J phrase that follows it. The appellate jurisdiction of the CTA
is not limited to cases which involve decisions of the CIR _
H on matters relating to assessments or refunds. The second
part of the provision covers other cases that arise out of
the NIRC or related laws administered by the BIR. (CIR v.
Hambrecht & Quist PHL, G.F?. No. 169225, 2010)
•
l
Haw to Invoke CT A's Jurisdiction on "Other Matters"
[ A. There is a disputed assessment and the taxpayer
' raises, as a defense, the validity of the ruling on which
.
r' , the assessment is based on
The attack on the constitutionality of the BIR ruling is
therefore collateral to the main action, which is a
disputed assessment.
Page 201 of 206
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TAXATION LAW
Example of -Colfateral Attack: denial of protest on an
assessment for alleged deficiency income tax and • VAT
on condominium dues on the basis of RMC65~2012-
appeal denial to CTA_
Procedure: BIR Decision -+Appeal to CTA in the
exercise of its exclusive appellate jurisdiction, invoking
Disputed Assessments
B. Plaintiff directly attacks the constitutionality of the _
tax ruling, Rev. Reg, RMC, RMO, etc.
Appeal RMC/RMOiRev. Regs. to Secretary of Finance -
(NIRC, Sec. 4, 1I 1);
Then appeal denial by Secretary of Finance to CT A on
the basis of"other matters" (BOO, et.el. v. RCBC, G.R.
No. 198756, 201.6)
If exceptions to prior exhaustion of administrative
remedies apply, plaintiff may appeal directly to CTA. or ·
directly to the SC · (if invoking transcendental
importance)
2. Decisions, orders or resolutions of the RTCs· in
local tax cases_ d,ecided or resolved by them in the · ..
exercise of their original jurisdiction - -
3. Declslons of the Commissionerof Customs ·•
a. In cases involvinq liability for customs duties, fees,
or other money charges, seizure, detention or
release of property affected, fines, forfeitures of
other penalties in_ relation thereto; or
b. Other matters arising under the . Customs Law or
other laws administered by the Bureau of Customs
4. Decisions of the Secretary of Finance on customs_
cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are
adverse to the Government under Section 2315 of the
TCC
5. Decisions of the DTI Secretary in the case of non-
agricultural product, commodity or article and the DA
Secretary in case of agricultural product, commodity or
article, involving dumping and countervailing duties
under Sections 301 and 302 of the TCC and safeguard
measures under the Safeguard Measures Act (RA
8800) where either party may appea! the decision to
impose or not to impose said duties. (Rule 4, A.M. No.
05011-07-CTA. Section 3[a])
 ATENEO CENTRAL
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CTA Jurisdiction Over a Special Civil Action for
Certiorari Assailing an Interlocutory Order
While RA 9282 does not contain a categorical statement
which vests to the CTA jurisdiction over petitions for
certiorari on orders by the RTC on local tax cases, the
grant of appellate jurisdiction on· local tax cases leads to
an assumption that the law intended-to transfer also such
power as is deemed necessary if not indispensable in aid
of such appellate jurisdiction. The Court pointed out that
to confer the power over certiorari petitions to the Court
of Appeals would create a "split-jurisdiction" situation
which is anathema to the orderly administration of justice.
Thus, the power of the CTA to rule on petitions for
certiorari on interlocutory orders. issued by the RTC in
local tax cases is included in the powers granted by the
Constitution as well as inherent in . the exercise of· its
appellate jurisdiction. (City of Manila v. Grecia-Cuerdo,
G.R. No. 17523, 2014)
DQJ Resolution in a Preliminary Investigation Involving
Tax and Tarif{ Offenses
Under RA 9282, the rule on where to appeal decisions of
the Secretary ofthe DOJ is no longer clear. However, as
stated in Grecia-Cuerdo, · split-jurisdiction is frowned
upon and such principle should be interpreted to carry
a
forward to a DOJ resolution in preliminary investigation
involving tax and · tariff offenses. . The oversight
notwithstanding, the Court relaxed the rule given·that the
Grecia-Cuerdo decision just came out recently but instead
of remanding the case to the CTA, the Court decided to
rule on the same. (BOC v. Devanadera, G.R. No. 193253,
2015)
Regulatory Fees Not Within CTA Jurisdiction
The primary reason for the CTA's lack of jurisdiction is that
what was imposed under the questioned ordinance are not
taxes but are instead regulatory fees, specifically to
address the environmental depredation of the said special
projects. As such, the case that originated from the RTC is
not considered a local tax case over which the CTA has
jurisdiction. (Smart Communication v Municipality of
Ma/var, G.R. No. 204429, 2014)
Customs Memorandum Circular (CMC) issued in
Exercise of CIR's Quasi-Legislative Function Not
Under CTA Jurisdiction
The CMC is an exercise of the CIR's quasi-legislative
function which is revlewable by the Secretary of Finance
and whose decision is in turn appealable to the Office of
the President. Only her quasi-judicial functions or the
authority to decide assessments, refunds, etc. are subject
Page 202 of 206
TAXATION LAW
to the exclusive appellate jurisdiction of the Q.TA as a
special court. The phrase· "other ·matters'' used in RA
9282 cannot be taken in isolation and must be interpreted
in connection with the quasi-judicial function. Thus, the
petition to the CTA was dismissed for lack of jurisdiction
and prematurity, (CIR v. CTA and Petton Corporation, G.H.
No. 207843, 2015)
BERNABE:
HOWEVER: In the. 201 f3 Resolution of the fy'IR. filed by
Petron, the SC ruled that in conjunction with ttieBahco De
Oro ruling that the CTAhas jurisdic:tion to resolve al! tax
matters (which includes the validity of . the CIR's
interpretation and consequentimposition of excise tax on
alkylate), the Court finds it proper . to reconsider its
decision. (CIR. v. CTA and Petron. Corporation, G.R. No.
20784~, 2(J18)
A Taxpayer Cannot File A Petition For Certiorari Under
Rule 65 Directly to the Supreme Court to Question a
Revenue Regulation
The CIR and the Secretary of Finance issued the
regulations on the excise tax on importation of petroleum
products into the BCDA in the exercise of their quasi-
legislative or rule-making powers, not judicial or quasi-
judicial functions. Thus, the same is outside the scope of
a petition for certiorari. The Court lastly ruled that lt.shall
not entertain a direct resort .to· them · unless .there are
exceptional and compelling circumstances. · (Clark
Investors and Locators Associeiion, Inc. v. CIR, G.R. No.
200670, 2015)
2. Exclusi~e Original and Appellate Jurisdiction O~er
Criminal Cases
Exclusive Original Jurisdiction
The .CTA shall exercise exclusive original jurisdiction over
an criminal cases where the principal amount involved of
taxes and fees is P1 ,000,000or more, exclusive of
charges
and penalties, arising from violations oftheNIRC, TCC and
other laws administered by the BOC or the B!R.
Exclusive Appellate Jurisdiction
Appeals from judgments, resolutions or orders of the RT Cs
in tax cases originally decided by them in their respective
territoriai jurisdiction; and
Petitions for review of the judgments, resolutions or orders
of the RTCs in the exercise of their appellate jurisdiction
over tax cases originally decided by the.MeTCs, MTCs or
MCTCs.
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BAR OPERATIONS 2019 TAXATION LAW
r1 fixed by law for the CIR to act on the disputed
( 1 Summary assessments.
•
i I
Appealable to the CTA ---
• Ruling of SOF on RRs, RMCs, rulings, etc. In case of inaction of the Commissioner of Internal
'" Interlocutory orders by ATC on local tax cases Revenue on claims for refund of internal revenue taxes
• Tax coilection cases (of duties) from ATC erroneously or illegally collected, the taxpayer must file a
petition for review within the two-year period prescribed
• SOJ's decision dismissing filing of criminal
by law from payment or collection of the taxes.
case under TCCP

See earlier discussion under Protesting an Assessmentfor

Appealable to the SC ---
Taxpayer's Remedies.
• Ruling of SOF if there are compelling
circumstances
Judicial Claim to CTA for VAT Return
• Pure question of law (Alta Vista case supra) See earlier discussion under Refund or tax credit of excess
input tax.
SOF has jurisdiction to review COC's issuance (CMC)
as an exercise of quasi-legislative function b) Local Taxes (see discussion under the chapter of
Local Taxes)
MTC and notRTC has jurisdiction on local tax collection
cases below P200,000 2. Civil Cases
f
B. JUDICIAL PROCEDURES a) Who may Appeal, Mode of Appeal, and Effect of
fl Appeal
1. Filing of an Action for Collection of Taxes
r. J a) Internal Revenue Taxes
·1. Any party adversely affected
ruling, or the inaction of:
by a decision,

r1 • CIR
.: ~ The CTA has exclusive jurisdiction over the following • coc
I j cases involving tax collection: • DOF Secretary
5. Original jurisdiction in tax collection cases involving ·~···'~
• DTI Secretary
Il final and executory assessments for taxes, fees,
• DA Secretary
,· l
charges and penalties where the principal amount of • ·RTC (in the exercise of its original jurisdiction)
I. J taxes .and fees, exclusive of charges and penalties,
claimed is P1 ,000,000 or more. 2. A party adversely affected by a decision or
6. Appellate jurisdiction over appeals from the resolution of a Division on a MR or MNT
judgment, resolutions or orders of the RTC in tax ·
1 collection cases originally decided by them within their 3. A party adversely affected by a decision or ruling
respective jurisdiction;
n 7. Over petitions for review of the decisions of the RTC in
exercise of their appellate jurisdiction over tax collection
of the CBAA and the RTC in the exercise of
their appellate jurisdiction. ·

cases originaliy decided by MTC. 4. Under Section 11 of RA 1125, the government

Prescriptive Period
A party adversely affected by a decision, ruling or the
inaction of the Commissioner of Internal Revenue on
disputed assessments or claims for refund of internal
t
l { revenue taxes, or by a decision or ruling of the
Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry, the Secretary of
Agriculture, or a Regional Trial Court in the exercise of its
original jurisdiction may appeal to the Court by petition for
review filed within 30 days after receipt of a copy of
such decision or ruling, or expiration of the period
Page 203 of 206
or any of its agencies, instrumentalities or
officials has no right to appeal. When a
taxpayer refuses to pay the tax or protests an
assessment and contests its validity before the
CT A, the government can either impose distraint
or levy of property or enforce the collection by
judicial remedy before the regular court. The only
time the aovernment can initiate any action is
when it appeals the decision of the CTA which is
adverse lo the government, pursuant to Rule 45 of
the Rules of Court.

rI. ;
 ATENEO CENTRAL
BAR OPERATIONS 2019
• Mode and Effect of Appeal
Petition for review under Ruie 42 to be acted upon the CT A
in division with respect to a decision, ruHng or inaction of:
• CIR (on disputed assessments or claim for refund
of internal revenue taxes erroneously or illegally
collected)_
• coc
• DOF Secretary
• DTI Secretary
• DA Secretary
• · RTC (in the exercise of their original jurisdiction)
• Period to file: 30 days
Petition for review under Rule 43 to be acted upon the CTA
En Banc with respect to a decision - or resolution of the
Court iii Division on a MR or MNT.
• Period to file: 15 days. It may be extended to an
additional period not exceeding 15 days.
Petition for review under Rule 43 to be acted upon by the
CT A En Banc with respect to the decisions or rulings of:
• CBAA,
• RTCs (in the exercise of their appellate
jurisdiction)
• Period to file: 30 days ( Sec. 11, R.A. No. 1125, as
• amended by RA 9282) · c) Injunction Not Available to Restrain Collection
-. Appeal within 30 days from receipt of decision or period of
inaction of CIR, COC, Secretary of Firiance, Secretary of
Trade and Industry· or Secretary of Agriculture, or the
CBAA or the RTC: . conditions concur: ·
• '· Generally, appeal will be toaDivision
• Exception: Appeal by filing a petition for review to
En Bahe in case of decisions of CBAA or RTC in
the exercise of its appellate _jurisdiction
lh case the decision of the Divisionis adverse:
• File MR with same Division within 15 days from
notice thereof
in case resolution of Division on the MR or motion for new
triai is sti!I adverse:
•· File petition for review with CTA En Banc
In case the decision of the CTA En Banc is adverse, file a
review on certiorari with the SC pursuant to Rule 45 of
Rules of Court
Appealing a Decision of a Local· Assessment Board
(Sec. 9, R.A. No. 9282)
• To the CBAA and not yet to the CTA
Page 204 of 206
TAXATION LAW
• It is only after the GBAA has ruled that an appeal •
may be made to the CTA
• In which case, the appeal shall be by petition for
review to the CT A En.Bene
b) Suspension of Collectlon of Taxes
General Rule: No injunction to restrain collection of taxes
Exception: Under Section 9 of RA 9282, suspension is
allowed when the following conditions concur:
• It is an.appeal to the CTAfrom a decision ofCIR,
COC or the RTC, provincial'. municipal treasurer,
or the_ Secretary of Finance, Secretary of Trade
and Industry or Secretaiy of Agriculture, as the
case may be; and
• In the opinion of the Court, the collection by the
aforementioned government agencies may
jeopardize the interest of the Government and/or
taxpayer
In case of suspension, wnatis the taxpayer required to
do?
The taxpayer Will be required to either deposit the amount
claimed or file a surety bond for not more than double the
amount with the Court.
General rule: No injt,mction to restrain collection of taxes
Exception: Suspension is allowed when the following
1. There is an appeal to the CT A, and '.
2. In the opinion of the court, · the collection by the
government· agencies may jeopardize the interest .
ofthe Government and/or the taxpayer, and -
3. Taxpayer either to deposit the amount claimed or
to file a surety bond' for notmore than the double
the amount with the Court. ...
Taking of Evidence
The Court may receive evidence in the foilowing cases:
• In all cases falling within the original jurisdiction
of the CT A in division pursuant to Section 3, Rule
4 of the RRCT A
• In appeals in both civil and criminal cases where
the Court grants a new trial pursuant to Section
2, Rule 53 and Section 12, Rule 124 of the Rules
of Court
The foilowing are authorized to take evidence:
• Any justice of the court when:

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r1 1. The determination of a question of fact arises
rl l• at any stage of the proceedings; or
2. The taking of an account is necessary; or
3. The determination of an issue of fact
requires the examination of a long account.
rI J
• Any court official for the sole purpose of marking
comparison with the original and identification by
witnesses of the received documentary evidence
Motion for ReconsiderationiMotion for New Trial
Any aggrieved party may seek a reconsideration. or new
trial of any decision, resolution or order of the court
The period to file the MR or MNT is 15 days.
(l
No second MR or MNT is allowed (Sec. 7, Rule 15, A.M.
No. 05-11-07-CTA)
The filing of the MR or MNT shall suspend the running of
the period within which an appeal may be perfected.
Grounds for filing a MR or MNT
• Fraud, accident, mistake or excusable
rJ negligence (FAME) which ordinary prudence
could not have guarded against and by reason of
r1 which such aggrieved party has probably been
impaired in his rights or
• Newly discovered evidence which he could not,
{ with reasonable diligence, have discovered and
produced at the trial and which, if presented,
would probably alter the result.
' 1
I l 3. Criminal Cases
I J a) Institution and Prosecution of Criminal Actions
f I All criminal actions before the CTA in Division in the
exercise of its original jurisdiction shall be instituted by the
ti filing of an information in the name of the People .of the
l l
Philipplnes. (Sec. 2, Rt.ile 9, A.M. No. 05-11-07-CTA)
l.
The institution of the criminal action shall interrupt the
running of the period of prescription.
For violations of the NIRC and other laws enforced by the
BIR, the CIR must approve the filing.
For violations of the TC and other laws enforced by the
BOC, the COC must approve the filing.
The criminal actions shall be conducted and prosecuted
under the direction and control of the public prosecutor.
(Sec. 2, Rule 9, A.M. No. 05-11-07-CTA)
Page 205 of 206
t- :•:6
TAXATION LAW
•.
For violations of the NIRC and other laws enforced by the
BIR and violations of the TCC and other laws enforced by
the BOC, their respective duly deputized legal officers may
conduct the prosecution.
b) Institution of Civil Action in Criminal Action
The criminal action and corresponding civil action for the
recovery of civil liability for taxes and penalties shall be
deemed jointly instituted in the same proceeding. The filing
of the criminal action shall necessarily carry with it the filing
of the civil action. No right to reserve the filing of such civil
action separately from the criminal action shall be allowed.
(Sec. 12, Rule 9, A.M. No. 05-11-0l~CTA)
c) Period to appeal
Solicitor General as Counsel for the People and
Government Officials Sued in their Official Capacity
Modes of appeal with respect to criminal cases:
• Notice of Appeal pursuant to Sections 3(a) and
6, Rule 122 of the Rules of Court to the CTA in
Division with respectto an appeal from criminal
cases decided by the RTC in the exe,rcise of its
original jurisdiction
• Petition for Review under Rule 43 to the CTA En
Banc with respect to criminal cases decided by.:
• CTA in Division in the exercise of its
appellate jurisdiction
RTC in the exercise of its appellate
jurisdiction: (Sec. 9, Rule 9,A.M. No. 05-
11-0l~CTA)
• In both cases, the period to file is 15
days.
The Solicitor General shall represent the People and
government officials sued in their official capacity in all
cases brought to the CTA in the exercise of its appellate
jurisdiction.
4. Appeal to the CTA En Banc
Who may file an appeal to the CTA En Banc:
• A party adversely affected by a resolution of a
Division of the CTA on a MR or MNT may file a
petition for review with the CTA En Banc
• A party adversely affected by a decision or ruling of
the CBAA or the RTC in the exercise of their
appellate jurisdiction (Sec. 1, R.A. No. 1125)
ATENEO CENTRAL
BAR OPERATIONS 2019 TAXATION LAW

A decision or order of a Division cannot be directly

appealed to the CTA En Banc. There must first be a timely
filing of MR or MNT. (Sec. 1, Rule 8, AM. No. 05-11-07·
CTA)

The mandatory provisions of Rule 8, Section 1 of the

Revised Rules of the CTA require that "the petition for
reviev1 of a· decision or resolution. of the Court in Division
must be preceded by the filing of a timely motion . for
reconsideration or new trial with the Division." The word
"must" clearly indicates the mandatory -- not merely
directory - nature of a requirement. The rules are clear.
Before the CTA En Banc could· take cognizance of the
petition for review concerning a case falling under its
exclusive appellate jurisdiction, the litigant must sufficiently
show that it sought prior reconsideration or moved for a
new trial with the concerned CTA division. (COG v. · Marina
Sa/es, Inc., G.R. No. 183868, 2010)

5. Petition. for Review on Certiorarito the Supreme

Court

Any party adversely affected by a decision or ruling of the

Court EnBancmay appealto the Supreme Court. (Sec. 1,
RA No. 1125; sec. 19, Rule 16, A.M. No. 05-11·07-CTA)

The mode of appeal is a petition for review on certiorari

under .Rule 45.

Summary ofAppea!s: Assessments

• FAN ~ Protest (30 days) · ~ Submit supporting

docs (60 days, if- "request for reinvestigation'? ~
BIR action (180 days)

• lfprotest denied in whole or in part ~ appeal to CTA

in division (30 days)

• CTA in division decision ~ file MR (15 days)

CTA in division denial of MR-,. appeal to CTA En

Banc (15 days)

CTA En Banc decision ~ Petition for Review with

SC or Motion for Extension to File Petition (15 days)
II

---- end of topic--~-

Page 206 of 206

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r-1 • ANNEX C: REMEDIES UNDER THE LGC

•

Local Government Remedies

1. Challenging the Constitutionality of 2. Protesting an Assessment of Local

Local Tax Ordinance · Tax

I
[ Date of Effectivity

.130
·

.
Assessment Notice

DOJ Secretary
(60 days to decide)
days from effectivity

l Protest within 60days

(payment under protest NOT
required)

Local Treasurer
(60 days to decide)
! "
:l~ Appeal within 30 days
'r; Appea!within 30 days
I
!f

I RTC l RTC

c)
'
l Petition'for review within 30
days

CTA Division (if RTC

exercised its original
jurisdiction)
l
1

L-.1 CTA En Banc (if RTC

\ J exercised its appellate
jurisdiction)

IIi Peti~ion f?r ~~view on

Certiorari w1thrn 15 days

SC

Page 9 of 18
 Real Property Taxation
•
•
1. Protest: Assessment of Land Value 2. Protest: Assessment/Collection of RPT

Assessment Notice Date of Payment

from Local Assessor (Payment under
Protest Required)·

H
, : Protest within 60 days
ltI Prot~stwithin 30 days
LBAA
( 120 days to decide) Local Treasurer
,. (60 days to decide)
-.!}"
j j Appeal within 30 days
, f Appeal within 60 days
CBAA
u. LBM
p
1; Petition fer review within 30 days {120days to decloe)"
;,;

CTA EnBanc . , Appeal within.30 days

-~ i.
': Petition for review on certiorari within
CBAA
;'115 days
H
~1 Petition for review within 30 days
L---_s_c _ ___.L 1 it
j
r
CTA En Banc

1' Petition for review on certiorari within

'•· 15 days

SC

. '

Page 10 of 18
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