INCOME TAX, TAX REMEDIES

INCOME TAX

Memorize

● S23 – sources within and without

● S32(a) – gross income
● S32 (b) – exclusions
● S30 – exempt corporations (last paragraph)
● S39(a) – meaning of ordinary asset as distinguished from capital asset
● Income Tax Situs
● Tax Base; Tax Rates

SYSTEMS/METHODS

● Tax Treatment
○ Schedular – individual TP (different); income tax treatment varies and depend on
the category of taxable income; provides for different tax treatment and rates;
categorizes income
○ Semi-schedular – may be subject to some uniform rules (NRATEB subject to
uniform rule – 25%)
○ Global – corporate TP (uniform); views indifferently a tax base; treats in common
all categories of taxable income (Corporate rate – 30%)
○ SFQ: How does Tax Code tax income of corporate TP? – corporate rate is
uniform (30%)
● Allowability of deductions
○ Net income taxation – method of taxation which allows deductions, as the tax
base is net income; applies to:
■ RC
■ NRC
■ RA
■ NRA-ETB
■ DC/RFC
○ Gross Income taxation – does not allow deduction, as the tax base is gross
income (entire income); applies to:
■ NRA-NETB
■ NRFC
○ NR Singaporean spent more than 180d in PH; there is a vacation in between (not
continuous) – only requires aggregate period of more than 180 days stay; does
not require continuous and uninterrupted stay; Singaporean is NRAETB
○ WON RFC or NRFC – RFC if there is continuity of commercial dealings in PH
● Collection
○ In both systems, taxes are collected in advance by withholding
○ Final withholding tax system – “final” means that such tax withheld constitutes a
final or complete settlement of tax liability on those items of income; considered
as passive investment income’ “passive” means that income need not report
such income in ITR, you just simply receive such; these are subject to FWT: RP
WIDS FB
■ Royalties
 ■ Prizes – subject to FWT if more than P10k; subject to graduated income
tax rates if not more than P10k
■ Winnings – subject to FWT; PCSO and lotto winnings are exempt only up
to P10k (if more than 10k – subject to FWT)
■ Interest income
■ Dividend income – subject to FWT if received by individual or from DC;
exempt if received from DC by another DC or RFC
■ Share of partner of net taxable income of business/taxable
partnership/joint venture – source must be business or taxable
partnership; if source is GPP, subject to graduated income tax, not
subject to FWT
■ Fringe Benefits
■ Branch profit remittance tax
○ Creditable withholding tax system – tax withheld are intended to approximate the
tax due; TW may be credited against the income tax due; income must be
reported in ITR (not final settlement - TP may still be required to pay difference
between tax withheld and tax due)
■ Senior Citizens’ 20% discount; is this tax credit or tax deduction? – TAX
DEDUCTION; deduction from gross income
■ Tax credit – taxes withheld are credited against the income tax due
(taxable income*tax rate)
■ Tax deduction – may be deducted from gross income; one of allowable
deductions

Income Tax Situs

● We have adopted a Comprehensive income tax situs – we consider the residence of TP,
citizenship, location where income is derived (RPN)
○ Residence – Resident citizens, Resident aliens, RFC
○ Place/Location where income is derived – NRETB, NRANETB, NRFC (only tax
from sources within)
○ Nationality/Citizenship – citizens of PH, domestic corporations

Tax Base

● Basis of TP’s taxable income – computed on basis of TP’s Annual accounting period
● Calendar year period -
● Fiscal year period – accounting period of 12 months beginning on Jan 1 and ending on
Dec 31
● Individual TPs are only allowed to adopt calendar year period
● Corporate TPs can adopt calendar/fiscal year period
● Individual TPs – tax rates are progressive (0 to 35%); income increases as tax increases
● Corporate TPs – uniform (30%)

Tests of taxability: CRABS

● Claim of right doctrine

○ Provides that Illegal profit is subject to tax
○ Sec. 32(a) – gross income includes income derived from whatever source
● Realization test – Apply to sales or exchanges of property; 2 conditions:
○ Earning process must be complete
 ○ Exchange must have taken place
● All events test – Taxable when there is right to receive income; requisites: USA
○ Unconditional, valid, and enforceable
○ Susceptible of accurate estimate
○ Amount shall be paid in due course
● Benefit/Control
○ Taxable if recipient has free disposal of amount
○ Exception to the rule that there is obligation to return of whatever has been paid
by mistake
● Severance test
○ Separation of capital from something of exchangeable value – result to taxable
income
○ Example: separation of interest from deposit

SOURCES OF INCOME – ANY OTHER SOURCE (RTC LIM)

❖ Requisites of income/gain
➢ Gain or profit
➢ Gain is Realized
➢ Amount is not excluded by Tax Code or law
❖ Included in Gross Income
❖ Compensation for services
❖ Income from business
❖ Gains from dealing in property
❖ Interest
❖ Rents
❖ Royalties
❖ Dividends
❖ Annuities
❖ Prizes and winnings
❖ Pensions
❖ Partner’s distributive share of gross income of general professional partnership
❖ “derived from whatever source”
● Recovery of bad debt
○ Bad debt - debt which had become worthless (if during the year from which a
deduction is sought, a situation developed; as a result of which, there remained
no practical prospect that the debt would ever be paid)
○ S34(e): bad debt is an allowable deduction from gross income
○ When recovered, BD shall be included in gross income
○ Tax Benefit rule
■ Previous taxable year - TP enjoyed a tax benefit when BDs were written
off as deduction (TB: reduction of net taxable income, presupposes that
there was net taxable income)
■ Subsequent taxable year - TP recovers the bad debts; he is required to
declare as taxable income the amount of tax benefit enjoyed
○ Example:
 ■ 2020 - there was net loss of 150k; BD claimed as deduction is 20k; total
net loss is 170k;
■ 2021 - 20k subsequently recovered; it did not result in tax benefit (there
was no net taxable income in the previous year that can be reduced);
hence, 20k subsequently recovered is not taxable
● Tax refund
○ S34(e): considered as part of gross income from year of receipt
○ Tax benefit rule – applies
○ Taxable income if tax refunded is a deductible tax
○ SIDE – if subsequently refunded, their refund does not amount to taxable income
because they do not reduce taxable income in previous year
■ Special assessment tax
■ Income tax
■ Donor’s tax
■ Estate tax
● Cancellation of indebtedness
○ It may amount to taxable compensation income – if creditor is employer and
debtor is employee (employer condones obligation by way of payment of
services rendered by employee); compensation income may include those paid
in kind
○ It may result to taxable donation subject to donor’s tax – condone obligation with
generosity as consideration
○ It may result to taxable capital transaction – creditor may be a corporation;
stockholder is debtor; when corporation condones, SH receives an indirect
dividend, and this is taxable
● Lost profit
○ GR: Damages are not taxable
○ Damages awarded representing lost earnings – taxable because had it not been
for that accident, TP would have earned such profit/income
● Illegal gains
○ Claim of right doctrine
● Mistake (payment by mistake)
○ Exception to the rule that payment by mistake is not taxable because there is
obligation to return it

NO INCOME/GAIN (PALMS)

● Proceeds of life insurance

○ Just an indemnification for loss of life; no gain/profit realized
● Amount received as a return of premium
○ These are amount other than those paid by reason of death of insured
○ Just in the nature of return of capital
○ exempt only up to the amount of premiums paid
● Liquidating dividends
○ Excess after winding up period
○ In effect a return of investment
● Moral/exemplary damages
○ Moral damages – NOT taxable because there is really no flow of wealth; it is an
approximation of a person’s sufferings; there is no gain/profit
○ Exemplary damages – NOT taxable because it is a direct consequence of injury
Amounts of any damages received on account of injuries or sickness - exempt
 ● Stock dividend
○ S73(b): not taxable because it represents transfer of surplus to capital account; it
just amounts to increase of SH’s interest in the corporation, there is really no flow
of wealth
○ Redemption of shares of stock may or may not result in taxable dealing
■ If source is initial/original capital investment – not result in taxable income
■ EXP: If redeem during operation of corporation – result in taxable income
○ EXP: If recipient is usufructuary – taxable by way of exception
○ EXP: Disguised dividend – appear to be stock dividends; but are not because
they are declared in the absence of unrestricted retained earnings; increase
results to taxable dividend

EXCLUSIONS FROM GROSS INCOME

● Items of exclusion because there is really no income/gain
● Refer to: PALMS
● Items of exclusion representing subject to another internal revenue
● Gift/donation
○ Donation inter vivos – subject to donor’s tax
○ Donation mortis causa – subject to estate tax
○ If amount is received on account of services rendered - subject to
graduated income tax because Compensation income
❖ Items of exclusion because expressly exempt from income tax (There is really an
income/gain; but are excluded by express provision of law): GRAFTERS Others
● Gift/donation - refer to above
● Retirement benefit –
❖ If received under retirement plan: FORT
■ Fifty (5) years old at least
■ Once – can be availed of once
■ Applies only to private employees; If subsequent employer is
government, he will receive retirement benefit
■ Reasonable retirement benefit plan - in accordance therewith
■ Ten (10) years at least of service
❖ If received under existing CBA
❖ In absence of RBP or CBA
➢ 60-65 yrs old
➢ 5 years at least of service
❖ Retirement benefits from foreign government agencies - received by
citizens and resident aliens
● Awards/Prizes
○ in recognition of SCRA LEC: Scientific Charitable, Religious, Artistic,
Literary, Educational, Civic achievement
■ Recipient - no action to enter the contest
■ Recipient - not required to render substantial future services as a
condition to receiving the prize or award
○ for sports competitions
■ Sports competitions - sanctioned by their national sports
associations (have imprimatur of Philippine Olympic Committee)
■ Applies only to local and amateur athletes
 ● Foreign government/financial/regional institution
○ Income from loan extended by foreign government – tax exempt
● Thirteenth month pay – to the extent of P90k
○ Including other benefits, productivity incentives, and Christmas bonus
○ Lump sum limitation – add the 3 above
● Exchange/Sale/Retirement of bonds/indebtedness – with maturity of more than 5
years, gains realized therefrom
○ If interest on loan (gain not covered here) – subject to tax
● Redemption of shares – issued by a mutual fund company, gains realized by
investor therefrom
● Separation Pay
○ Separation is for causes beyond the control of employee/official
○ Terminal leave pay – Zialcita case: compulsory retirement is beyond the
control of the employee, hence all payments received as a result thereof
are exempt
● Others
○ Revenues of Nonstock, Non-profit Private Educational Institution (NNPEI)
used Actually, Directly, and Exclusively for educational purposes
○ Business profits of a foreign corporation from sources within the PH
○ Duly registered cooperatives
○ Income exempt under treaty - Pacta sunt servanda
○ SSS benefits
○ GSIS benefits
○ Income derived from any public utility
○ GSIS, SSS Medicare and PAG-IBIG Contributions

Exempt Corporations
❖ Requisites for exemption: NOON
➢ Non-Stock or Non-profit organization
➢ Operate exclusively for those non-profit purposes (CRACS)
➢ Organized exclusively for such purposes
➢ No part of its assets accrue to a specific person
❖ Enumerated:
○ GOCCs
■ GSIS
■ SSS
■ Philippine Health Insurance Corporation
■ Local water districts
■ Home Development Mutual Fund
○ PAGCOR
■ Exempt – income from gaming operations
■ Taxable – income from related operations
■ Exempt – Contractees/Licensees – exempt (S13b of PD 1869 so
provides)
○ Labor, agricultural or horticultural organization (not organized principally for
profit)
 ○ Mutual savings bank and cooperative bank (without capital stock, operated for
mutual purposes AND without profit)
○ Beneficiary society (operating for exclusive benefit of members)
○ Cemetery company (operating for exclusive benefit of members)
○ Non-stock corporation or association (operated exclusively for CRACS:
Charitable, Religious, Athletic, Cultural, Scientific purposes; AND no part of its
net income shall belong to any specific person)
○ Business league (not organized for profit AND no part of its net income shall
belong to any specific person)
○ Civic league or organization (operated exclusively for promotion of social welfare)
○ NNPEI
■ Conditions for exemption
● Institution must be proven as NNPEI
● Income must be Actual, Directly, and Exclusively used for
educational purposes
■ Requisites for incidental income from ancillary activities to be exempt:
WOO
● Operated within the premises of NNPEI
● Owned by NNPEI
● Operated by NNPEI
■ Requisites for Interest income on bank deposit to be exempt
● Certification from depository bank as to the amount of interest
income earned
● Certification of ADE utilization of said income for educational
purposes
● Board resolution regarding the use of interest income (which must
be used for construction or improvement of educational facilities)
○ Proprietary Non-profit Hospital (income is devoted to the charitable object AND
no money inures to the benefit of specific person)
○ Government educational institution
○ Farmers or other mutual typhoon or fire insurance company, or like organization
of a purely local character (income of which consists solely of dues collected
from members AND for sole purpose of meeting its expenses)
○ Farmers association (operated as a sales agent AND for purpose of marketing
the products of its members)

● Charitable Institutions v. NNPEI

○ CI - source of income determines exemption (allowed to engage in activities
conducted for profit, the only consequence is that its income will be:)
■ Exempt - if income is from non-profit activities
■ Taxable income - if income is derived from property OR from activities
conducted for profit
○ NNPEI - destination of income determines exemption
■ Exempt - as long as income is ADE devoted for educational purposes,
even if taxable income because of source
 ■ Taxable (10% preferential tax) - if income is not ADE devoted for
educational purposes; if gross income from unrelated trade does not
exceed 50% of total gross income derived from all sources
■ Taxable (30% RCIT) - if income is not ADE devoted for educational
purposes; if gross income from unrelated trade exceeds 50% of total
gross income derived from all sources
● YMCA – income from lease of real property by religious institution is taxable, regardless
of the disposition of such income
● St. Lukes Medical – SLM is not qualified as a charitable hospital because it did not
operate exclusively for charitable purposes; gained income from its patients amounting
to P180M; Hence taxable, despite the fact that the income is used for its charitable
wards; But it may avail of the 10% preferential rate
● Non-profit hospital conduct commercial activities - still a non-profit hospital; though not
exempt because to be exempt, it must OPERATE EXCLUSIVELY for charitable
purposes; But it may avail of the 10% preferential rate.
● De Las Salle – NNPEI; last paragraph of S30 does not apply to NNPEI (if applied, it
subjects NNPEI to taxable income, regardless of disposition of such income); exempt by
applying the exemption on Constitution (merely requires that income be ADE used for
educational purposes); Constitution also applies to exemption from RPT
● SFQ: UP derives income from bank deposit; is the interest income subject to 20% final
tax? - YES; here, last paragraph of S30 applies (taxable regardless of disposition made
of such income); BUT NO if CCB are present
● SFQ: La Salle income from sale of property - exempt as long as ADE used for
educational purposes; BUT if seller is government educational institution, last paragraph
of S30 applies (taxable regardless of disposition made of such income)

Individual TP rules Corporate TP rules Common Rules

● Compensation income ● Minimum Corporate ● Classification of Asset

● Fringe benefit Income Tax
● Interest income from ● Improperly
long-term deposit Accumulated
● Partners’ share in Earnings Tax
GPP ● Branch Profit
● Holding period rule Remittance Tax
● Net Capital Loss ● Tax sparing credit rule
Carry Over ● Offline International
Airline
● International Carriers
● Offshore/Multinational
companies
● Capital loss limitation
Rules
● Sale of Shares of
Stock
● Passive Income (final
tax)
● Allowable deductions
● Tax benefit rule
● Tax situs
 ● Exempt Corporations

Compensation Income

● Test – presence of Er-Ee relationship (Er is creditor, Ee is employee)

● Condonation of obligation – made in consideration of services rendered
● Life insurance premiums – Er obtained life insurance policy for employee; payment is
made in consideration of services rendered by employee
○ If over the life of manager – subject to Fringe Benefit Tax
○ If over rank and file employee – taxable as compensation income

Fringe Benefit

● Basis – grossed up monetary value

● Tax rate – 35% final tax
● Exempt fringe benefits: TEAM
○ Temporary house – employee stays therein for at least 3 months
○ Employer’s premises – inure to the benefit of employer; for convenience of
employer
○ Adjacent Housing Unit – within 50 meters from employer’s premises
○ Military Housing Unit
● Exempt De Minimis Benefits (11)
○ of small amount
○ Purposes - CHEG: Contentment, Health, Efficiency, Goodwill of employee
● Common De Minimis Benefits: MR PUG C
○ Medical – not exceed 10k/year; 250/month
○ Rice subsidy – 2k/month
○ Private employee – 10day vacation leave credit
○ Uniform benefit – 6k/year
○ Government employee – irrespective of number of days; vacation/sick leave
credit
○ Christmas gift - exempt as de minimis benefit up to 5k a year

Interest income from long-term deposit: FIBA

● Five years - long term in a sense that has maturity period of at least 5 years
● Individual - recipient (not a corporation); not all individual may be covered (NRNETB -
cannot avail of such exemption)
● Bank - depository must be a bank
● Account - investment account, trust account, time or savings account
● If FIBA is met - exempt from tax

Partners’ share in GPP

● GPP - exempt from corporate income tax

● Each professional partner - share in net income is subject to profressive rates of 0-35%
● In case of partner’s share in net income of Taxable Business partnership - subject to
final tax; need not be reported in gross income of partner
Holding period rule

● Only applies to individual TPs

● Capital Asset (not RP) Held for more than 12 mos - Capital Gain is 50%
recognized/taxable
● Capital Asset (not RP) Held for 12 mos or less - CG is 100% recognized/taxable
● Possible tax avoidance scheme - not selling capital asset within 12month period;
because within such period, taxable gain is 100%

Net Capital Loss Carry Over

● S39(D) - EXP to the rule that you cannot carry over an expense; Here, Net Capital Loss
will be carried over as a deduction in CG in the succeeding taxable year
● NCL - excess of capital loss over capital gain (to apply, CL must be more than CG)
● Limitation: Amount carried over must not be in excess of the net income in that particular
year
● Net income - 100k; NCL - 150k: only up to 100k may be carried over
● Net Operating Loss (NOLCO) - may apply to individual and corporate TP; may only be
carried over in succeeding taxable year
● NCLCO - may apply only to individual TP; may be carried over to 3 succeeding taxable
years

MCIT

● Tax Rate: 2%
● Basis: Gross income (unlike in RCIT: Net Taxable Income)
● Taxpayer: DC/RFC (not applicable to NRFC because purpose of the law is to prevent
prevalent practices of corporations in overclaiming deductions to reduce income tax
payments)
● Applicability: 4th taxable year from commencement of business operations, whenever it is
higher than RCIT (corporations are expected to incur losses in the initial years)
● Can substitute only the 30% RCIT; Cannot substitute special tax rates
● Creba v. Romulo – rationale is that DC owes their corporate existence to the
government; thus, it is fair for government to make reasonable contribution to the public
expenses

IAET

● Tax Rate: 10% (not a final tax)

● Basis: Amount of profit improperly accumulated
● Covered: DC that are close held corporations (at least 50% of OCS is owned by not
more than 20 individuals)
● Exempt: BPI
○ Banks/non-bank financial intermediaries
○ Publicly held corporations
○ Insurance companies
● Allowed accumulated earnings (not subject to IAET)
○ Below and up to 100% of paid up capital
○ in excess thereof, when used for reasonable needs of business
● Immediacy Test – “reasonableness needs of business” means the immediate need of
the business to accumulate earnings and profits; “immediate” means “reasonable”
Branch Profit Remittance Tax – BRPT

● Tax Rate: 15% (final tax)

● Basis: Profits applied/Earmarked for remittance (not only those actually remitted); by PH
branch to Foreign head office (outbound remittance)
● Exempt: PEZA registered enterprises
● Need not be reported because it is a final tax; completely settles tax liability
● If profits are coursed thru branch office – effectively connected with the conduct of
business; subject to BRPT
● In case of conflict, Tax treaty (imposing lower tax on remittance) prevails over NIRC

Tax Sparing Credit Rule

● Subject: dividend income (from a DC to a NRFC)

● Tax rate: 15% (final tax); need not be reported by NRFC
● Condition: Foreign government shall allow tax credit of the taxes paid by NRFC to the
PH government (credit against the tax claimed by foreign government)
○ If condition is not met - apply RCIT of 30%
○ To encourage foreign investment in PH (mababa na nga yung tax nyo,
makecredit nyo pa yung binayaran nyo rito against sa foreign tax nyo)
● Tax credit – there need not be proof of actual tax credit; what is important is that there is
a provision in the foreign revenue code allowing tax credit

RFCs SUBJECT TO PREFERENTIAL TAX RATES

International Carriers

● Onshore – must have landing rights in any PH port

● Tax Rate: 2.5%
● Basis: Gross Philippine Billings

Offline/Offshore international carriers

● Offline - No landing rights; treated as RFCs because it designated a permanent agent

here
● Tax Rate: 30%
● Basis: net taxable income

Offshore/Multinational Companies

● Offshore Banking Unit

○ Income from foreign currency transactions with residents - 10% final tax
○ Income from foreign currency transactions with residents - exempt
● Regional Operating Headquarters of Multinational Companies – 10% of net taxable
income

Classification of Asset (S39)

● 2 classifications
 ○ Ordinary Asset - 4 exclusive OA: SOUR
■ Stock in trade of the taxpayer
■ Primarily held for customers in the Ordinary course of trade or business
■ Depreciable asset Used for trade or business
■ Real property used for trade or business
○ Capital Asset - not among the 4 exclusive OA
● Capital Loss Limitation Rule: Capital loss is NOT deductible from ordinary gain - Only
business-connected expenses are deductible from gross income; capital loss is NOT a
business-connected expense, hence not deductible (Principle of matching of costs
against revenues)
● BUT Ordinary loss is deductible from capital gain - not prohibited in the law; ordinary
loss is a business-connected expense; hence deductible
● Substantial improvement test - if substantially improved land, and primarily held for sale;
convert capital asset into ordinary asset (Calasanz v. CIR)
● Business/ Continuity Test - ordinary asset converted into capital asset if business is not
continued by the heir (Tuason v. Lingad)
● S24(D) v. S27(D)

S24(D) - 6% CGT S27(D) - 6% CGT

● Individual as seller/TP ● DC as seller/TP

● Sale of Real property ● Sale of Lands/buildings (not used in
● Conditional/absolute sale business)
● Option of individual seller to apply 0- ○ Does not include machinery
35% or 6% (if buyer is government) (may be considered as RP; if
● Tax avoidance scheme is allowed: used in ordinary course of
NOTED business, it is ordinary asset -
○ New principal residence CGT applies only to capital
○ Once every 10 years - asset)
exemption availed of only ○ Absolute sale
○ Thirty days from date of sale - ● No option - only 6%
within such period, notify BIR ● Tax avoidance scheme is not allowed
regarding the intent of seller to
avail of tax exemption
○ Eighteen months from date of
sale - within such period,
utilize entire proceeds in the
construction of PR
○ Deposit of 6% CGT deposited
in escrow account - security for
compliance with the utilization
requirement

● Common provisions S24(D) and S27(D)

○ Basis of 6% CGT - higher amount between GSP and Zonal Value
○ Presumptive gain - the law considers that when a seller sells RP considered as
Capital Asset, he is presumed to have derived gain; hence subject to 6% CGT
(even if there is really a loss because seller incurred loss from sale)
● Capital Asset - exclusion
○ 6% applies to extrajudicial auction sale
 ■ presupposes that there is failure by mortgagor to redeem within the 1-yr
redemption period;
■ basis of 6% is the highest bidder’s price;
■ payment must be made within 30d from expiration of 1yr redemption
period
○ Sale of machineries and equipment; not used in business - not subject to 6%
CGT; subject to RCIT

Sale of Shares of Stock

● Not listed and traded thru local stock exchange - 15% of net capital gain
● Listed and traded thru local stock exchange - 6/10 of 1% of gross selling price

Passive Income

● Interest income (from bank deposit) - 20%

● Royalties - 20%
● Interest income (from foreign currency deposit unit); depositor is Resident TP - 15%
○ If depositor is non-resident TP - exempt

Allowable Deductions from Gross Income

● Itemized deductions (available to TPs engaged in business OR practice of profession in
PH)
○ Business/Professional expenses
■ must be ordinary or necessary; otherwise, it is a capital expenditure (not
deductible)
○ Interest
○ Taxes
○ Losses
● Optional standard deduction (available to TPs deriving income not subject to final tax) -
40%
○ Individual - Gross sales/receipts
○ Corporate - gross income
● Jurisprudence
○ Capital expenditure - cannot be deducted
○ All events test - accrual of expense requires:
■ Fixing liability to pay
■ Availability of reasonably accurate determination of such liability
○ Production test - expense must be incurred in production of such an income
■ Margin fee is not deductible because it is not incurred in production of
income; but is incurred after
■ Requisites: Expense must be BPI
● Business connected; ordinary and necessary
● Proof of business expenset - supported by adequate invoices or
receipts
● Incurred during taxable year - you cannot carry over an expense
Tax Situs
● Interest income - residence of debtor (taxable as long as resident of PH); even though
the transactions occurred abroad

TAX REMEDIES

Administrative Remedies of the Government

Assessment
● Assessment - requisites for validity
○ There must be written notice and demand seeking for final liability of TP in the
unpaid taxes which is fixed (if still requires computation, invalid assessment)
■ There must be clear indication of kind of tax assessed
○ Must state the law and facts upon which it is based (mandated by due process)
○ Must be duly served on TP; for him to answer it intelligently (Pascor v. Realty)
■ EXP to the presumption of regularity in performance of official function -
burden of proof is with BIR to prove that written notice and demand was
received by TP
● If invalid assessment - protest is proper
● Requisites of a valid assessment for purposes of RPT - must indicate: KAMLU
○ Kind of property
○ Assessed taxable value of property
○ (current) Market value
○ Level of assessment
○ (actual) Use - assessed on the basis thereof
● When assessment is made: MRS - when Mailed, Released, or Sent
● Methods used by government in making an assessment: NPC
○ Net worth method
○ Presumed gross sales method - made by BIR; if TP fails to file the requisite
books; no violation of due process because it can always be rebutted by TP;
based on Best evidence obtainable
○ Excess of Cash expenditure method - if TP has cash in the bank and incurred
expense, excess is the basis of assessment
○ Others:
■ Comparable sales approach method - considers the value of property and
market income that may be derived therefrom
■ Income approach method
■ Replacement cost method - considers the cost in replacing such property

Collection
● Suspension of prescriptive period
○ Interest of government or TP
 ■ Bond requirement - cash or surety bond; must not be double the amount
of property involved; subject to EXPs below
○ Waiver of Statute of Limitations
○ Request for Reinvestigation
● EXP to the rule that bond must be posted (may be dispensed with): UP
○ Unlawful method used in collection of tax
○ Prescription has set in
● May a collection be made
○ NIRC taxes - BIR is not required to rule on such assessment; collection may be
made by BIR by filing action for collection even if there is pending the protest on
assessment; collection can only be restrained by suspension order of CTA
● Collection of local tax
○ Absence of provision on no injunction rule (only found in NIRC) - local taxes may
be restrained by regular courts by a writ of injunction
○ Requisites for injunction
■ Right in esse
■ Violation of such right
■ Irreparable injury that will be sustained

Administrative Remedies for Collection

● Tax Lien - preferred over all other claims
○ NIRC: S219
○ LGC: S173
○ RPT: S257
● Distraint - personal property
○ NIRC: S207(A)
○ LGC: S175
○ (not available in RPT)
● Levy - real property; common provision on public auction
○ NIRC: S207(B)
○ LGC: S176
○ RPT: S258
Jurisprudence
● Maritime Shipping v. NLRC
● Tan v. Bantegui - allows delinquent TP to prevent public sale by paying interest, cost
and expenses; public sale is proceeding in personam; publication of notice is insufficient
Prescriptive Periods
Assessment
● NIRC:
○ 3 yrs; if no FFF (Fraudulent return; False return; Failure to file return)
■ If return was filed before the last day prescribed for the filing thereof -
within 3yrs from last day for filing
■ If return was filed beyond the last day - within 3yrs from actual filing
○ 10 yrs; if there is FFF - from discovery of omission, fraud, or falsity
 ● LGT:
○ Within 5 yrs from the date local taxes became due
○ Within 10 yrs from discovery of fraud or intent to evade payment (In case of fraud
or intent to evade)

Collection
● NIRC:
○ 3 yr; if no FFF - within 3 yrs from date of assessment
○ 10 yr OR 5 yr; if there is FFF
■ If no prior assessment - within 10 yrs from discovery of omission (to file
ITR)
■ If there is prior assessment - within 5 yrs from date of assessment
● LGT: within 5yrs from date of assessment
● RPT:
○ Within 5yrs from the date RPT become due
○ Within 10 yrs from discovery of fraud or intent to evade payment (In case of fraud
or intent to evade)
○ Grounds for suspension of prescriptive period for collection - refer to first 4 in
enumeration below

A and C - Grounds for suspension of prescriptive period for assessment and collection
● NIRC:
○ CIR is prohibited from making assessment OR beginning distraint and levy; for
60d (i.e. When a case is on appeal at CTA, CIR is prevented from filing an
ordinary action to collect tax in regular courts)
○ TP makes a Request for reinvestigation
○ TP is out of PH
○ TP cannot be located in the address given by him in the return
○ Waiver of statute of limitations
■ Must be in writing (No requirement for notarization)
■ Must be executed and accepted (no specific form) before the expiration to
assess/collect (or before lapse of period agreed upon)
■ Must be signed by TP himself or duly authorized representative (group
supervisor can sign waiver). In case of corporation, waiver must be
signed by any responsible official
■ Expiry date of period agreed upon to assess/collect tax after the regular 3
yr period of prescription should be indicated (no unli-waiver)
■ Waiver of prescriptive period to collect must indicate particular taxes
assessed; Waiver of prescriptive period to assess may simply state “all
internal revenue taxes”
■ Two material dates must appear on the waiver:
● Date of execution (date of acceptance not anymore required)
● Expiry date of the period the TP waives the statute of limitations
 ○ Interest of TP - No injunction rule (218) does not apply to CTA; CTA has authority
to suspend collection of tax
■ Bond requirement - cash or surety bond; must not be double the amount
of property involved
○ Warrant of distraint and levy is duly served upon TP; but no property could be
located
● LGT - refer to 1st four above

Judicial Remedies of Government

NIRC LGT RPT

● Civil Action ● Civil Action ● Civil Action

● Criminal Action

Prescriptive Period
● Civil action - (same as Prescriptive Periods in Administrative Remedies)
● Criminal Action
○ NIRC: S281 - 5 yrs from discovery AND institution of judicial proceedings for its
investigation and punishment/filing of case before prosecutor

Remedies of Taxpayer
● Protest
○ NIRC: S228 - within 30d from receipt of FAN
○ LGT: S195 - within 60d from receipt of such assessment, filed with the local
treasurer
○ RPT: S252, LGC - within 30d from payment of RPT
■ The requirement of “payment under protest” is a condition sine qua non
before a protest or an appeal questioning the correctness of an
assessment of real property tax may be entertained.
● Tax Refund
○ NIRC: S229 - within 2y from payment regardless of any supervening cause that
may arise after payment;
■ may not be suspended by any supervening cause; doctrine of
supervening cause is not applicable)
○ LGT: S196 - within 2y from date of payment OR from the date the TP is entitled
to a refund (when there is decision that TP is exempt);
■ may be suspended by any supervening cause; doctrine of supervening
cause is applicable
○ RPT: S253 - within 2y from the date the taxpayer is entitled to such reduction or
adjustment;
■ may be suspended by any supervening cause; doctrine of supervening
cause is applicable
● Compromise
 ○ S204, NIRC - grounds
■ reasonable doubt as to the validity of the claim against the taxpayer exists
(doubtful validity) - not less than 10% of assessed tax
■ financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax (financial incapacity) - not less than 10% of assessed tax
○ All criminal violations may be compromised EXCEPT:
■ (a) those already filed in court, or
■ (b) those involving fraud.

Protest (S228) and Refund (S229) - NIRC

Protest (S228) Refund (S229)

What to file ● Request for Written claim (there must be

reconsideration OR categorical demand for
● Request for refund)
reinvestigation

Who will file ● TP or ● TP or

● Authorized ● WHA (WHA is not
Representative only an agent of
government, but also
an agent of TP in filing
payment of tax)

Where to file ● CIR or CIR

● Duly Authorized
Representative (DAR)

When to file Within 30d from receipt of Within 2y from date of

FLD/FAN payment
● for corporate TP -
from filing of final
adjustment return
● Not suspended by
supervening cause;
(EXPs: Assurance OR
Agreement that the
refund will be granted

● S176 - Option to Carry Over:

○ When there is excess in quarterly corporate income tax, corporate TP carries that
onward
○ Option to carry over, NOT the claim for refund, is irrevocable
 ● S58(a) - application of 2yr period
○ “Whichever comes first” from filing date of final adjustment return and deadline

NIRC: REMEDIES PROCEDURE

● Self-assessment - TP files tax return
● Tax Audit - Revenue Officers examines the books of TP to determine correct tax
liability
● Notice of Informal Conference (NIC) - ROs inform TP of discrepancies in payment
● TP files position paper
● Assessment Division or CIR/Duly Authorized Representative issues PAN - if there is
sufficient basis to assess TP for deficiency taxes
○ TP should file a Reply - within 15 days from receipt of PAN; if he fails to file, no
liability arises, just proceed below
○ When PAN is not mandatory: MACEN
■ Mathematical error
■ Actually remitted tax, there is discrepancy with that of tax withheld
■ Claim for refund/tax credit and Carry over of same amount claimed
against estimated tax liabilities for succeeding taxable year
■ transfers to non-Exempt person
■ Notice of conference must be made within the 30d period
● AD or CIR/DAR issues FAN/DL

BEFORE PAYMENT

● TP should file a Protest - within 30 days from receipt of FAN/DL; if he fails to file, FAN
becomes final and executory
○ Unlike in Local Taxation, Assessed Income Tax need not be paid upon protest
(will not make business of TP illegal)
○ 2 forms of Protest
■ Request for reconsideration - based on existing records
■ Request for reinvestigation (TP shall submit supporting documents) -
within 60d from filing of letter of protest; based on newly discovered
evidence

● Final Decision on Disputed ● Final Decision on Disputed

Assessment - CIR/DAR denies protest
● 2 ways to proceed
○ CIR/DAR Denies: Without
intermediate appeal
■ Judicial Appeal to CTA
- within 30d from
receipt of FDDA
○ DAR denies: With intermediate
appeal (optional)
Assessment - CIR/DAR inaction
(within 180d from)
○ date of filing of protest, if
Request for Reconsideration
OR
○ date of submission by TP of
required documents, if
Request for Reinvestigation
● 2 ways to proceed
 ■ Administrative Appeal
with CIR (Request for
Reconsideration) -
within 30d from receipt
of FDDA
■ Decision on
Administrative Appeal
by CIR
■ Judicial Appeal to CTA
- within 30d from
receipt of FDDA (not
tolled by Administrative
Appeal with CIR)
○ DAR inaction:
■ Appeal to CTA - within
30d from lapse of 180d
period
○ CIR inaction: (mutually
exclusive)
■ Await for the FDDA of
CIR, and
■ Appeal to CTA - within
30d after receipt of
FDDA

● Motion for reconsideration with CTA Division - within 15d from CTA Division
(mandatory; not allowed before the CIR)
● Appeal to CTA En Banc - within 15d from receipt of CTA Div’s decision
● Appeal to SC - within 15d from receipt of CTA En Banc’s decision (optional)

AFTER PAYMENT

● TP pays the assessed tax - within 30d from receipt of FAN/DL

● TP files claim for refund or tax credit (ground: erroneously paid) - within 2 years from
date of payment

● Final Decision - CIR/DAR denies ● Final Decision - CIR/DAR inaction

claim (when 2 year period is about to expire,
● Appeal to CTA - within 30d from consider inaction as denial)
receipt of denial; but within 2 years ● Appeal to CTA - within 2 years from
from date of payment date of payment

LGT: REMEDIES PROCEDURE

BEFORE ASSESSMENT by Local Treasurer

● TP files Administrative Appeal with SOJ (Questioning constitutionality or legality of

tax ordinance) - within 30d from effectivity; appeal shall not suspend the effectivity of
ordinance
● Decision of SOJ - within 60d from receipt of appeal
○ Denying the appeal
■ Appeal to court of competent jurisdiction (CA) - within 30d from receipt
 of denial
○ Inaction
■ Appeal to CCJ (CA) - within 30d from lapse of 60d

AFTER ASSESSMENT by Local Treasurer

Proceed without payment (S195)
● TP files Protest (questioning validity
and correctness of assessment) -
within 60d from receipt of Notice of
Assessment
● Decision of LT- within 60d from filing
● TP appeals with CCJ (MTC/RTC; then
CA) - within 30d from receipt of denial
of protest OR from lapse of 60d
○ NIRC – TP has option to wait
for BIR decision, even beyond
180d period
○ LGT – TP has no option to
wait; required to go to CCJ
within 30d
Proceed with payment (S195 and 196)
● TP files a Letter-Protest/Claim for
Refund - within 60d from receipt of
NOA
● Decision of LT - within 60d from filing
● TP files an Action in court
(questioning validity and correctness
of assessment AND seeking refund) -
within 30d from receipt of denial of
protest OR from lapse of 60d
○ Depart from S196: TP cannot
seek a refund at any time
within the full period of 2 years
from the date of payment
(judicial action for refund must
be filed within 30d from receipt
of denial of or inaction of LT)

NO NOTICE OF ASSESSMENT by Local Treasurer; WITH PAYMENT (S196)

● TP files a written claim for refund duly supported by evidence of payment

(Administrative) - with LT
● Decision of LT
○ If denial - TP files a judicial claim for refund (Judicial)
○ If inaction, AND the 2y period is about to expire - consider the inaction as
denial; TP files judicial claim for refund
- Administrative and Judicial claims - both must be within 2y from date of payment OR
date the TP is entitled to a refund
RPT: REMEDIES PROCEDURE

● Local Treasurer makes Appraisal and Assessment of RP

Erroneous Assessment (administrative Illegal Assessment (judicial remedies) -

remedies) - disputing the correctness of the
amount assessed
● TP Pays under Protest - annotate on
the receipt the words “paid under
protest”
made without authority under the law
● TP files for an injunction before the
RTC - to enjoin the LGU from
collecting the RPT
● Decision of RTC
● TP files Protest - within 30d from ● TP appeals to CTA by way of Petition
payment of the tax to LT for Review (R43) - within 15d
○ Cases where protest may be (jurisdictional basis - complaint being
a local tax case decided by RTC)
dispensed with (MIA)
● Decision of the CTA
■ If there is payment by ● TP appeals to SC under Rule 45
mistake - may claim for
refund; could not be
expected to protest a
payment it honestly
believed to be true
■ Illegal assessment
(because TP is
exempt)
■ If there is issue as to
the authority of LGU to
make such assessment
● Decision of LT - within 60d from
receipt of protest
● TP appeals to Local Board of
Assessment Appeals (LBAA) - within
60d from receipt of the written Notice
of Assessment
● Decision by LBAA - within 120d from
the date of receipt of such appeal
● TP appeals to Central BAA (CBAA) -
within 30d from receipt of the decision
of LBAA
● Decision of CBAA - final and
executory
● TP appeals to CTA En Banc - within
30d from receipt of CBAA decision; by
R43
● Decision of CTA En Banc
● TP appeals to SC - by R45

- Appeals does not suspend the

collection
- Without prejudice to subsequent
adjustment depending upon the final
outcome of appeal

● Decision finding the assessment Illegal/Erroneous - Tax is accordingly reduced or

 adjusted
● TP file written claim for refund - with the local treasurer; within 2 years from the date
the taxpayer is entitled to such reduction or adjustment
● Decision of local assessor - within 60 days from receipt of written claim
● TP appeals to Local Board of Assessment Appeals (LBAA) - within 60 days from
receipt of the written notice of assessment; does not suspend the collection
● Decision by LBAA - within 120 days from the date of receipt of such appeal
● TP appeals to Central BAA (CBAA) - within 30 days from receipt of the decision of
LBAA
● Decision of CBAA - final and executory

Refund/Tax Credit (S112) - VAT Refund

● Written claim for Refund or Tax Credit
● 2yr period from close of taxable quarter where payment was made
● CIR - 90d to resolve
● 30d period (do not apply 2 year period anymore, unlike in NIRC)
● CTA Division
● 15d
● Motion for reconsideration
● 15d
● CTA En Banc
● 15d
● SC

Requisites of Filing for Tax Refund under S112: RICE (?????)

● Registered TP
● Input tax not applied against input tax
● Engaged in 0 rated or effectively 0 rated sales
○ Need not be decision on the merits if an action is filed in court; considered
appealable to CTA
○ Ruling of BIR commissioner may be appealed to CTA
○ Interlocutory order of CTA in Division may be appealed to CTA en banc under
R65
○ Interlocutory order of RTC involving taxes may be appealed to CTA en banc
under R65
○ Where to appeal the case involving BIR - Secretary of Justice (PD242); SoJ has
jurisdiction over controversies involving agencies of governments including
GOCCs (PD 242 is the recent law that must prevail over RA1125)