Taxation Law 2011

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

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

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

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Exception: Stockholders may be held a. General Tax – levied for the

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

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

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

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

DOCTRINE OF EQUITABLE RECOUPMENT NOT to include various imposed on articles
FOLLOWED IN THE PHILIPPINES kinds of enforced which are traded
contributions upon internationally

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persons for the 1. Flexible Tariff Clause: Authority of

attainment of public the President to fix tariff rates,
purposes import and export quotas, tonnage
and wharfage dues, and other duties
TAXPAYERS’ SUIT or imposts. (Art. VI, Sec.28(2), 1987
A case where the act complained of Constitution)
directly involves the illegal disbursement 2. Power of local government units to
of public funds derive from taxation levy taxes, fees, and charges. (Art.
(Justice Melo, dissenting in Kilosbayan, X, Sec. 5, 1987 Constitution)
Inc vs Guingona, Jr.) 3. Delegation to administrative agencies
for implementation and collection.
TAXPAYERS AND PUBLIC OFFCIALS HAVE LOCUS - merely refers to tax administration or
STANDI implementation
REQUISITES FOR TAXPAYERS’ SUIT
a. The tax money is being extracted (3) SITUS OR TERRITORIALITY OF TAXATION
and spent in violation of specific The power to tax is limited only to
constitutional protections against persons, property or businesses within
abuses of legislative power. the jurisdiction or territory of the taxing
b. That public money is being power.
deflected to any improper purpose
(Pascual vs Secretary of Public FACTORS THAT DETERMINE THE SITUS:
Works) a. Kind or classification of the tax
c. That the petitioner seeks to being levied
restrain respondents from wasting b. Situs of the thing or property
public funds through the enforcement taxed
of an invalid or unconstitutional law
c. Citizenship of the taxpayer
d. Residence of the taxpayer
LIMITATIONS ON THE TAXING e. Source of the income taxed
POWER f. Situs of the excise, privilege,
business or occupation being taxed
A. INHERENT LIMITATIONS (KEY: SPINE)
1. Territoriality or Situs of taxation APPLICATION OF SITUS OF TAXATION
2. Public purpose of taxes Kind of Tax Situs
3. International comity
4. Non-delegability of the taxing power Personal or Residence or
5. Tax Exemption of the government Community tax domicile of the
taxpayer
(1) TESTS IN DETERMINING PUBLIC PURPOSE
Real property tax Location of property
A. Duty Test – whether the thing to be
(Lex rei sitae)
furthered by the appropriation of
public revenue is something, which Personal property -tangible: where it is
is the duty of the State, as a tax physically located or
government, to provide. permanently kept
(Lex rei sitae)
B. Promotion of General Welfare Test -intangible: subject
– whether the proceeds of the tax to Sec. 104 of the
will directly promote the welfare of NIRC and the
the community in equal measure. principle of mobilia
sequuntur personam
(2) NON-DELEGABILITY OF THE TAXING POWER
General Rule: The power of taxation is Business tax Place of business
peculiarly and exclusively exercised by
the legislature. (See Scope of Legislative Excise or Privilege Where the act is
Taxing Power, supra) tax performed or where
- refers to tax legislation occupation is
Exceptions to Non-delegability: pursued

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As a matter of public policy, property

Sales tax Where the sale is of the State and of its municipal
consummated subdivisions devoted to government uses
and purposes is deemed to be exempt
Income Tax Consider from taxation although no express
(1) citizenship,
(2) residence, and
provision in the law is made therefor.
(3) source of income
(Sec. 42, 1997 NIRC) General Rule: The Government is tax
exempt.
Transfer tax Residence or - However, it can also tax itself.
citizenship of the
taxpayer or location RULES:
of property 1. Administrative Agencies
A. Governmental function - tax
Franchise Tax State which granted
exempt unless when the law
the franchise
expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL
B. Proprietary function – taxable
PROPERTY
unless exempted by law. (Sec.
General Rule: Domicile of the owner
27C)
pursuant to the principle of the mobilia
2. GOCCs
sequuntur personam or movables follow
General Rule: Income is taxable at
the person.
the rate imposed upon corporations
Exceptions:
or associations engaged in a similar
1. When the property has acquired a
business, industry, or activity.
business situs in another jurisdiction;
Exception: GSIS, SSS, PHIC, PCSO and
2. When an express provision of the
PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule.
3. Government Educational Institutions
Illustration: For purposes of estate
A. Property or real estate tax –
and donor’s taxes, the following
property actually, directly and
intangible properties are deemed
exclusively used for educational
with a situs in the Philippines:
purposes – exempt but income of
(1) franchise which must be
whatever kind and character
exercised in the Philippines;
from any of their properties, real
(2) shares, obligations or bonds
or personal, regardless of the
issued by any corporation
disposition, is taxable. (Sec. 30,
organized or constituted in the
last par., NIRC)
Philippines in accordance with its
B. Income received by them as such
laws;
are exempt from taxes.
(3) shares, obligations or bonds by
However, their income from any
any foreign corporation eighty-
of their activities conducted for
five percent (85%) of the business
profit regardless of the
of which is located in the
disposition, is taxable. (Sec. 30,
Philippines;
last par., NIRC)
(4) shares, obligations or bonds
4. Income derived from any public
issued by any foreign corporation
utility or from the exercise of any
if such shares, obligations or
essential governmental function
bonds have acquired a business
accruing to the Government of the
situs in the Philippines; and
Philippines or to any political
(5) shares or rights in any
subdivision thereof is not included in
partnership, business or industry
gross income and exempt from
established in the Philippines.
taxation. (Sec. 32(B)(7)(b), NIRC)
(Sec. 104, 1997 NIRC).
5. Donations in favor of governmental
institutions are considered as income
(4) EXEMPTION OF THE GOVERNMENT
on the part of the donee. However,
it is not considered as taxable income

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because it is an exclusion from the

computation of gross income. 1. Due Process Clause (Art. III, Sec. 1,
(Sec.32 (B)(3), NIRC) 1987 Constitution)
6. The amount of all bequests, legacies, Requisites:
devises or transfers to or for the use A.The interests of the public as
of the Government or any political distinguished from those of a
subdivision for exclusively public particular class require the
purposes is deductible from the gross intervention of the State.
estate. (Sec.86 (A)(3), NIRC) (Substantive limitation)
7. Gifts made to or for the use of the B.The means employed must be
National Government or any entity reasonably necessary to the
created by any of its agencies which accomplishment of the purpose and
is not conducted for profit, or to any not unduly oppressive. (Procedural
political subdivision of the said limitation)
Government are exempt from The constitutionality of a legislative
donor’s tax. (Sec. 101(A)(2), NIRC) taxing act questioned on the ground of
8. Local government units are expressly denial of due process requires the
prohibited by the LGC from levying existence of an actual case or
tax upon National Government, its controversy.
agencies, and instrumentalities, and
local government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly registered C. not limited to existing conditions
under RA No. 6938, non-stock and only
non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the Republic 3. Freedom Of Speech And Of The
of the Philippines or any of its Press (Art. III, Sec. 4, 1987
political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority of
the government to effectively impose 4. Non-Infringement Of Religious
taxes on a sovereign state and its Freedom And Worship (Art. III, Sec.
instrumentalities, as well as on its 5, 1987 Constitution)
property held and activities undertaken A license tax or fee constitutes a
in that capacity. Even where one enters curtailment of religious freedom if
the territory of another, there is an imposed as a condition for its
implied understanding that the former exercise. (American Bible Society vs.
does not thereby submit itself to the City of Manila, GR No. L-9637, April
authority and jurisdiction of the other. 30, 1957)
B. CONSTITUTIONAL LIMITATIONS 5. Non-Impairment Of Contracts (Art.

A. GENERAL OR INDIRECT III, Sec. 10, 1987 Constitution)
CONSTITUTIONAL LIMITATIONS

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No law impairing the obligation of 1. Non-Imprisonment For Debt Or Non-

contract shall be passed. (Sec. 10, Payment Of Poll Tax (Art. III, Sec.
Art. III, 1987 Constitution) 20, 1987 Constitution)
The rule, however, does not
apply to public utility franchises or 2. Rule Requiring That Appropriations,
right since they are subject to Revenue And Tariff Bills Shall
amendment, alteration or repeal by Originate Exclusively From The
the Congress when the public interest House Of Representatives (Art. VI,
so requires. (Cagayan Electric & Sec. 24, 1987 Constitution)
Light Co., Inc. v. Commissioner, GR
No. 60216, September 25, 1985) 3. Uniformity, Equitability And
Progressivity Of Taxation (Art. VI,
RULES: Sec. 28(1), 1987 Constitution)
A. When the exemption is Uniformity – all taxable articles or
bilaterally agreed upon between the kinds of property of the same class are
government and the taxpayer – it taxed at the same rate.
cannot be withdrawn without Equitability – the burden falls to those
violating the non-impairment clause. who are more capable to pay.
B. When it is unilaterally granted by Progressivity – rate increases as the
law, and the same is withdrawn by tax base increases.
virtue of another law – no violation.
C. When the exemption is granted Q: Is a tax law adopting a regressive
under a franchise – it may be system of taxation valid?
withdrawn at any time thus, not a A: Yes. The Constitution does not
violation of the non-impairment of really prohibit the imposition of indirect
contracts taxes which, like the VAT, are regressive.
The Constitutional provision means simply
6. Presidential power to grant that indirect taxes shall be minimized.
reprieves, commutations and The mandate to Congress is not to
pardons and remit fines and prescribe, but to evolve, a progressive
forfeitures after conviction (ART. tax system. (EVAT En Banc Resolution,
VII, SEC. 19, 1987 CONSTITUTION) Tolentino, et al vs Secretary of Finance,
Due Equal October 30, 1995)
Uniformity
Process Protection
Taxpayer Taxpayers Taxable 4. Limitations On The Congressional
may not shall be articles, or Power To Delegate To The
be treated alike kinds of President The Authority To Fix
deprived under like property of Tariff Rates, Import And Export
of life, circumstances the same Quotas, Etc. (Art. VI, Sec. 28(2),
liberty or and conditions class, shall
property both in the be taxed at
1987 Constitution)
without privileges the same
due conferred and rate. There 5. Tax Exemption Of Properties
process of liabilities should Actually, Directly And Exclusively
law. imposed. therefore, Used For Religious, Charitable And
Notice be no direct Educational Purposes. (Art. VI, Sec.
must, double 28(3) 7, 1987 Constitution)
therefore, taxation The constitutional provision
be given (above cited) which grants tax
in case of
failure to
exemption applies only to property or
pay taxes realty taxes assessed on such
properties used actually, directly
exclusively for religious, charitable
B. SPECIFIC OR DIRECT
and educational purposes. (Lladoc vs.
CONSTITUTIONAL LIMITATIONS
Commissioner, GR No. L-19201, June
16, 1965)

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1
The present Constitution required Contributions. (Art. XIV, Sec. 4(3)

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

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f. covering the same kind or • The donor’s tax imposed upon a

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

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v. S.C Johnson and Son, Inc. et al., production through the factors of
G.R No. 127105, June 25, 1999) distribution until it finally settles on
the ultimate purchaser or consumer
Exemption B. Backward shifting- when burden is
Credit Method
Method transferred from consumer through
Focus is on the Focus is on the tax factors of distribution to the factors
income or capital of production
itself C. Onward shifting- when the tax is
shifted 2 or more times either
NOTE: Computational illustration forward or backward
between a tax deduction and a tax
credit: (2) CAPITALIZATION – a mere increase in the
value of the property is not income
Tax deduction method but merely an unrealized increase in
Gross income capital. No income until after the
Less: allowable deductions actual sale or other disposition of
including the property in excess of its original
foreign taxes paid cost.
Income subject to tax EXCEPT: if by reason of appraisal, the cost
Multiplied by rate basis of property increased and the
Income tax due resultant basis is used as the new tax
base for purposes of computing the
Tax credit method allowable depreciation expense, the net
Gross income difference between the original cost basis
Less: allowable deductions and new basis is taxable under the
excluding economic benefit principle. (BIR Ruling
foreign taxes paid No. 029, March 19, 1998)
Income subject to tax
Multiplied by rate (3) TRANSFORMATION – the manufacturer or
Income tax due producer upon whom the tax has
Less: foreign taxes paid been imposed, fearing the loss of his
Net income tax due market if he should add the tax to
the price, pays the tax and
endeavors to recoup himself by
FORMS OF ESCAPE FROM improving his process of production,
TAXATION thereby turning out his units at a
lower cost.
(1) SHIFTING – the process by which the tax
burden is transferred from the (4) TAX AVOIDANCE – the exploitation by the
statutory taxpayer (impact of taxpayer of legally permissible
taxation) to another (incident of alternative tax rates or methods of
taxation) without violating the law. assessing taxable property or
income, in order to avoid or reduce
IMPACT OF TAXATION – point on which tax is tax liability.
originally imposed. Example: “estate planning” (conveyance
of property to a family corporation for
INCIDENCE OF TAXATION – point on which the shares) (Delpher Trades Corp. vs. IAC,
tax burden finally rests or settles down. 157 SCRA 349)
Illustration: Value added tax. The seller (5) TAX EVASION – use by the taxpayer of
is required by law to pay tax, but the illegal or fraudulent means to defeat
burden is actually shifted or passed on to or lessen the payment of the tax.
the buyer.
FACTORS IN TAX EVASION
KINDS OF SHIFTING 1. the end to be achieved, i.e. payment
A. Forward shifting- when burden of of less than that known by the
tax is transferred from a factor of taxpayer to be legally due, or paying

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

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liberally in favor of the taxing C. Where the tax exemption grant is in

authority. the form of a special law and not by
f. Tax exemptions are not presumed. a general law even if the terms of the
G. Constitutional grants of tax general act are broad enough to
exemption are self-executing. include the codes in the general law
H. Tax exemptions are personal. unless there is manifest intent to
repeal or alter the special law
THE FOLLOWING PARTAKE THE NATURE OF TAX (Province of Misamis Oriental vs
EXEMPTION Cagayan Electric Power and Light Co.
1. Deductions for income tax purposes Inc)
2. Claims for refund
3. Tax amnesty NATURE OF TAX AMNESTY
4. Condonation of unpaid tax liabilities 1. General or intentional overlooking by
NOTE: must be strictly construed against the state of its authority to impose
the taxpayer penalties on persons otherwise guilty
of evasion or violation of a revenue or
WHEN EXEMPTIONS ARE CONSTRUED LIBERALLY IN tax law.
FAVOR OF GRANTEE 2. Partakes of an absolute forgiveness of
1. When the law so provides for such waiver of the government of its right
liberal construction. to collect.
2. Exemptions from certain taxes, 3. To give tax evaders, who wish to
granted under special circumstances relent and are willing to reform a
to special classes of persons. chance to do so.
3. Exemptions in favor of the
government, its political subdivisions RULES ON TAX AMNESTY
or instrumentalities. 1. Tax amnesty
4. Exemptions to traditional exemptees, a) like tax exemption, it is never
such as those in favor of religious and favored nor presumed
charitable institutions. b) construed strictly against the
5. If exemptions refer to the public taxpayer (must show complete
property compliance with the law)
Q: May a tax exemption be revoked? 2.Government not estopped from

A: Yes. It is an act of liberality which questioning the tax liability even if
could be taken back by the government amnesty tax payments were already
unless there are restrictions. Since received.
taxation is the rule and exemption Reason: Erroneous application and
therefrom is the exception, the enforcement of the law by public
exemption may be withdrawn by the officers do not block subsequent
taxing authority. (Mactan Cebu correct application of the statute. The
International Airport Authority vs. government is never estopped by
Marcos, 261 SCRA 667) mistakes or errors of its agents.
Basis: Lifeblood Theory
RESTRICTIONS ON REVOCATION OF TAX EXEMPTIONS
A. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity, is
exemption was granted to private a personal defense.
parties based on material Reason: Relates to the circumstances of
consideration of a mutual nature, a particular accused and not the
which then becomes contractual and character of the acts charged in the
is covered by the non-impairment information.
clause of the Constitution.
B. Adherence to form- if the tax Tax amnesty Tax exemption
exemption is granted by the
Constitution, its revocation may be Immunity from all Immunity from civil
effected through Constitutional criminal, civil and liability only
administrative
amendment only

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liabilities arising fees or charges the same may be

from non payment assessed within ten (10) years from
of taxes discovery of the fraud or intent to evade
payment. They shall also be collected
Applies only to past Prospective either by administrative or judicial
tax periods, hence application
retroactive
action within five (5) years from date of
application assessment (Sec. 194. LGC)
DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

As a rule, taxes are imprescriptible as ADMINISTRATION
they are the lifeblood of the government.
However, tax statutes may provide for SOURCES OF TAX LAWS (Key: SPEC2TRA BLT)
statute of limitations. 1. Statutes
The rules that have been adopted are 2. Presidential Decrees
as follows: 3. Executive Orders
a.) National Internal Revenue Code 4. Constitution
The statute of limitation for 5. Court Decisions
assessment of tax if a return is filed is 6. Tax Codes
within three (3) years from the last day 7. Revenue Regulations
prescribed by law for the filling of the 8. Administrative Issuances
return or if filed after the last day, 9. BIR Rulings
within three years from date of actual 10. Local Tax Ordinance
filling. If no return is filed or the return 11. Tax Treaties and Conventions
filed is false or fraudulent, the period to
assess is within ten years from discovery REQUISITES OF TAX REGULATIONS
of the omission, fraud or falsity. 1. Reasonable
The period to collect tax is within 2. Within the authority conferred
three years from date of assessment. In 3. Not contrary to law
the case, however, of omission to file or 4. Must be published
if the return filed is false or fraudulent,
the period to collect is within ten years NOTE: Administrative regulations must
from discovery without need of an always be in harmony with the provisions
assessment. of the law. In case of discrepancy
between the basic law and the
b.) Tariff and customs code implementing rule or regulation, the
It does not express any general former prevails.
statute of limitation; it provided,
however, that ‘’ when articles have NON-RETROACTIVITY OF BIR RULINGS
entered and passed free of duty or final General Rule: Rulings are not retroactive
adjustment of duties made, with if they are prejudicial to the taxpayer.
subsequent delivery, such entry and (Sec. 246, NIRC)
passage free of duty or settlement of Exceptions:
duties will, after the expiration of one 1. Where the taxpayer deliberately
(1) year, from the date of the final misstates or omits material facts
payment of duties, in the absence of from his return or any document
fraud or protest, be final and conclusive required of him by the BIR.
upon all parties, unless the liquidation 2. Where the facts subsequently
of import entry was merely tentative.” gathered by the BIR is materially
(Sec 1603,TCC) different from the facts on which the
ruling is based.
c.) Local Government Code 3. Where the taxpayer acted in bad
Local Taxes, fees, or charges shall be faith.
assessed within five (5) years from the
date they became due. In case of fraud
or intent to evade the payment of taxes,

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1
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,

ADMINISTRATIVE INTERPRETATION THROUGH penalties, and fines connected
REENACTMENT therewith
Where a statute is susceptible of the 2. Execution of judgments in all cases
meaning placed upon it by a ruling of the decided in its favor by the Court of
government agency charged with its Tax Appeals (CTA) and the ordinary
enforcement and the legislature courts
thereafter reenacts the provision without 3. Give effect to and administer the
substantial change, such action is to supervisory and police powers
some extent confirmatory that the ruling conferred to it by the Code or other
carries out the legislative purpose. laws
RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT ASSESSMENT – a finding by the taxing

General Rule: The Government is not authority that the taxpayer has not paid
estopped by the mistakes or errors of its the correct taxes. It is also a written
agents; erroneous application and notice to a taxpayer to the effect that
enforcement of law by public officers do the amount stated therein is due as a tax
not bar the subsequent correct and containing a demand for the payment
application of statutes. (E. Rodriguez, thereof.
Inc. vs. Collector, L-23041, July 31, General rule: Taxes are self-assessing
1969) and thus, do not require the issuance of
Exception: In the interest of justice and an assessment notice in order to establish
fair play, as where injustice will result to the tax liability of a taxpayer.
the taxpayer. (see CIR vs. CA, GR No.
Exceptions:
117982, Feb. 6, 1997; CIR vs. CA, GR No.
107135, Feb. 3, 1999) 1. Tax period of a taxpayer is
terminated [Sec. 6(D), NIRC]
AGENCIES INVOLVED IN TAX ADMINISTRATION 2. Deficiency tax liability arising from a
1. Bureau of Internal Revenue tax audit conducted by the BIR [Sec.
– internal revenue taxes 56(B), NIRC]
Agents of the CIR
a. Commissioner of Customs with 3. Tax lien [Sec. 219, NIRC]
respect to taxes on imported goods 4. Dissolving corporation [Sec. 52(c),
b. head of the appropriate NIRC]
government office with respect to
energy tax SIGNIFICANCE OF ASSESSMENT
c. banks duly accredited by the CIR a. In the proper pursuit of judicial and
(Sec. 12, 1997 NIRC) extrajudicial remedies to enforce
2. Bureau of Customs – customs law taxpayer liabilities and certain
enforcement matters that relate to it, such as the
3. Provincial, city and municipal imposition of surcharges and
assessors and treasurers – local and interests,
real property taxes b. In the application of statute of
limitations,
ORGANIZATION AND FUNCTION OF THE c. In the establishment of tax liens, and
BUREAU OF INTERNAL REVENUE (BIR) d. In estimating the revenues that may
BIR shall be under the supervision be collected by government in the
and control of the Dept. of Finance (Sec. coming year. (Mamalateo, Victorino.
2, NIRC) Reviewer on Taxation, 2004)
POWERS AND DUTIES OF THE BIR

Assessment and collection of all KINDS
national internal revenue taxes, fees, and 1. SELF- ASSESSMENT- one in which the tax is
charges assessed by the taxpayer himself
2. DEFICIENCY ASSESSMENT- made by the tax
assessor himself whereby the correct

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amount of the tax is determined

after an examination or investigation Authority of a Revenue Officer -
is conducted. The liability is pursuant to a Letter of Authority issued
determined and assessed for the by the Regional Director
following reason: a. To examine taxpayers within
a. amount ascertained exceeds that the jurisdiction of the district in
which is shown as the tax by the order to collect the correct
taxpayer in his return amount of tax;
b. no amount of tax is shown in the b. To recommend the assessment of
return any deficiency tax due in the same
c. taxpayer did not file any return manner that the said acts could
at all have been performed by the
3. ILLEGAL AND VOID ASSESSMENT- Revenue Regional Director.
assessment wherein tax assessor has General Rule: income tax returns are
no power to assess at all confidential.
4. ERRONEOUS ASSESSMENT- assessor has Exception: inquiry into income tax
power to assess but errs in the returns may be authorized-
exercise thereof
1. inspection is authorized upon written
BURDEN OF PROOF IN PRE-ASSESSMENT PROCEEDINGS order of the President of the
There is a presumption of correctness Philippines;
and good faith on the part of the CIR; 2. inspection is authorized under
thus, the burden lies on the taxpayer. Finance Regulations No. 33 of the
Otherwise, the finding of the CIR will be Secretary of Finance;
conclusive and he will assess the 3. production of the tax return is
taxpayer. The same is true even if the material evidence in a criminal case
CIR is wrong, if the taxpayer does not wherein the government is interested
controvert. (Cagayan Robina Sugar in the result; or
Milling Co. vs. Court of Appeals, GR. No. 4. production or inspection thereof is
122451, October 12, 2000) authorized by the taxpayer himself.
Reasons: a. lifeblood theory
Networth Method- inventory method of
b. presumption of regularity in
income tax verification.
performance of public
functions
NOTE: Assessments by the BIR must have • Applies the accounting principle:
on its face the law and facts upon which assets – liabilities = networth
the presumption is made. Condition for its use:
1. taxpayer’s books do not clearly
PRINCIPLES GOVERNING TAX ASSESSMENTS reflect his income or the taxpayer
1. Assessments are prima facie has no books, or if he has books, he
presumed correct and made in good refuses to produce them;
faith. 2. there is evidence of possible source
2. It should be based on actual or sources of income to account for
facts. increases in networth;
3. It is discretionary on the part of 3. there is a fixed starting point or
the Commissioner. opening networth; and
4. there must be proper adjustments to
conform with the income tax laws.
4. The authority of the POWERS AND DUTIES OF THE COMMISSIONER

Commissioner to assess taxes may be I. SECTION 4 (power to interpret tax law
delegated, except the power to make and decide tax cases)
final assessments.
5. It must be directed to the right
party.

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1. Interpret provisions of this Code and person liable for tax or any other
other tax laws subject to review of the person
Secretary of Finance -- to produce such books, papers,
(Quasi-legislative) records, and other data and to
2. Decide: (Quasi-judicial) give testimony
a) disputed assessment 4. to take the Testimony of the person
b) refunds of internal concerned, under oath as may be
revenue taxes, fees and charges relevant to the inquiry
c) penalties imposed in 5. to cause revenue officers and
relation thereto employees to make a Canvass of any
d) other matters arising revenue district or region
from this Code or other laws or
portions thereof administered by the Nothing in Section 5 shall be
BIR subject to the exclusive construed as granting the Commissioner
appellate jurisdiction of the CTA the authority to inquire into bank
(Sec. 4) deposits other than as provided for under
sec. 6 (F) of the Code.
II. SECTION 5 (power to obtain
information, summon, examine and take III. SECTION 6 (power to make
testimony of persons) assessments, prescribe additional
requirements for tax administration
3. For the Commissioner to and enforcement)
ascertain:
(a) correctness of any return or in 4. Examination of returns and
making a return where none has determination of tax due
been made A. After a return has been filed the
(b) liability of any person for any Commissioner or his
internal revenue tax or in representative may authorize
correcting such liability i.
(c) tax compliance the Examination of any taxpayer
and
The Commissioner is authorized: ii.
1. to Examine any relevant Book, paper, the Assessment of the correct
record or other data amount of tax;
2. to Obtain any information (costs, B. F
volume of production, receipts, sales, ailure to file a return shall not
gross income, etc), on a regular basis prevent the commissioner from
from: authorizing the examination of
i. any person other than the person any taxpayer;
under investigation or * Any tax or deficiency tax so
ii. any office or officer of the assessed shall be paid upon
national/local government, gov’t notice and demand from the
agencies and instrumentalities Commissioner or his
(Bangko Sentral, gov’t owned and representative
controlled corporations) (e.g. LTO, * Any return, statement or
Register of Deeds) declaration filed in any
3. to Summon authorized office shall not be
i. the person liable for tax or required withdrawn; but within three
to file a return or years from date of filing, the
ii. any officer or employee of such same may be modified,
person or changed or amended; provided
iii. any person having in his that no notice for audit or
possession/custody/care investigation of such return,
-- the books of accounts, has in the meantime, been
-- accounting records of entries actually served upon the
relating to the business of the taxpayer.

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Such minimum amount shall

5.Failure to submit required returns and be considered correct.
other documents Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such b) is intending to leave the Phils. or
information as he can obtain c) to remove his property therefrom
through testimony or otherwise or
which shall be prima facie d) to hide or conceal his property
correct and sufficient for all or
legal purposes e) is performing any act tending to
obstruct the proceedings for the
6.Inventory-taking, Surveillance, collection of tax
Presumptive Gross Sales
A. Commissioner may, at any time 8. Prescribe Real Property Values
during the taxable year The Commissioner is authorized to:
(a) order the inventory taking of a. Divide the Phils. into different
goods of any taxpayer or zones or areas and
(b) may place the business b. Determine the fair market value of
operations of any person real properties located in each
(natural/juridical) under zone or area
observation or Surveillance,
if there is reason to believe For tax purposes, the value of
that such is not declaring his the property shall be whichever is
correct income, sales or higher of:
receipts for tax purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the taxes Commissioner; or
and shall be deemed prima b) Fair market value as shown in
facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank Deposit
receipts, sales and taxable base Notwithstanding R.A. 1405 (Bank
(taking into account the sales and Secrecy Law) the Commissioner is
income of other persons engaged authorized to inquire into the Bank
in similar business): deposits of:
i. When a person has failed to (a) a decedent to determine his gross
issue receipts as required by estate
sec.113 (Invoice requirements (b) a taxpayer who has filed an
for VAT-registered persons) application to compromise
and Sec. 237 (Issuance of payment of tax liability by reason
Receipts or Commercial of financial incapacity
Invoices) or
The taxpayer’s application for
ii. When the books of accounts or compromise shall not be considered
records do not correctly
unless he waives in writing his
reflect the declarations made
privilege under RA 1405 and other
or required to be made in a
general or special laws. Such waiver
return,

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shall authorize the Commissioner to

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

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enforcement or administration of the Income Capital

revenue laws (Sec. 17)
All wealth, which Fund or property
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED TO flows into the which can be used
INSTITUTE APPEAL PROCEEDINGS WITHOUT THE taxpayer other than in producing goods
PARTICIPATION OF THE SOLICITOR GENERAL? as a mere return of or services
NO. The institution or capital.
commencement before a proper court of
Flow of Wealth Fund or property
civil and criminal actions and proceedings
arising under the Tax Reform Act which Source of wealth Wealth
shall be conducted by legal officers of
the BIR is not in dispute. An appeal from
such court, however, is not a matter of REQUISITES FOR INCOME TO BE TAXABLE
right. It is still the Solicitor General who 1. There must be a gain or profit.
has the primary responsibility to appear 2. The gain must be realized or
for the government in appellate received.
proceedings. (Commissioner vs. La 3. The gain must not be excluded by law
Suerte Cigar and Cigarette Factory, GR or treaty from taxation.
No. 144942, July 4, 2002)
TESTS ON TAXABILITY OF INCOME
SOURCES OF REVENUE 1. Flow of Wealth Test – The
The following taxes, fees and charges determining factor for the
are deemed to be national internal imposition of income tax is
revenue taxes. (Sec. 21, NIRC) whether any gain was derived
1. Income tax from the transaction.
2. Estate and donor's taxes 1. Realization Test - unless the
3. Value-added tax income is deemed "realized,"
4. Other percentage taxes there is no taxable income.
5. Excise taxes 2. Economic-Benefit Principle
6. Documentary stamp taxes Test
7. Such other taxes as are or hereafter -flow of wealth realized is taxable
may be imposed and collected by the only to the extent that the
Bureau of Internal Revenue. taxpayer is economically
benefited.
II. NATIONAL TAXATION CRITERIA IN IMPOSING INCOME TAX

1. Citizenship Principle – A citizen of the
Philippines is subject to Philippine
A. INCOME TAXATION income tax (a.) on his worldwide income,
if he resides in the Philippines, or (b.)
DEFINITIONS only on his income from sources within
INCOME TAX – tax on all yearly profits the Philippines, if he qualifies as
arising from property, possessions, nonresident citizen.
trade or business, or as a tax on a 2. Residence Principle – resident alien is
person’s income, emoluments, liable to pay income tax on his income
profits and the like (61 CJS 1559) from sources within the Philippines but
– tax on income, whether exempt from tax on his income from
gross or net. (27 Am. Jur. 308) sources outside the Philippines.
3. Source Principle – An alien is subject
INCOME – all wealth, which flows into the to Philippine income tax because he
taxpayer other than as a mere derives income from sources within the
return of capital. Philippines. Thus, a nonresident alien is
liable to pay Philippine income tax on his
CAPITAL – resource of person, which can be income from sources within the
used in producing goods and Philippines such as dividend, interest,
services.

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

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taxpayer as an employee. [Sec. 22 service contract with the

(CC)] Government.
A non-resident alien individual
who shall come to the Philippines and CORPORATIONS EXEMPT FROM INCOME TAXATION
stay therein for an aggregate period (FOR INCOME REALIZED AS SUCH) UNDER NIRC
of more than 180 days during any 1. Those enumerated under Sec. 30.
calendar year shall be deemed a non- Exempt corporations are subject
resident alien doing business in the to income tax on their income from
Philippines Section 22(G) any of their properties, real or
notwithstanding [Sec. 25(A)(1)] personal, or from any other activities
5. Non-resident alien not engaged in conducted for profit, regardless of
trade or business within the the disposition made of such income.
Philippines. (NRANETB) 2. With respect to GOCCs, the general
rule is that these corporations are
ONLY RESIDENT CITIZENS are taxable for taxable as any other corporation
income derived from sources within and except:
without the Philippines. All other a. GSIS
individual income taxpayers are taxable b. SSS
only for income derived from sources c. PHIC
within the Philippines. d. PCSO
e. PAGCOR [Sec. 27 (C)]
 Tax Rates: Please refer to Annex A. 3. Regional or Area Headquarters
under Sec. 22 (DD) – not subject to
B. CORPORATIONS income tax
WHO ARE TAXABLE? Regional operating headquarters

1. Domestic Corporation – created or under Sec. 22(EE) shall pay a tax of
organized in the Phils. or under its 10% of their taxable income.
law [Sec. 22(C), NIRC]
2. Resident Foreign Corporation – ONLY DOMESTIC CORPORATIONS are
engaged in trade or business within taxable for income derived from sources
the Philippines [Sec. 22(H), NIRC] within and without the Philippines. All
3. Non-resident Foreign Corporation – other corporate income taxpayers are
not engaged in trade or business taxable only for income derived from
within the Philippines [Sec. 22(I), sources within the Philippines.
NIRC]
A Corporation Includes:  Tax Rates: Please refer to Annex B.
1. Partnerships, no matter
how created or organized; C. ESTATES AND TRUSTS
2. Joint-stock companies;
3. Joint accounts (cuentas ESTATE – refers to the mass of properties
en participacion) left by a deceased person.
4. Associations; or
5. Insurance companies RULES ON TAXABILITY OF ESTATE
[Sec. 22(B), NIRC]. When a person who owns property
dies, the following taxes are payable
Excludes: under the provisions of the income tax
1. General professional law:
partnerships; 1. Income tax for
2. Joint venture or individual under Sec. 24 and 25 (to
consortium formed for the purpose of cover the period beginning January to
undertaking construction projects or the time of death);
engaging in petroleum, coal, 2. Estate income tax
geothermal and other energy under Sec. 60 if the estate is under
operations pursuant to an operating administration or judicial settlement.
or consortium agreement under a

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on the income received by each

of the heirs, payable in their
ESTATES UNDER JUDICIAL SETTLEMENT separate and individual capacity.
A. During the Pendency of the (Pascual vs. Commissioner, GR
Settlement No. L-78133, October 18, 1988;
General Rule: An estate under Obillos vs. Commissioner, GR No.
judicial settlement is subject to L-68118, October 29, 1985)
income tax in the same manner as
individuals. Its status is the same as ESTATES NOT UNDER JUDICIAL SETTLEMENT
the status of the decedent prior to Pending the extrajudicial
his death. settlement, either of the following
Exceptions: situations may arise:
1. The entitlement to personal 1. If the heirs contribute money,
exemption is limited only to property, or industry to the estate
P20,000. with the intention of dividing the
2. No additional exemption is profits between/among themselves,
allowed. an unregistered partnership is
3. The distribution to the heirs created and the estate becomes
during the taxable year of estate liable for the payment of corporate
income is deductible from the income tax; or
taxable income of the estate. 2. If the heirs, without contributing
Such distributed income shall money, property or industry to the
form part of the respective heirs’ estate, simply divide the fruits
taxable income. thereof between/among themselves,
Where no such a co-ownership is created and income
distribution to the heirs is made tax is imposed on the income
during the taxable year that the received by each of the heirs,
income is earned, and such payable in their separate and
income is subjected to income individual capacity.
tax payment by the estate, the
subsequent distribution thereof is TRUST – A right to the property, whether
no longer taxable on the part of real or personal, held by one person for
the recipient. the benefit of another.
B. TERMINATION OF THE JUDICIAL SETTLEMENT WHEN TRUSTS ARE TAXABLE ENTITIES

(WHERE THE HEIRS STILL DO NOT DIVIDE THE 1. A trust, the income of which is to be
PROPERTY) accumulated
1. If the heirs contribute to the 2. A trust in which the fiduciary may, at
estate money, property, or his discretion, either distribute or
industry with intention to divide accumulate the income.
the profits between/among
themselves, an unregistered RULES ON TAXABILITY OF THE INCOME OF A TRUST
partnership is created and the
estate becomes liable for the
1. The income of the trust for the
payment of corporate income taxable year which is to be
tax. (Evangelista vs. Collector, distributed to the beneficiaries –
GR No. L-9996, October 15, filing and payment of tax lie on the
1957; Oña vs. Commissioner, GR beneficiaries.
No. L-19342, May 25, 1972) 2. The income of the trust which is
2. If the heirs, without contributing to be accumulated or held for future
money, property or industry to distribution whether consisting of
improve the estate, simply divide ordinary income or gain from the sale
the fruits thereof of assets included in the "corpus" of
between/among themselves, a the estate – filing of return and
co-ownership is created, and payment of tax become the burden
individual income tax is imposed of the trustee or fiduciary.

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Exceptions: Tax exemption is likewise to be

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

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individual capacity whether actually c. Each partner in a general

distributed or not. [Sec. 73(D), NIRC] professional partnership shall,
report as gross income his
LIABILITY OF A PARTNERSHIP distributed share in the net
1. General Professional income of the GPP, based on his
Partnership .- They are not subject agreed ratio, whether he, avails
to income tax, but are required to of itemized or optional standard
file returns of their income for the deduction.
purpose of furnishing information as
to the share of each partner in the d. Payments made to a partner of
net gain or profit, which each partner a GPP for services rendered shall
shall include in his individual return. be considered as ordinary
The partnership shall act as the business income subject to Sec.
withholding agent. 24A (Effective January 1, 1982)
The net income (income for
distribution) shall be computed in the 2. Share of a partner in Taxable or
same manner as a corporation. Date Business partnership
of filing of the return is April 15 of a. Share of a partner in the net
each year. income of a taxable or business
2. Taxable or Business Partnership partnership (dividend) shall be
- The income tax of this type of subject to a final tax as follows.
Partnership is computed and taxed • Resident Citizen, Non-
like that of a corporation. This kind resident Citizen and Resident
of partnership, like a regular Alien (2000 and onward) –
corporation, is also required to file a 10% (Sec. 24B2)
quarterly corporate income tax
return. Filing and payment of
• Non-resident Alien engaged
in trade or business – 20%
quarterly return is within 60 days
(Sec. 25 A2)
after the end of each quarter while
the annual return is on or before • Non-resident alien not
April 15 of the following year. engaged in trade or business
– 25% (Sec. 25B)
LIABILITY OF A PARTNER b. Share of a partner in the loss of
Rules: a taxable or business partnership
1. Share of a partner in general maybe taken by the individual
professional Partnership partner in his return of income.
a. Each partner shall report as c. Payments made to a partner of
gross income (business income) a business or taxable partnership
his distributed share actually or for services rendered shall be
constructively received in the net considered as compensation
income of the partnership. (Sec. income subject to sec. 24A.
26, NIRC) [The same share shall
be subject to creditable KINDS OF INCOME TAXES
withholding tax of 10%.] They UNDER THE NIRC
are liable in their separate and
individual capacity. 1. Net Income Tax
2. Optional Corporate Income tax
b. Share of a partner in the loss of 3. Minimum Corporate Income Tax
a general professional 4. Improperly Accumulated Earnings
partnership may be taken by the Tax
individual partner in his return of 5. Preferential Rates or Special Rates of
income. Income Tax
6. Gross Income Tax
7. Final Income Tax
8. Fringe Benefits Tax

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9. Capital Gains Tax • NRANETB – 25%

(1) NET INCOME TAX on gross income (Sec. 25B)
b. F
DEFINITION: Means gross income less rom Foreign Corporations
deductions and/or personal and • RC, NRC, RA,
additional exemptions (Sec. 31, NIRC) NRAETB – 5-32% (Sec. 24,
25A1)
NET INCOME TAX FORMULA • NRANETB – 25%
Entire Income on gross income (Sec. 25B)
Less: Exclusions and Income subject
to Final Tax (e.g. Passive Corporate Taxpayer
Income) a. Foreign to Domestic Corp. – 32%
Gross Income (Sec. 32A)
Less: Deductions (and/or additional b. Domestic to Domestic Corp. –
exemptions, if applicable) Exempt; intercorporate
Net Taxable Income dividends (Sec. 27D)
Multiply by: Tax Rate (%) c. Domestic to Foreign Corp. -
Net Income Tax Due • Resident Foreign
Less: Tax Credit, if any Corp. – Exempt (Sec. 28 [A]
Tax Still due, if any 7d)
• Nonresident
Foreign Corp. – 15% subject
GROSS INCOME
to the condition stated in
Sec. 28 [B] 5. Otherwise, it
DEFINITION: Means all income derived from
shall be taxed at 32%. (See
whatever source, including but not
Commissioner vs. Procter
limited to the following (Sec. 32)
and Gamble, GR No. 66838,
a. Compensation;
December 2, 1991)
b. Gross income from
profession, trade or business;
2. Stock
c. Gains form dealings in
Dividends
property;
General rule: Not subject to tax
d. Interests;
because it does not constitute
e. Rents;
income; it represents transfer of
f. Royalties;
surplus to capital account. (Sec. 73B,
g. Dividends;
1997 NIRC)
h. Annuities;
Exceptions:
i. Prizes and winnings;
a. Sec. 73B, 1997 NIRC
j. Pensions;
(1) there is redemption or
k. Partner’s share in the net
cancellation
income of the general professional
(2) the transaction involves stock
partnership
dividends, and
(3) the “time and manner” of
 See Annex D for detailed discussion the transaction makes it
of items. “essentially equivalent to a
distribution of taxable
KINDS OF DIVIDENDS dividends”. (see
1. Cash Commissioner vs. Court of
and Property Dividends Appeals, Court of Tax
Individual Taxpayer Appeals & ANSCOR, GR No.
a. F 108576, Jan. 30, 1999)
rom Domestic Corporations b. the recipient is other than the
• RC, NRC, RA – shareholder (Bachrach vs.
10% (Sec. 24A) Seifert, GR No. L-2659, October
• NRAETB – 20% 12, 1950)
(Sec. 25A2)

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c. change in the stockholder’s endowment or annuity contract, or

equity results by virtue of the any interest therein, only the actual
stock dividend issuance. value of such consideration and the
amount of the premiums and other
3. Liquidating Dividends – When a sums subsequently paid by the
corporation distributes all of its assets in transferee are exempt from taxation.
complete liquidation or dissolution, the No loss is realized on surrender of a
gain realized or loss sustained by the life insurance policy for its surrender
stockholder, whether individual or value.
corporation, is taxable income or
deductible loss, as the case may be. (Sec. 3. Gift, bequest or devise
73A) Gifts, bequests, and devises
A liquidating dividend is not (which are subject to estate or gift
a dividend income. The taxes) are excluded, but not the
transaction is considered a sale income from such property. If the
or exchange of property between amount received is on account of
the corporation and the services rendered, whether
stockholder. constituting a demandable debt or
not, or the use of the opportunity to
EXCLUSIONS FROM GROSS INCOME use of capital, the receipt is income
NOTE: Under the 1997 Tax Code, the term (Pirovano vs. Commissioner, 14 SCRA
“exclusions” refers to items that are not 832)
included in the determination of gross
income either because: 4. Compensation for personal injuries
(a) they represent return of capital or sickness, whether by suit or
or are not income, gain or profit; or agreement
(b) they are subject to another kind NOTE: The phrase “personal injuries”
of internal revenue tax; or should be given a restrictive meaning
(c) they are income, gain or profit to refer only to physical injuries. The
that are expressly exempt form income theory for this is that recoupment on
tax under the constitution, tax treaty, account of such losses is not income,
Tax Code, or a general or special law. since it is not derived from capital,
from labor or from both combined.
1. Proceeds of life insurance paid by And the fact that the payment of
reason of the death of the insured to compensation for such loss was
his estate or to any beneficiary voluntary does not change its exempt
(individual, partnership, or status. It was in fact compensation
corporation, but not a transferee for for a loss, which impaired
a valuable consideration), directly or petitioner’s capital.
in trust.
NOTE: if the proceeds are 5. Income exempt under Treaty;
retained by the insurer, the interest
thereon is taxable; 6. Retirement benefits, pension,
gratuities, etc.
2. Return of insurance premium; a. those derived under R.A. 7641
NOTE: if such amounts (when added to (pertains to private firms without
amounts already received before the retirement trust fund);
taxable year under such contracts) b. those received by officials and
exceed the aggregate premiums or employees of private employers
considerations paid (whether or not in accordance with a reasonable
paid during the taxable year), then private benefit plan;
the excess shall be included in the Requisites:
gross income. However, in the case of (1) in the service of
a transfer for a valuable the same employer for at
consideration, by assignment or least 10 years;
otherwise, of a life insurance,

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(2) at least 50 years (1) recipient

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

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specific provisions of the statute (3) premium

authorizing the deduction; and payments on health and/or
b. He must be able to prove hospitalization insurance
that he is entitled to the deduction (4) personal
authorized or allowed. (Atlas additional exemptions
Consolidated Mining & Dev. Corp. vs. 2. Corporations
Commissioner, GR No. L-26911, • Itemized Deductions
January 21, 1981)
c. Any amount paid or
payable which is otherwise KINDS OF DEDUCTIONS
deductible from, or taken into a. Optional standard deductions (OSD)
account in computing gross income or –10% of the gross income.
for which depreciation or The OSD may be availed of
amortization may be allowed, shall only by individuals (except
be allowed as deduction only if it is nonresident alien) who are not purely
shown that the tax required to be compensation income earners.
deducted and withheld therefrom has b. Personal and additional exemptions
been paid to the BIR. [Sec. 34(K), Available only to individuals
NIRC] (business income and compensation
income earners).
NOTE: Deductions for income tax
purposes partake of the nature of tax NRAETB may be entitled to
exemptions; hence, if tax exemptions are personal exemptions (only) subject to
to be strictly construed, then it follows reciprocity, i.e.,
that deductions must also be strictly a. the country of which he is a
construed. subject or citizen has an income
tax law; and
TAXPAYERS WHO CANNOT AVAIL OF DEDUCTIONS b. the income tax law of his country
FROM GROSS INCOME allows personal exemption to
1. Citizens and resident citizens of the Philippines not
aliens whose income is purely residing therein, but deriving
compensation income (except for income therefrom and not to
premium payments on health and/or exceed the amount allowed in
hospitalization insurance); NIRC.
2. Non-resident aliens not
engaged in trade or business in the The personal exemption shall be
Philippines; and equal to that allowed by the income
3. Non-resident foreign tax law of his country to a citizen of
corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.
Individuals
a. with gross compensation Individuals not entitled to these
income from employer-employee exemptions:
relationship only a. Non-resident Alien not
(1) premium engaged in trade or business
payments on health and/or b. Alien individual
hospitalization insurance employed by Regional or Area
(2) personal Headquarters of Multinational
additional exemptions Companies
b. gross income from c. Alien individual
business or practice of profession employed by Offshore Banking
(1) Optional Units
Standard Deduction (OSD) d. Alien individual
(2) Itemized employed by Petroleum Service
deductions Contractor and Subcontractor

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“Chief support” means more

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

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thousand pesos (60,000) per • became legally separated

annum subject to the review of – can only claim P 20,000
the National Economic • 25 years old child
Development Authority (NEDA) became incapacitated –
every three years. cannot claim additional
exemption
Parents and dependents qualify
the taxpayer, to the personal ITEMIZED DEDUCTIONS
exemption of P25,000 as head of the
family but not to the additional
A. ORDINARY AND NECESSARY
exemption of P8,000.
EXPENSES
NOTE: NRAETB may deduct personal
exemption (not additional NECESSARY EXPENSE – appropriate and helpful
exemption), but only to the extent in the development of taxpayer's business
allowed by his country to Filipinos and are intended to minimize losses or to
not residing therein, and shall not increase profits. These are the day-to-
exceed the aforementioned amounts. day expenses.
NRANETB cannot claim any personal ORDINARY EXPENSE – normal or usual in
or additional exemptions. relation to the taxpayer’s business and
the surrounding circumstance.
C. Change of Status [Sec. 35, NIRC]
1. If the REQUISITES OF BUSINESS EXPENSE TO BE DEDUCTIBLE
taxpayer should marry or should 1. ordinary and necessary;
have additional dependents 2. paid or incurred w/in the taxable
during the taxable year, he may year;
claim the corresponding 3. paid or incurred in carrying on a
exemptions in full for such year. trade or business;
2. If the 4. substantiated with official
taxpayer should die during the receipts or other adequate records.
taxable year, his estate may 5. if subject to withholding taxes
claim the corresponding proof of payment to the Bureau of
exemptions as if he died at the Internal Revenue must be shown.
close of such year. 6. must be reasonable (when the
3. If the expense is not lavish, extravagant or
spouse or any dependent should excessive under the circumstances)
die or any dependent should 7. must not be contrary to law, public
marry or become twenty-one policy or morals.
years old during the year, or
should become gainfully NOTE: While illegal income will form
employed, the taxpayer may part of income of the taxpayer, expenses
claim the exemptions as if the which constitute bribe, kickback and
spouse or dependent died or as if other similar payment, being against law
such dependent married, became and public policy are not deductible from
twenty one years old or became gross income. (Subsec. A, 1, c)
gainfully employed at the close
of such year. CAPITAL EXPENDITURE – An expenditure that
benefits not only the current period but
4. For any
also future periods. It is not deductible
other event and for which there but depreciable, except, if the taxpayer
are no specific rules applicable is a non-profit proprietary educational
from the above-mentioned, the institution which may elect either to
status of the taxpayer at the end deduct the capital expense or depreciate
of the year shall determine his it.
exemptions. (strictly construed
against the taxpayer)
Examples:  See Annex E – Business Expenses

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General Rule - In general, the amount of

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

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The deductible expense shall be principal amortized or paid

computed as follows: during the year shall be allowed
as deduction in such taxable
Year 2000 year.
2. Interest paid on indebtedness
Net Income before between related taxpayer
interest expense P500,000 3. If the indebtedness is incurred to
Less: Interest Expense P120,000 finance petroleum exploration
Less: 38% of interest 4. Interest on preferred stock, which in
income from deposit reality is dividend
(38% x P200,000) 76,000 5. Interest on unpaid salaries and
Deductible Interest bonuses
Expense 44,000 6. Interest calculated for cost keeping
Taxable Income P456,000 on account of capital or surplus
invested in business which does not
represent charges arising under
Deductible Interest Expense interest-bearing obligation.
1. Interest on taxes, such as those paid 7. Interest paid when there is no
for deficiency or delinquency, since stipulation for the payment thereof.
taxes are considered indebtedness
(provided that the tax is a deductible OPTIONAL TREATMENT OF INTEREST EXPENSE
tax, except in the case of income At the option of the taxpayer,
tax). However, fines, penalties, and interest incurred to acquire property
surcharges on account of taxes are used in trade or business may be allowed
not deductible. The interest on as a deduction or treated as capital
unpaid business tax shall not be expenditure. [Sec 34 (B)(3), NIRC]
subjected to the limitation on
deduction. C. TAXES
2. Interest paid by a corporation on
scrip dividends Taxes mean TAXES PROPER, and
3. Interest-on deposits paid by therefore no deductions are allowed for:
authorized banks of the Bangko 1. interest
Sentral ng Pilipinas to depositors, 2. surcharges
if it is shown that the tax on such 3. penalties or fines
interest was withheld. incident to delinquency (Sec. 80,
4. Interest paid by a corporate taxpayer Rev. Reg. 2)
who is liable on a mortgage upon real
property of which the said REQUISITES FOR DEDUCTIBILITY
corporation is the legal or equitable 1. must be in connection with
owner, even though it is not directly taxpayer’s business;
liable for the indebtedness. 2. tax must be imposed by law on, and
payable by taxpayer (direct tax); and
NON-DEDUCTIBLE INTEREST EXPENSE 3. paid or incurred during the taxable
1. An individual taxpayer reporting year.
income on the cash basis incurs an
indebtedness on which an interest is TAXES NOT DEDUCTIBLE
paid in advance through discount or 1. income tax;
otherwise: 2. estate and donor’s tax;
3. special assessments;
• allowed as a deduction in the 4. excess electric consumption tax;
year the indebtedness is paid 5. foreign income tax, war profits and
• if the indebtedness is payable excess profits tax, if the taxpayer
periodic amortization on, the makes use of tax credit; and
amount of interest which 6. final taxes, being in the nature of
corresponds to the amount of the income tax.

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4. foreign corporations (resident and

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

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

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2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE ONLY undertaken is partially or wholly

TO THE EXTENT OF CAPITAL GAINS) abandoned, all accumulated
a. Losses from sale or exchange of exploration and development
capital assets expenditures pertaining thereto
b. Losses resulting from securities shall be allowed as a deduction.
becoming worthless and which (2) In case a producing well is
are capital assets. abandoned, the unamortized cost
c. Losses from short sales of thereof, as well as the
property. undepreciated cost of equipment
directly used therein, shall be
d. Losses due to failure to exercise allowed as deduction in the year
privilege or option to buy or sell the well, equipment or facility is
property. abandoned.
3. SPECIAL KINDS OF LOSSES d. Losses due to voluntary removal of
a. Wagering losses - deductible only to building incident to renewal or
the extent of gain or winnings. [Sec. replacements - deductible expense
34 (D)(6)]; deemed to apply only to from gross income.
individuals
b. Losses on wash sales of stocks - not e. Loss of useful value of capital assets
deductible because these are due to charges in business conditions -
considered to be artificial loss. deductible expense only to the extent
of actual loss sustained (after
Wash sales – a sale or other adjustment for improvement,
disposition of stock or securities depreciation and salvage value)
where substantially identical
securities are acquired or purchased
within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38] f. Losses from sales or exchanges of
property between related taxpayers
General rule: Losses from wash sales -losses of this nature is not deductible
are not deductible. but gains are taxable.
Exception: When the sale is made by a
dealer in stock or securities and with
respect to a transaction made in the g. Losses of farmers - if incurred in the
ordinary course of the business of such operation of farm business, it is
dealer, losses from such sale is deductible.
deductible.
Elements of Wash Sales: h. Loss in shrinkage in value of stock –
(1) The sale or other disposition of if the stock of the corporation becomes
stock resulted to a loss; worthless, the cost or other basis may be
(2) There was an acquisition or deducted by the owner in the taxable
contract or option for acquisition year in which the stock of its
of stock or securities within 30 worthlessness is made. Any amount
days before the sale or 30 days claimed as a loss on account of shrinkage
after the sale; and in value of the stock through fluctuation
(3) The stock or securities sold were in the market or otherwise cannot be
substantially the same as those deducted from gross income.
acquired within the 61-day period.
E. BAD DEBTS
c. Abandonment losses in
BAD DEBTS – shall refer to those debts
petroleum operation and producing
resulting from the worthlessness or
well.
uncollectibility, in whole or in part, of
(1) In case a contract area where
amounts due the taxpayer by others,
petroleum operations are

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arising from money lent or from 2. that in so doing, he acted

uncollectible amounts of income from in good faith. (Collector vs.
goods sold or services rendered. Goodrich International Rubber,
GR No. L-22265, Dec. 22, 1967)
REQUISITES FOR DEDUCTIBILITY • Depends upon the particular facts and
1. Existing indebtedness due to the the circumstances of the case.
taxpayer which must be valid and • Good faith does not require that the
legally demandable; taxpayer be an “incorrigible optimist”
2. Connected with the taxpayer's trade, but on the other hand, he may not be
business or practice of profession; unduly pessimistic.
3. Must not be sustained in a
transaction entered into between F. DEPRECIATION
related parties;
4. Actually ascertained to be worthless
DEPRECIATION – the gradual diminution in the
and uncollectible as of the end of
service or useful value of tangible
the taxable year.; and
property due from exhaustion, wear and
5. Actually charged off in the books of
tear and normal obsolescence.
accounts of the taxpayer as of the
The term also applies to amortization
end of the taxable year.
of intangible assets, the use of which in
trade or business is of limited duration.
EQUITABLE DOCTRINE OF TAX BENEFIT
A recovery of bad debts previously
REQUISITES FOR DEDUCTIBILITY
deducted from gross income constitutes
1. The allowance for depreciation must
taxable income if in the year the account
be reasonable.
was written off, the deduction resulted in
a tax benefit. (Tax Benefit Rule) 2. It must be for property use or
employment in trade or business or
out of its not being used temporarily
Illustration: during the year.
Case A Case B Case C 3. The allowance must be charged off
Net within the taxable, year.
income 4. Schedule on the allowance must be
(loss) attached to the return.
before
write off
for bad P10,000 (P 9,000) P 5,000 PROPERTY HELD BY ONE PERSON FOR LIFE WITH
debts THE REMAINDER TO ANOTHER PERSON
Less: The deduction shall be computed as
Accounts if the life tenant was the absolute owner
written off
as bad of the property and, as such the expense
debts 3,000 2,000 6,000 shall accrue to him.
Final Net
Income PROPERTY HELD IN TRUST
(Loss) P 7,000 (P11,000) (P1,000)
Bad debts Allowable deduction shall be
recovery apportioned between the income
in a subse- beneficiaries, and the trustees in
quent year 3,000 2, 000 6, 000 accordance with the pertinent provisions
TAXABLE
INCOME of the instrument creating or in the
upon the absence of such provisions, on the basis
bad debt of the trust income allowable to each.
recovery P3,000 P -0- P5,000
METHODS OF DEPRECIATION
ASCERTAINMENT OF WORTHLESSNESS The term "reasonable allowance"
• Proof of Two Facts: shall include (but not limited to) an
1. taxpayer did in fact allowance computed in accordance, with
ascertain the debt to be the regulations prescribed by the
worthless, in the year for which
deduction is sought,

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Department of Finance, under any of the modified if justified by facts or

following methods. circumstances. The change shall not be
1. Straig effective before the taxable year on
ht-line method which notice in writing by certified mail
2. Declin or registered mail is served by the party
ing-balance method initiating.
3. Sum SPECIAL TYPES OF DEPRECIATION
of the years-digit method 1. Petroleum Operations
4. Any • Depreciation of
other method which may be all properties directly related to
prescribed by the Department of production of petroleum shall be
Finance upon recommendation of the allowed under straight-line (SL)
Commissioner of Internal Revenue. or declining balance (DB) method
• May shift from
METHODS OF DEPRECIATION DB to SL method
Kind Formula • Useful life: 10
1)Straight-line cost- salvage value years or shorter life as allowed
estimated life
2)Declining balance cost – depreciation x Rate by the Commissioner
estimated life • Useful life of
3)Sum of the years nth period x cost- salvage property not directly related to
digits (SYD) SYD production: 5 years under
straight line method
Illustration: A machine is used in the 2. Mining Operations
manufacturing department of Corporation • Depreciation on all properties in
A, compute the depreciation per annum mining operations other than
with the following facts: petroleum operations at the
Cost = P15,000 Salvage normal rate if expected life is
Value= P5,000 less than 10 years.
• If expected life is more than 10
years, depreciation shall be any
number of years between 5 years
1. Straight Line Method with estimated and the expected life.
life = 5 years
15,000 – 5,000 = P2,000 3. Depreciation deductible by non-
5 years resident aliens engaged in
trade/business or non-resident
2. Declining balance with rate of 200% corporation
Year 1: 15,000 – 0 x 200% = P6,000 a. Only when such property is
5 located in the Philippines.
Year 2:15,000–6,000 x 200% =P3,600
5 G. DEPLETION OF OIL AND GAS
WELLS AND MINES
3. Sum of the years digits
SYD for 5 years = 5+4+3+2+1 or 15 DEPLETION - exhaustion of natural resources
Year 1: 5/15 x (15,000 – 5,000) as in mines, oil, and gas wells. The
= P3,333.33 natural resources are called “wasting
Year 2: 4/15 x (15,000 – 5,000) assets”. As the physical units
= P2,666.67 representing such resources are extracted
and sold, such assets move towards
AGREEMENT AS TO USEFUL LIFE ON WHICH exhaustion.
DEPRECIATION RATE IS BASED Known as cost of depletion allowance
The Bureau of Internal Revenue and for mines, oil gas wells and other natural
the taxpayer may agree in writing on the deposits starting calendar year 1976 and
useful life of the property to be fiscal year beginning July 1,1975
depreciated. The agreed rate may be

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TO WHOM ALLOWED 1) Recipient is: 1) Recipient is:

Only mining entities owning economic (a) Government of (a) Government of
interest in mineral deposits. the the Philippines;
Philippines; (b) Any of its
Economic interest means interest in (b) Any of its agencies or
minerals in place investment therein or agencies or political
secured by operating or contract political subdivisions
agreement for which income is derived, subdivisions; or
and return of capital expected, from the (c) Any fully- For a non-priority
extraction of mineral. owned activity in any of the
Mere economic or pecuniary government areas mentioned in A,
advantage to be derived by production corporation and exclusively for a
by one who has no capital investment in public purpose.
For priority
the mineral deposit does not amount to activity in:
economic interest. 1. Science;
2. Education
FEATURES 3. Culture
1. Intangible Exploration and 4. Health
development drilling cost in 5. Economic
petroleum exploration shall be Development
6. Human
treated either as:
Settlement
a. revenue expenditures; or 7. Youth and
b. capital expenditures Sports
2. The total amount deductible for Development
exploration and development
2) Recipient is a 2) Non-government
expenditures shall not exceed 50% of
foreign or organizations
net income from mining operation. international
The excess shall be carried forward organization with
to the succeeding year until fully an agreement
deducted. with the
Philippine
H. CHARITABLE AND OTHER Government on
deductibility, or
CONTRIBUTIONS
in accordance
with special law.
TAX TREATMENT
A. Deductible B. Deductible Subject 3) Recipient is an 3) Recipient is an

In Full To Limitation accredited non- accredited domestic
government corporation or
organization, association
organized/ operated organized/operated
for (purposes): for (purposes):

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

(R&D) 1. The employer must have
established a pension or retirement

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

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3. Amount expended in restoring 1. Interest expense [Sec. 34 (B)(2)]

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

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• Any amount of the excess MCIT which

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

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

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Taxable income for the year vote is owned directly or

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

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corporation in unrelated all undistributed earnings

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

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1. Non-resident alien not 1. Housing

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

service, or other benefit furnished or realized by the employee which
granted by an employer, in cash or in includes the net amount of money or
kind, in addition to basic salaries, to an net monetary value of property which
individual employee (except rank and file has been received; plus
employees) such as, but not limited to 2. The amount of fringe benefit tax
the following: thereon otherwise due from the

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employee but paid by the employer In the case of rank and file
for and in behalf of the employee. employees, fringe benefits other
than those excluded from gross
“GMV” of the fringe benefit shall income under the Tax Code and
be determined by dividing the monetary other special laws, are taxable
value of the fringe benefit by the under the individual normal tax
Grossed up divisor. The Grossed up rate.
divisor is the difference between 100% DEDUCTIBILITY TO THE TAXABLE
and the applicable rates. INCOME OF THE EMPLOYER
GROSSED UP General Rule: The amount of taxable

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

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6. Laundry allowance not exceeding On the gross selling price, or the

P300 per month; current fair market value at the
7. Employees achievement awards e. g. time of sale, whichever is higher –
for length of service or safety FT of 6%
achievement, which must be in the 2. Corporations
form of a tangible personal property a. On sale of shares of stock
other than cash or gift certificate, of a domestic corporation not
with an annual monetary value of not listed and traded thru a local
exceeding P10,000 received by the stock exchange, held as capital
employee under an established asset
On the Net Capital Gain –
written plan which does not Not over P100,000 – FT of 5%
discriminate in favor paid employees; Amount in excess
8. Gifts given during Christmas and of P100,000 – FT of 10%
major anniversary celebrations not b. On sale of land/building
exceeding P3, 000 per employee per held as capital asset
annum; On the gross selling price, or the
9. Flowers, fruits, books or similar items current fair market value at the
given to employees under special time of sale, whichever is higher
circumstances – FT of 6%
10. Daily meal allowance for overtime (Reyes, Virgilio. Income Tax Law and
work not exceeding 25% of the basic Accounting – A New Approach, 2002)
minimum wage.
CAPITAL GAINS AND LOSSES –
Time for filing of quarterly remittance IN GENERAL
return of final income taxes withheld
The tax imposed under Sec. 33 shall CONCEPT OF CAPITAL ASSETS
be treated as a final income tax on the
employee that shall be withheld and paid Under the tax code, there is no
by the employer, whether a large definition for the term "capital assets".
taxpayer or non-large taxpayer, on or What it gives is the meaning of ordinary
before the 10th day of the month assets:
following the calendar quarter in which
the fringe benefits were granted (RR 04- a. Ordinary assets (Sec. 39, NIRC)
2002). a. Stock in trade of the
taxpayer or other properties of a
 For Additional Rules on Fringe kind which would properly be
Benefits, refer to Annex H. included in the inventory of the
taxpayer;
(9) CAPITAL GAINS TAX
b. Property held by the
taxpayer primarily for sale to
SUMMARY OF TAX RATES
customers in the ordinary course
of business;
1. Individuals
a. On sale of shares of stock
c. Property used in trade or
of a domestic corporation not
business and subject to
listed and traded thru a local
depreciation; and
stock exchange, held as capital
asset
On the Net Capital Gain d. Real property used in trade
Not over P100,000 – FT or business.
of 5%
Amount in excess of P100,000 – FT b. Capital Assets include all
of 10% property held by the taxpayer
b. On sale of real property whether or not connected in trade or
in the Philippines held as capital business but not including those
asset

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enumerated above (#1) as ordinary  Holding Capital gains and

assets. Period losses are
The percentages recognized to the
of gain or loss to be extent of 100%.
CAPITAL GAIN CAPITAL LOSS taken into account (There is no
shall be the following: holding period)
The gain derived The loss incurred a.100% - if the
from the sale or from the sale or capital assets has
exchange of capital exchange of capital been held for 12
assets. assets. mos. or less; and
b.50% - if the
capital asset has
been held for
more than 12
NET CAPITAL NET CAPITAL mos.
GAIN LOSS
The excess of the The excess of the  Non- • Capital losses

gains from sales/ losses from sales or deductibility of are allowed only
exchanges of capital exchanges of capital Net Capital to extent of the
assets over the gains assets over the gains losses capital gains;
from such sales/ from such sales or • Capital losses hence, the net
exchanges. exchanges. are allowed only capital loss is
to extent of the not deductible.
capital gains; Exception: If any
hence, the net domestic bank or
 TRANSACTION RESULTING IN TAXABLE GAINS BUT capital loss is trust company, a
NON-RECOGNITION OF LOSSES not deductible. substantial part of
a. Sale or exchange whose business is
between related parties; the receipt of
deposits, sells any
b. Wash sales by non- bond, debenture,
dealers of securities and when note or certificate
not subject to the stock transfer or other evidence of
tax; indebtedness issued
c. Exchanges not solely in by any corporation
kind in merger and consolidation; (including one
and issued by a
government or
d. Sales or exchanges that
political
are not at arms length. subdivision)
REQUISITES FOR RECOGNITION OF  Net Capital Loss • Not

CAPITAL GAIN/LOSS Carry –Over allowed
• Allowed
1. The transaction must involve The net capital loss (in
property classified as capital an amount not in
asset; and excess of the taxable
income before personal
2. The transaction must be a sale or exemption for such
year) shall be treated
exchange or one considered as
in the succeeding year
equivalent to a sale or exchange. (but not beyond 12
months) as a deduction
RULES ON THE RECOGNITION OF as short-term capital
CAPITAL GAINS OR LOSSES loss (at 100%) from the
net capital gains.
INDIVIDUAL CORPORATION
  See Annex U for illustration.

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SUMMARY OF TAX TREATMENT OF

SALE OR EXCHANGE OF CAPITAL ASSETS GAINS/LOSSES IN THE EXCHANGE OF
PROPERTIES
The following are considered as sale
or exchange of capital assets: General Rule: Upon the sale or exchange
1. Retirement of bonds of property, the entire gain or loss, as
2. Short sales of property the case may be, shall be recognized.
3. Failure to exercise privilege or [Sec. 40 (C, 1)]
option to buy or sell property
4. Securities becoming worthless Exceptions:
5. Distribution in liquidation of 1. Transactions where gains and losses
corporations are not recognized –
6. Readjustment of interest in a a. Exchange solely in kind in
general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation
Sales or exchanges resulting in non- b. Transfer to a controlled
recognition of gains or losses: corporation [Sec. 40(C, 2)]
1. Exchange solely in kind in legitimate 1. Transactions where
mergers and consolidation; includes: gain is recognized
a. Between the corporations but not the loss –
which are parties to the merger a. T
or consolidation (property for ransactions between related
stocks); taxpayers [Sec. 36]
b. Between a stockholder of a b. I
corporation party to a merger or llegal transactions [Sec. 96,
consolidation and the other party Rev. Reg. 2]
corporation (stock for stock); c. E
c. Between a security holder of a xchanges of property, not
corporation party to a merger or solely in kind, in pursuance of
consolidation and the other party corporate mergers and
corporation (securities for consolidations [Sec. 40, (C, 3)]
securities)
IMPORTANT DISTINCTION
2. Transfer to a controlled corporation If it is an ordinary asset, the ordinary
– exchange of property for stocks gains and losses are considered in
resulting in acquisition of corporate determining income or loss from trade,
control by a person, alone or business or profession. (See Secs. 32A,
together with others not exceeding 34D)
four. If it is a capital asset, determine
“Control” means ownership of further whether or not it is a real
stocks in a corporation amounting to property located in the Philippines. If it
at least 51% of the total voting power is, then it is subject to capital gains tax.
of all classes of stocks entitled to (See Secs. 24D, 27D5) (See also Sec s.
vote. 24C, 27D2) If not, the capital gains and
losses are considered in determining the
SALE OR EXCHANGE OF ORDINARY ASSETS taxable income. (Sec. 39)
General rules of income taxation CAPITAL GAINS AND LOSSES –

apply to both gain and loss. SHARES OF STOCK
The taxation of shares of stock

 See Annex D (Gross Income – Gains whether or not listed and traded in the
from dealings in property) stock exchange is subject to final tax.
WHO ARE LIABLE TO THE TAX

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1. Individual that of initial public offering shall be

taxpayer, citizen or alien subject to Percentage tax (Business
2. Corporate Tax)
taxpayer, domestic or foreign 2. Capital losses sustained
3. Other during the year (not listed and traded
taxpayers such as estate, trust, trust in a local stock exchange) shall be
funds and pension among others. allowed as a capital loss deductible
on the same taxable year only (no
RATES OF TAX carry-over)
3. The entire amount of
1. Shares of stock not traded through capital gain and capital loss (not
a local stock exchange – Net capital listed and traded in a local stock
gains derived during the taxable year exchange) shall be considered
from sale, exchange, or transfer shall without taking into account holding
be taxed as follows (on a per period irrespective of who is the
transaction basis): taxpayer (all 100%)
Not over P 100,000 - 5% 4. Non-deductibility of
Over P 100,000 - 10% losses on wash sales.
2. Shares of stock listed through a
local stock exchange – ½ of 1% of FILING AND PAYMENT OF TAX
the gross selling price of the stock.
EXCEPTIONS TO THE TAX 1. Listed and Traded in the Stock
1. Gains derived by dealers in securities. Exchange - The stockbroker shall turn
2. All other gains which are specifically over the tax collected to the B.I.R.
exempt from income tax under within five (5) banking days from the
existing investment incentives and date of collection.
other special laws.
2. Not traded through the stock exchange
BASIS FOR COMPUTING GAIN OR LOSS (BIR RULING - It shall be paid by the seller on a per
146-98) transaction basis upon filing of the
required return within 30 days
• The fair market value (FMV) of following each sale or other disposition
the sale of shares not traded but of shares of stock.
listed in the stock exchange is the
highest closing price on the day the
shares were sold, transferred or CAPITAL GAINS AND LOSSES
exchanged. (REAL PROPERTY)
• When no sale is made in the
stock exchange, the FMV shall be the PERSONS LIABLE AND TRANSACTIONS AFFECTED
highest selling price on the day
nearest to the day of sale, transfer or 1. Individual taxpayers, estates and
exchange. trusts
• For shares not listed in the Sale or exchange or other
exchange, the FMV shall be the book disposition of real property
value nearest the valuation date considered as capital assets.
The said sale shall include "pacto
The above rules shall be used in de retro sale" and other conditional
computing for the net capital gain/loss sale.
for disposition of shares. 2. Domestic Corporation
Sale or exchange or disposition of
IMPORTANT FEATURES lands and/or building which are not
actually used in business and are
1. Sale of shares of stock of treated as capital asset.
a domestic corporation listed and
traded in a local stock exchange and  EXCEPTIONS TO THE TAX

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1. Gains derived by dealers in real estate A. General rule (Sec. 43)

Taxable income is computed
RATE AND BASIS OF TAX upon the basis of taxpayer’s annual
A final tax of 6% is based on the gross accounting period (fiscal or
selling price or fair market value or calendar year) in accordance with
zonal value whichever is higher. the method of accounting
Note: Gain or loss is immaterial, employed.
there being a conclusive presumption of • If no method of accounting
gain. employed or method does not
clearly reflect the income,
 See Annex G – Guidelines in computation shall be made in
Determining Whether a Real Property accordance w/ such method as
is a Capital or an Ordinary Asset. the opinion of the Commissioner
clearly reflects the income.
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE CAPITAL • Taxable income is computed
GAINS TAX ON THE SALE OR DISPOSITION OF A based on calendar year if:
PRINCIPAL RESIDENCE 1. accounting period is
other than a fiscal year
Conditions: 2. taxpayer has no
a. Sale or disposition of the old accounting period
principal residence; 3. taxpayer does not keep
b. By natural persons - citizens or books
aliens provided that they are 4. taxpayer is an individual
residents taxable under Sec. 24 of • Fiscal year: accounting period of
the Code (does not include an estate 12 months ending on the last day
or a trust); of any month other than
c. The proceeds of which is fully December
utilized in (a) acquiring or (b) • Calendar year: accounting period
constructing a new principal from January 1 to December 31
residence within eighteen (18)
calendar months from date of sale or B. Periods in which items
disposition; of gross income included (Sec. 44)
d. Notify the Commissioner within
• Amount of all items of gross
thirty (30) days from the date of sale
income shall be included in the
or disposition through a prescribed
gross income for the taxable year
return of his intention to avail the
in which received by the
tax exemption;
taxpayer, unless, any such
e. Can only be availed of only once amounts are to be properly
every ten (10) years; accounted for in a different
f. The historical cost or adjusted period under methods of
basis of his old principal residence accounting permitted
sold, exchanged or disposed shall be • In case of death of taxpayer:
carried over to the cost basis of his include for the taxable year in
new principal residence which falls the date of his death,
g. If there is no full utilization, the all amounts which accrued up to
portion of the gains presumed to the date of his death; if not
have been realized shall be subject otherwise properly includible in
to capital gains tax. respect of such period or a prior
period
GROSS INCOME FROM DIFFERENT SOURCES (SEC. 42)
 Please refer to Annex I. C. Period for which
deduction and credits taken (Sec.
ACCOUNTNG PERIODS AND METHODS OF ACCOUNTING 45)
• Deductions provided in this Title
I. ACCOUNTING PERIODS shall be taken for the taxable

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year in which ‘paid or incurred, for the period between the

dependent upon the method of close of the last calendar for
accounting upon the basis of which return was made and
which the net income is the date designated as the
computed, unless, in order to close of the fiscal year
reflect the income, deductions • If change is from one fiscal year
should be taken as of a different to another:
period. - separate final or
• In case of death of taxpayer: adjustment return be made
deductions allowed for the for the period between the
taxable period in which falls the close of the former fiscal
date of his death, amounts year and the date designated
accrued up to the date of his as the close of the new fiscal
death if not otherwise properly year
allowable in respect of such (2) Income computed on basis of
period or a prior period. short period
• In what cases?
D. Change of accounting a. Where a
period (Sec.46) separate final or
• Kinds of changes: adjustment return is made
- from fiscal year to calendar on account of a change in
year accounting period
- from calendar year to fiscal b. In all other
year cases where a separate
- from one fiscal year to final or adjustment return
another is require or permitted by
• Effect of change: Net income, R&R prescribed by Sec. of
shall, with the approval of the Finance. upon
Commissioner, be computed on recommendation of
the basis of the new accounting Commissioner
period, subject to Sec. 47. • Both shall be made for a
fractional part of a year.
E. Final or adjustment • Then income is computed on the
returns for a period of less than basis of the short period for
12 months which separate final or
(1) Returns for short period adjustment return is made.
resulting from change of
accounting period II. METHODS OF ACCOUNTING
• taxpayer is other than an
individual A. Cash method
• with the approval of the Recognition of income
Commissioner and expense dependent on inflow
• If change is from fiscal year to or outflow of cash.
calendar year:
- separate final or 1. Accrual method
adjustment return be made Method under which
for the period between the income, gains and profits are
close of the last fiscal year included in gross income when
for which return was made earned whether received or not,
and the following December and expenses are allowed as
31 deductions when incurred:
• If change is from calendar year to although not yet paid. It is the
fiscal year: right to receive and not the
- separate final or actual receipt that determines
adjustment return be made the inclusion of the amount in
gross income

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• Examples Under rules and

: regulations prescribed by the
1. interest or rent Sec. of Finance, a person
income earned but not who regularly sells or
yet received otherwise disposes of
2. rent expense personal property on the
accrued but not yet paid installment plan may return
3. wages due to as income there from in any
workers but remaining taxable year that proportion
unpaid of the installment payments
actually received in that
2. Accounting for year, which the gross profit
long-term contracts realized or to be realized
• Long-term contracts: when payment is completed,
building, installation or bears to the contract price.
construction contracts
covering a period in excess of Example: Sale in 2000
1 yr Contract price (CP)
(installments
• Persons whose gross receivable) P200, 000
income is derived in whole or Cost 150,000
in part from such contracts Gross profit (GP) 50,000
shall report such income
upon the basis of percentage Installments payable in 2
of completion equal annual installments
• The return is GP/CP ratio
accompanied by a return = 50,000/200,000 = 25%
certificate of architects or Collections in 2000=P100,000
engineers showing the Income for 2000
percentage of completion = P100,000 x 25% = P25,000
during the taxable year of
the entire work performed
(2) Sales of realty and
under the contract
casual sales of Personalty
• Deductions from gross
• In cases of:
income: all expenditures
a. casual
made during the taxable year
sale or other casual
on account of the contract:
disposition of
account being taken of the
personal property
material and supplies on
(other than inventory
hand at the beginning and
on hand of the
end of the taxable period for
taxpayer at the close
use in connection with the
of the taxable year)
work under the contract but
for a price > P1,000,
not yet so applied.
or
• Amended return may be b. sale or
permitted /required by the other disposition of
Commissioner: if upon real property, if in
completion of contract, either case the initial
taxable income has not been payments do not
clearly reflected for any exceed 25% of the
year(s). selling price
3. Installment basis • How may income be
(1) Sales of dealers in returned: same as in
personal property sales of dealer in
personal property above

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• Initial payments: • Commissioner is

payments received in authorized to distribute,
cash or property other apportion or allocate gross
than evidences of income or deductions
indebtedness of the between or among such
purchaser during the organization, trade or
taxable period in which business, if he determines
the sale or other that such distribution,
disposition is made. apportionment or allocation
is necessary in order to
(3) Sales of real prevent evasion of taxes or
property considered as to clearly reflect the income
capital asset by individuals of any such organization,
• Individual who sells of trade or business.
disposes of real property,
considered as capital FILING OF TAX RETURN AND PAYMENT OF TAX
asset and is otherwise
qualified to report the TAX RETURN – This is a report made by the
gain under (2) above may taxpayer to the BIR of all gross income
pay the capital gains tax received during the taxable year, the
in installments under allowable deductions including
rules and regulations to exemptions, the net taxable income, the
be promulgated by the income tax rate, the income tax due, the
Sec. of Finance. income tax withheld, if any, and the
income tax still to be paid or refundable.
(4) Change from accrual to
installment basis
• taxpayer must be PERSONS REQUIRED TO FILE INCOME TAX RETURN

entitled to benefits
under (1) hereof sales of a. Individual
dealers in personal 1. Resident citizen;
property 2. Non-resident citizen on income
from within the Phil.;
• in computing income for
3. Resident alien on income from
the year of change or any
within the Phil.;
subsequent year:
4. NRAETB on income from within
amounts actually
the Phil.
received during any such
5. An individual (citizens / aliens)
year on account of sales
engaged in business or practice
or other dispositions of
of a profession within the Phil.
property made in any
regardless of the amount of gross
prior year shall not be
income;
excluded.
6. Individual deriving compensation
4. Allocation of income concurrently from two or
income and deductions more employers at any time
• Applicable to: cases of during the taxable year;
2 or more organizations, 7. Individual whose pure
trades or businesses compensation income derived
(incorporated and organized from sources within the Phil.
within the Philippines) owned exceeds P60,000.
or controlled directly b. Taxable Estate and Trust
/indirectly by the same c. General Professional Partnership
interest d. Corporation
1. Not exempt from income tax;

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2. Exempt from income tax under not exceed P60,000 and has only
Sec. 30 of NIRC but has not one employer for the taxable
shown proof of exemption. year and whose tax withheld is
equivalent to his tax due.
INDIVIDUALS EXEMPT FROM FILING INCOME TAX
RETURN SUBSTITUTED FILING OF INCOME TAX RETURNS BY
EMPLOYEES RECEIVING PURELY COMPENSATION
1. Individual whose gross income does INCOME. [SECTION 4, RR 3-2002; RMC 01-
not exceed total personal and 03]
additional exemptions;
2. Individual with respect to pure Requisites:
compensation income derived from 1. The employee receives purely
sources within the Philippines, the compensation income (regardless of
income tax on which has been amount) during the taxable year.
correctly withheld; 2. The employee receives the income
3. Individual whose sole income has only from one employer during the
been subjected to final withholding taxable year.
income tax; 3. The amount of tax due from the
4. Individual who is exempt from employee at the end of the year
income tax. equals the amount of tax withheld by
the employer.
– is when the employer’s
SUBSTITUTED FILING 4. The employee's spouse also complies
annual return may be considered as the with all three (3) conditions stated
“substitute” Income Tax Return (ITR) of above.
employee inasmuch as the information 5. The employer files the annual
provided in his income tax return would information return (BIR Form No.
exactly be the same information 1604-CF)
contained in the employer’s annual 6. The employer issues BIR Form 2316
return. (Oct 2002 ENCS) version to each
employee
HOW IS “SUBSTITUTED FILING” DIFFERENT FROM
“NON-FILING”? INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED FILING
(STILL REQUIRED TO FILE)
• Substituted Filing – an individual
taxpayer although required under 1. Individuals deriving compensation
the law to file his income tax from two or more employers
return, will no longer have to concurrently or successively during
personally file his own income the taxable year.
tax return. 2. Employees deriving compensation
– but instead the income, regardless of the amount,
employer’s annual information whether from a single or several
return filed is the considered employers during the calendar year,
“substitute” income tax return of the income tax of which has not been
the employee inasmuch as the withheld correctly (i.e. tax due is not
information in the employer’s equal to the tax withheld) resulting
return is exactly the same to collectible or refundable return.
information contained in the 3. Employees whose monthly gross
employee’s return. compensation income does not
exceed P5,000 or the statutory
• Non-filing – applicable to certain minimum wage, whichever is higher,
types of individual taxpayers who and opted for non-withholding of tax
are not required under the law to on said income.
file an income tax return. 4. Individuals deriving other non-
Example: employee whose business, non-profession-related
pure compensation income does income in addition to compensation

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income not otherwise subject to final

tax. INDIVIDUALS REQUIRED TO FILE AN INFORMATION
5. Individuals receiving purely RETURN
compensation income from a single
employer although the income tax of Individuals not required to file an
which has been correctly withheld, income tax return may nevertheless be
but whose spouse falls under 1 to 4 required to file an information return
above. pursuant to rules and, regulations
6. Non-resident aliens engaged in trade prescribed by the Secretary of Finance
or business in the Philippines deriving upon recommendation of the
purely compensation income, or Commissioner.
compensation income and other non-
business, non-profession-related PLACE OF FILING
income.
1. Legal residence -
NOTE: Non-filing of ITR, for employees authorized agent bank; Revenue
who are qualified for the substituted District Officer; Collection agent or
filing shall be OPTIONAL for the taxable duly authorized treasurer
year 2001, the returns for which shall be 2. Principal place of
filed on or before April 15, 2002. business
Thereafter, substituted filing where 3. With the Office of
applicable shall be MANDATORY. [Sec 5 the Commissioner
RR 3-2002)
REQUIREMENT OF BANKS FOR SUBMISSION OF AN ITR Time For Filing (Pay as you file system)
FOR LOAN OR CREDIT CARD APPLICATIONS
April 15 – for those earning sole
Banks may require the submission of compensation income or solely business,
BIR Form No. 1700 (for employees not practice of profession or combination of
entitled to substituted filing of ITR). business and compensation.
However, for employees entitled to
substituted filing of ITR, the submission RETURN AND PAYMENT OF ESTIMATED INCOME TAX BY
of the Joint Certification will suffice. INDIVIDUAL (SELF-EMPLOYED OR PRACTICE OF
PROFESSION)
JOINT CERTIFICATION - It is a sworn statement
made by the employer and employee, 1. First quarter - April 15 of current year
which serve the following purposes: 2. Second quarter -August 15 of current
1. It contains the employee's consent year
that BIR Form No. 1604CF may be 3. Third quarter – November 15 of current
considered his substituted return, in year
lieu of BIR Form No. 1700, which the 4. Final quarter - April 15 of the following
employee no longer filed. year.
2. It contains the employer's
certification that he has reported the Note: When the tax due is in excess of P2,
employee's income to the BIR and 000 - the taxpayer may elect to pay in two
that he has remitted the taxes on the (2) equal installments:
employee's income, as indicated in 1st installment - April 15
BIR Form No. 1604-CF. 2nd installment - on or before July 15
3. It serves as proof of financial
capacity in case the employee EXTENSION OF TIME TO FILE RETURN
decides to apply for a bank loan or a
credit-card, or for any other purpose, The Commissioner may on
as if he had in fact filed a BIR Form meritorious cases grant a reasonable
No. 1700. extension of time for filing income tax

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return and may subject the imposition of file their income tax return on or before
twenty (20) percent interest per annum April 15.
from the original due date.
TAX RETURNS OF GENERAL PROFESSIONAL
Return Of Husband And Wife PARTNERSHIPS (GPP)
• Each GPP shall file in duplicate, a
• File one (1) return for the return of its income (except those
taxpayer year if following requisites income exempt)
complied; • Shall set forth:
a. Married individuals a. items of gross income
(citizens, resident or nonresident and deductions allowed
aliens) b. names of partners
b. Do not derived income c. TIN
purely from compensation. d. address and share of
• If impracticable to file one each partner
return: each spouse file a separate
return of income but the return so Tax Return of a Corporation
filed shall be consolidated by the Those required to file:
Bureau for the purposes of 1. Corporation subject to tax having
verification for the year. existed during the taxable year,
whether with income or not.
UNMARRIED MINOR 2. Corporation in the process of
liquidation or receivership.
3. Insurance company doing business in
• Income of unmarried minors
the Philippines or deriving income
derived from property received by
therein
the living
4. Foreign corporation having income
from within the Philippines
parent shall be included in the return
of the parent, except:
Filing of return (Pay as you file system)
a. when donor’s tax has
Quarterly returns for the first three
been paid on such property, or
(3) quarters on a strictly sixty (60) day
b. when transfer of such
basis and the final or adjusted return on
property is exempt from donor’s
the 15th day of the fourth (4th) month
tax
following the close of either a-fiscal on
calendar year.
PERSONS UNDER DISABILITY
If a taxpayer is unable to make his  See Annex V for Illustration.

own return, it may be made by his
1. duly authorized agents; Who shall file?
2. representative; The return shall be filed by the
3. by guardian; president, vice-president, or other
4. other person charged with the care of principal officer, and shall be sworn to by
his person or property; such officer and by the treasurer or
• who will assume the responsibility of assistant treasurer.
making the return and incurring
penalties provided for erroneous, WITHHOLDING TAXES
false or fraudulent return.
Withholding Taxes
RETURN OF ESTATE, TRUST AND PARTNESHIP Kinds:
1. Withholding Tax at Source:
Estate and Trust with gross income of Final Withholding Tax
P20,000 or more and partnership b. Creditable Withholding
(whether professional or business) shall Tax (Expanded withholding tax)

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2. Withholding Tax on Compensation 3. any income

(Wages) payment which is otherwise
3. Withholding Tax on Creditable Value- deductible from the payor’s gross
Added Tax income will not be allowed as a
4. Withholding of Percentage Tax deduction if it is shown that the
income tax required to be withheld
FINAL CREDITABLE is not paid to the BIR. (Sec.
WITHHOLDING WITHHOLDING 2.58.5, Rev. Reg. 2-98)
TAX SYSTEM TAX SYSTEM
Withholding Tax On Compensation
The amount of Taxes withheld on Every employer must withhold
income tax withheld certain income from compensation paid, an amount
by the withholding payments are
computed in accordance with the
agent is constituted intended to equal or
as a full and final at least approximate regulations.
payment of the the tax due from the
income due from the payee on the said Exception:
payee on the said income. Where such compensation income
income. [Sec. 2.57 of an individual:
(a), Rev. Reg. 2-98] 1. Does not exceed the statutory
minimum wages; or
The liability for The income recipient
2. Five thousand (P5,000) monthly
payment of the tax is still required to
rests primarily on file an income tax (P60,000 a year)
the payor or the return and/or pay • whichever is higher.
withholding agent. the difference
The payee is not between the tax ELEMENTS OF WITHHOLDING ON COMPENSATION
required to file an withheld and the tax 1. There must be an employer-
income tax return due on the income.
employee relationship
for the particular [Sec. 2.57(B), Rev.
income. Regs. 2-98] 2. There must be payment of
compensation or wages for services
Time to Withhold Tax at Source rendered
3. There must be a payroll period.
- arises at the time an income is paid COMPENSATION EXEMPTED
or payable, whichever comes first. The
term “payable” refers to the date the 1. Remunerations received as an
obligation becomes due, demandable or incident of employment
legally enforceable. (Sec. 2.54.4 Rev. 2. Remunerations paid for
Regs. 2.98) agriculture labor
3. Remunerations paid for domestic
Nature of Withholding Agent’s Liability services
The withholding agent is directly 4. Remunerations for casual not in
and independently liable for the correct the course of an employer's trade or
amount of the tax that should be business.
withheld from the dividend remittance. 5. Compensation for services of a
(Commissioner vs. Procter and Gamble, citizen, resident of the Philippines,
GR No. 66838, December 2, 1991) for a foreign government or an
international organization
CONSEQUENCES FOR FAILURE TO WITHHOLD: 6. Damages
1. liable for 7. Life insurance
surcharges and penalties; 8. Amount received by the insured
2. liable upon as return of premium
conviction to a penalty equal to the 9. Compensation for injuries and
total amount of the tax not sickness
withheld, or not accounted for and 10. Income exempt under treaty
remitted. (Sec. 251, 1997 NIRC) 11. Thirteenth (13th) month pay and
other benefits

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12. GSIS; SSS; Philhealth and other

contributions, TRANSFER TAX INCOME TAX
Tax-Free Covenant BOND [Sec. 57(C)] Tax on transfer of Tax on income

property.
COVENANT BONDS – bonds, mortgages, deeds
of trust and other similar obligations of Rates are lower Rates are higher
--5% to 20% - -- 5% to 32%
domestic/resident foreign corporation,
estate tax
which contain a contract/provision by -- 2% to 15 % or
which the obligor agrees; 30% - donor’s
1. to pay any portion of the tax imposed tax
upon the obligee;
2. to reimburse the obligee for any Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without deduction
for any tax which the obligor may be
required/permitted to pay or to (1) ESTATE TAXES
retain therefrom.
DEFINITION: an excise tax on the right of
• Obligor shall deduct and withhold a transmitting property at the time of
tax = 30% of the interest and other death and on the privilege that a person
payments whether interest or other is given in controlling to a certain extent
payments are payable annually or at the disposition of his property to take
a shorter period; whether bonds, effect upon death.
securities, obligations had been/will
be issued/ marketed and the interest Estate Tax Formula
and other payments paid within and
without the Philippines if the interest Gross Estate (Sec. 85)
or other payment is payable to a non- Less: (1) Deductions (Sec. 86)
resident alien or a citizen or resident (2)Net share of the SS in the CPP
of the Philippines Net Taxable Estate
Income of Recipient [Sec. 58 (d)] Multiply by: Tax rate (Sec. 84)
Estate Tax due
• Income which any creditable tax is Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source 110[B]
shall be included in the return of its Estate Tax Due, if any
recipient.
• The excess of the amount of tax
withheld over the tax due on his GROSS ESTATE
return shall be refunded to him,
subject to Section 204 (abatement, A decedent’s gross estate includes (Sec.
refund/credit taxes). 85)
• If amount withheld at source is less
than the tax due on his return, the RESIDENT & NON-
difference is paid in accordance with RESIDENT CITIZEN, NON-RESIDENT
Section 56 (payment and assessment RESIDENT ALIEN ALIEN DECEDENT
of income tax). DECEDENT
• All taxes withheld shall be considered
1. Real property 1. Real property
as trust funds and maintained in a
wherever situated situated in the
separate account and not Philippines.
commingled with any other funds of
the withholding agent. 2. Personal property 2. Personal
wherever situated property
B. TRANSFER TAXES a) Tangible, and a) Tangible
b) Intangible property

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1
situated in a. did not impose a transfer

the tax or death tax of any character
Philippines
1. in respect of
b) Intangible
personal intangible personal property of
property citizens of the Philippines not
with a situs residing in that foreign country;
in the or
Philippines 2. the laws of the foreign country of
unless which the decedent was a citizen and
exempted resident at the time of his death
on the basis
of
a. allow a similar exemption
reciprocity. from transfer taxes or death
taxes of every character
The law that governs the imposition of b. in respect of intangible
estate tax personal property owned by
citizens of the Philippines not
The statute in force at the time of residing in that foreign country
death of the decedent shall govern estate (Reciprocity).
taxation.
Valuation of the gross estate
Intangible personal properties with a
situs in the Phil. (Sec. 104, 1997 NIRC) The properties comprising the gross
estate shall be valued based on their fair
1. Franchise which must be exercised in market value as of the time of death.
the Philippines;
2. Shares, obligations or bonds issued by PROPERTY VALUATION
any corporation or sociedad anonima
1) Real Property - fair market value
organized or constituted in the
a) as determined by the
Philippines in accordance with its Commissioner or
laws; b) as shown in the
3. Shares, obligations or bonds issued by schedule of values
any foreign corporation eighty-five fixed by the
per centum (85%) of the business of provincial and city
which is located in the Philippines; assessors
4. Shares, obligations or bonds issued by WHICHEVER IS HIGHER
any foreign corporation, if such

shares, obligations or bonds have 2) Shares of Stock
Unlisted
acquired a business situs in the
Common Shares -book value
Philippines; Preferred -par value
5. Shares or rights in any partnership, Shares -arithmetic mean
business or industry established in between the highest and
the Philippines. Listed lowest quotation at a
date nearest the date of
death, if none is
Intangible personal property, with a available on the date of
situs in the Philippines, of a decedent death itself.
who is a non-resident alien shall not
3)Right to - shall be taken into
form part of the gross estate if usufruct, use or account the probable life
(reciprocity clause) (Sec. 104) habitation, as of the beneficiary in
well as that of accordance with the
1. the decedent at the time of his death annuity latest basic standard
was a citizen and resident of a mortality table, to be
foreign country which at the time of approved by the
his death Secretary of Finance,
upon recommendation of

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the Insurance 4. TRANSFER UNDER GENERAL POWER

Commissioner. OF APPOINTMENT
A power of appointment is the right
4) Personal - whether tangible or to designate the person or persons who
property intangible, appraised at will succeed to the property of the prior
FMV. “Sentimental
value” is practically
decedent.
disregarded. The general power of appointment
may be exercised by the decedent:
1. by will; or
2. by deed executed in contemplation
Inclusions in the Gross Estate (Sec. 85)
of his death; or
3. by deed under which he has retained
1. DECEDENT’S INTEREST
for his life or for any period not
To the extent of the interest in
ascertainable without reference to
property of the decedent at the time of
his death or for any period which
his death.
does not in fact end before his death:
a. the possession or enjoyment of,
2. TRANSFER IN CONTEMPLATION OF
or the right to the income from
DEATH
the property; or
1. A transfer motivated by the thought
b. the right, either alone or in
of impending death although death
conjunction with any person, to
may not be imminent; or
designate the persons who shall
possess or enjoy the property or
2. A transfer by which the decedent
the income therefrom.
retained for his life or for any period
which does not in fact end before his
Exception: bona fide sale for an
death:
adequate and full consideration in money
a. the possession or
or money’s worth.
enjoyment of, or the right to the
income from the property, or
5. PROCEEDS OF LIFE INSURANCE
b. the right, either alone or
Proceeds of life insurance taken by
in conjunction with any person,
the decedent on his own life shall be
to designate the person who shall
included in the gross estate if the
possess or enjoy the property or
beneficiary is:
the income therefrom.
a. the estate of the decedent, his
Exception: bona fide sale for an executor or administrator (regardless
adequate and full consideration in money whether the designation is revocable
or money’s worth. or irrevocable); or
b. a third person other than the estate,
3. REVOCABLE TRANSFER executor or administrator where the
A transfer whereby the terms of designation of the beneficiary is
enjoyment of the property may be revocable.
altered, amended, revoked or
terminated by the decedent alone or in 6. TRANSFERS FOR INSUFFICIENT
conjunction with any other person, or CONSIDERATION
where any such power is relinquished in The value to be included in the gross
contemplation of the decedent’s death. estate is the excess of the fair market
It is enough that the decedent had the value of the property at the time of the
power to alter, amend or revoke though decedent’s death over the consideration
he did not exercise such power. received. This is applicable in cases of
transfer in contemplation of death,
Exception: bona fide sale for an revocable transfer and transfer under
adequate and full consideration in money general power of appointment made for a
or money’s worth. consideration but is not a bona fide sale
for an adequate and full consideration in
money or money’s worth.

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

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R (
E R
S E
I V
D E
E N
N U
T E
R
A E
L G
I U
E L
N A
S T
A I
N O
D N
C S
I 2
T -
I 2
Z 0
E 0
N 3
S )
The following are deductible from

the gross estate of citizens and resident
aliens:
1. Expenses, losses, indebtedness,
taxes, etc. (ordinary deductions)
2. Transfer for public use
3. Vanishing deduction
4. Family home
5. Standard deduction equivalent to one
million pesos (P1,000,000)
6. Medical expenses
7. Amounts received by heirs under RA
4917 (Retirement Benefits)
8. Net share of the surviving spouse in
the conjugal or community property
1. ORDINARY
DEDUCTIONS
A. Funeral Expenses
The amount deductible is the lowest
among the following:
1. actual funeral expenses
2. 5% of the gross estate
3. P200,000.

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It includes the following: Claims against the estate or

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

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• If there is a legal impediment to

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

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1. the current fair market value After deducting the allowable

of the family home as declared or deductions (only the ordinary
included in the gross estate, or deductions) appertaining to the conjugal
2. the extent of the decedent's or community properties included in the
interest (whether gross estate, the share of the surviving
conjugal/community or exclusive spouse must be removed to ensure that
property), whichever is lower, only the decedent's interest in the estate
but not exceeding P1,000,000 is taxed.
5. STANDARD DEDUCTION
A deduction in the amount of One

Million Pesos (P1,000,000) shall be
allowed as an additional deduction
without need of substantiation.
The full amount of P1,000,000 shall
be allowed as deduction for the benefit
of the decedent.
6. MEDICAL EXPENSES
• Any amount of medical expenses

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

UNDER REPUBLIC ACT NO.
4917
Any amount received by the heirs

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

SURVIVING SPOUSE IN THE
CONJUGAL PARTNERSHIP OR
COMMUNITY PROPERTY

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

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E S
S E
T T
A
T
T
L
E
T
E
A
M
X E
C N
R T
E
D O
I F
T
T
A tax credit is granted for estate
taxes paid to a foreign country on the
H
estate of citizens and resident aliens E
subject to the following limitations
E
1. One foreign country only S
The tax credit is whichever is
lower between:
T
4. Estate tax paid to the foreign country A
5. Tax Credit Limit = T
NTE, foreign country X Phil. estate E
NTE, world Tax
(NTE - Net Taxable Estate)

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

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

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

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

There is nothing in the Tax Code and
in the pertinent remedial law that DEFINITION: A tax on the privilege of
implies the necessity of the probate court transmitting one’s property or property
or estate settlement of court’s approval rights to another or others without
of the State’s claim for estate taxes adequate and full valuable consideration.
before the same can be enforced and
collected by the BIR. On the contrary, Coverage Of The Tax (SEC. 104)
under Section 94, it is the probate or
settlement court which is bidden not to
RESIDENT & NON-
authorize the delivery of the distributive
RESIDENT CITIZEN, NON-RESIDENT
share to any interested party without a
RESIDENT ALIEN ALIEN DONOR
certification from the CIR showing the
DONOR
payment of the estate tax. (Marcos II vs.
Court of Appeals, GR No. 120880, June 5, 1. Real property 1. Real property
1997) wherever situated situated in the
Philippines.
COLLECTION OF TAX FROM THE HEIRS
An estate or inheritance tax, whether 2. Personal property 2. Personal property
assessed before or after the death of the wherever situated a. Tangible property
deceased, can be collected from the a. Tangible, and situated in the
heirs even after the distribution of the Intangible Philippines
b. Intangible personal
properties of the decedent. (Palanca vs.
property with a
Commissioner of Internal Revenue, GR situs in the
No. 16661, January 31, 1962) Philippines unless
exempted on the
The Government has two ways of basis of
collecting taxes due from the estate. reciprocity.
a. By going after all the heirs and
collecting from each one of them Requisites
the amount of the tax
proportionate to the inheritance 1. Capacity of the donor
received, or 2. Donative Intent
b. Pursuant to the lien created by 3. Delivery, whether actual or
Section 219 of the Tax Code upon constructive, of the subject gift
all property and rights to 4. Acceptance by the donee
property belonging to the
taxpayer for unpaid income tax, Law that governs the imposition of
is by subjecting said property of Donor’s Tax

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• Donation made between business

The donor’s tax shall not apply unless organizations and those made
and until there is a completed gift. The between an individual and a business
transfer is perfected from the moment organization shall be considered as
the donor knows of the acceptance by donation made to a stranger.
the donee; it is completed by the deliver,
either actually or constructively, of the Valuation of gifts of property
donated property to the donee. Thus, the The fair market value of the property
law in force at the time of the given at the time of the gift shall be the
perfection/completion of the donation value of the gift.
shall govern the imposition of the donor’s
tax.
A gift that is incomplete because of Intangible personal properties with a

reserved powers, becomes complete situs in the Phil. (same as in estate tax
when either: subject to the reciprocity rule) (Sec.
1. the donor renounces the power; 104)
or
2. his right to exercise the reserved Formula: (On a cumulative basis over a
power ceases because of the period of one calendar year)
happening of some event or
contingency or the fulfillment of 1. On the 1st donation of a year
some condition, other than because
of the donor's death. Gross gifts xxx
• Renunciation by the surviving Less: Deductions from gross xxx
spouse of his/her share in the conjugal gifts
partnership or absolute community after Net gifts xxx
the dissolution of the marriage in favor Multiply by: Tax Rate xxx
of the heirs of the deceased spouse or Donor’s tax on the net gifts xxx
any other person/s is subject to donor's
tax. 2. On donation of a subsequent
• Whereas general renunciation by date during the year
an heir, including the surviving
spouse, of his/her share in the Gross gifts made on this date XX
hereditary estate left by the Less: Deductions from gross gifts XX
decedent is not subject to Net gifts XX
donor's tax, unless specifically Add: All prior net gifts within the XX
and categorically done in favor year
of identified heir/s to the Aggregate net gifts XX
exclusion or disadvantage of the Multiply by: Tax Rate XX
other co-heirs in the hereditary Donor’s tax on aggregate net gifts XX
estate. (Sec. 11, Rev. Reg. 2- Less: Donor’s tax on all prior net XX
2003) gifts
Donor’s tax on the net gifts on this XX
STRANGER - a person who is not a brother, date
sister, spouse, ancestor and lineal
descendant, or of a relative by Exemption of certain gifts
consanguinity in the collateral within the
4th civil degree. 1. Gifts made by a resident
• A legally adopted child is entitled to a. Dowries or gifts made on account
all the rights and obligations of marriage and before its
provided by law to legitimate celebration or within one year
children, and therefore, donation to thereafter by parents to each of
him shall not be considered as their legitimate, illegitimate or
donation made to stranger.

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adopted children to the extent of 4. Are imposed and paid by the

the first P10, 000. authority of a foreign country.
b. Gifts made to or for the use of
the National Government or any Limitations on tax credit
entity created by any of its
agencies which is not conducted 1. The amount of the credit in respect
for profit, or to any political to the tax paid to any country shall
subdivision of the said not exceed the same proportion of
government. the tax against which such credit is
c. Gifts in favor of educational, taken, which the decedent’s net gifts
charitable, religious, cultural or situated within such country taxable
social welfare corporation, under the NIRC bears to his entire net
institutions, foundations, trust or gift; and
philanthropic organization, 2. The total amount of the credit shall
research institution or not exceed the same proportion of
organization, accredited non- the tax against which such credit is
government organization (NGO). taken, which the decedent’s net gift
Provided, that no more than 30% situated outside the Philippines
of said gifts shall be used by such taxable under the NIRC bears to his
donee for administration entire net gift.
purposes.
2. Gifts made by a non-resident not Formula of Tax Credit Limit
a citizen of the Phil.
a. same as (b) 1. For donor’s taxes paid to one
b. same as (c) except accredited foreign country
non-government organization
(NGO) NG situated Tax
in a foreign country X PDT = Credit
A non-profit educational and/or Entire net gift Limit
charitable corporation, institution,
accredited non-government (NG - Net Gifts; PDT - Phil. Donor's Tax)
organization, trust or philantrophic
organization, research institution or 2. For donor’s taxes paid to two or
organization is more foreign country
1. one incorporated as a non-stock NG outside the Phil. X PDT = Tax

entity Entire net gifts Credit
2. paying no dividends Limit
3. governed by trustees who receive no
compensation, and The allowable tax credit is the
4. devoting all its income whether lower amount between the tax credit
students’ fees or gifts, donations, limit under (a) and (b).
subsidies or other forms of
philantrophy to the accomplishment
and promotion of the purposes SETTLEMENT OF THE DONOR’S TAX
enumerated in its Articles of
Incorporation. Time for Filing of Return and payment
of the Donor’s Tax
Tax credit for donor’s taxes paid to a The donor’s tax return is filed and
foreign country the donor’s tax due is paid within thirty
(30) days after the date the gift is made.
1. Donor was a Filipino citizen or The return shall be under oath in
resident alien duplicate setting forth:
2. At time of foreign donation 1. Each gift made during the calendar
3. Donor’s taxes of any character and year which is to be included in
description computing net gifts;

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2. The deductions claimed and 1. They enhance and support the

allowable; government’s tax collection.
3. Any previous net gifts made during 2. They are safeguards of taxpayer’s
the same calendar year; rights against arbitrary action.
4. The name of the donee;
5. Relationship of the donor to the Tax collection cannot be restrained by
donee; and court injunction (Sec. 218, 1997 NIRC)
6. Such further information as may be
required by rules and regulations Justification: Lifeblood Theory
made pursuant to law.
Exception: Injunction may be issued by
NOTE: The filing of a notice of donation the CTA in aid of its appellate jurisdiction
is not required, unlike in estate tax under RA 1125 (as amended by RA 9282).
where notice of death is required.
Conditions for the Issuance of an
Place for Filing of Return and payment Injunction by the Court of Tax Appeals
of the Donor’s Tax The CTA may enjoin collection of
taxes:
1. Resident a. If in its opinion the same may
• With an authorized agent bank, the jeopardize the interest of the
Revenue District Officer, Revenue government and/or the taxpayer.
Collection Officer or duly b. In this instance, the court may
authorized Treasurer of the city or require the taxpayer either to deposit the
municipality where the donor was amount claimed or file a surety bond for
domiciled at the time of the not more than double the amount with
transfer, or if there be no legal the court.
residence in the Philippines, with
the Office of the Commissioner. * Before enforcement of remedies,
2. Non-resident assessment is necessary to trigger the
process. If no return is filed, the
• Filed with the Philippine Embassy Commissioner is empowered to obtain
or Consulate in the country where
information, and to summon/examine,
he is domiciled at the time of the
and take testimony of persons to
transfer, or directly with the Office
determine the amount of tax due. (Sec.
of the Commissioner.
5, 1997 NIRC)
Tax rate
TAX REMEDIES UNDER THE 1997 TAX CODE:
If the donee is a stranger, the rate of
1. Summary – remedies at the
tax shall be 30% of the net gifts.
administrative level or regulation that
If the donee is not a stranger, the
are executed without ceremony or delay;
rate shall be from 2% to 15% of the net
short or concise
gifts.
2. Substantive – remedies provided for by
law or regulation; an essential part or
 See Annex W - Donor’s Tax constituent or relating to what is
essential
3. Procedural – remedies involving law of
C. TAX REMEDIES pleading, evidence, jurisdiction, etc.
UNDER THE NIRC 4. Administrative – remedies available at
the administration (BIR) level
5. Judicial – remedies that are enforced
I. TAX REMEDIES OF THE through judicial action, which may be
GOVERNMENT civil or criminal
Importance tax remedies of the government to

effect collection of taxes

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2. By the Regional Evaluation Board

1. Compromise (Sec. 204) composed of:
2. Distraint (Actual and a. the Regional Director as Chairman,
Constructive) (Secs. 205-208) b. Assistant Regional Director,
3. Levy (Sec. 207B) the heads of the Legal,
4. Tax Lien (Sec. 219) Assessment and Collection
5. Civil Action (Sec. 221) Divisions, and
6. Criminal Action (Secs. 221, and c. the Revenue District Officer
222) having jurisdiction over the
7. Forfeiture of Property (Sec. taxpayer, as members;
224-225) • on assessments issued by the
8. Suspension of business regional offices involving basic
operations in violation of VAT taxes of P500,000 or less, and
(Sec. 115) minor criminal violations.
9. Enforcement of Administrative
Fine Cases which may be compromised
The remedies of distraint and levy as 1. Delinquent accounts

well as collection by civil and criminal 2. Cases under administrative protests
actions may, in the discretion of the 3. Civil tax cases being disputed before
Commissioner, be pursued singly or the courts
independently of each other, or all of 4. Collection cases filed in courts
them simultaneously. 5. Criminal violations, other than those
already filed in court or those
involving criminal tax fraud; and,
(1) COMPROMISE 6. Cases covered by pre-assessment
notices but taxpayer is not agreeable
DEFINITION: A contract whereby the parties, to the findings of the audit office as
by reciprocal concessions, avoid litigation confirmed by the review office. (Sec.2,
or put an end to one already commenced Rev. Reg. 7-2001)
(Art. 2028, New Civil Code).
Exceptions
Requisites
1. The taxpayer must have a tax 1. Withholding tax cases;
liability. 2. Criminal tax fraud cases;
2. There must be an offer (by the 3. Criminal violations already filed in
taxpayer of an amount to be paid by court;
the taxpayer) 4. Delinquent accounts with duly
3. There must be an acceptance (by the approved schedule of installment
Commissioner or taxpayer as the case payments;
may be) of the offer in the 5. Cases where final reports of
settlement of the original claim. reinvestigation or reconsideration
have been issued resulting to
Officers authorized to compromise reduction in the original assessment
and the taxpayer is agreeable to such
1. The Commissioner of Internal decision.
Revenue (CIR) with respect to 6. Cases which become final and
criminal and civil cases arising from executory after final judgment of a
violations of the Tax Code [Secs. 7(C) court, where compromise is
and 204, 1997 NIRC]. This power of requested on the ground of doubtful
the CIR is discretionary and once validity of the assessment (RR. 30–
exercised by him cannot be reviewed 2002);
or interfered with by the Courts. 7. Estate tax cases where compromise is
(Koppel, Philippines vs. requested on the ground of financial
Commissioner, GR No. L-1977, incapacity of the taxpayer. (RR. 30–
September 21, 1950) 2002)

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h. The assessment was issued

Commissioner may compromise the within the prescriptive period
payment of any internal revenue tax for assessment as extended by
when the taxpayer's execution of
Waiver of the Statute of
1. A reasonable doubt as to the Limitations the validity or
validity of the claim against the authenticity of which is being
taxpayer exists; or questioned or at issue and there
a. The delinquent account or is strong reason to believe and
disputed assessment is one evidence to prove that it is not
resulting from a jeopardy authentic. (RR. 30– 2002)
assessment. i. The assessment is based on an
b. The assessment seems to be issue where a court of
arbitrary in nature, appearing to competent jurisdiction made an
be based on presumptions, and adverse decision against the
there is reason to believe that Bureau, but for which the
its is lacking in legal and/or Supreme Court has not decided
factual basis; or upon with finality. (RR. 08-
c. The taxpayer failed to file an 2004).
administrative protest on
account of the alleged failure to 2. The financial position of the taxpayer
receive notice of assessment or demonstrates a clear inability to pay
preliminary assessment and the assessed tax [Sec. 204(A), 1997
there is reason to believe that NIRC). In such case, the taxpayer
its is lacking in legal and/or should waive the confidentiality
factual basis; or privilege on bank deposits under RA
d. The taxpayer failed to file a No. 1405 [Sec. 6(F)(2), NIRC].
request for Financial Incapacity. — The offer
reinvestigation/reconsideration to compromise based on financial
within 30 days from receipt of incapacity may be accepted upon
final assessment notice and showing that:
there is reason to believe that a. The corporation ceased operation
its is lacking in legal and/or or is already dissolved. Provided,
factual basis; or that tax liabilities corresponding to
e. The taxpayer failed to elevate the Subscription Receivable or
to the CTA an adverse decision Assets distributed/distributable to
of the Commissioner, or his the stockholders representing
authorized representative, in return of capital at the time of
some cases, within 30 days from cessation of operation or
receipt thereof and there is dissolution of business shall not be
reason to believe that its is considered for compromise; or
lacking in legal and/or factual
basis; or b. The taxpayer, as reflected in its
f. The assessment were issued on latest Balance Sheet supposed to
or after Jan. 1, 1998, where the be filed with the Bureau of Internal
demand notice allegedly failed Revenue, is suffering from surplus
to comply with the formalities or earnings deficit resulting to
prescribed under Sec. 228 of the impairment in the original capital
1997 NIRC; or by at least 50%, provided that
g. Assessments made based on the amounts payable or due to
“Best Evidence Obtainable Rule” stockholders other than business-
and there is reason to believe related transactions which are
that the same can be disputed properly includible in the regular
by sufficient and competent "accounts payable" are by fiction of
evidence. law considered as part of capital
and not liability, and provided

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further that the taxpayer has no actions initiated against persons;

sufficient liquid asset to satisfy the and
tax liability; or 2. The submission of taxpayer
returns.
Minimum Compromise Rates (MCR) of

c. The taxpayer is suffering from a any tax liability
networth deficit (total liabilities In case of financial incapacity:
exceed total assets) computed by MCR = 10% of the basic assessed tax
deducting total liabilities (net of Other cases:
deferred credits and amounts MCR = 40% of the basic assessed tax
payable to stockholders/owners [Sec. 204(A), 1997 NIRC]
reflected as liabilities, except
business-related transactions) from Approval of the compromise by the
total assets (net of prepaid Evaluation Board is required when
expenses, deferred charges, pre- a. the basic tax involved exceeds
operating expenses, as well as P1,000,000.00, or
appraisal increases in fixed assets), b. the settlement offered is less than
taken from the latest audited the MCR.
financial statements, provided that
in the case of an individual NOTE: The MCR may be less than the
taxpayer, he has no other leviable prescribed rates of 10% or 40%, as the
properties under the law other case may be, provided it is approved by
than his family home; (Sec. 3, RR. the Evaluation Board (composed of the
30–2002). BIR Commissioner and the four BIR
Deputy Commissioners).
c. The taxpayer is a compensation
earner with no other source of Compromise of Criminal Violations
income and the family’s gross General Rule: All criminal violations
monthly compensation does not under the CTRP may be compromised.
exceed (P10,500/month if single;
P21,000/month if married), and Exceptions:
that it appears that the taxpayer 1. Those already filed in court
possesses no other leviable/ 2. Those involving fraud [Sec. 204(B),
distrainable assets, other than his 1997 NIRC].
family home; or
Extent of the Commissioner’s Discretion
d. The taxpayer has been granted by to Compromise Criminal Violations
the SEC or by any competent
tribunal a moratorium or 1. Before the complaint is filed with
suspension of payments to the Prosecutor’s Office: The CIR has
creditors, or otherwise declared full discretion to compromise except
bankrupt or insolvent. (Sec. 3, RR. those involving fraud.
07-2001)
2. After the complaint is filed with the
The Congressional Oversight Prosecutor’s Office but before the
Committee, under Section 290 of the information is filed with the court:
1997 NIRC is empowered to require the The CIR can still compromise
BIR: provided the prosecutor must give
1. The submission of all consent.
pertinent information, including
but not limited to industry 3. After information is filed with the
audits, collection performance court: The CIR is no longer permitted
data, status reports on criminal to compromise with or without the

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consent of the Prosecutor. (People

vs. Magdaluyo, GR No. L-16235, April COMPROMISE VS. ABATEMENT
20, 1961)
This is more so, when the court Compromise involves a reduction of
has rendered a final judgment. As a the taxpayer’s liability, while abatement
mere agent of the Government, the means that the entire tax liability of the
Commissioner is not authorized to taxpayer is cancelled.
accept anything less than what is ABATEMENT
adjudicated in favor of the
Government. By virtue of such final The Commissioner may abate or cancel
judgment, the Government has a tax liability when
already acquired a vested right.
1. The tax or any portion thereof
Nature of a Compromise in Extrajudicial appears to be unjustly or
Settlement of the Taxpayer’s Criminal excessively assessed; [Sec. 204(B),
Liability for his Violation 1997 NIRC].
a. When the filing of the
It is consensual in character, hence, return/payment is made at the
may not be imposed on the taxpayer wrong venue;
without his consent. The BIR may only b. When the taxpayer’s mistake in
suggest settlement of his tax liability payment of his tax is due to
through a compromise. The extra-judicial erroneous written official advice of
settlement and the amount of the a revenue officer;
suggested compromise penalty should c. When the taxpayer fails to file the
conform with the schedule of compromise return and pay the tax on time due
penalties provided under the relevant BIR to substantial losses from
regulations or orders. prolonged labor dispute, force
majeure, legitimate business
Remedy in case the taxpayer refuses or reverses, provided, however, the
fails to abide the tax compromise abatement shall only cover the
surcharge and the compromise
1. Enforce the compromise penalty and not the interest
a. If it is a judicial compromise, it imposed under Sec. 249 of the
can be enforced by mere Code;
execution. A judicial compromise d. When the assessment is brought
is one where a decision based on about or the result of taxpayer’s
the compromise agreement is non-compliance with the law due
rendered by the court on request to a difficult interpretation of said
of the parties. law.
b. Any other compromise is e. When the taxpayer fails to file the
extrajudicial and like any other return and pay the correct tax on
contract can only be enforced by time due to circumstances beyond
court action. his control, provided, however, the
2. Regard it as rescinded and insist abatement shall only cover the
upon original demand (Art. 2041, surcharge and the compromise
Civil Code). penalty and not the interest
imposed under Sec. 249 of the
Compromise Penalty Code;
f. Late payment of the tax under
It is an amount of money that the meritorious circumstances (ex.
taxpayer pays to compromise a tax Failure to beat bank cut-off time,
violation. This is paid in lieu of criminal surcharge erroneously imposed,
prosecution. A taxpayer cannot be etc.) (Sec. 2, Rev. Reg. 13-2001)
compelled to pay a compromise penalty.
If he does not want to pay, the CIR must 2. The administration and
institute a criminal action. collection costs involved do not

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justify the collection of the amount 2. Sign the list of personal

due [Sec. 204(B), 1997 NIRC]. properties distrained to which shall be
a. Abatement of penalties on added, a statement of the sum demanded
assessment confirmed by the lower and note of the time and place of sale;
court but appealed by the taxpayer 3. Leave either with the owner or
to a higher court person from whose possession such
b. Abatement of penalties on personal properties were taken, or at the
withholding tax assessment under dwelling or place of business of such
meritorious circumstances person with someone of suitable age and
c. Abatement of penalties on delayed discretion (Sec. 208, CTRP)
installment payment under
meritorious circumstances Two types of Distraint
d. Abatement of penalties on
assessment reduced after 1. Actual: there is taking of
reinvestigation but taxpayer is still possession of the personal
contesting reduced assessment; property from the taxpayer by
and the government. Physical
e. Such other circumstances which transfer of possession is not
the Commissioner may deem always required. This is true in
analogous to the enumeration the case of intangible property
above. (Sec. 3, Rev. Reg. 13-2001) such as stocks and credits.
2. Constructive: the owner is
3. The Commissioner may also, even merely prohibited from disposing
without a claim therefor, refund or of his property.
credit any tax where on the face of
the return upon which payment was Actual vs. Constructive Distraint
made such payment appears clearly
to have been erroneously paid (Sec. CONSTRUCTIVE
ACTUAL DISTRAINT
229, 1997 NIRC)). DISTRAINT
Made only on the Made on the property

(2) DISTRAINT property of a of any taxpayer,
delinquent taxpayer whether delinquent
or not
DEFINITION: It is the seizure by the
government of personal property, There is taking of The taxpayer is
tangible or intangible, to enforce the possession merely prohibited
payment of taxes. The property may be from disposing of his
offered in a public sale, if taxes are not property
voluntarily paid. It is a summary remedy.
Effected by leaving a Effected by requiring
list of distrained the taxpayer to sign a
Nature of the Warrant of Distraint or
property or by receipt of the
Levy service of a warrant property or by the
of distraint or revenue officer
The warrant is a summary procedure garnishment preparing and leaving
“forcing” the taxpayer to pay. The a list of such property
receipt of a warrant may or may not
partake the character of a final decision. An immediate step Not necessarily so
If it is an indication of a final decision, for collection of
the taxpayer may appeal to the CTA taxes
within 30 days from service of the
warrant.
∗ Duties of the officer serving the

warrant of distraint:
1. Make an account of the personal
properties distrained;

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

remedy of distraint II
Service of Warrant of Distraint
1. The taxpayer must be delinquent (Sec. 208)
(except in constructive distraint) in
the payment of tax;
2. There must be a subsequent demand With respect to:
for its payment (assessment); 1. Personal property –
3. The taxpayer must fail to pay the tax (a) upon the owner of the goods,
at the time required; and chattels, or other personal
4. The period within which to assess or property; or
collect the tax has not yet prescribed. (b) upon the person from whose
possession such properties are
Persons who shall seize and distraint taken.
personal property (actual distraint) 2. Stocks and other securities
(a) upon the taxpayer; and
1. Amount of delinquent tax is more (b) upon the president, manager,
than P1,000,000 – Commissioner or treasurer or other responsible
his duly authorized representatives. officer of the corporation,
2. Amount of delinquent tax is company or association which
P1,000,000 or less – Revenue District issued the said stock and
Officer. (Sec. 207(A), 1997 NIRC) securities.
3. Bank accounts shall be garnished by
AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO serving a warrant of distraint –
BANK DEPOSIT ACCOUNTS (a) upon the taxpayer; and
(b) upon the president, manager,
Distraint includes garnishment of treasurer, or other responsible
money even in bank deposits because RA officer of the bank.
1405 (Bank Secrecy Law) covers only Note: Upon receipt of the warrant of
divulging of information of deposits. No distraint, the bank shall turn over to the
inquiry is made on garnishment for it only Commissioner so much of the bank
earmarks a portion of the deposits. accounts as may be sufficient to satisfy
Notwithstanding any contrary the claim of the government.
provision of RA 1405, the Commissioner is 4. Debts and credits –
authorized to inquire into the bank (a) persons owing or having in his
deposits of: possession the debts;
1. a decedent to determine his gross (b) or under his control such credits;
estate or
2. a taxpayer who waives his right by (c) upon his agent.
reason of financial incapacity to pay his
tax liability (Sec.5, NIRC) Note: The warrant of distraint shall be
sufficient authority to the person owing
the debts or having in his possession or
Procedures for the Actual Distraint or under his control any credits belonging to
Garnishment

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the taxpayer to pay to the Commissioner CIR shall require the taxpayer or any
the amount of such debts or credits. person having possession or control of
such property to
(a) sign a receipt covering the property
distrained and
(b) obligate himself to
Taxpayer must sign 1. preserve the same intact and
receipt unaltered and
2. not to dispose of the same in any
manner whatsoever without the
express authority of the
Commissioner of
Internal Revenue.
III
Posting of Notice
(Sec. 209, NIRC)
Remedy when taxpayer didn’t sign
Notice specifying the time and place of
receipt
sale and the articles distrained. The
posting shall be made in not less than
two (2) public places in the city or muni-
If the taxpayer or person in possession of
cipality where the distraint is made.
the property refuses or fails to sign the
One place for posting of such notice is at
receipt referred to, the revenue officer
the Office of the Mayor of such city or
effecting the constructive distraint shall
municipality.
(a) proceed to prepare a list of such
property and
(b) in the presence of two (2) witnesses
leave a copy thereof in the premises
where the property distrained is located,
IV after which the said property shall be
Sale of Property Distrained deemed to have been placed under
constructive distraint.
(3) LEVY
The taxpayer’s property may be placed
under constructive distraint when he
DEFINITION: It refers to the act of seizure of
real property in order to enforce the
1. is retiring from any business subject
to tax; payment of taxes. The property may be
2. is intending to – offered in a public sale, if after seizure,
a. leave the Philippines, the taxes are not voluntarily paid.
b. remove his property therefrom,
c. hide or conceal his property, REQUISITES FOR THE EXERCISE OF THE REMEDY OF
LEVY
3. is performing any act tending to
obstruct the proceeding for collecting
the tax due or which may be due Same as in the remedy of distraint.
from him (Sec. 223, 1997 NIRC).
Procedure for the Constructive Distraint When may Levy be Effected?

of Personal Property
Real property may be levied upon
before, simultaneously, or after the
Taxpayer’s obligation to preserve distraint of personal property belonging
to the delinquent [Sec. 207(B), 1997 NIRC];
and the remedy by distraint and levy may

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be repeated if necessary until the full a. posting a notice at the main entrance
amount, including all expenses, is of the municipal building or city hall
collected (Sec. 217, 1997 NIRC). and in a public and conspicuous place
in the barrio or district in which the
Procedure of Levy on Real Property real property lies; and
b. by publication once a week for 3
I weeks in a newspaper of general
Prepare Certificate of Levy circulation in the municipality or city
where the property is located (Sec.
I 213, CTRP).
Preparation of a duly authen-ticated
certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due IV
from him. This certificate shall Sale
operate with the force of a legal
execution throughout the Philippines
(Sec. 207B, 1997 NIRC).
Distraint vs. Levy
DISTRAINT LEVY
II Refers to personal Refers to real
Service of Notice property property
Forfeiture by the Forfeiture is

Service of written notice to: government is not authorized
(a) the delinquent taxpayer; or provided
(b) if he is absent from the Philippines, to
his agent or manager of the business in The taxpayer is not The right of
given the right of redemption is granted
respect to which the liability arose; or
redemption with in case of real
c. to the occupant of the property. respect to distrained property levied upon
d. the proper Register of Deeds shall personal property. and sold, or forfeited
also be notified of the levy (Sec. to the government.
207B, 1997 NIRC).
Both
• Are summary remedies for the collection of
taxes; and
• Cannot be availed of where the amount of
the tax involved is not more than P100
III
Advertisement of the Time and
Redemption of Property Sold
Place of Sale
Within 1 year from the date of sale,
The advertisement shall contain: the property may be redeemed by the
1. the amount of tax and penalties due; delinquent taxpayer or anyone from him,
2. name of the taxpayer against whom upon payment of the taxes, penalties and
taxes are levied; interest thereon from the date of
3. short description the property to be delinquency to the date of sale, together
sold. with interest on purchase price at 15%
per annum from the date of sale to the
The advertisement shall be made date of redemption. (Sec. 214, NIRC).
within 20 days after the levy, and the
same shall be for a period of at least 30 Forfeiture to the Government
days. It shall be effectuated by:

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If there is no bidder in the public sale LIEN DISTRAINT

or if the amount of the highest bid is
insufficient to pay the taxes, penalties Directed against Need not be
and costs, the real property shall be the property directed against the
forfeited to the Government. subject to the tax property subject to
tax
Further Distraint and Levy
Regardless of the Property seized
owner of the must be owned by
The remedy of distraint and levy may property the taxpayer
be repeated if necessary until the full
amount of the tax delinquency due
including all expenses is collected from
the taxpayer. Otherwise, a clever CIVIL ACTIONS
taxpayer who is able to conceal most of
the valuable part of his property would DEFINITION: For tax remedy purposes,
escape payment of his tax liability by these are actions instituted by the
sacrificing an insignificant portion of his government to collect internal revenue
holdings. taxes. It includes filing by the
government with the probate court
(4) TAX LIEN claims against the deceased taxpayer.
DEFINITION: It is a legal claim or charge on When resorted to?

property, either real or personal,
established by law as a security in default 1. When a tax is assessed but the
of the payment of taxes (51 AmJur 881). assessment becomes final and
Generally, it attaches to the property unappealable because the taxpayer
irrespective of ownership or transfer fails to file an administrative
thereof. protest with the CIR within 30 days
from receipt; or
Extent and nature 2. When a protest against assessment is
filed and a decision of the CIR was
The tax, together with interests, rendered but the said decision
penalties, and costs that may accrue in becomes final, executory, and
addition thereto is a lien upon all demandable for failure of the
property and rights to property taxpayer to appeal the decision to
belonging to the taxpayer. the CTA within 30 days from receipt
of the decision.
The lien shall not be valid against any
mortgagee, purchaser, or judgment NOTE: Judicial action may be resorted to
creditor until notice of such lien shall be even before assessment although
filed by the Commissioner of Internal impractical, as stated in Sec. 203, 1997
Revenue in the Office of the Register of NIRC, “… and no proceeding in court
Deeds of the province or city where the without assessment for the collection of
property of the taxpayer is situated or such taxes shall be begun after the
located (Sec. 219, 1997 NIRC). expiration of such (3year) period.”
It should be noted that no civil or
criminal action for the recovery of taxes
shall be filed in court without the
When does it Attach?
approval of the Commissioner.
Not only from the service of the
Where to file
warrant of distraint but from the time tax
became due and payable.
1. Court of Tax Appeals – where the
principal amount of taxes and fees,
Lien vs. Distraint
exclusive of charges and penalties

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claimed is One million pesos and 1. No criminal action shall be

above. begun without the approval of the
2. Regional Trial Court, Municipal Trial Commissioner. (Sec. 220, 1997 NIRC)
Court, Metropolitan Trial Court – 2. It shall be brought in the
where the principal amount of taxes name of the Government and shall be
and fees, exclusive of charges and conducted by the legal officers of the
penalties claimed is less than One BIR.
million pesos. (Sec. 7, RA No. 9282)
EFFECT OF ACQUITTAL OF THE
THE CIR IS ESSENTIAL IN CIVIL
APPROVAL OF THE TAXPAYER IN A CRIMINAL ACTION
CASES . However, under Sec. 7, 1997 NIRC,
the Commissioner may delegate such It does not necessarily result in the
power to a Regional Director. exoneration of said taxpayer from his
civil liability to pay taxes.
Defenses which are precluded by final Rationale: The duty to pay tax is imposed
and executory assessments by statute prior to and independent of
any attempt on the part of the taxpayer
1. Invalidity or illegality of the to evade payment. It is not a mere
assessment; and consequence of the felonious acts
2. Prescription of the government’s charged, nor is it a mere civil liability
right to assess. derived from a crime. (Republic vs.
Patanao, GR No. L-14142, May 30, 1961)
(6) CRIMINAL ACTIONS
EFFECT OF SUBSEQUENT SATISFACTION
The judgment in the criminal case OF CIVIL LIABILITY
shall not only impose the penalty but
shall also order the payment of taxes The subsequent satisfaction of civil
subject of the criminal case as finally liability by payment or prescription does
decided by the Commissioner (Sec. 205, not extinguish the taxpayer’s criminal
NIRC). liability.
Where to file NO SUBSIDIARY IMPRISONMENT
1. Court of Tax Appeals – on criminal In case of insolvency on the part of

offenses arising from violations of the the taxpayer, subsidiary imprisonment
NIRC or TCC and other laws cannot be imposed as regards the tax
administered by the BIR and the BOC, which he is sentenced to pay.
where the principal amount of taxes However, it may be imposed in cases
and fees, exclusive of charges and of failure to pay the fine imposed. (Sec.
penalties claimed is One million 280, 1997 NIRC)
pesos and above.
2. Regional Trial Court, Municipal Trial
Court, Metropolitan Trial Court – on
criminal offenses arising from
violations of the NIRC or TCC and
other laws administered by the BIR CRIMINAL ACTION MAY BE FILED DURING
and the BOC, where the principal THE PENDENCY OF AN ADMINISTRATIVE
amount of taxes and fees, exclusive PROTEST IN THE BIR
of charges and penalties claimed is
less than One million pesos or where It is not a requirement for the
there is no specified amount filing thereof that there be a precise
claimed. (Sec. 7, RA No. 9282) computation and assessment of the tax,
since what is involved in the criminal
IMPORTANT CONSIDERATIONS action is not the collection of tax but a
criminal prosecution for the violation of
the NIRC. Provided, however, that there

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1
is a prima facie showing of a willful

attempt to evade taxes. (See Ungab vs. The effect is to transfer the title to
Cusi, GR Nos. L-41919-24, May 30, 1980 the specific thing from the owner to the
in relation to Commissioner vs. Court of government. All the proceeds in case of
Appeals, GR No. 119322, June 4, 1996) a sale go to the coffers of the
government (U.S. vs. Surla, GR No. 6536,
(7) FORFEITURE September 2, 1911). In seizure for the
enforcement of a tax lien, the residue,
DEFINITION: divestiture of property after deducting the tax liability and
without compensation, in consequence of expenses will go to the taxpayer (Bank of
a default or offense. the Phil. Island vs. Trinidad, GR No.
16014, October 4, 1941).
ENFORCEMENT OF THE REMEDY OF
FORFEITURE INFORMER’S REWARD (Sec 282)
A. For violations of the NIRC, a reward of
a. In case of personal property – The 10% of the revenues, surcharges, or
forfeiture of chattels and removable fees recovered and/or fine or penalty
fixtures of any sort is enforced by imposed and collected or P 1 M per
seizure and sale or destruction of case, whichever is lower shall be given
the specific forfeited property. to:
b. In case of real property – The 1. any person who voluntarily gives
forfeiture of real property is enforced definite and sworn information not
by a judgment of condemnation and yet in the possession of the BIR
sale in a legal action or proceeding, leading to the discovery of fraud
civil or criminal, as the case may upon the Internal Revenue Laws
require. and/or any violations thereof
c. In case of distilled spirits, liquors, 2. an informer where the offender
cigars, cigarettes manufactured, has offered to compromise the
products of tobacco and apparatus violation of law comiited by him
used for their production – Upon and his offer has been accepted
forfeiture, may be destroyed by order and collected by the CIR . This
of the Commissioner where the sale excludes an Internal Revenue
may be injurious to public health or Officer/employee or other public
prejudicial to law enforcement. official/employee, or his relative
within the sixth degree
* This shall not refer to a case already

pending or examined by the CIR
B. For the discovery and seizure of

smuggled goods
- a reward of 10% of the FMV of the
smuggled and confiscated goods or
d. Other articles subject to excise tax P 1 M per case, whichever is lower,
which have been manufactured or shall be given to persons
removed in violation of the Code, instrumental in the discovery and
dies for printing or making fake seizure of such smuggled goods.
revenue stamps and labels – Upon
forfeiture may be sold or destroyed * This does not apply to all public officials
at the discretion of the whether incumbent or retired, who
Commissioner. Forfeited property acquired the information in the course of
shall not be destroyed until at least performance of their duties during their
20 days from seizure. incumbency.
EFFECT OF THE FORFEITURE OF

PROPERTY

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PRESCRIPTIVE PERIODS FOR inquiry into any tax return filed in

accordance with the provisions of any
THE ASSESSMENT AND tax amnesty law or decree.
COLLECTION OF TAXES
• Fraud must be alleged and
proved as a fact. It must be the
RATIONALE OF PRESCRIPTIVE PERIODS product of a deliberate intent to
evade taxes. It may be
Such periods are designated to secure established by the:
the taxpayers against unreasonable a. Intentional and substantial
investigation after the lapse of the period understatement of tax
prescribed. They are also beneficial to liability by the taxpayer;
the government because tax officers will b. Intentional and substantial
be obliged to act promptly. overstatement of deductions
of exemptions; and/or
RULES ON PRESCRIPTION c. Recurrence of the above
circumstances
1. When the tax law itself is silent • Falsity constitutes a deviation
on prescription, the tax is
from the truth due to mistake,
imprescriptible;
carelessness or ignorance.
2. When no return is required, tax is
imprescriptible;
There is fraud in the following decided
Note: Remedy of taxpayer is to file a
cases:
return.
1. Fraud must be the product of a
3. Defense of prescription is
deliberate intent to evade taxes
waivable;
(Jalandoni vs. Republic)
2. Simple statement that return filed was
WHAT CONSTITUTES ASSESSMENT?
not fraudulent does not disprove
existence of fraud (Tayengco vs.
An assessment contains not only
Collector)
a computation of tax liabilities but also a
3. Substantial under-declarations of
demand for payment within a prescribed
income for six consecutive five years
period.
demonstrate fraudulence of return
(Perez vs. CTA)
4. Presence of fictitious expenses, with
PRESCRIPTIVE PERIOD FOR THE
no evidence presented, proves
ASSESSMENT OF TAXES
existence of fraud (Tan Guan vs.
Commissioner)
General Rule:
Three (3) years after the date
However, the courts did not consider
the return is due or filed, whichever is
the tax returns filed as false or
later (Sec. 203, 1997 NIRC).
fraudulent with intent to evade payment
of tax in the following cases:
Exceptions:
1. Failure to file a return: ten (10) a. Mere understatement in the tax return
years from the date of the will not necessarily imply fraud
discovery of the omission to file (Jalandoni vs. Republic)
the return (Sec.222[A]); b. Sale of a real property for a price less
2. False or fraudulent return with than its fair market value is not
intention to evade the tax: ten necessarily a false return (Commissioner
(10) years from the date of the vs. Ayala Securities)
discovery of the falsity or fraud c. Fraud is a question of fact and the
(Sec.222 [A]); circumstances constituting fraud must be
Note: Nothing in Section 222(A) shall alleged and proved in the trial court
be construed to authorize the (Commissioner vs. Ayala Securities)
examination and investigation or

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1
d. Fraud is never imputed and the courts b. or a substantial overstatement

never sustain findings of fraud upon (exceeding 30% of deductions)
circumstances that only create suspicion (Sec. 248)
(Commissioner vs. Javier)
e. Mistakes of revenue officers on three PRESCRIPTIVE PERIOD FOR THE
different occasions remove element of COLLECTION OF TAXES
fraud (Aznar vs. CTA and Collector)
General Periods:
3. Agreement in writing to the Five (5) years – from assessment
extension of the period to assess or within period for collection agreed
between the CIR and the upon in writing before expiration of the
taxpayer before the expiration of 5-year period (Sec. 222, 1997 NIRC).
the 3-year period. NB: The Ten (10) years – without
extended period agreed upon can assessment in case of false or fraudulent
further be extended by a return with intent to evade or failure to
subsequent written agreement file return (Sec. 222, 1997 NIRC).
made before the expiration of
the extended period previously WHAT IS THE PRESCRIPTIVE PERIOD
agreed upon (Sec. 222[b]). WHERE THE GOVERNMENT’S ACTION IS
4. Written waiver of renunciation ON A BOND WHICH THE TAXPAYER
of the original three (3) year EXECUTES IN ORDER TO SECURE THE
limitation, signed by the PAYMENT OF HIS TAX OBLIGATION?
taxpayer (Sambrano vs. Court of
Tax Appeals, GR No. L-8652, Ten (10) years under Art. 1144(1)
March 30, 1957). of the Civil Code and not three (3) years
under the NIRC. In this case, the
Note: Notice of the assessment is Government proceeds by court action to
released, mailed or sent to the taxpayer forfeit a bond. The action is for the
also within the 3 year period. It is not enforcement of a contractual obligation.
required that the notice be received by (Republic vs. Araneta, GR No. L-14142,
the taxpayer within the prescribed May 30, 1961)
period. But the sending of the notice
must clearly be proven. (Basilan Estate, GROUNDS FOR SUSPENSION OF THE
Inc. vs. Commissioner, GR No. L-22492, RUNNING OF THE STATUTE OF
September 5, 1967) LIMITATIONS
AMENDMENT OF RETURN a. When the CIR is prohibited from

making the assessment or
If the amended return is beginning the distraint or levy or
substantially different from the original a proceeding in court, and for
return, the prescriptive period shall be sixty (60) days thereafter;
counted from the filing of the amended b. When the taxpayer requests for a
return. But the said period shall run from reconsideration which is granted
the filing of the original return if the by the CIR;
same is sufficiently complete to enable c. When the taxpayer cannot be
the Commissioner to make a proper located in the address given by
assessment. (Commissioner vs. Phoenix him in the return, unless he
Assurance Co., GR No. L-19727, May 20, informs the CIR of any change in
1965) his address.
When Substantive: d. When the warrant of distraint or
a. substantial under declaration levy is duly served, and no
(exceeding 30% of that declared) property is located; and
of taxable sales, receipts or e. When the taxpayer is out of the
income, Philippines (Sec. 223, 1997
NIRC).

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A TAX RETURN IS CONSIDERED FILED

FOR PURPOSES OF STARTING THE General Remedies
RUNNING OF THE PERIOD OF
LIMITATIONS IF A. ADMINISTRATIVE
Before Payment
a. The return is valid – it has complied a. Protest – filing a petition for
substantially with the requirements reconsideration or
of the law; and reinvestigation within 30
days from receipt of
b. The return is appropriate – it is a assessment Within 60 days
return for the particular tax required from filing of protest, all
by law. relevant supporting
documents should have been
Note: A defective tax return is the submitted, otherwise, the
same as if no return was filed at all. assessment shall become
final – cannot be appealed
(Sec. 228, 1997 NIRC).
PRESCRIPTIVE PERIOD FOR THE
VIOLATION OF ANY PROVISION OF THE Note: Submission of documents
TAX CODE (SEC. 281, 1997 NIRC) within the 60 day period is
optional to the taxpayer.
1. Should be filed within five (5)
years from the (a) day of the "That the relevant
commission of the violation of the supporting documents
law, and if the same be not known, mentioned in the law refers
from the (b) discovery thereof and to such documents which the
the institution of the judicial taxpayer feels would be
proceedings for its investigation and necessary to support his
punishment. protest and not what the
Commissioner feels should be
2. Illustrative case: (Lim vs. Court submitted, otherwise,
of Appeals GR Nos. 48134-37, Ocober taxpayer would always be at
18 , 1990) the mercy of the BIR which
a. charge is failure or refusal to may require production of
pay deficiency income tax – such documents which
committed only after the finality taxpayer could not produce."
of the assessment coupled with (Standard Chartered Bank vs.
the taxpayer’s willful refusal to CIR, CTA Case No. 5696,
pay the taxes within the allotted August 16, 2001)
period. (i.e. cannot be A protest is a vital
committed upon filing the return) document which is a formal
b. charge is filing of false or declaration of resistance of
fraudulent return with intent to the taxpayer. It is a
evade the assessment – in repository of all arguments.
addition to the fact of discovery, It can be used in court in
there must be a judicial case administrative remedies
proceeding for the investigation have been exhausted. It is
and punishment of the tax also the formal act of the
offense before the 5 year taxpayer questioning the
prescriptive period begins to run. official actuation of the CIR.
This is equivalent to a
pleading.
II. TAX REMEDIES OF THE b. Entering into a compromise
(Sec. 204, 1997 NIRC).
TAXPAYER After Payment

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Filing of claim for refund or General rule: Taxes are self assessing and
tax credit within 2 years from thus, do not require the issuance of an
date of payment regardless of assessment notice in order to establish
any supervening cause (Sec. 229, the tax liability of a taxpayer.
1997 NIRC). Exceptions:
1. Tax period of a taxpayer is
B. JUDICIAL terminated (Sec. 6(D), NIRC)
Civil Action 2. Deficiency tax liability arising
a. Appeal to the Court of Tax from a tax audit conducted by
Appeals – within 30 days from the BIR (Sec. 56(B), NIRC)
receipt of decision on the protest 3. Tax lien (Sec. 219, NIRC)
or from the lapse of 180 days due 4. Dissolving Corporation (Sec.
to inaction of the Commissioner 52(c), NIRC)
(Sec. 228, 1997 NIRC).
b. Action to contest forfeiture of  Protest
chattel, at any time before the 1. Direct denial of protest
sale or destruction thereof, to Admnistrative decision on a disputed
recover the same, and upon giving assessment - The decision of the
proper bond, enjoin the sale; or Commissioner or his duly authorized
after the sale and within 6 representative shall (a) state the facts,
months, an action to recover the the applicable law, rules and regulation
net proceeds realized at the sale or jurisprudence on which such decision
(Sec. 231, 1997 NIRC); and is based otherwise, the decision shall be
c. Action for damages against a void, in which case the same shall not be
revenue officer by reason of any considered a decision a disputed
act done in the performance of assessment and (b) that the same is his
official duty (Sec. 227, 1997 NIRC). final decision (Sec. 3.1.5, Rev. Regs. No.
Criminal Action 12-99)
a. Filing of criminal complaint
against erring BIR officials and 2. Indirect denial of protest
employees. a. Commissioner did not rule on the
b. Injunction – when the CTA in its taxpayer’s motion for
opinion, the collection by the BIR reconsideration of the
may jeopardize taxpayer. assessment – it was only when
respondent received the
Note: With the enactment of the new summons on
CTA law (RA No. 9282) amending RA No.
1125, CTA now has jurisdiction over the civil action for the collection
criminal cases. (See Chapter VI - Court of of deficiency income tax that the
Tax Appeals.) period to appeal commenced to
run (Commissioner vs. Union
Substantive Remedies Shipping Corp.)
1. Questioning the constitutionality or b. Referral by the Commissioner of
validity of tax statutes or regulations request for reinvestigation to the
2. Non-retroactivity of rulings (Sec.246, Solicitor General (Republic vs
NIRC) Lim Tian Teng Sons)
3. Failure to inform the taxpayer in c. Reiterating the demand for
writing of the legal and factual bases immediate payment of the
of assessment makes it void (Sec. 228, deficiency tax due to taxpayer’s
NIRC) continued refusal to execute
4. Preservation of books of accounts and waiver (Commissioner vs. Ayala
once a year examination (Sec. 235, Securities Corp.)
NIRC) d. Preliminary collection letter may
serve as assessment notice
ASSESSMENT AND PROTEST (United International Pictures
 Assessment vs. Commissioner)

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TAX REFUND TAX CREDIT

ACTS OF BIR COMMISSIONER
CONSIDERED AS DENIAL OF PROTEST Two-year period to Two-year period
WHICH SERVE AS A BASIS FOR APPEAL file claim with the starts from the date
TO THE COURT OF TAX APPEALS CIR starts after the such credit was
payment of the tax or allowed (in case
penalty credit is wrongly
1. filing by the BIR of a civil suit for made).
collection of the deficiency tax
(Commissioner vs. Union Shipping REQUISITES OF TAX REFUND OR TAX
Corporation, GR No. 66160, May 21, CREDIT
1990)
2. indication to the taxpayer by the 1. Claim must be in writing;
Commissioner “in clear and 2. It must be filed with the
unequivocal language” of his final Commissioner within two (2) years
denial. (Commissioner vs. Union after the payment of the tax or
Shipping Corporation, GR No. 66160, penalty.
May 21, 1990) Note: No suit or proceeding shall be
3. BIR demand letter reiterating his begun after the expiration of the said
previous demand to pay, sent to the two (2) years regardless of any
taxpayer after his protest of the supervening cause that may arise
assessment. (Surigao Electric Co., after payment.
Inc. vs. CTA, GR No. L-25289, June 3. Show proof of payment.
28, 1974; Commissioner vs. Ayala
Securities Corporation, GR No. L- COMMENCEMENT OF THE TWO (2) YEAR
29485, March 31, 1976) PERIOD (JURISPRUDENCE)
4. The actual issuance of a warrant of
distraint and levy in certain cases 1. Tax sought to be refunded is
cannot be considered a final decision illegally or erroneously collected
on a disputed settlement. - from the date the tax was paid.
(Commissioner vs. Union Shipping (Commissioner vs. Victorias Milling,
Corporation, GR No. 66160, May 21, GR No. L-24108, January 31, 1968)
1990) 2. Tax is paid only in installments or
only in part
- from the date the last or final
installment or payment because for
FILING OF CLAIM FOR tax purposes, there is no payment
TAX REFUND OR TAX CREDIT until the whole or entire tax liability
is fully paid. (Collector vs. Prieto,
GR No. L-11976, August 29, 1961)
GROUNDS FOR FILING A CLAIM FOR TAX
3. Taxpayer merely made a deposit
REFUND OR TAX CREDIT
- counted from the conversion of the
1. Tax is collected erroneously or deposit to payment (Union Garment
illegally. vs. Collector, CTA Case No. 416,
2. Penalty is collected without November 17, 1958)
authority. - Merely making a deposit is not
3. Sum collected is excessive. equivalent to payment until the
amount is actually applied to the
TAX REFUND VS. TAX CREDIT specific purpose for which it was
deposited.
TAX REFUND TAX CREDIT 4. Tax has been withheld from source
(through the withholding tax
The taxpayer asks for The taxpayer asks system)
restitution of the that the money so - counted from the date it falls due
money paid as tax paid be applied to his at the end of the taxable year
existing tax liability

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- A taxpayer who contributes to the tax, penalty or sum has been paid under
withholding tax system does not protest or duress” (Sec. 229, NIRC).
really deposit an amount to the
government, but in truth, performs Note: Similarly, payment under protest is
and extinguishes his tax obligation not necessary in refund for local taxes.
for the year concerned. (Gibbs vs. (See Sec. 196, LGC).
Commissioner, GR No. L-17406,
November 29, 1965) However, payment under protest is
5. End of taxable year vs. date of the necessary in claim for refund for real
filing of the final adjusted return property taxes (Sec. 252, LGC) and for
- from the date when the final customs duties (Sec. 2308, TCC).
adjusted return was filed.
- the rationale in computing this SUSPENSION OF THE TWO-YEAR
period is the fact that it is only then PRESCRIPTIVE PERIOD
the corporation can ascertain
whether it made profits or incurred 1. There is a pending litigation between
losses in its business operations. the Government and the taxpayer;
(ACCRA Investments vs. Court of and
Appeals, GR No. 96322, December 2. CIR in that litigated case agreed to
20, 1991) abide by the decision of the SC as to
6. Date when quarterly income tax the collection of taxes relative
was paid vs. date when final thereto (Panay Electric Co. vs.
adjusted return was filed Collector, GR No. L-10574, May 28,
- from the date when final adjusted 1958).
return was filed
- The filing of the quarterly income INTEREST ON TAX REFUNDS
tax return (Sec. 68) and payment of
quarterly income tax should only be General Rule:
considered mere installments of the Government cannot be required
annual tax due. (Commissioner vs. to pay interest on taxes refunded to the
TMX Sales, GR No. 83736, January taxpayer in the absence of a statutory
15, 1992) provision clearly or expressly directing or
7. Date when the final adjustment authorizing such payment. (Commissioner
return was actually filed (ex. Apr. vs. Sweeney, GR No. L-12178, August 29,
2) vs. Last day when the adjustment 1959)
return could still be filed (ex. Apr.
15)
- from the date the final adjustment Exceptions:
return was actually filed. 1. When the CIR acted with patent
(Commissioner vs. Court of Appeals, arbitrariness. Arbitrariness
GR No 117254, January 21, 1999) presupposes inexcusable or obstinate
8. Tax was not erroneously or illegally disregard of legal provisions.
paid but the taxpayer became (Commissioner vs. Victorias Milling,
entitled to refund because of GR No. L-19667, Nov. 29, 1966)
supervening circumstances 2. Under Sec. 79(C)(2) with respect to
- from the date the taxpayer income taxes withheld on the wages
becomes entitled to refund and not of the employees.
from the date of payment.
(Commissioner vs. Don Pedro Central TAX CREDIT CERTIFICATE
Azucarera, GR No. L-28467, Feb. 28,
1973) 1. May be applied against any internal
PAYMENT UNDER PROTEST IS NOT revenue tax except withholding
NECESSARY UNDER NIRC taxes,
2. Original copy is surrendered to the
A suit or proceeding for tax refund revenue office,
may be maintained “whether or not such

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1
3. No tax refund will be given resulting within 180 days from date of submission
from availment of incentives granted by taxpayer, the latter may appeal
by law where no actual payment was within 30 days from lapse of the
made (Sec. 204C, 1997 NIRC). 180-day period with the CTA Division
FORFEITURE OF CASH REFUND/TAX


The Party adversely affected by the CTA
CREDIT
Division’s decision may file one motion
for reconsideration/new trial within 15
1. Forfeiture of refund in favor of the
days from receipt of decision. If the MR
government when a refund check or
is denied file a petition for review with
warrant remains unclaimed or
the CTA en banc
uncashed within five (5) years from
date of mailing or delivery. 
2. Forfeiture of Tax Credit – a tax credit Appeal to the Supreme Court within 15
certificate which remains unutilized days from receipt of the CTA en banc
after five (5) years from date of decision under Rule 45 of the Rules of
issue, shall be invalid, unless Court
revalidated (Sec. 230, 1997 NIRC).
Pre-Assessment Notice, When Not
Required (Sec. 228, NIRC)
REGLEMENTARY PERIODS
IN INCOME TAX IMPOSED 1. When the finding for any
deficiency tax is the result of
BY LAW UPON THE TAXPAYER mathematical error in the
(PURSUANT TO REV. REG. NO. 12-99, computation of the tax as
SEC. 228 OF THE 1997 NIRC, AND RA appearing on the face of the
NO. 1125 AS AMENDED BY RA NO. 9282) return; or
2. When a discrepancy has been
BIR makes a tax assessment determined between the tax
 withheld and the amount actually
If taxpayer is not satisfied with the remitted by the withholding
assessment file a protest within 30 days agent; or
from receipt thereof 3. When a taxpayer who opted to
claim a refund or tax credit of
 excess creditable withholding tax
Submit supporting documents within 60 for a taxable period was
days from date of the filing of the determined to have carried over
protest and automatically applied the
 same amount claimed against the
If protest is denied, elevate the matter estimated tax liabilities for the
to the Commissioner of Internal Revenue taxable quarter or quarters of
(CIR) within 30 days from receipt of the the succeeding taxable year; or
decision of the CIR’s duly authorized 4. When the excise tax due on
representative officer excisable articles has not been
paid;
 5. When an article locally purchased
Appeal to the Division of the Court of or imported by an exempt
Tax Appeals (CTA) within 30 days from person, such as, but not limited
receipt of final decision of CIR or his duly to, vehicles, capital equipment,
authorized representative (the taxpayer machineries and spare parts, has
has the option to appeal straight to the been sold, traded or transferred
CTA upon receipt of the decision of the to non-exempt persons.
CIR’s duly authorized representative)
 Notes:
If the CIR or his duly authorized • As a general rule, payment
representative fails to act on the protest under protest is not required

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1
under the NIRC, except when amount of tax due for which
partial payment of no return is required to be
uncontroverted taxes is filed, on or before the date
required under RR 12-99. prescribed for its payment.
The Commissioner may, even (Sec. 248)
without a written claim 2. 50% surcharge
therefor, refund or credit any a. in case of willful neglect to
tax, where on the face of the file the return within the
return upon which payment period prescribed by the
was made, such payment Code, or
appears clearly to have been • will not apply in case a
erroneously paid. taxpayer, without notice
• In case of the CIR’s final from the Commissioner,
denial of the claim for or his duly authorized
refund, the 30-day period to representative,
appeal with the CTA must be voluntarily files the said
within the 2-year peremptory return (only 25% shall be
period for instituting judicial imposed)
action. • 50% surcharge shall be
imposed in case the
 See Annex N – Assessment Process taxpayer files the return
and Appeal only after prior notice in
writing from the
Commissioner or his duly
ADDITIONS TO THE TAX authorized representa-
(SECS. 247-252 NIRC) tive (Sec. 4.2, Rev. Reg.
12-99)
DEFINITION: increments to the basic tax
incident due to the taxpayer’s non-
compliance with certain legal
requirements. b. in case a false or fraudulent
1. CIVIL PENALTY / SURCHARGE return is willfully made
1. 25% surcharge Prima Facie evidence
a. Failure to file any return and
pay the tax due thereon as • substantial underdeclaration
required under the provisions (exceeding 30% of that
of this Code or rules and declared) of taxable sales,
regulations on the date receipts or income,
prescribed; or • or a substantial
b. Unless otherwise authorized overstatement (exceeding
by the Commissioner, filing a 30% of actual deductions) of
return with an internal deductions (Sec. 248)
revenue officer other than
those with whom the return INTEREST
is required to be filed; or - 20% per annum or such higher rate
c. Failure to pay the deficiency as may be prescribed by the rules and
tax within the time regulations
prescribed for its payment in
the notice of assessment; or a. Deficiency interest (Sec. 249B)
d. Failure to pay the full or part b. Delinquency interest (Sec. 249C)
of the amount of tax shown c. Interest on Extended Payment
on any return required to be (Sec. 249D)
filed under the provisions of
this Code or rules and
regulations, or the full

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1
3. OTHER CIVIL PENALTIES OR sufficiency of local government units by

ADMINISTRATIVE FINES directly granting them general and broad
tax powers.” (Manila Electric Co. vs.
a. Failure to file certain Province of Laguna, G.R. No. 131359)
information returns (Sec. 250)
b. Failure of a withholding agent to Aspects of Local Taxing Power
collect and remit tax (Sec. 251) a. local taxation
c. Failure of a withholding agent of b. real property taxation
refund excess withholding tax
(Sec. 252) Fundamental Principles governing Local
Taxation (Sec. 130, lgc)
a. Shall be uniform in each local
III. LOCAL TAXATION sub-unit
b. Shall be equitable and based as
much as possible on the
POWERS AND LIMITATIONS
taxpayer’s ability to pay
c. Levied for public purposes
NATURE AND SOURCE OF LOCAL TAXING
d. Shall not be unjust, excessive,
POWER (SEE. SEC 5, ART. X, 1987
oppressive, or confiscatory
CONSTITUTION AND SEC. 129, LGC)
e. Shall not be contrary to law,
public policy, national economic
The Local Government Unit has the
policy, or in restraint of trade
power:
f. Collection of local taxes and
a. to create its own sources of
other impositions shall not be
revenue and
let to any person
b. to levy taxes, fees and charges.
g. The revenues collected under
the Code shall inure solely to
the benefit of, and subject to
disposition by, the LGU levying
the tax or other imposition
unless otherwise specifically
provided therein
h. Each LGU shall, as far as
Congress cannot enact laws
practicable, evolve a progressive
depriving LGU from exercising such power
system of taxation.
to tax but it may set guidelines and
limitations for the exercise.
Local Taxing Authority (Sec. 132, lgc)
Such taxes, fees, and charges
Shall be exercised by the Sanggunian
shall accrue exclusively to the local
of the LGU concerned through an
government units.
appropriate ordinance.
Nature of the Taxing Power
Power to prescribe Penalties for Tax
a. Not inherent;
Violations and Limitations thereon (Sec.
b. Exercised only if delegated to
516, lgc)
them by law or Constitution;
1. The Sanggunian is authorized to
c. Not absolute; subject to
prescribe fines or other penalties for
limitations provided for by law.
violations of tax ordinances.
a. in no case shall fines be less than
Under the present constitutional
P1,000 nor more than P5,000
rule, “where there is neither a grant nor
b. nor shall the imprisonment be
a prohibition by statute, the tax power
less than one (1) month nor more
must be deemed to exist although
than six (6) month.
Congress may provide statutory
2. Such fine or other penalty shall be
limitations and guidelines. The basic
imposed at the discretion of the
rationale for the current rule is to
court.
safeguard the viability and self-

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3. The Sangguniang Barangay may disturbance, general failure of

prescribe a fine of not less than P100 crops, or adverse economic
nor more than P1,000. conditions such as substantial
decrease in prices of agricultural
Power to Adjust Local Tax Rate (Sec. or agri-based products.
191, lgc) b. The grant shall be through an
Adjustment of the tax rates as ordinance.
prescribed herein should not be oftener c. Any exemption or relief granted
than once every five (5) years, and in no to a type or kind of business shall
case shall such adjustment exceed ten apply to all business similarly
percent (10%) of the rates fixed under situated.
the LGC. d. The same shall take effect only
during the next calendar year for
Power to Grant Local Tax Exemptions a period not exceeding 12 months
(Sec. 192, lgc) as may be provided in the
Local government units may, ordinance.
through ordinances duly approved, grant e. In the case of shared revenues,
tax exemptions, incentives or reliefs the exemption or relief shall only
under such terms and conditions, as they extend to the LGU granting such
may deem necessary. exemption or relief.
2. On the grant of tax incentives:
Tax Exemptions Existing Before the a. The same shall be
Effectivity of the LGC has been granted only to new investments
Abolished (Sec. 193, lgc) in the locality and the ordinance
Unless otherwise provided in this shall prescribe the terms and
Code, tax exemptions or incentives conditions therefore.
granted to, or presently enjoyed by all b. The grant shall be for a
persons, whether natural or juridical, definite period of not exceeding
including government-owned or 1 calendar year.
controlled corporations are hereby c. The grant shall be by
withdrawn upon the effectively of the ordinance passed prior to the 1st
LGC day of January of any year.
except the following: d. Any grant to a type or
8. local water districts, kind of business shall apply to all
9. cooperatives duly registered under businesses similarly situated.
R.A. No. 6938, non-stock and non-
profit hospitals and LEVYING OF LOCAL TAXES (LOCAL TAX
10. educational institutions. ORDINANCE)
Requisites:
The power to grant tax exemptions, 1. The procedure applicable to local
tax incentives and tax reliefs shall not government ordinances in general
apply to regulatory fees which are levied should be observed (Sec. 187, LGC)
under the police power of the LGU. 2. Procedural details (Secs. 54, 55, and
Tax exemptions shall be conferred 59, LGC):
through the issuance of a non- a. necessity of a quorum
transferable tax exemption certificate. b. submission for approval by the
local chief executive
Guidelines for the Granting of Tax c. he matter of veto and overriding
Exemptions, Tax Incentives and Tax the same
Reliefs (Art. 282[b], Rules and d. the publication and affectivity
Regulations Implementing the Lgc) 3. Public hearings are required before
any local tax ordinance is enacted
1. On the grant of tax exemptions or (Sec.187, LGC)
tax reliefs:
a. the same may be granted in cases
4. Within 10 days after their approval,
publication in full for 3 consecutive
of natural calamities, civil

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days in a newspaper of general Excluded impositions (pursuant to the

circulation. In absence of such doctrine of preemption):
newspaper in the province, city or a. Taxes which are levied under the
municipality, then the ordinances NIRC, unless otherwise provided
may be posted in at least 2 by LGC of 1991;
conspicuous and publicly accessible b. Taxes, fees, etc. which are
places (Sec. 189, LGC) imposed under the Tariffs and
Customs Code;
Residual Taxing Powers of the Local c. Taxes, fees, etc., the imposition
government units (Sec. 186, lgc) of which contravenes existing
To levy taxes, fees or charges on any governmental policies or which
base or subject NOT: violates the fundamental
1. Specifically enumerated in LGC principles of taxation;
2. Taxed under the provisions of the d. Taxes, fees and other charges
NIRC, as amended, and imposed under special law.
3. Other applicable laws
COMMON LIMITATIONS ON LOCAL
Conditions: TAXING POWER (SEC. 133, LGC)
1. That the taxes, fees, or charges shall Local government units cannot levy:
not be unjust, excessive, oppressive, 1. Income tax, except on banks and
confiscatory or contrary to declared other financial institutions;
national policy 2. Documentary stamp tax;
2. The ordinance levying such taxes, fees
3. Estate tax, inheritance, gifts,
legacies and other acquisitions
or charges shall not be enacted
mortis causa except as otherwise
without any prior public hearing
provided
conducted for the purpose.
4. Customs duties, registration fees
of vessels and wharfage on
wharves, tonnage dues and all
LIMITATIONS OF THE RESIDUAL POWER other kinds of customs fees,
1. Constitutional limitations on charges and dues except
taxing power wharfage on wharves constructed
2. Common limitations prescribed and maintained by the local
in Sec. 133 of the LGC government unit concerned;
3. Fundamental principles 5. Taxes, fees, charges and other
governing the exercise of the impositions upon goods carried
taxing power of the LGUs into or out of, or passing through,
prescribed under Sec. 130 of the the territorial jurisdictions of
LGC local government units in the
4. The ordinance levying such guise of charges for wharfage,
residual taxes shall not be tolls for bridges or otherwise.
enacted without any prior public 6. Taxes, fees or charges on
hearing conducted for the agricultural and aquatic products
purpose and when sold by marginal farmers or
5. The principle of preemption. fishermen;
7. Taxes on business enterprises
Principle of Preemption or Exclusionary certified by the Board of
doctrine Investments as pioneer or
Where the National Government non-pioneer for a period of 6 and
elects to tax a particular area, it 4 years, respectively, from the
impliedly withholds from the local date of registration;
government the delegated power to tax
8. Excise taxes on articles
the same field. This doctrine principally
enumerated under the NIRC, as
rests on the intention of the Congress.

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amended, and taxes, fees or 4. Taxes, fees, and charges imposed

charges on petroleum products; under special laws.
9. Percentage or value-added tax • Number 12
(VAT) on sales, barters or
exchanges or similar transactions TAXES AND OTHER IMPOSITIONS THAT
on goods or services except as THE LOCAL GOVERNMENT MAY LEVY
otherwise provided herein;
10. Taxes on the gross receipts of (A) PROVINCES
transportation contractors and (SECS. 134-141, LGC)
persons engaged in the 1. Tax on Transfer of Real Property
transportation of passengers or 2. Tax on Business of Printing and
freight by hire and common Publication
carriers by air, land or water, 3. Franchise Tax
except as provided in the Code; 4. Tax on Sand, Gravel and other
11. Taxes on premiums paid by way Quarry Resources extracted from
of Reinsurance or retrocession; Public Land
12. Taxes, fees or charges for the 5. Professional Tax
registration of motor vehicles and 6. Amusement Tax
for the issuance of all kinds of 7. Annual Fixed Tax for every
licenses or permits for the driving Delivery Truck or Van of
thereof, except tricycle; Manufacturers or Producers,
Wholesalers of, Dealers, or
13. Taxes, fees or other charges on
Retailers in, certain products
Philippine products actually
exported, except as otherwise
provided in the Code;  See Annex J for the rates and
14. Taxes, fees or charges on details.
Countryside and barangay
business enterprises and
cooperatives duly registered
under R.A. 6810 and R.A. 6938,
(Cooperatives Code of the
Philippines) ; and
(B) MUNICIPALITIES
15. Taxes, fees or charges of any
(SEC. 143, LGC)
kind on the National
Government, its agencies and 1. Municipal Taxes- taxes on the
instrumentalities, and local businesses of the following:
government units. a. On manufacturers, assemblers,
repackers, processors, brewers,
CLASSIFICATION OF COMMON distillers, rectifiers, and
LIMITATIONS compounders of liquors, distilled
1. Taxes which are levied under the spirits, and wines or
NIRC unless otherwise provided by manufacturers of any article of
the LGC commerce of whatever kind or
• Numbers 1, 2, 3, 8, 9, 10 b. On wholesalers, distributors, or
2. Taxes, fees, etc. which are imposed dealers in any article of
under the Tariffs and Customs Code commerce of whatever kind or
• Number 4 c. On exporters, and on
3. Taxes, fees and charges where the manufacturers, millers,
imposition of which contravenes producers, wholesalers,
existing governmental policies or distributors, dealers or retailers
which are violative of the of essential commodities
fundamental principles of taxation d. On retailers
• Numbers 5, 6, 7, 11, 13, 14, 15 e. On contractors and other
independent

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f. On banks and other financial - which are subject to

g. On peddlers engaged in the sale different rates of tax, the gross sales
of any merchandise or article of or receipts of each business shall be
commerce separately reported for the purpose
h. On any business, not otherwise of computing the tax due from each
specified in the preceding business.
paragraphs, which the sanggunian
concerned may deem proper to  See Annex K for the rates and
tax. details.
2. Municipal non-revenue fees and (C) CITIES

charges (SEC. 151, LGC)
The municipality may impose and
collect such reasonable fees and charges • The city may levy the taxes, fees,
on business and occupation except and charges which the province or
professional taxes reserved for provinces. municipality may impose.
(Sec. 147. LGC)
• The tax rates that the city may levy
Rates of Tax within the Metropolitan may exceed the maximum rates
Manila Area (sec. 144, lgc) allowed for the province or
municipality by not more than 50%
- Not to exceed by 50% the except the rates of professional and
maximum rates prescribed in the amusement taxes.
preceding Section.
(D) BARANGAYS
(SEC. 152, LGC)
Barangays may levy the following taxes,

fees, and charges which shall accrue
exclusively to them:
a. Taxes – On stores or retailers

with fixed business
Payment of Business Taxes establishments with the gross
a. It shall be payable for every sales or receipts for the
separate or distinct preceding calendar year of
establishment or place where P50,000 or less (for barangays in
business subject to the tax is the cities) and P30,000 or less
conducted and one line of (for barangays in municipalities)
business does not become
b. Rate = not exceeding 1% of such
exempt by being conducted with
gross sales or receipts.
some other business for which
such tax has been paid. c. Service Fees or Charges – For
b. The tax on a business must be services rendered in connection
paid by the person conducting with the regulation or the use of
the same. barangay-owned properties or
c. In cases where a person conducts service facilities such as palay,
or operates 2 or more of the copra or tobacco dryers
businesses mentioned in Section d. Barangay Clearance – No city or
143 of LGC municipality may issue any
- which are subject to the license or permit fee for any
same rate of tax, the tax shall be business or activity unless a
computed on the combined total clearance is first obtained from
gross sales or receipts of the said 2 or the barangay where such business
more related businesses. or activity is located or
conducted.

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e. Other Fees and Charges – The • Municipality or city where the

barangay may levy reasonable branch or outlet is located.
fees and charges: 2. Place of sale (no branch or sales
1. On Commercial breeding of outlet):
fighting cocks, cockfights and • Municipality or city of principal
cockpits; office (not in the place of sale)
2. On places of Recreation 3. If manufacturer, assembler,
which charge admission fees; contractor, producer, or exporter
and (MACPE) with factory, project office,
3. On Billboards, signboards, plant or plantation (FPPP)
neon signs and outdoor 4. 30% of recorded sales in the principal
advertisements. office: city or municipality where the
principal office is located
SITUS OF LOCAL TAXATION 5. 70% of recorded sales in the principal
office: city or municipality where the
A. Situs According to the Cases FPPP is located
With respect to excise tax, the • pro rata if FPPP are located in
tax is upon the performance of an act, different municipalities or cities
enjoyment of a privilege or the engaging in proportion to their respective
in an occupation. The power to levy such volumes of production.
tax is not dependent on the domicile of 6. If plantation is located in some other
the taxpayer, but on the place in which place than where the factory is
the act is performed or the occupation is located, the foregoing 70% shall be
engaged in; not upon the location of the subdivided as follows:
office, but the place where the sale is • 60% to the city or municipality
perfected. (Allied Thread Co., Inc. v. where the factory is located
City Mayor of Manila, L-40296) • 40% to the city or municipality
where the plantation is located.
With respect to sale, it is the
place of the consummation of the sale, COMMON REVENUE-RAISING POWERS OF
associated with the delivery of the things LGUs (SEC. 153 TO 155)
which are the subject matter of the 1. Service fees and charges for services
contract that determines the situs of the rendered
contract for purposes of taxation, and not 2. Public Utility Charges for the
merely the place of the perfection of the operation of public utilities owned,
contract. (Shell Co., Inc. v. Municipality operated and maintained by LGUs
of Sipocot, Camarines Sur 105 Phil 1263) within their jurisdiction.
3. Toll fees or charges for the use of any
B. Situs According to Sec. 150, LGC public road, pier or wharf, waterway,
bridge, ferry or telecommunication
Branch or sales office – a fixed place in system funded and constructed by
the locality which conducts the operation the local government unit concerned
of the business as an extension of the Exceptions:
principal office a. Officers and enlisted men of the
AFP and PNP;
Principal office- the head or the main b. Post office personnel delivering
office of the business; the city or the mail; and
municipality specifically mentioned in the c. Physically handicapped and
Articles of Incorporation or official disabled citizens who are
registration papers as being the official sixty-five (65) years or older.(Sec.
address of said principal office shall be 152, LGC)
considered the situs thereof.
When public safety and welfare so
1. Place of sale (with branch or sales requires, the sanggunian concerned may
outlet therein): discontinue the collection of the tolls,

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and thereafter the said facility shall be valuation used for the payment
free and open for public use. of the real property tax - P2.00;
and
COMMUNITY TAX 2. For every P5,000 of gross
Cities or municipalities may levy a receipts or earnings derived by it
community tax. from its business in the
Philippines during the preceding
A. Individuals Liable (Sec. 157) year - P2.00.
a. every inhabitant of the
Philippines; The dividends received by a
b. eighteen (18) years of age or corporation shall, for the purpose of the
over; additional tax, be considered as part of
c. under any of the following the gross receipts or earnings of said
instances: corporation.
d. who has been regularly
employed on a wage or salary THE FOLLOWING ARE EXEMPT FROM
basis for at least thirty (30) THE COMMUNITY TAX (SEC. 159)
consecutive working days 1. Diplomatic and consular
during any calendar year; or representatives; and
e. who is engaged in business or 2. Transient visitors when their stay in
occupation; or the Philippines does not exceed three
f. who owns real property with (3) months.
an aggregate assessed value of
P1,000 or more; or PLACE OF PAYMENT: place of residence
g. who is required by law to file of the individual, or in the place where
an income tax return the principal office of the juridical entity
is located.
Tax Rate = P5.00 and an annual
additional tax of P1.00 for every TIME OF PAYMENT: accrues on the 1st
P1,000 of income regardless of day of January of each year which shall
whether from business, exercise of be paid not later than the last day of
profession or from property which in February of each year.
no case shall exceed P5,000.
In case of husband and wife, PENALTIES FOR DELINQUENCY: an
the additional tax herein imposed interest of 24% per annum from the due
shall be based upon the total date until it is paid shall be added to the
property owned by them and the amount due.
total gross receipts or earnings
derived by them. A community tax certificate may also
be issued to any person or corporation
B. Juridical Persons (Sec. 158) not subject to the community tax upon
Every corporation no matter how payment of P1.00 (Sec. 162, LGC).
created or organized, whether
domestic or resident foreign, Presentation of Community Tax
engaged in or doing business in the Certificate on Certain Occasions – (Sec.
Philippines shall pay an annual 163)
community tax. A. Individual
1. When an individual subject to
Tax Rate = P500 and an annual additional the community tax
tax which in no case shall exceed P10,000 acknowledges any document
in accordance with the following before a notary public;
schedule: 2. takes the oath of office upon
election or appointment to
1. For every P5,000 worth of real
any position in the government
property owned by it during the
service;
preceding year based on the

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3. receives any license, Unless otherwise provided, shall

certificate or permit from any accrue on the first day of January of
public authority; pays any tax each year.
or fee; However, new taxes, fees or
4. receives any money from any charges, or changes in the rates
public fund; thereof, shall accrue on the first day
5. transacts other official of the quarter next following the
business; or effectivity of the ordinance imposing
6. receives any salary or wage such new levies or rates.
from any person or
corporation. Time of Payment – (Sec. 167, LGC)
The presentation of the community tax Unless otherwise provided shall
certificate shall not be required in be paid within the first twenty (20)
connection with the registration of a days of January or of each
voter. subsequent quarter as the case may
be.
B. Corporation May, for a justifiable reason or
1. receives any license, certificate cause, be extended without
or permit from any public surcharges or penalties, but only for
authority; a period not exceeding six (6)
2. pays any tax or fee; months.
3. receives money from public
funds; or Surcharges and Penalties on Unpaid
4. transacts other official business. Taxes, Fees or Charges – (Sec. 168,
The city of municipal treasurer LGC)
deputizes the barangay treasurer to Surcharge not exceeding 25% of
collect the community tax in their the amount of taxes, fees or charges
respective jurisdictions. (Sec. 164, LCG) including surcharges, until such
amount is fully paid.
The proceeds of the community tax But in no case shall the total
actually and directly collected by the city interest on the unpaid amount or
or municipal treasurer shall accrue portion thereof exceed thirty-six (36)
entirely to the general fund of the city or months.
municipality concerned.
Interests on Other Unpaid Revenues –
Proceeds of the community tax
(Sec. 169, LGC)
collected through the barangay
An interest thereon at the rate
treasurers shall be apportioned as
not exceeding 2% per month from the
follows:
date it is due until it is paid, but in no
• 50% accrues to the general fund of case shall the total interest on the
the city or municipality unpaid amount or portion thereof
concerned; and exceed thirty-six (36) months.
• 50% accrues to the barangay
where the tax is collected. Collection of Local Revenues by the
Treasurer – (Sec. 170 LGC)
Collection Of Local Taxes All local taxes, fees and charges
shall be collected by the provincial, city,
Tax Period and Manner of Payment – municipal or barangay treasurer, or their
(Sec. 165, LGC) duly authorized deputies.
Unless otherwise provided, the The provincial, city or municipal
tax period shall be the calendar year. treasurer may designate the barangay
Such taxes, fees, and charges treasurer or his deputy to collect local
may be paid in quarterly taxes, fees or charges.
installments. In case a bond is required for the
purpose, the provincial, city or municipal
Accrual of Tax – (Sec. 166, LGC) government shall pay the premiums

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thereon in addition to the premiums of provision prohibiting courts from

the bond that may be required under the enjoining the collection of local taxes.
Code. Such statutory lapse or intent may have
allowed preliminary injunction where
local taxes are involved. But it cannot
LOCAL TAX REMEDIES negate the procedural rules and
requirements under Rule 58 of the Rules
UNDER THE LGC of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989)
1. TAX REMEDIES OF THE
LOCAL GOVERNMENT UNITS (LGUs) PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND
COLLECTION
Civil Remedies Of The Local OF LOCAL TAXES
Government Units (LGU) To Effect PRESCRIPTIVE PERIODS OF ASSESSMENT
Collection Of Taxes 1. Local taxes, fees, or charges – five
(1) Local Government’s Lien – Local (5) years from the date they became
taxes, fees, charges and other due. (Sec. 194, LGC).
revenues constitute a lien, superior 2. When there is fraud or intent to
to all liens, charges or encumbrances evade the payment of taxes, fees or
in favor of any person, enforceable charges – ten (10) years from
by any appropriate administrative or discovery of the fraud or intent to
judicial action. evade the payment (Sec. 194, LGC).
(2) Civil Remedies PRESCRIPTIVE PERIOD OF COLLECTION
Local taxes, fees, or charges may
(a) by administrative action through be collected within five (5) years from
distraint of personal property the date of assessment by administrative
and by levy upon real property or judicial action. No such action shall be
instituted after the expiration of such
(b) by judicial action period (Sec. 194, LGC).
GROUNDS FOR THE SUSPENSION OF THE
RUNNING OF THE PRESCRIPTIVE
Either of these remedies or all may PERIODS
be pursued concurrently or a. The treasurer is legally
simultaneously at the discretion of the prevented from the assessment
LGU concerned. or collection of the tax;
b. The taxpayer requests for a
JURISDICTION OF COURTS OVER LOCAL reinvestigation and executes a
TAXATION CASES waiver in writing before the
expiration of the period within
a. With the amendment brought by which to assess or collect; and
RA No. 9282, the Court of Tax c. The taxpayer is out of the
Appeals now has appellate country or otherwise cannot be
jurisdiction over local taxation located (Sec. 194, LGC).
cases decided by the Regional
Trial Court in the exercise of its 2. TAX REMEDIES OF THE
appellate or original jurisdiction.
TAXPAYER
b. Regular judicial courts are not
prohibited from enjoining the
collection of local taxes, subject Remedies Of The Taxpayer In Local
to Rule 58 (Preliminary Taxation
Injunction) of the Rules of Court.
A. ADMINISTRATIVE
Before assessment
Note: Unlike the NIRC, the Local Tax
Code does not contain any specific

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a. Appeal – any question on IV. REAL PROPERTY

constitutionality or legality of tax
ordinance within 30 days from
TAXATION
effectivity thereof to Secretary of
Justice (Sec. 187 LGC)
Definitions:
b. Declaratory relief whenever
REAL PROPERTY TAXATION – A direct tax
applicable. on ownership of lands and
buildings or other improvements
After assessment thereon payable regardless of
a. Protest – within 60 days from receipt whether the property is used or
of assessment (Sec. 195 LGC). not, although the value may vary
Payment under protest is not in accordance with such factor.
necessary. Under the LGC, it covers
the administration, appraisal,
b. Payment & subsequent refund or assessment, levy and collection
tax credit – within 2 years from of Real Property Tax, i.e. tax on
payment of tax to local treasurer land and building and other
(Sec. 196 LGC). It is to be noted structures and improvements on
that, unlike in internal revenue it, including machineries.
taxes, the supervening cause applies
in local taxation because the period REAL PROPERTY – subject to the
for the filing of claims for refund or definition given by Art. 415 of
credit of local taxes is counted not the Civil Code.
necessarily from the date of payment
but from the date the taxpayer is IMPROVEMENT – valuable addition made
entitled to a refund or credit. to a property or amelioration in
its condition amounting to more
c. Right of redemption – 1 year from than a mere replacement of parts
the date of sale or from the date of involving capital expenditures
forfeiture (Sec. 179, LGC). and labor.
B. JUDICIAL
1. Court action
• within 30 days after receipt of NATURE AND CLASSES
decision or lapse of 60 days of
Secretary of Justice’s inaction CHARACTERISTICS OF REAL PROPERTY
(Sec. 187 LGC) TAX
1. Direct tax on the Ownership of
• within 30 days from receipt when
real property
protest of assessment is denied
(Sec. 195 LGC) 2. Ad valorem tax. The value is
based on the tax base.
• if no action is taken by the 3. Proportionate – the tax is
treasurer in refund cases and the calculated on the basis of a
two year period is about to lapse certain percentage of the value
(Sec. 195 LGC) assessed.
• if remedies available does not 4. Indivisible single obligation
provide plain, speedy and 5. Local tax
adequate remedy.
2. Action for declaratory relief TAXING AUTHORITIES (SEC. 233, LGC)
3. Injunction – if irreparable damage
would be caused to the taxpayer and Rate of Basic Real
no adequate remedy is available. LGU
Property Tax
1. Province not exceeding 1% of

assessed value

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construction of said projects.

2. City not exceeding 2% (Sec. 240, LGC).
3. Municipality not exceeding 2%. FOR PURPOSES OF REAL PROPERTY
within Metro TAXATION IDLE LANDS SHALL INCLUDE:
Manila
(SEC. 237, LGC)
1. Agricultural lands more than one
FUNDAMENTAL PRINCIPLES GOVERNING hectare in area one-half of which
REAL PROPERTY TAXATION (SEC. 198, remain uncultivated or unimproved by
LGC) the owner of the property or person
1. Real property shall be appraised at having legal interest therein.
its current and Fair market value; Agricultural lands planted to
2. Real property shall be classified for permanent or perennial crops with at
assessment purposes on the basis of least 50 trees to a hectare shall not
actual Use. be considered idle lands.
3. Real property shall be assessed on Lands actually used for grazing
the basis of Uniform classification purposes shall likewise not be
within each LGU considered idle lands; and
4. The appraisal, assessment, levy and 2. Lands other than agricultural located
collection of RP Tax shall not be let in a city or municipality more than
to any Private person one thousand square meters in area
5. The appraisal and assessment of real one-half of which remain unutilized or
property shall be Equitable. unimproved by the owner of the
property or person having legal
EXTENT OF THE POWER TO LEVY interest therein.
• Basic real property tax;
IDLE LANDS EXEMPT FROM TAX (SEC.
• 1% additional real estate tax to 238, LGC)
finance the Special Education
Fund; (Sec. 236) By reason of:
• 5% additional ad valorem tax on 1. force majeure
Idle lands; (Sec. 236, LGC) and 1. civil disturbance
• Special levy or special 2. natural calamity
assessments (may be imposed 3. or any cause which physically or
even by municipalities outside legally prevents the owner of the
Metro Manila) on lands comprised property or person having legal
within its territorial jurisdiction interest therein from improving,
specially benefited by public utilizing or cultivating the same.
works, projects or improvements
funded by the local government CLASSIFICATION OF LANDS FOR PURPOSES OF
unit concerned. ASSESSMENT SEC. 218 (A)
Provided:
 Special levy shall not exceed a. Commercial
60% of the actual cost of such b. Agricultural
projects and improvements, c. Residential
including the costs of d. Mineral
acquiring land and such other e. Industrial
real property in connection f. Timberland
therewith g. Special
 not apply to lands exempt
from basic real property tax SPECIAL CLASSES OF REAL PROPERTY
and the remainder of the (SEC. 216, LGC)
land have been donated to
the local government unit 1. Hospitals
concerned for the 2. Cultural and Scientific purposes

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3. owned and used by Local water contrary to law but also unjust. (Estate
districts of Lim vs. City of Manila, GR No. 90639,
4. GOCCs rendering essential public February 21, 1990)
services in the supply and distribution
of water and/or generation or PROCEDURE
transmission of electric power.
STEP 1: DECLARATION OF REAL
PROPERTIES EXEMPT FROM REAL
PROPERTY
PROPERTY TAX (SEC. 234, LGC)
Exemption is limited only to the
following: DECLARATION BY OWNER OR ADMINISTRATOR (SEC.
202-203)
1. Real property owned by the
• File a sworn declaration with the
government except when the
assessor
beneficial use thereof has been
- once every 3 years during
granted to a taxable person;
the period from January 1
2. Charitable institutions, churches, to June 30.
personages or convents
appurtenant thereto, mosques, • For newly acquired property –
non-profit or religious cemeteries WHEN: Must file with the assessor within
and all lands, buildings and 60 days from date of transfer
improvements actually, directly WHAT: Sworn statement containing the
and exclusively used for fair market value and description of the
religious, charitable or property.
educational purposes (Art. VI, • For improvement on property
Sec. 28, Constitution); WHEN: Must file within 60 days upon
completion or occupation (whichever
3. Machineries and equipment that
comes earlier)
are actually, directly and
WHAT: Sworn statement containing the
exclusively used by local water
fair market value and description of the
utilities and GOCC’s engaged in
property.
the supply and distribution of
water and/or electric power;
DECLARATION BY PROVINCIAL / CITY / MUNICIPAL
4. Real property owned by duly
ASSESSOR (SEC. 204)
registered cooperatives as
provided for in RA 6938; and
WHEN: Only when the person under Sec.
5. Machinery and equipment used
202 refuses or fails to make a declaration
for pollution control and
within the prescribed time.
environmental protection.
No oath by the assessor is required.
ACTUAL USE OF PROPERTY AS BASIS
FOR ASSESSMENT (SEC. 217 LGC) Notes: Proof of Exemption of Real
Property from Taxation - (Sec. 206)
Real property shall be classified,
valued and assessed on the basis of WHO: By any person or for whom real
actual use regardless of where located, property is declared.
whoever owns it, and whoever uses it.
• Claim for exemption must be filed
Unpaid realty taxes attach to the with the assessor together with
property and is chargeable against the sufficient documentary evidence to
person who had actual or beneficial use support claim
and possession of it regardless of whether
or not he is the owner. To impose the WHEN: within 30 days from the date of
real property tax on the subsequent declaration of property.
owner which was neither the owner nor
the beneficial user of the property during IF PROPERTY IS DECLARED FOR THE FIRST TIME –
the designated periods would not only be (SEC.222)

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If Declared for the first time, real STEP 4: DETERMINE ASSESSED

property shall be assessed for back taxes: VALUE (SEC. 218)
For not more than 10 years prior to
date of initial assessment
Determine Assessed Value
Taxes shall be computed on the basis
Procedure
of applicable schedule of values in force
1. Take the schedule of FMV
during the corresponding period.
2. Assessed Value = FMV x
Assessment level
STEP 2: LISTING OF REAL 3. Tax = Assessed value x Tax rate
PROPERTY IN THE ASSESSMENT
ROLLS (SECS. 205, 207) STEP 5: PAYMENT AND
COLLECTION OF TAX
 All declarations shall be kept and
filed under a uniform classification
(a) Accrual of Tax: January of every
system to be established by the
year and such will constitute as a
provincial, city or municipal
superior lien. (Sec. 246)
assessor.
(b) Time and Manner of Payment: (Sec.
STEP 3: APPRAISAL AND 250)
VALUATION OF REAL PROPERTY 1. basic real property tax in 4 equal
(SECS. 212-214, 224-225) installments (March 31, June 30,
September 30, December 30)
Determination of fair market value 2. special levy – governed by
(FMV) ordinance
For land
(c) Interest for Late Payment (Sec. 255)
 Assessor of the province/city or
municipality may summon the 1. two percent (2%) for each month
owners of the properties to be on unpaid amount until the
affected and may take depositions delinquent amount is paid
concerning the property, its 2. provided in no case shall the
ownership, amount, nature and value total interest exceed thirty-six
(Sec. 213, LGC) (36) months.
 Assessor prepares a schedule of
FMV for different classes of (d) For Advance and Prompt Payment
properties. 1. Advance payment – discount not
exceeding 20% of annual tax (Sec.
 Sanggunian enacts an ordinance 251, LCG)
 The schedule of FMV is published 2. Prompt payment – discount not
in a newspaper of general exceeding 10% of annual tax due (Art
circulation in the province, city 342 IRR)
or municipality concerned or in
the absence thereof, shall be Collection of Tax (Sec. 247)
posted in the provincial capitol, It shall be the responsibility of the
city or municipal hall and in two city or municipal treasurer concerned.
other conspicuous public places The city or municipal treasurer may
therein (Sec. 212, LGC) deputize the barangay treasurer to
collect all taxes on real property located
For machinery in the barangay; provided, the barangay
1. For Brand new machinery: FMV is the treasurer is properly bonded.
acquisition cost
2. In all other cases: FMV Period to Collect (Sec. 270)
= Remaining eco. life X Replacement 1. within five (5) years from the
Estimated Eco.Life Cost date they become due

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2. within ten (10) years from 1. The treasurer is legally prevented

discovery of fraud, in case there from the assessment or collection of
is fraud or intent to evade the tax;
2. The taxpayer requests for a
Suspension of Prescriptive Period (Sec. reinvestigation and executes a waiver
270) in writing before the expiration of
1. local treasurer is legally the period within which to assess or
prevented to collect tax. collect; and
2. the owner or property requests 3. The taxpayer is out of the country or
for reinvestigation and writes a otherwise cannot be located (Sec.
waiver before expiration of 270, LGC).
period to collect.
3. the owner of property is out of 2. TAX REMEDIES OF THE TAXPAYER
the country or cannot be
located. A. ADMINISTRATIVE
REAL PROPERTY TAX REMEDIES Protest – payment under protest is

UNDER THE LGC required within 30 days to provincial,
city, or municipal treasurer. No protest
1. TAX REMEDIES OF THE LOCAL shall be entertained unless the tax is
GOVERNMENT TO EFFECT first paid. (Sec. 252 LGC)
COLLECTION OF TAXES
Claim for Tax Refund or Credit (Sec.
253)
A. ADMINISTRATIVE a) the taxpayer may file a written
1. Real Property tax lien (Secs. 257, claim for refund or credit with
LGC) – superior to all liens, charges the provincial or city treasurer
or encumbrances; within two years from the date
2. Distraint (Sec. 254[B], LGC); the taxpayer is entitled to such
3. Levy (Sec. 254[A], 258 LGC); reduction or adjustment.
4. Purchase of property by local
treasurer for want of bidder (Sec. b) in case of denial of refund or
263, LGC). credit, appeal to LBAA as in
B. JUDICIAL protest case.
Civil Action ( Sec. 266, 270 LGC)
Redemption of real property (Sec. 261
PRESCRIPTIVE PERIODS FOR THE LGC)
COLLECTION OF REAL
PROPERTY TAXES Remedy against the Assessment/Appeal
1st: within 60 days from notice of
1. Basic real property tax and any assessment of provincial, city or
other tax levied under the title on municipal assessor to LBAA (Sec. 226
Real Property Taxation– five (5) LGC)
years from the date they became 2nd: within 30 days from receipt of
due. (Sec. 270, LGC). decision of LBAA to CBAA (Sec. 230
2. When there is fraud or intent to LGC)
evade the payment of taxes – ten 3rd: within 30 days from receipt of
(10) years from discovery of the decision of CBAA to Court of Tax
fraud or intent to evade the payment Appeals en banc
(Sec. 270, LGC). 4th: within 15 days from receipt of
decision of Court of Tax Appeals en
GROUNDS FOR THE SUSPENSION OF THE banc to the Supreme Court
RUNNING OF THE PRESCRIPTIVE
PERIODS APPEALS IN REAL PROPERTY
TAXATION

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• when public interest so requires.

PROVINCIAL, CITY OR MUNICIPAL
ASSESSOR
within 60 days V. TARIFF AND

Owner/Person with legal interest CUSTOMS CODE
must file:
1) Written Petition under Oath
2) With Supporting Documents
DEFINITIONS
TARIFF: Customs duties, toll or tribute
LOCAL BOARD OF ASSESSMENT APPEALS payable upon merchandise to the
(LBAA should decide within 120 days Government.
from receipt of petition)
CUSTOM DUTIES: Tax assessed upon
within 30 days merchandise from or exported to, a
foreign country. (Garcia v. Executive
Sec., GR No. 101273, July3, 1992))
CENTRAL BOARD OF ASSESSMENT
APPEALS Note: Customs and tariffs are
synonymous with one another. They both
within 30 days refer to the taxes imposed on imported
or exported wares, articles, or
merchandise.
COURT OF TAX APPEALS (EN BANC)
Other Types of Fees Charged by the
Bureau of Customs
within 15 days
1. Arrastre charge
2. Wharfage due – counterpart of
SUPREME COURT license, charged not for the use of
any wharf but for a special fund
B. JUDICIAL known as the Port Works Fund.
1. Court Action – appeal of CBAA’s 3. Berthing fee
decision to Court of Tax Appeals en 4. Harbor fee
banc. 5. Tonnage due
2. Suit assailing validity of tax;
recovery of refund of taxes paid Meaning and Scope of the Tariff and
(Sec. 64 PD 464). Customs Laws
Include not only the provisions of the
3. Suit to declare invalidity of tax due
Tariff and Customs Code (TCC) and
to irregularity in assessment and
regulations pursuant thereto, but all
collection (Sec. 64 PD 464)
other laws and regulations that are
4. Suit assailing the validity of tax sale subject to the Bureau of Customs (BOC)
(Sec. 83 PD 464) (Sec. 267 LGC) or otherwise within its jurisdiction.
As to its scope, therefore, tariff and
Condonation of Real Property Taxes customs laws extend not only to the
1. By the Sanggunian provisions of the TCC but to all other
Real property taxes may be laws as well, the enforcement of which is
condoned wholly or partially in a entrusted to the BOC.
given local government unit when:
a. There is general failure of crops;
b. There is substantial decrease in THE BUREAU OF CUSTOMS
the price of agricultural or agri-
based products; or FUNCTIONS OF THE BUREAU OF
c. There is calamity. CUSTOMS
2. By the President of the Philippines

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1. Assessment and collection of

revenues from imported articles and Importation is deemed terminated:
all other impositions under the tariff
and customs laws; (a) upon payment of the duties, taxes
2. Control smuggling and related frauds; and other charges due upon the articles.
3. Supervision and control over the
entrance and clearance of vessels (b) and legal permit for withdrawal shall
and aircraft engaged in foreign have been granted.
commerce;
4. Enforcement of TCC and related • In case the articles are free of
laws; duties, taxes and other charges, until
5. Supervision and control over the they have legally left the jurisdiction of
handling of foreign mails arriving in the customs (Sec. 1202, TCC)
the Philippines;
6. Supervise and control all import and INTENTION TO UNLOAD
export cargoes for the protection of Even if not yet unloaded, and there is
government revenue; unmanifested cargo, forfeiture may take
7. Exclusive original jurisdiction over place because importation has already
seizure and forfeiture cases under begun.
the tariff and customs laws.
ARTICLES UNDER TCC
JURISDICTION OF COLLECTOR OF May either be:
CUSTOMS OVER IMPORTATION OF 1. Subject to duty –
ARTICLES
a. Live animals and animal
1. Cause all articles for importation to
products;
be entered in the customhouse,
b. Vegetable products;
2. Cause all such articles to be
c. Animal or vegetable fats; oils and
appraised and classified,
their cleavage products;
3. Assess and collect the duties, taxes
prepared edible fats; animal or
and other charges thereon, and
vegetable waxes;
4. Hold possession of all imported d. Prepared foodstuffs; beverages,
articles until the duties, taxes and spirits and vinegar; tobacco and
other charges are paid thereon. (Sec. manufactured tobacco
1206, TCC) substitutes;
e. Mineral products;
TERRITORIAL JURISDICTION OF THE BOC f. Products of chemical or allied
1. All seas within the jurisdiction of the industries;
Philippines g. Plastics and articles thereof;
2. All coasts, ports, airports, harbors, rubber and articles thereof;
bays, rivers and inland waters h. Raw hides and skins; leather,
whether navigable or not from the etc.;
sea. (1st par, Sec. 603, TCC) i. Wood and articles of wood, etc.;
j. Pulp of wood, etc.;
CUSTOMS DUTIES k. Textiles and textile articles;
l. Articles of stone; plaster,
WHEN TARIFF AND CUSTOMS APPLIED cement, etc.;
Only after importation has begun but m. Footwear, headgear, etc.;
before importation is terminated. n. Natural or cultured pearls
precious/semi-precious stones;
Importation begins: o. Base metals and articles of base
1) when the conveying vessel or metals;
aircraft p. Machinery and mechanical
2) enters the jurisdiction of the appliances; electric equipment;
Phil. sound recorders, etc;
3) with intention to unload therein

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q. Vehicles, aircraft, vessels and All articles when imported from

associated transport equipment; any country into the Philippines shall
r. Optical, photographic, medical, be subject to duty upon each
surgical instruments, etc.; importation, even though previously
s. Arms, ammunition, parts and exported from the Philippines,
accessories; except as otherwise specifically
t. Miscellaneous manufactured provided for in the TCC or other
articles; and laws.
u. Works of art, collector's pieces
arid antiques (Sec. 104, Title 1, Liability for Customs Duties
TCC). General Rule: All importations /
exportations of goods are subject to
2. Prohibited from being imported customs duties (Sec. 105, TCC).
(Prohibited importation)
Exceptions:
a. Absolutely prohibited such as: (1) Exemptions under the TCC;
weapons of war; gambling (2) Exemptions granted to
devices; narcotics or prohibited government agencies,
drugs; immoral, obscene or instrumentalities or GOCCs with
insidious articles; and those existing contracts, commitments,
prohibited under special laws agreements, or obligations with
(Sec.102, TCC). foreign countries;
b. Qualifiedly prohibited (3) Exemptions of international
Where such conditions as to organizations pursuant to
warrant a lawful importation do agreements or special laws; and
not exist, the legal effects of the
importation of qualifiedly (4) Exemptions granted by the Pres.
prohibited articles are the same as of the Phil. upon
those of absolutely prohibited recommendation of NEDA (Sec.
articles. (Auyong Hian vs. CTA, GR 105, TCC).
No. L-28782, September 12, 1974) LIABILITY OF IMPORTER FOR CUSTOM DUTIES
• A personal debt which can be
3. Conditionally-free from tariff discharged only by payment in
and customs duties (conditionally- full thereof;
free importation) • A lien upon the imported articles
• Those provided in Sec. while they are in custody or
105, TCC; subject to the control of the
• Those granted to government. (Sec. 1204, TCC).
government agencies, GOCCs
with agreements with foreign Extent Of Importer’s Liability
countries; The liability of an importer is
• Those given to limited to the value of the imported
international institutions entitled merchandise. In case of forfeiture of the
to exemption by agreement or seized material, the maximum civil
special laws; and penalty is the forfeiture itself. (Mendoza
• Those that may be vs. David, GR No. L-9452, March 27,
granted by the President upon 1961)
NEDA’s recommendation.
Drawback
A device resorted to for enabling a
4. Free from TC duties (duty-free) commodity affected by taxes to be
Imported goods must be
exported and sold in foreign markets
entered in a customhouse at their
upon the same terms as if it had not been
port of entry otherwise they shall be
taxed at all. (Uy Chaco Sons vs. Collector
considered as contraband and the
of Customs, GR No. 7618, March 27,
importer is liable for smuggling (See
1913)
Sec. 101, TCC).

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3. Alternating duties: This is a duty

Import Entry which alternates ad valorem and
It is a declaration to the BOC showing specific.
particulars of the imported article that 4. Compound Duty: This is a duty
will enable the customs authorities to consisting of ad valorem and
determine the correct duties. An specific duties.
importer is required to file an import
entry. It must be accomplished from
disembarking of last cargo from vessel.
B. Special duties – those which are
imposed and collected in addition to
the ordinary customs duties usually to
Transaction value under RA NO. 8181
protect local industries against
It is the invoice value of the
foreign competition.
goods plus freight, insurance, costs,
expenses and other necessary expenses.
1. Dumping duty
This replaces the Home Consumption
2. Countervailing duty
Value as basis of valuation of goods.
3. Marking duty
4. Discriminatory duty
CLASSIFICATION OF CUSTOM DUTIES
A. Regular Duties – those which are NATURE OF SPECIAL CUSTOMS DUTIES
imposed and collected merely as a Special customs duties are
source of revenue. additional import duties imposed on
1. Ad valorem duty: This is a duty specific kinds of imported articles under
based on the value of the certain conditions.
imported article.
2. Specific duty: This is a duty PURPOSE OF SPECIAL CUSTOMS DUTIES
based on the dutiable weight of The special customs duties are
goods (either the gross weight, imposed for the protection of consumers
legal weight, or net weight). and manufacturers, as well as Phil.
products from undue competition posed
by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming from
foreign products thus allowing them to properly marked countries that
with value lower sell at lower prices to as to place of discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.
2. Amount/Rate Equivalent to the 5% ad valorem of Any amount not

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

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DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
3. Imposing Authority Secretary of Finance Commissioner of President of the

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

The President may fix tariff rates, instrumentality concerned.
import and export quotas, etc. under TCC The Commission shall submit
(See Sec. 28, Art. VI, Constitution and their findings and recommendations
Sec. 401, TCC) to the NEDA within thirty (30) days
1. to increase, reduce or remove after the termination of the public
existing protective rates of import hearings.
duty (including any necessary change The NEDA thereafter submits its
in classification). recommendation to the President.
The existing rates may be 1. The power of the President to
increased or decreased to any level, increase or decrease the rates of
on one or several stages but in no import duty within the
case shall the increased rate of abovementioned limits fixed in the
import duty be higher than a Code shall include the modification
maximum of one hundred (100%) per in the form of duty.
cent ad valorem In such a case the corresponding
2. to establish import quota or to ban ad valorem or specific equivalents of
imports of any commodity, as may be the duty with respect to the imports
necessary; and from the principal competing foreign
3. to impose an additional duty on all country for the most recent
imports not exceeding ten (10%) per representative period shall be used as
cent ad valorem whenever necessary: bases (Sec. 401, TCC).
LIMITATIONS IMPOSED REGARDING THE

FLEXIBLE TARIFF CLAUSE
THE TARIFF COMMISSION (TC)
a. Conduct by the Tariff Commission of
an investigation in a public hearing. FUNCTIONS OF THE TARIFF COMMISSION
The Commission shall also hear
the views and recommendations of

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1. Investigative Powers (Sec. 505, TAX REMEDIES UNDER THE

TCC) TARIFF AND CUSTOMS CODE
a. the administration of and (TCC)
the fiscal and industrial effects of
the tariff and customs laws of
TAX REMEDIES OF THE GOVERNMENT
this country now in force or
which may hereafter be enacted;
b. the relations between A. ADMINISTRATIVE
the rates of duty on raw 1. Tax Lien (Sec. 1204
materials and the finished or TCC)
partly finished products; • attaches on the goods,
c. the effects of ad valorem regardless of ownership, while
and specific duties and of com- still in the custody or control
pound specific and ad valorem of the Government
duties; • availed of when the
d. all questions relative to importation is neither
the arrangement of schedules and prohibited nor improperly
classification of articles in the made
several schedules of the tariff 2. Administrative Fines
law; and Forfeitures
e. the tariff relations • applied when the importation
between the Philippines and is unlawful,
foreign countries, commercial • and it may be exercised even
treaties, preferential provisions, where the articles are not or
economic alliances, the effect of no longer in Custom’s custody
export bounties and preferential - unless the importation is
transportation rates; merely attempted in which
f. the volume of case it may be effected only
importations, compared with while the goods are still
domestic production and within the Customs
consumption; jurisdiction or in the hands of
g. conditions, causes, and a person who is aware
effects relating to competition of thereof (Sec. 2531 & 2530,
foreign industries with those of TCC)
the Philippines, including • under Sec. 2530(a) of the
dumping and cost of production; TCC, in order to warrant
and forfeiture, it is not necessary
h. in general, to investigate that the vessel or aircraft
the operation of customs and must itself carry the
tariff laws, including their contraband. The
relation to the national revenues, complementary if collateral
their effect upon the industries use of the Cessna plane for
and labor of the country and to smuggling operation is
submit reports of its investigation sufficient for it to be deemed
as provided. to have been used in
smuggling. (Llamado vs.
2. Administrative Assistance to the Commissioner of Customs,
President and Congress (Sec. 506, GR No. L-28809, May 16,
TCC) 1983)
3. Reduction of customs
duties / compromise
• subject to approval of Sec. of
Finance (Sec. 709, 2316 TCC)

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4. Seizure, Search, Arrest intentional fraud (Sec. 2307

(Sec. 2205, 2210, 2211 TCC) TCC).
B. JUDICIAL 4. Appeal
1. this remedy is normally • Within 15 days to the
availed of when the tax lien Commissioner after
is lost by the release of the notification by Collector of
goods his decision (Sec. 2313 TCC).
• Civil Action (Sec. 1204,
TCC) B. JUDICIAL
• Criminal Action 1. Appeal
• Within 30 days from receipt
TAX REMEDIES OF THE TAXPAYER of decision of the
Commissioner or Secretary of
A. ADMINISTRATIVE Finance to the division of the
1. Protest CTA (Sec. 2403 TCC, Sec. 7
a. Any importer or interested RA 1125, as amended by Sec.
party if dissatisfied with 9 RA 9282)
published value within 15 • Since Sec.11 of RA 1125 as
days from date of amended by RA 9282
publication, or within 5 days empowers the Tax Court to
from the date the importer is issue injunctions, it would
entitled to refund if payment appear that an importer may
is rendered erroneous or appeal without first paying
illegal by events occurring the duties, such as in seizure,
after the payment. but not in protest cases.
b. Taxpayer – within 15 days 2. Action to question the
from assessment. Payment legality of seizure
under protest is necessary. 3. Abandonment (Sec.
(Sec. 2308, 2210 TCC) 1801 TCC)
2. Refund a. expressly (Sec. 1801 TCC)
a. A written claim for refund
b. impliedly –
may be submitted by the
c. failure to file an
importer in abatement cases
import entry within 30
on missing packages,
days from the discharge
deficiencies in the contents
of goods or
of packages or shortages
before arrival of the goods in d. having filed an
the Philippines, articles lost entry fails to claim within
or destroyed after such 15 days but it shall not
arrival, dead or injured be so effective until so
animals, and for manifest declared by the
clerical errors; and collector. (Sec. 1801, as
amended by RA 7651)
b. Drawback cases where the
goods are re-exported (Sec.
1701-1708 TCC).
TWO KINDS OF PROCEEDINGS IN THE
3. Settlement of any BUREAU OF CUSTOMS (BOC)
seizure by payment of fine or
redemption A. CUSTOMS PROTEST CASES
• But this shall not be allowed DEFINITION: These are cases which deal
in any case where solely with liability for customs duties,
importation is absolutely fees, and other charges.
prohibited, or the release
would be contrary to law, or Note: Before filing a protest, there must
when there is an actual and first be a payment under protest.

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When customs protest applicable


Hearing within 15 days from receipt of
the duly presented protest. Upon
The customs protest is required to be
termination of the hearing, the Collector
filed only in case the liability of the
shall decide on the same within 30 days
taxpayer for duties, taxes, fees and other
charges is determined and the taxpayer
disputes said liability.  
If decision is adverse to If decision is adverse to
When Customs protest NOT required the protestant the government
Where there is no dispute, but the

 
claim for refund arises by reason of the Appeal with the Automatic Review by
happening of supervening events such as Commissioner within 15 the Commissioner
days from notice
when the raw material imported is 
utilized in the production of finished Automatic review by
products subsequently exported and a
 the Secretary of
Appeal with the Court
duty drawback is claimed. Finance
of Tax Appeals Division
Requirements for making a protest within 30 days from 
notice
1. Must be in writing If decision of
 Commissioner or
2. Must point out the particular decision Appeal with the
or ruling of the Collector of Customs Secretary of Finance is
CTA en banc
to which exception is taken or adverse to the
objection made;  protestant, he may
3. Must state the grounds relied upon Appeal by certiorari appeal to the CTA and
for relief; with the Supreme Court SC under the same
4. Must be limited to the subject matter within 15 days from procedure on the left.
of a single adjustment; notice
5. Must be filed when the amount
claimed is paid or within 15 days
after the payment;
6. Protestant must furnish samples of
Reasons for the automatic review of
goods under protest when required.
decisions adverse to the Government
PROCEDURE IN CUSTOMS PROTEST
1. To protect the interest of the
CASES
Government
2. A favorable decision will not be
The Collector acting within his
appealed by the taxpayer and
jurisdiction shall cause the imported
certainly a Collector will not
goods to be entered at the customhouse
appeal his own decision.
 3. Lifeblood Theory
The Collector shall assess, liquidate, and
collect the duties thereon, or detain the B. SEIZURE AND FORFEITURE CASES
said goods if the party liable does not pay
the same DEFINITION: These refer to matters involving
smuggling. It is administrative and civil in
 nature and is directed against the res or
The party adversely affected (the
imported articles and entails a
protestant) may file a written protest on
determination of the legality of their
his foregoing liability with the Collector
importation. These are actions in rem.
within 15 days after paying the liquidated
Thus, It is of no defense that the
amount (the payment under protest rule
owner of the vessel sought to be forfeited
applies)
had no actual knowledge that his

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property was used illegally. The absence EVIDENCE FOR CONVICTION IN

or lack of actual knowledge of such use is SMUGGLING CASES
a defense personal to the owner himself, Mere possession of the article in
which cannot in any way absolve the question - unless defendant could explain
vessel from the liability of forfeiture. that his possession is lawful to the
(Commissioner of Customs vs. Manila satisfaction of the court (Sec. 3601,
Star Ferry, Inc., GR Nos. 31776-78, TCC). Payment of the tax due after
October 21, 1993) apprehension is not a valid defense
(Rodriguez vs. Court of Appeals, GR No.
SMUGGLING 115218, September 18, 1995)
1. An act of any person who shall:
a. Fraudulently import any article THINGS SUBJECT TO CONFISCATION IN
contrary to law, or SMUGGLING CASES
b. Assist in so doing, or Anything that was used for
c. Receive, conceal, buy, sell, smuggling is subject to confiscation, like
facilitate, transport, conceal or the vessel, plane, etc. (Llamado vs.
sell such article knowing its Commissioner of Customs, GR No. L-
illegal importation (Sec. 3601, 28809, May 16, 1983).
TCC)
Exception: Common carriers that are not
d. Export contrary to law. (Sec. privately chartered cannot be
3514, TCC) confiscated.
2. The Philippines is divided into various RIGHT OF CUSTOMS OFFICERS TO
ports of entry – entry other than port EFFECT SEIZURE & ARREST (SEC. 2205)
of entry, will be SMUGGLING. 1. May seize any vessel, aircraft, cargo,
article, animal or other movable
PORT OF ENTRY property when the same is subject to
A domestic port open to both forfeiture or liable for any time as
foreign and coastwise trade including imposed under tariff and customs
“airport of entry”. (Sec. 3514, TCC) laws, rules & regulations
ALL articles imported into the 2. May exercise such powers only in
Philippines whether subject to duty or conformity with the laws and
not shall be entered through a provisions of the TCC
customshouse at a port of entry.
ENTRY: in Customs law means-
1. the COMMON CARRIERS; FORFEITURE
documents filed at the 1. Common carriers are generally
Customs house not subject to forfeiture although if
2. the the owner has knowledge of its use in
submission and acceptance smuggling and was a consenting
of the documents party, it may also be forfeited.
2. If a motor vehicle is hired to
3. the
carry smuggled goods but it has no
procedure of passing goods
Certificate of Public Convenience
through the customs house
(CPC), it is not a common carrier. It
(Rodriguez vs. Court of
is thus subject to forfeiture, and lack
Appeals, GR No. 115218,
of personal knowledge of the owner
September 18, 1995)
or the carrier is not a defense to
forfeiture.
CONTRABAND: Articles of prohibited
importations or exportations. (Sec. 3514,
PROPERTIES NOT SUBJECT TO
TCC)
FORFEITURE IN THE ABSENCE OF PRIMA
FACIE EVIDENCE
The forfeiture of the vehicle, vessel
or aircraft shall not be effected if it is
established that the owner thereof or his

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1
agent in charge of the means of • No petitions for certiorari,

conveyance used as aforesaid has no prohibition or mandamus filed with
knowledge of or participation in the the RTC will lie because these are in
unlawful act: reality attempts to review the
Provided, however, that a prima Commissioner's actuations. Neither
facie presumption shall exist against the replevin filed with the RTC will issue.
vessel, vehicle or aircraft under any of Rationale: Doctrine of Primary
the following circumstances: Jurisdiction.
1. If the conveyance has been used
for smuggling at least twice
• Even if a Customs seizure is illegal,
exclusive jurisdiction (to the
before;
exclusion of regular courts) still
2. If the owner is not in the business
belongs to the Bureau of Customs
for which the conveyance is
(Jao v. Court of Appeals, GR No.
generally used; and
104604, October 6, 1995).
3. If the owner is financially not in a
position to own such conveyance.
GOODS IN CUSTOM’S CUSTODY BEYOND
REACH OF ATTACHMENT
DOCTRINE OF HOT PURSUIT
Goods in the custom’s custody
Requisites:
pending payment of customs duties are
1. Over Vessels
beyond the reach of attachment. As long
a. An act is done in Phil. Waters
as the importation has not been
which constitutes a violation of
terminated, the imported goods remain
the tariff and customs laws
under the jurisdiction of the Bureau of
b. a pursuit of such vessel began
Customs. (Viduya vs. Berdiago, GR No. L-
within the jurisdictional waters
29218, October 29, 1976)
which
(i) may continue beyond the
maritime zone, and ADMINISTRATIVE AND JUDICIAL
(ii) the vessel may be seized PROCEDURES RELATIVE TO CUSTOMS
on the high seas. SEIZURES AND FORFEITURES
2. Over Imported Articles Determination of probable cause and

a. There is a violation of the tariff issuance of warrant
and customs laws 
b. As a consequence they may be Actual seizure of the articles
pursued in the Phil.
c. With jurisdiction over them at 
Listing of description, appraisal and
any place therein for the
classification of seized property
enforcement of the law. (2nd par.
Sec. 603, TCC) 
Report of seizure to the Comm. of
Customs and the Chairman, Comm.
REGIONAL TRIAL COURTS (RTC) on Audit
VS. 
BUREAU OF CUSTOMS (BOC)
Issuance by the Collector of a warrant
of detention
• The RTCs do not have jurisdiction
over seizure and forfeiture 
proceedings conducted by the BOC Notification to owner or importer
and to interfere with these 
proceedings. The Collector of Formal hearing
Customs has exclusive jurisdiction
over all questions touching on the 
seizure and forfeiture of dutiable District collector renders his decisions
goods.

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2. That such declaration, affidavit,

  invoice, letter or paper is false.
If decision is not If decision is not
(Farolan, Jr. vs. Court of Tax
favorable to the favorable to the
Appeals, GR No. 42204, January 21,
aggrieved owner or government
1993)
importer
  PLACES WHERE SEARCHES & SEIZURES
Appeal by the Automatic Review MAY BE CONDUCTED
aggrieved owner or by the (a) enclosures
importer Commissioner (b) dwelling house (there must be
search warrant issued by a judge)
(c) vessels or aircrafts and persons or
PERSONS HAVING POLICE AUTHORITY TO articles conveyed therein
ENFORCE THE TARIFF & CUSTOMS LAWS (d) vehicles, beasts and persons
AND EFFECT SEARCHES, SEIZURES AND (e) persons arriving from foreign
ARRESTS (SEC. 2203, TCC) countries.
1) officials of the BOC,
district collectors, Note: Burden of proof in seizure or
police officers, forfeiture is on the claimant. (Sec. 2535,
agents, inspectors, TCC)
and guests of the
BOC; REQUIREMENTS FOR MANIFEST
2) officers of the Phil. A manifest in coastwise trade for
Navy and other cargo and passengers transported from
members of the AFP one place or port in the Philippines to
and national law another is required when one or both of
enforcement such places is a port of entry (Sec. 906,
agencies when TCC). Manifests are also required of
authorized by the vessel from a foreign port (Sec. 1005,
Commissioner of TCC).
Customs
3) officials of the BIR on IS MANIFEST REQUIRED ONLY FOR
all cases falling IMPORTED GOODS?
within the regular NO. Articles subject to seizure do
performances of their not have to be imported goods. Manifests
duties, when the are also required for articles found on
payment of internal vessels or aircraft engaged in coastwise
taxes are involved; trade. (Rigor vs. Rosales, GR No. L-
4) officers generally 33756, October 23, 1982)
empowered by law to
effect arrests and UNMANIFESTED CARGO IS SUBJECT TO
execute processes of FORFEITURE whether the act of
courts, when acting smuggling is established or not under the
under the direction principle of res ipsa loquitur. It is enough
of the Collector. that the cargo was unmanifested and that
there was no showing that payment of
REQUIREMENTS FOR CUSTOMS duties thereon had been made for it to be
FORFEITURE subject to forfeiture.
1. The wrongful making by the owner,
importer, exporter or consignee of SETTLEMENT OF FORFEITURE CASES
any declaration or affidavit, or the General Rule: Settlement of cases by
wrongful making or delivery by the payment of fine or redemption of
same persons of any invoice, letter or forfeited property is allowed.
paper - all touching on the
importation or exportation of Exceptions:
merchandise.; and

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1. the importation is absolutely 5) Filing any false or fraudulent claim

prohibited or for the payment of drawback or
2. the surrender of the property to refund of duties upon the exportation
the person offering to redeem of merchandise; or
would be contrary to law, or 6) Filing any affidavit, certificate or
3. when there is fraud. (Sec. 2307, other document to secure to himself
TCC) or others the payment of any
drawback, allowance or refund of
duties on the exportation of mdse.
greater than that legally due thereon.
(Sec. 3602, TCC)
ACQUITTAL IN CRIMINAL CHARGE NOT
RES JUDICATA IN SEIZURE OR
FORFEITURE PROCEEDINGS VI. COURT OF
Reasons: TAX APPEALS
1) Criminal proceedings are actions in
personam while seizure or forfeiture (RA 1125 as amended
proceedings are actions in rem. by RA 9282)
2) Customs compromise does not
extinguish criminal liability. (People
vs. Desiderio, GR No. L-208005,  See ANNEX O for comparison of CTA
November 26, 1965) as created by RA No. 1125 and the
amendments made by RA No. 9282.
Note: At any time prior to the sale, the
delinquent importer may settle his
obligations with the Bureau of Customs, NATURE AND POWERS
in which case the aforesaid articles may
be delivered upon payment of the ELEVATION OF RANK
corresponding duties and taxes and shall be of the same level as the
compliance with all other legal Court of Appeals, possessing all the
requirements (Sec. 1508, TCC) inherent powers of a Court of Justice
ABATEMENT COMPOSITION
The reduction or non-imposition of • Consists of a Presiding Justice and
customs duties on certain imported five (5) Associate Justices
materials as a result of:
• May sit en banc or in two (2)
1) Damage incurred during voyage;
Divisions, each Division consisting of
2) Deficiency in contents packages
three (3) Justices. The Presiding
3) Loss or destruction of articles
Justice and the most Senior Associate
after arrival
Justice shall serve as chairmen of the
4) Death or injury of animals
two divisions
FRAUDULENT PRACTICES CONSIDERED
QUORUM
AS CRIMINAL OFFENSES AGAINST
CUSTOMS REVENUE LAWS • Four (4) Justices shall constitute a
1) Unlawful importation; quorum for sessions EN BANC.
2) Entry of imported or exported article • Two (2) Justices for sessions of a
by means of any false or fraudulent DIVISION.
practices, invoice, declaration, PROVIDED: in case the required quorum
affidavit, or other documents; cannot be had due to any vacancy,
3) Entry of goods at less than their true disqualification, inhibition, disability, or
weights or measures or upon a any other lawful cause, the Presiding
classification as to quality or value; Justice shall designate any Justice of
4) Payment of less than the amount due; other Divisions of the Court to sit
temporarily therein.

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(a) Decisions of the

POWERS Commissioner of Internal
1. to administer oaths; Revenue
2. to receive evidence; 1. in cases involving
3. to summon witnesses by disputed assessments,
subpoena; refunds of internal revenue
4. to require production or papers taxes, fees or other charges,
or documents by subpoena duces penalties in relation thereto,
tecum; 2. or other matters arising
5. to punish contempt; under the NIRC or other laws
6. to promulgate rules and administered by the BIR;
regulations for the conduct of its (b) Inaction by the
business; Commissioner of Internal
7. to assess damage against Revenue
appellant if appeal to CTA is 1. in cases involving
found to be frivolous or dilatory; disputed assessments,
8. to suspend the collection of the refunds of internal revenue
tax pending appeal; and taxes, fees or other charges,
9. to render decisions on cases penalties in relation thereto,
brought before it 2. or other matters arising
10. to issue order authorizing under the NIRC or other laws
distraint of personal property and administered by the BIR,
levy of real property where the NIRC provides a
specific period for action, in
DISTRAINT OF PERSONAL PROPERTY which case the inaction shall
AND LEVY OF REAL PROPERTY be deemed a denial;
Upon the issuance of any ruling, (c) Decisions, orders or
order or decision by the CTA favorable to resolutions of the RTC
the national government, the CTA shall – in local tax cases originally
issue an order authorizing the BIR, decided or resolved by them in
through the Commissioner: the exercise of their original or
appellate jurisdiction;
1. to seize and distraint any goods, (d) Decisions of the
chattels, or effects and the personal Commissioner of Customs
property, including stocks and other 1. in cases involving liability for
securities, debts, credits, bank customs duties, fees or other
accounts, and interests in and rights money charges, seizure,
to personal property and/or detention or release of
2. levy the real property of such persons property affected, fines,
in sufficient quantity to satisfy the forfeitures or other penalties
tax or charge together with any in relation thereto,
increment thereto incident to 2. or other matters arising
delinquency. under the Customs Law or
other laws administered by
This remedy shall not be exclusive the Bureau of Customs;
and shall not preclude the Court from
availing of other means under the Rules
(e) Decisions of the
Central Board of Assessment
of Court.
Appeals
– in the exercise of its appellate
JURISDICTION jurisdiction over cases involving
the assessment and taxation of
I. EXCLUSIVE APPELLATE JURISDICTION real property originally decided
TO REVIEW BY APPEAL by the provincial or city board of
assessment appeals;

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(f) Decisions of the same proceeding by the CTA, the

Secretary of Finance filing of the criminal action being
– on customs cases elevated to deemed to necessarily carry with
him automatically for review it the filing of the civil action,
from decisions of the and no right to reserve the filing
Commissioner of Customs which of such civil action separately
are adverse to the Government from the criminal action will be
under Section 2315 of the Tariff recognized.
and Customs Code;
(g) Decisions of the (b) Exclusive appellate jurisdiction in
Secretary of Trade and criminal offenses
Industry in the case of • Over appeals from the
nonagricultural product, judgments, resolutions or orders
commodity or article, and the of the RTC in tax cases originally
Secretary of Agriculture in the decided by them, in their
case of agricultural product, respective territorial jurisdiction.
commodity or article, • Over petitions for review of the
– involving dumping and judgments, resolutions, or orders
countervailing duties under Secs. of the RTC in the exercise of
301and 302, respectively, of the their appellate jurisdiction over
Tariff and Customs Code, and tax cases originally decided by
safeguard measures under RA No, the Metropolitan Trial Courts,
8800, where either party may Municipal Trial Courts, and
appeal the decision to impose or Municipal Circuit Trial Courts in
not to impose said duties. their respective jurisdiction.
II. JURISDICTION OVER CASES III. JURISDICTION OVER TAX

INVOLVING CRIMINAL CASES COLLECTION CASES
(a) Exclusive original jurisdiction in
(a) Exclusive original jurisdiction tax collection cases involving
over all criminal cases arising from final and executory assessments
violations of the NIRC or Tariff and for taxes, fees, charges and
Customs Code and other laws penalties.
administered by the BIR or the • In collection cases where the
Bureau of Customs principal amount of taxes and
• Provided however, where the fees, exclusive of charges and
principal amount of taxes and penalties, claimed is less than
fees, exclusive of charges and one million pesos (P 1, 000, 000.
penalties claimed is less than one 00) – shall be tried by the proper
million pesos (P1, 000, 000. 00) Municipal Trial Court,
or where there is no specified Metropolitan Trial Court, and
amount claimed - the offenses Regional Trial Court.
or penalties shall be tried by the
regular courts and the (b) Exclusive appellate jurisdiction
jurisdiction of the CTA shall be in tax collection cases
appellate. • Over appeals from the
• Any provision of law or the Rules judgments, resolutions or orders
of Court to the contrary of RTC in tax collection cases
notwithstanding, the criminal originally decided by them, in
action and the corresponding their respective territorial
civil action for the recovery of jurisdiction.
civil liability for taxes and • Over petitions for review of the
penalties shall at all times be judgements, resolutions or orders
simultaneously instituted with, of the RTC in the exercise of
and jointly determined in the their appellate jurisdiction over

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tax collection cases originally • decisions or rulings of the

decided by the Metropolitan Trial Central Board of Assessments
Courts, Municipal Trial Courts Appeals and the Regional Trial
and Municipal Circuit Trial Courts in the exercise of its
Courts, in their respective appellate jurisdiction
jurisdiction. • this appeal shall be heard
by the CTA en banc.
 In criminal and collection cases, the
Government may directly file the said Procedure
cases with the CTA covering amounts A. Any party adversely affected by a
within its exclusive and original ruling, order or decision of a Division
jurisdiction. of the CTA may file a motion for
reconsideration or new trial before
 See ANNEX P – Comparative Diagrams the same Division within 15 days from
on CTA jurisdiction. notice
“Other Matters” B. Any party adversely affected by a

Those controversies which can be resolution of a Division of the CTA on
considered within the scope of the a motion for reconsideration or new
function of the BIR / BOC under ejusdem trial may file a petition for review
generis rule (e.g. action for the nullity of with the CTA en banc.
distraint and levy; questioning the
propriety of the assessment; collection of C. Any party adversely affected by a
compromise penalties). decision or ruling of the CTA en banc
may file with the Supreme Court a
verified petition for review on
APPEAL certiorari pursuant to Rule 45 of the
1997 Rules on Civil Procedure.
When
Within 30 days after the receipt of Thirty (30) day Prescriptive Period for
such decision or ruling or after the Appeal
expiration of the period fixed by law for Starts to run from the date the
action. taxpayer receives the appealable
decision. If the taxpayer’s request for
Modes of Appeal reconsideration (i.e., the protest is
(1) By filing a petition for review under a denied or the original assessment is
procedure analogous to that provided maintained, the appealable decision is
for under Rule 42 of 1997 Rules on the decision denying the request for
Civil Procedure reconsideration.
• decision, ruling, or The said period is jurisdictional and
inaction of the Commissioner of non-extendible. Requests or motions for
Internal Revenue, Commissioner reconsideration, however, operate to
of Customs, the Secretary of suspend the running of the period to
Finance, the Secretary of Trade appeal. A pro forma request for
and Industry or the Secretary of reconsideration or one which is directed
Agriculture or the Regional Trial to the Secretary of Finance does not
Courts suspend the running of the 30-day
• this appeal shall be heard reglementary period.
by a Division of the CTA
(2) By filing a petition for review under a Only A Final Decision Is Appealable To
procedure analogous to that provided The Court Of Tax Appeals
for under Rule 43 of 1997 Rules on
Civil Procedure

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• Preliminary collection letters, post revenue taxes and custom duties only
reporting notices and pre-assessment when there was a –
notices are not appealable, because c) showing that collection of the tax
they are not the final decision of the may jeopardize the interest of the
Commissioner. government and / or the taxpayer;
• An assessment can be appealed if d) deposit of the amount claimed or
taxpayer does not seek a file a surety bond for not more
reconsideration. than double the amount of tax with
• At times there is an exchange of the Court when required; and
communications between taxpayer e) showing by taxpayer that appeal is
and Commissioner states that his not frivolous nor dilatory.
action is final, then, period for appeal
begins to run. Can The CTA Enjoin Collection of Taxes?
• Commissioner must state that his
decision is final, for period of appeal • Sec. 11 of RA No. 1125 as amended
to run. by Sec. 9 of RA No. 9282 grants CTA
• Final decision cannot be implied from power to suspend collection of tax if
issuance of warrant of distraint and such collection works to serious
levy, unless it is issued after a prejudice of either taxpayer or
request for reconsideration. government.
GENERAL RULE: New issues cannot be • However, Sec. 218 of the Tax Code
raised for the first time on appeal. provides no court may grant
injunction to restrain collection of
EXCEPTIONS: any tax, fee or charge imposed by
a. Defense of prescription Tax Code.
Reason: This is a statutory right. • The provision in Tax Code refers to
(Visayan Land Transportation vs. courts other than the CTA. (Blaquera
Collector) vs. Rodriguez, GR No. L-11295,
b. Errors of administrative officials March 29, 1958)
Reason: State can never be in • Appeal to the CTA does not
estoppel and lifeblood theory. automatically suspend collection
(Commissioner vs. Procter and unless CTA issues suspension order at
Gamble Phils. Mfg. Corp, GR No. any stage of proceedings.
66838, April 15, 1988)
Simultaneous filing of an application for
NOTE: However, this was reversed in refund or credit and institution of a
Supreme Court’s subsequent resolution case before the CTA allowed
wherein it was held that “in the absence
of explicit statutory provisions to the The law fixes the same period of
contrary, the Government must follow two (2) years for filing a claim for refund
the same rules of procedure which bind with the Commissioner and for filing a
private parties.” (Commissioner vs. case with the CTA. The two-year period
Procter and Gamble, GR No. 66838, for both starts from the date after the
December 2, 1991, Resolution) payment of the tax or penalty, or from
the approval of the application for credit.
Tax collection Not Suspended during
Appeal Observation: If we are not going to allow
the taxpayer to file a refund before the
General Rule: No appeal taken to the CTA and let him wait for the CIR’s
CTA shall suspend the payment, levy or decision, and the latter failed to render a
distraint, and/or sale of any property of decision within the 2-year period, the
the taxpayer. said taxpayer can no longer file a refund
before the CTA because his right to
Exception: The CTA is empowered to appeal has prescribed.
suspend the collection of internal

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Weight of Decision of CTA 3. Exportation (in the course of

trade or business only)
• Decisions of Tax Court have 4. Importation (whether or not in
persuasive effect and may serve as the course of trade or business)
judicial guides. They have more
persuasive value than BIR Rulings. PERSONS LIABLE FOR VAT
• CTA’s findings of fact are entitled to Any person who, in the course of
the highest respect. (Raymundo vs. trade or business, sells barters,
de Joya, GR No. L-27733, December exchanges, leases goods or properties,
3, 1980) renders services, and any person who
• The Supreme Court will not set aside imports goods shall be subject to the
value-added tax (VAT) imposed in
conclusions reached by Tax Court
Sections 106 to 108 of the National
which by the very nature of its
Internal Revenue Code.
function, is dedicated exclusively to
the consideration of tax problems
“IN THE COURSE OF TRADE OR
and has developed an expertise on
BUSINESS”
the subject, unless there has been an
The regular conduct or pursuit of a
abuse or an improvident exercise of
commercial or an economic activity,
authority on its part. (Commissioner
including transactions incidental thereto,
vs. Court of Appeals & Atlas
by any person regardless of whether or
Consolidated, GR No. 86785,
not the person engaged therein is a non-
November 21, 1991)
stock, nonprofit private organization
(irrespective of the disposition of its net
VII.VALUE–ADDED TAX income and whether or not it sells
(VAT) exclusively to members or their guests),
or government entity.
TITLE IV OF NIRC
Therefore if the disposition of goods
DEFINITION: The value-added tax is an or services is NOT in the course of trade
indirect tax and the amount of tax may or business then it is not subject to VAT;
be shifted or passed on to the buyer, with the exception of importation of
transferee or lessee of the goods, course.
properties or services. This rule shall The rule of regularity, to the
likewise apply to existing contracts of contrary notwithstanding, services as
sale or lease of goods, properties or defined in this Code rendered in the
services at the time of the effectivity of Philippines by non-resident foreign
Republic Act No. 7716. persons shall be considered as being
course of trade or business.
VAT replaced Sales Tax as imposed by
Importation is subject to VAT regardless
previous Tax Laws.
of whether or not it is in the course of
trade or business
HISTORY:
a. Executive Order No. 273 The reason for the rule is to protect
b. Republic Act No. 7716 our local or domestic goods or articles
c. Republic Act No. 8241 and to regulate the entry or introduction
d. Republic Act No. 8424 (took of foreign articles to our local market.
effect on 1 January 1998) Regulation is one of the purposes of
Taxation.
TRANSACTIONS COVERED BY VAT:
1. Sale of Commodities or Goods (in Tax Rates:
the course of trade or business 1. 10% - the rate used in sale of
only) commodities and goods, sale of
2. Sale of Services (in the course of services, and importation.
trade or business only) 2. Zero-rated (0%) - the rate used in
exportation.

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However, in exempt transactions, tax

credit is not available.
MANNER OF COMPUTING THE VAT:
A. 10% rate of Tax
EXEMPT TRANSACTIONS (SECTION 109):
1. In sale of commodities and goods, 1. In Section 109(a) and (c), food and
10% is multiplied with the Gross non-food products are VAT-exempt
Selling Price. as long as these products are in its
2. In sale of services, 10% is multiplied original state. The simple process of
with the Gross Receipts. preparation or preservation for the
3. In importation, 10% is multiplied with market such as freezing, drying,
the rates used by the Bureau of salting, broiling, roasting, smoking,
Customs in imposing tariff and or stripping does not remove the
customs duties plus customs duties, product from its category of being in
excise taxes, if any, and other its original state.
charges, such tax to be paid by the • However, even if the products were
importer prior to the release of such no longer in its original state, it can
goods from customs custody: still be VAT-exempt under Section
Provided, That where the customs 109(r), if sold by agricultural
duties are determined on the basis of cooperatives duly registered by
the quantity or volume of the goods, Cooperative Development Authority.
the value-added tax shall be based on 2. Under Section 109(m), private
the landed cost plus excise taxes, If educational institutions are exempt
any. customs duties. from VAT if duly accredited by the
DECS or by the CHED. In case of
B. Zero-rated (0%) rate of tax government educational institution,
no accreditation is required.
1. Export Sales as provided in Section
106(A)(2)(a) 3. Transactions in the field of Arts are
2. Foreign Currency Denominated Sale VAT-exempt only, as provided in
as provided in Section 106 (A)(2)(b) Section 109(n), if the seller is the
3. Sale to persons or entities which is artist himself or the artist’s services
VAT exempt under special laws or performed for the production of such
international agreements to which works.
the Philippines is a signatory as
provided in Section 106 (A)(2)(c) 4. Section 109(p) makes Regional or
4. Transactions subject to zero-rated Area Headquarters exempt from VAT.
(0%) as provided in Section 108(B)
5. Under Section 109(w) in order for the
REGISTRATION UNDER THE VAT SYSTEM sale or lease of real property to be
(SECTION 236 OF THE NIRC) exempted from VAT, the transaction
must NOT be conducted in the
General Rule: Failure to register is ordinary course of trade or business.
subject to temporary closure of the It complements Section 106(A)(1)(a)
establishment for 5 days as provided in where it states that in order for the
Section 115(b). sale or lease of real property to be
covered by VAT, it must be made in
Exception: It does not apply to an the ordinary course of trade or
exporter who fails to register. The effect business.
is, instead of treating the transaction as
zero-rated (0%), it is treated as an 6. Revenue Regulations No. 6-97 adds a
exempt transaction. requirement in order for the lease of
residential units with a monthly
What is the difference? In zero-rated rental of not more than P8,000.00, as
(0%) transactions, tax credit is available. provided in Section 109(x), to be VAT
exempt, that the annual gross

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receipts must not exceed How to determine the VAT: The tax
P550,000.00. shall be computed by multiplying the
total amount indicated in the invoice by
7. Section 109(z) provides that the sale one-eleventh (1/11).
or lease of goods or performances of
services other than those mentioned Example: the total amount indicated in
in the preceding paragraphs are VAT the invoice is P110. P110/11 = P10. P10 is
exempt if the Gross Annual Receipts the amount of VAT.
do not exceed P550,000.00.
However, the limitation of TAX CREDIT AND REFUND
P550,000.00 does apply for those
transactions from Section 109(a) to Formula for Tax Credit:
(y), except (x) because Revenue Output
Regulations No. 6-97 imposes a Less: Input
P550,000.00 limitation. VAT due.
• In cases of tax-free importation of • If Input is greater than Output,

goods into the Philippines by persons, Tax Credit is available.
entities or agencies exempt from tax
where such goods are subsequently
sold, transferred or exchanged in the "INPUT TAX" means the value-added tax
Philippines to non-exempt persons or due from or paid by a VAT-registered
entities, the purchasers, transferees person in the course of his trade or
or recipients shall be considered the business on importation of goods or local
importers thereof, who shall be liable purchase of goods or services, including
for any internal revenue tax on such lease or use of property, from a VAT-
importation. The tax due on such registered person. It shall also include the
importation shall constitute a lien on transitional input tax determined in
the goods superior to all charges or accordance with Section 111 of the NIRC.
liens on the goods, irrespective of the
possessor thereof. "OUTPUT TAX" means the value-added
tax due on the sale or lease of taxable
TRANSACTIONS DEEMED SALE: goods or properties or services by any
person registered or required to register
The following transactions shall be under Section 236 of the NIRC.
deemed sale therefore making them
covered by VAT: • If at the end of any taxable quarter
the output tax exceeds the input tax,
(1) Transfer, use or consumption not in the excess shall be paid by the VAT-
the course of business of goods or registered person. If the input tax
properties originally intended for sale or exceeds the output tax, the excess
for use in the course of business; shall be carried over to the
(2) Distribution or transfer to: succeeding quarter or quarters. Any
(a) Shareholders or investors as input tax attributable to the
share in the profits of the VAT-registered purchase of capital goods or to zero-
persons; or rated sales by a VAT-registered
(b) Creditors in payment of debt; person may at his option be refunded
(3) Consignment of goods if actual sale is or credited against other internal
not made within sixty (60) days following revenue taxes, subject to the
the date such goods were consigned; and provisions of Section 112.
(4) Retirement from or cessation of
business, with respect to inventories of
taxable goods existing as of such OPTIONS OF A TAXPAYER AS PROVIDED
retirement or cessation. IN SECTION 112:
1. to claim for tax credit; or
2. to claim for refund

Jhundee
Guillermo
1
within 25 days following the close of each

The claim, which must be in writing, taxable quarter prescribed for each
for both cases, must be filed within 2 taxpayer: Provided, however, That VAT-
years after the close of the taxable registered persons shall pay the value-
quarter when the sales were made for: a) added tax on a monthly basis.
the issuance of a tax credit certificate; b)
refund of creditable input tax due or paid Any person, whose registration has
attributable to such sales. been cancelled in accordance with
Section 236, shall file a return and pay
HOW TO DETERMINE CREDITABLE INPUT the tax due thereon within 25 days from
TAX the date of cancellation of registration:
The sum of the excess input tax Provided, That only one consolidated
carried over from the preceding month or return shall be filed by the taxpayer for
quarter and the input tax creditable to a his principal place of business or head
VAT-registered person during the taxable office and all branches.
month or quarter shall be reduced
reduced by the amount of claim for

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

in the foregoing paragraph shall include
not only those filed with the Bureau of
Internal Revenue but also those filed with
other government agencies, such as the
Board of Investments or the Bureau of
Customs.
The Commissioner within 120 days, in

proper cases, from the date of submission
of complete documents in support of the
application shall grant a refund or issue
the tax credit certificate for creditable
input taxes.
Remedy in case of full, or partial

denial, or failure on the part of the
Commissioner to act upon the application
for tax credit or refund: the taxpayer
affected may, within thirty (30) days
from the receipt of the decision denying
the claim or after the expiration of the
one hundred twenty day-period, appeal
the decision or the unacted claim with
the Court of Tax Appeals.
RETURN AND PAYMENT OF VAT
Every person liable to pay the value-

added tax shall file a quarterly return of
the amount of his gross sales or receipts

Jhundee
Guillermo

Taxation Law 2011

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San Beda College of Law

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Exception: Stockholders may be held a. General Tax – levied for the

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

COMPENSATION OR SET-OFF Enforced Sanction imposed as

All embracing term A kind of tax

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

persons for the 1. Flexible Tariff Clause: Authority of

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

As a matter of public policy, property

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

because it is an exclusion from the

B. CONSTITUTIONAL LIMITATIONS 5. Non-Impairment Of Contracts (Art.

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

No law impairing the obligation of 1. Non-Imprisonment For Debt Or Non-

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

The present Constitution required Contributions. (Art. XIV, Sec. 4(3)

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

f. covering the same kind or • The donor’s tax imposed upon a

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

liberally in favor of the taxing C. Where the tax exemption grant is in

Q: May a tax exemption be revoked? 2.Government not estopped from

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

liabilities arising fees or charges the same may be

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,

RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT ASSESSMENT – a finding by the taxing

POWERS AND DUTIES OF THE BIR

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

amount of the tax is determined

4. The authority of the POWERS AND DUTIES OF THE COMMISSIONER

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE