Tax-2

SY 2018-2019 404_Taxation 2 - KMA
DONOR’S TAXATION transfer of title of the property. However, for purposes of computation for the tax
liability, cumulative kay annual tax man.
Definition of Donor’s Tax 3. Ad valorem tax
Donor’s tax is a tax on a donation or gift and is imposed on the gratuitous transfer of property - Basis: FMV of property at the time of donation (FMV – price at which any seller will sell
between 2 or more persons who are living at the time of the transfer. and any buyer will buy, both willingly without any force or intimidation)
- Real property valuation: HIGHER of FMV (1) as determined by the Commissioner of
Before TRAIN: Donees are classified into 2: stranger (30%) or non-stranger (graduated rates) Internal Revenue (zonal value), or (2) as shown in the schedule of values fixed by the
TRAIN: all fixed at 6% Provincial and City Assessors (assessed value).
4. National tax
Basic Principles on Donor’s Tax - The national government collects the tax through the BIR
▪ A donor’s tax is a tax levied, assessed, collected and paid upon the transfer by any person, 5. Revenue or fiscal tax
resident or non-resident, of the property by gift. (Sec. 98, NIRC) - The primary purpose is to raise revenue
▪ It shall apply whether the transfer is in trust or OW, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or intangible. TN: Before TRAIN, donor’s tax is also described as a progressive tax because before, we consider
Gifts in trust the relationship of the donor and the donee. If the donee is a non-stranger, the donor’s tax
We are referring to the transfer of ownership and economic benefit to the trustee. If this is just a table ranges from 0-15%. So, in that sense, the donor’s tax is progressive. As the value increases,
normal trustor-trustee agreement where there is no transfer of ownership, then do not subject it the tax rate can go from 0-15% although upon reaching the maximum level, it becomes fixed at
to donor’s tax. The heading of the document will not prevail even if nakalabel na as declaration of 15% in which case, it becomes degressive.
trust. Look at the content. If the true intent is to transfer ownership, then that is considered a
donation if there is no consideration involved and the parties are alive at the time of transfer.
Applicable Law in Donor’s Taxation
▪ Donor’s tax is imposed upon donations inter vivos only, not donations mortis causa.
▪ The law in force at the time of the perfection and completion of the donation.
Purposes
Donation – gratuitous transfer of property from one person to another, as distinguished from
1. To control tax evasion of the estate tax
an onerous transfer where there is a transfer for a sufficient consideration.
2. To control tax evasion on income tax
3. To recoup future loss of income tax revenue
Parties
Donor – owner of the property; transfers the property out of generosity
Nature of Donor’s Tax [RAVEN]
Donee – accepts the donation
1. It is a privilege/excise tax
- an excise tax imposed on the privilege of the owner to give
Art. 275, NCC
- although it involves properties, it is not a property tax (e.g. real property tax)
Donation is an act of liberality which could happen:
- imposed upon the conduct or exercise of transfer of property from one person to another
• during the lifetime (donation inter vivos) – donor’s tax
- given the privilege to transfer your property
• upon death (donation mortis causa) – estate tax
2. It is an annual tax
- TN: The 250k exemption is applicable for the entire taxable year.
Classification Rule
- The filing of donor’s tax return is within 30 days after the donation. It doesn’t mean na
▪ the motive of the donation is the controlling rule
kay annual tax siya, iconsolidate ang filing. You don’t do that, OW you cannot process the
O R A E T L A B O R A
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▪ if the motive is associated with the existence of life out of love, generosity, liberality – ▪ The formalities of donation go hand in hand with the formalities of acceptance (ex. if the
donation inter vivos donation must be in writing, then the acceptance must be in writing, etc.)
▪ if the motive is due to an impending death – donation mortis causa ▪ Effect of non-compliance: donation is void and unenforceable; hence, not subject to donor’s
tax. But the transfer will now be subject to income tax on the part of the supposed donee
Prior to TRAIN: for purposes of computing the donor’s tax, a distinction must be made WON since income taxation is source blind. VAT or OPT cannot be imposed on such transaction
the donee is a stranger or not. because these tax impositions presuppose that there is an ordinary business transaction.
TRUE or FALSE: One of the advantages of TRAIN is that it is easier now to compute for the tax Personal property – depends on the value of the property:
since there is already no need to distinguish whether the donation is an inter vivos or a mortis ▪ Tangible – can be perceived by senses; in taxation, it is the same as movable properties
causa transfer since both estate tax and donor’s tax have the same tax rate of 6%. o 5k or less – may be done orally or in writing; acceptance must be simultaneous
FALSE. There is still a need to distinguish because the tax base is different. As to donor’s o more than 5k – the donation and acceptance must be in writing
taxation, the tax base is total gifts, in excess of 250k; whereas in estate taxation, the tax base is ▪ Intangible – ex. franchise, copyrights, royalties, shares of stock in a DC; like RP, it must be
net estate. ‘Net’ presupposes that the gross estate was further deducted by the allowable made in a public instrument.
deductions. Furthermore, they have different deadlines as to the filing of their returns. And
obviously, they also use different BIR forms. Illustration
Laptop worth 50k is donated. Is it still required to file a return even if it is not subject to
Requisites of a Taxable Gift [DI ADIC] donor’s tax?
1. Decrease in the patrimony of the donor Yes, for purposes of declaration. It is possible man gud na you will donate again within the
2. Increase in the patrimony of the donee same taxable year and when you accumulate all your donations, it already exceeded the 250k
3. Acceptance by the donee during lifetime of the donor exemption which is good for 1 taxable year. In this case, you already have to pay donor’s tax.
4. Delivery (whether actual or constructive) – “donative act”
5. Intent to donate or donative intent Real property – regardless of value, it must be in a public instrument, and acceptance may be
6. Capacity of the donor made on the same instrument or in another public instrument, in which case the donor must
be informed of such fact.
Acceptance by the donee during lifetime of the donor
Land is donated and it is only written in a private instrument. Can the donee compel the donor
to deliver it to him?
This is important because nobody can be compelled to accept the generosity of another. As a No, since the donation is void and unenforceable. What can the donee do is to compel the
general rule, acceptance must be made personally, except if made through an authorized supposed donor to get the document notarized.
person with a special power, or general power sufficient for the purpose of accepting the
specific donation. The acceptance must also be made known to the donor. Taking all of these
Delivery or “Donative Act”
in consideration, we can conclude that there is only a perfected donation when it happens
during the lifetime of the donor and the donee.
This COMPLETES the donation; as distinguished from the acceptance made known to the donor
Formalities of acceptance which merely PERFECTS the donation. If the acceptance and delivery are made simultaneously,
▪ depends on the kind and the value of the property donated then the donation is deemed perfected and completed. Donor’s tax shall not apply unless and
until there is a completed gift.
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Actual delivery o General renunciation – no specific beneficiary. The heir simply says that he will not avail his
Delivery by physically placing the thing donated in the hands of the donee (movables) or inheritance. In this case, it will automatically go to the other heirs, following the rules in
physically placing it in his possession and control (immovables). succession.
o Specific renunciation – the heir who renounced his share specifically identifies to whom his
Constructive delivery share will go.
a) By legal formalities – when the donation is made through a public instrument, the execution
thereof shall be equivalent to delivery of the thing donated. Intent to donate or Donative Intent
b) Symbolic delivery (traditio symbolica) – by delivering the keys of the place or depository
where the movable is stored or kept (wrong ex: key of the car and the thing donated is the
car itself; correct ex: key of the warehouse where the thing donated is stored) This pertains to the intent of the donor to donate without consideration since it’s a gratuitous
c) Traditio longa manu (delivery by the long hand) – by mere consent or agreement of the transfer (act of liberality).
parties if the thing cannot be transferred to the possession of the donee at the time of
donation; usually by pointing at the thing; applies to movables only TN: Consideration means money or equal value or some goods or service capable of being
d) Traditio brevi manu (delivery by the short hand) – the donee is already in the possession of evaluated in money. Hence, love and affection does NOT amount to consideration.
the thing donated even before the donation and thereafter continues in possession thereof
in the concept of an owner; applies to movables only When it comes to donation, and insofar as the NIRC is concerned, it covers both direct and
e) Traditio constitutum possessorium – the donor continues in possession of the thing donated indirect donation. We need to cover indirect donation because one of the purposes in levying
after the donation but in another capacity such as that of a lessee or depositary; applies to donor’s tax is to avoid income tax evasion. And one way of evading income tax is to undervalue
both movables and immovables the property you are going to sell.
TYPE OF RENUNCIATION GENERAL SPECIFIC IOW, donative intent is only required in a direct gift. If a gift is indirect taking place by way of
More than 2 heirs Exempt Taxable sale, exchange or other transfer of property as contemplated in Section 100 of the Tax Code,
Only 2 heirs Exempt Exempt donative intent is not necessary. Among all the other essential requisites, this is the only
By the surviving spouse (s.s.) Taxable Taxable requisite which can be dispensed with in some circumstances such as:
of his/her share in the a. Transfer for insufficient or inadequate consideration
common/conjugal b. Condonation of debt
properties ▪ Not all under circumstances that your condonation will be subject to donor’s tax
because it will only be subjected to it if the condonation is out of generosity (without
Gross estate P10M consideration). However, if the reason is because there’s a past service or future service
Deductions (4M) rendered or to be rendered by the debtor, such will be subjected to income tax because
Net Estate P 6M it will already be considered as condonation with consideration.
If the s.s. GENERALLY/SPECIFICALLY renounces her share here,
½ share of S.S (3M) – taxable already since this is considered as her exclusive property.
Net Distributable Estate P 3M – If the s.s. GENERALLY renounces her share here, it is still exempt.
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Illustration the fair market value of the property exceeded the value of the consideration shall, for the
Mr. X – individual transferred: purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year: Provided, however, that a sale,
A. Car (used in business) – since the car is used in business, it is an ordinary asset (OA). exchange, or other transfer of property made in the ordinary course of business (a transaction
which is a bona fide, at arm’s length, and free from any donative intent) will be considered as
FMV 800k 300k subject to 6% donor’s tax
made for an adequate and full consideration in money or money’s worth.
SP 500k
Cost 700k This proviso provides a defense on the taxpayer assessed with donor’s tax why the SP is lesser
Income (Loss) (200k) – no income tax liability kay loss man than the FMV. The taxpayer must have to prove in this case that the salse was a bona fide sale
at arm’s length by proving that (1) there is no relation between seller and buyer (e.g. blood
B. House & Lot – this is a real property which is a capital asset (CA) relatives, affiliate, or the other corporation does not have a control of the buyer or seller) and
(2) the transfer is free from donative intent (easy to prove because you did not execute a deed
FMV 10M of donation). So, it will then be subjected to income tax and business tax, but not donor’s tax.
6% CGT, whichever is HIGHER
SP 5M
Cost 4M Donation with reserved powers
1M – not subject to income tax since it is a CA These are incomplete transfers because the transferee cannot exercise full dominion over the
property. As a general rule, donor’s tax is imposed at the time the donation is perfected and
No donor’s tax since wa man na-alkansi ang government because the tax base of CGT is completed, and such is considered completed by delivery. However, there are instances that
whichever is higher between the FMV and SP. despite delivery, the transfer will not yet be subjected to tax:
▪ Conditional donation – Ownership will transfer only upon the happening of a future event,
C. Commercial Building – OA kay commercial man as specified by the donor. Only upon the happening of such event will the transaction be
held liable for donor’s tax. The condition must be other than the death of the donor. OW,
FMV 20M the imposition will be estate tax.
10M subject to 6% donor’s tax
SP 10M ▪ Revocable transfers – The donor executes a deed of donation but there is a provision where
Cost 9M the donor reserves his or her power to revoke the transferee’s ownership. The donation will
Income (Loss) 1M – subject to 0-35% GITR be deemed completed only upon the death of the transferor (estate tax) because at such
time will only his power to revoke be irrevocable UNLESS the donor during his lifetime:
D. Shares of stocks in a corporation; not listed – CA o Renounces his power to revoke; or
o Becomes incapacitated (insanity) to exercise his right to revoke and never regained
NABV 1M the capacity before death
600k subject to 6% donor’s tax
SP 400k
Cost 200k Quasi-Transfers
200k – subject to 15% NCG These are the other instances where the delivery of the property to another will not be
subjected to donor’s tax because ang gi-deliveran, sya naman daan ang rightful owner of the
Amendment by TRAIN: (Sec. 16, RR 12-2018) property. The transfer has already been subjected to estate tax before (during the first transfer)
Where property, other than real property referred to in Section 24(D), is transferred for less but the transferee during that time held the property as a trustee. (Caveat: naghimu2x ra kog example
than an adequate and full consideration in money or money's worth, then the amount by which based on my understanding kay mangayug example si sir usahay)
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(A) The merger of usufruct in the owner of the naked title; Since it says ‘in accordance with the desire of the predecessor,’ this presupposes that the predecessor executed a will. It is
possible that in the will, the deceased gives a power of appointment to a certain person. This is the right to designate the
person or persons who will receive the property. A power of appointment may be:
It must be during the lifetime of the usufructuary kay if patay na sya, mahug na sya as example of a transfer exempt from o Special Power of Appointment – must be exercised only in favor of a restricted or designated class of persons other than
estate tax. Exemption from donor’s tax pa man ta ☺ the first heir, legatee or donee
Illustration:
Usufructuary has the right to the use and fruits of the property but he doesn’t have the legal title to it. The owner of the Katie devised in her will that her farmland in Ormoc shall go to Ellie until such time that Nikki passes the bar exam. On
naked title can exercise all the rights of ownership (remember the discussions in partnership) consistent with the enjoyment April 26, 2021, Nikki passed the bar exam. What are the tax implications?
of the things by the usufructuary. There is merger of the usufruct in the owner of the naked title when the naked ownership Upon the death of Katie, estate tax will be imposed. However, the transfer of the farmland from Ellie to Nikki when the
and the usufruct come to be held by the same person. latter passed the bar exam is exempt from donor’s tax.
Illustration: o General Power of Appointment – may be exercised in favor of anybody.

Mair died testate on July 5, 2018. The will provides that the usufruct over her land shall be inherited by Samantha while the Illustration:
naked title shall go to Alex. The term of the usufruct will last only until January 1, 2025. What happens upon the arrival of the Katie devised in her will that her farmland in Ormoc shall go to Ellie but it was not specified to whom should Ellie transfer
term? the property upon Nikki’s passing the bar exam. When Nikki passed the bar exam, Ellie transferred the farmland to Kennie
On January 1, 2025, there will be a merger of the usufruct in the owner of the naked title because Alex will be the absolute without any consideration. What are the tax implications?
owner of the property. In this case, the transfer from Samantha to Alex is exempt from donor’s tax. The exemption is In this case, estate tax should be imposed on the transfer from Katie to Ellie. Since Katie gave Ellie a GPA, Ellie can
premised on the fact that there is only one transmission of property (from Mair to Alex). Moreover, the reason of the law is exercise full ownership because her right to dispose the property is not limited to a specific person(s) only. She has an
that the transfer had been previously subjected to estate tax; hence, the exemption. option to whom will she transfer the property. In fact, she can appoint herself as the beneficiary if she wants to. Hence,
the transfer from Ellie to Kennie is subject to donor’s tax, considering that it was transferred without any consideration.
What happens if Alex predeceases Samantha?
If this happens, heirs of Alex will inherit the property, with the corresponding obligation to respect the rights of Samantha
(usufructuary) during the term of the usufruct. On January 1, 2025, the merger will happen. The transfer from Samantha to (D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
the heirs of Alex will still be exempt from donor’s tax. Take note that the estate taxes involving the same property are institutions, no part of the net income of which inures to the benefit of any individual:
imposed on the transfers from Mair to Alex and from Alex to his heirs; but there is no donor’s tax liability on the transfer
from Samantha (usufruct) to the heirs of Alex. Provided, however, that not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions for administration purposes.
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary; Capacity of the Donor
It must also be during the lifetime of the fiduciary heir kay if patay na sya, mahug na sya as example of a transfer exempt
from estate tax. Exemption from donor’s tax pa man ta ☺ Take note that we refer to the capacity of the donor, NOT of the donee, because it is his
Fideicomissary substitution is that by virtue of which a testator institutes a first heir, and charges him to preserve and patrimony which will be decreased.
transmit the whole or part of the inheritance later on to a second heir. The relationship of the fiduciary heir and the
fideicomissary must be one degree such that of parent and child, vise versa. Incapacitated donors
Illustration: 1. Insane persons, except if donation is made during a lucid interval
Katya instituted Mella as first heir, and Mella’s youngest daughter, Nika, as second heir. The will requires Mella to preserve 2. Minors
and transmit the property by the time Nika reaches the age of majority. Nika turned 18 now. Will the transfer from Mella to
Nika be subjected to donor’s tax?
3. Those under civil interdiction
No, the transfer is exempt because a fideicomissary substitution is given tax exemption by the Code. The transfer from Katya 4. Spouses to each other; common law spouses and mistresses and paramours
to Mella has already been subjected to estate tax. To tax both transfers would amount to double taxation.
GR: Only the capacity of the donor is required.
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in Exc: Instances when the donee is considered incapacitated (enumerated below)
accordance with the desire of the predecessor; and
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Void Donations B. Juridical donors
Despite delivery, there is no transfer of ownership. Hence, there can be no donor’s tax liability. 1. Domestic Corporation (DC)
However, the recipient may be subjected to income tax since income taxation is source blind. 2. Resident Foreign Corporation (RFC)
3. Non-Resident Foreign Corporation (NRFC)
(1) Donations to incapacitated persons:
▪ Those under civil interdiction Reciprocity Rule
- an accessory penalty to those crimes involving moral turpitude Our country will exempt intangible personal properties from donor's tax if the country of origin
▪ Spouses and man and woman living together without the benefit of marriage (to avoid of the NRA or NRFC will also exempt from donor's taxation intangible personal properties
undue influence) donated by Filipinos who are considered non-resident in their country. In short, bawsanay. But
▪ Lawyers who notarized the will that only applies to intangible personal properties.
▪ Public officers or their spouses if the gift was given by reason of their public office
▪ Those incapacitated to receive in succession due to undue influence (i.e. priests, doctors, Exemptions vs. Deductions
etc.) o Exemption – not included in the gross amount
o Deduction – include it in the gross amount and later on make it appear as a deduction
(2) Donation of future property.
In estate tax, naa juy computation of the taxable estate. There is a specific portion for
(3) Donation between spouses during the marriage or persons living together as husband & deductions but here in donor’s taxation wala. If there is a deduction, we will just have to deduct
wife without a valid marriage, except: (Art. 87, FC) it immediately in the value of the property before you add it to the gross gift. If you notice sa
a. Moderate gifts on the occasion of any family rejoicing. RR, it says “6% of the total gift in excess of 250,000.” It is not termed “net gift” because if ever
b. Donation mortis causa there are deductions you do not present it separately. (ex. FMV: 1M; mortgage paid by donee:
100k; total gift: 900k)
(4) Donations enumerated in Art. 739, NCC:
▪ between persons who were guilty of adultery or concubinage at the time of the DEDUCTIONS FROM GROSS GIFTS
donation; ▪ Encumbrances – claims or liabilities attached to a property; to be deductible, must be
- the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt assumed by the donee(i.e. mortgage, security interest, costs of rights, accrued and unpaid
of the donor and donee may be proved by preponderance of evidence in the same action. taxes)
▪ between persons found guilty of the same criminal offense, in consideration thereof; Jabar donated to Tine a parcel of land worth 2M. At the time of donation, the property was mortgaged to a bank
▪ made to a public officer or his wife, descendants and ascendants, by reason of his office. for 400k. If Tine will assume the mortgage indebtedness on the land, then said amount shall be deducted from
2M. In that case, the total gift would amount to 1.6M.
Kinds of Donors ▪ Diminutions – conditions or amounts that need to be shouldered by the donee in order to
effect the donation. This is the decrease in the value of property donated as a result of a
A. Individual donors condition made by the donor to the donee.
1. Residents or Citizens (RC, NRC, RA) – taxable on all property located within and without Sammy gave cash of 600k to Vanda as a birthday gift. There is a condition, however, that Vanda shall pay his debt
with Najen in the amount of 65k which Vanda agreed. In this case, the payment made by Vanda to Najen has
the Philippines. diminished the amount of gift which she received from Sammy. Hence, the amount of 65k shall be deducted
2. Non-Resident and Non-Citizen (NRA) – taxable on all real and tangible properties within from 600k to get the amount of the total gift.
the Philippines, and intangible personal property, subject to the reciprocity rule.
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EXEMPTION OF CERTAIN GIFTS institution or organization: Provided, however, that not more than thirty percent (30%) of
When we talk of exempted gifts, these are not subject to donor’s tax. Since this talks about said gifts shall be used by such donee for administration purposes.
exemption from tax liability, the rules must be strictly construed against the taxpayer. Mas daghag requisites sa resident or citizen. Here, the only requisite is that not more than 30% of the donation
Exemption is NOT automatic. The taxpayer must first file a request for a ruling from the BIR shall be used for administration purposes. In practice, if an NRA makes a donation, to easily ascertain if ma-
exempt ba na for donor’s tax, ang tanawn ni NRA is if ang entity is registered with the PCNC ba. Most probably,
showing its compliance with the requisites. OW, it might be assessed. the reason is really kay mas ganahan ta na ang mu donate is NRA because if mu-donate sila, dollars gud na.
A. For residents and citizens (Sec. 17, RR. 12-2018) Donation of conjugal or community property
Neither spouse may donate any conjugal or community property without the consent of the
1. Gifts made to or for the use of the National Government or any entity created by any of its other. If such is donated and only the husband signed the deed of donation, there is only one
agencies which is not conducted for profit, or to any political subdivision of the said donor, without prejudice to the right of the wife to question the validity of the donation without
Government; her consent (NCC & FC). H and W are considered as distinct taxpayers for donor’s tax purposes.
GOCCs are not included.
Thus, in case a gift is made by the spouses out of conjugal or community property, each of them
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare is a donor out of the respective share in the property. Since they are considered separate
corporation, institution, accredited nongovernment organization, trust or philanthropic donors, then the computation of the donor's tax and the 250k exemption would also be applied
organization or research institution or organization [ERC-SCARP]. (no athletic or sports separately. Accordingly, the donor's tax return will also be filed separately.
association)
Principle of Accumulation
Requisites: The computation of the base is cumulative. To arrive at the taxable base, all the gifts previously
o not more than 30% of said gifts shall be used by such donee for administration purposes made in the same calendar year must be added to the present gift. However, the donor’s taxes
o incorporated as a non-stock entity paid on the previous donations are allowed as tax credits.
o no payment of dividends (this fact, in so far as the BIR is concerned, must be reflected in
the Articles of Incorporation and by-laws) TN: Donor's taxation – calendar year under all circumstances even if corporate.
o governed by trustees who receive no compensation (Board of Directors receive
honorarium every meeting)
o donation must be used for the purpose to which the ERC-SCARP is organized Tax credit for donor’s taxes paid to a foreign country
o if the donee is an NGO, it must be accredited. A tax imposed upon a donor who was a citizen or resident at the time of donation shall be
If you’re into social welfare then get accreditation from DSWD; if education then get from DePEd or CHed. credited with the amount of any donor’s tax on any character and description imposed by the
But other than these accreditations from these agencies, we have the accreditation of the PCNC. authority of a foreign country (Sec. 101 [C], NIRC). However, the amount of tax credit shall be
subject to each of the ff limitations:
B. Non-resident aliens
1. Global Limitation – applicable if (1) there is only one foreign country involved; and (2) if
1. Gifts made to or for the use of the National Government or any entity created by any of its there are 2 or more foreign countries involved [in addition to per country limitation]
agencies which is not conducted for profit, or to any political subdivision of the said
Government. Total Foreign Net Gifts Philippine = Tax credit
x
Global Net Gifts Donor’s tax
2. Gifts in favor of an educational and/or charitable, religious, cultural or social welfare
corporation, institution, foundation, trust or philanthropic organization or research
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2. Per Country Limitation – applicable ONLY if there are 2 or more foreign countries involved SOLUTION:
Net Gifts Per Country x Phil Donor’s tax = Tax credit Date of Donation Amount Donor’s Tax
Global Net Gifts June 6, 2018 484k
16k 500k
Share of spouse 1/2
See illustration in estate tax. Same ra man ug concept ☺ 250k
Less: Exempt Gift (250k)
Tax due/payable on the June donation 0
Illustrations:
October 8, 2018 100k 100k
1. Joseph donated P4.5M cash to Ericka. How much should be the Donor’s tax due if: Add: June donation 500k
▪ Ericka is Joseph’s sister 600k
Before TRAIN: use the 0-15% graduated tax rates Share of spouse 1/2
300k
TRAIN:
Less: Exempt Gift (250k)
Value of Gift P 4.5M Total 50k
Deduction (250k) Tax due 6% 3k
Net Value of gift P 4.25M Less: Tax paid on June donation 0
Tax rate x 6% Tax due/payable on the Oct donation 3k
Tax Due P 255K
April 4, 2019 700k 700k
▪ Ericka is Joseph’s girlfriend
Share of spouse 1/2
Before TRAIN: 30% tax rate (considered as stranger) 350k
TRAIN: same as above – 225k Less: Exempt Gift (250k)
Total 100k
2. Mr. and Mrs. Steven Otida, citizens and residents of the Philippines, made the following Tax due/payable on the April donation 6% 6k
donations:
Filing of Donor’s Tax Return
June 6, 2018 To Jericho, a legitimate son, on 484, 000
account of marriage ▪ Time of filing: within 30 days after the date the gift is made
To Bettina, a legitimate daughter, 20,000 ▪ Time of payment: date of filing since we follow ‘pay as you file system’
property with mortgage of 4,000
which was assumed by Bettina ▪ Place of filing and payment: Except in cases where the Commissioner of Internal
October 8, 2018 To Renato, a legitimate son of Mrs. 100,000 Revenue (CIR) OW permits, the return shall be filed and the tax paid to either
Otida by prior marriage, on - Authorized agent bank (AAB); or
account of marriage - Revenue District Officer (RDO); or
April 4, 2019 To the Cebu Catholic Church 100,000
- Revenue Collection Officer; or
To Cynthia, a family friend 700,000
- Duly authorized treasurer of the city or municipality where the donor was domiciled
at the time of transfer; or
- If no legal residence in the Phil: Office of the CIR
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▪ If by non-resident: ESTATE TAXATION
- Philippine Embassy; or
- Consulate in the country where he is domiciled at the time of transfer; or Nature of Estate Tax
- directly with the Office of the CIR
1. Excise tax – tax on the privilege of transmitting one’s property.
Accreditation of corporations, associations or NGOs 2. National tax – collected by the BIR.
3. Fiscal – helps to raise revenue for the government.
When we talk about accreditation of the NGO, primarily you are going to ask for accreditation 4. Ad valorem – values to which the tax imposed are based on the FMVs of the property at the
from the concerned or relevant government agency. But then, because of the proliferation of time of death or time of donation.
the NGOs and because of the Napoles scandal, the Philippine Council for NGOs Certification 5. Annual Tax
(PCNC) was formed. This is actually a private entity, not a government entity. This is composed TN: No longer progressive; currently taxed at a fixed rate of 6%. Prior to TRAIN, progressive sya
primarily of NGOs which formed a governing body, a licensing body where the NGOs go for kay subjected to graduated tax rates of 5%-20%, exempting the first P200k, depending on the
accreditation. To encourage these NGOs to register with PCNC, tax-exempt status can be value of the estate. Before, the greater the value of the property, the higher the tax rate.
availed upon accreditation. But before you can be registered or accredited by the PCNC, it is a
requirement that you must have the vision/mission and dapat gi-apply nah nimo. There is Notice of Death:
proper segregation of authority between the officers, proper financial reporting, among others. In all cases of transfers subject to tax, the executor or administrator or any of the legal heirs, as
the case may be, within 2 months after the decedent’s death, OR within a like period after
However, there was an RMO issued by the BIR sometime 2015 or 2016, where it was stated qualifying as such executor or administrator, must give a written notice thereof to the
that accreditation in the PCNC is not the sole way for an NGO to be exempted from income tax. Commissioner.
It's just one of the many ways to get an accreditation. This is because many NGOs complained.
They said that such accreditation with PCNC is very difficult and costly since the price ranges BUT according to KMA, this only applies prior to TRAIN. Such is no longer provided in the current
around 10k-25k and that is only valid for a year or two and they have to re-accredit and pay law.
again. So because of that clamor from the NGOs, the BIR issued an RMO which says that if you
don't want to be accredited by the PCNC then you can get an accreditation from the Purposes
government agency. ▪ To raise revenue to defray government expenses.
▪ To facilitate the distribution of wealth
Donee's status If there is no transfer of properties from the deceased to the heirs, the property becomes stagnant and useless,
If the donee is a non-stock non-profit NGO, the donor can receive tax deductible and tax- so there is no economic movement.
exempt contributions under the law. So, if I am the donor, then one way of shielding the ▪ To prevent undue accumulation of wealth.
transfer from taxation is to make donations to these PCNC-accredited NGOs. Take note that it
is not automatic na once accredited ka sa PCNC, exempted na ka from taxation. You still need Underlying Theories of Estate Tax [BRASE]
to submit that certificate of accreditation from PCNC to the BIR and the BIR will issue exemption 1. Benefit-Received Theory – Government protects and provides services in the accumulation
ruling or certification. Such issuance is considered most like mandatory on the part of the BIR. of properties transferred gratuitously, thus there must be an equivalent compensation for
If you can also recall in income taxation, when it comes to donation to charitable institution, the protection and services.
the transfer can be deducted either by limited or full deduction. And one of the requisites for 2. Redistribution of Wealth Theory – Properties given for free contributes to the unequal
full deduction is that it must be contributed to an accredited NGO. distribution of wealth and earning because the recipient has not actually worked for it.
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3. Ability-to-Pay Theory – Effect of inheritance increases wealth of the heir thereby creating an Intangible Personal Properties located in the Philippines: [PDF 2F]
ability to pay the tax. (a) Franchise which must be exercised in the Philippines;
4. State Partnership Theory. State is the passive and silent partner in the accumulation of (b) Shares, obligations or bonds issued by a domestic corporation;
wealth. (c) Shares, obligations or bonds issued by a foreign corporation 85% of the business of which
5. Equitable Recoupment Theory. To prevent unjust enrichment on the part of the taxpayer if is located in the Philippines;
properties are gratuitously transferred. (d) Shares, obligations or bonds issued by a foreign corporation, if such shares, obligations or
bonds have acquired a business situs in the Philippines;
An estate is a separate juridical being. This can be shown by the fact that upon the death of the (e) Shares or rights in any partnership, business or industry in the Philippines.
decedent, his Tax Identification Number (TIN) will also die and another TIN will be given to the TN: the list is not exclusive. Any other intangible property (e.g. receivables) in the Philippines
estate for distribution and settlement purposes. will be included in the GE.
Kinds of Decedent Valuation of the Gross Estate (Sec. 5, RR No. 12-2018)

1. Resident Citizens – regardless of location The properties comprising the gross estate shall be valued according to their fair market value
2. Non-resident Citizens – regardless of location (FMV) as of the time of decedent’s death.
3. Resident Alien – regardless of location
4. Non-resident Alien – only within; however, intangible personal properties are subject to ▪ Real Property
reciprocity rule The appraised value as of the time of death shall be, whichever is the HIGHER of the FMV:
(1) as determined by the Commissioner, or
Properties covered by Gross Estate (2) as shown in the schedule of values fixed by the provincial and city assessors
The gross estate of a RESIDENT OR CITIZEN of the Philippines includes all properties, regardless
of location (as opposed to income tax na sa resident citizen ra mu-apply ang income within and ▪ Shares of stocks
without). Thus, gross estate will include: o Unlisted common shares – based on their book value; appraisal surplus shall NOT be
(a) Real Property; and considered as well as the value assigned to preferred shares, if there are any.
(b) Personal Property – tangible or intangible. o Unlisted preferred shares – at par value
o Shares listed in the stock exchanges – the FMV shall be the arithmetic mean between the
Reciprocity Rule highest and lowest quotation at a date nearest the date of death, if none is available on
Intangible personal property located in the Philippines of the non-resident, not citizen of the the date of death itself.
Philippines, will not be included in the gross estate. The law states: (a) if the decedent at the
time of his death was a citizen and resident of a foreign country which at the time of death did ▪ Units of participation in any association, recreation or amusement club
not impose a transfer or death tax of any character in respect of intangible personal of citizens The bid price nearest the date of death published in any newspaper or publication of general
of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country circulation
of which the decedent was a citizen and resident at the time of death allow a similar exemption
from transfer taxes or death taxes of every character in respect of intangible personal property ▪ Right to usufruct, use or habitation, annuity
owned by citizens of the Philippines not residing in that foreign country. taken into account the probable life of the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the Secretary of Finance, upon recommendation
GR: real properties – lex rei sitae; personal properties – mobilia sequuntor personam of the Insurance Commissioner.
EXC: NRA’s intangible personal properties subject to reciprocity rule
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Formula Illustration:
Mr. B, a citizen and resident of the Philippines, had the ff data on the estate he left:
Inventory of properties at the time of death P xx
Less: Exempt Transfers Net taxable estate:
Properties not owned P xx Philippines P 570k
Properties owned but excluded by law xx Malaysia 2.1M
Inventory of taxable present properties xx Indonesia 1.7M
Add: Taxable transfers xx
Gross Estate P xx Estate taxes paid:
Malaysia P 200k
Gross Estate P xx Indonesia 100k
Less: Deductions ( xx )
½ share of surviving spouse ( xx ) How much is Philippine estate tax due?
Net Estate P xx Computation:
Rate 6%
Estate Tax Due P xx Net taxable estate, Philippines P 570k
Tax Credits ( xx ) Net taxable estate, Malaysia 2.1M
Estimated Tax Payable P xx Net taxable estate, Indonesia 1.7M
Net taxable, world P 4.37M
Tax Credit for Foreign Estate Tax Paid
Only the estate of a RESIDENT OR CITIZEN of the Philippines can claim a credit for foreign estate Estate tax P 262,200
tax paid. Tax credit allowed (226,000)
Estate tax still due P 36, 200
Formulas on foreign estate tax credit.
Limitation A
A. Per Country Limitation (Limitation A)
Net Estate per country Philippine Malaysia:
x = P xx
Global Net Estate Estate tax Tax credit allowed P 126k
[2.1M/4.37M * 6% (570k+2.1M+1.7M)]
Compare: Actually paid 200k P 126k
Foreign estate tax paid and tax credit allowed, whichever is LOWER
Indonesia:
B. Global Limitation (Limitation B) Tax credit allowed P 102k
Total foreign NE Philippine [1.7M/4.37M * 262.2k)
x = P xx
Global NE Estate tax Actually paid 100k 100k
Total, Lim. A P 226k
Compare: Foreign estate tax paid, Limitation A and Limitation B, whichever is LOWEST
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Limitation B property, or (2) the right, either alone or in conjunction with any person, to designate the
Tax credit allowed P 228k person who shall possess or enjoy the property or the income therefrom; except in case of
[(2.1M+1.7M)/4.37M)*262.2k] a bona fide sale for an adequate and full consideration in money or money's worth.
Actually paid 300k
This is a transfer motivated by their thought of death, although death may not be imminent.
Tax credit to apply (whichever is LOWEST) P226k
Manifestations:
GROSS ESTATE COMPOSITION o Age and state of health of the decedent at the time of gift, especially where he was aware
1. Decedent’s interest of a serious illness
2. Transfer in contemplation of death o Length of time between the gift and the date of death. A short interval suggests the
3. Revocable transfer conclusion that the thought of death was in the decedent’s mind, and a long interval
4. Property passing under the general power of appointment suggests the opposite. But there is no exact length of time.
5. Proceeds of life insurance o Concurrent making of a will or making a will within a short time after the transfer.
6. Prior interests
7. Transfers for insufficient consideration Revocable Transfers (Sec. 85(C), NIRC)
8. Capital of surviving spouse
9. Amount received under R.A. 4917 (Retirement Benefits Act)
(1) To the extent of any interest therein, of which the decedent has at any time made a
transfer (except in case of a bona fide sale for an adequate and full consideration in money
Decedent’s Interest (Sec. 85(A), NIRC)
or money's worth) by trust or otherwise, where the enjoyment thereof was subject at the
date of his death to any change through the exercise of a power (in whatever capacity
➢ To the extent of the interest therein of the decedent at the time of his death. exercisable) by the decedent alone or by the decedent in conjunction with any other
➢ It shall include the following: person (without regard to when or from what source the decedent acquired such power),
o Dividends declared by a corporation before death of stockholder although paid after to alter, amend, revoke, or terminate, or where any such power is relinquished in
death, if the decedent was living on the record date. contemplation of the decedent's death.
o Partnership profits even if paid after death of partner (2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered
o Proceeds of life insurance policy payable to a revocable beneficiary to exist on the date of the decedent's death even though the exercise of the power is
o Right of usufruct if transferable to the heirs subject to a precedent giving of notice or even though the alteration, amendment or
revocation takes effect only on the expiration of a stated period after the exercise of the
Transfer in Contemplation of Death (Sec. 85(B), NIRC) power, whether or not on or before the date of the decedent's death notice has been given
or the power has been exercised. In such cases, proper adjustment shall be made
representing the interests which would have been excluded from the power if the
➢ To the extent of any interest therein of which the decedent has at any time made a transfer, decedent had lived, and for such purpose if the notice has not been given or the power has
by trust or otherwise, in contemplation of or intended to take effect in possession or not been exercised on or before the date of his death, such notice shall be considered to
enjoyment at or after death, or of which he has at any time made a transfer, by trust or have been given, or the power exercised, on the date of death.
otherwise, under which he has retained for his life or for any period which does not in fact
end before his death (1) the possession or enjoyment of, or the right to the income from the
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This is a transfer where the terms of enjoyment of the property may be altered, amended, o General Power of Appointment (GPA) – may be exercised in favor of anybody. In this case,
revoked or terminated by the decedent. It is sufficient that the decedent had the power to the property shall form part of the gross estate (GE) of the transferee upon his death.
revoke, though he did not exercise the power. In this case, the transferee is not free to exercise o Limited/Special Power of Appointment (SPA) – must be exercised only in favor of a restricted
acts of strict dominion. or designated class of persons other than the transferee. In this case, the property shall not
form part of the GE of the transferee since he merely holds the property in trust. The first
Illustration: transferor will be the one subjected to donor’s tax or estate tax, whatever the case may be.
o The transferor imposes restrictions such as when he sets a condition that the income will
still be attributable to him or to any other persons he designates. Illustration:
o There’s a condition that when the transferee predeceases, the property reverts back to the K transferred property to D with a provision that if D transfers the property, such transfer may
transferor. be in favor of any body. This transfer will be subjected to donor’s tax if done gratuitously during
o A transferred property to B to be held in trust for C. However, (1) without taking back the the lifetime of K. Now, if D transferred the property to A upon his death, it shall now form part
property, A can change B; or (2) without taking back the property, A can change C; or (3) A of D’s GE.
can take back the property anytime he wants.
Distinguished from:
Exception:
▪ If there’s a waiver to exercise the power to revoke during the lifetime of the transferor. The K transferred property to D, with a provision that if D transfers the property, such transfer must
renunciation of the right to revoke must be express in another document. be in favor of P or R only. Since D can only transfer it to a restricted class of persons, what he
▪ When the transferor becomes incapacitated during his lifetime, his right to revoke is has is only a special power of appointment. This first transfer will subject K to donor’s tax if
SUSPENDED until such time he recovers from such incapacity. transferred during his lifetime or estate tax if transferred upon his death. If D now transfers it
to P or R upon his death, it will not form part of his GE as he merely held such property as a
Property Passing Under General Power of Appointment (Sec. 85(D), NIRC) trustee for P or R.
Proceeds of Life Insurance (Sec. 85(E), NIRC)

➢ To the extent of any property passing under a general power of appointment exercised by
the decedent: (1) by will, or (2) by deed executed in contemplation of, or intended to take
effect in possession or enjoyment at, or after his death, or (3) by deed under which he has ➢ To the extent of the amount receivable by the estate of the deceased, his executor, or
retained for his life or any period not ascertainable without reference to his death or for any administrator, as insurance under policies taken out by the decedent upon his own life,
period which does not in fact end before his death (a) the possession or enjoyment of, or irrespective of whether or not the insured retained the power of revocation, or to the extent
the right to the income from, the property, or (b) the right, either alone or in conjunction of the amount receivable by any beneficiary designated in the policy of insurance, except
with any person, to designate the persons who shall possess or enjoy the property or the when it is expressly stipulated that the designation of the beneficiary is irrevocable.
income therefrom; except in case of a bona fide sale for an adequate and full consideration
in money or money's worth. Life insurance policies must be taken out by the decedent himself. It will constitute part of the
GE if the beneficiary is:
A power of appointment is the right to designate the person or persons who will succeed to the (a) The estate of the decedent, his executor or administrator; or
property of a prior decedent. A power of appointment may be: (b) A third person other than those mentioned in (a) AND the designation of the beneficiary
is REVOCABLE.
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Under the Insurance Code of the Philippines, a designation of beneficiary is revocable, unless Prior Interests (Sec. 85(F), NIRC)
stated expressly in the policy that the designation is irrevocable.
Estate Taxation vs. Insurance Law ➢ Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this Section
The Insurance Code provides that the proceeds in a life insurance policy exclusively belongs to shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of
the beneficiary, regardless of the designation; and the beneficiary is not obliged to turn over powers, as severally enumerated and described therein, whether made, created, arising,
such proceeds to the heirs of the decedent. This rule does not run in conflict with the rule in existing, exercised or relinquished before or after the effectivity of this Code.
estate taxation wherein we consider the designation before concluding whether such will form
part of the GE of the decedent or not. The insurance law merely dictates to whom the proceeds Prior to 1997 amendment, there was no provision regarding these (B) – transfer in
will go. Even if the designation was revocable, the fact that the decedent is already dead, he contemplation of death, (C) – revocable transfer, and (E) – proceeds of life insurance.
can no longer exercise his right to revoke and the beneficiary will now enjoy the proceeds. The
death rendered the designation irrevocable in the eyes of the insurance law. On the other hand, Transfers for Insufficient Consideration (Sec. 85(G), NIRC)
the estate taxation considers the designation because it wants to see who is in control of such
policy during the lifetime of the decedent. If the designation is irrevocable, then the decedent
during his lifetime has already given the right to the proceeds to the beneficiary, which the ➢ If any one of the transfers, trusts, interests, rights or powers enumerated and described in
latter can already consider such as a vested right. Whereas, if the designation is revocable, the Subsections (B), (C) and (D) of this Section is made, created, exercised or relinquished for a
decedent still has the control and the true ownership of the proceeds because he can anytime consideration in money or money's worth, but is not a bona fide sale for an adequate and
change the beneficiary during his lifetime. IOW, he can still exercise his rights of ownership over full consideration in money or money’s worth, there shall be included in the gross estate
it. only the excess of the fair market value, at the time of death, of the property otherwise to
be included on account of such transaction, over the value of the consideration received
Proceeds not taxable: therefor by the decedent.
1.) Accident Insurance
2.) If the beneficiary is other than the estate, administrator, executor in which the designation ▪ If the real property is classified as a capital asset, it will no longer be subjected to estate tax
is irrevocable kay di man alkansi ang government. The higher between the GSP or FMV of the property has
3.) Proceeds of the life insurance covered by GSIS or SSS already been subjected to 6% CGT.
4.) Proceeds of a group insurance policy taken out by the company for his employees ▪ The transfer for insufficient consideration must fall under [DR. G]: transfer in contemplation
5.) Proceeds of life insurance payable to heirs of deceased members of military personnel of death or revocable transfer or property passing under GPA; OW, it will be subjected to
donor’s tax.
TN: In computing for the taxable estate of a decedent who is married, consider (1) the source ▪ Compare the FMV at the time of transfer with the consideration received to determine the
of the funds in paying for the policy, and (2) the property regime applicable, whether governed adequacy of the consideration. If found to be inadequate, compare the consideration
by absolute community, or conjugal partnership of gains, or complete separation. If the funds received with the FMV at the time of death. The excess of the FMV at the time of death over
used were from the decedent’s exclusive property, then the proceeds will be considered his the consideration will be included in the GE.
exclusive property. On the other hand, if the conjugal or common funds were used, the ½ share ▪ FMV = in an arm’s length transaction, the price that the seller who is willing to sell, but not
of the surviving spouse will be taken into consideration. compelled to sell; and a buyer not compelled to buy, but is willing to buy
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Illustration: Property passing under GPA for Insufficient Consideration (c) The transmission from the first heir, legatee or donee in favor of another beneficiary, in
K transferred property to D with a provision that if D transfers the property, such transfer may accordance with the desire of the predecessor; and
be in favor of anybody. In this first transfer, K will be subjected to donor’s tax. Since under GPA (d) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
man ni na transfer, D can exercise all the rights of ownership. Wa man gi-restrict ni K si D kung institutions, no part of the net income of which inures to the benefit of any individual:
ka kinsa lang pwede itransfer ang property. During his lifetime, D sold the property which has Provided, however, that not more than thirty percent (30%) of the said bequests, devises,
an FMV of P1M for P100k. So, transfer for insufficient consideration sya kay FMV is way higher legacies or transfers shall be used by such institutions for administration purposes.
than the SP. Upon D’s death, the FMV of the property increased to P1.5M. The value that will
be included in D’s GE is the excess of the FMV of the property at the time of his death over the The value of property in exemption (a), (b) and (c) need not be included in the GE anymore.
consideration received. In this case, it will be P1.4M (1.5M-100k). Take note na if not because With regard to the property in (d), the value of the property will be included in the GE, and the
of the fact na gi-transfer ang property to D under GPA saona, the transfer for insufficient same value will be deducted from the GE, so that the net taxable estate from it will be P0. Why?
consideration by D would have been subjected to donor’s tax. The value would be the excess Because to be exempt, 2 conditions must be satisfied: (1) no part of the income of the
of the FMV at the time of the transfer over the consideration received (P1M-100k = P900k). institution will inure to the benefit of any individual; and (2) not more than 30% of the bequests,
legacies and transfers will be used for administrative purposes. The satisfaction of the
Capital of the Surviving Spouse (Sec. 85(H), NIRC) conditions is subject to verification by the BIR. If the conditions are not satisfied the
transmission is taxable and the value of the property will be in the net taxable estate, and will
pay the estate tax.
➢ The capital of the surviving spouse of a decedent shall not, for the purpose of this Chapter,
be deemed a part of his or her gross estate. ALLOWABLE DEDUCTIONS
Amount received by heirs under RA 4917 (Retirement Benefits Act) I. Citizens or Resident decedent
(Sec. 86 (A), par. 7, NIRC) A. Ordinary deductions [CULIT Pa Rin]
▪ CULIT:
o Claims against the estate
➢ Any amount received by the heirs from the decedent-employee as a consequence of the
o Unpaid mortgage or indebtedness
death of the decedent-employee in accordance with Republic Act No. 4917: Provided, That
o Losses (casualty, robbery, theft or embezzlement)
such amount is included in the GE of the decedent.
o Claims against insolvent persons
o Taxes
Requisites: (1-10-50 Plan)
▪ Transfer for public use
o Benefits granted under this Act were availed only once
▪ Amount received by heirs under Retirement Benefits Act
o The decedent has been in the service of the same employer for at least 10 years
B. A deduction of its own (as per KMA)
o The decedent is not less than 50 years of age at the time of his retirement
▪ Vanishing deductions
o In accordance with a reasonable private benefit plan
▪ Share of the surviving spouse in the conjugal/community property
C. Special deductions [FS / Financial Statements]
ACQUISITIONS & TRANSMISSIONS NOT SUBJECT TO ESTATE TAX (Sec. 87, NIRC)
▪ Family Home
(a) The merger of usufruct in the owner of the naked title;
▪ Standard Deduction
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to
the fideicommissary;
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II. Non-resident alien decedent (diff: CULIT proportion; no FH & retirement benefits; SD amt.) o Duly notarized certification from the creditor as to the unpaid balance of the debt,
A. Ordinary deductions including interest as of the time of death.
▪ Proportionate deduction for CULIT o Proof of financial capacity of the creditor to lend the amount at the time the loan was
▪ Transfers for public use granted, as well as its latest audited balance sheet with a detailed schedule of its receivable
B. A deduction of its own (as per KMA) showing the unpaid balance of the decedent-debtor. If the creditor is a non-resident, the
▪ Vanishing deductions executor/administrator or any of the legal heirs must submit a duly notarized declaration
C. Special deductions by the creditor of his capacity to lend at the time when the loan was granted, authenticated
▪ Standard Deduction or certified to as such by the tax authority of the country where the non-resident creditor
is a resident.
Deductions which are deductible only when also included in the GE: o Statement under oath executed by the administrator or executor of the estate reflecting
✓ Capital of the surviving spouse the disposition of the proceeds of the loan if said loan was contracted within 3 years prior
✓ Amount received by heirs under RA 4917 to the death of the decedent.
✓ Claims against insolvent persons
✓ Transfers for public use B. Arises from purchase of goods/services [LBC CD]
o Documents evidencing the purchase of goods or service (sales invoice/delivery receipt
I. Citizens or Resident decedent or contract for the services)
o Duly notarized certification from the creditor as to the unpaid balance of the debt,
Claims Against the Estate including interest as of the time of death
o Certified true copy of the latest audited balance sheet of the creditor with a detailed
schedule of its receivable showing the unpaid balance of the decedent-debtor.
Requisites for Deductibility: o Certified true copy of the updated latest subsidiary ledger/records of the debt of the
▪ The liability represents a personal obligation of the deceased existing at the time of his debtor-decedent.
death; o If the settlement is made through the Court in a testate or intestate proceeding,
▪ The liability was contracted in good faith and for adequate and full consideration in money pertinent documents filed with the Court evidencing the claims against the estate, and
or money’s worth; the Court Order approving the said claims, if already issued.
▪ The claim must be a debt or claim which is valid in law and enforceable in court;
▪ The indebtedness must not have been condoned by the creditor or the action to collect As to the balance in your credit cards, the billing statement of account can be presented as
from the decedent must not have prescribed. proof.
TN: if the condonation happens after death, it can still be allowed as a deduction since the debt
is still existing at the time of death.
Unpaid Mortgage or Indebtedness
Substantiation Requirements:
Requisites for Deductibility:
A. Simple loan [PIC 3] ▪ Value of the property, undiminished by such mortgage or indebtedness, is included in the
o Duly notarized debt instrument at the time the indebtedness was incurred, except for value of the GE at FMV.
loans granted by financial institutions where notarization is not part of the business ▪ Deduction is limited to the amount of mortgage contracted bona fide and for an adequate
practice/policy of the financial institution-lender; and full consideration in money or money’s worth. This presupposes that the full amount of
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the proceeds of the loan goes to the mortgagor-decedent. If he only mortgaged his property tax accrues after death, hence not deductible from the GE. However, in the case of a decedent
to accommodate another person, such will not be considered as indebtedness. In fact, this who was a citizen or resident of the Philippines at the time of death, there shall be a Philippine
is considered as a receivable. The net effect is 0 since the decedent has (1) a receivable from estate tax payment on his properties within and outside the Philippines, and a foreign estate
the accommodated party and (2) a liability to the bank for the loan. (As a review, an tax payment on his properties outside the Philippines. In this case, the law allows a tax credit
accommodated party is a party to an instrument for whose benefit an accommodation party to reduce the Philippine estate tax. However, the Philippine estate tax cannot be deducted.
signs and incurs liability on the instrument. He is the person for whose benefit an
accommodation is made.) Transfers for Public Use
Losses
These are dispositions in a last will and testament, or transfer to take effect after death, in favor
of the Government of the Philippines, or any political subdivision thereof, for exclusively public
Requisites for Deductibility: [SAD Cause Loss] purposes. To be deductible, the whole amount must be included in the computation for the GE.
▪ incurred during the settlement of the estate
▪ arising from acts of God, such as fires, storms, shipwreck or other casualties; or from acts of Political Subdivisions of the National Government:
man, such as robbery, theft or embezzlement o provinces
▪ not claimed as a deduction in an income tax return of the estate subject to income tax o cities
▪ not compensated by insurance or otherwise (if naa but the FMV of the property lost is o municipalities
greater than the amount of the insurance proceeds, only the difference will be deductible.) o barangays
▪ incurred not later than the last day for payment of the estate tax
Vanishing Deductions (Property Previously Taxed)
Claims against Insolvent Persons
Property may change hands within a very short period of time by reason of the early death of
Insolvency = liabilities exceed assets; properties are no longer sufficient to pay one’s obligations the owner who received it by inheritance or donation. This subjects the property to a very heavy
burden in taxes, because the transfer tax is imposed on each transfer. To provide a relief, VD is
To be deductible, the full amount of the receivables must be included in the GE. However, the allowed to reduce the GE of the recipient of the inheritance or donation.
deduction shall only include the uncollectible portion.
Requisites for Deductibility: [DILPIN]
Taxes ▪ Death – died within 5 years from receipt of the property from a prior decedent or donor;
▪ Identity of the property – can be identified as the one received from the prior decedent, or
from the donor, or something acquired in exchange for it. It must be (1) the very same
Requisites for Deductibility: property or (2) the value received in exchange for it. Example, if you received a car before
▪ accrued PRIOR to the decedent’s death then you sold it for 500k, the 500k will be used as the value on which the VD can be claimed.
▪ unpaid as of the time of death However, if you already spent the money for something else, let’s say a bike, you can no
longer claim VD on such property.
The NIRC enumerated taxes that cannot be deducted, as follows: (a) income tax on income
received AFTER death; (b) property taxes NOT accrued BEFORE death; and (c) estate tax. Estate
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▪ Location of the property – must be in the Philippines; if such is previously situated abroad Formula:
and the first tax was imposed and paid there, then it follows that it cannot be considered as
a property previously taxed here in the Philippines. Value taken for PPT (LOWER)
▪ Previous taxation of the property – estate tax on the prior succession or the donor’s tax on (Mortgages or liens paid by the present decedent)
the gift had been finally determined and paid; Initial Basis
▪ Inclusion of the property – part of the taxable estate of the prior decedent, or of the taxable (IB/GE x Ordinary Deductions)
gift of the donor; Final Basis
▪ No VD on the property was allowable to the estate of the prior decedent. X VD %
Vanishing Deduction
Computation
Illustration:
1. PPT Value – LOWER of: Mr. DILPIN, Filipino, and a resident of Cebu City, died on June 19, 2018, leaving a GE of P4M. Included in
o Value at the time of the prior decedent’s death or prior donation his GE is a parcel of land in Cebu City, and a car which he inherited from his mother, who predeceased
o Value at the time of the present decedent’s death him on Nov. 2, 2015, currently valued at P1.2M and P120k, respectively. The properties were previously
taxed for estate tax purposes at the value of: Land – P1M; Car – P200k, with a mortgage liability on the
TN: where the property referred to consists of 2 or more items, the aggregate of the item
land of P40k which was paid by Mr. DILPIN in 2016. His wife, Mrs. DILPIN, claimed the ff deductions:
by item lower of 2 values will be the initial basis. 1. Funeral Expenses – P60k
2. Initial Basis (IB) – the PPT value (1) will be reduced by the mortgage or lien on the 2. Judicial Expenses – P40k
property paid by the PRESENT decedent. This mortgage or lien should have been 3. Claims against the estate – P50k
included in the deduction from the GE of the PRIOR decedent or gift of the donor. 4. Unpaid taxes – P80k
3. The IB (2) will be further reduced by: 5. Family Home – P1M
Initial Basis x Ordinary Deductions Compute the VD.
GE
4. The remaining balance will be multiplied by the corresponding percentage: Solution:

Value taken for PPT P 1,120,000
Mortgage paid (40,000)
% If received by inheritance or gift Initial Basis P 1,080,000
100% Within 1 yr prior to the death of the decedent (1.08M/4M x 130k) (35,100)
80% More than 1 yr but not more than 2 yrs prior to the death of the decedent Final Basis P 1, 044,900
60% More than 2 yrs but not more than 3 yrs prior to the death of the decedent VD % 60%
40% More than 3 yrs but not more than 4 yrs prior to the death of the decedent VD P 626,940
20% More than 4 yrs but not more than 5 yrs prior to the death of the decedent
How to compute for the period:
Year Month Day
2018 17 06 18 19
2015 11 02
02 07 17
TN: if silent as to who paid the mortgage, qualify your answer!
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Share of the Surviving Spouse in the Conjugal/Community Property - If FH is a co-owned property, the full amount of FH shall be included in the GE but the
amount that can be claimed as a deduction is only the portion the decedent owns
- If FH is a mortgaged property, both FH and unpaid mortgage can be claimed as
The property regime of spouses may be: deductions
• complete separation of property;
• conjugal partnership of gains; Effect of temporary absence
• absolute community; or Temporary absence from the constituted FH due to travel or studies or work abroad, etc. does
• any other property relationship. not interrupt actual occupancy. The FH is generally characterized by permanency, that is, the
place to which, whenever absent for business or pleasure, one still intends to return.
In the absence of such pre-nuptial agreement or if such is void:
(a) Marriages contracted before Aug. 3, 1988 – conjugal partnership of gains Decedent’s Interest
(b) Marriages contracted on or after Aug. 3, 1988 – absolute community There is no problem if the deceased is the head of the family. But if he is married and there is a
surviving spouse, take into consideration only the decedent’s interest. If the family home is part
o Conjugal or community property – include everything as part of the GE and deduct the ½ of the conjugal property of the spouses, divide the value by two first.
share of the surviving spouse later on before arriving at the net taxable estate.
o Exclusive property – not be included in the computation of the GE Illustration
Mr. X died in 2018, leaving the ff: (1) House – P10M and (2) Lot – P6M
Family Home
Case 1 Case 2 Case 3
House Exclusive of Mr. X (+) Common Common
Prior to TRAIN Law: Maximum Limit is P1M Lot Common Exclusive of Mrs. X Exclusive of Mr. X (+)
TRAIN: 10M
Case 1:
This is the dwelling house where the person and his family reside, and the land on which it is Gross Estate % of Ownership FH
situated. Within the meaning of “family” are the spouse, parents, ascendants, descendants, House 10M 100% 10M
brothers and sisters, who are living in the FH and who depend upon the head of family for Lot 6M 50% 3M
support. Total 16M 13M
This deduction from the GE shall be allowed when the FH is certified to as such by the Brgy. Value: 13M vs. 10M
Captain of the locality where it is located. This requirement makes the FH located abroad not
deductible since it cannot satisfy such requirement. Case 2:
Gross Estate % of Ownership FH
Decedent is married under absolute community or conjugal partnership of gains House 10M 50% 5M
➢ the deduction for FH is ½ of the FMV of the FH but must NOT exceed P10M. Lot 6M 0%
Total 16M 5M
TN: - There can be one FH only.
- The max limit of 10M is applicable to both spouses separately; not 5M each
Value: 5M vs. 10M
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Case 3: required to be filed under Section 90 the value at the time of his death of that part of the gross
Gross Estate % of Ownership FH estate of the nonresident not situated in the Philippines.
House 10M 50% 5M
Lot 6M 100% 6M Illustration
Total 16M 11M
Mr. X, decedent, married and resident of the Philippines, died on Sept 12, 2018, leaving behind
Value: 11M vs. 10M his family home, which is a conjugal property with an FMV of P30M. Other conjugal properties
are composed of real and personal properties amounting to P14M. In addition, he has exclusive
properties amounting to 5M. Decedent has an unpaid mortgage amounting to 1M, and unpaid
Standard Deduction
taxes of another 1M. Compute the taxable estate.
Prior to TRAIN Law: P1M; no SD for NRA decedents Exclusive Conjugal Total
TRAIN: P5M for resident OR citizens; P500k for NRA Conjugal Properties:
Purpose: to ensure that the heirs will receive something Family Home 30M 30M
Real & Personal Properties 14M 14M
Deductions for a Non-Resident, Non-Citizen (NRA) Exclusive Properties 5M 5M
Gross Estate 5M 44M 49M
Less:
Its allowable deductions are the same as that of a resident or citizen decedent EXCEPT:
Ordinary Deductions
▪ No family home
Conjugal OD (2M) (2M)
▪ No amounts received by heirs under RA 4917
Net Conjugal Estate 42M
▪ SD is only P500k
Special Deductions
▪ CULIT is not at full amount; only proportion
Family Home (10M)
GE, Philippines Standard Deduction (5M)
x World CULIT
GE, World Total Deductions (17M)
Net Estate 32M
Tax Credit for Estate Taxes paid to a Foreign Country (Sec. 86 (E), NIRC) Less: ½ share of SS 21M
The tax imposed in the Philippines shall be credited with the estate tax paid abroad. The amount Conjugal Property 44M
of the credit taken shall be subject to per country and global limitations. Conjugal Deductions (2M)
Net Conjugal Estate 42M
Requirement to disclose all his GE not situated in the Philippines (42M/2)
Purpose: to be able to apply the formula; naa bayay ‘World’ NET TAXABLE ESTATE 11M
Sec. 86 (D), NIRC TN: if silent, ordinary deductions will be treated as conjugal except transfers for public purpose
No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines, unless (presumption: exclusive)
the executor, administrator, or anyone of the heirs, as the case may be, includes in the return
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ADMINISTRATIVE MATTERS Filing of Estate Tax Return
Notice of Death If the ETR shows a GE exceeding P5,000,000, it shall be supported with a statement duly
certified to by a CPA containing the following:
TRAIN: no longer required 1. Itemized assets of the resident or citizen decedent with their corresponding gross value at
Prior to TRAIN Law: the executor, administrator or any of the legal heirs, as the case may be, the time of his death. In the case of an NRA, those situated in the Philippines;
within 2 months after the decedent’s death, or within a like period after qualifying as such 2. Itemized deductions from gross estate; and
executor or administrator, must give a written notice thereof to the Commissioner. 3. The amount of tax due whether paid or still due and outstanding.
Bank Deposits of a Decedent ▪ Time for Filing – within 1 year from the decedent’s death.
▪ The Court approving the project of partition shall furnish the Commissioner with a certified
Before: if it is a joint account and one of the joint depositors died, ma-freeze ang account. The copy thereof and its order within 30 days after promulgation of such order.
other depositor may only be allowed to withdraw P20,000 for daily sustenance. ▪ Extension of time to file – not exceeding 30 days; power to grant: Commissioner or any
Revenue Officer authorized by him in meritorious cases
Now: Pursuant to RR 12-2018, 2 options are already given: ▪ Time for payment of the estate tax – pay as you file system
▪ Extension of time to pay estate tax – not to exceed 5 years if settled judicially, or 2 years if
(1) Withdrawal of the amount settled extrajudicially. Power to grant: Commissioner, if he finds that the payment would
➢ This option is subject to 6% FWT and can be availed only within 1 year from the impose undue hardship upon the estate or any of the heirs
decedent’s death. Because of the concept of FWT (‘final’), it only means that it will no ▪ Any amount paid after the statutory due date of the tax, but within the extension period,
longer be subjected to any other tax. Hence, it will no longer be part of the GE which will shall be subject to interest but NOT to surcharge.
be subjected to estate tax. ▪ Request for Extension of Time, Installment Payment and Partial Disposition of Estate – filed
with the Revenue District Officer (RDO) where the estate is required to secure its TIN and
(2) Present the Certificate Authorizing Registration (CAR) file the estate tax return. This request shall be approved by the Commissioner or his duly
The CAR is the proof that the estate tax has already been paid. The imposition of FWT will authorized representative.
not be applied if the deposit has already been duly included in the GE which was subjected ▪ Liability for payment – primarily liable: executor or administrator; subsidiarily liable: heir or
to estate tax. beneficiary only to the extent of his share in the inheritance
Better Option In case of insufficiency of cash for the immediate payment of the total estate tax due, the
If the amount is less than the allowable deductions, it may be better if such will be included as estate has the following options:
part of the GE because you can still avail of the allowable deductions before subjecting it to 6% (1) Extension (NIRC)
estate tax; as opposed to the 1st option where the whole amount will automatically and fully be (2) Cash installment (TRAIN)
subjected to 6% FWT. (3) Partial disposition (TRAIN)
TN: Pursuant to a Memorandum Circular, ang isubject to 6% FWT will only be the percentage Purpose of these additional provisions under TRAIN: to make it easier for the taxpayer to
share of the decedent in the deposited account because it will be unfair and prejudicial on the comply and for the BIR to collect estate tax.
part of the other depositor(s) to subject their shares to FWT during his/their lifetime as well.
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❖ Cash installment dispose, mag compute ug estate tax kay maka-claim kag deductions (ex. 5M SD) sa each
▪ Send a letter request to the Commissioner within 1 yr from the date of death of the decedent property.
▪ The installments shall be made within 2 years from the date of filing of the ETR ▪ Upon payment of such proportion of the estate tax liability, you will be given a tax clearance
▪ The frequency (monthly, quarterly, semi-annually or annually – depends on the agreement and ECAR pertaining to that asset.
between the taxpayer and the Commissioner), deadline and amount of each installment shall ▪ In case of failure to pay the total estate tax due out from the proceeds of the said disposition,
be indicated in the ETR, subject to the prior approval by the BIR the estate tax due shall be immediately due and demandable subject to the applicable
▪ In case of lapse of 2 years without the payment of the entire tax due, the remaining balance penalties and interest reckoned from the prescribed deadline for filing the return and payment
shall be due and demandable subject to the applicable penalties and interest reckoned from of the estate tax.
the prescribed deadline for filing the return and payment of the estate tax
▪ No civil penalties or interest may be imposed but nothing prevents the Commissioner from Can the BIR attach the properties of the estate in case of failure to pay estate tax?
executing enforcement action against the estate after the due date of the estate tax Yes. This is a remedy on the part of the BIR. However, the BIR chooses not to avail this because
it is too costly and timely. Before it can attach, it has to have a formal assessment first. This
❖ Partial disposition of estate and application of its proceeds to the estate tax due would require examination of the the properties involved, adto pas legal division, etc. So, better
▪ A written request shall be approved by the BIR, which shall be filed together with a notarized remedies are the additional provisions under the TRAIN Law.
undertaking that the proceeds shall be EXCLUSIVELY used for the payment of the total estate
tax due Place of filing the return and payment of the tax (RR 12-2018)
▪ Before, you file the appropriate tax return and pay the corresponding estate tax before the BIR
will issue a CAR. There will only be 1 CAR for all the properties. But usually, what happens is
o Resident decedent – TIN will be secured from the RDO where the decedent was domiciled
that decedent only owns real properties. So, these are not liquid. Consequently, no enough
at the time of his death. ETR must be filed and the corresponding estate tax be paid with:
cash to pay the estate tax. That is why now, the BIR found ways through the RR for the estate
✓ the Accredited Agent Bank (AAB) or having jurisdiction on the place
tax to be easily settled: the new provisions on the 6% FWT if you withdraw the bank deposits
of the decedent who is your co-depositor, and the new provisions on cash installment and ✓ Revenue District Officer or where the decedent was domiciled
at the time of his death
partial disposition of the assets. The RR states that this partial disposition covers both real and ✓ Revenue Collection Officer
personal properties of the decedent. If the BIR approves this request of partial disposition, it
will issue 1 CAR for that particular asset that will be sold kay kinsa may buyer ganahan mupalit o Non-resident decedent – TIN will be secured from and the ETR be filed in:
kung di ma-transfer sa iyang title diba. Remember that one requisite for a valid transfer of ✓ RDO where the executor or administrator is registered
ownership kay CAR baya. Under the TRAIN Law, once the partial disposition request has been ✓ RDO having jurisdiction over the executor or administrator’s legal residence – If the
approved by the BIR, bayaran ni taxpayer ang estate tax pertaining to that asset partially executor of administrator is not registered
disposed and the BIR will now issue a CAR pertaining to that particular asset only. But it’s not ✓ Office of the Commissioner through RDO No. 39-South Quezon City – without executor or
the same as the manual CAR before. Now, the BIR will issue the so-called electronic CAR (ECAR). administrator in the Philippines
The usual manual CAR has an expiry date (1 yr man siguro) so dapat ka magpa-revalidate. But
now, as explained by the RDO, ang system sa BIR will be linked with the system of the ROD. So TN:
once you pay the tax, iclick sa BIR ang print button but way paper mugawas, pero upon clicking, o The foregoing provisions notwithstanding, the Commissioner of Internal Revenue may
your ECAR may be viewed already under the system of the ROD. What will be given to the continue to exercise his power to allow a different venue/place in the filing of tax returns.
taxpayer kay reference number nalang. Ig adto sa ROD, mao nalang imu ipakita. o The TRAIN Law only added the provisions on installments. As regards to other rules in filing,
▪ The computed estate tax due shall be allocated IN PROPORTION to the value of each property. still same rules in NIRC.
The rule is that the BIR will compute the estate tax of all the assets. The usual formula will be
used. Di kay mu-compute ug estate tax sa each property na ipartially dispose, na tagsa2x-on
jud kay once lang pwede ma-claim ang deductions. Ma-alkansi ang BIR if every time you
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VALUE ADDED TAXATION ▪ percentage tax – Imposed by law directly not on the thing or service but on the act (sale,
barter, exchange, lease, importation, rendering service).
For self-employed individuals earning income purely from self-employment or practice of ▪ excise tax – a tax on the privilege of engaging in the business of selling goods or services or
profession, whose gross sales/receipts and other non-operating income does NOT exceed the in the importation of goods but unlike excise, it is not applied only to a few selected goods.
VAT threshold of 3M shall have the option to avail of: ▪ ad valorem tax – the amount is based on the gross selling price or gross value in money of
• GITR; or goods or and services.
• 8% tax on gross sales or receipts and other non- operating income in excess of P250,000.00
in lieu of the GITR and the percentage tax TN: a zero-rated transaction is different from a VAT-exempt transaction because a zero-rated
2018 transaction is described still as a VATable transaction, hence input tax can be claimed, as
opposed to VAT-exempt transactions where there are no output and input taxes. If the supplier
Jan March June Oct Dec passes the VAT to you and the transaction is VAT-exempt, cost-deduction method will be applied
(include it in the purchases)
1M 1.5M .5M 2M
History
Non-VAT VAT
▪ EO No. 273 – effectivity: Jan. 1, 1988
In April 2019, upon filing for the annual income tax return (ITR), the taxpayer may no longer - During this time, the constitutionality of the imposition of VAT was questioned.
avail of the 8% option. The GITR must be used and the income tax paid from January to October ▪ Governed by RA 8424 (1997 Tax Code) as heavily amended by RA 9337 (EVAT Law) on May
using the 8% option may be claimed as tax credit. Moreover, within 1 month from the time you 11, 2005, RR 16-2011, RR 3-2012, RA 10963, RR 13-2018
exceeded the VAT threshold, you are already mandated to pay the corresponding VAT. IOW, in - ‘Expanded’ VAT (EVAT) – those transactions which were previously not subjected to VAT
April 15 2019, what will be reflected in your return will be: are now subjected to VAT. Controversial ning RA 9337 because the main author of this
o Income Tax = GITR (cannot avail 8%); and law is Sen. Ralph Recto. When the VAT law expanded, it included electricity, coal,
o Business Tax = Jan-Sept (3M * OPT%); Oct-Dec (2M * 12%VAT) gasoline. So, there was really an increase in the prices of the commodities. So syay gi-
blame jud.
What is VAT? ▪ February 2006 – VAT rate was increased from 10% to 12%
The value-added tax (VAT) is a tax on consumption levied on the sale, barter, exchange or lease - During this time, famous ang question WON the President (Arroyo’s term) can increase
of goods or properties and services in the Philippines and on importation of goods into the the rate. Was it a valid delegation of the legislative power? Yes. The SC ruled that there
Philippines. (Sec. 4. 105-2, RR. 16-05) was a valid delegation because the Congress under RA 9337 laid down the criteria for the
President to be able to increase it to 12%. The President did not exercise her discretion,
Nature and Characteristics rather, she followed what the legislature has already laid down. There was substantive
▪ indirect tax – liability to pay is on the seller; burden may be shifted or passed on to the buyer. and procedural due process.
▪ Viewed broadly, the VAT is a uniform tax ranging, at present, from 0% to 12% levied on (1) ▪ Effective Jan 1, 2018 – VAT threshold is increased from P1,919,500 to P3M of gross sales or
sales of goods or properties, (2) sales of services and (3) importation of goods to the Phil. (1) gross receipts.
and (2) must be in the ordinary course of trade or business and must happen here in the - If your gross sales or receipts during the year exceeds this 3M threshold, you are now
Philippines while (3) need not be in the ordinary course of trade or business. The tax is mandatorily covered under the VAT system. You can now be held liable for VAT even if
imposed as they pass along the production and distribution chain, the tax being limited only you did not register. On the other hand, if you did not exceed the threshold, you are not
to the value added to such goods properties or services by the seller, transferor or lessor. subject to VAT unless you voluntarily registered under the VAT system.
(CIR vs. Seagate Technology)
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Introduction to VAT 4. Petroleum products including raw materials for their production;
▪ VAT rates: 0% and 12% 5. Sale by the artist of his works or art, literary works musical compositions and similar
▪ VAT Law adheres to Cross Border Doctrine / Destination Principle creations, or his services performed for the production of such works;
- These terms are used interchangeably under the concept of VAT na kung di nimu i- - This amounts to ordinary course or trade of business.
consume here in the Phil, then you will not subject it to VAT. But technically, there’s a 6. Services by doctors (PRC) & Lawyers (IBP) (vs. Sec. 109 G &I);
distinction: - Not automatic ha. Don’t forget the VAT threshold!
o Cross Border Doctrine – gives more emphasis to the territorial jurisdiction of the 7. Common carriers by air and sea as to transport of passengers within the Philippines;
Philippines. If the goods or properties go out of the jurisdiction of the country, it - If by land, subject to OPT. Take note that VAT and OPT are mutually exclusive.
should not be subjected to VAT. The only exceptions are the economic zones and 8. Toll road operations (Timbol vs. Sec. of Finance)
the free port zones kay even if it’s within the physical territory of the Phil, you do 9. Electricity from “generation,” “transmission,” and “distribution” companies;
not subject them to VAT. These zones are by fiction of law deemed as foreign kay 10. Sale by “electric” cooperatives including importation of machines and equipment, and
outside the customs territory naman sila. spare parts;
o Destination Principle – gives more emphasis on the place where the goods or the 11. Effectively zero-rated exports upon the implementation of the enhanced VAT refund
properties will be consumed. system
- Under the TRAIN Law, provided the 90-day enhanced VAT refund system takes effect,
How is VAT computed? these will already be subject to 12% VAT.
Computation: Credit (invoice) Method - Prior to TRAIN, these are subject to 0%. These are the exports na wala ni gawas actually
sa Phils. These are the ‘deemed exports’ because the sales transaction happens within the
Output Tax – Input Tax = VAT Payable (Tax refund / tax credit / carry-over) economic zone or within the free port zone. This is what you call as the intra-zone sales.
Amount of VATable receipts/sales * 12% = Output Tax For example, ang finished product is furniture. There are some PEZA-registered
Amount of VATable purchases * 12% = Input Tax companies located within, ang gisell nila are raw materials of the furniture. So ang
baligyaan nila kay ang PEZA entity which manufactures furniture. Since it is considered as
So, it is possible that the input tax is greater than the output tax. It is possible that during the sale in intra-PEZA, 0%. But the DOF is saying na wa man nah nigawas, so dapat subject
taxable year, greater ang purchases than your sales. This usually happens in startup companies sya sa 12%. Mao nang naa sa TRAIN Law. But in the Trabaho Bill, naa na say provisions
na mag overpurchase then wa pay regular customers. Another example would be those na ‘except those located in the economic or free port zone.’
transactions that are zero-rated. That’s why when it comes to VAT refund or VAT credit, these
are more common to PEZA and free port companies. Tax on value added of taxpayer
▪ Value Added – [Sales-Purchases] both are subject to VAT during the taxable quarter.
Expanded Coverage of VAT ▪ The taxpayer (seller) determines his tax liability by computing the tax on the gross selling
1. Non-Food agricultural, marine, and other forest products in their original state by the price (GSP) or gross receipt (GR) [output tax], and subtracting or crediting the earlier VAT on
primary producer or owner of the land (ex. sale of flowers, lumbers, etc); the purchase or importation of goods or on the purchase of service [input tax] against the
Before RA 9337, both food and non-food ang exempt. Now, food nalang. If you are asked tax due on his own sale.
if the transaction is VATable or not, you just don’t look at the product. Consider also if it
exceeded the VAT threshold and in case it does not exceed, consider the fact of voluntary o Sale of goods – sales invoice
registration. o Sale of service – official receipts
2. Cotton and cotton seeds in original state;
3. Coal and natural gas in whatever form or state;
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Broad-based tax on consumption of goods, properties and services in the Philippines relate ▪ Forward passing – Final consumer pays the tax. This happens when there’s a seller’s market.
with “Destination” principle – tax imports, zero-rated exports The demand is greater than the supply. The products involved are usually basic necessities.
When it comes to importation, even it is not in the ordinary course of trade or business, you ▪ Backward passing – Seller pays the VAT. There is a buyer’s market wherein the supply is
subject it to VAT kay nisud man nas Phils. Presumption, i-consume diri. What if gi-import ni greater than the demand or it involves luxurious products such as high-end machineries para
company but then gi-use lang as raw material then the finished output will be subsequently maka-attract sa market.
exported? In the NIRC, initially, you subject it to VAT. But if it is eventually exported, there is
this provision on the so-called ‘drawback’ which means you can get a refund from the VAT is regressive!
government for that portion that was previously subjected to VAT. In the case of Tolentino vs. Sec. of Finance, the petitioner is saying that VAT Law should be
invalidated because it is regressive in the sense that if I am a poor Filipino, 12% feels material
Tax is collected thru the tax credit method (also, invoice method): to me but if datu ko, it is immaterial. So, it is regressive insofar as the effect of the imposition is
▪ Output Tax on Sales – Input Tax on Purchases concerned. If you go by the literal definition, VAT is not regressive because it literally means
▪ This is a peso for peso deduction that tax rate increases as the tax base decreases which is not clearly the case in VAT. But the SC
▪ We don’t follow the “cost deduction method” – forms part of the cost; not peso for peso agreed that such is regressive because of its EFFECT to the taxpayers. Even though it agreed
kay imultiply pa sa tax rate with the petitioner, it ruled that it is not enough to invalidate the VAT Law. Resort to indirect
taxes should be minimized but not avoided entirely because it is difficult, if not impossible. In
No cascading of tax in VAT system the case of VAT, the law minimizes the regressive effects of this imposition by providing 0-rating
▪ “Cascading” – a tax on tax or exemptions to certain transactions. The SC is like saying na kung pobre ka, don’t eat at
▪ GSP and GR definition excludes VAT passed on by the sellers to the buyers (PP vs. Tan) restaurants kay maimposean kag VAT. If di ka ganahan makabayad ug VAT, paglutos inyo! Don’t
▪ X sells to Y then sells to Z. If X sold the product at P112, inclusive of VAT, ang patungan ra ni be confused sad why VAT is imposed on those products you buy in Rustans like fishes in their
Y dapat is ang P100 (exclusive of VAT), not P112 to avoid cascading. That’s why in the OR original state, because VAT is imposed not on the fish in its original state, but on the service,
and SI, there must be a separate indication of the value of the VATable sales and the 12% ambiance, etc.
VAT. Mao ni ang weakness na nakita sa 3% sales tax before because at that time, way
separate indication sa tax base ug sa tax. So makabuot2x ra si seller pila ra iya i-remit sa BIR. VAT Transactions
▪ Allows the credit of “input tax” against “output tax” applying the Principle of Recoupment ▪ 12% - transaction is taxable and rate imposed is 12%
Tax – in effect, the VAT payable only pertains to the VAT of your profit margin. ▪ 0% - transaction is taxable and rate imposed is 0%. Hence, there is no resulting output tax.
▪ Hence, it is not an argument against VAT that it increases the price of the goods or services ▪ Exempt – transaction is not taxable. No output tax is computed.
being sold because all taxes in business are passed on by the sellers to the buyers.
Difference 12% VAT 0% VAT Exempt
“Tax-inclusive method” Seller’s liability to Seller charge 12% Seller charge 0% VAT Seller does not
▪ Adopted by the Phil VAT VAT to customer to customer charge VAT to
▪ To get the VAT = Total Invoice amount * 3/28 customer
▪ The price displayed in public should include already the 12% VAT. Treatment of input Can recognize input Can recognize input Cannot recognize
▪ VAT is deemed included in total invoice amount in VAT invoice or receipt tax tax on VAT charged tax on VAT charged input tax on VAT
to him by his to him by his charged to him by his
Indirect tax suppliers suppliers suppliers – input
▪ Aspects of taxation: (1) Impact of taxation – seller; (2) Incidence of taxation – final consumer treated as part of the
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cost of goods or sold and the BIR subjected it to VAT because they are considered as ordinary assets of
service purchased the company and the threshold was exceeded. The company argued that these are
capital assets and what is present is an isolated transaction. Their main business involves
conversion of steam to electricity, not sale of Nissan patrols. The SC ruled that this was a
TAXABLE TRANSACTIONS VATable transaction because the Nissan patrols are ordinary assets because the company
use it in their trade or business. In fact, such were included as PPE in the audited FS of
1. Sale, barter, exchange or lease of goods or properties (real or personal) or similar the company and were subjected to depreciation. Because of these and the fact that
transactions, in the course of trade or business; there’s no special law requiring them to sell these patrols, the transaction is subject to
VAT.
▪ Regular conduct including incidental but not isolated transaction whether non-stock,
non-profit or government entity (Sec. 105) Transactions covered by VAT
o Regular Transaction – day in day out transaction; without such, the business will not VAT covers transactions which are made “in the course of trade business.” The term “in
exist the course of trade or business” means the regular conduct or pursuit of a commercial
o Incidental Transaction – not day in day out transaction but necessary to accomplish or economic activity, including transactions incidental thereto, by any person regardless
your regular transaction; without it, it will cause great inconvenience to the business of WON the person engaged therein is a non-stock, nonprofit private organization
o Isolated Transaction – nothing to do with the business; one-time transaction (irrespective of the disposition of its net income and WON it sells exclusively to members
▪ CIR vs. Magsaysay Lines Inc.: This case involves sale of ships or vessels. Magsaysay Lines’ of their guests), or government entity. (Sec. 4. 105-3, RR 16-05)
normal course of business is shipping. However, there was this privatization law during
the time of Ramos, and the company had no other option but to sell out some of its Determinants
vessels. BIR is saying that such involved a sale of ordinary assets so it should be subjected ▪ “Incidental Transactions”
to VAT. Magsaysay Lines argued that it should not be the case because this is pursuant ▪ Incidental – something else as primary; something necessary, appertaining to, or
to a law. If not because of the law, they would not have sold it out. The SC ruled in favor depending upon another, which is termed the principal
of Magsaysay Lines. It is neither a regular nor an incidental transaction, rather an isolated
transaction. “Course of business” is what is usually done in the management of trade or Isolated vs. Incidental Transactions
business. What is clear therefore is that “course of business” or “doing business” “in the course of trade or business”
connotes regularity of activity. o Frequency – regularly conducted
▪ Power Sector Asset and Liabilities Management Corporation vs. CIR: o Purpose – pursuit of a commercial or economic activity
Is the sale of power plants by PSALM to private entities subject to VAT? No. Under the ▪ Interest income on loans – VATable (CTA Case No. 8024, Waterfront Philippines Inc.
EPIRA Law, PSALM – a GOCC was created to manage the orderly sale, disposition, and vs. CIR)
privatization of the NPC generate assets and real estates and liquidate all of NPC’s ▪ Property, Plant & Equipment (PPE) – VATable (Mindanao II Geothermal Partnership
financial obligations. PSALM is not a successor-in-interest of the NPC; hence, the repeal vs. CIR)
of NPC’s VAT exemption does not affect PSALM. In any event, the sale of the power plants
is not in pursuit of a commercial or economic activity but a governmental function Incidental Sales
mandated by law to privatize NPC generation assets. As such, the sales of the power plant ▪ The sale of an asset purchased and used in the furtherance of the business is an
are not within the regular course of business condition under Section 105 of the NIRC. incidental sale. – classified as PPE. PPEs are tangible assets held for use in the
▪ Mindanao II Geothermal Partnership vs. CIR/Mindanao: This involves a sale of Nissan production or supply of goods/services or for administrative purposes and with useful
patrols. The Nissan patrols are used by the power plant for business purposes. Some were life of more than one period. (PAS 16)
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Sale of Real Property (Ordinary Assets) ▪ Exception to rule on regularity: Service rendered by Non-Resident Persons – always
If capital asset is involved, you don’t subject it to VAT because it presupposes that it is treated as “in the course of trade/business” hence VATable. Even if isolated-vatable.
not in the ordinary course of business. If ordinary asset, di sad automatic na i-subject to (Sec 105)
VAT. Check first if it exceeded the VAT threshold. If it exceeded, refer to Sec. 109 whether - If it is rendered by a non-resident person, that is considered as automatic as in the
it is included in the exempt sale of real property. Granting that it is an ordinary asset not course of trade or business, therefore, VATable, WON in the course of trade or
exempted, subject sya to VAT but the collection of VAT depends on the manner of business or even if for a very short period of time.
payment insofar as the real property is considered. It can be on: - When we say VATable, it does not automatically mean nga subject na siya to 12% VAT.
i. Cash basis – entire selling price is taxable in the month of sale It MAY be subject to 12% VAT because other than ascertaining nga musulod sya anang
ii. Installment plan (initial payment is 25% or less of GSP) – VAT on every installment type of transaction, we have to consider pa sad if ni-exceed siya sa 3M na threshold.
payments including interest and penalties (actual/constructive receipt) - Example: Nag concert si Dua Lipa diris Pinas, if mu-exceed ang proceeds sa threshold,
iii. Deferred payment basis (initial payment exceeds 25% of GSP) – same as cash basis it is NOT subject automatic to 12% VAT because that is more on amusement tax. But
if let’s say for example, a service is rendered by a consultant who is a non-resident
2. Sale of services or similar transactions in the course of trade or business person in the country, nya the proceeds from that service he rendered exceeded the
threshold, then he is now subject to VAT even if it is just an isolated transaction.
It must be in the course of trade and business. NIRC did not provide for a definition of - This service rendered by the non-resident person is more or less the concept of
service, rather it merely gives an enumeration of what is covered by the sales of service. importation, although ang importation lang kay limited to goods and properties
because you cannot import service. The person who must render the service must
▪ Lease/rent exceeding the exempt amount; come here to the country.
- Ex. Lease of residential units where gross receipts from rentals exceed 15k per month - HOWEVER, there’s a possibility that it will not still be subject to VAT especially if the
per unit shall be subject to VAT if the aggregate annual gross receipts (GR) exceed 3M. country of residence of that NRP has a treaty with the PH and in that treaty, it is
OW, the GR shall be subject to 3% percentage tax under Section 116 of the Tax Code. specified nga ang business income niya from the service is exempt from both income
▪ Dining in restaurants tax and VAT. But in the absence of application for a ruling, that can be considered as
▪ Lease of motion picture, films, discs (only the lease, it excludes showing or exhibiting VATable sale of service.
the film as it becomes subject to amusement tax)
- Only lease is considered vatable because the actual showing of the movie is already Summary:
subject to amusement tax under OPT. That’s why if muadto mo sa sinehan, they don’t GR: It must be in the ordinary course of business or trade.
collect 12% VAT but OPT known as the amusement tax. But the companies like viva EXC to the regularity: even if isolated transaction, if the one rendering the service is a non-
films, star cinema, if they lease out their motion pictures to these cinemas, then that resident person.
is considered VATable sale of service.
▪ Services of domestic carrier by air, sea, land (for land: if persons – 3% OPT; if cargo – CIR vs. Sony Philippines Inc. GR. No. 178697, Nov 17, 2010:
12% VAT) ▪ Sony Phil engaged the services of several advertising companies. Due to Sony Phil’s dire
▪ Sale of Electricity (as discussed under the E-Vat Law) is subject to VAT (generation, economic conditions, Sony Int’l Singapore (parent company) handed Sony Phil a dole-
transmission, etc.) out to answer for the expenses payable to the advertising companies. Because of this
▪ Non-life insurance dole-out, the book value of Sony PH increased. This was treated by the BIR as additional
- Life insurance is not subject to VAT since this is already covered under OPT provision. revenue or additional receipts on the part of Sony PH. It considered the dole-out as part
It may also be subjected to Documentary Stamp Tax (DST) for the entire insurance of its incidental course. It was then assessed with deficiency VAT. In defense, Sony PH
policy.
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argued that there should be no VAT because there was no actual sale between Sony PH So again, there are different tax bases and substantiation or documentation requirements
and Sony SG. among these three taxable transactions. These proofs are required for the availment of the
▪ RULING: In resolving this, we should ascertain first if musulod ba sya sa 3 VATable input tax.
transactions. The Supreme Court ruled that the dole-out or subsidy from the
Singaporean company to the Phil Company neither constituted a sale of goods or Two cases of tax-free Importations:
properties nor sale of services. In this case, the BIR just made presumptions. BIR must 1. Importation of tax-free product regardless of the status of the importer; subsequent sale
have based on factual basis duly supported by the bureau, not just mere presumptions. is still vat exempt.
If it’s just based on presumptions, no matter how logical they are, that defeats the due Example: Once you import rice, that would not be subject to VAT because that is considered as agricultural
process requirement under the constitution. If SC would allow this VAT imposition in food product in its original state. If you’re going to sell that to somebody else, that is also not subject to VAT
because the exemption is on the product itself.
this case, it would tantamount to undue taking of property.
2. Importation of taxable products but exempted due to status of VAT-exempt importer;
3. Importation of goods WON in the course of trade or business
subsequent sale to a VATable buyer is subject to VAT. This is true WON made in the course
of trade or business.
▪ Only importation of goods/properties NOT service. It can be exempt from VAT temporarily because the one importing it is exempted from VAT. But it would be a
- How can you import a service without bringing here to the country the person who different story if the product is VAT-taxable but ang VAT-exempt kay si importer (for ex. PEZA-registered
will render the service? That’s why when it comes to importation of service, adto nimo companies). These PEZA entities are subject to 5% on their gross income earned in lieu of all taxes (inc. VAT).
sya isulod sa sale of service exception to the rule on regularity. Mao to nga the service Lets say for example, a Peza-registered company imported a VAT-taxable machinery. Initially, the importation
would be exempted from VAT since the importer is VAT-exempt. However, once that importer sells the
rendered by NRP is considered vatable sale of service, WON in course of trade or product to somebody who is located in the customs territory or outside of the economic zone, VAT will now
business be imposed. This sales transaction of a VAT-taxable product from a PEZA company to a company located in the
▪ VATable WON made in the ordinary course of business. customs territory is what we call technical importation.
- pursuant to the destination principle; the goods or properties will go inside our
territories so ang presumption iconsume na nato dri sa PH. TECHNICAL IMPORTATION – a company located in a special economic zone or located in a free port zone will
sell a taxable product to somebody who is located in the customs territory. Since it is considered as importation
▪ Exempt importation – personal household effects of balikbayan or to resettle in the WON it is in the course of trade or business, then 12% vat should be collected (don’t forget the threshold).
Philippines with exceptions. Balikbayan box
Customs territory – within the jurisdiction of the bureau of customs; outside of the economic zone.
Sale of goods and properties If the product is exempted, then we go to the first, even if the importer is also exempted.
TAX BASE: Gross Sales TRAIN 1: 12% VAT will already be imposed (1) for every sales transaction intra-zone – within the PEZA or within
PROOF: Sales Invoice the economic or free port zone; and (2) for every sales going to the customs territory. Although refundan lang
daw sa govt tong intra-zone transactions within the period of 90 days. This system is called the enhanced VAT
Sale of service refund system, which is supposed to start next yr. Sa karon kay only sales going to the customs territory are
TAX BASE: Gross Receipts subject to 12% VAT man. Kadtong intra-zone, exempt. FYI, not all PEZA-registered companies mu-export. There
are small and medium PEZA companies which produce the raw materials, then sell it to big companies within
PROOF: Official Receipt the zone which are the ones na mag-actual export. So, murag na-alkansi ning mga small and medium na
supplier sa raw materials sa mga companies na muexport sa finished products.
Importation
TAX BASE: Landed Cost – this usually includes the cost of shipping, bringing the goods to the
warehouse, etc.
PROOF: BIR Form No. 32 or the Import Entry Declaration
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When subject to VAT? Sole Proprietorship
GR: (1) Persons whose gross annual sales or receipts during any year or in any 12-month period A sole proprietor, Mr. Lloydie, has many businesses: retail or sale of goods and properties, sale
exceeds the threshold (3M) OR (2) even if sales or receipts do not exceed but REGISTERED under of services, and operator of jeepney. If the proceeds from each business amounted to 2M each,
the VAT system. a total of 6M, what are the tax liabilities?
To ascertain whether a sole proprietor is subject to VAT, the aggregate of all VAT taxable
Rule: transactions will be considered. Since in this case, the proceeds (4M) from the two VAT taxable
▪ If VAT-registered: subject to VAT, regardless of amount transactions (retail or sale of goods & properties and sale of services), exceed the 3M threshold,
▪ If not: then Mr. Lloydie will be subject to VAT. However, the proceeds from the operation of jeepney
- Look at the transaction if musulod sa 3 taxable transactions shall not be included in the aggregation because it is subject to OPT. the nature of business will
- If yes, look at the threshold (3M) – subject to VAT not matter because if it is sole proprietorship, insofar as the BIR is concerned, you only have 1
TIN for the sole proprietor and when it comes to the filing of the ITR of the sole proprietor i-
Persons liable to VAT aggregate na nila ang sources of income from self-employment.
1. Seller – any person who, in the course of trade or business Corporation with branches
- Sells, barters, exchanges, leases goods or proeprties subject to VAT A corporation has a head office (HO) in Cebu City. The following are its branches: (1) Talisay
- Renders services subject to VAT Branch, generating 1M receipts in sale, (2) Liloan Branch, 1M, and (3) Consolacion branch, 2M.
Is the corporation-HO subject to VAT?
2. Importer Yes, because the accumulated proceeds of all its branches already exceeded the threshold. In
- He is the statutory taxpayer, not the seller. Since the seller is located abroad, he is beyond determining the threshold everything will be based with the aggregate amount of the receipts
the jurisdiction of the BIR. because they are considered as one entity only. Even though each of the branch will have their
- Importer is engaged or not engaged in business own TINs (their TINs will be based on the TIN of the HO; naa lang nay -001, depending ikapila
- Importation is to be used for business or non-business/personal purpose. sya na branch), all will be aggregated because when it comes to tax reporting for these
branches, it will be consolidated to the HO. Although they will have their own filing in their
Why the need to determine who is the statutory taxpayer? respective RDOs (location of the branch), eventually that will be consolidated with the HO.
The BIR runs after the statutory taxpayer if there is no remittance of 12% VAT. Moreover, only
the statutory taxpayer can claim refund for erroneous collection of tax, carry over, tax credit. Parent-Subsidiary
They are the proper claimants even if the final consumers are the ones actually being burdened The personality of the subsidiary is considered independent from the personality of the parent.
by such imposition. So in that in case, tax liabilities will be separate and distinct for each subsidiary company. Dili
na i-aggregate ang GR or GS ni subsidiary company to determine if ni-exceed na sya sa
VAT Threshold threshold. Subsidiary companies have their different TINs and different registration with the
Before TRAIN: P1,919,500; After TRAIN: P3M BIR.
Other than transactions which are VAT-exempt:
▪ Gross annual sale of goods/properties; or Franchise
▪ Gross receipts from performance of service; or Amusement tax The franchisor and franchisee have different tax reports. The franchisor, for example, reports
▪ Landed cost of the property imported OPT 3% its franchise fees to franchisees as part of its sale of service. As to the franchisee, if magpa-
register siya as sole proprietor, different sad iyahang recording of gross sales/receipts.
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TRANSACTIONS DEEMED SALE (Section 106, NIRC) • Land held for sale (realty company) transferred in payment of backwages and
separation pay of employees
‘Deemed’ presupposes that there is no actual sale of goods that took place, but such transaction
is subject to VAT. The rationale is to recapture the VAT that was already claimed as input tax. BIR Ruling DA-297-05
Floors of a building (owned by the company and used in business) contributed to the
Example: 10 pairs of slippers were purchased; but only 8 pairs were sold, while the other 2 were employees’ retirement fund is NOT subject to VAT
only donated. The output vat will only be good for 8 pairs, but the input VAT claimed is for 10 ▪ Not a sale, barter or exchange of taxable goods made in the course of business
pairs. So, without this provision deemed sale, alkansi ang gobyerno. ▪ Not deemed sale transaction
• Not a payment to a creditor
Sec. 106. Value-Added Tax on Sale of Goods or Properties: • A transfer in the course of business
(A) Rate and Base of Tax – there shall be levied, assessed and collected on every sale, barter
or exchange of goods or properties… 4. Consignment of goods if actual sale is not made within 60 days following the date such
goods were consigned.
A transaction may be subject to VAT even if there was no actual sale of properties. [SO 3Cs] • Consigned goods returned by the consignee within the 60-day period are not deemed
sold.
1. Transfer, use or consumption not in the ordinary course of trade or business of goods
and properties originally intended for sale or for use in the course of trade or business; 5. Retirement from or cessation of business – all goods on hand shall be deemed sold
• Whether capital goods, stock-in-trade, supplies or materials as of the date of retirement
Donations or gifts • WON the business is continued by the new owner or successor
In general, VATable, unless exempt.
▪ If OA of the donor, the same shall be considered deemed sales subject to VAT You have to formally dissolve your business before the BIR. If you are a VAT-registered person, the BIR expects
▪ Corresponding input VAT attributed to the VAT portion of the cost of the donation must be you to do a monthly and quarterly filing of your VAT tax returns. So if mu stop ka without properly filing a stop
deducted from the accumulated input VAT of the donor. filer notice to the BIR, ang system sa BIR mag continue na ug expect na dapat naka file ka. So automatic na mu
kwenta sa interest and surcharges and penalties for your failure to file. The BIR will not give you a clearance of
▪ Exempt if donor or donated properties are VAT-exempt {BIR Ruling [DA-(DT-016)116-10]} dissolution if you do not pay for those open cases. This clearance of dissolution is needed because it is a
requirement for dissolution in the SEC. One of the requirements to get a dissolution clearance from the BIR is
The usual situation is when the owner withdraws the goods from his business for personal use or for donation. For the audited financial statemens (AFS) as well as the inventory listing. So, the BIR will refer to these documents in
example, the business of the taxpayer is into baking. He took some of their inventories for the preparation sa birthday ascertaining the transactions that will be deemed sold. OW, ma-alkansi ang government because the company
sa iya anak. Kaning gi-withdraw na inventory, it will be subjected to 12% VAT. already claimed the corresponding input tax for all those purchases.
2. Distribution or transfer to shareholders or investors as share in the profits of VAT- PP vs. Katherine M. Lim and Edelyn Coronacion, CTA Criminal Case No. 0-113, Dec. 12, 2011
registered persons; ▪ This is a tax evasion case. This involves the closure of a business but wala nila gibayaran ang
• Property dividends in the form of stocks in trade or properties primarily held for sale VAT for the ending inventory nila. The taxpayers here contended that they should not
or lease (under current rules including those used in business) anymore be subjected to VAT because their ending inventory was already garnished for the
• VAT base: zonal value or FMV at the time of distribution, whichever is applicable payment as backwages to their employees etc. in a separate case. Wala na ni exist ang
ending inventory, but naka-report pa sa FS.
3. Distribution or transfer of inventory to creditors in payment of debt or obligation; ▪ CTA: The closure of a business and/or cessation of one’s business operations does not
• Condominium given to the architect as payment for architectural services. automatically imply or result in the absence of inventories or properties, which may be
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subjected to VAT under Section 106 of the Tax Code. The Tax Code considered "retirement giclose toh nimong sa Talisay, so it’s not considered retirement or cessation of business kay
of business" relative to the "inventories of taxable goods existing as of such retirement or nag exist pa man ang HO.
cessation" as transaction deemed sale" subject to VAT, because the law contemplates the
eventual sale and disposal by the taxpayer of its remaining goods. VAT BASE: Sale of goods
▪ In the same vein, the CTA further explained that foreclosure and public sale of one’s ▪ Gross Selling Price – Total amount of money or its equivalent which the purchaser pays or
properties do not necessarily mean non-existence of taxable goods in the absence of proof is obligated to pay to the seller in consideration of the sale, barter, or exchange of the goods
to the contrary. or properties, excluding VAT, but including the excise tax, if any. (Section 4 106-4 RR16-05,
▪ Existence of “inventories” and property, plant and equipment, as reported in the financial as amended)
statements of the company, despite that the company’s remaining inventories were already
disposed in favor of its erring employees, is evidenced of existence of inventories which may VAT BASE: Sale of Real Properties
be subject to VAT. ▪ Gross Selling Price – consideration stated in the sales document or the FMV, whichever is
HIGHER
Retirement from of cessation of business… ▪ FMV:
i. Change of ownership of the business (1) HIGHER between:
▪ A single proprietor incorporates – inventories transferred from the single proprietorship o FMV as determined by the CIR (zonal value), and
to corporation are deemed sold. Lahi naman silag TIN. o FMV as shown in the schedule of values of the Provincial or City Assessors (real
▪ The proprietor of a single proprietorship sells his entire business property tax declaration)
ii. Dissolution of a partnership and creation of a new partnership which takes over the business (2) In the absence of (1), market value shown in the latest RPT declaration
iii. Conversion of a branch to a wholly owned subsidiary = retirement from business ▪ IOW, GSP is whichever us the HIGHEST of the:
The branch referred to is not the locational branch. It’s the branch of a foreign entity or foreign corporation. As o Consideration stated in the deed of sale;
what we’ve discussed in Tax 1, FC can have its presence here by establishing a branch or a subsidiary or a o Zonal value; and
representative office or a regional operating headquarter, etc. If it is a branch ang ni- establish, considered one
entity si FC, extension lang niya ang branch. But if we say subsidiary, considered as different entity nah sya from o RPT declaration
the parent corporation located abroad. Kung ganahan sila mag branch to subsidiary, that will be considered also
retirement from business. BASIS OF VAT for transactions deemed sale:
1. market value at the time of the transaction
Transfer of assets in the branch in exchange for shares of the subsidiary is generally VATable 2. in the case of retirement of business – acquisition cost or the current market price,
▪ goods on hand whether capital goods, stock-in-trade, supplies or materials as of the date whichever is LOWER
of the reorganization – VATable 3. where the GSP is unreasonably lower than the FMV – the actual market value
▪ real property not held for sale or lease (1985 & 1991 ruling) - exempt
Sale of real properties
Closure of branch: ▪ If the GSP is based on the zonal value or market value of the property, the zonal or market
▪ BIR Ruling No. DA-358-03: There is no change in ownership or retirement or cessation of value shall be deemed exclusive of VAT.
business in case of closure of a branch. Hence, closure of a branch should not be considered ▪ If the VAT is billed separately then the selling price stated in the sales document shall be
“deemed sale.” deemed inclusive of VAT.
▪ The branch referred to here is the locational branch, as distinguished from what have been ▪ VATable sale of real property Because if not, then such should be subjected to CGT
discussed earlier. For ex, there is a domestic corporation (DC) na naay branch sa Talisay, and o held primarily for sale to customers or
o held for lease in the ordinary course of trade or business of the seller
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▪ Installment sale – output VAT due on every installment payment, including interest and Non-deductible discounts
penalties, actually and/or constructively received by the seller. o Prompt payment discount (BIR VAT Ruling No. 068-91, July 05, 1991; Goldstar Philippines
In case of a sale by a real estate dealer in installments, the VAT can be computed in installments if the initial Sales Corporation v. CIR, CTA Case No. 5715, May 11, 2004)
payments do not exceed 25% of the SP. o Rebates for meeting pre-set monthly quota (BIR VAT Ruling Nos. 204-90, October 1 1990
▪ Deferred-payment – treated as cash sale and entire selling price taxable in month of sale and 224-89, September 6, 1989)
Initial payments (downpayment + all payments within the 1st taxable year) exceed 25% of the SP
o Volume, bulk or quantity discount
VAT BASE: Sale of Services
▪ Gross Receipts – total amount of money or its equivalent representing the contract price, 2. Sales returns and allowances - deductible from gross sales or receipts in the month or
compensation, service fee, rental or royalty, including the amount charged for materials quarter in which the refund is made or the credit memorandum or refund is issued for
supplied with the services and deposits and advanced payments actually or constructively sales previously recorded as taxable sales (Sec 4 106-9, RR 1605)
received during the taxable quarter for the services performed or to be performed for
another person, excluding VAT.
VAT REGISTRATION & VAT INVOICING
VAT BASE: Lease of Property
▪ Gross Receipts since this is sale of service, not sale of goods or properties. VAT is a transparent form of sales tax because you are required to issue VAT OR or VAT invoice.
▪ Gross rental as appearing in the contract of lease, including advance payment in the nature
of pre-paid rent (VATable in the month received) and security deposit (VATable at the time Mandatory Registration
of application to rental) Any person who, in the course of trade or business, sells, barters, exchanges goods or
▪ If advance payment is a loan to lessor, or option money for the property – NOT subject to properties, or engages in the sale of exchange of services, shall be liable to register for VAT if:
VAT 1. His gross sales or receipts for the past 12 months, other than those that are exempt under
▪ Lease of property located in the Philippines is subject to VAT, regardless of the place where Section 109(A) to (U), have exceeded P3M; or
the agreement was executed) 2. There are reasonable grounds to believe that his gross sales or receipts for the next 12
months, other than those that are exempt), will exceed P3M.
ALLOWABLE DEDUCTIONS FROM GROSS SELLING PRICE Effects of voluntary registration

▪ can claim input VAT
1. Discounts – deductible from gross sales within the same month or quarter it was given; ▪ under NIRC, such registration is considered irrevocable for 3 years, bisag wa jud ka ni-exceed
only cash discounts that are not dependent on a future event or condition or happening sa threshold, EXCEPT for some special entities nga ang voluntary registration becomes
are deductible; does not include trade discounts perpetual. These entities pertain to franchise grantees of radio and or television
broadcasting.
Conditions for deductibility: [BEDS]
▪ Determined and granted at the time of sale; Effects of failure to register for those mandated to register
▪ Grant not dependent upon the happening of a future event; ▪ liable to pay the output tax as if he were a VAT-registered person, without the benefit of
▪ Expressly indicated in the invoice; and input tax credits for the period in which he was not properly registered
▪ Amount forms part of the gross sales recorded in the books. ▪ will be assessed deficiency VAT on sales
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▪ since the taxpayer can no longer claim input tax, the output tax will be equivalent to his VAT Where to register
payable. And your VAT payable will be further increased by interest, surcharges and The application shall be filed with the RDO where the principal place of business, branch,
penalties. storage place or premises is located, as the case may be, before commencement of business or
production or qualification as a withholding agent.
Even though X is already mandated to register under VAT system, he did not do so; rather, he But aside from considering the location, you also check your BIR form 2303 or your BIR
opted to pay the 3% OPT. Can he claim this as a tax credit by the time masakpan na sya and certificate of registration (BIR COR). There are some companies man gud na mu-transfer from
be made liable to pay VAT? one location to another but fail to provide that update.
No, touch move na syas OPT. He cannot claim it as tax credit. He can also be held liable sa 12%
VAT na output without the benefit of input, then interest and surcharges pa. Annual VAT registration fee
▪ only P500 using the form 0605
Optional VAT Registration ▪ paid on or before the 31st day of January.
1. Any person who is VAT-exempt or who is not required to register for VAT. Cancellation of Registration
▪ Irrevocable for 3 years A VAT-registered person may cancel his registration for VAT if:
Ex. Roasted chicken is considered in its original state. So, the roasted chicken is supposedly exempted from 1. If he makes written application and can demonstrate to the CIR satisfaction that his gross
12% VAT. But if mag dine-in ka, you are basically not just purchasing the roasted chicken. You are purchasing sales or receipts for the following 12 months, other than those that are exempt, will not
the service as well because that is restaurant service naman, so subject sya to VAT. If take out, VAT-exempt
unta kay ang product in its original state ra man imu gi-buy. However, hasul na ni on the part sa restaurants exceed 3M.
that’s why they opt to register under the VAT system. So mapa dine in or take out, subject nila tanan to VAT to Proof: 3-yr prior AFS.
avoid confusion.
2. He has ceased to carry on his trade or business and does not expect to recommence any
2. Any person who is VAT-registered but enters into transactions which are exempt from VAT. trade or business within the next 12 months.
▪ Irrevocable for 3 years
Some other instances where a VAT-registered person may apply for cancellation of registration
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of are:
the preceding year do not exceed 10M derived from the business covered by law granting 3. There is a change in ownership, in the case of a single proprietorship;
the franchise. 4. Dissolution of a partnership or corporation;
So, mandatorily covered lang if mu-exceed 10M. If not, subject to OPT. Pero pwede sila 5. Merger or consolidation with the respect to the dissolved corporation;
mu-voluntarily register under the VAT system, but such will be irrevocable perpetually. 6. A person who has registered prior to planned business commencement, but failed to
actually start is his business.
If you've read the RR for VAT, there was a transition period there because diba ang VAT karun
kay gi increase naman ang threshold from 1,999, 500 to 3M. So it turns out na before 2018, Invoicing Requirements
there were some VAT-registered taxpayers nga wala na ni exceed sa 3M pag 2018 or did not
expect na muabot ug 3M. So, in the transitory provision, instead na icheck sa BIR imu AFS ▪ Sales invoice – sale, barter or exchange of goods or properties
covering 3 years, for you to rebirth from a VAT to non-VAT registered, 1 year na lang ang iya i- ▪ Official receipt – lease of goods or properties and for every sale, barter or exchange of
check. services
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▪ Import Entry and Internal Revenue Declaration (IEIRD-BOC Form 236/ BOC Form 38-A (like 3. The description, quantity and unit cost must be specified separately. There must also be a
an official receipt coming from the bureau of customs) / other equivalent document)- breakdown of the vatable, zero-rated and vat-exempt components of the sale. The total
importation of goods or properties amount to be paid by the buyer and the amount of the VAT must be shown separately.
TN: All these 3 must be in the name of the company because if it is in the name of its broker or 4. If zero-rated sale, there must be an indication that it is a zero-rated sale, written or printed
agent, it cannot claim Input VAT. prominently on the invoice receipt. Same rule applies to VAT-exempt transactions.
Important information that needs to be in the sales invoice
Consequence of issuing erronoues VAT invoice or VAT OR
1. Indicate the corporate name of the seller as well as the address of the seller and it must ▪ fine not less than P1k but not more than P50k;
indicate the TIN and the fact that the seller is a VAT registered. That is why you call it VAT ▪ may also lead to imprisonment of not less than 2 years but not more than 4 years
sales invoice or VAT official receipt.
Summary:
There was one case involving an electric company. They tried to claim for an input VAT because it was a zero- ▪ Same requirement ang sale of goods and services: name of the seller, the TIN of the seller,
rated transaction. But it was denied by the BIR for the simple fact na the invoice or OR failed to indicate that it an indication that it is a VAT OR, the name of the customer, business style, iseparate ang
is VAT zero rated transaction. Because if walay indication na zero-rated or vat exempt then the presumption is
that it is vatable. vatable, exempt ug zero-rated.
▪ BOC 38-A – provides for the specification on the amount of the VAT. You have the import
2. Indicate the name, business style, and TIN of the buyer or client especially if the sale duty and the BIR taxes portion for the VAT. This serves some sort of an OR ni BOC if pila ang
amounts to at least 1,000. gibayaran nimo so that it can be used as a sufficient proof of your payment of the VAT.
o corporate name – the official name indicated in the articles of incorporation. The Tax Rates
o business style – also indicated in the articles of incorporation but the difference is that in The tax, applied on the gross selling price, is:
the records of the SEC and when it comes to marketing, public sale relations, more known (a) 12%;
ka using your business style. (Ex. Metro Retail Stores, Inc. is the corporate name but it is (b) 0%.
known for 10 business styles such as Metro Supermarket, Tita Gwapa, etc.). It is intended In the case of a sale to the Government of the Philippines or any of its political subdivisions,
to avoid any error / confusion in identifying/ matching taxpayers under the relief system instrumentalities or agencies, including GOCCs, the VAT is a 5% final tax, to be withheld as
payment is made to the seller.
This is important because the BIR has this so-called relief system. This is an online system which also covers
imports, income tax reports, withholding tax reports, etc. For VAT purposes, si buyer, mag file ug return for
input VAT. Si seller, on the other hand, mag report sad ug gross sales or receipt niya so kita ang output VAT.
What the system will do is ibangga. So if naay business style, ma reconcile siya. ZERO-RATED TRANSACTIONS
Medicard 2017 case – there is a comprehensive discussion on the relief system As distinguished from exempt transactions where there are no output and input taxes, zero-
SC: If you say that there is a vatable sale, it must be based on facts. It must not be based on presumption, no rated transactions have an output tax but only at 0% and can claim input taxes rated at 12%.
matter how logical it is. The purpose of the relief system is to guide you if there is a discrepancy. But you cannot
The primary requirement to avail of the provisions for zero-rated transactions is that you must
base the assessment unreported sale or receipt based on the discrepancy in the relief system. It must be based
on facts. be a VAT-registered person.
o zero-rated sale of goods or property

o zero-rated sale of service
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Zero-rated Transactions (Sale of goods) under TRAIN subsidiary here in the Philippines na ga-manufacture and nag export actually. So, the customer is the parent
company abroad but i-deliver nila sa subsidiary company of that company here in the Philippines.
Export Sales Export-oriented enterprise
An enterprise whose export sales exceed 70% of the total annual production. But under the 2nd package of the
▪ There must be actual delivery Comprehensive Tax Reform Program, they are proposing to increase it to 90%.
▪ In acceptable foreign currency
▪ For 2-4, will be subject to 12% VAT upon implementation of enhanced VAT refund system 3. Sale of raw materials or packaging materials to export-oriented enterprise whose export
sales exceed 70% of total annual production;
1. Sale and actual shipment of goods from the Philippines to a foreign country;
Wala ni nigawas sa Philippines but since it will form part of the finished goods or output na i-export ni export-
This is the primary activity or transaction subject to the 0% VAT for the zero-rated sale of goods and properties. oriented enterprise, then currently, it is subject to 0% VAT. But again, once the enhanced VAT refund system will
be implemented, it will be subject to 12% VAT. In this case, however, there is no requirement for payment of
Requisites: acceptable foreign currency because you can be paid in Philippine peso since your buyer is a resident export-
▪ There must be sale and actual shipment of goods from the Philippines going out of the country. oriented enterprise; hence, domestic or located here in the PH.
▪ It must be paid for in foreign currency accounted for in accordance with the rules of BSP.
4. Those considered export sales under Executive Order No. 226, otherwise known as the
TN: If it is an actual export then automatically zero-rated provided you are VAT-registered. If you are not VAT- “Omnibus Investment Code of 1987”, and other special laws; and
registered but you actually export, then dili ka maka avail sa provision under Sec. 106. Adto ka sa Sec. 109 which
covers exempt transactions. Wala gihapon kay output VAT pursuant to the cross-border doctrine, but you cannot
claim input VAT for your purchases. 5. Sale of goods, supplies, equipment and fuel to persons engaged in international air
transport operations: Provided, that the goods, supplies, equipment and fuel shall be used
2. Sale of raw materials or packaging materials to a non-resident buyer for delivery to a for international shipping or air transport operations.
resident local export-oriented enterprise to be used in manufacturing, processing or
repacking in the Philippines in acceptable foreign currency and in accordance with the Zero-rated transactions (Sale of goods)
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
BEFORE TRAIN
The difference between this export sale from the first one is that diri, wala migawas sa PH. This is limited only to
1. Sale of raw materials or packaging Same rules, provided that the transaction
raw materials or packaging materials and the buyer must be a non-resident for delivery to a resident local export-
oriented enterprise. Ang first export sale, walay gi qualify na packaging etc. basta it goes out of the country. materials to a non-resident buyer for will be subject to 12%, value added tax and
delivery to a resident local export- no longer export sales subject to 0% upon
Requisites: oriented enterprise to be used in satisfaction of the enhanced VAT refund
▪ It covers only raw materials or packaging materials manufacturing, processing, packing or system.
▪ Buyer is non-resident – reason for this is because dapat bayaran man ka in foreign currency
▪ Deliver within the Philippines because it is delivered to a resident local export-oriented enterprise repacking in the Philippines in acceptable
▪ Paid for in acceptable foreign currency foreign currency and in accordance with
▪ Accounted for in accordance with the rules and regulations of the BSP. the rules of the BSP
2. Sale of raw materials or packaging Same rules, provided that the transaction
Why is this considered an export sale?
The reason is because eventually, mugawas siya. Since raw materials siya or packaging materials, this will form
materials to export-oriented enterprise will be subject to 12% value added tax and
part of the finished output or the final product which will eventually be exported because you deliver it to a whose export sales exceed 70% of total no longer export sales subject to 0% upon
resident local export-oriented enterprise. So there are some PEZA companies, small and medium, na ga-produce annual production satisfaction of the enhanced VAT refund
ug raw materials or packaging material. They enter into a contract with a foreign company abroad who has a system.
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3. Those considered export sales under Same rules, provided that the transaction This is the labor aspect of the sale of goods, supplies, equipment and fuel to those engaged in international
shipping or international air-transport operations.
Executive Order No. 226, otherwise will be subject to 12% value added tax and
known as the “Omnibus Investment Code no longer export sales subject to 0% upon 5. Services performed by subcontractors and/or contractors in contractors in processing,
of 1987”, and other special laws satisfaction of the enhanced VAT refund converting, or manufacturing goods for an enterprise whose export sales exceed 70% of
system. total annual production;
4. Sale of goods, supplies, equipment and …Provided, that the goods, supplies,
fuel to persons engaged in international equipment and fuel shall be used for This is also the labor aspect sa sale of RM or PM to export-oriented enterprise. So, same reasoning as
air transport operations international shipping or air transport mentioned earlier. Since the service is rendered here in the PH, we can take it away without violating the cross-
operations. border doctrine kay wa man nah nigawas sa border sa PH. Mao nang under the TRAIN Law, they will subject it
to 12% VAT once the enhanced VAT refund system will be implemented.
Zero-rated transactions (Sale of services) under TRAIN 6. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects to the
▪ For 1-3, services are rendered outside the country and must be in acceptable foreign supply of such services to 0% rate; and
currency
▪ 1 & 5 will be subject to 12% VAT upon implementation of enhanced VAT refund system This is more on the special agreements or treaties to which the Philippines enters into.
1. Processing, manufacturing or repacking goods for other persons doing business outside 7. Sale of power or fuel generated through renewable sources of energy such as, but not
the Philippines which goods are subsequently exported; limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other
emerging energy sources using technologies such as fuel cells and hydrogen fuels.
This is the labor aspect of the sale of RM or PM na gi-deliver diri sa Phils. The point is diin gi-render ang service?
Diri sa Phils. Walay actual export of service. So mao to na currently 0% but currently moving na isubject na sya BEFORE TRAIN
to 12% VAT.
1. Processing, manufacturing or repacking Same rules, provided that the transaction
goods for other persons doing business will be subject to 12% value added tax and
2. Services rendered to a person engaged in business conducted outside the Philippines or to
outside the Philippines which goods are no longer export sales subject to 0% upon
a non-resident person not engaged in business who is outside the Philippines when the
subsequently exported in acceptable satisfaction of the enhanced VAT refund
services are performed;
foreign currency and in accordance with system.
3. Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a the rules of BSP
foreign country; 2. Those considered export sales under Same rules, provided that the transaction
Executive Order No. 226, otherwise will be subject to 12% value added tax and
It must be a direct trip from the Phils. going abroad. It must not stop here in any local ports. This one is on the known as the “Omnibus Investment Code no longer export sales subject to 0% upon
transportation service. of 1987”, and other special laws satisfaction of the enhanced VAT refund
system.
4. Services rendered to persons engaged in international shipping or international air
3. Services rendered to persons engaged in …Provided, that the goods, supplies,
transport operations, including leases of property for use thereof: Provided, that the
international shipping or international air equipment and fuel shall be used for
goods, supplies, equipment and fuel shall be exclusively used for international shipping or
transport operations, including lease of international shipping or air transport
air transport operations;
property for use thereof operations.
SY 2018-2019 404_Taxation 2 - KMA
TN: the seller will not charge VAT because it is subject to 0% VAT, but the seller can claim for
▪ For sale of goods, supplies, equipment and even to those engaged in international shipping refund or credit of input VAT for the VAT previously charged by his suppliers.
or international air transport operation to be considered as zero-rated transaction, from ▪ ‘Effective’ – Pwede bawiun ni government ang effective zero-rating because it is only zero-
docking in the Philippine port to get the goods, supplies, fuel and equipment, the vessel must rated because of a law or by virtue of a treaty entered into by the country granting it. It does
go out directly to an international port. And it must be used for the shipping or transport not necessarily pertain to the cross-border doctrine or the destination principle. Ex. sales
operation purposes. happening intra-zone or within a free port zone. VAT sales invoice or VAT OR gihapon ang
▪ The service aspect sa engaged in international shipping or international air transport iissue but didto lang sa portion na VAT zero-rated sale ibutang ang figure, not under VATable
operations is zero-rated gihapon. Ang gidugang lang sa TRAIN is that the goods, supplies, sale, and the seller can consequently ask for the refund or credit for the input VAT portion.
equipment and fuel shall be used for international shipping or air transport operations. So, The effective zero-rating is more related to what we call as constructive exports – kadtong
the services portion should be for the international shipping or air transport operations. As exports na walay actual export, diri ra sud sa Philippines nahitabu, from a customs territory
to the sale of goods or properties, klaru unsay gi-refer – goods, supplies, equipment and fuel. to economic zone territory or those sales happening within the economic zone.
But here, services. What do we mean by ‘service aspect’? If it is a foreign vessel na mudock
sa Philippines, di nah sila kadiretso ug dock lang sa port. Usually, mu-contact nah sila ug
domestic companies which provide tagging or docking services. Mao may mu-dala nila ENHANCED VAT REFUND SYSTEM
padung sa port. So basically, that is the service aspect there. Tagging, docking and ferry
services. So, these types of services fall under this provision. Pwede sya ma-subject to 0% ▪ Grants refunds of creditable input tax within 90 days from the filing of the VAT refund
VAT, provided, the one rendering the service is a VAT-registered person or entity. application with the BIR.
▪ The DOF shall establish a VAT refund center in the BIR & BOC that will handle the
Automatic 0-rating vs. Effective 0-rating processing and granting of cash refunds of creditable input tax.
▪ All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by
Zero-rated Effectively zero-rated December 31, 2019.
Refer to export sale of goods of services Refer to sale of goods or services to persons
or entities whose exemption under special Period within which refund of input taxes shall be made (Before TRAIN)
Tax is at 0% laws or international agreements to which For applications filed before January 1, 2018 in relation RMC 54-2014
the Philippines is a signatory.
The seller charges no output tax but can Within 2 years Decision:
After close of TQ Approval/Denial
claim a refund of or a tax credit certificate for The seller who charges zero output tax on
the VAT previously charged by suppliers. such transactions can also claim a refund or
tax credit certificate for the VAT previously Within 120 days Within 30 days
VAT Refund Inaction deemed denial
charged by suppliers.
Application Taxpayer may appeal
Automatic zero rating generally applies to Effective zero rating applies to INDIRECT or decision on denial to CTA
ACTUAL exports. CONSTRUCTIVE export sales i.e. sale to
export-oriented enterprise.
▪ ‘Automatic’ – because you don’t need to get a ruling or any certification from the BIR
because of the fact that it actually went out of the country. If it is automatically zero-rated,
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Period within which refund of input taxes shall be made (TRAIN) There are 2 relevant sections when it comes to refund nya same na 2 years ang period.
For applications filed starting January 1, 2018 in relation RMC 54-2014 o Sec. 112 – refund of excess input but not because of erroneous tax. Nilapas lang jud ang
input nimu over output. The 2-yr period covers only the admin part.
Within 2 years Decision: - Approval o Sec. 229 – also talks of refund of excess tax, not necessarily input tax, but that presupposes
After close of TQ - Denial: in case of partial/full denial, CIR must
state in writing the legal and factual basis erroneous collection of tax. Meaning to say ang liability nimu 1M lang, ang gi-collect ni BIR
sa imu kay 1.5M so magparefund kas .5M. The 2-yr period covers both admin and judicial or
actions before the CTA.
Within 90 days Within 30 days
VAT Refund Inaction: Agent or employee
Application punishable under the code Taxpayer may appeal As discussed, in the previous provision, pwede ra to dili i-act ni BIR, na wala ra syay irender na
decision on denial to CTA decision. Muhuwat ra ka na mu-lapse ang 120-day period. But now, under the Enhanced VAT
Refund System, the CIR through its authorized representative MUST render a decision whether
As to the period when to claim for refund of input taxes, refer to Sec. 112 of the NIRC, as to approve or to deny, not just implied denial. Sa previous provision kay implied denial man to
amended by the TRAIN Law. The enhanced VAT refund system tells us that refunds of creditable kay way gi-issue within 120 days. Now, it must be express denial. So, if it will be denied by the
input tax will now be made within 90 days from the filing of the VAT refund application with CIR, it can either be partial or full denial, but in such case, the CIR must state in writing the legal
the BIR. This is the meat of the provision under the TRAIN Law. There is already a concept of and factual basis for the denial. When we say legal and factual basis, there has to have a
refund before, but the period of refunding the excess input tax is not 90 days but 120 days. provision in the law in relation to the application or claim for refund of taxpayer. Dili nah pwede
When we say excess input, the input VAT is higher than the output VAT. This happens when you nga muingon lang sila na ‘denied for lack of legal basis or for lack of merit.’ Before, if magpa-
are a VAT-registered person engaged in a VAT zero-rated transaction. The very first thing you refund ka, everything goes to the central office because it will be processed by a particular
prove is that you are VAT-reg and the transaction na gi-enter nimu falls under any of the VAT division in the central office. Now, in the enhanced VAT refund system, kung magpa-refund ka,
zero-rated transaction. muadto nalang kas RDO because they will already establish a refund center in every RDO. Mao
nah kung mangutana mu if applicable na ba nah ron, dili pa because in the first place, they are
Before TRAIN Law, makakuha ka ug refund sa excess input over output nimu if you file for still hiring personnel who can sit as processing officer for the refund. And it is quite a risky
refund within 2 years after the close of the taxable quarter when the sales transaction position because diba kinahanglan mu-decide siya either mu-approve or mu-deny. Kung i-deny
happened. There will be 120 days for the CIR to decide on that claim for refund. In practice, mas niya, dapat naay proper reasons. What if di sya ka-render ug decision within a period of 90 days
taas pa. It can go to 1-3 years to the point na ang uban, i-assign nalang nila ila right to claim for from complete submission? In the TRAIN Law, there is a provision that an inaction of the agent
the refund or di gale, tax credit certificate (TCC) man nah if di sila ganahan mag-baligya. The or employee is punishable by administrative action under the court which is not present in the
decision could either be approval or denial. But the problem here before the amendment by previous provision. So, what you do now is kumpletuhon nalang nimu ang checklist sa BIR, then
TRAIN is when the CIR does not act within 120 days from the complete submission of the submit it to the examiner or the processor for the refund and then in 90 days, there has to have
document. Mao tong mu-extend ug 1-2 yrs kay naa pay additional documents na last minute a decision. If walay decision, di na ka magkara2x muadto sa CTA, just file an admin complaint
pangayuon. So, dili deemed complete ang gi-submit nimu, so di pa ka kacount sa 120 days. Now, against the officer. So at least, good on your part kay hasul baya kung mag-appeal ka to the
upon the complete submission of the documents, within 120 days, dili sad mandated si CIR to CTA. You have to prepare your memorandum, etc. So, this time around, they made it more
give a decision whether favorable or not. Pwede inaction on its part but it will already be practical.
deemed as denial. So deemed denial man, within 30 days from the lapse of the 120-day period,
you must appeal na to the CTA. Diri nahitabu na daghan ang ma-deny ig appeal na sa CTA kay The DOF shall establish a VAT refund center in the BIR and the BOC because we very well know
ni-lapse na ang 120 days. In the first place, wa may klaru si CIR kung gi-deny na ba to niya or that the BOC collects VAT also. That will handle the processing and granting of cash refunds of
complete na ba to or unsa. Naa say uban na denied kay wa pa ni-lapse ang 120 day-period, ni creditable input tax. Again, this presupposes dili erroneous, ni exceed lang ang input sa output
appeal na didto sa CTA kay naniguro na. nimu. However, ni-‘yayay’ na pud ang mga PEZA companies kay taas kaayo ang checklist. Di ra
SY 2018-2019 404_Taxation 2 - KMA
sya simple filling up of a form and then submitting the sales invoice. Naay mga contract, tax for example, nya gi-register na nah voluntarily under the VAT system, then that becomes
returns, etc. Medyo daghag requirements. And to make it more attractive, BIR promised that VATable.
all pending VAT refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019.
However, let’s see if this can really be implemented. Imagine, full payment in cash. The most The most common example of a VAT-exempt person is a non-stock non-profit educational
common way of refund as of now man gud is the so-called TCC. Kung naa kay excess karon, institution or a government educational institution.
pwede re ka mukuha ug certificate nya if naa kay liability the following period, iapply to nimu.
In that case, walay cash na gipagawas si government. 0% EXEMPT
1. Registration Yes No
On the side of the BIR, the excess will give additional collection. The government can already 2. Pass-on/shifting No (because 0% VAT ang No (no VAT to speak of)
use such. However, on the part of the taxpayer na affected, what if after 1 yr pa sya makapa- gi pass on nimu)
refund, ang inflation for that year will greatly affect the time value of my money. 3. Claim for input VAT on purchases Yes No
4. Relief on the Taxpayer Total (since tax credit Partial (since cost deduction
Under this system also, a trust fund will be set aside for all refund claims. Mao nang promise method is used – input is method is used; tax savings will
deducted from output; only be up to the extent of your
nila is to pay in cash rather than issuance of TCC. But actually, Congressman Cua sa Committee peso for peso) liability tax rate)
on Ways and Means explained that the original proposal really of the DOF is wala nay refund.
I-subject na sila entirely to 12% VAT because its ground is that there is no really a violation Illustration
against the cross-border doctrine or the destination principle since everything is rendered here ABC Corporation, a VAT-registered entity, sold fuel to DEF Corporation, a corporation
in the PH. Even if you say there’s a zone there, even if a foreign territory is created by fiction of engaged in international shipping but not VAT-registered. Inadvertently, ABC Corporation
law, but precisely it’s by fiction of law, so basically, we can just change the law. Mao na ang shifted 12% VAT to DEF which was paid by the latter. Thereafter, ABC remitted the 12% VAT
position initially ni DOF but then many violent reactions from stakeholders so gi-introduce balik collected to the BIR. May DEF Corporation claim for VAT input refund on the 12% VAT passed
ang refund. The BIR wanted to stick with the 120 of the same provision but then again, heavily to it considering that it is a VAT-exempt entity?
criticized. So, they have now the enhanced VAT refund system. No, it cannot claim for refund under Sec. 112 nor Sec. 229, obviously because it does not have
personality to claim for such since it is not VAT-registered. Sec. 112 presupposes na VAT-
registered entity ka and you are engaged in a zero-rated transaction. On the other hand, Sec.
EXEMPTIONS FROM VAT 229, even though muingon ka na error nah siya or sobra nah siya, still, di sya maka-claim since
this is VAT and the nature of VAT is that it is an indirect tax. And when it comes to indirect tax,
Exemptions from VAT may be broadly categorized into: the one primarily liable or what we call as statutory taxpayer is the seller. The use of identifying
1. Exempt persons – persons who are not liable to VAT. the statutory taxpayer is to know who is the proper claimant for the refund. So the proper way
2. Exempt transactions – transactions on certain goods, properties or services which are sold would be for ABC Corp to claim the refund and DEF Corp will in turn claim refund from ABC.
by VAT-registered or non-VAT registered person and regardless of the annual gross sales
or receipts derived therefrom. FEATURES of a VAT-EXEMPT TRANSACTION
1. Not included in ascertaining the general threshold;
IOW, it is wrong to say that since the goods are VAT-exempt, automatic exempt jud nah siya For example, the taxpayer has the following businesses with their corresponding gross receipts for the year:
because we still have to consider the entity or person selling it. If the entity or person selling it (1) jeepney operations – 1M; (2) restaurant business – 2M; and (3) consultancy – 1M. To ascertain whether ni-
voluntarily registered under the VAT system, then subject na nah to 12% VAT. For example, exceed siya sa threshold, don’t include the gross receipts from jeepney operations kay this is an exempt
transaction since this is subject to OPT. In this case, wa niya na-meet ang threshold kay exactly 3M ra man sya,
marine food product in its original state is a VAT-exempt transaction unta, but you also have to wa ni-exceed.
consider kinsa sad ang person or entity na nagbaligya ana. Kay if ang nagbaligya ana is Rustans,
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2. Not liable for VAT or 3% OPT; ▪ 2 conditions in order to exempt livestock: (1) it must be for breeding or genetic purposes or (2) it must be
3. No billing of output tax on every VAT exempt transaction for human consumption. The requirement of ‘original state’ is only applicable to marine or agricultural
food product.
VAT Exempt Transaction (Section 109, NIRC) Illustration

Salient Points Berna imported boars (Landrace) and swine (Yorkshire) for breeding purposes. She also imported horses
(thoroughbred broodmares) for sports/racing. Are the importations subject to VAT?
Boars and swines importation – exempt from VAT; the importation of horses is taxable because such animals
(A) Sale or importation of agricultural and marine food products in their original state, are not generally used as or yielding or producing food for human consumption (BIR Ruling 039-91).
livestock and poultry of a kind generally used as, or yielding or producing foods for human
consumption; and breeding stock and genetic materials therefor. (F) Services by agricultural contract growers and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar.
Products classified under this paragraph shall be considered in their original state even if
they have undergone the simple processes of preparation or preservation for the market, (A) pertains to the product mismo. It would be useless if the finished product is exempted but its labor or
such as freezing, drying, salting, broiling, roasting, smoking or stripping (FR S3BD). Polished service portion is not kay mupatong man sad to. For example, we have rice millers. Kung di to nimu i-exempt,
mapatungan gihapon so musaka ang price. That is why Sec. 109 (F) also exempts the service aspect of (A).
and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall
be considered in their original state Illustration
Richard has a contract with Mongolia Corporation for a package of services receiving eggs from breeder
This was not amended. The amendment in the TRAIN Law starts in Sec. 109 (d). Under this provision, the farm, sorting, fumigating, setting, hatching, sexing of day-old broilers, sorting and delivering them to other
following are the transactions exempted from VAT: contract growers. Are these services by Richard subject to VAT?
o sale or importation of marine food products in their original state; No. Richard is an agricultural contract grower. Hence, the transactions he had entered into with Mongolia
o sale or importation of agricultural food products in their original state; and Corporation are exempt from VAT. Agricultural contract growers refer to those persons producing for others
o sale or importation of livestock and poultry of a kind generally used as, or yielding or producing foods for poultry, livestock or other agricultural and marine food products in their original state.
human consumption or breeding purposes.
▪ White/Refined Sugar – subject to VAT

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
▪ only raw cane sugar, molasses – exempt; poultry feeds, including ingredients, whether locally produced or imported, used in the
▪ Rice ‘in whatever form’ (refers to polished and/or husked rice) – exempt manufacture of finished feeds (except specialty feeds for race horses, fighting cocks,
▪ Dried Fish, Copra – exempt aquarium fish, zoo animals and other animals generally considered as pets);
▪ Freezing – ex. frozen meat bisag gihiwa na, considered gihapon in its original state
▪ Drying – for example, dried fish or buwad. But if muingon kag dried mango, it is no longer considered as a 3 products exempted:
simple process of drying because as ruled by the BIR, once the marine or agricultural or livestock food o Fertilizers
product undergoes drying but anti-oxidants or preservatives are being added to prolong the shelf life of o Seeds, seedlings and fingerlings (mao ni sila ang small fish)
that particular product, it’s not anymore simple process lang of supplying. In that case, chemical process o Fish, prawn, livestock and poultry feeds – not the fish, prawn or livestock ang exempted but their feeds.
na kay naa namay anti-oxidants or preservatives. The fish, prawn and livestock are already exempted under Sec 109 (A).
▪ Broiling – not the same as boiling; use high heat for a short time; source of the heat is all-surround, top
and bottom Why exempted?
▪ Roasting – use low heat for a long time; source of heat is only from the bottom (ex. roasted chicken) If the product is exempted and the service is exempted, then the necessary feeds or fertilizer to produce the
▪ Salting – ex. salted fish. marine or agricultural food product should also be exempted because these marine and agricultural food
▪ Smoking – ex. smoked ham, smoked bacon, smoked salmon; does not include steaming products will be used eventually for human consumption. But if it is specialty feeds, it is not exempted because
▪ Stripping – ex. chicken, deboned bangus pursuant to a BIR ruling in the end, the product for which it is used is not for human consumption.
▪ The means of wrapping the product will not affect the state of the food product; still considered in its
original state as long as wa sila ni undergo sa chemical process. For ex., shrink wrap vegetables, shrink wrap
fruits, vacuum or tetra packing
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Specialty feeds – These are what you feed to the animals you do not eat or consume. It is provided there in (B) the persons importing said items for personal use and not for sale, accompanying the
that specialty feeds are what you feed to race horses, fighting cocks, aquarium fish, zoo animals and other persons or arriving within a reasonable time.
animals generally considered as pets. So the feeds of your dogs or cats do not fall under the exemption.
Ingredients Provided, that the BOC may upon providing evidence that such persons are actually coming
Aside from fertilizer, seeds, seedlings, fingerlings and feeds, included as well are the ingredients of the finished to settle in the Philippines, exempt such goods from payment of duties and taxes: Provided
feeds of those exempted. If you look at the way the law is constructed, after the word fertilizer, there is semi- further that vehicles, vessels, aircrafts, machineries, and other manufacturing goods shall
colon then the seeds, seedling, fingerlings, then another semi-colon, then you have feeds including ingredients
that is another semi colon. So if you look at it, the ingredients cover only the feeds. The ingredients of the feeds
not fall within the classification thereof.
actually became a problem in the implementation phase because most of the ingredients in the manufacture
of feeds may also be consumed by human, like feed sa baboy. Usually, the components of the feeds are also BEFORE TRAIN:
edible. The raw material includes meat. There was a situation at the time of Henares wherein what is being (D) Importation of items of persons coming to settle in the Philippines (for personal use),
declared in the importation are ingredients for the manufacture of feeds. However, upon arriving here in the accompanying such persons, or arriving within ninety (90) days before or after their arrival,
Philippines, they don’t use it to manufacture feeds; instead, they sell it. That is why Henares included in the
regulation that other than declaring it as an ingredient for the manufacture of feeds, there must be a upon providing evidence to the Commissioner, that such persons are actually coming to
certification also from the DFA that the particular ingredient is not fit for human consumption. This is to prevent settle in the Philippines.
technical smuggling.
It is considered a VAT-exempt transaction if it is an importation of household effects, among others, of any
Illustration: person WITHOUT distinction. The ‘overseas’ Filipino there was mentioned to emphasize that they became a
Organico Poultry Supply imports potassium nitrate (fertilizers) from China. They sell the imported fertilizers citizen of another country. So in that sense, they are also considered foreigners. Thus, it is not only limited to
to local dealers in the market. Are the importations subject to VAT? How about if it is importing raw materials foreigners but also to Filipinos who became foreigners.
for use in the production of fertilizers in the Philippines?
Both the importation and the local sale of fertilizers are exempt from VAT (BIR Ruling 063-90). However, the ‘belonging to persons coming to settle in the Philippines’
importation of raw materials is taxable. Thus, importation of diatomaceous earth which is used for formulation That line did not qualify whether the persons should be Filipinos or aliens.
of fertilizers is subject to VAT (BIR Ruling 15-88).
‘arriving within a reasonable time’
Before, it was specific that it must arrive 90 days before or after the date of arrival of the foreigner. However,
(C) Importation of personal and household effects belonging to the residents of the Philippines it was amended to ‘arriving within reasonable time’. Since there are many instances na ma-delay kay usually,
returning from abroad and nonresident citizens coming to resettle in the Philippines: it is not possible to bring all your household effects, the 90-day period was amended to within reasonable time
Provided, That such goods are exempt from customs duties under the Tariff and Customs to make it more open to explanation.
Code of the Philippines;
‘providing evidence that such persons are actually coming to settle in the Philippines’
What is exempted To be exempt from duties and taxes, the BOC must be convinced first that the foreigner has the intention of
It refers to personal and household effects which must be for the personal use of the citizen coming to resettle settling here in the Philippines. He must produce satisfactory evidence that he is intending to settle here. The
here in the Philippines. And when we say citizen, it is limited only to Filipino Citizen, either resident or non- proof there is first the declaration. Resident VISA is also a strong proof of planning to settle here, not just a
resident. tourist VISA.
Illustration Exceptions
A foreigner is planning to settle here in the Philippines and will be bringing with him his household effects Unless the foreigner pays VAT, he cannot bring to the Philippines his vehicles, vessels, aircrafts, machineries,
and household belongings. May he be exempted from VAT? and other similar goods for use in manufacture.
If under section 109 (C), he will not be exempted because it is only restricted to citizens, either resident or non-
resident. However, he may be exempted if all conditions in (D) are met. (E) Services subject to percentage tax;
VAT is also a percentage tax. That’s why under title V, the term used is ‘other’ percentage tax. Since both of
(D) Importation of items of persons coming to settle in the Philippines or their families who them are business taxes, they cannot be implemented at the same time. Take note however that these refers
are overseas Filipinos, in quantities and of class suitable to the profession or position of
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to services specifically enumerated and indicated from section 117 onwards in the NIRC under the percentage (K) Transactions which are exempt under international agreements to which the Philippines is
tax. a signatory or under special laws, except those under Presidential Decree No. 529;
Illustration
International agreements
Philtranco Transportation is a bus company plying the route from Matnog, Sorsogon to Manila and Naga
Philippines has entered into treaties and double taxation agreements, in which the content usually pertains to
City to Legaspi City, and vice-versa. It is also engaged in transporting light cargoes. Is the bus company
what we call as business profit or relief on income taxation, not much on business taxation. As independent
subject to VAT?
states, dili na sila maghilabtanay how they run their internal business. There’s not much content as regards to
Insofar as the transport of passengers is concerned, it is subject to Common Carrier’s Tax, which is a percentage
VAT-exemption or VAT zero-rating. Usually, only agreements involving international organizations provide
tax. Therefore, it is not subject to VAT. However, the services rendered in the transport of cargoes are subject
rules on such. For example, the UN or those Asian development banks or the International Rice Research
to VAT.
Institute. Other than exempting them from income tax, there are also provisions that they are exempted from
VAT.
(G) Medical, dental, hospital and veterinary services except those rendered by professionals;
Special laws
Exempt services They may also be exempt under special laws, such as the Special Economic Zone Act, which created PEZA and
The hospital bills constitute medical services and this may include the professional fees of those attending provides that one of the PEZA-registered enterprise’s fiscal incentive is the 5% tax of its gross income earned
physicians during your confinement. As you can observe in the OR which is under the name of the hospital, IN LIEU of all taxes including VAT.
their professional fees are included. Moreover, the sales made by the drugstore to the in-patients which are
included in the hospital bills are part also of medical expenses. Hence, they are not subject to VAT. Except those under PD 529
This refers to petroleum operators or concessionaires or subcontractors. Hence, if you’re a petroleum
Not exempt exploration operator, you’re not anymore exempt from VAT.
Those services rendered by the professionals in their clinic. As you can observe, what is given upon payment is
an OR under the name of the doctor. The sales of the drug store to out-patients are taxable because they are (L) Sales by agricultural cooperatives duly registered with the Cooperative Development
not part of the medical services of the hospital.
Authority to their members as well as sale of their produce, whether in its original state or
Diagnostic Services (x-ray, laboratory, etc.) processed form, to non-members; their importation of direct farm inputs, machineries and
Vat treatment depends on how service is provided equipment, including spare parts thereof, to be used directly and exclusively in the
o When done by employees of diagnostic company – exempt from VAT production and/or processing of their produce;
o When rendered by an independent professional (consultant) – subject to 12% VAT
Implementation-wise, when a cooperative asks for a certificate of exemption from VAT from the BIR, the
(I) Services rendered by individuals pursuant to an employer-employee relationship; bureau will not just settle that it presents its certificate of registration to the CDA. The BIR will also ascertain if
Reason: Employment is not a business; hence, it shall not be subject to a business tax. such is a member in good standing of the CDA, and one indication is submitting annual reports to the CDA.
(J) Services rendered by regional or area headquarters established in the Philippines by But when it comes to transactions entered into by an agricultural cooperative, the transactions exempted from
multinational corporations which act as supervisory, communications and coordinating VAT are the following:
o Sales to members – absolute; all types of sale, whether produce or non-produce
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not o Sales to non-members – relative; exempted from VAT only if such is a produce of the agricultural coop;
earn or derive income from the Philippines; reason: the purpose of establishing a coop is for the sake and benefit of its members;
Reason: This presupposes that there are no operations in the PH which generate income. IOW, there are no o Importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be
gross receipts here, so of course, it is exempted from VAT. used directly and exclusively in the production and/or processing of their produce.
Illustration
Samahang Barangay Cooperative (SABACO), an agricultural cooperative duly registered with the CDA,
received a donation of farm equipment from abroad. Is the importation of the equipment subject to VAT?
No, provided that such equipment including spare parts thereof shall be used directly and exclusively in the
production and/or processing of its produce.
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(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly Basically, you’re referring to a real property classified as a capital asset. However, sales involving such will be
registered with the Cooperative Development Authority; subject to CGT. It is considered as one-time transaction unless it will fall under habitual sale of real properties.
Since it is already subjected to CGT, it can no longer be subjected to another type of business tax such as VAT.
▪ The exemption is not only limited to the gross receipts on loans extended to the coop’s members but also
On the other hand, if the real property is classified as an ordinary asset, as a rule, it is VATable. However, there
to other persons who are not members.
are instances where even real property classified as ordinary asset are exempted from VAT.
▪ It is still necessary to ask for a certificate of exemption from VAT from the BIR because such will be
submitted as proof by the other party to the transaction upon claiming that the transaction involved is
VAT-exempt. 2. If real property is utilized for low-cost and socialized housing as defined by RA No. 7279,
otherwise known as the Urban Development and Housing Act of 1992
o Lending cooperative – basically for loan transactions; the proceeds are the interests.
o Multi-purpose cooperative – can make investments; may engage in micro-insurance, lease, On the part of the developer, it is included in his inventory (OA) for such is primary held for sale. But because
marketing. it is classified as socialized or low-cost housing, it is exempted from VAT. These are housing projects which
involve subdivisions. The Housing and Land Use Regulatory Board (HLURB) declares whether one is a socialized
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the housing or is a low-cost housing. The qualification matters especially when it comes to pricing. If the property
Cooperative Development Authority: Provided, That the share capital contribution of each is a subdivision, it should be registered in the Board of Investments (BOI) for it to be classified as socialized or
low-cost housing. This registration grants not only an exemption from VAT but from income tax as well (income
member does not exceed Fifteen thousand pesos (P15,000) and regardless of the tax holiday). If such will not fall under socialized or low-cost housing, it may already be subject to VAT, but still
aggregate capital and net surplus ratably distributed among the members; exempted from income tax. What is important is it must be duly declared and certified by HLURB as a low-cost
TN: Electric cooperatives are subject to VAT pursuant to EVAT law. housing or a socialized housing. You have to qualify in the exam that for example the house is P2.8M, you do
not automatically say that it is a low-cost housing unless there is a certification from HLURB.
(O) Export sales by persons who are not VAT-registered;
This is basically a fallback provision. As discussed, to be subject to 0% VAT, primary requirement is to be VAT- Socialized housing – housing programs undertaken by the government or private sectors for the
registered. OW, the export sales will fall under exempt transactions pursuant to the cross-border doctrine, in underprivileged and homeless citizens (with long-term financing, liberated interest rates, and other benefits in
which case, no input tax can be claimed. accordance with RA No. 7279)
(P) Jan 1, 2018 – Dec 31, 2020

Current Price Ceiling set by the HUDCC on Socialized and Low-Cost Housing
▪ Sale of Residential Lot – P1.5M and below
Housing Category Price Range Lot Area Floor Area
(BEFORE: P1,919,500 and below) Socialized Housing P450k and below 30-50 sqm 18-30 sqm
▪ Sale of House and Lot and other residential dwellings – P2.5M and below Low Cost – Level 1 Above P450k – P1.7M 50-100 sqm 35-55 sqm
▪ (BEFORE: P3,199,200 and below) Low Cost – Level 2 Above P1.7M – P3M 100-150 sqm 80-120 sqm
Jan 1, 2021 onwards 3. Sale of residential lot not exceeding the threshold of 1.5M
▪ Sale of House and Lot and other residential dwellings – P2M and below
▪ no more exemption on sale of residential lot 4. Sale of residential house and lot and other dwelling not exceeding the threshold of
2.5M
Specific instances when the sale of real properties may be exempted:
For it to be considered residential, the primary purpose for buying it should be to build a residential house.
This is disadvantageous to the real estate industry because if the property was not registered as low-cost
1. If real property is not primarily held for sale to customers or held for lease in the housing, the entire contract or selling price will be subject to VAT, not just the excess of the 2.5M. The best
ordinary course of trade or business. way to really know WON you are exempted is to ask for a BIR ruling (which could take years).
TN: Condominium is a real property. It will fall under the sale of house and lot and other residential dwelling.
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(Q) Lease of a residential unit with a monthly rental not exceeding P15,000. (Before: P12, 800) it’s not just a ruling but an RMC (RMC 75-2012) wherein the BIR said that electronic books, CDs, flash drives
o Residential unit – apartments and houses & lots used for residential purposes, and buildings or parts units are not covered under this provision. IOW, not VAT-exempt. Sale of e-books may still be exempt from VAT as
thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel long as the gross receipts do not exceed P3M. However, the exemption is not under (R) but under (BB).
rooms, hotels and hotel rooms, lodging houses, inns and pension houses.
o Unit – an apartment unit in the case of apartments, house in the case of residential houses; per person in Take note also that even if the transaction is exempt from VAT, it is a different story if we look at the point of
the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent. view of the seller because if he is a VAT-registered person and he registered all his goods under the VAT system,
then it will consequently be subject to VAT.
Lease of residential unit VAT-exempt
Monthly rental per unit < P15k and aggregate annual rentals < P3M Yes (Q) (S) Transport of passengers by international carriers;
Monthly rental per unit < P15k and aggregate annual rentals > P3M Yes (Q) This is actually in connection with zero-rated sale of service, which means that if the international carrier failed
Monthly rental per unit > P15k and aggregate annual rentals < P3M Yes (BB); but subject to 3% OPT to register under the VAT system, then it cannot avail zero-rated VAT. It will be considered as VAT-exempt
(Sec. 116) transaction, instead. To be exempt, the international carrier must be:
Monthly rental per unit > P15k and aggregate annual rentals > P3M No; mandatorily covered under o duly registered in the Philippines
VAT system o doing business here in the Philippines
Monthly rental per unit: o subject to common carrier’s tax of 3% on international carrier
Some P15k Yes
Some > P15k but aggregate annual rentals < P3M (T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
Monthly rental per unit: equipment and spare parts thereof for domestic or international transport operations;
Some P15k Units > 15k – Yes
Some > P15k but aggregate annual rentals > P3M Units < 15k – No This covers both domestic and international transport operations. The purpose of this exemption is to
encourage more airline companies to establish here in the Philippines. Pursuant to an RR, there’s an additional
Sec. 109 (BB), TRAIN: phrase “in accordance with the rules of the maritime industry.” The Marina has this so-called age limit
Exempt Transactions – Sale or lease of goods or properties or the performance of services other than the requirement as follows:
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the o Passenger and/or cargo vessels – 15 yrs old; shall be limited to those of 150 tons and above
amount of P3M. o Tankers – 10 yrs old
o High speed passenger crafts – 5 yrs old
Sec. 116, TRAIN:
Tax on Persons Exempt from Value-added Tax (VAT) – Any person whose sales or receipts are exempt under Sec IOW, the sale of a second-hand vessel may already be subject to VAT if the purchase happened beyond the
109 (BB) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a age limit provided.
tax equivalent to 3% of his gross quarterly sales or receipts: Provided, that cooperatives, and beginning Jan. 1,
2019, self-employed and professionals with total annual gross sales and/or gross receipts not exceeding P500k (U) Importation of fuel, goods and supplies by persons engaged in international shipping or air
shall be exempt from the 3% gross receipts tax herein imposed.
transport operations; Provided that the fuel, goods and supplies shall be used for
How does the BIR monitor these lease transactions? international shipping or air transport operations.
In the Certificate of Registration, you have to indicate your main line of business. One of the requirements to
be submitted to the BIR is the summary list of units leased as well as lessees to the units. This is a fallback provision. If you are into international shipping or airline service but you are not registered
under the VAT system, and then you purchase goods, fuel and supplies, you cannot avail of the zero-rated
provision. However, you can still use this provision in order to be exempt from VAT. If we are talking about
(R) Sale, importation, printing or publication of books and any newspaper, magazine, review
international shipping and air transport operation, it must originate here in the Philippines. This presupposes
or bulletin which appears at regular intervals with fixed prices or subscription and sale and that they are doing business here in the country and that they have landing rights here in the PH. And from the
which is not devoted principally to the publication of paid advertisements; Philippines, it must go outside the country. It does not include those international businesses not doing
business here in the PH, such as those which merely sell through a ticketing agency, since they don’t have
Take note of the requirement ‘printing or publication’ because there was a case regarding sale of e-books. The landing rights here in the PH.
BIR in one ruling in 2008 said that e-books are covered under this provision which means it is exempt from VAT
as well. However, in 2013 during the time of Henares, she gave a stricter interpretation of this provision and
SY 2018-2019 404_Taxation 2 - KMA
(U) vs. the provision under the zero-rated sale of goods and properties (p. 36) The SC and PWD are inly exempt from VAT, not from OPT. Hence, there will be a percentage tax due to the
The provision under zero-rated talks about sale of goods, supplies, equipment and fuel (GSEF); but for here, government from such sale.
only goods, supplies and fuel (GSF). But the purchase of equipment (E) may still be covered by (T). However, it
is more favorable if it is purchase of equipment because under (T), it covers both domestic and international Sales/Receipts P 1,120
shipping or airline; whereas in (U), it covers only international shipping or airline. For instance, if Cebu Pacific Less: 20% SD 80%
has domestic operations and it purchased equipment, it cannot be considered zero-rated transaction. Total amount to be paid P 896
However, it is still exempted from VAT under (T). OPT% x 3%
Percentage Tax Due P 27
(V) Services of bank, non-bank financial intermediaries performing quasi- banking functions,
and other non-bank financial intermediaries; (X) Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as amended;
Reason: They are subject to OPT.
Sec. 40 (C) Exchange of Property.
(W) Sale or lease of goods and services to senior citizens and persons with disability, as
(1) General Rule – Except as herein provided, upon the sale or exchange or property, the entire amount of the
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 gain or loss, as the case may be, shall be recognized.
(An Act Expanding the Benefits and Privileges of Persons with Disability), respectively;
(2) Exception. – No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation -
The exemption from VAT here covers almost all VATable transaction that the PWD or the senior citizen enters (a) A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a
into. Examples are VAT in hotels and similar lodging entities, theaters and cinemas, drugstores, land air sea corporation, which is a party to the merger or consolidation; or
travel, medical, dental and laboratory services as well as funeral and burial expenses. (b) A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation,
solely for the stock of another corporation also a party to the merger or consolidation; or
Aside from VAT, another incentive for PWDs and senior citizens is the so-called 20% discount. These 2 (c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges his
privileges, VAT exemption and 20% discount, are not mutually exclusive. Both can be availed of simultaneously securities in such corporation, solely for stock or securities in such corporation, a party to the merger
by the SC or PWD (per head). However, in cases where the establishment also offers a promotional discount, or consolidation.
the SC or PWD can only avail whichever is higher; no double discounts for them.
No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for
stock or unit of participation in such a corporation of which as a result of such exchange said person, alone or
Illustration together with others, not exceeding four (4) persons, gains control of said corporation: Provided, That stocks
Yummy Inc. is a restaurant offering a birthday promo at 10% discount. Mr. A, physically incapacitated senior issued for services shall not be considered as issued in return for property.
citizen, is celebrating his birthday at Yummy Inc. Total sale is P1,120, inclusive of VAT. How Should the seller
recognize the sale if the seller is: The above-cited provision is under income taxation. Therefore, under these exceptions, there will be no
income tax. And those are also exempt from VAT because such are not deemed VATable transactions or sales
a. VAT-registered for consideration in the ordinary course of business. If you look at it, it is more of capital investment on the
Supposedly, the business tax to be remitted by Yummy to the BIR is the VAT; but since this transaction is part of the person buying, merging or consolidating; and these transactions don’t happen every day. These
exempt, it will only be a matter of recording since there is no cash received from Mr. A. transactions are also exempt from DST. However, it is wrong to say that during merger or consolidation, the
exemptions from VAT, DST and income taxes will be automatic since under the Corp Code, transfer of shares
Total Price, Inclusive of VAT (112%) P 1,120 of stocks from one entity to another can only be done if there is Certificate Authorizing Registration (CAR),
Divided by 112% which you can only get after paying the tax. IOW, there is still a need to get a ruling from the BIR. It is more of
Total Price, Exclusive of VAT (100%) P 1, 000 a confirmatory ruling which you can then bring to the RDO for the request of issuance of CAR. And when you
Net of Discount x 80% have the CAR, the transfer to the new owner may already be properly done. Take note also that there is now
Total amount to be paid P 800 a need to get a certification from the National Competition Commission which states that the transaction
maintains a fair competition.
b. Non-VAT-registered
Since Yummy Inc is not VAT-registered, presumption is P1,120 is the total billing. No more VAT will be taken
out. Automatic less 20% sales discount so the amount payable by the PWD is P896 (P1120 x 20% = 896).
SY 2018-2019 404_Taxation 2 - KMA
(Y) Association dues, membership fees, and other assessments and charges collected by ▪ Manual filer – patatakan nimo manually to the BIR; eFPS filer – submission is through an
homeowners associations and condominium corporations; eFPS account; electronically
▪ Homeowner’s association – refers to subdivisions; covered under the Magna Carta for the Homeowners.
▪ Condominium corporations – refers to condos; covered under the Condominium Act. eFPS filer Advantage
▪ Take note that from 2012 up to 2017, these dues collected by homeowner’s association and condo
corporations were subjected to VAT by Henares. Her position was that they are collecting such fees to You can file earlier but pay later provided it will not go beyond the deadline set by law. Example
render a service. if I file on the 10th day of the month, it is not necessary that I should pay too on the same date.
The deadline of the payment will depend on what group you belong (Group A to E, according
(Z) Sale of gold to the Bangko Sentral ng Pilipinas; to industry). On the other hand, if you are a manual filer, follow the pay as you file system.
(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension Output tax rates
beginning January 1, 2019 as determined by the Department of Health; and ▪ 12%; 0%.
(BB) Sale or lease of goods or properties or the performance of services other than the Input tax rates
transactions mentioned in the preceding paragraphs, the gross annual sales and/or ▪ 12% standard rate
receipts do not exceed the amount 3M. ▪ 0%
▪ 2% transitional or 12% actual input tax rate
Filing of return and payment of VAT applied to the value of the goods existing at the date a person commences business, and/or becomes liable to
▪ Pay as you file system. VAT;
▪ All persons liable to VAT must pay the tax for each of the first and second month of a quarter, ▪ 4% presumptive input tax
based on the transactions of the month, reflected in a Monthly VAT Declaration (BIR Form applied to purchases of VAT-exempt goods used as inputs by a VAT-registered manufacturing or processing
No. 2550M), within 20 days after the end of the month. “certain” food products;
▪ VAT Payable – output taxes exceed the input taxes ▪ 5% final withholding tax rate
▪ Carry-over to the 2nd month – excess of input taxes over the output taxes in the first month
▪ No carry-over of excess input taxes from the 2nd month to the 3rd month. Transitional input tax rate (TIT)
▪ Within 25 days after the end of the quarter, there will be a Quarterly VAT Return (BIR Form ▪ This is the input tax you can claim if:
No. 2550Q), reflecting the cumulative transactions of the quarter. o The taxpayer, in p.y., except the last year, was previously exempt from VAT because his
▪ VAT shown and paid under the 1st and 2nd months’ declarations will be deducted from the sales did not exceed the threshold (3M) and his gross sales in the immediately p.y.
output taxes in the quarterly return. exceeded that amount; OR (mandatory)
▪ The excess of input taxes over the output taxes of the quarter will be carried over to the o The taxpayer in all p.y. did not have sales exceeding 3M but opted to be under the VAT
next quarter. system. (voluntary)
▪ Effective January 1, 2023, the filing of the VAT will be on a quarterly basis, which shall be 25 ▪ The amount of TIT to be allowed as tax credit shall be whichever is HIGHER between:
days following the close of each taxable quarter. o 2% of BI of goods, material and supplies Beginning Inventory
▪ Reason of change: to synchronize with the deadline for the filing of percentage tax which is o Actual VAT paid (12%)
also done quarterly. ▪ You can only claim of the 12% input tax if your purchases are properly substantiated.
▪ BIR Form No. 2550M – monthly VAT declaration; BIR Form No. 2550Q – quarterly VAT ▪ 2% basis of BI – value allowed for income tax purposes on inventories, excluding goods that
declaration. are exempt from VAT; refer to FS; no need for substantiation
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▪ No TIT on: Illustration:
o Capital goods or fixed assets; Charlene had the ff data in her books in the month of November:
Case A Case B
o Goods that were VAT-exempt under Sec. 109, NIRC Sales P 2M P 1.9M
Purchase of goods for sale 1.5M 500k
Presumptive input tax (PIT) Purchase of machines 1.4M 800k
▪ VAT registered persons or firms engaged in the processing of sardines, mackerel and milk, Machine life 6 years 3 years
and in manufacturing refined sugar, cooking oil, and packed noodle-based instant meals Compute the (1) VAT payable on each of the independent cases; (2) VAT payable in Case A, assuming the life of the
(SM2-NCR) machine is 4 years only.
▪ 4% of the gross value in money of their puchases of primary agricultural products which are Solution:
used as inputs to their production (Sec. 111 (B), NIRC). 1. Case A: Machine life is 6 years.
▪ Primary agricultural products – agricultural products in their original state (exempted from Output tax (2M x 12%) P 240k
Less: Input taxes
VAT when purchased from the owner of the land where produced) Purchases (1.5M x 12%) (180k)
▪ Original marine products are NOT within the meaning of original agricultural products. Machine (1.4M x 12%) / 60 (2.8k)
▪ Processing – pasteurization, canning and activities which through physical or chemical VAT payable P 57.2k
process alters the exterior texture or form or inner substance of a product in such a manner
Case B: Machine cost does not exceed P1M
as to prepare it for special use to which it could not have been put in its original form and
Output tax (1.9M x 12%) P 228k
condition. Less: Input taxes
▪ This is not really more on the benefit of the manufacturer or the canning company; this is Purchases (500k x 12%) (60k)
more on the benefit of the final consumer. Machine (800k x 12%) (96k)
VAT payable P 72k
Input VAT on capital goods
2. Machine life in Case A is 4 years only.
▪ Capital goods or properties – refer to goods or properties with estimated useful life greater Output tax (2M x 12%) P 240k
than 1 yr and which are treated as depreciable assets, used directly or indirectly in the Less: Input taxes
production or sale of taxable goods or services (Sec. 4, 110-3, RR 16-05); hence, these are OAs. Purchases (1.5M x 12%) (180k)
▪ Aggregate acquisition cost – total price, excluding the VAT, agreed upon for one or more Machine (1.4M x 12%) / 48 (3.5k)
VAT payable P 56.5k
assets acquired; NOT on the payments actually made
▪ If aggregate acquisition cost of capital good, net of VAT, in a calendar month:
o exceeds P1M – spread input VAT over 60 months or useful life of asset, whichever is Illustration
SHORTER. Capital good – P2M; EUL – 5 yrs (60 months)
o does not exceed P1M – the total input taxes will be allowable as credit against output tax Solution: (2M*12%) / 60 months = P4k / month
- P4k input tax credit claim shall commence in the calendar month the capital goods were acquired.
in the month of acquisition
▪ If the capital good is sold within 5 yrs – the entire unamortized input tax on the capital goods
Expensing of input VAT
sold can be claimed as input tax credit during the month/quarter when the sale was made
Issue: May input taxes be recognized outright as an expense for income tax purposes or added
▪ The amortization of the input VAT is an advantage on the part of the taxpayer because the
to the acquisition cost upon purchase of capital asset subject to depreciation?
recognition will be staggered. However, it created complexity.
Unutilized creditable input taxes attributable to 0-rated sales can only be recovered through
the application for refund or tax credit. Hence, unapplied input taxes cannot be treated outright
as deductible expense for income tax purposes [RMC 57-2013 and BIR Ruling No. 123-2013]. That is the
SY 2018-2019 404_Taxation 2 - KMA
essence of the VAT system. You have to record separately the purchase price of the item you ▪ Since it is already FWT, sales to the government will no longer be added to the sales to
are buying from the tax that was passed on to you by the supplier. This is one way for the BIR other customers. They have to be accounted separately. That’s why if you look at the VAT
to check also if the supplier is properly collecting the VAT and recording it. return, there is a separate line item for VAT withheld to sales to government. Such is no
longer included in the computation for your VAT payable, only shown for disclosure
BIR Ruling allowing expensing of input VAT… purposes.
BIR allowed expensing of input VAT, subject to the following conditions: [BIR Ruling No. DA (VAT- ▪ No recognition of output tax; no input tax allowed (7% is deemed as the standard input
021) 121-2010, July 9, 2010] VAT)
1. The input taxes shifted or passed on by the local VAT-registered suppliers shall not be B) CWT – on payments for VATable purchase of goods or services from non-resident
recorded as input tax in the books. suppliers/sellers
2. The input taxes shall not be reflected/reported as input tax in its VAT returns. ▪ Withheld at source by the payor/buyer since the seller is beyond the jurisdiction of the
3. The input taxes shifted or passed on is not claimed as tax refund or tax credit. country Ang nipalit ang mo withhold
▪ Payor/buyer is either domestic corporation or resident person;
This presupposes that there is no proper substantiation (no proper OR / invoice). Remember, one of the
requirements in an invoice / OR is to indicate separately the vatable sales and the corresponding input vat. ▪ 12% is withheld even for isolated transaction;
▪ To be remitted in 10 days to BIR;
Expensing of input VAT is also allowed in the following instances: ▪ If 0-rated transaction, the withholding payor/buyer may still claim the remittance as input
1. The claim for refund or credit was denied or rejected by the BIR for having been filed beyond tax and avail of tax credit/refund.
the 2-yr prescriptive period or for non-compliance with the invoicing/substantiation ▪ Failure to withhold could mean disallowance of the corresponding expense that you are
requirements. trying to claim.
2. Claim for refund or credit is still pending with the BIR but voluntarily withdrawn by the ▪ For example, you have a hotel and you contracted a foreign architect or designer. Then in
taxpayer. that case, you are supposed to withhold 12% VAT even if it is just an isolated transaction.
[BIR Ruling No. DA (VAT-021) 121-2010, July 9, 2010] Pay the fee, net of 12% VAT.
Pagbayad nimo, limpyo na wala na apil tax
✓ Secure ruling for the company to treat input VAT as an expense to avoid possible issue Legal Basis (RR 13-2018):
with the BIR. The government or any of its political subdivisions, instrumentalities or agencies, including
GOCCs shall, before making payment on account of each purchase of goods and/or of services
In these cases where the input taxes are claimed as expense, it is more beneficial on the part of taxed at 12% VAT deduct and withhold a final VAT due at the rate of 5% of the gross payment
the government because the tax shield is only up to the tax rate by which the taxpayer is thereof. Provided, that beginning January 1, 2021, the VAT withholding system shall shift
subjected. from final to creditable system. So you will already include the sales to the government in your other gross
sales for purposes of computing for the output VAT. And the 5% withheld by the government will be deducted as tax
credit.
Withholding VAT – to be withheld by the payee
A) FWT – 5% on payment to Government
VAT liability computation
▪ Payor or buyer is the government; regardless who are the suppliers
In lieu of the actual input VAT directly attributable or ratably apportioned to sales to
▪ VATable sale but the government will not pay the entire 12%; it will instead withhold 5%
government, the seller shall be entitled to 7% of gross payment as standard input vat.
of the total billing which is already considered FWT.
o actual input VAT > 7% standard input VAT – excess may form part of seller’s expense or cost
▪ Purpose: Expediency of collection (lifeblood)
o actual input VAT < 7% standard input VAT – difference must be closed to expense or cost.
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Illustration Illustration (RR 4-2007)
Scenario A B C ERA Corporation has the following sales during the month:
Sales to government 100 100 100 Sale to private entities subject to 12% P 100,000.00
Purchases (goods and services) 42 58 100 Sale to private entities subject to 0% 100,000.00
Output VAT (100 x 12%) 12 12 12 Sale of exempt goods 100,000.00
Input VAT (actual) 5 7 12 Sale to gov’t. subjected to 5% final VAT Withholding 100,000.00
Standard input VAT (100 x 7%) 7 7 7 Total Sales for the month P 400,000.00
Difference between actual and standard input VAT 2 0 5
The following input taxes were passed on by its VAT suppliers:
❖ Landed Cost = invoice amount + freight+ customs duties+ insurance + excise taxes (if any) Input tax on taxable goods 12% 5,000.00
Input tax on zero-rated sales 3,000.00
When to recognize? Input tax on sale of exempt goods 2,000.00
▪ Output VAT – upon sales of goods and services Input tax on sale to government 4,000.00
▪ Input VAT – upon: Input tax on depreciable capital good not attributable to
o Consummation – if purchase of goods or properties is supported by VAT invoice; any specific activity (monthly amortization for 60 months) 20,000.00
o Payment of compensation, royalty, rent – if purchase of service is supported by VAT OR;
Excess
o Payment of VAT - prior to release in BOC – if supported by “import entry declaration” by BOC Input VAT
Input Input
Input VAT not directly Total Net
Output Creditable VAT VAT Unrecoverable
Input tax > Output tax Sales directly Attributable Input VAT
VAT Input VAT for for input VAT
Attributable to any VAT Payable
▪ If not 0-rated sale – carry-over to next TQ (not time-bound) Activity
carry- refund
over
▪ If it pertains to 0-rated sale: 12%
12k 5k 5k 10k 10k 2k 0 0 0
o carry-over to next TQ (not time-bound); OR VAT
o claim for refund or credit within 2 yrs (time-bound) 0% VAT 0 3k 5k 8k 8k 0 0 8k 0
Exempt
Refund seldom happens; usually, what will be issued is a Tax Credit Cert (TCC) 0 2k 5k 7k 0 0 0 0 7k*
Goods
▪ As declared by the SC, irrevocability rule applies ONLY if the option exercised by the Govt
taxpayer is to carry over the excess input vat. IOW, you cannot claim for refund or credit (5% 12k 4k 5k 9k 7k** 5k*** 0 0 2k*
FWT)
until such time you’ve already exhausted or used up the excess input.
* These amounts are not available for input tax credit but may be recognized as cost or expense.
** Standard input VAT of 7% on sales to Government as provided in SEC. 4. 114-2(a).
Apportionment of input tax on mixed transactions *** Withheld by Government entity as Final Withholding VAT.
When the establishment is engaged in mixed transactions such as when it is engaged in sales
to private persons or firms, to the govt and it is also selling goods which are exempt from VAT,
the total input taxes shall be apportioned by applying the ff formulas: Substantiation of purchases
Taxable sales (Taxable sales / Total Sales) x Input tax not directly attributable to any activity ▪ For purchase of services
Zero-rated sales (Zero-rated sales / Total Sales) x Input tax not directly attributable to any activity - Official receipt showing the information required
VAT-exempt sales (Exempt sales / Total sales) x Input tax not directly attributable to any activity ▪ For domestic purchase of goods and properties
Sales to government (Sales to govt / Total sales) x Input tax not directly attributable to any activity - Invoice showing the information required
▪ For the importation of goods
- Import entry or other equivalent document showing actual payment of VAT on the imported goods,
government OR or bank-validated return
▪ For the purchase of real property
- Public instrument i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc.
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Requirements for claiming input tax ▪ PROVINCIAL, CITY AND MUNICIPAL ASSESSORS AND TREASURERS
Recognize input tax in the appropriate period (date of OR/invoice) - primarily tasked to implement the provisions under the Local Government Code (LGC) when it comes to the
o Goods – upon issuance of VAT invoice taxing power of the LGUs. Taxation, as a rule, is legislative in nature; but one of the exceptions to it is if the
legislature delegated it. Under our Constitution, there is a delegation given to the LGUs.
o Services – upon receipt of payment as evidenced by VAT OR
General Powers and Duties of the BIR (Sec. 2) (AGEE)
Input tax credit
1. Assessment and collection of all national internal revenue taxes;
▪ To reduce the output tax in determining the VAT payable for the tax period; This does not mean levying taxes as this power is of the legislature. It simply refers to the computation of the tax
▪ Excess to be carried over to the succeeding taxable periods to reduce the VAT liability for liability based on existing tax laws and regulations, and eventually collect it.
such taxable periods 2. Give effect to and administer the supervisory and police power conferred to it by the tax
code and other laws.
Requisites to claim for VAT Refund/Credit: [2ND RS] 3. Enforcement of all forfeitures, penalties, and fines in connection therewith.
1. VAT-registered person; 4. Execution of judgment in cases decided in its favor by the Court of Tax Appeals.
2. Claimed input taxes are directly attributable to zero-rated sale;
3. Duly supported with VAT invoice or VAT OR with proper content; Bottom line: The mandate of the BIR is revenue collection.
4. The claimed input tax were not applied against output tax nor carried over to
succeeding months/quarters; Setup
5. Claim for refun/credit (admin) must be made within 2 yrs FROM close of the TQ when The BIR is under the Department of Finance (DOF) which is under the Office of the Pres.
sales (0%) were made NOT when input tax was paid. ▪ DOF Secretary – Carlos Dominguez III
▪ Commissioner of Internal Revenue (CIR) – Caesar R. Dulay
Filing ▪ Deputy Commissioner, Operations Group – Arnel SD. Guballa
▪ Where: BIR OFFICE – large taxpayers; RDO; one stop shop center of DOF ▪ Deputy Commissioner, Legal Group – Marissa O. Cabreros
▪ When: within 2 yrs ▪ Deputy Commissioner, Information Systems Group – Lanee C. David
▪ Deputy Commissioner, Resource Management Group – Celia C. King
Sec 112
▪ CIR – may (1) grant refund or (2) issue TCC within 90 days (3 months) Officials of the BIR Office
▪ if CIR denied – appeal to CTA within 30 days from receipt of adverse decision 1. CIR (1) head office of BIR located in Quezon City
2. Deputy Commissioners (4) head office of BIR located in Quezon City
3. Assistant Commissioners head office of BIR located in Quezon City
TAX ADMNISTRATION AND ENFORCEMENT 4. Head Revenue Executive Assistants (HREA) head office of BIR located in Quezon City
5. Regional Directors (19) revenue region
Agencies involved in tax administration 6. Revenue District Officers every revenue district offices (RDOs)
7. Revenue enforcement officers or examiners
▪ BUREAU OF INTERNAL REVENUE (BIR)
- primarily tasked to implement the provisions of the NIRC when it comes to the collection of national taxes.
▪ BUREAU OF CUSTOMS (BOC) Cebu City belongs to political region no. 7. But when it comes to revenue region, it belongs to
- primarily tasked to implement tariff and customs code but it overlaps because this agency is also authorized revenue region no. 13. Its regional office is located in Brgy. Luz, Archbishop Reyes Ave, Cebu
to collect VAT when it comes to imported goods or articles prior to the release of these imported articles City (near Grand Con). The 2nd floor is the regional office while the lower ground is the RDO 81.
from the BOC jurisdiction.
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We need to know its location because when it comes to requests for rulings, they usually go ▪ Interpretation refers to the revenue or tax rulings. If you are not sure that you fall under the
through first with the regional office unless you direct or course through it to the head office. exemption, the best thing to do is to ask for a tax ruling. The ruling is an exclusive and original
jurisdiction of the CIR. Before Henares, the CIR usually delegates this power to the Regional
Each of the RDOs has its own jurisdiction. (Refer to BIR website for their respective jurisdictions) Directors. But when Henares sat, all requests for rulings are directed to the Office of the CIR.
o RDO 80 – Lopez Jaena St., Mandaue City (near La Tondena) The disadvantage with this arrangement, though, is that issuance of the rulings will take 2-3
o RDO 81 – Archbishop Reyes Ave, Cebu City (lower ground where the regional office is yrs because everything is being signed and evaluated by the Office of the CIR alone. The
located) advantage is that when there are a lot of requests for ruling involving the same issue, the
o RDO 82 – N. Bacalso Ave, Cebu City (across CITU) CIR will just issue a revenue memorandum circular or a revenue regulation clarifying it. As
o RDO 83 – Highway Tabunok, Talisay, Cebu City (near Gaisano Tabunok) of now, when we ask for ruling, we course it through not through the Office of the CIR but
through the so-called law and legislative division of the BIR
General Powers of the CIR (Secs. 4-8, NIRC)
The powers provided under the NIRC is primarily given to the CIR. There are provisions, though, that CIR OR his duly Revenue Regulation Revenue Ruling or Opinion
authorized representative. These other officials, from deputy commissioners to revenue enforcement officers or General interpretations of the tax laws More specific in nature; addressing needs of
examiners, are expected to do their job based only on the authority granted by the CIR, whose power and authority
seeking to explain the provisions of the law a taxpayer but is applicable only to the
is also granted under the NIRC. IOW, whatever action being done by these lower officials which is not authorized can
be considered an illegal or void action. requesting taxpayer
1. Power to interpret the tax code and other tax laws (exclusive and original jurisdiction) Issued by the Secretary of Finance with Issued by the CIR subject to review by the
2. To obtain information, and to summon, examine and take testimony of persons; recommending power from the CIR, being Secretary of Finance
3. To make assessments and prescribe additional requirements for tax administration and the implementing agency. This is under the presumption that such ruling should
Reason: If you look at the legislating phase, the entity be in accordance with the revenue regulation which
enforcement; was issued by the DOF. The BIR publicizes this because
who primarily calls for a passage or an amendment of
4. To conduct inventory-taking, surveillance and to prescribe presumptive gross sales and a tax law raising revenue is the DOF. When it comes to this will at least provide guidelines to the public
receipts; tax revenue bill, it must start from the lower house, especially to those similarly situated. However, even if
5. To terminate taxable period; that’s why from the DOF, they will tap a congressman you are similarly situated to the entity issued with a
who can sponsor it. The one who knows really of the ruling for its exemption, it does not follow that you will
6. To prescribe real property values;
intention and the purpose of the amendment is the be automatically be exempted as well. You still have to
7. To inquire into bank deposit accounts; request for a ruling applicable to your company.
DOF, so it is only proper that it will be the one to issue
8. To accredit and register tax agents; a general interpretation through the Secretary of
9. To prescribe additional procedural or documentary requirements; and Finance.
10. To delegate power to subordinates.
POWER TO DECIDE DISPUTED ASSESSMENTS, REFUNDS, PENALTIES AND OTHER
TN: Powers 2-10 are delegable powers of the CIR. MATTERS UNDER THE NIRC OR OTHER LAWS ADMINISTERED BY THE BIR
POWER TO INTERPRET THE TAX CODE AND OTHER TAX LAWS ▪ This is a delegable power. Usually, the CIR delegates this power to the regional director. As
of now, Regional Director Pagulayan is the RD of Revenue Region 13.
▪ This is an exclusive and original jurisdiction of the CIR. It cannot be delegated to the ▪ Disputed Assessments – there is an assessment, usually deficiency assessment, issued by the
subordinate of the CIR, unless you question the constitutionality, in which case you go to BIR. Once that deficiency assessment is being validly protested by the taxpayer, that
the regular courts. becomes a disputed assessment. It is required to file an administrative protest first, which
SY 2018-2019 404_Taxation 2 - KMA
shall be decided by the CIR, before you can proceed with the judicial action, pursuant to the properties in Tagaytay. They were asked to explain how they purchased those properties when they are only
principle of exhaustion of administrative remedies. reporting this much of income, and the wife was just a plain housewife with no income being reported. The
spouses failed to explain so the assessment of the BIR went up, and a criminal case of tax evasion was filed.
▪ The decision of the CIR must have a clear and unequivocal indication whenever the CIR’s
3. Take testimony of persons (under oath) as may be relevant or material to the inquiry.
action on an assessment questioned by the taxpayer constitutes his final
4. Examine any book, record, data which may be relevant to the inquiry, subject to the period
decision/determination on the dispute. The assessment we are referring here pertains to
to prescribe the keeping of books
deficiency assessment. You disputed the computation made by the BIR.
5. To issue summons
▪ Both the CIR and RD can decide the disputed assessments. If the RD decided adversely on
your protest, you have 2 options: (1) appeal to the CTA; or (2) file a request for ▪ The BSP is not exempt from internal revenue taxes; only DST exemptions.
reconsideration to the CIR. ▪ The CIR and/or his subordinate may issue subpoena i.e. subpoena duces tecum pursuant to
▪ The Revenue District Officer does not usually decide on the rulings because the assessments the CIR’s power to obtain information and to summon under NIRC. However, this is not a
in the region are issued by the regional office. requisite before resorting to the best evidence obtainable.
▪ Kinds of Remedies: ▪ Best evidence obtainable - When the BIR issues an assessment, the assessment should be
o Appeal to the Secretary of Finance – problems arising from interpretation of tax laws. based on fact and law. If the taxpayer will not cooperate, the BIR can take any other
o Appeal to the Court of Tax Appeals – problems arising from assessments, refunds, information from other sources. This rule of best evidence obtainable from 3rd party applies
penalties or other matters regarding tax liabilities under the Tax Code. only in default of the cooperation of the taxpayer, which in this case, the taxpayer is at a
o Regular courts – problems arising from constitutionality of tax laws. disadvantage since he may no longer be able to defend himself especially if the information
o BIR – Administrative actions by taxpayers prior to judicial action before the CTA come from reliable persons such as his supplier, customers, internet, and the like.
OBTAIN INFORMATION AND TO SUMMON, EXAMINE AND MAKE ASSESSMENTS

TAKE TESTIMONY OF PERSONS
A. Examination of returns and determination of tax due – based on best evidence obtainable
Extent: General rule again is self-assessment. However, such is prone to abuse on the part of the taxpayer by
1. Canvass from time to time the revenue region or district office. understating the income and overstating the expenses. This is where the classification comes into play. Those
2. Obtain information on regular basis – information sourced from the taxpayer (self- who are prioritized when it comes to the review or audit of the tax returns are the large taxpayers, tamp
taxpayers, and medium taxpayers. You will receive a notice in case you are classified as such and will have
assessment) or 3rd party information additional tasks. If you’re not classified as such, you will not be prioritized pursuant to the principle of
o It refers to the information obtained on a regular basis, which means the information contained in your tax administrative feasibility and cost-benefit. However, even if you do not belong to any of these 3 classifications,
return as declared by the taxpayer since we follow self-assessment. you may still be audited especially if the very reason that you are not classified as such is you did not declare
o The CIR can even get third party information. The CIR is empowered to ask from other persons your source of your proper income and your proper sales. The CIR can acquire such fact from 3rd party information or from a
income or the correct amount of your income. so-called anonymous complaint. The one who usually sends these anonymous letters are those disgruntled
o For example, in a contract, the talent fee at P50M of an actor is provided but he only reported P10M in his employees of the taxpayer.
return. However, the entity who contracted with the actor will report the true amount as this would be
beneficial to them since such is considered as a deduction. In this case, the BIR would discover such Sources:
misstatement through what we call relief system. Under this system, the summary list of sales will be ✓ Government offices/agencies
compared with the summary list of purchases. In the summary list of sales, it is required to indicate the buyers, ✓ Corporations/employees
etc. while in the summary list of purchases, the suppliers. ✓ Clients or patients
o The BIR can also actually ask for the list of properties from the city assessor's office. Usually, they will mark ✓ Tenants, lessees, vendees and from other sources
those persons who have properties of very high value and they will counter check their ITRs.
o There was one 2014 case, wherein the spouses were assessed of deficiency tax by the CIR because of the simple General Rule: Tax returns are confidential
fact that only the husband is reporting an ITR of 1M annually, but they were able to purchase several real Exceptions: PA-EFEC – Instances when your tax returns may be examined by entities other than by the CIR.
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1.) If there is written order of the President of the Philippines Basis in assessing the proper tax:
2.) In aid of legislation of the Congressional Oversight Committee ▪ Best evidence obtainable; OR
- usually applicable to entities exempted from taxation ▪ Use of the net worth method – an extension of the basic accounting formula: A = L + E
- the government wants to know the revenue forgone as regards the cooperatives and PEZA-registered
exempt from income taxation, which the legislatures can utilize in further legislations Conditions (use of the Net Worth Method):
3.) Material evidence in a criminal case where the government is interested in the result (usually tax evasion 1. Either there are:
cases) (a) No books of accounts; or
4.) Inspection is authorized under Finance Regulation 33 (b) The books do not reflect the correct income; or
- this is an old rule; instances when the BIR official/officer can examine the tax return (c) The taxpayer refuses to produce the books; or
5.) Requests for exchange of information by foreign tax entities (d) Books were destroyed.
6.) Upon consent/authority of taxpayer 2. There is evidence of possible sources of income causing an increase in net worth;
3. There is fixed or opening net worth;
B. Assess the proper tax 4. The method reflects taxpayer’s income with accuracy and certainty after various adjustment.
Concept of Assessment How does the BIR compute your net worth?
▪ Assess means to impose a tax, to charge with a tax; to declare a tax to be payable; to apportion a tax to be What usually happens is that the BIR will just compare your net worth this year versus your net worth in
paid or contributed, to fix a rate; to fix or settle a sum to be paid by way of tax; to set, fix or charge a certain another previous year. If there is a big difference, the BIR will check primarily your ITR and will ask for an
sum to each taxpayer; to settle determine or fix the amount of tax to be paid. explanation. If you cannot explain, the BIR can acquire evidence from third parties.
▪ An assessment is the notice to the effect that the amount therein stated is due from a taxpayer as a tax
with a demand for payment of the same within a stated period of time. (Commissioner vs. CTA, 27 SCRA C. Conduct of inventory-taking, surveillance, and to prescribe presumptive gross sales and
1159) receipts
▪ This is not synonymous with the levy or the imposition concept in Tax 1 for the latter refers to ▪ Prescription of presumptive gross sales and receipts happens if the taxpayer failed to maintain the
computation/application of the tax law to the taxpayer. appropriate books of accounts, and failed to account for its correct sales and receipts. The basis of the CIR
here would be benchmarking (where same entities/companies having the same nature of operation as the
Requisites for a valid assessment: taxpayer).
o The taxpayer shall be informed in writing of the law and the facts on which the assessment is made (Sec. ▪ 3 types of surveillance:
228, NIRC) o Covert Surveillance – surreptitious and undercover watch on business
o An assessment contains not only a computation of tax liabilities, but also a demand for payment within a o Overt Surveillance – commences from the inventory taking then actual business observation and close
prescribed period (CIR vs. PASCOR) monitoring of the business; this is the time when you are asked to explain
o An assessment must be served on and received by the taxpayer (CIR vs. PASCOR) o Short Duration Surveillance (Tax Compliance Check) – this is commonly termed as tax mapping. Here, there
is no direct target, unlike in covert and overt surveillance. The BIR officer will go to the taxpayer’s business
Assessment Period place with a checklist and see for example if it has BIR COR, if such is displayed in a conspicuous place, if it
As a rule, returns, statements and declarations filed with the BIR may no longer be withdrawn by the taxpayer. has a BIR Ask for Receipt Notice, or it has a duly issued invoice or OR, etc. Failure to present those will
However, such may be withdrawn and amended within 3 years from filing and there is no notice of audit or result to corresponding penalties
investigation served upon the taxpayer. If you are going to withdraw and amend your tax return, the period of ▪ Aside from surveillance, the BIR may also conduct benchmarking. There will be some sort of
assessment could also extend. Take note that the BIR is only given 3 years (1) from the date of timely filing of standard/comparatives if this taxpayer more or less is reporting the same as other taxpayers belonging to
the tax return or (2) if filed late, from the date of actual filing. For instance, if the filing date is April 15, 2018 the same industry. If you’re below the standard, then the BIR may prioritize you for audit. This benchmarking
but only filed it on April 13, 2 days before the deadline, the period of assessment would be counted 3 years is usually undertaken to determine the net VAT due and the net income tax due.
from April 15, 2018. The BIR can assess you until 2021. If the assessment goes beyond 2021, then that is already ▪ Benchmarking Guidelines:
a void assessment. If there’s a material amendment, the period to assess may be extended. To be material, it a. shall be separate for corporations and individuals;
must be that the previous tax liability you filed decreased/ changed. b. per area, per line of industry and per tax type basis;
c. done per RDO by preparing taxpayers’ profile per taxable year
Notice of audit or investigation d. based on tax returns and data from other sources within and outside the Bureau, RDOs shall determine
This commences as soon as you receive the LOA or LN from the BIR, informing you that you have deficiency the specific industry coverage;
tax for this particular period’s filing. e. If LOA was issued, it will only be closed upon consideration of the prescribed benchmarks.
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▪ In several cases reaching the SC, if a BIR issues an assessment, it must not be based solely on the reports of
benchmarking but should be based on tax or law. In the case of Medicard, the Court said that you can use it
Inquire into bank deposit account
as basis in the issuance of LN or deficiency notice. But if not paired with other actual information, then you
cannot say that the taxpayer violated just because he is below the benchmarking standard.
▪ GR: Bank Secrecy Law
The BIR is authorized to obtain information from the other persons than those whose internal revenue tax
D. Issue jeopardy assessments liability is subject to audit or investigation. However, this power shall not be constructed as granting the
▪ GR: BIR Assessment only upon full audit Commissioner the authority to inquire into bank deposits
▪ Exc: Jeopardy Assessment
▪ Exc:
▪ This is a tax assessment made by an authorized Revenue Officer without the benefit of a complete or partial
audit in light of the Revenue Officer’s belief that the assessment and collection of the deficiency tax will be o Power to inquire into bank deposits of a decedent for purposes of determining his GE,
jeopardized by delay due to taxpayer’s failure to: determining the correct estate tax due to the government – no need of waiver.
1) comply with audit and investigation requirements to present his books and/or pertinent records or; The fact that the deposit is a joint account will not preclude the Commissioner from inquiring thereon.
2) substantiate all or any of the deduction, exemption or credit claim in his return. o In an application for tax compromise of tax liability due to financial incapacity to pay tax
▪ This is an assessment that will be issued by the BIR if the taxpayer will not cooperate with the Bureau in the liability. – need of waiver
examination of the books and the period to assess is already about to lapse. If the taxpayer will still not
In case a taxpayer applies for an application to compromise the payment of his tax liabilities on his claim that
comply, the assessment becomes final and demandable and he can no longer appeal to the CTA.
his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be
▪ The benefit of the issuance of a jeopardy assessment is that it will toll or suspend the running of the 3-yr
considered unless and until he waives in writings his privilege under R.A. 1405, and such waiver shall constitute
period. Protest is only allowed within 30 days from such issuance.
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
▪ Other instances where jeopardy assessment may be issued:
o The taxpayer is about to retire his business o Exchange of information by the BIR on tax matters pursuant to internationally agreed
o The taxpayer is about to leave the country standards (RA10012 and FATCA)
Authority to terminate taxable periods Accredit and register tax agents
Instances when tax periods may be terminated: (LR-RA) If a CPA, for example, wants to represent his bookkeeping clients to the BIR, an accreditation
1. Intending to leave the Philippines that he is the authorized representative of the taxpayer to transact with the Bureau is required.
2. Retiring from business However, if you are a lawyer, not suffering from suspension and disbarment, there is no more
3. Intends to remove/hide/conceal his properties in the Philippines a need to get such.
4. Taxpayer is performing an act tending to obstruct the proceedings for collection of the
tax for past or current quarter or year or to render the same ineffective (totally or Prescribe additional procedural or documentary requirements
partially)
The CIR, however, doesn’t have the power to prescribe penalties for the violation of the
Prescribe real property values - zonal valuation regulation. Since the Secretary of Finance is the one who issues Revenue Regulations, he is only
the one who can prescribe penalties. CIR merely has recommendatory powers.
Zonal valuation is used to compute the FMV of the property. We compare whichever is
HIGHER between (1) the zonal value and (2) the valuation by the city and the municipal Delegate power to subordinates
assessors. We can see the zonal valuation in the BIR website. The location of the property as
declared in the TCT will also matter. GR: The powers of the CIR are delegable.
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Exceptions: (RICA) Authority to assign internal revenue officers
1. To recommend the promulgation of rules and regulation to the SOF;
2. To issue rulings of first impression or to reverse, revoke or modify any existing ruling;
Revenue ruling is an exclusive and original jurisdiction of the CIR. Before Henares, the power to issue tax ruling ▪ Those involved in excise tax functions
is delegated to the RD especially if these rulings are not rulings of first impression and not about reversal, Limitation: Up to 2 years. After 2 years, they will be reassigned.
revocation or modification of existing rulings. Now, under Dulay, the authority is in a different department of the ▪ Assignment to other special duties
CIR, the law and legislative division. So, if you look at it, the power can already be delegated but only as to the Limitations:
power to issue rulings that are not of first impression. a. Internal revenue officers assigned to perform assessment or collection function shall not remain in the same
3. To compromise or abate any tax liability (except assessments issued by the regional offices assignment for more than 3 years;
- Purpose: To avoid familiarity in the RDO where the officer is assigned.
involving basic deficiency taxes of 500,000 or less, and minor criminal violations) b. Assignment to special duties shall not exceed 1 year.
As a general rule, the CIR has the power to compromise tax liability; but he may delegate such power to a
subordinate official with a rank equivalent to division chief or higher, provided the basic deficiency tax is 500k or
less. Take note that what is covered by the exception of 500k or less is only compromise. The power to abate Authority to impose duties on certain officers
cannot be delegated to other BIR revenue official.
o Compromise – still has tax collection; only at a very minimal amount
o Abatement – no tax collection; liability of taxpayer is absolutely forgiven; only applies to penalties and Unless there is a certification (CAR)
interests, not to basic taxes assessed ➢ Register of Deeds – no registration of transfer in the Registry of Property transferring real
o In both situations, the primary requirement for the BIR to entertain the application for compromise or rights or any chattel mortgage.
abatement is that the taxpayer must first pay a prescribed amount of the basic tax assessed. ➢ Debtor of the decease shall not pay to the administrator, heirs, legatee, executor,
4. Power to assign or reassign internal revenue officers to establishments where articles administrator, heirs, legatee, executor, administrator, etc.
subject to excise tax are produced or kept. ➢ Bank shall not allow withdrawal.
➢ Lawyer, notary public, or any government officer must furnish copies with the BIR.
Authority to make arrests and seizures
Example:
The Registrar of Deeds should not transfer the title of the property until and unless the owner of the property will
▪ Responsible officers: present a CAR from the Bureau. OW, he can be held liable.
o CIR
o Deputy commissioners Authority to suspend business operation of the taxpayer
o Regional directors
o Revenue District Officers
▪ Reason: Violation of penal laws and rules or regulations administered by the BIR ▪ RMO 3-2009: Oplan Kandado. The closure of the business shall last for a period of no less
▪ Proceedings: before a competent court, to be dealt with according to law than 5 days and shall be in force until the violation is rectified.
▪ This refers to inflagrante delicto; when the taxpayers are caught in the act, the ▪ RATE: Run Against Tax Evaders
aforementioned officers can make the arrest. ▪ In connection with this, the business may be compelled to close for failure to register with
▪ Example: if you tried to bribe (UTT) a BIR official, he can arrest you and seize the instrument the Bureau, if you failed to issue the VAT OR or VAT COC invoice, if you evade tax like
used in committing the crime. The purpose of the seizure is for it to be presented later on in understating your sales or overstating your expenses.
a court hearing against you.
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Authority to ask for reports or submission from the cooperatives ▪ Authority of revenue officers (assessors/examiners) pursuant to a LOA issued by the RD:
o Examine taxpayers within the jurisdiction of the district in order to collect the correct
amount of tax;
This is an added power of the CIR by TRAIN Law, pursuant to the Cooperative Development
o Recommend the assessment of any deficiency tax.
Act.
Nature of Assessment
4 Deputy Commissioners (plus 2) – During the time of Aquino, it became 6 DCs, but now it is back to FOUR.
▪ ASSESSMENT is the official action of an officer authorized by law in ascertaining the amount
1. Operations Group
of tax due under the law from a taxpayer.
2. Legal and Inspection Group
▪ The term assessment involves:
3. Resource Management Group
- Giving notice of assessment
4. Information Systems Group
Plus 2 Deputy Commissioners for newly created positions
- Computation of the sum due
5. Tax Reform Administration Group - Issuance of notice of demand upon the taxpayer for the payment of the tax or
6. Social Concerns Group deficiency stated
▪ This primarily deals with the computation of the taxpayer’s correct tax liability. You can say
Field Service – Regional Offices (headed by the Regional Director) that you’re already assessed if you have received the Final Assessment Notice (FAN), NOT
the Preliminary Assessment Notice (PAN). Although the PAN is part of the due process aspect
Power and duties of the Regional Director (Section 10 NIRC) in informing the taxpayer as to his/her correct tax liability, it is not the assessment that we
1. Implement laws, policies, plans, programs, rules, and regulations of the department or are talking about which must be within the prescriptive period of 3 years; rather it is the
agencies in the regional area; FAN.
2. Administer and enforce internal revenue laws, and rules and regulations, including the ▪ After the FAN, the next step that the government will do is collection of tax. Since you are
assessment and collection of all internal revenue taxes, charges and fees; already assessed of your correct tax liability, you can counter and present defenses if you
3. Issues Letters of Authority (LOA) for the examination of taxpayers within the region; have proper support to your case. But if none, the next recourse that the government will
4. Provides economical, efficient and effective service to the people in the area; do is collection. And take note, when it comes to collection, there is also a prescriptive
5. Coordinates with the Local Government in the area; period.
6. Coordinates with the other regional offices or other departments, bureaus and agencies in
the area; SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
7. Exercises control and supervision over the officers and employees within the region; Requirements for Tax Administration and Enforcement. -
8. Performs such other functions as may be provided under the law and as may be delegated (A) Examination of Return and Determination of Tax Due. – After a return has been filed,
by the CIR. the Commissioner or his duly authorized representative may authorize the examination of any
taxpayer and the assessment of the correct amount of tax: Provided, however, that failure to
Revenue District Officers file a return shall not prevent the Commissioner from authorizing the examination of any
▪ implement program, methods and procedures necessary for the efficient, effective and taxpayer.
economical assessment and collection of your revenue taxes in the revenue district.
▪ Composition: How long should I worry about a BIR tax audit or assessment?
a. Field men and examiners ▪ GR: 3 yrs counted from the date of filing (if filed late), or from the deadline (if filed on time
b. Collection agents and clerks or earlier). (Sec. 203, Tax Code)
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▪ Exc: 10 yrs from discovery of: (Sec. 222, Tax Code) from claiming the supposed corresponding expense. The proper thing to do is to ask for a sworn statement
o Failure to file return or affidavit from such supplier declaring that he himself requested such omission of withholding the tax.
o False return o Absence of income in the return (filing of deficient returns) tantamount to an omission
o Fraudulent return (with intent to evade tax) to file returns.
▪ Who is in advantage of this prescriptive period? It actually benefits both sides, taxpayer and
the government. It benefits the government, which is the one implementing it, because it KINDS OF ASSESSMENT
promotes efficiency on the part of its officials. At the same time, it also benefits the taxpayer ➢ By the taxpayer: Self-assessment
The most common is the self-assessment or the voluntary assessment. But even if it’s self-assessment, it is not
because the prescriptive period primarily gives him peace of mind na di sya kanunay gukud an assurance that the BIR will no longer review the computation.
gukuron ni BIR especially if the taxpayer did not do anything wrong. Of course, it’s a different ➢ By the BIR, without authority: Illegal and void assessment
story if the taxpayer evaded tax. The assessment must be done within the prescriptive period; OW, the assessment is considered to be done
▪ In connection to the prescriptive period, recall on the number of years when you can keep without authority and it becomes illegal or void assessment.
your books of accounts or records. If you look at the Tax Code, it requires you to keep your ➢ By the BIR, with authority:
books of account only for 3 years primarily because the period to assess is only 3 years from - Deficiency Assessment
the date of filing or from the deadline if you filed on time. However, in a 2013 Memorandum Once you receive a final assessment, usually it is a deficiency assessment. This is issued when the taxpayer
fails to pay the correct amount of taxes.
Circular issued by Henares, the period to keep the books of accounts is extended from 3 yrs
- Erroneous Assessment
to 10 yrs primarily to coincide with the exceptional period to assess which is 10 years in case
If something is wrong in the assessment (computation, appreciation of facts, provisions in law), then it
of falsity, fraud or non-filing. So, in that case, the taxpayer is given the opportunity to defend becomes an erroneous assessment.
himself. - Jeopardy Assessment
If the assessment is issued without the benefit of full audit or issued with the benefit of a partial audit only
Reckoning of 10-year prescriptive period primarily because the taxpayer failed to provide the documents or failed to provide the requirements by
▪ A false return was filed on April 15, 1990 and the falsity was discovered only on March 8 the examiner and the prescriptive period to assess is about to lapse, tendency is the BIR will issue what we
call as jeopardy assessment.
1991. The assessment for the 1989 deficiency income tax was issued on January 9, 1995.
- Disputed Assessment
▪ SC: The assessment was made well within the 10-year prescriptive period reckoned from This happens if the assessment is being questioned by the taxpayer; the taxpayer files a protest to a
March 8, 1991. (CIR vs. Estate of Benigno P. Toda, GR 147188, Sept. 14, 2004) deficiency assessment.
False vs Fraudulent Return Reckoning of prescriptive period of assessment: Where do I begin?

▪ False Return – implies deviation from truth, whether intentional or not
▪ Fraudulent return with intent to evade tax – implies intentional or deceitful entry with A. Returns filed earlier than the last day of filing shall be counted from the last day prescribed
intent to evade tax. It is a matter of state of mind so it cannot really be ascertained by just for filing of the return.
looking at the tax return.
▪ In determining if there is intent to evade the payment of tax which would warrant the Prescribed filing Actual date of
application of the 10-yr prescriptive period, the following manifestations of the taxpayer’s Type of return Reckoning period
deadline filing
intentions may be used as guidelines: ITR (1702) April 15 April 10 April 15
o Substantial underdeclaration (30%) constitutes prima facie evidence of false and
fraudulent return
- A taxpayer may have underremitted the withholding tax because the suppliers demanded to or that an
erroneous tax rate was used. The consequence of failure to withhold would be to disallow the taxpayer
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B. Returns filed beyond the period prescribed by law shall be counted from the day the return Civil Code vs. Administrative Code
was filed. ▪ Administrative Code of 1987 (Section 31, Chapter VIII, EO 292)
o A year is composed of 12 calendar months; the number of days is irrelevant
Prescribed filing Actual date of o The 3-yr prescriptive period consists of 36 months.
Type of return Reckoning period When it comes to counting the prescriptive period, we follow the rule under the Administrative Code, wherein
deadline filing
you will just add 3 to the date. We do not consider the number of days in a month. For example, ITR filed on
ITR (1702) April 15 April 20 April 20
April 15, 2013 falls on April 15, 2016 (whether or not there is a leap year)
▪ Supreme Court: Being the more recent law, EO 292 or the Administrative Code of 1987,
Date of filing varies per type of tax return governs the computation of legal periods. (CIR v. Primetown Property Group Incorporated, G.R. No.
162155, August 28, 2007)
Type of Return Date of Filing ▪ IOW, You can amend the return, provided you did not yet receive a notice of audit. The 3-yr
th
1. Income tax return (BIR Form 1702) April 15 or 15 day of the fourth month prescriptive period to assess will not change as long as the amendment is not considered
following the close of fiscal year substantial amendment. But if the amendment is substantial, then the date of filing the
2. Creditable Withholding Tax (BIR Form Non-eFPS* – 10th day after the end of each amended return will be the reckoning date for purposes of counting the 3-yr prescriptive
1601E) month period to assess.
eFPS** – 11th-15th depending on industry ▪ Substantial – if it calls for a reduction or a change in the tax liability of the taxpayer. In one
grouping case, even a change of 1% was considered as substantial amendment of the return. This is
3. Quarterly VAT Return (BIR Form 2550Q) 25th day following the close of each taxable different from substantial under-declaration which is considered as a manifestation of your
quarter intent to evade payment of tax which must exceed 30%.
* For December return, filing and remittance is on every January 15
** For December return, e-payment due is on January 20 When an assessment is made
▪ An assessment is deemed made within the prescriptive period when the notice of
Effect of filing of an amended return assessment is released, mailed or sent to the taxpayer within the prescriptive period.
▪ The prescriptive period to assess commences from the filing of original return, if it is ▪ Notice of Assessment = Final Assessment Notice (FAN)
sufficiently complete to enable the BIR to intelligently determine the proper amount to be ▪ Taxpayer received the eLA, informal conference and preliminary assessment notice (PAN)
assessed. all within the 3-yr prescriptive period, but the final assessment notice (FAN) was released,
▪ The fact that amended returns were filed later neither start anew the running of the statute mailed or sent beyond the 3-yr assessment period.
of limitations, nor extend its period. (A. I. Ammen Transportation, Co., Inc. v. CIR, CTA Case No. 540, ▪ IOW, if the BIR releases, mails or sends the assessment beyond the 3-yr prescriptive period,
November 10, 1965) such assessment is considered already as void or illegal assessment because the BIR has no
▪ If amended return is substantially different from the original return, the prescriptive period longer the authority to assess because of prescription. That’s why the first thing the
is counted from the filing of the amended return. taxpayers checks is the fact of releasing, mailing or sending. The manner of doing these must
be through personal service but substituted service may be allowed if mailed to the last
Changes on reckoning of prescriptive period due to filing of amended tax return known address of the taxpayer. If it is mailed via a registered mail, the BIR should be able to
Effect on prescriptive period of amended tax returns prove the said registry receipt and the return card.
Last day prescribed Date of actual filing 3-yr prescriptive Filing date of New 3-yr o registry receipt – proves that the notice was mailed
for filing of return of return period amended return prescriptive period
o return card – proves that the notice was received by the taxpayer
April 15, 2010 April 15, 2010 April 15, 2013 June 15, 2010 June 15, 2013
▪ Personal service – what matters is the date of sending and releasing; the taxpayer must
receive the notice within a period of 3 yrs.
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▪ Substituted service (registered mail) – what is important is that the notice of assessment is Proof of fact of mailing
mailed within 3 yrs. The date of receipt by the taxpayer is immaterial. 1. Registry receipt issued by the Bureau of Posts
2. Registry return card (signed by taxpayer or authorized representative)
Service of tax assessments 3. Certification issued by the Bureau of Posts and other documents executed with the
▪ When notice is released, mailed or sent, it is not required that the notice be received by the intervention of Bureau of Posts
taxpayer within the prescribed period. But the sending of the notice must be clearly proven.
(Basilan Estate, Inc. vs. CIR, L-22429, Sept. 5, 1967) How often can I be examined?
▪ Not prescribed: ▪ Only once for a taxable year, except in the following cases: [ROTC Commissioner]
End of 3-yr prescriptive period: August 31, 2012 1. When the Commissioner determines that fraud, irregularities, or mistakes were committed
Date of Service/Mailing: August 29, 2012 by the taxpayer
Date of Receipt: September 9, 2012 2. When the taxpayer himself requests a re-investigation or re-examination of his books of
▪ When a mail matter is sent by registered mail, there exists a presumption that it was accounts
received in the regular course of mail. 3. When there is a need to verify a taxpayer’s compliance with withholding and other internal
▪ A direct denial of the receipt of the assessment shifts the burden upon the BIR to prove that revenue taxes as prescribed in a Revenue Memorandum Order issued by the CIR
the mailed letter was indeed received by the addressee. (Republic v. Court of Appeals, 149 SCRA 4. When the taxpayer’s capital gains tax liabilities must be verified
351) 5. When the CIR exercises his power to obtain information relative to the examination of other
If it is through registered mail, there exists a presumption that it was received in the regular course of mail. IOW, taxpayers (Secs. 5 and 235, NIRC).
absent any denial by the taxpayer, presumption is he was able to receive it. Despite the immateriality of the date of
receipt by the taxpayer (since it is not fatal if the taxpayer was only able to receive such beyond the prescriptive
period), it is still required that he was able to receive the assessment, pursuant to the due process clause under the Types of audit notices
constitution. Once mailed, the running of the period to assess is suspended. However, the problem arises if the 1. Eletronic Letter of Authortiy (eLA)
taxpayer denies receipt of the mail. If the taxpayer denies, the burden of proof that the mail was properly done and 2. Memorandum of Assignment (MOA)
the fact of receipt by the taxpayer will fall upon the BIR. In this case, the BIR cannot prove receipt by just presenting
the registry receipt since this is only a proof of mailing. It has to present a return card, which is a proof of delivery
3. Letter Notices (LN)
and receipt by the addressee. However, in default of this return card, it may instead present an affidavit or a 4. Mission Orders (MO)
certification from the Bureau of Posts that the notice was delivered to the last known address of the taxpayer. If it When we say ‘types of assessments’ that a taxpayer receives, this is the initial document that he will receive for the
was indeed delivered but was not received by the addressee due to the fact of transferring address, it does not BIR to start auditing. Among these 4 audit notices, what is really required under the NIRC to commence the audit is
necessarily follow that the due process clause was violated. It will matter if the BIR was notified of such fact of the LOA or eLA. There are some cases where the SC invalidated the assessment because of the fact that there was
transfer of address because absent such notification, as long as the BIR was able to prove the fact of mailing within no LOA or eLA because the purpose of this audit notice is some sort of a delegation notice from the CIR or RD to a
the prescriptive period to the taxpayer’s last known address, that is already considered a valid receipt by the particular revenue examiner, authorizing the latter to examine the books or the records of a particular taxpayer for
taxpayer. BIR Form No. 1905 is what is submitted for information updating. If the taxpayer changes address, he a specific period.
should also amend his COR with the bureau. That’s a proof of notification to the BIR. Therefore, impliedly, if you fail
to notify the BIR, the assessment can become final and executory. Letter of authority
▪ Scope:
Facts to raise the presumption that mail was received in the regular course of mail are: 1. Audit or investigation of all internal revenue taxes, including withholding taxes.
[Barcelon, Roxas Securities, Inc. vs. CIR, G.R. No. 157064, August 7, 2006 citing Protector’s Services, Inc. vs. Court of 2. Claims for tax refund/credit, audit of taxpayers retiring from business or undergoing
Appeals, G.R. No. 386 Phil. 611, 623 (2000)]
corporate reorganization and other cases where TVNs were previously authorized for
(a) That the letter was properly addressed with postage prepaid; and
audit/verification of tax liabilities and other audit-related activities.
(b) That it was mailed. - TVN stands for Tax Verification Notice. You usually receive this if you are going to retire your business. If
you want to dissolve your business, the application with the SEC is not only the requirement. You have to
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dissolve your business with the LGU and BIR as well. If you just stopped operating, stopped filing the such demand, ask first for a LOA. The
monthly and quarterly filings, without formally terminating, that would be considered as open case. It will officer who issues the LOA can either
continue to run until such time that you’re going to formally terminate it. And by this time, you will be
charged with fines and penalties. come from the (1) head office, signed by
▪ Coverage: Only one taxable year (CY or FY) except: the Commissioner; or (2) the large
(a) Tax fraud cases authorized by the Commissioner or Deputy Commissioner taxpayer’s division; or (3) the RD. Take
(b) Excise tax cases note that before issuing a LOA, usually,
In these exceptional cases, it can cover several years but the LOA must specify the years covered. But in most they have already an idea that there is
cases, the LOA covers 1 yr only because before, there is this rule that within 120 days, the examiner should deficiency in the filings of that taxpayer.
have already finished examining the company. Kung baga, there is a deadline or expiration date ang LOA. One basis may be from the RELIEF
Although, that rule is recently withdrawn already. But the rule is still strict as regards to the requirement of
specifying the covered taxable year.
system, wherein ibangga ang sales
reported by the other party versus the
The BIR has already issued an RMO because this is the case na mapildihan niya usually because the SC can never purchases reported and the importation
validate a LOA covering a particular yr and unverified prior years because that is a violation of the due process clause generated from the system of BOC
in the constitution. It is as if the BIR is in a fishing expedition sa business nimu so dapat specific. So, in this RMO, the versus the importation reported. When
BIR declared that…
the BIR notes a material deficiency, that
Rule on LAs with “unverified prior years”
usually triggers the issuance of a LOA. So
▪ Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990 provides:
meaning to say, when you have the LOA,
“3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The
the next thing you receive is usually the
practice of issuing L/As covering audit of “unverified prior years” is hereby prohibited. If
LN. The Letter Notice details your
the audit of a taxpayer shall include more than one taxable period, the other periods or
deficiency to tax liabilities. So the BIR has
years shall be specifically indicated in the L/A.”
(CIR v. Sony Philippines, Inc., G.R. 178697, November 17, 2010; CIR v. De La Salle University, Incorporated, CTA EB already a computation kung unsa ang
671, June 8, 2011) na-file and nabayaran nimu versus the
supposed na bayran unta nimu based on
Letter of Authority their system. So, it’s up to the taxpayer
In an LOA, you have there a heading ‘LETTER OF AUTHORITY’. What is important here is that it now to prove to the BIR the correct
must be addressed to a taxpayer, it must specify the period covered and the examiner amount of tax liability.
authorized by the BIR to go to the taxpayer’s office. The named examiner is authorized to check
the taxpayer’s books and to require from him supporting documents. If the BIR gives you an An example of an invalid LOA is when it only covers UPY which stands for ‘Unverified Prior
audit notice, you have to check whether it is only for tax mapping. If such is only the case, the Years’. In the case of De La Salle, a 2017 case, the SC invalidated partly the BIR’s assessment. It
BIR officer should present his ID, and must bring a checklist with him. This checklist covers only only validated those assessments for a particular year. So, if ever the RD does this, he may be
the compliance requirements of the Bureau, like let’s say for example i-check lang niya dapat if administratively sanctioned.
the taxpayer’s BIR COR and Ask for Receipt Notice are displayed, if the company has ORs or
invoice with ATP. IOW, in tax mapping, the examiner will not check if the taxpayer is deficient Validity of LOAs
in paying his taxes. It’s more of an administrative aspect. He will not conclude how much is the ▪ A LOA must be served upon the taxpayer or his authorized representative within 30 days
correct tax liability and issue deficiency assessment because for that to be done by a BIR official, from date of issue; OW, it becomes invalid.
LOA is required. So if the examiner demands from you supporting documents for your income But usually, what the BIR does if mu-expire na is to revalidate it, extending the 30-day period.
or expenses claimed for a particular year, that is no longer tax mapping. Before you comply with
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▪ Rule that the examination should be completed within 120 days from the date of issuance ▪ In an LN, there is a column showing the computation by the BIR and a column showing the
of LA and requirement for its revalidation of LAs in case of failure to complete the audit filings of the taxpayer. Then there is a note as to the amount of the discrepancy. As settled
within the 120-day period – withdrawn. (RMO. 44-2010) in the case of Medicard Philippines, LOA is different from LN because the LOA basically
empowers or authorizes the officer to examine the books of the taxpayer; whereas the LN
Effect of failure to revalidate an LA is just a summary of the deficiency. It does not in any case or in any way grants authority to
▪ Failure of the revenue officer to complete the audit within 120 days shall subject him/her to the examining officer to look at the books of accounts and to recompute the tax liability of
administrative sanctions. [RMC 23-09 (May 8, 2009) and RMO 44-2010 (May 12, 2010)] the taxpayer.
Memorandum of Assignment (MOA) Medicard Philippines Inc. V CIR, G.R. No. 222743, April 5, 2017
(Revenue Memorandum Order No. 069-10) ▪ The no-contract-audit approach includes the process of computerized matching of sales and
▪ Coverage: purchases data contained in the Schedules of Sales and Domestic Purchases and Schedule
1. Reassignment for the continuation of the audit/investigation to another RO due to of Importation submitted by VAT taxpayers under the RELIEF System pursuant to RR No. 7-
resignation/retirement/transfer of the original RO. 95, as amended by RR Nos. 13-97, 7-99 and 8-2002. This may also include the matching of
- The BIR only issues MOA in case there is a reassignment of an examining officer because as discussed, data from other information or returns filed by the taxpayers with the BIR such as Alphalist
the LOA specifies the name of the examiner. So, if a new examiner will come in, there’s no need to issue of Payees subject to Final or Creditable Withholding Taxes.
another LOA. Instead, MOA will be issued, informing the taxpayer that this previous officer is already
▪ Under this policy, even without conducting a detailed examination of taxpayer’s books and
reshuffled and a new officer will take charge of his case.
records, if the computerized/manual matching of sales and purchases/ expenses appears to
2. Assignment to the original RO of returned cases by the reviewing office and
reassignment to another RO of returned cases in case of reveal discrepancies, the same shall be communicated to the concerned taxpayer through
resignation/retirement/transfer of the original RO. the issuance of LN. The LN shall serve as a discrepancy notice to taxpayer similar to a Notice
for informal Conference to the concerned taxpayer. Thus, under the RELIEF System, a
3. Reassignment to another RO due to referral of the case to another investigating office
(e.g., cases referred to SID by the RDO) revenue officer may begin an examination of the taxpayer even prior to the issuance of an
LN or even in the absence of a LOA with the aid of a computerized/manual matching
4. ONETT cases (capital gains tax/creditable withholding tax and DST involving transfers
of real property or shares of stock and donor’s tax) taxpayers’ document/records. The Court cannot convert the LN into the LOA required under
- ONETT cases refer to one-time transactions. Remember the CGT, 6% and 15% for sale of shares of stocks. the law even if the same was issued by the CIR himself.
The taxpayer may still be checked if he paid the correct amount of tax liability for these transactions. ▪ The BIR lost P220M in VAT deficiency assessment for failure to issue an LOA.
Usually from the examining officer, you will pay the tax. And then it goes to the regional office where re- ▪ In this case, the BIR assessed the Medicard pursuant to an LN. In defense, Medicard argued
evaluation may be done. If the computation by the examining officer was wrong, it will be remanded to that it is not a valid assessment because no LOA was issued. BIR contended that LOA is not
him and require him to make an explanation, furnishing a copy to the taxpayer.
necessary because they are not examining the Medicard’s books of accounts. They are
5. Protested cases/cases for reinvestigation
simply referring to the RELIEF system, third party information and the tax reconciliation
6. Refunds of foreign embassies and its personnel (RMC 080-10)
system. Everything is being done in the BIR system and from there, they just noted the
discrepancies. So, they argued that LN is enough since they no longer need to check the
Letter Notice (LN)
records.
▪ Coverage:
▪ SC ruled that LN cannot be converted to an LOA required under the law even if the same
o Issued for under-declaration of sales and over-claimed purchases discovered under the
was issued by the CIR himself.
Reconciliation of Listing for Enforcement System (RELIEF) and TPM-BOC Data Program
- This refers to the overstatement or understatement of your importation
▪ First, an LOA addressed to a revenue officer is specifically required under the NIRC before
o Covers only the tax indicated therein on a given particular period or quarter an examination of a taxpayer may be had while an LN is not found in the NIRC and is only
SY 2018-2019 404_Taxation 2 - KMA
for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR’s purchaser, it was already recorded as an expense since he already paid for it. This is where the discussion
RELIEF System. in accounting methods, accounting periods, and recognition aspect will be very important.
▪ Second, an LOA is valid only for 30 days from the date of issue while an LN has no such 2. CWT remitted by buyer vs CWT claimed by seller/supplier (CWT)
limitation. 3. Income reported vs. CWT or FT paid by payor
▪ Third, an LOA gives the revenue officer only a period of 120 days from receipt of LOA to 4. Importations recorded by BOC vs importations reported in the Summary List of Sales
conduct his examination of the taxpayer whereas an LN does not contain such a limitation. and Purchases (SLSP) (VAT and income tax)
▪ Simply put, LN is entirely different and serves a different purpose than an LOA. Due process - This source of discrepancy is very common among PEZA-registered companies since the system of the
BOC only recognizes actual importations from abroad. As discussed, PEZA-registered entities have
demands, as recognized under RMO No. 32-2005, that after an LN has serve its purpose, the technical importation. They purchase something from the customs territory and bring it inside the PEZA.
revenue officer should have properly secured an LOA before proceeding with the further This importation will not go through the BOC. So the tendency is that the importation record coming
examination and assessment of the petitioner. Unfortunately, this was not done in this case. from the BOC system is usually lower than the importation record of the PEZA-registered entity. This
▪ Even if there’s no actual examination in the books of accounts of the taxpayer, due process creates discrepancy. But this may be explained by just presenting the supporting documents.
dictates that a LOA should be issued to the taxpayer, informing him properly that it is being
Mission Orders (MO)
audited for this particular period.
▪ Coverage: All surveillance and stock-taking activities
▪ Purpose: To monitor taxpayers on non-compliance with requirements on issuance of
LN same nature as LA
receipts, filing of returns, declaration of taxable transactions, taxpayer registration, and
“LN being served by the Bureau upon taxpayers who were found to have under-declared their
payment of correct amount of taxes.
sales or purchases through the Third Party Information Program can be considered a notice of
▪ What differentiates an MO from a LOA and LN? LOA and LN usually come together,
audit or investigation which would in effect disqualify the taxpayers concerned from amending
pahimutang ang pag exercise. The finding of discrepancy is done in the office and in the
any return which is the subject of such audit or investigation.”
- RMC 40-03, July 3, 2003
system of the Bureau. But when we say MO, this is issued with a sense of urgency pursuant
to a third party anonymous report that a fraud is being undertaken by a particular taxpayer
Therefore, you can amend the return as long as you haven’t received a notice of audit. But although you have this and pwede mawala na the following day or the following period. Because of this sense of
RMC, it does not mean that an LN can substitute a LOA. urgency, there is no more time for the issuance of LOA and LN. Usually, the RD is present
during the service of the MO. In the MO, the mission is specified, enumerating the things to
Types of LN be done. Usually, it involves inventory-taking or stock-taking, checking whether the cash
1. RELIEF-SLIP & Third Party Matching (TPM) – Bureau of Customs (BOC) LN – computerized register or the POS machine is duly registered with the BIR. If the officials go beyond the
matching of information/data by third party (TP) sources against declarations per VAT return
mission, it may already be questioned. However, if in the process of implementing the MO,
(Relief-RMO 30-03, 42-03, 24-04, 32-05, 32-07, 36-08; TPM-BOC – RMO 34-04, 46-04, 32-05,
the BIR determines that there is a fraudulent act which is being undertaken by the taxpayer,
32-07)
it may right there and then be reprimanded by the officer implementing the MO.
2. Taxpayer Reconciliation System (TRS) – LN – on information/data provided by withholding ▪ If you look at it, MO is more like a search warrant. However, when it comes to a SW, a weight
agents/payors and payees/income recipients against taxpayers’ declaration per of evidence is required first before it can be issued by the judge. But as regards to MO, it is
income/VAT/percentage/withholding tax returns (RMO 28-07 as amended by RMO 04-08)
not apparent what is the weight of evidence required. It is more of discretionary on the part
of the RD especially if there is an anonymous report.
LN – Sources of Discrepancies
1. Sales reported by seller vs purchases reported by the buyer (VAT and income tax) Assessment Process
- If it will not match, it either results to overstatement/understatement of sales/purchases. So an LN can
be issued. This is not always due to the fault of the taxpayer. The common defense when it comes to It starts with the issuance of the LOA. Then an audit or tax investigation will be conducted by
discrepancy in the sales and purchases reported is timing defense. As a seller, he may not yet record a the BIR. Based on that audit or tax investigation, the BIR will have to note deficiency. If there is
particular transaction as sale because he still has a deliverable to the purchaser. But on the part of the
SY 2018-2019 404_Taxation 2 - KMA
no deficiency, then there is no problem. But if there are, such will be noted and the taxpayer assessment cannot be considered final. If there is response and such is meritorious, then it will
will be informed. The BIR will issue a written report, LN, summary of the discrepancies, and the be dismissed. But mind you, at this stage, the BIR very seldom dismisses since it has already
BIR will call for a notice of informal conference. Before, for the years 2013-2017, the notice of issued a PAN. Panindigan na jud nah niya. Most likely, the finding is that it is not meritorious. If
informal conference was taken out by Henares because according to her, this is a cause of it is not meritorious or if there is no response filed by the taxpayer within 15 days from the date
corruption. But during the time of Dulay, he issued a revenue memorandum cicrular (RMC) of receipt of the PAN, the next thing that will happen is the issuance of FAN. The SC laid down
reinstating the notice of informal conference. What the BIR usually issues is an LN and at the a rule that to ascertain if what has been issued was already a FAN, even it was not worded as
bottom part, there is a paragraph stating that a notice of informal conference will begin in a such in the heading, as long as there is a demand to pay for a particular date, that is already
certain period of time. So, a notice of informal conference is useful because this is the period considered a FAN. That’s why during the time of Henares, she made it more specific that it must
when the taxpayer will meet the examiner face to face. This is where they will discuss what is be a formal letter of demand and FAN. So, once you receive the FLD FAN, this is now the point
the basis of the assessment and what are the possible defenses of the taxpayer. Taxpayers in time where the taxpayer is mandatorily required to protest such that if he will not protest,
already knew in advance what is the position of the BIR by referring to the LN issued to them. the FLD FAN becomes final, executory and unappealable. The taxpayer must protest within 30
So, before going to a notice of informal conference, they must already evaluate the correctness days from the date of the receipt of the FLD FAN. If this will lapse, he cannot even raise the
of the computation of the BIR. For sure, it is not accurate since the computation was only based defense of prescription to the CTA because once he has received the FLD FAN, the rule there is
from the system. The taxpayers will have to present their per line item defenses and supporting he can no longer go to the CTA via judicial action unless he has exhausted first the
documents. There will be a column based on the computation of the BIR, another column based administrative action, following the principle on exhaustion of administrative remedies.
on the computation of the taxpayer, and another column for the remarks. You will present in
the remarks whether the basis of the reduction is from case law or from a particular supporting The protest can be filed in 2 ways: (1) request for reinvestigation or (2) request for
document. For instance, there is an alleged overstatement of purchases (overstatement of reconsideration. When we say request for reinvestigation, it means to say that you are trying
COGS; understatement of income). What the BIR will do is to disallow those purchases and the to point out to the BIR a new or additional evidence which is why if you file a request for
taxpayer will be assessed for unpaid income. But we very well know that when we say taxable reinvestigation, you are given 60 days within which to submit supporting documents. But if it is
income, you only subject it to tax if the elements are present, like the actual receipt or reconsideration, more like of an MR lang. You’re just asking the BIR to take a second look of its
constructive receipt of inflow or cash. The usual defense is the ‘all events test’; hence, based computation. No additional document will be issued.
on case law. Usually, if you’re trying to argue with the BIR, it is either you base it on facts and
you have supporting documents; or you base it on law; or if you want to cite ruling, you cite the PAN and FLD FAN are usually issued by the national office through the CIR or the Deputy
ruling of the CTA or the SC. It is a no-no to cite a BIR ruling; worse, to cite an RR or RMC because Commissioner. Pwede sad si regional office. Remember, the LOA can be issued by the RD. If the
these are issuances of the BIR. If there is somebody who knows the intention behind those LOA is issued by the RD, everything happens on a regional level. If the LOA is issued by the RD,
issuances, it is the BIR. It can even be overturned by the BIR. But it is a different story if what it follows that the PAN and the FLD FAN will be issued by the RD as well. If regional ang start sa
you will cite is an SC ruling. So, during the notice of informal conference, this is where the assessment, the protest or the appeal is also at a regional level. So you have to file the request
examiner and the taxpayer settle how much of the assessment the taxpayer is willing to pay for reinvestigation or reconsideration sa RD or regional office. If si CIR ang ni-issue sa PAN and
and how much is the disputed assessment. Partial payment is allowed but take note that such FLD FAN, the protest will be filed at the national office.
is not done at the LN stage. Payment should only be done after the issuance of the FAN. If the
taxpayer disputes, then it will be reviewed by the assessment division of the regional office or As a rule, the CIR is given 180 days from the date of the submission of documents or filing of
the CIR. Usually, if the one assessed is a large taxpayer, it goes to the head office. It will be the protest to decide on your protest. If a request for reinvestigation is involved, the counting
determined if the examiner’s computation has basis. If none, it will be dismissed favorable to of the 180-day period will only start after you have filed the supporting documents. But if it is
the taxpayer. But if there is basis, then the next thing is the issuance of the PAN. Upon such request for reconsideration, the start of the 180-day period will commence the moment you
issuance, the taxpayer ‘may’ respond. IOW, voluntary. The response of the taxpayer may be file your request for reconsideration.
submitted to the BIR within a period of 15 days. But if the taxpayer will not respond, the
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Is the 180-day period really a mandate on the part of BIR?
No. If you look at it, it is only directory na decidean niya in a span of 180 days.
What if the request for reinvestigation or reconsideration was filed with the RD? Is the RD
mandated to follow the 180 days?
No, it is also just directory. But the point is, if there is a decision, it must be delivered within the
180-day period. OW, if ni-lapse na ang 180-day, wa gihapon ang deicision, the taxpayer can
immediately appeal to the CTA within 30 days after the lapse of the 180-day period. That’s why
we can say that it’s more like directory lang on the part of the CIR kay even if mu-lapse na ang
180 days, the taxpayer can wait gihapon for the receipt of the adverse decision. And only upon
the actual receipt of such adverse decision will the 30-day period to appeal be counted.
Options if no decision or an adverse decision was rendered within the 180-day period
o from the CIR (national level) – filing of an MR (with the CIR) will not toll the running of the
30-day period to appeal to the CTA because filing of an MR to the CIR is not really sanctioned
under the NIRC.
o from the RD (regional level) – 2 options:
✓ file an MR to the CIR (not to RD since subordinate man sya) – the 30-day period to appeal
to the CTA will not yet begin to run unless and until the CIR issues its final decision on
your MR
✓ file an appeal to the CTA – the 30-day period to appeal to the CTA will start to run.
For purposes of discussion, mag-national level lang ta, so CIR level. From the CIR, you file an
MR. If you file an MR and favorable ang decision, which is seldom na mahitabu, then no
problem. But if adverse decision gihapon or if you did not file an MR to the CIR, then within 30
days, appeal to the CTA. However, if you file an MR to the CIR, since this does not toll the
running of the 30-day period, you really have to count on a daily basis. Di nimu huwaton na
makadawat ka sa resolution ni CIR on your MR. Basta before the lapse of the 30 days, appeal to
the CTA. if the decision of the CTA is favorable, no problem. However, if it is still unfavorable,
you can file an MR to the CTA. If favorable, no problem. If unfavorable, that is the time that you
file a petition for review to the SC. Take note, CTA to SC. Mu-matter ba if 300k/400k kadtong
rule sa jurisdiction sa MTC and RTC? No, because if it is something to do with tax, automatic it
goes to the CTA. Way labot si regular courts.
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With respect to the prescriptive period, what if the LOA covers the period of 1 yr and then the ▪ A request for reinvestigation shall be deemed a mere request for reconsideration if taxpayer
assessment pertained to a transaction in the first quarter. Asa ang reckoning point of continues to refuse or fails to submit new evidence and cooperate in the investigation
counting? Is it the last day of filing in the first quarter or April 15? process. (CIR vs. Philippine Global Communications, Inc.; GR 167146, Oct. 31, 2006)
If it is income tax, we base it on the April 15 on the following year, dili sa quarter, because that Take note that in the statute of limitations, we are basically referring to the prescriptive period to assess (3 or
is the deadline of filing set under the Tax Code. But if it is withholding tax, that should be on the 10 yrs) and period to collect (5 yrs). And when can we say that there is already an assessment? Once FLD-FAN
(not LN or PAN) has already been issued to the taxpayer. So, when a taxpayer receives a FAN, the 5-yr prescriptive
deadline when you’re supposed to file the withholding payments. If you base it on the quarter period to collect will start to run. But always take note of those instances that such prescriptive period will be
man gud, the examination of the income tax cannot be done on a quarterly basis. It has to be suspended. So, the first defense of a taxpayer is the prescriptive period. Check if the assessment is within the 3
done on an annual basis. Mao nah usually April 15 of the following year. For VAT, it is on a per or 10-yr period. If yes, then check if the collection is within the 5-year period to collect from date of assessment.
quarter and even monthly basis. Same thing with OPT as well as withholding taxes. Lahi sa
income tax kay iadjust pa man nah nimu annually. If i-assess ka on a per quarter basis, you can SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -
very well say na this was adjusted pa towards the end of the year. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may
Which is better if regional level, file an MR to CIR or go directly to CTA? be filed without assessment, at any time within ten (10) years after the discovery of the
It depends on your objective. If your objective is to prolong the process and really exhaust the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and
administrative remedies, then might as well file an MR to the CIR especially if you have contacts executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
at the national level (wink). But,if the regional office is very active in the collection, remember, action for the collection thereof.
basta napildi na ka regional level, pwede na baya mustart ug collection process si BIR. Ma-stop (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax,
lang nang collection if a TRO is issued by the CTA. If di ka ganahan ma-encumber imung mga both the Commissioner and the taxpayer have agreed in writing to its assessment after
real properties, ang uban labi na if daku ang figure then active kaayo ang region in collecting such time, the tax may be assessed within the period agreed upon. The period so agreed
kay lage nakontrahan ka, they go directly to the CTA and file a TRO. Mao nang gibuhat ni upon may be extended by subsequent written agreement made before the expiration of
Pacquiao. the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
RECONSIDERATION vs. REINVESTIGATION prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding
▪ Request for reconsideration does not stop the running of the 5-year prescriptive period to in court within five (5) years following the assessment of the tax.
collect (d) Any internal revenue tax, which has been assessed within the period agreed upon as
- BIR should be able to initiate collection within 5 years from issuance of FAN. If not, the BIR provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
loses right to collect even if the assessment has become final and executory. proceeding in court within the period agreed upon in writing before the expiration of the
- If you have pending protests, check what type (recon or reinvestigation) and evaluate five (5)-year period. The period so agreed upon may be extended by subsequent written
whether right to collect has prescribed. agreements made before the expiration of the period previously agreed upon.
▪ Request for reinvestigation suspends the running of the 5-year prescriptive period for (e) Provided, however, that nothing in the immediately preceding and paragraph (a) hereof
collection. shall be construed to authorize the examination and investigation or inquiry into any tax
- period between filing of protest and issuance of FDDA (Final Decision on Disputed Assessment) is return filed in accordance with the provisions of any tax amnesty law or decree.
excluded from the 5 years.
- Check if there is a deemed approval of the request for reinvestigation (TVN, request for In Sec. 203 of the NIRC, the heading is prescriptive period to assess and not prescriptive period to collect. But if we
base it on recent jurisprudence, the cases adhere to the 5-yr period to collect based on the Tax Code prior to its
documents, other indications that reinvestigation is on-going). If none, request will be amendment in 1997. Before, it’s specific that the period for assessment is 3 years while the period for collection is
deemed disapproved. Running of the collection period is not suspended 5 years. We can infer from Sec. 222 anyway that in paragraph c and d na niana sila na “any revenue or tax which
has been assessed within the period of limitation as prescribed in paragraph a hereof may be collected by distraint
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or levy or a proceeding in court within 5 years following the assessment of the tax.” You also have in letter d “any ✓ Itemized schedule of adjustments with which the taxpayer does not agree
internal revenue tax which has been assessed within the period agreed upon as provided in paragraph e maybe ✓ A statement of facts and or law in support of the protest
collected by distraint or levy or a proceeding in court within the period agreed upon in writing before the expiration
of the 5 year period”. Kung muingon ka assessed within the period agreed upon, meaning, there was a waiver of
When it comes to pleadings, diba usually naa may required formats, naay prefatory statement, etc. However, sa
the statute of limitations extending the prescriptive period from 3 years to another date. So that gives us an idea
protest sa FAN, there is really no prescribed format basta naa lang ni na details. Diba per tax type man ang protest?
that the prescriptive period is 5 years. Although there were some cases na ingon si SC 3 years to collect but
Mao na usually, ang buhaton sa uban is to present first the computation of the BIR to be followed by the computation
exceptional cases lang like katong Standard Charter Bank case. If mu-go beyond 5 years, the BIR will lose its right to
of the taxpayer and then sa bottom didto na ang questions ngano in-ani ang tax amount, unsay basis in law, etc.
collect. But if it is request for reinvestigation, the period from the filing of the protest to the issuance of decision
When we say basis in law, this is not limited to the provisions under the Tax Code or the provisions under the RRs.
and dispute of assessment is excluded from the 5-year period. But ma-exclude lang nah if there was approval of the
Mas mahadlok and mas mutoo si BIR if you base it on a case law decided by SC or CTA. Take note also that protest
request for reinvestigation. You can say that your request for reinvestigation is approved if the BIR issues what we
to the PAN is not the same as a protest to the FAN.
call the tax verification notice (TVN), notifying the taxpayer on his tax deficiency and verifying the correctness
thereof.
Venue for filing protest to FAN (&FDDA)
Waiver of the statute of limitations 1. Office of the Regional Director
If the taxpayer is required to execute a waiver of the statute of limitations, this is an indication 2. Assistant Commissioner – Large Taxpayer Service
that a reinvestigation is going on. This is the primary requirement before the BIR can act on the 3. Assistant Commissioner – Enforcement Service
The concerned office who signed the assessment notice shall record and evaluate the protest/request for
reinvestigation. An invalid waiver will not extend the period to assess; and if not extended, all reinvestigation or reconsideration. If the proper procedure is not followed, the letter of protest or request shall be
assessments issued after the prescriptive period are considered void and illegal. considered VOID and without force and effect. So where to file the protest? Basta kung kinsa ang niissue sa PAN,
didto sad nimo ifile ang protest. Example, ang PAN gikan sa Regional Director, then have the protest received by him.
Pro-forma protest
When we say pro-forma protest, it does not present your basis of protest factually as well as Prescriptive Period
legally. The allegations which are needed to be specified are absent; hence, such protest is not ▪ A FAN/assessment issued beyond the 3-year period is invalid.
a valid pleading and will only be considered a mere scrap of paper. Pro-forma statements are ▪ However, there are 2 instances where the prescriptive period may be extended:
usually: ✓ If there was a substantial amendment to the assessment
1. General statement that the taxpayer disagrees with the findings and requests for their o Substantial means that there is a change in liability (especially if it caused a decrease); does not refer to
cancellation the 30% overdeclaration or underdeclaration as such only applies to manifestations of intent to evade
tax.
2. Reiteration of the grounds already stated in the reply to PAN o The counting of the 3-yr period to assess will start from the date of the filing of the substantially amended
3. A reference to the previously filed reply to the PAN return
“We have already submitted our reply to your findings in a letter dated ____ and received by o Defense – Original return is sufficiently complete (amendment did not introduce significant changes)
your office on ____.” - prescriptive period should be reckoned from original return
✓ If the taxpayer signed a waiver of the statute of limitations
Prescribed Format o This waiver is required for request of reinvestigation since on the part of the taxpayer, he will have more
✓ Name of the taxpayer and address for the immediate past 3 taxable years time to gather evidence; whereas on the part of BIR, it will have more chance to resolve the findings in
✓ Nature of request whether reinvestigation or reconsideration the PAN stage or during the informal conference
o Defense – Invalidity of the waiver:
✓ In case of reinvestigation, specify the newly discovered evidence - does not extend prescriptive period
✓ Taxable periods covered - renders assessment invalid
✓ Assessment notice numbers
✓ Date of receipt of assessment notice or letter of demand Extension of Prescriptive Period
✓ Itemized statement of the findings to which taxpayer agrees as a basis for computing the tax A taxpayer under examination agrees to extend prescriptive period for assessment:
due ✓ to have time to gather the documents needed to contest the BIR’s findings
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✓ to have more opportunity to resolve the findings at the Informal Conference or PAN stage FAN without PAN: A violation of due process – INVALID!
Requisites of a valid waiver ▪ PAN is part of the due process requirement (Sec. 228 of the Tax Code and Sec. 3.1.2 of RR 12-99)
(Linde Philippines, Inc. vs. CIR CTA Case No. 8724 dated May 2016)
Old Rule (RMO 20-90) New Rule (RMO 14-16)
▪ This is just the general rule. There are instances that there is no need to issue PAN. The
Must be in form provided by RMO 20-90, May be but NOT necessarily in the form
BIR can immediately issue FAN or will not conduct an assessment at all such as in cases of
RMC 20-2012 prescribed by RMO 20-90 as long as it
false or fraudulent return. Basically, the BIR has the option to either issue FAN before
complies with the minimum requirements:
proceeding with collection or it can immediately file a case of tax evasion to collect the tax,
✓ Executed before expiration of
no benefit of assessment.
assessment/collection period (date of
▪ Other than that, as provided under Sec. 228 of the Tax Code, the ff are exceptions to the
execution must be indicated)
rule that a PAN must be issued: (but nothing prevents the BIR if it wants to issue first a PAN)
✓ Signed by the taxpayer or duly authorized
o If it is a result of mathematical error as appearing on the tax return;
representative. In the case of a
o Discrepancy has been determined between the tax withheld and the amount actually
corporation, the waiver must be signed by
remitted by the withholding agent;
any of its responsible officials The liability does not fall on the statutory taxpayer, but on the entity to whom the tax was withheld. The
✓ Expiry date agreed upon to assess/collect withholding agent is the agent of the government, whom the BIR can immediately assess.
after regular 3-year period must be o When a taxpayer who opted to claim a refund or tax credit of excess CWT for a
indicated taxable period was determined to have carried over and automatically applied the
No such rule Taxpayer bears the burden of ensuring that same amount claimed against the estimated tax liabilities for the taxable quarter
the waiver is validly executed by its or quarters of the succeeding taxable year;
authorized representative TN: The option to carry over and the option to claim for refund or tax credit is mutually exclusive. So, if you
claimed for refund or tax credit and it was granted, but you also carried it over, the BIR can immediately
Must be notarized Sufficient in writing
assess you without any benefit of PAN.
No such rule Shall take legal effect and be binding on the o When the excise tax due on exciseable articles has not been paid;
taxpayer upon its execution No need of any analysis or computation since it is already specified how much is the excise tax of a particular
Only the authorized officials are allowed to The CIR’s authorized representative, the exciseable article.
accept the waiver revenue district officer, or the group o When the article locally purchased or imported by an exempt person, such as, but
supervisor designated in the Letter of not limited to, vehicles, capital equipment, machineries and spare parts, has been
Authority for the audit are allowed to accept sold, traded or transferred to non-exempt persons.
the waiver
FAN issued prior to lapse of period to reply to PAN:
QUESTIONING THE VAILIDITY OF ASSESSMENT may or may not be a violation of due process
1. FAN without PAN
2. FAN issued prior to lapse of period to reply to PAN
Not a violation of due process
3. FAN not issued in accordance with Sec. 228 of the NIRC
▪ CASE 1: In its appeal for cancellation of FAN, the taxpayer alleged that it was deprived of
4. Assessment based on the RELIEF system
due process when the BIR issued FAN only one day after it filed its reply to the preliminary
5. Void FDDA
assessment notice (PAN).
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▪ CTA: Although the taxpayer was not able to take advantage of the full 15 days given for it to summary list of the purchases should have been verified with other externally sourced data
file its comment on the PAN or its reply was not read by the BIR, the BIR substantially in order to check the integrity of the information gathered.
complied with the requirements of due process, considering that the taxpayer was not only
given the opportunity to refute the PAN issued by the BIR but also exercise its option to file Void FDDA: Valid FAN
a protest to the FAN. (Cargill Philippines, Inc. vs CIR, CTA Case No. 7928, Aug. 23, 2011)
▪ A void final decision on disputed assessment (FDDA) does not nullify a duly issued FAN
A violation of due process The FDDA should also be based on facts and law; OW, it shall be considered void. It will not result, however, to
▪ Case 2: The BIR issued a FAN/FLD 6 days before the lapse of the 15-day period which was a void or invalid FAN because the NIRC only requires the FAN to be in accordance with Sec. 228, independent of
given to the taxpayer to respond to the PAN. The tax office argued that the premature the invalidity of the FDDA. In this case, you can still appeal to the CTA.
issuance of the FAN may be ignored since the same was actually received by the taxpayer a ▪ Decision vs. Assessment
day after the 15-day period. - The assailed decision arising from a void FDDA may still be appealed (denial due to
▪ CTA: The CTA did not agree with the proposition of the BIR. The Court said that the 15-day inaction) and decided upon, without voiding the assessment itself. (CIR vs. Liquigaz Philippines
period given to the taxpayer must be respected. The 15-day period provides the taxpayer Corporation; GR No. 215534, April 18, 2016)
the chance to fully exercise its right to due process. And when it comes to sending of notices
through registered mail, the date of receipt by the taxpayer is immaterial for it is the time Appealing the Assessment to the CTA
of mailing or sending that matters. The premature issuance of the FAN in this case is a clear ➢ Strength of the case
violation of the taxpayer’s right to due process. As such, the FAN is void. ➢ Legal issues involved that cannot be resolved at BIR level
➢ Desire to settle recurring issues
When it comes to settlement, you can settle at any stage as long as it is not a criminal case already filed in
FAN not issued in accordance with Sec. 228 of the NIRC – INVALID! court or if there is no finding of criminal tax fraud case.
➢ Company Policy
▪ The taxpayer shall be informed in writing of the law and the facts on which the assessment ➢ Cost-Benefit Consideration
is made; OW, the assessment shall be void. (Sec. 228 of the Tax Code) If you lost in the BIR level, and then appealed to CTA in division in which you won, it is better to enter into
compromise. Of course, the BIR may appeal to the CTA en banc and SC. But it is wiser not to fight up to the SC
▪ SC: Compliance with Section 228 is mandatory. (CIR vs. Azucena T. Reyes, GR 159694, Jan. 27, 2006) because it would take several years before it can finally be decided, and even though you win in the higher
courts, these courts do not consider the time value of money. No charge of interest will be imposed upon the
IOW, everything must be stated. It is not enough that the FAN will just show a computation of the deficiency tax
BIR. It is different however if you lost because the BIR may collect deficiency interest from you. That’s why it is
liability. The SC is consistent in saying that if the assessment is based only from the RELIEF system, or based only on
really wiser to enter immediately into a compromise agreement with the CIR to lower the tax liability.
the summary list of purchases or summary list of sales, it should be verified first by the BIR from the taxpayer. If the
latter will not cooperate, then use the best evidence obtainable (through 3rd party information). The BIR can actually
summon the suppliers or the customers of the taxpayer to present a summary of transactions pertaining to the
taxpayer being audited or examined. In this way, the BIR may confirm whether the deficiency merely resulted from CTA Jurisdiction (Sec. 7 of RA 1125)
the system or not. After such, FAN may already be issued. OW, absent those preliminary actions, the FAN will not be
considered based on facts. It is merely based on report generated in the system. Exclusive Appellate Jurisdiction to review:
➢ Decisions of the CIR in cases involving disputed assessments
Assessment based on RELIEF system – INVALID! ➢ Penalties imposed or other matters arising from the NIRC
➢ Other laws or part of laws administered by the BIR.
This is the most controversial because the question here is what if the circular issued by the Bureau is
▪ CTA: BIR’s assessment against the taxpayer cannot be sustained since the assessment lacks questionable. Will you have to go to the CTA because that is a law administered by the CIR? Or will you go to the
factual basis. The BIR based its assessment merely on an unverified quarterly list. The regular courts because it is questioning the constitutionality of a circular?
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Period to Appeal (Sec 228, NIRC) REMEDIES OF THE GOVERNMENT
If the protest is denied in whole or in part, or is not acted upon within 180 days from submission
of documents, the taxpayer adversely affected by the decision or inaction may appeal to the The right to collect the tax will accrue the moment the assessment becomes final. When does
CTA within 30 days from receipt of the said decision, or from the lapse of 180-day period; OW, an assessed tax becomes collectible? (RMC 26-2016)
the decision shall become final, executory and demandable. a. Failure to file a protest within 30 days from receipt of FAN/FLD
b. Failure to submit all relevant documents in support of the protest by way of request for
Filing an appeal to CTA upon denial of protest (Lascona Land Co., Inc v CIR; GR 171251; March 5, 2012) reinvestigation within 60 days from date of filing thereof
o If you file a motion for reinvestigation but you failed to submit the supporting documents, it is treated as a
Submission of documents Taxpayer did not appeal to CTA motion for reconsideration. And when it is a motion for reconsideration, the running of the prescriptive
period to collect is not suspended; hence, the collection can be commenced by the CIR/BIR.
c. Failure to appeal to the CIR or the CTA within 30 days from date of receipt of the FDDA issued
180 days Within 30 days
Protest still by the CIR’s duly authorized representative
not acted upon o The moment you failed to appeal, it becomes final, executory and collectible.
Assessment not d. Failure to appeal to the CTA within 30 days from date of receipt of the FDDA
final and
o If the CIR issues the FDDA, the running of the 3-day period will not toll even if you file a request for
executory!
reconsideration or an MR to the CIR. And if you fail to file the appeal to the CTA within the 30-day period,
the FAN will now be considered final, executory and demandable.
The taxpayer may await the final decision of the CIR and, within 30 days from receipt of the o If only an authorized representative issues the FDDA (not the the CIR), two options are available: (1)MR to
decision, appeal the decision with the CTA. the CIR or (2) appeal to the CTA within 30 days; OW, the FAN becomes final and collectible.
e. Failure to timely file a motion for reconsideration before the CTA Division or failure to appeal
Whose decisions are appealable? to the CTA En Banc and Supreme Court
o By statutory provision – decisions of the CIR f. Failure to receive any assessment notices because it was served in the address indicated in
o RR No. 12-99 – decisions of the CIR or his duly authorized representative. the BIR registration database and the BIR was not updated of the new address or
cancellation of BIR registration
Period to appeal o If the taxpayer transfers his principal office of business, he needs to file an application of updating of
information. And his COR should correspondingly be updated.
If taxpayer fails to submit relevant documents within the 60-day period, the period to appeal o When it comes to services of notice, specifically assessment, there are two options:
to the CTA is reduced to 30 days from the lapse of the 180-day period reckoned from the date • Personal service – if walay tao, the BIR officer should go to the last known address and ask for assistance
the protest was filed with the BIR. The 60-day period shall not be considered in the counting of from a brgy official with 2 disinterested persons who can attest that the taxpayer ‘cannot be loacted’
the 180 days. (Fil-Hispano Holdings Corp. vs. CIR, CTA EB No. 343 re: CTA Case No. 7331, June 12, 2008) (CBL).
• Substituted service via registered mail.
I. Judicial Remedies
1. Criminal action – case filed before the regular court requiring the taxpayer to pay the taxes
and enforcing penalty against him for violation of the Tax Code.
2. Civil action – case filed before the regular courts requiring the taxpayer to pay taxes. The
jurisdiction depends on the amount:
o ≥ P1M basic assessed tax – file a collection case with the CTA
o < P1M basic assessed tax – file a collection case with the RTC /MTC
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2 instances where the CIR is prohibited from initiating collection: Penalty Interests
a. If there is a request for reinvestigation and the request for reinvestigation is granted ▪ 12% [twice the legal rate as set by BSP (currently, legal rate is 6%)]
▪ Deficiency and delinquency interests shall NOT be assessed simultaneously
b. If there is an injunction or temporary restraining order issued by the CTA
▪ No other court can issue injunction, prohibition, or TRO against collection of taxes but the CTA. But when it Deficiency Interest vs. Delinquency Interest
comes to implementation of an RR or any tax law unya mag pa TRO ka, you can go to the SC because it has Failure to pay tax/assessment due at the time/s required shall be imposed interests as follows:
nothing to do with assessment and collection of tax. Interest Legal Basis Cause Period
Deficiency Sec. 249 (B), Failure to pay tax due or if the Date prescribed for its payment
Prescription of time to collect NIRC tax due paid is lower than the until full payment thereof or upon
▪ FAN and DL – 5 years correct amount of tax due. issuance of notice or demand by
When it comes to the start of the prescriptive period to collect, GR, it will start from the date of assessment the CIR, whichever comes earlier
– the moment you receive FLD FAN and DL. This presupposes na wala ka ni protest. Hence, it becomes Delinquency Sec. 249 (C)(3), Failure to pay the deficiency tax Due date appearing in the notice
collectible. NIRC or the full assessed amount as and demand of the Commissioner
▪ FAN…Protest…FDDA – 5 years reflected in the FAN. until the amount is fully paid
If you filed a protest and the protest that you filed is request for reinvestigation, ma suspend ang running
sa prescriptive period. So, the 5-yr prescriptive period to collect, kung reinvestigation na, will begin to run Prior to Jan. 1, 2018:
upon the issuance of an adverse FDDA against the taxpayer. This presupposes na upon receipt of the FDDA, Due date of filing Date of actual
you failed to appeal to the CTA. & payment Date of FAN payment
▪ FAN…Protest…FDDA…CTA/SC – 5 years
If you appealed to the CTA/SC, the prescriptive period to collect will only begin to run after the final Deficiency Interest
decision of the CTA or the SC if an injunction or a TRO was duly issued by the CTA.
Delinquency Interest
Paying the Final Assessed Tax and Increments

When the assessment becomes final, first option is to pay the full amount of tax. If you're going to pay the final tax On or after Jan. 1, 2018:
assessed, take note ang bayaran nimo is not just the basic tax but also the increments to it.
Due date of filing
Date of FAN
& payment Date of actual
Components of a deficiency assessment: payment
Deficiency Interest
o Basic Tax
o Increments Delinquency Interest
• Compromise Penalties TN: Delinquency interest only begins to run if there has already been a formal demand by the BIR for you to
▪ Almost all violations under the NIRC can be criminally penalized; e.g. failure to get a COR, failure to get pay at this particular date and if you failed to pay at such date. IOW, the delinquency interest begins to run
an APP, failure to issue OR. But since it is not the mandate of BIR to prosecute criminally, they have this from FLD-FAN up to the actual date of payment. Moreover, the computation for the delinquency interest will
compromise penalties. So instead of prosecuting you criminally, then compromise penalty ang bayaran be based on the amount demanded by the government in the FLD-FAN.
nimo.
• Surcharge II. Administrative Remedies
a. Non-fraudulent cases – 25%
b. Fraudulent cases – 50%
If the government will not avail of the judicial remedies, it can avail of the so-called
• Interest administrative remedies by issuing warrants of distraint, levy, or garnishment. These warrants
a. Deficiency interest can be issued upon issuance by the Commissioner or Regional Director of the final decision on
b. Delinquency cases the disputed assessment (FDDA) against the taxpayer or upon issuance by the CTA in division
or en bank of its decision upholding the assessment (RMO 39-07 and 42-10). These remedies
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can be availed simultaneously. If you don't want na issue-han ka ani nga warrants, you file for ▪ Exc: There is a TRO or injunction issued by the CTA; and there are only 2 instances when the
injunction or TRO before the CTA. CTA will issue this:
o When, in the opinion of the CTA, the collection may jeopardize the interest of the
DISTRAINT government and/or taxpayer; or
The collection of delinquent taxes is enforced on the goods, chattels, or effects and other o When the taxpayer is able to post a bond which is equivalent to twice the amount of the
personal property of whatever character of the taxpayer, including stocks and other securities, tax liability
debts, credits, and garnishment of bank accounts and interests in and rights to personal TN: This bond is a surety bond. All that the taxpayer will do is to contract with a bonding company or surety
property. [Sec 205 (A), Tax Code] company and mubayad lang sila ug amount for the premium.
Types of distraint / garnishment “Last Opportunity to Pay” (CIR vs. Isabela Cultural Corp.)
a. Actual Distraint ▪ The Final Notice Before Seizure should be considered as a denial of request for
▪ Actual taking of the property of the delinquent taxpayer reconsideration of the disputed assessment. Thus, deemed as commissioner’s final decision.
▪ Applies only where the taxpayer is delinquent ▪ The Notice should be deemed as the BIR’s last act.
b. Constructive Distraint ▪ The letter clearly stated that respondent was being given “this LAST OPPORTUNITY” to pay;
▪ Taxpayer or person having possession or control is prohibited from disposing of the properties OW, its properties would be subjected to distraint and levy.
▪ Applies whether the taxpayer is delinquent or not under the following instances: Retiring from business; ▪ This last opportunity to pay is what we call implied denial of your reconsideration. Diba
Intending to leave the Philippines; Intending to conceal his properties, and Intending to obstruct collection
proceedings. dapat man unta naay FDDA or final decision on disputed assessment? But there are
▪ This is just a preventive measure insofar as the BIR is concerned. Later on, if naa gyud tax liability unya wala instances that absent such, deemed appealable na ang action ni BIR because considered na
nabayran, from constructive distraint, it will be actual distraint, and then afterwards, there will be sale of the as implied denial; thus, you can already appeal to the CTA within 30 days (from receipt):
property. o If the BIR issues final notice before seizure; OR
o If you receive a demand letter which states that this is your last opportunity to pay
Procedures in Distraint and Garnishment
otherwise your property will be distrained or levied
1. Service of warrant of distraint or garnishment TN: If the demand letter labeled lang as preliminary collection letter or notice, dili pa na deemed nga
2. Posting of notice of sale appealable or dili pa na implied denial of your request for reconsideration.
3. Sale at public auction to the highest bidder
4. Disposition of the proceeds of sale Sale of Property Distrained
1. Notification of the sale in at least 2 public places in the municipality or city where the
LEVY distraint is made.
▪ Nature: An act of seizure of real property of the taxpayer in order to enforce the payment 2. Sale after at least 20 days after notice to the owner or possessor of the property.
of taxes. 3. Residual amount from the BIR’s entire claim, including expenses, shall be returned to the
▪ How: By serving upon the taxpayer and the Register of Deeds a written notice of levy. owner.
▪ When: After expiration of the time required to pay the tax.
Remedy of the taxpayer when the property has already been distrained
Handling warrants of distraint and/or levy (RMO 39-07 as amended by RMO 41-07) The taxpayer retains the right of pre-emption and the right of redemption. When we say pre-
▪ Scope: emption, you are trying to prevent the auction sale. If you want to prevent the auction sale, you
o Disputed assessments finally decided by the Commissioner or Regional Director must exercise this before the designated time of auction sale by paying the entire amount of
o Assessments upheld by the CTA in Division/En Banc whether or not appealed your basic tax assessed as well as the increments. If you failed to exercise your right of pre-
▪ GR: Appeal to CTA will NOT suspend the collection of taxes emption, and nabaligya ang property, the next option of the tax payer is redemption.
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Redemption by the Owner 2. Criminal tax fraud cases confirmed as such by the CIR or his duly authorized
This is subject to the following conditions: representative;
▪ Period to Redeem: within 1 year from the date of registration of the certificate of sale ▪ In the assessment, there must be a finding of the fraud and the instances or the manifestations of how
TN: not from the date of the auction sale, but from the date of the registration of the certificate of sale – date of the fraud happened
registration with the Registry of Deeds (chattel or real property) 3. Criminal violations already filed in court;
▪ Redemption price: total claim of BIR plus 15% on purchase price from the date of purchase ▪ Criminal tax fraud – there is intent to evade payment of taxes
to the date of redemption ▪ Criminal violations – not necessarily fraudulent kay any violation under the NIRC is considered “criminal
violations”
4. Delinquent accounts with duly approved schedule of installment payments;
COMPROMISE
5. Final reports of reinvestigations or reconsideration have been issued; taxpayer signed
the agreement form for the reduced assessment;
This is a taxpayer’s remedy kay napildi na and final na ang FAN. Compromise is a contract 6. Cases which become final and executory after final judgment of a court, where
whereby the parties, by making concessions, avoid litigation or put an end to one already compromise is requested on the ground of doubtful validity of the assessment; and
commenced (Article 2028, Civil Code of the Philippines). 7. Estate tax cases where compromise is requested on the grounds of financial incapacity
There is a specific BIR form if you want to apply for compromise.
of the taxpayer
CASES THAT CAN BE COMPROMISED (RR 30-02 as amended by RR 08-04 and RR 09-13)
GROUNDS FOR COMPROMISE (mutually exclusive)
1. Delinquent accounts;
A. Doubtful Validity – There is reasonable doubt as to the validity of the claim against the
2. Cases under administrative protest after the issuance of FAN to taxpayer which are still
taxpayer
pending;
B. Financial Incapacity – The financial position of the taxpayer demonstrates a clear
3. Civil tax cases disputed before the courts;
inability to pay the assessed tax.
4. Collection cases filed in courts;
5. Criminal violations except:
When is there doubtful validity of assessment? (RR No. 30-02 as amended by RR No. 08-04)
a. Those already filed in court
TN: When the criminal action is filed with the prosecutor, pwede gihapon icompromise provided the 1. Assessment is one resulting from a jeopardy assessment;
prosecutor consented to it. However, once the prosecutor filed it before the court, there can no longer be ▪ There is jeopardy assessment when there is no benefit of formal audit but it was issued because the
a compromise even if the prosecutor consented to the application for compromise. prescriptive period was about to lapse and he cannot complete the audit due to the delays caused by the
taxpayer for his non-cooperation. However, this presupposes that naka-protest timely sa jeopardy
b. Those involving criminal tax fraud
assessment because of course if the jeopardy assessment becomes final and executory, it might be
difficult to question the propriety of the computation.
EXCEPTIONS (RR 30-02 as amended by RR 08-04 and RR 09-13) 2. The assessment seems to be arbitrary in nature;
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast ▪ There is no definition as to what is meant by ‘arbitrary’ so this is on a case-to case basis.
doubt on the taxpayer’s obligation to withhold; 3. Failure to file an administrative protest for alleged failure to receive notice of assessment
▪ If it is a withholding tax, the statutory taxpayer is just an agent of the government so he holds the and there is reason to believe that the assessment is lacking in legal and or factual basis;
withholding tax in trust for the government. Hence, no compromise is allowed. But the statutory taxpayer
4. Failure to file a request for reinvestigation/reconsideration within 30 days from FAN and
can raise or question his obligation to really collect the tax. When it comes to compromise, there are two
possible reasons you can raise: there is reason to believe that the assessment is lacking in legal and or factual basis;
a. Compromise due to financial incapacity (cannot invoke kay trustee ra man ka) 5. Failure to appeal to the CTA within 30 days from receipt of final decision and there is
b. Compromise due to the doubtful validity of the claims of the BIR (can invoke) reason to believe that the assessment is lacking in legal and/or factual basis;
- Example: As a rule, the buyer has the obligation to withhold from the nonresident seller but ▪ If ang i-allege nako is prescription of the period to assess, dili naman nako na ma-appeal sa CTA because
the buyer can defend that there is this agreement that the nonresident seller is subject only to I failed to protest within 30 days from the receipt of the FAN. Pwede pa nato gamiton to siya if you want
the tax in the foreign country. So, the buyer is not mandated to withhold.
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to raise doubtful validity of assessment. So, you apply for compromise and you raise there the reason for 5. The taxpayer has been declared by any competent authority / body / tribunal / government
the doubtfulness. But that is discretionary on the part of CIR how he/she will interpret your reason. agencies as insolvent
6. Assessment failed to comply with the formalities prescribed under the Tax Code;
▪ This refers to the rule na it must be based on factual and legal basis; and that if there is waiver, it must
be valid. Exceptions
7. Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to The taxpayer has:
believe that the same can be disputed by sufficient and competent evidence; 1. TCC or pending claim for refund or credit (IOW, receivables from the BIR);
▪ The “Best Evidence Obtainable Rule” is usually resorted by the BIR if the taxpayer failed to cooperate. So 2. Existing or prospective agreement with any party that could result to an increase in the
third party information or benchmarking will be used in determining how much was the deficiency. But equity at a definite time
of course, if later on na final ang assessment because you did not appeal, pwede pa ka maka-compromise
basta you can cast doubt on the assessment and present competent evidence.
Minimum compromise amounts (Financial Incapacity)
8. Validity or authenticity of taxpayer’s execution of Waiver of Statute of Limitations is at TN: If lower amount, then subject to approval by the NEB – National Evaluation Board composing of the Commissioner
issue and there is strong reason to believe and evidence to prove that it is not authentic; and the other 4 Deputy Commissioners.
9. The assessment involves an issue where a court (CTA) made an adverse decision against
the Bureau but for which the Supreme Court has not decided upon with finality. 1. For cases of financial incapacity
A. Individual – 10%
Compromise on the ground of financial incapacity B. Where the taxpayer is under any of the following conditions:
When it comes to compromise based on financial incapacity, the CIR is empowered to request the taxpayer to i. Zero/Negative net worth – 10%
execute a waiver of right to secrecy of bank deposits. ii. Dissolved corporations – 20%
1. Corporation ceased operation or is already dissolved iii. Non-operating companies for a period of:
2. Impairment in the original capital by at least 50% based on latest Balance Sheet submitted o 3 years or more as of the date of application – 10%
to the BIR o less than 3 years – 20%
▪ The amounts payable or due to stockholders, other than business-related transactions, are considered as
part of capital and not liability
C. Impairment in original capital by at least 50% – 40%
IOW, your capital assets suddenly decreased in value. Impairment happens if the assets are not anymore
▪ The taxpayer has no sufficient liquid asset to satisfy the tax liability
used in the industry like naa nay bag-o na equipment or if there is a calamity.
3. The taxpayer is suffering from a net worth deficit (total liabilities > total assets) based on the
D. Declared insolvent or bankrupt, unless classified as any of the above – 20%
latest audited FS.
▪ Total Assets – net of prepaid expenses, deferred charges, pre-operating expense, and appraisal increases in
fixed assets 2. For doubtful validity of assessment – 40% of basic tax assessed (IOW, increments are not
▪ Total Liabilities – net of deferred credits and amounts payable to stockholders / owners reflected as liabilities, included)
except business-related transactions
▪ Your assets must be on cash basis, not accrual basis. Whatever physical assets you have will be the only thing
Compromise Compromise Penalty
considered.
4. The taxpayer is a: Definition An amount of money paid by An amount of money paid to
a. Compensation income earner the taxpayer to settle his civil compromise a tax violation that he
b. No other source of income liability for tax assessed has committed, which may be the
c. Monthly income does not exceed P10,500; or if married, combined income does not subject of criminal prosecution
exceed P21,000; Basis of amount paid Basic tax assessed Gross sales or receipts during the
d. No other leviable or distrainable assets other than his family home year of the tax due
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Minimum amount Depends on the legal grounds Depends on the nature of the tax ▪ As a remedy, apply for abatement.
used by the taxpayer violation and the minimum amount 2. Taxpayer’s mistake in payment of his tax is due to erroneous written official advice of a
is generally not less than P1k revenue officer;
3. Failure to file/pay on time due to substantial losses from prolonged labor dispute, force
Filing for Compromise majeure, legitimate business reverses (only surcharge and compromise penalty; interest not
You file BIR Form for compromise and specify the ground whether for (1) financial incapacity, included);
in which case, a waiver of bank secrecy law before the BIR is required, or (2) doubtful validity 4. Non-compliance due to a difficult interpretation of the law;
of assessment, in which case, there must be a basis of why it is doubtful. You are also required 5. Circumstances beyond the control of the taxpayer (only surcharge and compromise penalty;
to pay based on the minimum compromise that you are trying to avail. If denied, then the interest not included);
payment you made will just be considered as an advance payment of your total due. 6. Other similar or synonymous cases.
ABATEMENT Instances when the tax liabilities, penalties and/or interest imposed on taxpayer may be
abated or cancelled on the ground that the administration and collection costs are more than
TN that this is an exclusive power of the CIR (unlike in compromise where pwede i-delegate ni CIR to the amount sought to be collected (RR No. 13-01)
subordinate official with a rank no lower than a division head if the basic tax assessed is less than P500k). 1. Assessment confirmed by lower court but appealed by the taxpayer to a higher court;
2. Withholding tax assessment under meritorious circumstances;
Abatement only applies to: 3. Delayed installment payment under meritorious circumstances;
✓ Surcharges 4. Assessment reduced after reinvestigation but taxpayer is still contesting reduced
✓ Compromise penalty assessment; and
✓ Interest 5. Other analogous instances subject to approval of the CIR
Legal basis
Sec 204. Authority of the Commission to Compromise, Abate, and Refund or Credit Taxes. – The REMEDIES OF THE TAXPAYER
Commissioner may –
“(b) Abate or cancel a tax liability, when: Basis: Prohibition against undue taking of property is constitutionally guaranteed.
The tax or any portion thereof appears to be unjustly or excessively assessed; or The
administration and collection costs involved do not justify the collection of the amount Primary remedy:
due.”
1. Administrative
Exceptions (Abatement shall not be available in the following cases) A. Before payment
1. Disputed assessments pursuant to the provisions of Sec 228 of the Tax Code and its IRR; and i. Protest
2. Assessments, which are void from the beginning. ▪ if lost:
If the basic tax assessed is void, then it follows that the increment involved is also void. o Appeal to the CTA
o File a criminal complaint against the erring BIR employee (more on attacking
Instances of abatement on ground that tax being assessed is unjust or excessive [VESIBO] the personality of the one assessing)
1. Filing of the return/payment of the tax at the wrong venue; ii. Entering into a compromise
▪ Effect of filing at the wrong venue: It is considered non-filing; so from the moment you filed at the wrong
venue up to the time na ni-file ka correctly will be assessed with interest, penalties and surcharges.
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B. After payment o Appeal to the CTA within 30 days from date of receipt of decision; OR
Filing of claim for refund or tax credit within 2 years from date of payment, regardless o File an MR with the CIR (Fishwealth Canning Corp. V CIR, G.R. No. 179343, 2010)
of any supervening cause.
TN:
▪ If the LOA starts in the revenue region, the PAN is also issued by the revenue region, and the decision is also laid
2. Judicial out by the regional director. And if that happens, there are two options:
A. Civil action ✓ File a reconsideration to the CIR; OR
i. Appeal to CTA – within 30 days from receipt of decision on the protest or from the ✓ Appeal to the CTA within 30 days from receipt.
lapse of 180 days due to inaction of the Commissioner; The MR that you will file to the CIR will toll or suspend the running of the 30-day period.
▪ But if it is the national office (CIR) that issued the LOA, the PAN and made the adverse decision, the filing of an
ii. Action to contest forfeiture of chattel; and
MR to the CIR will NOT suspend the running of the 30-day period to appeal to the CTA.
iii. Action for damages
B. Criminal action TAXPAYER’S SUIT

i. Filing of criminal complaint against erring BIR official and employee; and
ii. Injunction – when the CTA in its opinion, considers that the collection by BIR may This is also deemed as a remedy on the part of the taxpayer, but not in connection to a specific
jeopardize taxpayer. assessment for a particular tax liability.
TN: This cannot be raised as an independent or separate action, this must be ancillary to your appeal.
Requisites:
Protest of Assessment ✓ The tax money is being extracted and spent in violation of specific Constitutional protections
1. File a request for reinvestigation or reconsideration within 30 days from receipt of the against abuses of legislative power;
assessment ✓ Public money is being deflected to any improper purpose; and
▪ Request for reinvestigation – A plea for re-evaluation of an assessment on the basis of newly-discovered or
✓ The petitioner seeks to restrain the respondents from wasting public fund through
additional evidence that a taxpayer intends to present in the reinvestigation. It involves a question of fact or
law or both. enforcement of invalid or unconstitutional law.
▪ Request for reconsideration – A plea for re-evaluation of the assessment on the basis of existing records
without need of additional evidence. This involves a question of fact or law or both. (RR No. 12-85) However, the SC has discretion WON to entertain a taxpayer’s suit and could brush aside the
2. Within 60 days from filing of protest, all relevant supporting documents should have been lack of locus standi where the issues are transcendental importance in keeping with the court’s
submitted; OW, the assessment shall become FINAL. (cannot be appealed). (Sec. 228 NIRC) duty to determine that public officers have not abused the discretion given to them.
Remedy of the Taxpayer if Protest is Denied

▪ If the protest is denied in whole or in part by the CIR or his duly authorized representative: TAX REFUND OR TAX CREDIT (Sec. 229 vs. Sec. 112)
o Appeal to the CTA within 30 days from date of receipt of the decision; OR
o File an administrative appeal to the CIR through request for reconsideration within 30 Sec. 229 Sec. 112
days from date or receipt of the decision but only issues raised in the decision of the duly Both talk about tax refund and must be filed within a period of 2 years.
authorized representative shall be entertained (denial by authorized rep) This pertains to erroneously or illegally This pertains to refund of excess input VAT
▪ If the administrative appeal is denied by the CIR: collected taxes. which is not erroneously or illegally collected
o File a motion for reconsideration with the CIR; OR in connection with a zero-rated transaction.
o Appeal to the CTA within 30 days from date of receipt of decision. The 2-year period covers both administrative The 2-year period covers only administrative
▪ If the protest is denied, in whole or in part, by the CIR: and judicial actions. action.
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CIR must decide within a period of 180 days. CIR must decide within a period of 120 days. pa ni-decide si CIR or wala pa ni lapse ang 180-day period but the 2-yr period is about to lapse na, you can
already go to the CTA due to the inaction of the CIR.
Grounds
TN:
1. Tax is collected erroneously or illegally;
The CIR may grant a refund or credit even without a written claim thereto if the taxpayer files a
2. Penalty is collected without authority;
tax return which on its face shows OVERPAYMENT. A return filed showing an overpayment is
3. Sum collected is excessive
itself considered a written claim for credit or refund. (Section 76 and 204, NIRC)
Requisites (Secs. 228-229):
Requisites:
1. Claim must be in writing;
✓ There must be payment from the taxpayer or collection by the government; and
2. It must be filed with the Commissioner within 2 years after the payment of the tax or
✓ That payment or collection is erroneously or illegally collected.
penalty; and
▪ Example: You received a FAN unya ni-lapse na diay to ang prescriptive period nya gi-demand ka for payment
3. Show proof of payment. and you paid sad without thinking of anything and you discovered na ni-lapse na diay ang prescriptive period
to assess. That is already an erroneous and illegal payment because they no longer have the authority to
Starting date for counting the 2-year period collect from you. Another example is when di gyud ka liable to pay because you are exempted under the law.
▪ GR: from the date of payment, regardless of any supervening cause that may arise after In these cases, you can file under Sec. 229 but it must be within 2yrs from the date of payment. Proof of
payment: (1) Tax return, showing your payment; (2) proof that indeed exempted ka (e.g. provision in law or
payment. certification from the BIR declaring you as an exempt person or entity)
▪ Exc:
o Corporate income tax
Where a corporation paid quarterly income taxes in any of the first 3 quarters during the taxable year but TAX REFUNDS (SEC. 112)
incurs a net loss during the taxable year, the 2-year period for the filing of the claim for refund or credit shall
be counted from the date of the filing of the annual corporate ITR (because of the ‘pay as you file’ rule). The tax refund referred to here does not pertain to an erroneous or illegal collection. It is just
o Income tax paid in installments that the input VAT is higher than the output VAT because you are a zero-rated taxpayer (0% -
Taxes are deemed paid for purposes of determining the commencement of the 2-year period for filing a
written claim for the refund or credit; therefore, on the date the last installment was paid. 12%). Unlike in Sec. 229, the 2-yr period covers only administrative action. So, there is no
situation here nga wala pa naka-decide si CIR, magdali-dali ka ug appeal to the CTA kay hapit na
mu-lapse ang 2-year period.
TAX REFUNDS (SEC. 229)
Summary of rules on Prescriptive Periods for Claiming Refund or Credit of Input VAT (Section
Grounds: Erroneous, illegal, or Excessive Assessment and/or collection. 112, NIRC) (Silicon Philippines v CIR, G.R. No. 173241, March 25, 2015)
Procedure: A. Two-Year Prescriptive Period

1. File a written claim for refund with the CIR within 2 years from the date of payment of the 1. It is only the administrative claim that must be filed within the 2-year prescriptive period.
tax/penalty; (Aichi)
2. The claim filed must state a categorical demand for re-imbursement; 2. The proper reckoning date for the 2-year prescriptive period is the close of the taxable
3. The suit of proceeding for recovery must be commenced in court within 2 years from the quarter when the relevant sales were made. (San Roque)
date of payment of the tax or penalty regardless of any supervening event that will arise 3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September
after payment. 2008. Atlas states that the 2-year prescriptive period for filing a claim for tax refund or
As discussed, the 2-yr period under Sec. 229 covers both admin as well as judicial. Admin gyud ka una pursuant
to the principle of exhaustion of administrative remedies. But if hapit na mu-expire ang 2-yr period unya wala
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credit of unutilized input VAT payments should be counted from the date of filing of the Exceptions to the 3-yr prescriptive period to assess
VAT return and payment of the tax. (San Roque) o Failure to file a return – 10 years from the date of the discovery of the omission to file the
return;
B. 120+30 – Day Period o False or fraudulent return with intent to evade the tax – 10 years from the date of the
1. The taxpayer can file an appeal in one of two ways: discovery of the falsity or fraud;
o file the judicial claim within 30 days after the Commissioner denies the claim within o Agreement in writing – to the extension (not reduction) of the period to assess between the
120-day period, or Commissioner and the taxpayer before the expiration of the 3-year period;
o file the judicial claim within 30 days from the expiration of the 120-day period if the o Waiver or renunciation of the original three (3) year limitation, signed by the taxpayer.
Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of the Grounds for suspension of the running of prescriptive period for assessment and collection
CIR. 1. When the Commissioner is prohibited from making the assessment or beginning the
3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi distraint or levy or proceeding in court and for 60 days thereafter;
and San Roque) 2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
4. As an exception to the general rule, premature filing is allowed only if filed between 10 3. When the taxpayer cannot be located in the address given by him in the return, unless he
December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San informs the Commissioner of any change in his address;
Roque) 4. When the warrant of distraint or levy is duly served, and no property is located; and
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 5. When the taxpayer is out of the Philippines.
was in force. (San Roque)
Amended Return
TN: ▪ If it is amended substantially, the prescriptive period to assess is also extended.
▪ If nonzero-rated transaction: You have an option to (1) carry over or (2) claim for a refund.
▪ If mixed transaction and you cannot properly trace the input: Apportion it. There should only be a specific portion ▪ The counting will begin on the date of the substantially amended return was filed.
na i-claim nimo for the zero-rated and for the 12%. ▪ This is allowed when:
▪ If mixed, zero-rated and 12% but you don’t want to claim the refund or tax credit certificate, pwedi i-carry over o The amendment is made within 3 years from the date of filing the original return; and
tanan under the tax return but you should still properly input it in the line item. o No notice of audit or investigation of such return has, in the meantime, been actually
served upon the taxpayer.
▪ Effect on prescription: The prescription period starts to run from the filing of the original
PRESCRIPTIVE PERIOD
return, if the same is sufficiently complete to enable the CIR to intelligently determine the
proper amount of tax to be assessed. However, where the amended return is substantially
Another defense that a taxpayer may raise is prescription. There are 2 prescriptions that you
different from the original, the right to assess is counted from the filing of the amended
need to check:
return.
1. Prescriptive period to assess – 3 yrs from the deadline of filing or actual date of filing,
whichever comes later.
Filing of Criminal Action
2. Prescriptive period to collect – 5 yrs from the issuance of the notice of assessment
TN: If you filed a protest against the notice of assessment, then the counting of the 5-yr period will be suspended ▪ Prescriptive Period: 5 years from the day of the commission of the violation; and if not
until a final decision of disputed assessment is issued. There is really no specific provision kung pila ka years known, from the discovery thereof and the institution of judicial proceedings for its
gyud ang prescriptive period to collect but we can infer that in Sec. 222 of NIRC. investigation and punishment.
▪ Grounds for interruption of the period:
o When proceedings are instituted against the guilty persons
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o It begins to run again if the proceedings are dismissed for reasons not constituting RETROACTIVITY OF BIR RULINGS
jeopardy
o Offender is absent from the Philippines. GR: Prospective
Exc:
Agrinurture, Inc. V CIR, CTA Case 8345, May 29, 2013 o Where the taxpayer deliberately misstates or omits material facts from his return or any
▪ “Naked Assessment” is NOT allowed document required of him by the BIR;
▪ The prima facie correctness of a tax assessment does not apply upon proof that an o Where the facts subsequently gathered by the BIR are materially different from the facts on
assessment is utterly without foundation; i.e., it is arbitrary and capricious. Where the BIR which the ruling is based; and
has come out with a “naked assessment,” the determination of the tax is without rational o Where the taxpayer acted in bad faith.
basis; hence, the determination must find support in credible evidence.
▪ With respect to VAT, VAT can be imposed only when it is shown that the taxpayer received
an amount of money or its equivalent from a taxable sale of goods or services, and not when TARIFF AND CUSTOM DUTIES
there are under-declared purchases.
▪ An assessment must be based on actual fact. The presumption of correctness of assessment Primary Reference: Customs Modernization and Tariff Act (CMTA), which was passed last May
being a mere presumption, cannot be made to rest on another presumption (i.e., the under- 30, 2016 and signed by President Aquino. [Before: Tariff and Customs Code (TCC)]
declared purchases would automatically result in undeclared income or additional taxable
sales, which would in turn increase petitioner’s income tax and VAT liabilities). You must CMTA SALIENT PROVISIONS
confirm it with 3rd party information. • Tax exemption of personal and household effects brought by Filipinos who stayed in foreign
countries when they return to the country:
Prescriptive Period Start of running of the period o at least 10 yrs stay – not exceeding P350k
1. Assessment of tax liability From filing of return in case of late filing, or as of
3 years
last day for filing if filed on or before the deadline
o at least 5 yrs stay – not exceeding P250k
2. Request for reconsideration / o less than 5 yrs stay – not exceeding P150k
30 days From receipt of assessment ▪ If you recall in our VAT discussion, these personal and household effects are only exempted from VAT if such
protest of assessment
3. Submission of documents are also exempted from customs duties and tariff rates. [Sec 109 (c)].
60 days From filing of protest
supporting protest • full electronic processing of shipments;
4. Appeal to the CTA From receipt of denial of request for
30 days
reconsideration or protest • streamlining of export and import processes;
5. Claim for refund with CIR From date of payment, or from final payment if
2 years
paid in installment • simplified processes for seizure and disposition of illegal goods;
6. Appeal to CTA on denial of 30 days; From receipt of denial • increase of the exemption of small items of minor or lacking importance from P10 to P10,000
claim for refund with CIR within 2 years From date of final payment of tax • OFW duty-free balikbayan boxes up to THREE P150k worth (provided not in commercial
7. Collection of tax 5 years From the issuance of assessment quantity and not intended for sale, barter, etc.)
DEFINITIONS
Customs duties – taxes on the importation and exportation of commodities, the tariff or tax
assessed upon merchandise imported from, or exported to a foreign country.
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▪ This covers the tariff rates which are being covered by the BOC and also the taxes being collected by the BIR. If borders through secure international trade supply chains with the use of risk management and
you import WON in the course of trade or business, what is being collected is VAT, following the cross-border modern technology.
doctrine.
▪ This is another concept introduced in the CMTA, expressly requiring under the law that if you are going to deal
with the BOC, you must be registered or accredited with the Bureau. Because of the usual criticism against the
Tariff – custom duties, toll or tribute payable upon merchandise to the government; a list or Bureau and one thing na na-notice nila is bisan kinsa na lang ang mudeal na broker before the BOC, they enforced
schedule of articles on which a duty is imposed upon importation into the country with the this accreditation. So dili na ka basta basta maka-import/export if you are not an accredited importer/exporter.
rates which they are severally taxed. Dili sad ka ka-deal with the BOC if you are not an accredited customs broker.
▪ If you are accredited with the Bureau, naa nay gitawag nga mga lane ang BOC (yellow lane, green lane, red lane).
▪ This is the list of applicable rates for a particular weight or item enumerated in the administrative order of the If accredited broker or importer ka and you have a very good track record with the BOC, usually your goods will
BOC. Naapil ang customs duties kay when we say ‘customs duties’ we divide this into two. One is the general be under the green lane processing, where there is no need of physical inspection; documentary requirements
customs duties and the specific customs duties. Under these classifications, naa diha ang tariff rates which are lang ang ipass.
applicable based on the value or the weight of the property.
▪ 2 kinds of tariff – import tariff and export tariff. Import tariff is higher compared to export tariff especially if it is
Incentives for AEO
a protective tariff (usually this is imposed in an imported item).
a. Release of goods upon provision of the minimum information necessary to identify the goods and permit the
▪ Merchandise – The Revised Administrative Code defines merchandise when used with reference to importation
subsequent completion of the final goods declaration;
or exportation, to include goods, wares and in general, anything that may be the subject of exportation. Checks,
b. Grant of clearance of the goods at the declarant’s premises or another place authorized by the bureau;
money orders and dollar bills are properly within the concept of merchandise as used in Revised Administrative
c. Other special procedures as provided under RA 10863.
Code (Bastida vs. CIR). IOW, the BOC can regulate the foreign currency, which is why if you go on a foreign travel,
you will notice na naay mga announcement na you can only bring up to $10k. If you are bringing more than that
amount, pwede nah i-cease ni BOC because it is considered as merchandise within the jurisdiction of the BOC. SCOPE OF TARIFF AND CUSTOM LAWS
▪ the provisions of the Tariff and Custom Code (TCC), RA 10863 or the “Customs
Purposes of tariffs Modernization and Tariff Act” (CMTA);
1. Revenue tariffs – those whose rates are relatively low so that goods may be readily imported and duties may ▪ Regulations pursuant thereto.
easily be collected.
2. Protective tariffs / special tariffs – those whose rates are relatively high to keep certain imports out of the ▪ all other laws and regulations that are subject to the BOC or OW within its jurisdiction.
domestic market or to raise domestic price on certain imports so that they may be manufactured profitably at (BIR: RRs and RMOs; BOC: Customs Administrative Order (CAO) and Customs Memorandum Order (CMO)
domestically. Examples of this kind of tariff are the duties for anti-dumping. To protect the local industry sa rice
especially since victim ang rice through that Filipino First policy. There was a list before of products determined CHIEF OFFICIALS OF THE BUREAU OF CUSTOMS
to be protected by the government. So, if naay similar products coming from abroad, they do not just impose 1. Customs Commissioner – head of BOC. The Commissioner is under the supervision of the
the regular tariff but also special tariffs. So, dako kaayo ug bayad sa customs and in effect mas mahal ig palit sa
market. They do this to protect the local industry para didto mupalit sa locally produced rice and not sa mga
Secretary of Finance.
imported rice since cheaper ang local. On the negative side, it could also cause lack of supply and ang trade kay 2. Deputy Commissioner – at least 4 but not more than 6.
ma-monopolize. 3. District Collectors – their office is at the port of collection. For Cebu, the port of collection is
3. Bargaining tariffs – those whose schedules include rates designed primarily for bargaining purposes or which at Pier 5. Cebu Customs District Collector is Atty. Elvira Cruz.
contain some general provision for the imposition of higher duties upon products of countries whose tariff Sa BIR, the country is divided into what we call as revenue regions, headed by Regional Directors. Si BOC, gidivide ang country
policies are considered unsatisfactory or unfair. This is more for promoting the goods of the country. So if a to what we call as districts and there are 17 districts and each of them are headed by the so called the District Collector or Port
foreign country imposes higher tariff rate for Philippine products, then mubalos pud ta sa foreign country. When Collector. Kani na districts are further subdivided into main port and the sub port.
they sell their products here in the Philippines, we also impose a higher tariff rate. That is bargaining tariff so we
can have a leverage to negotiate with that foreign country to lower their tariff rate for Philippine products in that DUTIES, POWERS AND JUJRISDICTION OF THE BOC
country kay of course we want to export in their place. (a) Assessment and collection of customs revenues from imported goods and other dues,
fees, charges, fines and penalties accruing under this Act;
Authorized Economic Operator (AEO) – refers to the importer, exporter, customs broker, (b) Simplification and harmonization of customs procedures to facilitate movement of goods
forwarder, freight forwarder, transport provider and any other entity duly accredited by the in international trade;
Bureau to promote trade facilitation and to provide a seamless movement of goods across (c) Border control to prevent entry of smuggled goods;
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(d) Prevention and suppression of smuggling and other customs fraud; effect any search, seizure or arrest. It shall be the duty of any police officer and other national law enforcers
(e) Facilitation and security of international trade and commerce through an informed to give such lawful assistance.
compliance program; ▪ Authority to Enter Premises (Sec. 219)
o Any person exercising police authority may, at any time, enter, pass through, and search any land, enclosure,
(f) Supervision and control over the entrance and clearance of vessels and aircraft engaged warehouse, store, building or structure not principally used as a dwelling house. When a security personnel
in foreign commerce; or any other employee lives in the warehouse, store, or any building, structure or enclosure that is used for
(g) Supervision and control over the handling of foreign mails arriving the Philippines for the storage of goods, it shall not be considered as a dwelling house for purposes of this Act.
purpose of collecting revenues and preventing the entry of contraband; ▪ Authority to Search Dwelling House (Sec. 220)
(h) Supervision and control on all import and export cargoes, landed or stored in piers, o A dwelling house may be entered and searched only upon warrant issued by a Judge of a competent court,
the sworn application thereon showing probable cause and particularly describing the place to be searched
airports, terminals facilities, including container yards and freight stations for the
and the goods to be seized.
protection of government revenue and prevention of entry of contraband; o IOW, we still follow the basic rules as set forth in the Constitution.
(i) Conduct a compensation study with the end view of developing and recommending to the o This is not applied though if it is not a dwelling house; i.e. display center or warehouse. But di sad na sila
President a competitive compensation and remuneration system to attract and retain basta basta musulod lang. They would conduct surveillance sad to ascertain the modus.
highly qualified personnel, while ensuring that the Bureau remains financially sound and ▪ Authority to Search Vessels or Aircrafts and Persons or Goods Conveyed Therein (Sec. 221)
sustainable; o Any person exercising police authority under this Act may board, inspect, search and examine a vessel or
aircraft and any container, trunk, package, box or envelope found on board, and physically search and
(j) Exercise of exclusive original jurisdiction over forfeiture cases under this Act; and examine any person thereon. In case of any probable violation of this Act, the person exercising police
▪ This exclusive jurisdiction cannot be interfered with by regular courts even upon the allegation of authority may seize the goods, vessel, aircraft, or any part thereof. Such power to search includes removal
ownership. of any false bottom, partition, bulkhead, or any other obstruction for the purpose of uncovering any
(k) Enforcement of this Act and all other laws, rules and regulations related to customs concealed dutiable or forfeitable good The proceeding herein authorized shall not give rise to any claim for
administration. damage caused to the goods, vessel or aircraft, unless there is gross negligence or abuse of authority in the
exercise thereof.
POLICE AUTHORITY OF THE BOC ▪ Authority to Search Vehicles, Other Carriers, Persons and Animals (Sec. 222)
The following persons are authorized to effect search, seizure, and arrest: o Upon reasonable cause, any person exercising police authority may open and examine any box, trunk,
envelope, or other container for purposes of determining the presence of dutiable or prohibited goods. This
1. Officials of the BOC, District Collectors, Deputy District Collectors, police officers, agents, authority includes the search of receptacles used for the transport of human remains and dead animals. Such
inspectors, and guards of the BOC; authority likewise includes the power to stop, search, and examine any vehicle or carrier, person or animal
2. Officers and members of the AFP, when authorized by the commissioner; suspected of holding or conveying dutiable or prohibited goods
3. Officials of the BIR within their regular performance of duty and when payment of internal ▪ Authority to Search Persons Arriving from Foreign Countries (Sec. 223)
revenue taxes is involved. o Upon reasonable cause, travelers arriving from foreign countries may be subjected to search and detention
by the customs officers. The dignity of the person under search and detention shall be respected at all times.
Female inspectors may be employed for the examination and search of persons of their own sex.
POWERS OF THE BOC under R.A. 10863
Basically, ang point lang ani is to implement the provisions under the Code which is to assess and collect the correct
▪ Visitorial Powers / Power to Inspect and Visit (Sec. 224)
o The Commissioner or any customs officer who is authorized in writing by the Commissioner, may demand
amount of duties and taxes of imported or exported goods.
evidence of payment of duties and taxes on imported goods openly for sale or kept in storage. In the event
▪ Power of Seizure (Sec. 216) that the interested party fails to produce such evidence within fifteen (15) days, the goods may be seized
o Any person exercising police authority under this Act has the power and duty to seize any vessel, aircraft, and subjected to forfeiture proceedings: Provided, That during the proceedings, the interested party shall be
cargo, goods, animal or any other movable property when the same is subject to forfeiture or when they are given the opportunity to prove or show the source of the goods and the payment of duties and taxes thereon:
subject of a fine imposed under this Act. Provided, Further, That when the warrant of seizure has been issued but subsequent documents presented
▪ Authority to Require Assistance and Information (Sec. 218) evidencing proper payment are found to be authentic and in order, the District Collector shall, within fifteen
o Any person exercising police authority may demand the assistance of and request information from the (15) days from the receipt of the motion to quash or recall the warrant, cause the immediate release of the
Philippine National Police (PNP), the AFP and other national law enforcement agencies, when necessary, to goods seized, subject to clearance by the Commissioner: Provided, Finally, That the release thereof shall not
be contrary to law.
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▪ Authority to Conduct Surveillance (Sec. 306) When Importation is deemed Terminated
o The Bureau shall conduct surveillance on vessels or aircrafts entering Philippine territory and on imported ▪ Requisites:
goods entering the customs office: Provided, That the function of the Philippine Coast Guard to prevent and (1) payment of the duties and other charges upon the articles/merchandise; and
suppress the illegal entry of these goods, smuggling and other forms of customs fraud and violations of
maritime law and its proper surveillance of vessels entering anchor leaving Philippine territory as provided (2) certificate or clearance issued by the Bureau of Customs which serves as a permit to
in Republic Act No. 9993, otherwise known as the “Philippine Coast Guard Law of 2009”, shall continue to be withdraw the goods from the premises of the BOC.
in force. ▪ If it is a duty-free article/item, importation is deemed terminated from the time they have
legally left the jurisdiction of the BOC. Since exempted man, no more payment na mahitabo.
JURISDICTION OF THE BOC But if it is exempted, there must be proper certification of exemption from appropriate
1. Over all seas within Philippine Territory and all coasts, ports, airports, harbors, bays, government agency, primarily the Department of Finance.
rivers, and inland waters; and
2. Over imported goods subject to seizure during its transport by land, air, water. Owner of Imported Articles (Sec. 404)
The land outside of the economic zone is called customs territory because the BOC exercises jurisdiction
over it. The BOC’s authority to search vehicle primarily pertains to imported goods when they are being
1. Signing consignee of the Import Entry Declaration
transported through a vehicle by land. When we say water, jurisdiction of the BOC covers only the 2. Holder of the Bill of Lading duly endorsed by the consignee
territorial waters. 3. Holder of the Bill of Lading, if consigned to order, as endorsed by the consignor
4. Underwriters of abandoned articles
5. Salvors
IMPORTATION When it comes to vessels being abandoned by the owner of the vessel or vessels used in the conduct of
smuggling which will be forfeited or seized by the BOC, di nahh pwede i-destory jud so sometimes it will be
sold to salvors.
LIABILITY FOR CUSTOM DUTIES
Obligations of importer/consignee/owner of the goods
GR: All importations and exportations of goods are subject to custom duties (especially when they a. Prepare cargo manifest also known as packing list – list of contents, value and designation
are considered dutiable goods because if it is a prohibited item, then no importation can occur because it cannot
enter our jurisdiction in the first place) of the goods to be shipped
b. Prepare goods declaration – a declaration to the BOC the description, rate and value to
EXC: enable the customs authority to determine the proper tax on the items.
o Exemption under the Tariff Custom’s Code (TCC) [now Customs Modernization and Tariff Act c. Whatever has been declared must coincide with the packing list and the goods declaration.
(CMTA)]; This is basically a sworn statement. If you undervalue it, the one signing the declaration can
o Exemptions granted to government agencies or GOCCs with existing contracts, be held criminally liable.
commitments, agreements or obligations with foreign countries;
o International organizations pursuant to agreement and special law; Entry at Custom house
o Exemption granted by the President of the Philippines upon recommendation of the NEDA. ▪ All articles imported to the Philippines, whether subject to duty or not, shall be entered
through a custom house at a port of entry (Sec. 400)
When Importation Begins ▪ Port of Entry – A domestic port open to both foreign and coastwise trade including airport
▪ Importation begins when carrying vessel or aircraft enters the jurisdiction of the Philippines of entry (Sec 3514, TCC). All articles imported into the Philippines whether subject to duty
with intent to unload its cargo. or not shall be entered through a custom house at a port of entry.
▪ There must be intention of unloading before it is deemed an act of importation. Because of ▪ Port of Entry:
this intent, it follows that there must be proper goods declaration. 1. Principal port of entry – this is where the district collector is holding office
2. Sub-ports of entry - under the administrative jurisdiction of the collector.
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▪ Three meanings of term "ENTRY" (whichever comes first) ▪ Articles required to be declared using formal entry regardless of the value and whatever
✓ documents filed at the custom house purpose and nature of the importation
✓ submission and acceptance of the documents ▪ Attachments to the Formal Entry:
✓ physical procedure of passing the goods through the custom house o Commercial invoice
o Bill of lading / Airway Bill
Preparation of Import Entry Revenue Declaration (IERD) o Import permits
▪ IERD is a notarized document which serves as a complete and correct declaration under oath o Certificate of origin
on the specifications and/or particulars of importation. o Packing list / manifest
▪ It is prepared by the importer and customs broker or person duly empowered to act as o Other documents as required by special laws or other government agencies
agent.
▪ It must be filed within 30 days (non-extendible) upon entry of imported articles in the Summary of Imported Cargo Clearance Procedure
custom house, counted from the date of discharge of the last package from the vessel or 1. Lodgement of Goods Declaration (final or provisional)
aircraft 2. Physical Examination, if required
▪ In the previous TCC, 30 days ang nakabutang but under the CMTA, they amended it to 15 3. Preparation of discrepancy report, if any (prepared by BOC Official)
days pero extendible for another 15 days. So, you will apply for an extension. Bottom line, 4. Protest on civil matters (pay computed duties and taxes and protest on discrepancy report)
30 days gihapon upon entry of imported articles in the customs house counted from the 5. Payment of the computed duties and taxes and release of imported goods
date of discharge of the last package from the vessel of aircraft. 6. Customs compliance audit/post-audit (negligence and discrepancy can still be given here)
7. Finality of liquidation
TWO KINDS OF IMPORT ENTRY
A) Informal Entry (Informal Import Entry Declaration) (IIED) ABANDONMENT & SMUGGLING
▪ Articles of a commercial nature (intended for sale, barter or hire) with Free on Board or
Free Carrier Arrangement (FCA) value which does not exceed P50k (as increased from ABANDONMENT – It is the renunciation by an importer of all his interest in the property rights
P2k and USD 500) in the imported article. It may be expressed or implied.
▪ Personal and household effects or articles, not in commercial quantity, imported in
passenger's baggage for personal use A. Express
▪ Attachments to the Informal Entry: ▪ When there is a letter or any memorandum given to the collector stating the
o Commercial invoice abandonment of the articles.
o Packing list ▪ The effect of abandonment is that all custom duties are discharged.
o Authority if exemption duly issued by the DoF, if applicable ▪ BUT DOES NOT discharge criminal liability because the liability attaches to the person not
o Bill of lading or airway bill the goods. But this applies only when what is involved are prohibited goods or smuggled
o Passport passenger goods.
▪ Once it is communicated to the Commission, the goods are directly owned by
B) Formal Entry (Import Entry and Internal Revenue Declaration) (IEIRD) government
▪ Articles of a commercial nature (intended for sale, barter or hire), dutiable value of ▪ It is express if there is a signification on the part of the importer in writing that he will not
which is more than P50K anymore claim the goods or items.
▪ Abandonment is resorted to because dili na ka-afford mubayad sa duties and taxes.
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B. Implied Instances of Implied Abandonment
▪ It is implied if ni-lapse na ang 30-day period and the extension, yet still no action was 1. When the owner, importer, consignee, or interested party after due notice, fails to file the
made by the importer/consignee/owner of the imported article. goods declaration within 15 days (extendible for another 15 days) from notice of the date of
discharge of the last package from the vessel or aircraft;
SMUGGLING or Unlawful Importation Elements [FART] 2. Having filed such goods declaration, the owner, importer, consignee or interested party
Any person who shall: after due notice, fails to pay the assessed duties, taxes and other charges thereon within
1. Fraudulently import or bring into the Philippines, fifteen (15) days from the date of final assessment;
2. Assist in doing so, any article, contrary to law, 3. Having paid the assessed duties, taxes and other charges, the owner, importer or consignee
3. Receive, conceal, buy or sell in any manner or facilitate transportation, concealment, or or interested party after due notice, fails to claim the goods within thirty (30) days from
sale of such article after importations, payment.
4. Commit technical smuggling
Remedy of Owner/Importer in Implied Importation
Kinds of Smuggling 1. Within 30 days after the lapse of the prescribed period to file the declaration (15 days,
a. Actual/Outright Smuggling extendible for another 15 days), the owner/importer may still reclaim the goods by
o Act of importing goods into the country without complete customs documents or complying with all legal requirements and paying the corresponding duties, taxes and other
without being cleared by customs. charges
o Imported goods are not registered in the BOC 2. The proceeds of the sale shall be turned over to those persons entitled to receive them. The
o Wa ni agi sa BOC; backdoor ang gi-again; wala nisulod sa ports of entry balance will then be deposited to a "forfeiture fund" to be managed by the BOC which shall
be used to, among others, support its modernization program and other operational
b. Technical Smuggling efficiency and trade facilitation initiatives
o Misdeclaration – when the discrepancy pertains to quantity, quality, description, weight, If wala nimo gi-claim, then isell na ni BOC basta di lang illegal because if illegal, then it will be destroyed by the
or measurement of the imported goods BOC with the presence of the media. If you notice, this is different from the NIRC because sa NIRC, kung i-distraint
ka or i-levy nya ibaligya to, the excess will be returned to the taxpayer. But in this case, kung ibaligya ang goods
o Misclassification – exists when insufficient or wrong description of the goods or use of or items na gi-abandon nimu, if ever there is an excess, it will not be returned to the owner. Rather, it will be
wrong tariff heading was declared resulting in a discrepancy. placed in a so-called forfeiture fund.
o Underdeclaration is present when:
✓ the declared value fails to disclose in full the price actually paid or payable or any TN:
dutiable adjustment to the price actually paid or payable; or ▪ Anything that was used for smuggling is subject to confiscation (Lladoc vs. Com of Custom,
✓ when an incorrect valuation method is used; or RR L-28809, May 16, 1983)
✓ the valuation rules are not properly observed. ▪ This includes vessels, including the containers used for smuggling.
Look at the transaction value, not the wholesale market price. ▪ EXC: Common carriers that are not privately chartered cannot be confiscated.
▪ Mere possession of the articles in question is liable UNLESS defendant could explain that
IOW, niagi ka sa legal channel. There was declaration, payment and clearance. It’s just that the declaration is
falsified, fraudulent or erroneous in nature, in kind or quality, in quantity or weight. Since fraud is involved and
his possession is lawful to the satisfaction of the court (Sec. 3601, TCC)
fraud is a question of state of mind, the rule atong sa BIR na if the underdeclaration or overdeclaration exceeds ▪ This refers to possession without proper goods declaration or proper cargo manifest.
30% of the correct amount, it can be deemed intentional or fraudulent, is also applied here. All that the BOC ▪ Payment of the tax due after apprehension is not a valid defense. (Rodriguez vs. CA, GR
will do is to physically examine the container or actual goods that come into the country and compare it with No. 115218, September 18, 1995)
the declaration. If after inspection, ang underdeclaration exceeds 30%, pwede i-declare naka nga fraudulent.
There is already smuggling.
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▪ When it comes to smuggling, after nasakpan ka, it is not a valid defense that you already Penalty: (a) Fine = 500% - 800% of the revenue loss;
paid the duties and the taxes thereof because after all, that is a criminal act. So even if na- (b) Imprisonment of 2-8 yrs
settle nimu ang civil liability, the criminal prosecution for smuggling could still continue.
Flexible Tariff Clause
Effect of Technical Smuggling ▪ Authority of the President to adjust the tariff rates prescribed under the Tariff and Customs
▪ Any misdeclaration, misclassification or undervaluation of imported goods resulting in a Code.
discrepancy (in duty and tax to be paid) between what is legally determined upon ▪ Basis: “The Congress may, by law, authorize the President to fix within specified limits, and
assessment and what is declared will be subject to a fixed surcharge rate of 250% of the duty subject to such limitations and restrictions as may impose, tariff rates, import and export
and tax due (previously, 100% to 200% of the duty due). quotas, tonnage and wharfage dues, and other duties or imposts within the framework of
▪ Surcharge, however, will not be imposed when: the national development program of the Government.”
o the discrepancy in duty is less than 10% of the importer’s declared value and/or tariff ▪ Unsa na tariff ni? This is not revenue. This is not protective. This is more of bargaining tariff.
heading/classification; So, the authority of the Pres is either to increase, reduce or remove existing protective rates
o relied on an official government ruling; or of import duties or imposition of the so-called discriminatory duty which must not exceed
o is rejected in a formal customs dispute settlement process involving difficult or highly 100% ad valorem. The President can also establish import quota or ban importation of any
technical questions relating to the application of customs valuation rules and/or tariff commodity whenever necessary.
classifications. ▪ Take Note:
▪ If the misdeclaration, misclassification or undervaluation is intentional or fraudulent (such ✓ The power is exercised for the general welfare of the people;
as when a false or altered document is submitted or when false statements or information ✓ Upon NEDA's recommendation; and
are knowingly made), a 500% surcharge (of the duty and tax due) will be imposed on the ✓ Tariff Commission shall conduct public hearing.
importer and to those who willfully participated in the fraudulent act. The imported goods Tariff Commission composes of the SOF, Commissioner of the NEDA and the DTI Secretary. They are the ones
to ascertain whether there is a need to increase or decrease this particular tariff rates.
will be subject to seizure regardless of the amount of the discrepancy.
Penalties & Effects for Violations of RA 10863 (Sec. 1430)
Types of Valuation Frauds [UF2O]
o Imprisonment of not less than 30 days and 1 day but not more than 1 year; or
1. undervaluation
o A fine of not less than Php 100,000 to Php 300,000; or
2. false invoice description through reporting lower qualities in the invoice, not identifying
o BOTH
branded items as such
3. false country of origin
Effects of violations
4. overvaluation
▪ Foreigner – deportation after service of sentence.
▪ Public officer or employee – disqualification from holding public office, and the right to vote
Failure to Pay Correct Duties and Taxes on Imported Goods (Sec. 3611, TCC).
and participate in any public election for 10 years.
- penalized according to 3 degrees of culpability:
1. Negligence – deficiency resulting from an offender’s failure to exercise reasonable care and
competence to ensure that a statement made is correct.
Penalty: Fine = 50% - 200% of the revenue loss.
2. Gross Negligence = 250% - 400% of the revenue loss.
3. Fraud – when the material false statement or act was committed or omitted knowingly,
voluntarily and intentionally, as established by clear and convincing evidence.
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TAX REMEDIES UNDER THE TARIFF AND CUSTOMS CODE situation, there could be a prima facie presumption na niconsent si owner sa common carrier.
Or if dili commensurate sa financial capacity ni common carrier ang pag-carry ana na
TAX REMEDIES OF THE GOVERNMENT goods/items, it can be considered also as prima facie proof na niconsent sya to that fact.
I. ADMINISTRATIVE Doctrine of Primary Jurisdiction over Seizure and Forfeiture Cases

▪ The prevailing doctrine is that the exclusive jurisdiction in seizure and forfeiture cases vested
1. Compulsory Acquisition (Sec. 709) in the collector of customs precludes a regular court from assuming cognizance of such
2. Reduction of Customs Duties/Compromise (Sec. 1131) matter.
▪ More or less the same nature as the compromise that you can enter before the Bureau. ▪ It is the settled rule that the BOC acquires exclusive jurisdiction over imported goods, for the
3. Alert Orders (Sec. 1111) purpose of enforcement of the customs laws, from the moment the goods are actually in its
▪ This is issued by the Commissioner based on derogatory 3rd party information on possible non-compliance possession or control, even if no warrant of seizure or detention had previously been issued
or violation of the CMTA. So, if naay mu-report sa BOC na naay ongoing smuggling being committed in the by the Collector of Custom in connection with seizure and forfeiture proceedings.
pier, the Commissioner may immediately issue this alert order.
▪ Thus, the RTC does not have jurisdiction over seizure and forfeiture proceedings conducted
4. Seizure and Forfeiture (Sec, 1113)
▪ When we say forfeiture, this is considered as both administrative and civil in nature. Because it is considered
by the BOC. Even if a Custom seizure is illegal, exclusive jurisdiction still belongs to the BOC.
as such, summary proceedings basically ang pwede buhaton. (Jao vs. CA, GR No. 104604, Oct 6, 1995)
▪ The purpose of the forfeiture is either to avert an ongoing violation or to pay unpaid duties and taxes. This is
a proceeding in re, therefore directed over the res or property or subject matter as if it is the property which Doctrine of Hot Pursuit
violated the provision in the CMTA. So, it is not excused if i-transfer nimu ang ownership or i-assign nimu ang
▪ Other Vessels; Requisites:
bill of lading to somebody else because bottom line, it will not be released by the BOC.
5. Distraint of personal property (Sec. 1132) ✓ An act is done in Philippine water which constitutes a violation of the CMTA
▪ The purpose of this is more or less the same under the Tax Code. It will be distrained, then the personal ✓ A pursuit of such vessel began within the jurisdictional waters (territorial sea, contiguous
property will be sold in an auction. The proceeds of the sale will be used to satisfy the unpaid duties and zone, EEZ) which may continue beyond the maritime zone and the vessel may be seized
taxes. Same also with… on the high seas.
6. Levy of Real Property ▪ Other Imported Articles; Requisites:
✓ There is a violation of the CMTA
Seizure and Forfeiture ✓ They may be pursued in the Philippines
When it comes to properties that are subject of forfeiture, you can refer to the customs ✓ With the jurisdiction over them at any place therein for the enforcement of the law.
administrative order (CAO). The subject of the CAO is seizure and forfeiture proceedings and IOW, even if nigawas na nah sa premises ni BOC, pwede gihapon nah gukuron.
appeal process. If you look at Sec. 4, very lengthy ang enumerated properties na pwede i-seize
and forfeit ni BOC. But ang common denominator is it can be seized or forfeited if the goods or Administrative Fines and Forfeitures
the items enter into the country due to smuggling or fraudulent manner or if there was no cargo ▪ Applied when the importation is unlawful and it may be exercised even where the articles
manifest declaring that particular properties’ entry. These goods as well as the vehicle containg are not or no longer in custom’s custody, UNLESS the importation is merely attempted in
such (including vessels and aircrafts) can be subject of seizures and forfeiture. However, as a which case it may be effected only while the goods are still within the Customs jurisdiction
rule, common carriers cannot be subjected to forfeiture. But if the owner of such has knowledge or in the hands of a person who is aware thereof. (Sec. 2531 and 2530 TCC)
of its use in smuggling and consented thereto, these common carriers may be forfeited. IOW, ▪ Under Sec. 2530 (a), TCC, in order to warrant forfeiture, it is not necessary that the vessel or
the burden of proof belongs to the BOC na naay knowledge ang owner. The instances when aircraft must itself carry the contraband. The complementary, if collateral, use of the Cessna
there is prima facie presumption of knowledge by the owner is enumerated under Sec. 1114. plane for smuggling operation is sufficient for it to be deemed to have been used in
Let’s say for example kana na common carrier na involve nasad previously in a smuggling smuggling. (Llamedo vs. Commissioner of Customs)
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II. JUDICIAL 7. Decision of the Commissioner of Customs [Unlike sa NIRC na naay period to decide (180/120/90), in this
case, walay period to decide si Commissioner of Customs.]
But the moment you receive the decision of the Customs, within 30 days, you file an appeal to the…
1. Civil action
8. CTA (in division)
2. Criminal action
If still adverse, 15 days (ROC) file a…
9. Motion for Reconsideration in CTA (in division)
TN: If denied, file an appeal 15 days from receipt of denial to
▪ Actions are instituted in the name of the government and shall be conducted by the Bureau 10. CTA (en banc)
with DOJ’s assistance. If adverse, file a petition for review within 15 days to the
▪ The civil or criminal action for recovery of duties or enforcement of any fine, penalty or 11. Supreme Court
forfeiture must be with approval of the Commissioner.
TAX REMEDIES OF THE TAXPAYER
I. ADMINISTRATIVE
1. Protest
▪ Any importer or interested party if dissatisfied with published value within 15 days from
date of publication or within 5 days from the date of importer is entitled to refund if
payment is rendered erroneous or illegal by events occurring after the payment.
▪ The moment you receive an adverse ruling from the Collector of Customs, adverse in the
sense na pabayron jud ka ug duties and taxes, basically you have 2 options:
o Pay without protest
But then again, if you avail of this remedy, di ma-release ang goods/item nimu. So, if you want na ma-
release ang goods/item nimu…
o Pay with protest
There will be an order for hearing which will be conducted within a period of 30 days; if you’re going to
pay, you still have 15 days to file your protest to the collector. After the date of the filing of the protest,
another 15 days for a possible hearing. Once the hearing is conducted, and there is no decision or it is an
Search and Seizure
adverse decision, you have 15/5 days to appeal to the Commissioner of Customs. Again, 15 days if non-
1. Imported articles seized perishable (NP), 5 if perishable (P). If after the hearing, the decision is favorable to the importer/shipper,
2. Collector reports to Commissioner (district collector or the port collector) under the CMTA, we have the so-called automatic review clause by the Commissioner and if his decision
3. Collector notifies importer (na gi-seize ang imported item niya) is favorable to the importer, there is also an automatic review by the SOF. When it comes to forfeiture,
4. Schedules hearing (15/5 days from seizure warrant issuance) [5 days if perishable item/goods; 15 automatic na mureview si Commissioner and SOF especially if the value involved of the forfeited items
days if non-perishable] exceeds P10M. If adverse decision, appeal to the Commissioner, if adverse gihapon ang decision ni
Commissioner, 30/10 days (NP/P), file an appeal to the CTA in division. And same process as discussed
5. Collector’s decision (30/15 days to decide) [30 days if non-perishable; 15 days if perishable] earlier – If pildi ka CTA in division, within 15 days, file an MR; if denied, within 15 days, you go to CTA en
15 days from the issuance of the collector’s adverse decision to the importer or the owner of the goods… banc; If denied gihapon, 15 days go to the SC. So, the administrative remedies of the taxpayer, basically
6. Appeal to Commissioner of Customs you have the protest jud una. Same sa NIRC, principle of exhaustion of administrative remedies. Di pwede
mudiretso ni CTA.
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3. Abatement, refund, & drawback
▪ A written claim for refund may be submitted by the importer in abatement cases on
missing packages, deficiencies in the contents of packages or shortages before arrival of
the goods in the Philippines, articles, lost or destroyed after such arrival, dead or injured
animal, and for manifest clerical errors.
▪ Refund – If nakabayad na si shipper or importer and there is finding na erroneous or
excessive
▪ Compromise/Abatement – If arbitrary ang fines and penalties, the remedy could either
be these two.
▪ Drawback – kung pabalik2x sud and gawas same items; a portion of the duties and taxes
will not anymore be imposed the moment that very same item will come back to the
country.
4. Abandonment
▪ The renunciation of the importer of all his interests and property rights over the imported
articles; either implied or express.
II. JUDICIAL
1. Appeal; or
▪ within 30 days from receipt of decision of the Commissioner or the SOF to the division of the CTA
2. Court action to question the legality of the seizure.
▪ You are just questioning the legality. You cannot prevent the seizure.
INFORMER’S REWARD
This is a reward given to persons instrumental in the discovery of violations, criminal or civil,
before the provisions of the NIRC and the seizure and discovery of smuggled goods/items
pursuant to the provisions in the CMTA. However, you have to do a positive act before you can
be considered as an informer. So, when you say you have to do a positive act, it means to say
you need to report to the BIR or to the BOC. The informer’s reward is basically to encourage
3rd party report. And this 3rd party information is equivalent to 10% of the taxes, fines,
2. Settlement of any seizure by payment of fine or redemption penalties, and surcharges that have been imposed and collected or 1M, whichever is LOWER.
▪ But this shall not be allowed in any case where importation is absolutely prohibited or So, the max amount that you can receive is only 1M. But you do not really receive the entire
the release would be contrary to law, or when there is an actual and intentional fraud. 1M because such will be subject to 10% FWT. Max lang na madawat nimu is around 900k. But
take note, the nature of the 10% is final withholding income tax. So, if ever you receive an
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informer’s reward, you do not need to declare it as part of your gross income which is subject COURT OF TAX APPEALS
to 0-35% GITR. Take note also, kaning 10% is based on the fines, penalties and surcharges that
have been collected. So, dapat the government was able to collect kay pwede wala sya ka Republic Act 1125
collect kay gi-question for example ang validity sa assessment nya it was found out na void jud This is the primary law which governs the CTA. Under this law, CTA is composed of 9 justices.
diay, then you will not receive this reward. But under the law, there are requisites before you We very well know that it either sits in division or en banc.
qualify for informer’s reward: • CTA en banc – 9 justices
o Of the 9 justices, 1 is the presiding justice and 8 are considered associate justices.
(1) The person must not be an internal revenue official or employee, or other public official or o Quorum – 5 justices must be present.
employee (whether in active service or retired) or his relative within the 6th degree of o Absolute majority (majority of all the members; IOW, at least 5 affirmative votes) – If it
consanguinity; involves a first-time issue, modification or revocation of a previous ruling issued by the
▪ Kung naa kay relative na public official, most likely uncle or auntie nimu, pwede ka ma-informer but di ka CTA en banc.
ka-receive ug informer’s reward. It does not necessarily mean na example, ngari na RDO ka nisumbong sa
violation, di tan-awn kung naa ba kay relative in that RDO. So, if there is a finding na naa kay relative in the
o Majority of all the members present constituting a quorum – in all other cases
BIR office, or naa kay relative na public official in congress which is not necessarily in that RDO, you can be • CTA in division – 3 justices, 3 divisions.
disqualified from this informer’s reward. Kay wa may distinction provided in the law na dapat within the o Quorum – presence of 2 justices.
RDO ang relative. o Dapat ang mudecide should be at least 2 justices. And para ma-considered as properly
decided, the 2 justices must have voted in the same manner. Dapat mag-concur.
(2) The person must have given a definite and sworn information; there must be an affidavit
duly notarized;
▪ Definite so dapat specific. When we say sworn, di jud sya merely anonymous letter.
JURISDICTION OF CTA
(3) The information must lead to discovery of fraudulent act which leads to conviction of the
parties; The CTA is considered a judicial body, not an administrative body. However, although it is
treated as a judicial body, it is deemed to have special jurisdiction because it has exclusive
(4) The information must not yet be in possession of the BIR or BOC; jurisdiction na dili pwede i-pasa to the regular courts.
(5) It must not be pursuant to a case investigated by the Commissioner of BIR or BOC; CTA has both jurisdiction on the civil and criminal aspect of tax cases. If it is CTA en banc, it has
▪ So, it must not be pursuant to a case already pending, previously investigated or examined by the CIR or
exclusive original jurisdiction in the exercise of its administrative, ceremonial or non-
SOF. Kay diba we’ve discussed na if 3rd party information, pwede ka-isummon to present documents or
information. Kana, di na ka ma-qualified para sa informer’s reward kay that pertains to an ongoing case adjudicative functions. When we say administrative, we mean to say the internal laws; nothing
or investigation man. For you to avail of this reward, dapat wa pa juy idea si BIR or BOC. Dapat way to do with collection and assessment nor protest or appeals.
pending LOA, pending audit or investigation na gina-conduct si BIR or BOC.
(6) The reward should be in money CTA en banc: Exclusive Appellate Jurisdiction
▪ Kung BOC, smuggled goods man nah. No problem with BIR kay recovery of tax, fees and surcharges man.
But for BOC, kung ni-report ka na nag smuggle illegally ug rice, your reward is not necessarily the rice. It
has to be the value of the smuggled items which will be based on the 10% of the FMV of the smuggled and Section 2, Rule 4, A.M. No. 05-11-07-CTA / Revised Rules of the CTA
confiscated goods or 1M, whichever is LOWER. (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive appellate jurisdiction over:
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(1) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of CTA in division: Exclusive Original Jurisdiction
Customs, Department of Finance, Department of Trade and Industry, Department of
Agriculture; Section 3, Rule 4, A.M. No. 05-11-07-CTA / Revised Rules of the CTA
(2) Local tax cases decided by the Regional Trial Courts in the exercise of their original (b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
jurisdiction; and (1) Original jurisdiction over all criminal offenses arising from violations of the National
(3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original internal Revenue Code or Tariff and Customs Code and other laws administered by
jurisdiction involving final and executory assessments for taxes, fees, charges and the Bureau of Internal Revenue of the Bureau of Customs, where the principal amount
penalties, where the principal amount of taxes and penalties claimed is less than one of taxes and fees, exclusive of charges and penalties, claimed is one million pesos or
million pesos; more; and x x x
(b) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or ▪ Again, if it is less than P1M or no amount specified, the regular courts have the exclusive original jurisdiction
resolved by them in the exercise of their appellate jurisdiction; which can either be the MTC or RTC depending on jurisdictional amount.
▪ If nifile kas MTC, you appeal to the RTC; if you lost, then appeal to the CTA en banc.
(c) Decisions, resolutions or orders of the Regional Trial Courts in tax collection cases decided ▪ But if it is in excess of the jurisdictional amount of the MTC so you filed in the RTC, you appeal to the CTA
or resolved by them in the exercise of their appellate jurisdiction; in division before going to CTA en banc. If pildi ka sa CTA in division in the exercise of its exclusive original
(d) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in jurisdiction, you appeal to CTA en banc.
Division in the exercise of its exclusive original jurisdiction over tax collection cases;
(e) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its (c) Exclusive jurisdiction over tax collections cases, to wit:
appellate jurisdiction over cases involving the assessment and taxation of real property (1) Original jurisdiction in tax collection cases involving final and executory assessments for
originally decided by the provincial or city board of assessment appeals; taxes, fees, charges and penalties, where the principal amount of taxes and fees,
(f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in exclusive of charges and penalties, claimed is one million pesos or more; and x x x
▪ Na-mention ni nato before that when it comes to collection cases that will be filed with the BIR, if it’s P1M
Division in the exercise of its exclusive original jurisdiction over cases involving criminal
or more based on the basic tax assessed lang excluding the increments, it will be filed before the CTA in
offenses arising from violations of the National Internal Revenue Code or the Tariff and division. If less than P1M, then mu-matter to ang jurisdictional amount if the BIR will file it before the MTC
Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau or the RTC. But the point is if the tax collection case was originally filed with the MTC, of course pildi ka
of Customs; then appeal to the RTC and then if pildi ka RTC, appeal to CTA en banc not the CTA in division.
(g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in ▪ If originally filed sa RTC, then appeal sa CTA in division before going to CTA en banc.
▪ I think masabtan nato ang difference between criminal case and the tax collection case because the latter
Division in the exercise of its exclusive appellate jurisdiction over criminal offenses is just a civil case. The criminal case will have to be coursed through the DOJ and the DOJ will be the one
mentioned in the preceding subparagraph; and to file the criminal case against the taxpayer.
(h) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their
appellate jurisdiction over criminal offenses mentioned in subparagraph (f). CTA in division: Exclusive Original or Appellate Jurisdiction
▪ So if you look at it, the exclusive appellate jurisdiction of the CTA en banc comes from either the CTA in division, Section 3, Rule 4, A.M. No. 05-11-07-CTA / Revised Rules of the CTA
the RTC or CBAA. So RTC and CBAA, before it goes to CTA en banc, dapat appellate siya; but if to the CTA in
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
division, original jurisdiction siya.
▪ Exclusive appellate jurisdiction – meaning in those cases, you are not allowed to appeal to the CA or the (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
Sandiganbayan, but exclusively to the CTA. assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
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relation thereto, or other matters arising under the National Internal Revenue Code or CTA in division: Exclusive Appellate Jurisdiction
other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code or other applicable law provides a specific period for action: Section 3, Rule 4, A.M. No. 05-11-07-CTA / Revised Rules of the CTA
Provided, that in case of disputed assessments, the inaction of the Commissioner of (b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
Internal Revenue within the one hundred eighty day-period under Section 228 of the xxx
National Internal revenue Code shall be deemed a denial for purposes of allowing the (2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the
taxpayer to appeal his case to the Court and does not necessarily constitute a formal Regional Trial Courts in their original jurisdiction in criminal offenses arising from
decision of the Commissioner of Internal Revenue on the tax case; Provided, further, violations of the National Internal Revenue Code or Tariff and Customs Code and other
that should the taxpayer opt to await the final decision of the Commissioner of Internal laws administered by the Bureau of Internal Revenue or Bureau of Customs, where the
Revenue on the disputed assessments beyond the one hundred eighty day-period principal amount of taxes and fees, exclusive of charges and penalties, claimed is less
abovementioned, the taxpayer may appeal such final decision to the Court under than one million pesos or where there is no specified amount claimed;
Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims
for refund of taxes erroneously or illegally collected, the taxpayer must file a petition (c) Exclusive jurisdiction over tax collections cases, to wit:
for review with the Court prior to the expiration of the two-year period under Section xxx
229 of the National Internal Revenue Code; (2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the
(3) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided Regional Trial Courts in tax collection cases originally decided by them within their
or resolved by them in the exercise of their original jurisdiction; respective territorial jurisdiction.
(4) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property affected, How about regular courts?
fines, forfeitures of other penalties in relation thereto, or other matters arising under ▪ In CTA en banc and in division, there is exclusive original and exclusive appellate. Usually
the Customs Law or other laws administered by the Bureau of Customs; kung tan-awn nimo ang CTA in division, from an admin appeal, it goes to the CTA in division
(5) Decisions of the Secretary of Finance on customs cases elevated to him automatically and does not go directly to the CTA en banc.
for review from decisions of the Commissioner of Customs adverse to the Government ▪ So again unsa man for regular courts? What is their exclusive original and exclusive appellate
under Section 2315 of the Tariff and Customs Code; and jurisdiction? For the regular courts, the exclusive original jurisdiction involves collection
(6) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, cases where the basic tax amount is less than P1M or where there is no specified amount
commodity or article, and the Secretary of Agriculture, in the case of agricultural claimed. So duha, you have criminal cases and tax collection cases.
product, commodity or article, involving dumping and countervailing duties under o For criminal offenses, the exclusive original jurisdiction belongs to the regular courts if
Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard the amount claimed is less than P1M excluding the increments as it only involves the
measures under Republic Act No. 8800, where either party may appeal the decision to basic tax assessed or no specified amount. So, if there is no tax specified, then RTC.
impose or not to impose said duties; o Other than criminal cases, there are also tax collection cases if the amount claimed is less
than P1M.
▪ So basically, you have decisions, rulings or inactions of several officers such as the CIR, Commissioner of o And of course, you have the local tax cases especially if you appeal from the decision of
Customs, the Secretary of Finance, and the resolutions, decisions and inactions of the Secretary of
the local treasurer to RTC or MTC.
Agriculture as well as that of Trade and Industry.
▪ When it comes to inaction, it is deemed a denial of your administrative appeal, therefore you can appeal
it in the CTA in division. TAX COLLECTION CASES
▪ Will it be suspended pending appeal? GR: No, UNLESS you ask for a TRO from the CTA.
▪ Requirements for the restraining order or injunction by the CTA:
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✓ if in the opinion of the CTA, it will jeopardize the interest of the government or the From RTC – Procedure
taxpayer ▪ If napildi ka in the RTC in its original jurisdiction, you will file a notice of appeal within 15
✓ taxpayer must also post a bond not more than twice the amount of the tax days from the receipt of the decision to the CTA in division because it was decided by the
▪ But what is important is there must be a pending appeal with the CTA on an adverse decision RTC in its original jurisdiction.
coming from the CIR because dili pwede na you will just file a special civil action for ▪ If sa CTA in division na pildi ka, what do you file? A motion reconsideration or motion for
injunction or TRO. It must be an ancillary action to your appeal of the decision of the CIR. new trial within 15 days.
▪ If pildi gihapon? You file a petition for review under rule 43 to the CTA en banc.
Illustration – Procedure ▪ If pildi gihapon? You file MR or MNT within 15 days from the receipt of the decision.
▪ You received an adverse decision from the CIR. 30 days from the date of the adverse ▪ If denied? You go to the SC by filing a petition for Review under Rule 45.
decision, you filed an appeal to the CTA. Is this period to appeal extendible? Non-extendible.
▪ What if there is no decision rendered by the COC or the CIR? When should you file an appeal From MTC – Procedure
to the CTA? The taxpayer may either (1) wait for the decision and make an appeal from the ▪ IOW, it was decided by the RTC in its appellate jurisdiction
receipt of that decision or (2) he may appeal within 30 days from the lapse of the 180 period. ▪ You go immediately to CTA en banc. Dili naka muadto sa CTA in division. You file a petition
▪ When you receive an adverse decision from the CIR, can you file an MR? Yes, but it will not for review under rule 43 within 15 days from the receipt of the adverse decision.
toll the 30-day prescriptive period (if coming from the CIR except if it came from a
subordinate official then the 30-day period is tolled).
▪ Now, you filed your appeal in the CTA in division, still napildi ka, what’s the next course of LOCAL GOVERNMENT UNITS – TAXATION
action? MR within 15 days of the receipt of the adverse decision.
▪ After that if the decision is still adverse, the taxpayer can appeal to the CTA en banc within Primary reference: Local Government Code.
15 days from the receipt of the denial of the MR.
▪ So you filed your appeal now to the CTA en banc, pildi gihapon so what is the next step? MR The power of taxation is not an inherent power insofar as LGUs are concerned because
in the CTA en banc within 15 days from the receipt of the decision. Again we are referring to primarily, it is just a delegated power. Remember, the power of taxation is inherently legislative
the civil cases lang. in nature so it belongs to the Congress to levy and impose tax. However, there is also a
▪ If the MR or the motion for new trial is denied by the CTA en banc, then file a petition for constitutional provision which states that LGUs must be given fiscal autonomy or independence
review under Rule 45 to the SC within 15 days from the receipt of the denial of the MR. and it must be able to source out or it must be able to find a source of its own revenue. Pursuant
▪ TN: You file a petition for review under Rule 43 if it involves decisions from quasi-judicial to that constitutional provision, the Congress passed the Local Government Code of 1991.
bodies.
▪ What about those cases na ang naay original jurisdiction is the CTA en banc? Like those cases Legal Foundation of Local Taxing Power
filed with the CBAA, how do you appeal to the CTA en banc? File a petition for review under 1. Sec. 5, Article X, 1987 Constitution
Rule 43 of the Rules of Court. 2. Sec. 129, RA 7160
CRIMINAL CASES Four divisions of LGUs

▪ It must involve criminal violations of the Tariff and Customs Code and the NIRC o Provinces
▪ Regular courts (RTC/ MTC) - if less than P1M o Cities
▪ RTC – if there is no specified amount o Municipalities
▪ CTA – if P1M or more o Barangays
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In these 4 taxing units, ang pinaka-powerful are the cities, especially if that city is a highly o Legislative
urbanized city or an independent component city. Under the LGC, naka-specify lang what type o Limited
of taxes ang pwede i-collect ni province ug pwede i-collect ni municipality. Municipalities are ✓ Constitutional limitations
given the power to collect local business tax (the tax that you will be paying if you are going to ▪ due process, equal protection, no undue taking of property
get the mayor's permit). Provinces do not have the power to collect such. Provinces also have ✓ Fundamental principles (Sec. 130, LGC)
specific taxes na pwede ma-collect sa cities. IOW, the reasons why the cities are more powerful ✓ Public hearing requirements
are because (1) they can collect local business tax and (2) can also collect taxes which can only ✓ Principle of pre-emption or exclusionary rule
be collected by the provinces. Then of course, ang pinaka weak when it comes to taxing power ▪ Exclusionary rule – If that particular tax is already collected by the national government, it can no longer
be collected by the local government. Stated otherwise, if that particular subject matter is not subjected
is the barangay. to tax by the national government, it means to say that the local government can subject it to tax.
✓ Common limitations on LGUs taxing power (Sec. 131, LGC)
Scope of taxation ▪ As mentioned, if you are a province or municipality, naa ray naka-enumerate na taxes under the LGC na
1. Local taxation pwede nimo i-collect. And from that enumeration, dira na musulod ang creative mind ni sanggunian if
2. Real property taxation unsaon niya pag elaborate na dili mu-encroach sa NIRC or TCC provisions.
FUNDAMENTAL PRINCIPLES GOVERNING LOCAL TAXATION (PIE-CUP-UP)

LOCAL TAXATION 1. Levied for a public purpose.
2. The revenue collected shall inure solely to the benefit of, and subject to the disposition by
Local taxes again depend on the taxing authority – if it is the province, city, municipality or the the LGU levying the tax other imposition unless otherwise specifically provided.
barangay. Kung muinogn ta ug local taxes, this is not limited to local business tax. Naa tay 3. Equitable and based as far as practicable on the taxpayer's ability to pay.
gitawag na franchise tax, publisher's tax, community tax. These are all covered under the local 4. Not contrary to law, public policy, national economic policy, or in the restraint of trade.
taxing power of the LGU. 5. Uniform in each local government unit.
6. The collection of local taxes, fees, charges and other impositions shall not be let to any
SOURCES OF LOCAL FUNDS private person.
As required in the Constitution, dapat fiscally independent si LGU. That is why we have: 7. Not unjust, excessive, oppressive, or confiscatory.
1. Internal funds 8. Each local government unit shall, as far as practicable, evolve a progressive system of
Internal source of funds of an LGU primarily comes from the imposition of real property tax as well as the local taxation.
business taxes and of course the non-tax revenue. Non-tax revenues are the so-called regulatory fees in
connection with having a business in the locality, such as garbage fees, sanitary fees, etc. National Taxation vs. Local Taxation
2. External funds If you look at the fundamental principles mu-relate ra sad siya sa constitutional limitations. But
External sources – wala gi generate internally ni LGU and these are primarily through the IRA (internal revenue what makes it different from the fundamental principles in the taxation of the national
allotment) which comes from the national government. The IRA would also depend on the classification ni LGU.
We also have national aid or share in national wealth especially when it comes to local projects which are being government?
sponsored by the national government. ✓ The collection of local taxes, fees, charges and other impositions shall not be let to any
private person;
NATURE OF THE LOCAL TAXING POWER [LTD LA] When it comes to collection and payment of the national taxes under the NIRC, such can be done by/to the
authorized agent banks. Pwede gani debit or credit card ang gamitun nimo. Basically, these are private persons
o Not inherent but direct
or private companies. But it is a different story for local taxes because it is a prohibition. When you pay your local
o Territorial taxes, you pay it before the treasurer's office of municipality or city.
o Accrual of tax
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✓ Not in the restraint of trade 1. The Sanggunian of an LGU is authorized to prescribe fines or other penalties for violation of
What LGUs also need to consider is that the income tax they impose must not be in restraint of trade. Such tax ordinances
prohibition is not found in national taxes because the latter follow the principle that the power of taxation is also (a) In no case shall such fines be less than P1,000 nor more than P5,000;
a power to destroy. But what do we mean by local taxes must not be in restraint for trade? It means that it must
not discriminate a particular legal undertaking or profession for it to be exercised in the locality. You cannot (b) Nor shall imprisonment be less than 1 month nor more than 6 months.
impose high tax for this particular activity as compared to another activities to the point that it is quite 2. Such fine or other penalty, or both, shall be imposed at the discretion of the court.
unreasonable. 3. The Sangguniang barangay may prescribe a fine of not less than P100 nor more than P1,000.
(no imprisonment)
SANGGUNIAN Other than those penalties, the LGU has the power to lock down your establishment especially
if you failed to get the local mayor's permit because this local permit is akin to license. So kung
The Sanggunian of the LGU has the primary authority to impose or levy local taxes through the tan-awn nimo, local taxes are taxes; but other than that, you are also paying a fee allowing you
passage of ordinances. to do business. If you failed to pay that license, your establishment is considered as an illegal
TN: When it comes to collection, it is the Office of the Treasurer. Sa RPT, naa na silay gitawag na assessor's office. establishment.
When we say Sanggunian: Power to adjust Local Tax Rates [Section 191, LGC]
➢ Province – Sanggunian Panlalawigan
➢ City – Sangguniang Panlungsod Authority of Local Government Units to Adjust Rates of Tax ordinances. – Local units shall have
➢ Municipality – Sangguniang Bayan the authority to adjust the tax rates as prescribed herein not oftener than once every five (5)
➢ Barangay – Sangguniang Pambarangay years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under
this Code.
POWERS OF THE SANGGUNIAN [RIPE] IOW, it is within the discretion of the Sanggunian WON to increase or decrease the imposition
1. Impose local taxes of tax. However, it must not exceed 10% of the rate and it should be only once every 5 years.
2. Prescribe penalties for tax violations and limitations thereon (Sec. 516) Because in the LGC, naka-enumerate kung unsa ang local tax na pwede i-collect and the
3. Adjust local tax rates (Sec. 191) corresponding rates. Such rate is considered as the maximum rate. So, if the rate is 0.5% of the
4. Grant local tax exemptions (Sec. 192) gross sales, I can have the option na ilower than 0.5%. Can they increase? Yes, once every 5
years. Example, the ordinance imposing that .5 of 1% was passed way back 1990; so inig 1996,
they can increase it to .55 of 1%.
Prescription of Penalties [Section 516, LGC]
Granting Local Tax Exemption [Section 192, LGC]
Penalties for Violation of Tax ordinances. – The Sanggunian of a local government unit is
authorized to prescribe fines or other penalties for violation of tax ordinances but in no case Authority to Grant Tax Exemption Privileges. – Local government units may, through
shall such fines be less than One thousand pesos (Php1,000.00) nor more than Five thousand ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and
pesos (Php5000.00), nor shall imprisonment be less than one (1) month nor more than six (6) conditions, as they may deem necessary.
months. Such fine or other penalty, or both, shall be imposed at the discretion of the court. The
Sangguniang Barangay may prescribe a fine of not less than One hundred pesos (Php100.00) However, when it comes to the grant of tax exemptions or tax incentives, as a rule, this is only
nor more than One thousand pesos (Php1,000.00). granted to units under the LGU pursuant to its taxing power. IOW, kung walay power si LGU to
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collect this particular tax, then it could not grant exemption to that tax. So dili pwede mu-grant On the GRANT OF TAX INCENTIVES, as a rule, it:
si LGU ug exemption from VAT to a particular business because it has no power to collect VAT. 1. shall be granted only to new investments in the locality and the ordinance shall prescribe
the terms and conditions therefor.
ON THE GRANT OF TAX EXEMPTIOS OR TAX RELIEFS 2. shall be for a definite period not exceeding 1 calendar year.
1. Tax exemptions or tax reliefs may be granted in cases of: 3. shall be by ordinance passed prior to the first day of January of any year.
(a) Natural calamities When it comes to local taxes, it accrues on the very first day of the year. It is even collectible on or before the
For natural calamities we've seen situations here na nag-declare ang Sanggunian ug tax exemption or tax 20th day of January.
ruling. It takes effect during the calendar year for a period not exceeding 12 months. 4. Any tax incentive granted to a type or kind of business shall apply to all businesses similarly
(b) Civil disturbance situated.
(c) General failure of corps
(d) Adverse economic conditions such as substantial decrease in prices of agricultural or ▪ Those requisites must concur.
agricultural-based products ▪ PEZA is granted with tax incentives; also fiscal incentive with the BOI.
▪ For Barangay microbusiness enterprises, it follows that if mu-qualify ka, exempted ka from local taxes. In that
2. The grant of exemptions shall also be through an ordinance. case, kinahanglan pa ba mu-pass ug ordinance si Sanggunian exempting you from local tax? No na, because the
3. Any exemption or relief granted to a type or kind of business shall apply to all businesses exemption nimo is pursuant to a special law from the national government. Mandated ba mu-follow si local
similarly situated. government? Yes, because the taxing power of the LGU is just a delegated power from congress.
4. Any exemption or relief granted shall take effect only during the next calendar year for a ▪ How about PEZA? Is it exempted from local taxation? Supposedly yes, because it is 5% in lieu of all taxes. That
5% is basically divided by the local government and the national government/BIR. But there is that fixed amount
period not exceeding 12 months as may be provided in the ordinance. gihapon na bayaran si PEZA to the LGU.
TN: That exemption is exemption from local tax. So when it comes to license fees, inspection HOW ABOUT TAX EXEMPTIONS GRANTED BEFORE THE EFFECTIVITY OF THE LGC?
fees or regulatory fees, it will still be imposed continually. It is lifted upon the passage of the LGC except for: (For the rest, they are subject na to local taxes)
▪ Inspection fees are those fees that you will pay to the inspectors of the local government or 1. Local water districts
the BFP, building inspector, sanitary or health kay i-inspect man ang imo building, and with 2. Cooperatives duly registered under RA 6938
that inspection you will pay these inspection fees or regulatory fees like garbage collection 3. Non-stock and non-profit hospitals
fees. 4. Educational institutions
▪ In the case of shared revenues, the exemption or relief shall only extend to the local
government unit granting such exemption or relief. Shared revenues are usually common IOW:
between provinces and municipalities, or between municipalities and barangays, because ▪ General rule: it is lifted.
there are taxes, like in mining, which can be imposed by the province but mu-share ana ang ▪ Except: those above-mentioned. They will continue to be exempted.
municipality from which nag-mine. For example, an exemption is granted by the province. It
follows that only such share will be affected in the grant of relief or exemption. Take note
that we still follow the general rule na maka-grant lang ug exemption si taxing authority if COMMON REVENUE RAISING POWERS [LGC] [PTS]
siya ang ni-levy sa tax. If dili siya ang ni-levy then that particular authority is not authorized
to grant exemption. Earlier we said na specific ang tax na ma-collect ni LGU. When we say common revenue raising
▪ Incentives – this is more to encourage investors to come in their locality. powers, these are not taxes but these can be sources of revenue na pwede i-exercise ni LGU
whether Province, City or Municipality.
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1. Service fees and charges 3. Physically-handicapped and disabled citizens who are 65 years or older
SECTION 153. Service Fees and Charges. – Local government units may impose and collect such TN: These three types of individuals, dili na collectan ug toll. But these exceptions apply only to a toll which is being
collected by the LGU, not to a toll collected by a private corporation or entity.
reasonable fees and charges for services rendered.
Examples:
LOCAL TAX ORDINANCE
Kanang magpa-abang sa sound system, kanang garbage collection, kanang mangayo ka ug
barangay clearance – they can collect fees for that. REQUISITES OF A VALID TAX ORDINANCE
1. Filing of proposal.
2. Public utility charges ▪ approval or signature of the local executive is required
2. Publication or posting (10/3/2)
SECTION 154. Public Utility Charges. – Local government units may fix the rates for the ▪ 10 days after the filing of the proposal, there must be publication or posting.
operation of public utilities owned, operated and maintained by them within their jurisdiction. ▪ Publication – if there is a newspaper of local circulation (published in full for 3 consecutive
days)
Examples: ▪ Posting – if there is no newspaper of local circulation; in which case, it has to be posted
Public markets; public utility terminals in at least 2 conspicuous and publicly accessible places. (Sec. 188, LGC)
3. Notification
3. Toll fees or charges ▪ to all stakeholders or those who may be affected by the revenue raising measure
▪ Kinsa gani ang i-notify for the passage of an ordinance? The local treasurer's office
SECTION 155. Toll Fees or Charges – The Sanggunian concerned may prescribe the terms and because it is the local treasurer's office which is primarily in charge in the collection of
conditions and fix the rates for the imposition of toll fees or charges for the use of any public taxes.
road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and 4. Public hearing – prior to the enactment of the tax ordinance.
constructed by the local government unit concerned: Provided, That no such toll fees or charges ▪ In all instances, there must be a public hearing.
shall be collected from officers and enlisted men of the Armed Forces of the Philippines and 5. Approval by the Local Chief Executive (LCE).
members of the Philippine National Police on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When KINDS OF LOCAL TAX ORDINANCE
public safety and welfare so requires, the Sanggunian concerned may discontinue the collection 1. Ordinances imposing local taxes enumerated under the LGC.
of the tolls, and thereafter the said facility shall be free and open for public use. 2. Ordinances imposing taxes not yet imposed by the national government nor specified in the
Local Government Code.
Remember when it comes to toll fees and charges, it must pertain to a project which is funded ▪ These are the taxes following or in relation to the doctrine of pre-emption or exclusion. Such doctrine tells
and constructed by the LGU, because when it comes to skyways and bridges, this is funded by us that if the national government elects to tax a particular subject matter or activity or entity, it withholds
the delegated power to the LGU to tax such. Stated OW, if it is still not being subjected to tax by the national
the national government or funded by a PPP (Private Public Partnership). But if the LGU funded
government, it may be subjected to tax by the LGU. Provided, it is within its power to impose such type of
for it, then it is the LGU who can collect the toll. tax.
▪ These taxes are imposed by the Sanggunian or by the legislative division of the LGU. So because of that, it is
However, there are exceptions to this toll fee: not really complete or absolute delegation by the legislature of the power to tax to the LGU (executive)
1. Officers and enlisted men of the AFP and members of the PNP on mission because still, it is the legislative unit of the LGU who can impose the tax.
▪ When it comes to the levy of a local tax, it must be through ordinance, not just a mere resolution.
2. Post office personnel delivering mail
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LGU’S TAXING POWERS - COMMON LIMITATIONS [LGC] (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and (4) four years, respectively from the date of registration;
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless ▪ When we say Board of Investments, we differentiate it with PEZA.
▪ Wala na nganhi ang PEZA because it is expressly stated in the special law creating the PEZA.
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
▪ When it comes to BOI, wala na naka-specify sa Investments Code. It is being specified here in the LGC.
and Barangays shall not extend to the levy of the following: ▪ If you are pioneer or the first to engage in that type of business in the Philippines, you are given 6 years.
(a) Income tax, except when levied on banks and other financial institutions; ▪ For non- pioneer or existing na ang type of industry sa country but such is considered as a priority industry,
▪ Reason: This is already imposed by the national government. you are given income tax holiday which also covers local tax exemption.
▪ For banks, they are an exception because they need the special attention of the LGU and for the fact that ▪ BOI – usually domestic operations.
these businesses are liquid as compared to other types of businesses. They have the ability to pay. ▪ PEZA – more of export or export-oriented operation
▪ This is the problem with some businesses having their main office in another place. They say that they are (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
already paying local tax in the place where their main office is located, so if taxan pa sila ma-double na ang
amended, and taxes, fees or charges on petroleum products;
ilang gi-pay na local tax. As an advisor, unsa man ang i-advise nimo? The LGU can still collect local taxes
▪ Reason: This is already collected by the national government.
especially if the gross sales is generated in that locality. It is just that the documentations come from the
head office. The sound thing to do is to separate the gross sales or receipts in the head office and the gross (i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar transactions
sales or receipts in the branch or locality. Para di ma-doble ang bayaran na local business tax. Only report on goods or services except as otherwise provided herein;
the sales na na-generate didto sa head office, and report separately ang sales generated in the branch. ▪ Reason: This is already collected by the national government.
(b) Documentary stamp tax; ▪ What is this ‘except as otherwise provided herein’? This means pwede mag-collect ug business tax si LGU.
▪ Reason: This is already collected by the national government. These are business taxes which may be collected by the cities and municipalities.
▪ What is the nature of this business tax? Because in VAT and OPT, it is the tax on the object or on the activity.
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
In cases of municipalities, it includes those manufacturers, assemblers, rectifiers of distilled products,
otherwise provided herein; wines, manufacturers of any article of commerce.
▪ Estate tax and donor's tax, dili na pwede i-collect because already collected by the BIR. ▪ Remember VAT and OPT, these are types of business taxes. If you have a business, you can be subjected
▪ What do we mean by ‘except as otherwise provided’? Meaning, subject to tax on transfers of real property. either to OPT or VAT; but does it mean ba nga dili na ka pwede ma subject to local business tax? No, you
▪ Kinsa diay ang pwede mu-collect aning tax on transfers of real properties? Si province. We will discuss later can still be subjected to local business tax.
this tax on transfers of real properties and differentiate it with real property tax. ▪ What is the purpose why that local business tax is being imposed to you? Because you are doing business
(d) Customs duties, registration fees vessels and wharfage on wharves, tonnage dues, and all or operating within that particular locality.
other kinds of customs fees, charges and dues except wharfage on wharves constructed (j) Taxes on the gross receipts of transaction contractors and persons engaged in the
and maintained by the local government unit concerned; transportation of passengers or freight by hire and common carriers by air, land or water,
▪ Reason: This is already collected by the national government. except as provided in this Code;
▪ Ang kanag exception, same with the nature of a toll fee. Basta sila ang ni-construct, sila ang ni-fund, then ▪ Reason: This is already collected by the national government.
pwede sila ang mag-collect. ▪ The "exception as provided in the Code" is applicable to gross receipts of the operations of tricycles
(e) Taxes, fee and charges and other impositions upon goods carried into or out of, or passing because wala man sila na subject sa national government.
through, the territorial jurisdictions of local government units in the guise of charges for (k) Taxes on premium paid by way or reinsurance or retrocession;
wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form ▪ Premium on the original insurance contract has already been subjected to tax and when we say
whatsoever upon such goods or merchandise; reinsurance, basically gi-pass on ra man nah nimo.
▪ Reinsurance – from the insurer to a reinsurer
▪ not covered because governed primarily by the Bureau of Customs under the CMTA.
▪ Retrocession – from one reinsurer to another reinsurer
▪ When it comes to toll, pwede gihapon basta ang bridge, etc. kay constructed and funded by the LGU.
(f) Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers (l) Taxes, fees or charges for the registration of motor vehicle and for the issuance of all kinds
or fishermen; of licenses or permits for the driving thereof, except tricycles;
▪ Reason: This is already collected by the national government - LTO.
▪ Marginal farmers or fishermen are those who farm or fish for their own subsistence, not for business
▪ The exception again is the tricycle
purposes.
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(m) Taxes, fees or charges on Philippine products actually exported, except as otherwise monetary consideration involved in the transfer is not substantial, whichever is higher. The sale,
provided herein; transfer or other disposition of real property pursuant to R.A. No. 6657 shall be exempt from
▪ Reason: This is already collected by the national government this tax.
▪ Kaning conduct of the business in the locality, pwede ba i-subject to local tax? Yes. For example, my
business is into manufacturing of furniture na i-export nako, the local government should not anymore
impose a tax or fee on the furniture that I would be exporting. (b) For this purpose, the Register of Deeds of the province concerned shall, before registering
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and any deed, require the presentation of the evidence of payment of this tax. The provincial
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine assessor shall likewise make the same requirement before canceling an old tax declaration and
hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the issuing a new one in place thereof. Notaries public shall furnish the provincial treasures with a
Philippines" respectively; and copy of any deed transferring ownership or title to any real property within thirty (30) days
(o) Taxes, fees or charges, of any kind on the National Government, its agencies and from the date of notarization.
instrumentalities, and local government units.
It shall be the duty of the seller, donor, transferor, executor or administrator to pay the tax
herein imposed within sixty (60) days from the date of the execution of the deed or from the
So, those are the common limitations. But is the local government required to comply with the date of the decedent's death.
withholding tax rules imposed by the BIR? Say for example, its compensation for EEs or the fees
of its consultants serving these offices of that government? Yes, as a matter of fact, if these TN:
LGUs, the barangay, there was a case this year wherein the BIR tried to pass a Revenue ▪ On any other mode, whether with consideration or without consideration, the province can
Memorandum that if an LGU fails to withhold on matters requiring withholding such as collect this tax on transfer of real property ownership. Again, this is the exception to the
compensation or consultancy fees, not only is the accountant liable to the government but also general rule that the LGU cannot anymore collect estate or donor’s tax because this is
the head of the LGU (barangay chairman, mayor or the governor). This is following the principle allowed under the LGC.
of respondiat superior or taking of prior responsibility for your government’s failure to withhold. ▪ 50% of 1% - mao ni ang maximum amount. Pwede ba si province mu-lower than 50% of the
But how did the SC resolve that case? It said you cannot hold the mayor, governor and the 1%? Yes, but then again dili niya ma-maximize ang provision under the LGC. Pwede ba na i-
barangay chairman together with the accountant as primarily responsible in the withholding increase ni province later on? Yes, provided once every 5 years and not more than 10%.
because that is not provided in the law. However, what is provided under the NIRC is that the ▪ This is limited to real properties. Mao bitaw na na tax on the transfer of real property
primary responsibility to withhold belongs to the bookkeeper or accountant or somebody in ownership. This does not cover transfer of personal properties.
the accounting department of the LGU. So sila lang ang pwede ma-hold liable administratively. ▪ Other than personal properties, the other exceptions to this tax are sale or transfer of title
on socialized housing and any transfer or sale in the agrarian reform.
▪ Who is primarily responsible in the payment of this local tax? The seller, donor or transferor
LOCAL TAXES IMPOSED BY PROVINCES [LGC]
or the administrator of the property.
▪ When should this be remitted to the government? 60 days from the date of the execution
TN: The CITY can impose the taxes which the provincial government and municipality can impose.
of the deed. But if it is a public auction, the reckoning point shall be the date of execution,
1. Tax on transfer of real property NOT from the auction sale.
▪ This is NOT the same as real property tax because RPT is collected because of your ownership
SECTION 135. Tax on Transfer of Real Property Ownership. – (a) The province may impose a of a real property. This tax on the other hand is collected when you are going to transfer
tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real your ownership in a real property, regardless of the mode whether mortis causa, inter vivos,
property at the rate of not more than fifty percent (50%) of one percent (1%) of the total with or without consideration.
consideration involved in the acquisition of the property or of the fair market value in case the
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▪ The issue now is on the constitutional exemption of religious institution from RPT because ▪ Pila ang rate when it comes to this printer’s or publisher’s tax? It depends if new or existing
we said before that these institutions are exempted. Are they also exempted from transfer business. If new business, it should not exceed 1/20 of the 1% of the capital investment.
tax on real properties? No, because that exemption is applicable only to RPT. Walay labot si Meaning to say unsaon na pagcompute?
tax on transfer of real property. IOW, the religious institution, charitable etc. may be subject
to tax on transfer of real property. Example:
Your capital investment is P10M, you get 1% of that which is P100,000 and then divide that by
2. Tax on business of printing and publication (aka printer’s or publisher’s tax) 20. The answer would be P5,000, that would be your printer’s tax if you are a newly started
business.
SECTION 136. Tax on Business of Printing and Publication. – The Province may impose a tax on
the business of persons engaged in the printing and/or publication of books, cards, posters, What if second year na nimo? If existing business na, it should not be exceeding 50% of the 1%
leaflets, handbills, certificates, receipts, pamphlets, and other of similar nature, at a rate not of gross annual receipts for the preceding calendar year. Unsa may basehan ni LGU for your
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding gross receipt? Usually mangayo na silag tax or VAT returns na gifile nimo to the BIR and kung
calendar year. unsa ang gross receipts na naka-specify nganha, mao na ilang basis for getting the 1%. Some
LGUs will require you to present your audited financial statement. But that would not be very
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one sound because in the audited FS ang gross receipts ana is based on the accrual basis. So
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the tendency is mas dako kaysa sa actual receipts nimo nga gi-file sa BIR.
business started to operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein. For example, there is a printing company established in 2017. So, the moment magpa-register
siya or magkuha ug mayor’s permit, the basis will be the capital investment kay wala pa may
The receipts from the printing and/or publishing of books or other reading materials prescribed gross receipt (no operation last year). How will the local treasurer’s office check the capital
by the Department of Education, Culture and Sports as school texts or reference shall be investment? Adto ta sa articles of incorporation kung pila ang capital stock ngadto. Say for
exempt from the tax herein imposed. example the capital investment is P10M, so the printer’s tax there is P5,000. If nag-operate siya
for 2017, so for that year ang gross receipts niya is P1M. Why do we need to know the gross
TN: receipts for 2017? Because for the 2nd year, the rate applicable na is 50% of 1% of the gross
▪ This type of tax is imposed on business of persons engaged in the printing or the publication annual receipts in the preceding period. Meaning to say for 2018, nagkuha ka ug mayor’s permit
of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets and others of so the printer’s tax na bayaran nimo is 50% of 1% of the gross receipts in 2017. That would be
similiar in nature. So kana si Calimpon pwede ba nimo isubject to tax? Yes, supposedly, but P1M x 1% x 50%= P5,000 gihapon.
lahi na sad kung unsa ilang gi-declare sa registration. But like Rex Bookstore and Central
Bookstore pwede ba sila masubject to printer’s or publisher’s tax where their publication Let’s say for example in 2018, although you were able to get the mayor’s permit, you failed to
business is located? Of course. Their branches here in Cebu kay not on publication but more operate, so 0 gross receipts for 2018. For 2019, the question now is pila ang printer’s tax na
on retail and distribution na man lang. But will Rex and Central fall on the exception katong bayaran nimo? Will it be based on the capital investment which is P10M as if you are a newly
“The receipts from the printing and/or publishing of books or other reading materials registered or will it be 50% of 1% gihapon which is 0? We follow the latter because basically it’s
prescribed by the Department of Education, Culture and Sports as school texts or references not the start of business man. As a matter of fact, it is on your 3rd year. But the point is since 0
shall be exempt from the tax herein imposed”? Take note it only talks about DepEd and Ched gross receipts ka last year, pila ang 50% of 1% of 0? It will be zero. So magbayad kag 0 for
so probably, a portion of proceeds ma-exempt from taxes but say for example law books printer’s tax sa 2019 but you might have gross receipts for 2019, nag-operation ka so you were
that is under the supervision of the LEB, so walay labot. able to generate gross receipts example P1M so for the next year or 2020, you pay na sad
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printer’s tax which you pay every year. But the printer’s tax for 2020 would be 50% of the 1% 4. Tax on sand, gravel and other quarry resources
of P1M so you will have P5,000.
SECTION 138. Tax on Sand, Gravel and Other Quarry Resources – The province may levy and
Basta point lang is if in the previous year, you did not have any operations, you did not have collect not more than ten percent (10%) of fair market value in the locality per cubic meter of
any gross receipts, then it follows that the following year, walay tax base ang 50% of 1%. If the ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National
following year nagbayad ka, it does not mean to say na mu-bayad ka as a newly established Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes,
business. rivers, streams, creeks, and other public waters within its territorial jurisdiction.
3. Franchise tax The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the
provincial governor, pursuant to the ordinance of the Sangguniang Panlalawigan.
SECTION 137. Franchise Tax – Notwithstanding any exemption granted by any law or other
special laws, the province may impose a tax on business enjoying a franchise, at a rate The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding follows:
calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.
(a) Province - Thirty percent (30%);
In the case of a newly started business, the tax shall not exceed one- twentieth (1/20) of one (b) Component City or Municipality where the sand, gravel, and other quarry resources are
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the extracted - Thirty percent (30%); and
business started to operate, the tax shall be based on the gross receipts for the preceding (c) Barangay where the sand, gravel, and other quarry resources are extracted - Forty percent
calendar year, or any fraction thereof, as provided herein. (40%).
TN: TN:
▪ Although termed as a franchise, dili ni primary franchise tax (which are granted by Congress) ▪ So maka-collect ug tax of not more than 10% of the FMV in the locality per cubic meter. So
because it is the National Government who collects that. This one refers usually to secondary it will have to be determined by the municipality or the city where the quarry resources are
franchises which means franchise holder na ang entity but they need to get a franchise from extracted. Because if the quarry resources are extracted in the city, then si city ang mu-
the province in order for their business to exist in that province. collect sa tax. But if municipality, ang imposing authority ani is the province but magbahin si
▪ This is common in electric companies. Diba they get their franchise from the National province, municipality and barangay, all proceeds 30-30-40 siya. Of course, it is a different
Government but to operate in a province, they need secondary franchise for their story if city.
transmission lines, electric wires etc. So the province can collect a franchise tax then. ▪ Ang imposing authority is the Sangguniang Panlalawigan issuing an ordinance allowing the
▪ The rate is more or less the same as printer’s or publisher’s tax. For newly established quarrying of sand and gravel, etc. But the permit to extract the resources shall be issued
business = 1/20 of 1% of the capital investment; second year onwards = 50% of the 1% of exclusively by the provincial governor.
the gross annual receipts of the preceding calendar year based on the incoming receipts or
realized within the territorial jurisdiction of the province. So dapat naa juy declaration si 5. Professional tax
franchise holder kung pila ang proceeds na generated within the territorial jurisdiction.
SECTION 139. Professional Tax - (a) The province may levy an annual professional tax on each
person engaged in the exercise or practice of his profession requiring government examination
as such amount and reasonable classification as the Sangguniang Panlalawigan may determine
but shall in no case exceed Three hundred pesos (P300.00).
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(b) Every person legally authorized to practice his profession shall pay the professional tax to the municipality. Naay uban man sad na lawyers who are paying professional tax sa province of
the province where he practices his profession or where he maintains his principal office in case Cebu pwede ba na? In practice yes, but in Cebu City they can collect professional tax.
he practices his profession in several places: Provided, however, That such person who has paid
the corresponding professional tax shall be entitled to practice his profession in any part of the 6. Amusement tax
Philippines without being subjected to any other national or local tax, license, or free for the
practice of such profession. SECTION 140. Amusement Tax – (a) The province may levy an amusement tax to be collected
from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
(1) Any individual or corporation employing a person subject to professional tax shall require stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the
payment by that person of the tax on his profession before employment and annually gross receipts from admission fees.
thereafter.
(2) The professional tax shall be payable annually on or before the thirty first (31st) day of (b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by their
January must, however, pay the full tax before engaging therein. A line of profession does proprietors, lessees, or operators and paid to the provincial treasurer before the gross
not become exempt even if conducted with some other profession for which the tax has receipts are divided between said proprietors, lessees, or operators and the distributors of
been paid. Professionals exclusively employed in the government shall be exempt from the the cinematographic films.
payment of this tax.
(3) Any person subject to the professional tax shall write in deeds, receipts, prescriptions, (c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower
reports, books of account, plans and designs, surveys and maps, as the case may be, the shows, musical programs, literary and oratorical presentations, except pop, rock, or similar
number of the official receipt issued to him. concerts shall be exempt from the payment of the tax herein imposed.
TN: (d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for
▪ If you are a licensed holder of the PRC or the IBP, then you are required to get a professional the payment of tax. In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan
tax which is any reasonable amount as imposed by the Sangguniang Panlalawigan, provided, may impose such surcharges, interests and penalties.
in no case shall it exceed P300. Exception to this type of tax are those professionals
employed in the government. So they don’t have to pay this. (e) The proceeds from the amusement tax shall be shared equally by the province and the
▪ If you are a lawyer, are you required to get the professional tax? Yes, you are even required municipality where such amusement places are located.
to indicate your PTR number in any signatory portion in the pleadings.
▪ When should this be paid? On or before the 31st day of January in the province where he TN:
practices the profession or where he maintains principal office in case the practice is in ▪ What is common among these places of amusement is that the spectators usually come in,
several places. Ka-usa ra ka mupay sad sa tax. sit down and enjoy the show which is different from other types of amusement.
▪ Apil ba nganhi ang kanang mga theme parks, ocean parks? Yes, there is this provision kay
Example wala man na sila gi-subject to tax by the National Government. Diba naa may amusement
I am not just practicing law in the province of Cebu but also in Bohol, required ba ko mukuha tax nga gi-collect sad under OPT. But the amusement tax collected by the National
ug professional tax in Cebu and in Bohol? No, only one professional tax. I can get in Cebu Government naka-specify kung unsa na businesses like racetracks, jai alai, boxing. Meaning
because that is where I maintain my principal place of business. I cannot be obliged to get if wala ka nasulod ato subject to amusement tax by the National Government, pwede ka ma-
professional tax in Bohol. Si city of Cebu pwede ba siya maka-collect ug professional tax? Yes subject to amusement tax by the LGU.
because again, ang ma-exercise na taxing power ni city is the taxing power of the province and ▪ The amount of amusement tax should be not more than 30% of the gross receipts from the
admission fees.
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▪ If you go to Sec. 140, ang naka-butang nganha is amusement tax on concert halls, circuses, LOCAL TAXES COLLECTED BY MUNICIPALITIES [LGC]
boxing stadia and not necessarily the conduct of the amusement.
Usa ra jud ka-type of tax ang pwede ma-collect ni municipality – business tax. Pwede ba si
7. Annual fixed tax for every delivery truck or van of manufacturers or producers, municipality mu-impose ug OPT and VAT, which are forms of business taxes? No. Because of
wholesalers of, dealers, or retailers in, certain products. the exclusionary rule or right of pre-emption. VAT and OPT are already provided under the NIRC,
already collected by the national office. Pero ang wholesaler or distributor or dealer? That’s the
SECTION 141. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or big problem because under the LGC, it provides kung pila lang ang ma-collect nimo na business
Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. – (a) The province may tax, you cannot collect other than the rates prescribed in the LGC.
levy an annual fixed tax for every truck, van or any vehicle used by manufacturers, producers,
wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented 1. Tax on business (Sec. 143, LGC)
liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the
Sangguniang Panlalawigan, to sales outlets, consumers, whether directly or indirectly, within (a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
the province in an amount not exceeding Five hundred pesos (P500.00). compounders of liquors, distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind of nature, in accordance with the following schedule:
(b) The manufacturers, producers, wholesalers, dealers, and retailers referred to in the
immediately foregoing paragraph shall be exempt from the tax on peddlers prescribed
elsewhere in this Code.
TN:
▪ Why is the province given this power to collect these types of taxes? Because remember the
province is also in charge of the maintenance of roads and highways within its jurisdiction.
▪ When we say delivery trucks and vans, these are the usual costs of the wear and tear when
it comes to roads and bridges. So to share in that cost, the province or the city can collect
this annual fixed tax. Iapil na nah sa nature of business nimo kay ig-kuha nimos business
permit, mag-declare man ka there what kind of business you are in and then they have a
computation on how much additional tax to collect.
▪ Generally for provinces, you only have 7 types of taxes na pwede i-collect ni province
▪ Naa bay fallback provision? Wala.
▪ Pwede ba na kaning 7 macollect ni city? Yes.
▪ If you ask me, ang province of Cebu, unsa ang primary class nga kanang dako jud ug source
of revenue? It’s on mining and quarrying especially during the time na dili pa city ang Naga.
Because mining and quarrying pays 10% of FMV per cubic meter niya mu-matter unsa ang
gi-quarry nimo. ▪ The LGC already prescribes the rate. It is a graduated annual fixed tax. So naa nay range
given and the maximum is P6.5M and upon reaching that amount, it becomes na a fixed
percentage tax of 37.5% of 1%. So kung ako si LGC, pwede ba ko magbuot na if mu-exceed
ug P6.5M, I will impose OPT and VAT of 5% or 10%. No, because provided na sa law ang
maximum.
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▪ Maimpose ba ni ni city na tax? Yes, ang kanindot pa jud if si city ang mu-impose, instead of ▪ Pwede ba sad i-subject to tax ni LGU ang product or item? There are cases here where the
37.5% of 1%, pwede ang i-impose niya is higher than that basta dili mu-exceed ug 50%. SC said pwede so long as it does not violate the exclusionary rule or the rule on pre-emption;
▪ Pwede ba na i-adjust ni city ang rate katong not exceeding 10% once every 5 years? Yes. meaning, not subjected to excise tax or not subjected to sin tax by the national govt. Because
▪ Once you reach 2M or more, it becomes a fixed percentage tax of 50% of 1%; so meaning of course, if it is subjected, then in that case, violative na of that particular principle.
kung ang gross receipts or gross sales na nimo, you’re a wholesaler, gross receipts, is for ▪ In one case, ang gi-subject niya to tax is the bottle of the softdrinks. So ni-ingon si SC nga in
example 10M, you will be paying a fixed percentage of 50% of 1% kung municipality. Pero that case, there is double taxation but it is just indirect double taxation because ang gi-
kung city ang mu-impose ana, initial imposition could be higher but not more than 50% of subject niya is ang bottles. Pwede ba si LGU, subjectan niya ug tax ang plastic? Kung wala
the rate prescribed under the LGC. So si city, instead of 50%, can impose initially a maximum nah gi-subject to tax sa national, then why not for that particular nature.
of 75% of 1% because diba, 50% of 50% is 25% so 50+25 that is maximum of 75% of 1%, that ▪ Municipalities are limited lang gyud to local business tax while ang province kay limited lang
is sad to the 7 local taxes.
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or (c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors,
nature in accordance with the following schedule: dealers or retailers of essential commodities enumerated hereunder at a rate not
exceeding one- half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this
Section:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or
preserved food, sugar, salt and other agricultural, marine, and fresh water products,
whether in their original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements, equipment and post-harvest facilities, fertilizers,
pesticides, insecticides, herbicides and other farm inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement
▪ These are considered essential commodities. They enjoy preference – lower local business
tax rate not exceeding 1⁄2 of the rates or sales of articles mentioned.
▪ So ganina ang maximum is 37.5% of 1% and 50% of 1%. Kung essential commodity,
wholesaler ko, say for example, rice and corn, I will only be paying local business tax of at
most 25% of 1%, kay not exceeding 1⁄2 of the rates or sales of articles mentioned in (A).
▪ What is being subjected to tax here is the business, not the product not the item.
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(d) On retailers, ▪ The definition of gross receipt for a bank is different from the definition of gross receipts
applicable to wholesalers, manufacturers, and retailers. Why? Naka specify sa tax code unsa
dapat ang mu-form part sa gross receipts nga i-declare ni bank. So you have: interests,
commissions, and discounts from lending activities, … as mentioned above.
▪ Kanang mga insurance premium, mga dividends, diba usually in the normal definition of
gross receipts na bayaran nimo for VAT purposes for example, you do not include it; but
Provided, however, That Barangays shall have the exclusive power to levy taxes, as different for banking institution.
provided under Section 152 hereof, on gross sales or receipts of the preceding calendar
year of Fifty thousand pesos (P50,000.00) or less in the case of municipalities. (g) On peddlers engaged in the sale of any merchandise or article or commerce, at a rate not
exceeding Fifty pesos (P50.00) per peddler annually.
(e) On contractors and other independent contractors, in accordance with the following
schedule: ▪ Mao ni usually ang mamaligya dira ug taho or kanang fiesta, naa mga fiesta duol sa churches,
so pwede ba na sila ma collectahan ug local business tax? The answer is yes at a rate not
exceeding fifty (50) pesos per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the
Sanggunian concerned may deem proper to tax: Provided, That on any business subject
to the excise, value-added or percentage tax under the National Internal Revenue Code,
as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts
of the preceding calendar year.
The Sanggunian concerned may prescribe a schedule of graduated tax rates but in no
case to exceed the rates prescribed herein.
▪ This is the fallback provision.

▪ Kanang last provision nga dapat not exceeding 2% ang i-impose, kay diba ingon ko ganina
pwede ba ko mu-impose ug VAT or OPT to wholesaler higher than the rate prescribed under
the Code? The answer is dili, naa na may rate gi-prescribe sa LGC. But what if not among
those businesses enumerated above, let’s say for example, business services, mga service
enterprises or industries, pwede ba ko mag-subject to local business tax even if they are
already subjected to OPT and VAT? The answer is yes. But dapat dili mu exceed 2% of their
gross sales or receipts.
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50% of
one percent (1) on the gross receipts of the preceding calendar year derived from
interest, commissions and discounts from lending activities, income from financial
leasing, dividends, rentals on property and profit from ex change or sale of property,
insurance premium.
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2. Fees and Charges (Sec. 147, LGC) preferential right, other parties may participate in the public bidding in conformity with
the above cited procedure.
SECTION 147. Fees and Charges. - The municipality may impose and collect such reasonable (2) Grant the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry
fees and charges on business and occupation and, except as reserved to the province in Section of other species and fish from the municipal waters by nets, traps or other fishing gears
139 of this Code, on the practice of any profession or calling, commensurate with the cost of to marginal fishermen free of any rental, fee, charge or any other imposition
regulation, inspection and licensing before any person may engage in such business or whatsoever.
occupation, or practice such profession or calling. (3) Issue for the operation of fishing vessels of three (3) tons or less for which purpose the
Sangguniang bayan shall promulgate rules and regulations regarding the issuances of
3. Fees for Sealing and Licensing of Weights and Measures (Sec. 148, LGC) such licenses to qualified applicants under existing laws.
Provided, however, That the Sanggunian concerned shall, by appropriate ordinance,
SECTION 148. Fees for Sealing and Licensing of Weights and Measures. penalize the use of explosives, noxious or puissance substances, electricity, muro-ami,
(a) The municipality may levy fees for the sealing and licensing of weights and measures at and other deleterious methods of fishing and prescribe a criminal penalty therefore in
such reasonable rates as shall be prescribed by the Sangguniang Bayan. accordance with the provisions of this Code: Provided, finally, That the Sanggunian
(b) The Sangguniang bayan shall prescribe the necessary regulations for the use of such concerned shall have the authority to prosecute any violation of the provisions of
weights and measures, subject to such guidelines as shall be prescribed by the Department applicable fishery laws.
of Science and Technology. The Sanggunian concerned shall, by appropriate ordinance,
penalize fraudulent practices and unlawful possession or use of instruments of weights
and measures and prescribe the criminal penalty therefore in accordance with the
MUNICIPALITIES
provisions of this Code. Provided, however, That the Sanggunian concerned may authorize
the municipal treasurer to settle an offense not involving the commission of fraud before
As provided under Section 143, LGC, if a municipality is located within Metro Manila, pila ang i-
a case therefore is files in court, upon payment of a compromise penalty of not less than
impose? It can impose a higher rate not exceeding 50% of the maximum rate that we’ve
Two hundred pesos (P200.00).
discussed earlier, 37.5 of 1%, 50% of 1%. So, pwede higher not exceeding 50% to it.
4. Fishery Rentals, Fees and Charges (Sec. 149, LGC)
CITIES
SECTION 149. Fishery Rentals, Fees and Charges.
SECTION 151. Scope of Taxing Powers. – Except as otherwise provided in this Code, the city,
(a) Municipalities shall have the exclusive authority to grant fishery privileges in the municipal
may levy the taxes, fees, and charges which the province or municipality may impose: Provided,
waters and impose rentals, fees or charges therefore in accordance with the provisions of
however, That the taxes, fees and charges levied and collected by highly urbanized and
this Section.
independent component cities shall accrue to them and distributed in accordance with the
(b) The Sangguniang Bayan may:
provisions of this code.
(1) Grant fishery privileges to erect fish corrals, oyster, mussels or other aquatic beds or
bangus fry areas, within a definite zone of the municipal waters, as determined by it:
The rates of taxes that the city may levy may exceed the maximum rates allowed for the
Provided, however, That duly registered organizations and cooperatives of marginal
province or municipality by not more than fifty percent (50%) except the rates of professional
fishermen shall have the preferential right to such fishery privileges: Provided, further,
and amusement taxes.
That the Sangguniang bayan may require a public bidding in conformity with and
pursuant to an ordinance for the grant of such privileges: Provided, finally, That in the
▪ Na-discuss na nato ang maximum rates. Usually, mag-revolve lang anang 50% of 1%, 37.5%
absence of such organizations and cooperatives or their failure to exercise their
of 1% or 120th of 1% by capital investment, etc. but not more than 50%. So maximum: 50%.
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▪ But take note, initial imposition nah. Imagine from 1991 up to now, pila na na ka 5 yrs ang COMMUNITY TAX
nilabay, so dako na kaayu as of the moment. But then, as what I have told you, there are
many cities and municipalities that failed to adjust their local taxes due to changes in Who usually levies or impose this so-called community taxes?
administration. - Cities or municipalities
▪ Although si cities maka levy ug higher tax rates not exceeding 50%, it does not apply to
professional and amusement taxes. Meaning to say, for professional tax, maximum of 300 COMMUNITY TAX CERTIFICATE (Sec. 162, LGC)
and for amusement tax that is maximum of 10% of the entrance fees. A CTC shall be issued to every person or corporation upon payment of the community tax. It
may also be issued to any person or corporation not subject to the community tax upon
BARANGAYS payment of P1.00.
SECTION 152. Scope of Taxing Powers. – The Barangays may levy taxes, fees, and charges, as PRESENTATION OF CTC (Sec. 163, LGC)
provided in this Article, which shall exclusively accrue to them: A. For Individuals
(a) Taxes – On stores or retailers with fixed business establishments with gross sales or 1. Acknowledges any document before a notary public;
receipts of the preceding calendar year of Fifty Thousand pesos (P50,000.00) or less, in 2. Takes the oath of office upon election or appointment to any position in the
the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of government service;
municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts. 3. Receives any license, certificate, or permit from any public authority;
4. Pays any tax or fee;
▪ So basically, mao ni ang mga sari sari store. Ang authorized nga mu collect ug tax on that is the brgy. Is
there such power? The answer is yes, pwedi ni ma source of revenue. Pero usually man gud mostly brgys 5. Receives any money from any public fund;
it is either wala kabalo sa officials and dependent sila sa share from the national govt. 6. Transacts other official business; or
▪ The service fees, surcharges, and the brgy clearance, di naman nah tax; other forms of revenue naman na. 7. Receives any salary or wage from any person or corporation
(b) Service Fees or Charges – Barangays may collect reasonable fees or charges for services Duty to require such individual to exhibit the CTC
rendered in connectioin with the regulation or the use of Barangay-owned properties or - any person, officer, or corporation with whom such transaction is made or business
service facilities such as palay, copra, or tobacco dryers. done or from whom any salary or wage is received.
(c) Barangay Clearance – No city or municipality may issue any license or permit for any
business or activity unless a clearance is first obtained from the Barangay where such B. For Corporations
business or activity is located or conducted. For such clearance, the Sangguniang Barangay 1. Receives any license, certificate, or permit from any public authority
may impose a reasonable fee. The application for clearance shall be acted upon within 2. Pays any tax or fee;
seven (7) working days from the filing thereof. In the event that the clearance is not issued 3. Receives money from public funds; or
within the said period, the city or municipality may issue the said license or permit. 4. Transacts other official business
(d) Other Fees and Charges – The Barangay may levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks, cockfighting and cockpits; Duty to require such corporation to exhibit the CTC
(2) On places of recreation which charge admission fees; and - public official with whom such transaction is made or business done
(3) On billboards, signboards, neon signs, and outdoor advertisements.
Precisely because of those instances, mao kelangan ka mubayad ug CTC. Let’s say for example, you have a business,
before you can register your business and transact official transactions, there is a need to get CTC whether individual
or corporation. Before you can take licensure examination, you have to get CTC. When you become lawyers, later
on, before your notarization or notary commission will be renewed, you have to get CTC.
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INDIVIDUALS LIABLE TO PAY COMMUNITY TAX o Dividends received by a corporation from another corporation shall be deemed part of
✓ Inhabitants of the Phils, whether citizen or not the gross receipts or earnings for purposes of computing additional tax
✓ 18 years old or over
✓ Either: [ERR ITR] EXEMPTED TO PAY CTC [Sec. 159, LGC]
o Engaged in business or occupation; or 1. Diplomatic and consular representatives; and
o Regularly employed on a wage or salary basis for at least 3 consecutive working days 2. Transient visitors who stay in the Phils for not more than 3 years
during any calendar year; or - Holders of tourist VISAs not exceeding 3yrs.
o Owns real property with an aggregate assessed value of P1k or more; or
o Is required by law to file an income tax return (ITR) PLACE OF PAYMENT [Sec. 160, LGC]
- Where individual resides, or
JURIDICAL PERSONS LIABLE TO PAY COMMUNITY TAX - Where the principal office of the juridical entity is located.
▪ Every corporation NO MATTER how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines TIME FOR PAYMENT [Sec. 161, LGC]
▪ IOW, if you’re aN NRFC, you’re not necessarily mandated to get the CTC. Because of course, ▪ The community tax shall accrue on the 1st day of January of each year which shall be paid
if NRFC ka, it means you’re not doing business in the country, you don’t have official dealings not later than the last day of February of each year.
or transactions here. So no apparent need to pay community tax. But the moment you ▪ If a person reaches the age of 18 years or otherwise loses the benefit of exemption on or
establish a branch or you do business in the country, then that is the time, as a corporate before the last day of June:
entity, you may be required to get the CTC. o liable for CT on the day he reaches such age or upon the day the exemption ends
▪ If a person reaches the age of 18 years or loses the benefit of exemption on or before the
AMOUNT of the Community Tax which can be collected by the city/municipality last day of March:
▪ For individuals: Annual community tax of P5.00 + annual additional tax of P1.00 per o has 20 days to pay CT without becoming delinquent
P1,000.00 of income regardless of whether from business, exercise of profession or property ▪ Persons who come to reside in the Philippines or reach the age of eighteen 18 years on or
in which no case it shall exceed P5,000. [Sec. 157, LGC] after the 1st day of July of any year, or who cease to belong to an exempt class on or after
▪ Usually diba kung EE ka, magwithhold man imu ER, and unsa ang evidence of withholding ni the same date
employer? The presentation of the BIR Form 2316. Sa bottom ana, naay requirement for you o NOT subject to CT for that year
to get a CTC based on your annual gross receipt as an EE. So mao to ang basehan. If your ▪ Corporations established and organized on or before the last day of June
annual gross receipt is for example 1M, you divide that by 1,000 plus 5 so you will be paying o liable for CT for that year
P1,005.00. Basta minimum is P5.00. ▪ Corporations established and organized on or before the last day of March
▪ For juridical persons: o have 20 days within which to pay CT without becoming delinquent.
o Annual community tax of P500.00 + annual additional tax of not more than P10,000.00 ▪ Corporations established and organized on or after the first day of July
in accordance with the following schedule: o NOT subject to CT for that year
(1) P2.00 for every P5,000.00 worth of real property in the Philippines owned during
the preceding year based on the valuation used for the payment of the RPT found in PENALTY FOR DELINQUENCY [Sec. 161, LGC]
the assessment rolls of the city or municipality where the real property is situated; ▪ If the tax is not paid within the time prescribed, there shall be added to the unpaid amount
and an interest of 24% per annum from the due date until it is paid.
(2) P2.00 for every P5,000.00 of gross receipts or earnings derived from its business in
the Philippines during the preceding year.
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COLLECTION OF COMMUNITY TAX SALES ALLOCATION:
▪ The city or municipal treasurer shall deputize the Barangay treasurer to collect the ▪ Walay problema kung ang branch sales office ug ang principal office are all generating the
community tax in their respective jurisdictions: Provided, however, That said Barangay sales. But the problem there is what if kani akong business, my principal office is here in
treasurer shall be bonded in accordance with existing laws. [Sec. 164, LGC] Cebu City, diri ang baligya mahitabu but my warehouse is located in Consolacion, and I have
▪ IOW, CT may be imposed by a city or municipality, pero pwede ang collection is delegated a plantation in Danao which does not at all generate any sales. But all the wastes in my
to a brgy. production, gi-deal ni Consolacion. So medjo unfair. So, the LGC provides a rule on allocation
▪ If a treasurer is deputized to collect the CT, what are the requirements before the treasurer if there is a non-revenue generating factory or warehouse, or plantation located in another
will be deputized? It must be bonded. There must be a bond because ang usual situation locality.
saona, i-deputize si Brgy Treasurer pero i-dagan. So, there must be a bond before the ▪ If there is a branch, sales office or warehouse which generates a sale – the sale is recorded
treasurer may be deputized. in the location of the branch, sales, office or warehouse based on the amount of the gross
▪ If the brgy treasurer is deputized, how will the proceeds in the collection of the CT be sales generated by the office or warehouse separate from the sales generated by the
apportioned? It must be shared equally by the brgy and municipality/city. So 50-50. principal office.
▪ If there is NO branch, sales office or warehouse – the sale is recorded in the principal place
of business. Pasabot ddto ka nag negosyo kay wala man kay lain branch.
SITUS OF LOCAL TAX [Sec. 150, LGC] ▪ Now the problem comes in if you have a principal place, but you also have a factory, project
office, a plantation located in another locality. Remember, kung muingon ka factory, project
Why do we need to know the situs of local tax? – For purposes of collection para makabalo ta office, a plantation, these are non-revenue generating activities, so what is the allocation
kinsa ang naay right na mu-collect, is it the province, city or municipality? And the thing that rule? 70-30; Base: All sales (recorded in the principal office)
you need to remember here or ascertain here is if the business or the entity has branch or sales o 30% – taxable by the city/municipality where the principal office is located; and
office which is considered as an extension of the principal office of the main or head office of o 70% – taxable by the city/municipality where the factory, project office, plant, or
the business. How do we know asa ang principal office or main office? All we need to do is check plantation is located.
the Articles of Incorporation or the GIS of the company. The city or municipality specifically ➢ In case of a plantation located at a place other than the place where the factory is
provided there is considered the principal office of business. located, said 70% shall be divided as follows:
✓ 60% - city/municipality where the factory is located; and
WHERE TO RECORD THE SALES AND PAY THE TAXES ✓ 40% - city/municipality where the plantation is located.
▪ If there is a branch or sales office or warehouse – record in the branch or sales outlet making Nganong mas dako ang where the factory is located? Mas mu-deal man si local govt
the sale or transaction; pay the taxes due to the city/municipality where such branch or sales with garbage and possible pollutants coming from factory as compared to plantation.
outlet is located. ➢ In case where a manufacturer, assembler, producer, exporter or contractor has 2 or
▪ If there is no such branch or sales outlet in the city or municipality where the sale or more factories, project offices, plants, or plantations located in different localities,
transaction is made – record in the principal office; pay the taxes due to the city/municipality said, 70% shall be:
where the principal office is located. ✓ prorated among the localities where the factories, project offices, plants, and
▪ Sale by routes, trucks, vans or vehicles plantations are located in proportion to their respective volume or production
o We have to ascertain gihapon if naa bay branch or sales office or warehouse. during the period for which the tax is due.
o Sales will be reported in the place where the source branch / sales office / warehouse is TN:
We still follow the 60-40 allocation but we will have to prorate the 70% on some basis. And the
located and the local business tax will be paid therein.
usual basis is the volume of production. So kung duha ka factory, prorate the 60% based on the
o If there is no branch or sales office, then the local tax will be imposed in the place where volume of production of those two factories located in different localities. Again, walay problema
you withdraw the items sold by route, van truck or by the vehicle kung located in the same locality. Then if duha ka-plantation located in different localities, the 40%
SY 2018-2019 404_Taxation 2 - KMA
will be prorated based on the volume of production/harvest in the 2 plantations in different Expiration of the time for payment of local taxes
localities. ▪ If the time for payment of local tax expires, the LGU may either (1) distrain your personal
▪ TN: Such sales allocation discussed above shall be applied irrespective of WON sales are property or (2) levy your real property.
made in the locality where the factory, project office, plant or plan is located.
Procedure for Local Distraint or Levy
▪ Tax constitutes a lien superior to all liens and may only be extinguished upon payment of
REMEDIES the tax and charges (Sec. 173, LGC)
▪ If you recall, kadto bitaw concurrence and preference of credit, diba isa ni sa mga superior
For the LGU
liens insofar as government is concerned. Tax ni nga utang ni taxpayer na preferred si
government before payment or distribution to private entities.
1. Extra-Judicial Remedies
a. Local Government’s Lien Distraint
▪ same under the NIRC
▪ The local government holds a superior lien over the property of a taxpayer who fails to pay the tax. ▪ Local treasurer shall, upon written notice, seize sufficient personal property to satisfy the
b. Distraint tax and charges.
▪ pertains to personal property ▪ Officer posts notice in office of LGU Chief Executive where the property is distrained and in
c. Levy at least 2 public places specifying the time which is not be less than 20 days after the notice
▪ pertains to real property and place of sale, and distrained goods.
d. Compromise ▪ When it comes to distraint of personal property, written notice will be sent by the LT to the
taxpayer for the seizure of the personal property.
2. Judicial remedies ▪ At the time and place for distraint, the officer conducting the sale shall sell the distrained
a. Court Action goods or effects at public auction to the highest bidder for cash.
▪ Basta local tax, it is commenced or filed before regular courts; so it’s either MTC or RTC, depending kung ▪ Within 5 days, the LT shall report such sale to the local chief executive.
pila ang amount na gi-claim ni LGU.
▪ Sa national tax, if the amount is 1M or more, automatic the tax collection case or criminal violation case
▪ Excess of proceeds shall be returned to the owner of the property sold.
will be commenced before the CTA. ▪ If property distrained is not disposed within 120 days, it shall be considered sold to the LGU
▪ But for local taxes, even if it exceeds 1M, you do not go to the CTA, you go to the RTC in its original for the amount of the assessment made by the Committee on Appraisal; the tax
jurisdiction. If pildi sa RTC, si CTA in division ang naay exclusive appellate jurisdiction. If the action delinquencies shall be cancelled.
commenced by the LGU was originally filed before the MTC, the appellate there will be RTC. And if pildi
▪ If proceeds of the sale are insufficient, other properties may be distrained until full amount
kas RTC, si CTA en banc na ang naay exclusive appellate jurisdiction because that is a decision by the RTC
in its appellate jurisdiction. due, including all expenses, is collected.
b. Declaratory Relief ▪ If you notice, kani na distraint, unsa ni? Actual distraint or constructive? Kay diba sa NIRC
▪ These are usually directed by the LGU against a higher division or department of the government. For diba duha to ato gi-discuss, actual if delinquent; then constructive whether delinquent or
example, declaratory relief against the Department of Finance or the BIR. I-file ni nimu if di ka sure kung not. But under the LGC, naa bay provision for constructive distraint? Wala, ang gi-discuss ra
you have the right or you have the obligation or you are covered in this particular law. To make it sure if basically sa codal provision kay actual distraint. Ang difference lang sad under the NIRC is
covered ba ka or if maka-avail ba kas benefit from that law, then you ask the court to interpret the
applicability of that particular statute.
that of course, given naman ni, sale then the property will be given to the highest bidder,
c. Injunction within 5 days lang, the LT shall report the sale to the local executive in the case of distraint.
▪ This pertains to a particular national office in the government; stoppage; restraining a particular party But unlike NIRC, naay provision under the LGC na if the personal property is not sold via
from pursuing an action distraint within 120 days, it shall be considered sold to the LGU for the amount of the
assessment made by the Committee on Appraisal and the tax delinquency shall be cancelled.
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This presupposes a situation diba na kung di nah mahalin ang ref nimu, ang TV nimu or ang ▪ TN: From the SOJ, you do NOT go to the Office of the Pres. You might read in some cases na niagi pa sa
aircon nimu, considered gipalit ni LGU. And of course, if the proceeds of the sale are Office of the Pres, pero usually, as provided under the LGC, diretso ka before the competent court.
Then follow na the usual process if ever adverse ang decision ni RTC.
insufficient, other properties may be distrained until full amount due including all expenses ▪ If after assessment, you failed to question it within 30 days after the effectivity of the ordinance, wala
is covered. na ba kay remedy? Naa pa. After assessment, you can file a protest.
b. Declaratory Relief
Levy ▪ di sya sure if covered ba sya or di
▪ Real property may be levied on, before, simultaneously, or after distraint of personal ▪ Follow ROC
property.
▪ Same procedure for levy under RPT except that publication 1:3 for local taxes and 1:2 for After Assessment
real property taxes. a. Protest
▪ When it comes to filing of the protest on local tax assessment, payment is not necessary. Pwede protest
▪ Sa levy, again, there is a warrant issued; i-notify si Registrar of Deeds and then it can be done lang before you pay. But then again, unsa ang consequence ana in reality? Theoretically, pwede walay
simultaneously prior to a distraint. Di kelangan na mag-una ang distraint or levy basta the payment but in reality man gud, ang consequence is pwede di ma-release ang business permit nimu.
purpose is ma-seize nah ni government, ibaligya, then the proceeds will be used to settle For example, if you’re questioning the validity of the assessment of your local business tax, so di ka ma-
the tax liability. releasean ug business permit. And that is good for a year. So, it could be disadvantageous on the part
▪ What if the proceeds exceed the tax liability? The balance will be returned to the owner. of the taxpayer. Mao nah ang uban, it’s either they pay with protest or they pay without protest.
▪ What’s the procedure for levy? This will be discussed in detail under real property taxation. b. Claim for refund or credit
▪ If you pay without protest but you realized that it’s erroneous, then you can claim for refund or credit
The difference lang is that there is a requirement for publication: 1:3 for local tax and 1:2 for within 2 years from the date of payment. Gi-copy ra gihapon sa NIRC.
RPT. What do we mean by this? Kung ang rason sa levy is wala nakabayad sa local tax, c. Redemption
publication once a week for 3 consecutive weeks. If ang rason sa levy is wala nakabayad sa ▪ What if wa ka nibayad, wa sad ka niprotest, so ang nahitabu, the local government levied your real
RPT, take note RPT is a tax on the property mao mas dali, 1:2 – once a week publication for property. Remember, that’s one of the extra-judicial remedies sa government. After levy or distraint,
2 consecutive weeks lang. Then after that, sale na dayun or sending na dayun of notice of the next course of action is sale (public auction) so gibaligya. Naa ba kay gitawag na right of redemption
under the LGC? The answer is yes. And the right of redemption is within a period of 1 yr gihapon, same
auction or sale. under the NIRC but different ang start sa counting of the 1-yr period. Ang LGC gi-copy sa NIRC prior to
its amendment in 1997. So, pagka-amend sa 1997, there are some provisions na na-change na wa na-
change sa LGC. So, when do we start counting the 1-yr period to redeem under the LGC? From the date
For the Taxpayer of sale or forfeiture. If you recall sa NIRC, that is 1 yr from the registration of the certificate of sale
before the Register of Deeds. So, it’s different here under the LGC
1. Administrative Remedies
2. Judicial Remedies
Before Assessment – before you receive an assessment from the treasurer’s office but there is a. Court Action
already an ordinance levying or imposing the tax. b. Declaratory Relief
a. Question the Constitutionality c. Injunction
▪ Within 30 days after the effectivity of the ordinance, a taxpayer may question the constitutionality ▪ This is different also as compared to the NIRC because sa NIRC, when it comes to national taxes, we
thereof before the Secretary of Justice, not the Secretary of Finance because this has nothing to do said na as a rule, it cannot be enjoined or it cannot be stopped following the lifeblood doctrine except
with the CMTA or NIRC. if an injunction is issued as an ancillary action by the CTA. But in this case, pwede ba nimu i-enjoin si
▪ The SOJ is given 60 days to decide on that question. LGU in the collection by filing kadto bitaw preliminary injunction or TRO, kadtong mga special civil
▪ Upon the lapse of the 60-day period or upon the receipt of the adverse decision or interpretation of actions before the regular courts? The answer is yes. And if you recall, mao nang gibuhat ni BDO before
the SOJ, unsa ang recourse ni taxpayer? File an appeal to the competent court (RTC) within 30 days against the city government of Cebu.
from the receipt of the adverse decision or after the lapse of the 60-day period.
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PROTEST COLLECTION OF TAXES
▪ Procedure:
1. Protest (within 60 days from receipt of notice of assessment) ACRUAL OF TAX (Sec. 166, LGC)
2. LT decides within 60 days from filing of the protest ▪ It shall accrue on the 1st day of January of each year.
3. Appeal to the court of competent jurisdiction within 30 days from: (1) receipt of the ▪ New taxes, fees or charges, or changes in the rates thereof, shall accrue on the 1st day of
denial of the protest; or (2) from the lapse of the 60-day period the quarter next following the effectivity of the ordinance imposing such new levies or rates.
▪ Where to file? Before the office of the LT. So pildi ka, appeal to the court of competent ▪ Mao nah nga ang time of payment under Sec 167 is within first 20 days of January because
jurisdiction. But strictly, it is not really an appeal but it is more of you have to commence an considered ni-accrue na nah siya by Jan 1. Pero don’t get confused, muingon mu na sir that’s
action before either RTC or MTC, depending on the amount involved. for this year pero nganu ang basehan namu kay ang gross sales/receipts the previous yr?
▪ Same as in NIRC, the protest must be in writing but the difference is that sa NIRC, you have Because again, advance. Mao nah ang point is ni-accrue, dili based on your actual gross
to specify if it is request for reconsideration or request for reinvestigation. But in the LGC, sales/receipts during the year, kumbaga dili cash basis, accrual basis.
there is no such requirement. You just file a protest. But then again, dapat ang protest nimu,
you cite gihapon the legal as well as the factual basis. Pero pwede ba ka mu-ingon na the TIME OF PAYMENT (Sec. 167, LGC)
assessment is void because it has no legal or factual basis? The answer is no because walay ▪ It shall be paid within the first 20 days of January or of each subsequent quarter, as the
Sec. 228 requirement under the LGC. As a matter of fact, when we say assessment by the case may be.
LT, it is just a piece of paper na naka-specify ang year then pila ang bayranan nimu and pila ▪ The Sanggunian concerned may, for a justifiable reason or cause, extend the time of
ang surcharge, pila ang tax then total at the bottom. Di pareha sa BIR na medyo strict. And payment of such taxes, fees, or charges without surcharges or penalties, but only for a period
if you ask me nganu wa kaayoy jurisprudence di pareha sa BIR na halos every quarter naa not exceeding 6 months.
pertaining to assessment, sa LGU man gud, it can enter into compromise and besides, kung
ikaw negosyante ka, asa man ka mu-compromise ka or ma-release ang business permit SIRCHARGES, PENALTIES, UNPAID TAXES, FEES OR CHARGES (Sec. 168)
nimu? Will you fight until you reach the SC? Mao nang at the lower level pa lang, nahuman ▪ Surcharge: not exceeding 25% of the amount of taxes, fees or charges not paid on time
na. And besides, ang tagal ni LT usually is only 3 yrs. Ok kung nagdugay ang Mayor or ang ▪ Interest: not exceeding 2% per month of the unpaid taxes, fees or charges including
Gov diha, pero it changes baya every 3 yrs. So unlike sa BIR na 6 yrs or beyond 6 yrs pa jud surcharges, until such amount is fully paid
kung maayo si Commissioner. ▪ In no case shall the total interest on the unpaid amount or portion thereof exceed 36
▪ For the local tax period and the manner of payment of the local tax, that’s provided under months.
Sec. 165. So the tax period, as always, is calendar year, Jan-Dec. Such taxes, fees and charges ▪ TN: wala tong 50% on findings of fraud.
may be paid in quarterly basis. Take note na ‘may’ so meaning directory lang. At the end of ▪ Surcharge is mu-compound because the surcharge is multiplied to the amount of tax, fees
the day, tan-awn nimu sa ordinance or sa revenue code ni province or city if they allow or charges, including the surcharge. So IOW, kung wa ka nibayad this year, gi-imposean kag
quarterly basis because based on my dealings (limited lang sad), walay gibutang nila na 25%, the following yr, kanang 25% mutubo nasad nah ug another 25%, so there is cascading
quarterly installment basis. But there is that provision under the LGC. or accumulation of the tax. But the good thing is under the LGC, limited lang nah na scenario
for a period of 36 months or 3 yrs. So good for 3 yrs lang. Pero if you’d ask me if na-
implement ba jud sya, it is difficult really to check because system-generated ang
computation so kelangan pa jud nimu tagsa2xon and tan-awn nimu ug nafollow ba ang 36-
month limit on the imposition of surcharges. Usually baya ang maglihok lang natu inig-adto
sa City Hall kay kani rang mga messenger ug paralegal who are not really conscious on that.
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INTEREST REAL PROPERTY TAXATION
▪ Ang interest sa NIRC 12% diba pero duha ka-kind of interest, deficiency and delinquency. For
local taxation, wala nay delinquency ug deficiency; different na sad ang rate. Unfortunately, DEFINITIONS
gi-copy sad ang rate sa NIRC before 1997 amendment. It’s 2% per month from the date it is
due until it is paid but in no case shall the total interest exceed 36 months (so 24% in a year). ▪ Real Property Taxation – a direct tax on ownership of lands and buildings or other
▪ So calendar year; accrues first day of the year; must be paid on or before Jan 20; may be improvements thereon payable regardless of whether the property is used or not, although
extended not exceeding 6 months; surcharge 25%; interest 2%; both surcharge and interest the value may vary in accordance with such factor.
must not exceed 36 months. ▪ Real Property – subject to the definition given by Art 415 of the Civil Code.
▪ Ang rule is on or before Jan 20, pero if dili business day ang Jan 20, mag-declare nah si LGU ▪ Improvement – valuable addition made to a property or an amelioration in its condition
na imove niya for example to Jan 21 via ordinance. amounting to a more than a mere replacement of parts.
▪ Machinery – embraces machines, equipment, mechanical contrivances, instruments,
WHO COLLECTS LOCAL TAXES (Sec. 170, LGC) appliances or apparatus which may or may not be attached permanently or temporarily to
▪ Provincial, city, municipal, or Barangay treasurer, or their duly authorized deputies the real property including. Physical facilities for production, installations and appurtenant
▪ The provincial, city or municipal treasurer may designate the Barangay treasurer as his service facilities, those which are mobile, self-powered or self-propelled, and those not
deputy to collect local taxes, fees, or charges. permanently attached to the real property which are actually directly and exclusively used
▪ Ang kaning local business tax na pwede i-collect ni munisipyo or ni city, pwede ba ni i- to meet thee needs of a particular industry or service activity.
delegate ang collection to the barangay treasurer? The answer is yes to collect tax, fees or
charges but in such case, a bond must be posted and there must be premiums paid by the TN:
LT. ▪ RPT is a type of local tax. The difference lang is kadtong mga local taxes na already discussed
▪ For the remedy of the taxpayer, naa pay isa na wa natu na mention na important remedy, pertain more on the tax on the conduct of the business. RPT, on the other hand, is a tax on
which pwede nimu i-raise in your protest – to raise or allege prescription of the period to your ownership of your real property.
assess or to collect. ▪ What’s the composition of real property? Under the LGC, it covers the real property based
▪ For the prescriptive period of assessment of the local taxes, fees or charges – 5 years from on the definition under the NCC, improvements as well as machineries. Keyword here is
the date they became due. Kung muingon ta from the date they became due, generally ownership. So if you do not own the land, building or other improvement, you should not
kanus-a ni? Jan 20. So just add 5 years except if installment ang gina-allow ni LGU. If there is be paying the RPT. Pero you might ask na if lessee, di ba sya liable to pay RPT? The answer
fraud or intent to evade payment of taxes, fees or charges, that 5-yr period to assess is is yes because that is the responsibility of the lessor-owner. Pero pwede ba nah i-pass on ni
extended to 10 years from the date of the discovery of the falsity or fraud. lessor sa imuha by virtue of a lease contract? The answer is yes, kung mu-agree ka. But the
▪ Prescriptive period to collect – within 5 years from the date of assessment by admin or point is si lessor-owner ang statutory taxpayer.
judicial action and no such action shall be instituted after the expiration of the period. ▪ Now, coverage of this RPT is the real property as defined under Art. 415, NCC. Diba 415 is
▪ So dali ra hinumduman basically, 5:5 ang assessment ug collection. Mao sad nah ang not really a definition but more like an enumeration as to what are considered real
prescriptive period before sa NIRC. But when the NIRC was amended in 1997, ang properties in its strict sense. And in this article, we’ve learned diba na if a machinery is
prescriptive period to assess, gi-lower down to 3 yrs nya under Sec. 203, wa na gi-specify permanently attached to the land or to a building or if something is attached to it and if you
kung pila ka yrs ang prescriptive period to collect. Mao to gidiscuss natu diba na by inference, remove it, it will damage that real property, then it is considered also as real property. Kana,
under Sec 222, and because 5 yrs ang local tax, so we use prescriptive period to collect which subject ba sad nah to RPT? The answer is yes. But is it limited to that definition? The answer
is 5 yrs. is no because in the LGC, RPT covers both the improvement as well as machineries, WON
permanently attached to the real property, as long as it is actually directly and exclusively
used to meet the needs of a particular industry.
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▪ When we say improvements, these are valuable additions. Duha ka-possible situations para the FMV which is worth P10M. 60% of that P10M would be the assessed value, and once you get the assessed
ma-consider nah as improvement subject to RPT. (1) It must increase the value of the RPT value, i-multiply na with the RPT rate.
or (2) it prolongs the useful life of the real property to more than 1 yr.
5. Direct tax on the ownership of real property.
▪ If nagtukod ka diha sa land nimu ug building, automatic apil na ang building as part of real ▪ TN: ownership; so RPT is different from tax on transfer of real property. Kinsa gale to ang maka-collect sa tax
property. If inside the warehouse or factory, there are machineries, even if they are not on transfer of real property, whether gratuitous or onerous? Si province. Different sila kay ang isa sa
attached but actually directly and exclusively used to meet the needs of particular industry, ownership, WON you transfer it. Ang isa, bayaran lang nimu if you transfer ownership (gratuitous, onerous,
those machineries can also be subject to RPT. So, in short, kung muingon ta machinery, WON inter vivos, mortis causa).
▪ Lahi sad ni syas CGT. The rate is 6% but kato na tax is not on your ownership, nor is it about your transfer.
permanently attached.
CGT is based on the gain mao bitaw na nga income tax si CGT.
▪ Be careful on CGT. Kato bitaw sale of shares of stocks, diba 15% naman to if listed and not traded or not
listed and not traded. However, that presupposes that the corporation is a DC. OW, if the corporation is an
CHARACTERISTICS OF RPT [LIPAD] FC, for example I am a Filipino and I have shares in the corporation based in the US, I transfer those shares,
of course I don’t pay 15%. I follow whatever is the rule in US. However, since I am an RC, whatever income I
1. Local tax gain from that transaction, I will report it subject to ordinary income tax which is 0-35%.
▪ It may be collected by the province, cities and municipalities within Metro Manila ▪ Ang CGT muapply jud na when the property sold is within the Philippines. If it is outside the Philippines, then
▪ Sa local tax that we discussed, diba lahi-lahi ang power ni province, barangay, municipality and city. And we you don’t subject it to CGT but instead to ordinary income tax. Ang nigawas sa bar kay sale of shares of stocks
said that powerful si city because maka-collect siya ug local taxes collectible by the province and the outside the Philippines and the question was subject ba to CGT. Of course, in that case, dili kay dili man nah
municipality. But for RPT kay uniform, ang maka-impose lang (walay labot ang municipalities outside Manila) DC.
are provinces and cities ▪ Kani diba this covers machinery? So ang issue karon is what if I sell machinery, and I sold land, building and
machinery. If we are talking of RPT, the land, building and machinery could be subject to such. But it is
different for CGT because the CGT covers only land and building but does not cover machinery. So even if
2. Indivisible single obligation
the machinery you sold is a capital asset, it will be subject to ordinary income tax.
▪ This tax attaches to the property itself. We don’t care who is actually in possession of the property basta
▪ IOW, RPT covers land, building and machinery but CGT covers only land and building.
kung naay unpaid RPT, the LGU can go after the property itself.
3. Proportionate – the tax is calculated on the basis of a certain percentage of the value
EXTENT OF THE POWER TO LEVY [BE-IS]
assessed.
▪ If you recall, local business taxes for wholesaler, manufacturer – those types of taxes are progressive and
then eventually, becomes degressive when it reaches the maximum. Such is not the case for RPT which rate A. Basic Real Property Tax
is fixed. There is a fixed rate pero proportionate siya because it would depend upon the FMV and sa ▪ How much is the basic RPT? It is either 2% or 1%.
assessment level/classification of your property. ▪ If province, such must not exceed 1% of the assessed value of the real property (FMV *
▪ So, if your property is commercial, then that means mas mahal ang bayaran na RPT as compared to an assessment level depending on classification of property)
agricultural or residential property. So that would still be based on your ability to pay.
▪ If city or municipality within Metro Manila, such must not exceed 2% of the assessed
4. Ad valorem tax value of real property.
▪ The value is based on the tax base.
▪ Basically, ang tan-awn nimo diri class is the FMV of the real property and multiply it with the RPT rate. B. 1% additional real estate tax to finance the Special Education Fund
▪ FMV is determined by the assessor. 2 offices are involved here: Office of the City/Provincial/Municipality ▪ The tax will be for the Local Education Board
Assessor and The Office of the Treasurer. Unlike sa katong local business tax, nga si treasurer ang primarily
involved. Unsay gamit ni assessor? Basically to ascertain the FMV of properties within the jurisdiction of the
LGU. Now, once the FMV is determined, it will be multiplied with the so-called assessment level. Ang kaning
assessment level, expressly provided under the LGC. It would depend on the classification of the property if
residential, agricultural, commercial, timberland, etc. So naay assessment level let’s say for example 60% of
SY 2018-2019 404_Taxation 2 - KMA
C. 5% additional ad valorem tax on idle lands public hearing? Public hearing is required in the passage of local business taxes since
▪ Lands covered [Sec. 237, LGC] without it, it is a violation of due process. But if it is RPT ordinance, public hearing is not
✓ Agricultural lands mandatory because unsa pa may i-hearing nimo na (1) provided na ang rate under the
o More than 1 hectare in area suitable for cultivation, dairying, inland fishery, and LGC; (2) provided na ang assessment level again sa LGC; (3) FMV already ascertained by
other agricultural uses, 1⁄2 of which remain uncultivated or unimproved. the assessor; and (4) the assessor in determining the FMV will have to do inspection and
o Not considered idle lands: confirm with the owners located in the area. Kumbaga ang buhaton na lang nimu is to
a. Agricultural lands planted to permanent or perennial crops with at least 50 just follow the formula and collect it. But different for special assessment from LGU kay
trees to a hectare mandatory ang public hearing. Nganong RPT man ni niya special assessment? Again, the
b. Lands actually used for grazing purposes special assessment is just an addition to the RPT, so if RPT lang ang icollect nimo without
✓ Other than agricultural lands the levy, no need ang hearing, it is not mandatory. But if the Sanggunian will impose the
o More than 1,000 sqm in area, 1⁄2 of which remain unutilized or unimproved special levy, those affected should be heard out in a public hearing.
The purpose here is to encourage cultivation and improvement. ▪ Common ni siya if naay project ang LGU like a plaza or public market or feeder road and
✓ Residential lots in subdivisions ang area where they pass through will be benefited kay ni-increase ang value sa land. So
o The ownership of which must have been transferred to individual owners, who to recover the cost of it, then impose a maximum of 60%. So if for example it is 10M, the
shall be liable for the additional tax. 60% of that would be for special levy.
o Not considered idle lands: ▪ The local government can also impose the so-called socialized housing tax or an
a. Agricultural lands planted to permanent or perennial crops with at least 50 additional of ½% / .5% of the assessed value. So if you look at it, basically kung city for
trees to a hectare example, basic 2% + 1% + socialized housing tax of 0.5%, then that is equal to 3.5% RPT.
b. Lands actually used for grazing purposes Ang kani ang ad valorem on idle lands kay case to case man ni, dili pwede nimu i-apply to
o So, if you use your land for grazing area or for cultivation, they are no longer all those who own real properties.
considered as idle lands. Mao nah ang uban, if they own this agricultural land, i- ▪ The 60% sa special assessment, dili na to each landowner but i-divide nah.
fence na nila if undeveloped. ▪ Next question is when bayran – sabutan sad nah kay dili man pwede na within the
calendar year i-recover.
D. Special levy or special assessments (may be imposed even by municipalities outside Metro
Manila) on lands comprised within its territorial jurisdiction specially benefited by public
works, projects or improvements funded by the LGU concerned) FUNDAMENTAL PRINCIPLES GOVERNING REAL PROPERTY TAXATION [FEU-UP]
▪ If you recall general principles of taxation, we said that special assessment is not a type
of tax. If you look at it, this is imposed by the LGU to recover the cost of a public 1. Real property shall be appraised at the current fair market value
improvement. The special assessment unlike tax which you levy it against all individuals This is the work of the assessor’s office and this can be adjusted every 3 years according to the LGC. Usually,
similarly situated, special assessment selected ang imposition – only imposed upon those when the local government will adjust the FMV, there is notice to the public through publication.
who benefited from the government project. 2. The appraisal and assessment of real property shall be equitable
▪ Up to a maximum of 60% ang pwede ma-impose ni local government of the cost of the 3. Real property shall be classified for assessment purposes on the basis of actual use
IOW, even if the owner of the real property is exempted from RPT, but if the beneficial use is given to the taxable
project or improvement which should be funded by the local government. person or entity, then still subject to RPT. Remember tong mga non-stock, non-profit educational institutions,
▪ If not funded by the local government, but the DPWH or the National Government, the exempted from RPT but if that institution leases it for commercial operation, then following the Lung Center
LGU has no right to collect special levy or assessment. case, it should be subject to RPT.
▪ If the LGU imposes special levy or assessment, same with the business taxes, it must be 4. Real property shall be assessed on the basis of the uniform classification within each LGU
imposed still by the Sanggunian through the passage of an ordinance. Kailangan ba ang
SY 2018-2019 404_Taxation 2 - KMA
5. The appraisal, assessment, levy and collection of real property tax shall not be left to any (e) Machinery and equipment used for pollution control and environmental protection.
private person Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by, all persons, whether natural or juridical, including
all government-owned or -controlled corporations are hereby withdrawn upon the
EXEMPTIONS FROM RPT [Sec. 234, LGC] [PWC Owned REC] effectivity of this Code.
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, PROCEDURE IN THE ADMINISTRATION OF THE RPT
to a taxable person;
▪ If the real property is owned for example by the province of Cebu, but the province does not use it but
leased such to SM as a commercial establishment, even if the owner is exempted, RPT would have to be Step 1. Declaration of Real Property
collected. Apil diri ang government instrumentality, walay labot ang GOCCs and by now you should already
know the difference between the two. GOCC – acts as a private corporation. It is just that the majority A. Declaration by the Owner or Administrator
shareholder thereof is the government. The GOCC exempted from tax are only those GOCCs engaged in As a rule, it is self-declaration so it must be declared by the owner or acquirer of the property upon acquisition
the supply and distribution of water and generation and transmission of electric power. All other GOCCs of the property.
are subject to RPT.
▪ Philippine Fisheries Development Authority (PFDA) vs. CBAA: PFDA operating the Lucena Fishing Port
Complex is an instrumentality of the government. PFDA is not a GOCC for even if it has capital stocks, it is
For newly-acquired property:
not divided into shares of stocks. It has no stockholders or voting shares. It also has no members, so it The owner or the administrator must file:
cannot be a non-stock corporation. 1. in the assessor’s office within 60 days from the date of transfer
▪ Manila International Airport Authority (MIAA) vs. CA: A GOCC must be organized as a stock or non-stock 2. a sworn statement containing the (a) FMV and (b) description of the property
corporation. MIAA is not organized as a stock or non-stock corporation. Its charter mandates that MIAA
must remit 20% of its annual gross operating income to the national treasury. It is a government
instrumentality vested with corporate powers by its charter. Hence, airport and buildings are of public For improvements of the property:
dominion. The owner or the administrator must file:
▪ TN: In 2015, Mactan Cebu International Airport was finally declared as an instrumentality of the 1. within 60 days upon completion or occupation, whichever comes earlier
government and not a GOCC. 2. a sworn statement containing the (a) FMV and (b) description of the property
▪ Some other entities of the government na declared as instrumentality and exempt from RPT – Philippine
Ports Authority, UP, BSP, GSIS etc.
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, B. Declaration by Provincial/City/Municipal Assessor
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements ▪ When: only when the person under Sec. 202 refuses or fails to make a declaration
actually, directly, and exclusively used for religious, charitable or educational purposes; within a prescribed time
▪ This is a constitutional provision. But then again, the beneficial use must be complied with and must not ▪ No oath of the assessor is required.
be given to a taxable entity. Guideline nato on how to define this actually, directly and exclusively ▪ Under the LGC, other than the declarations made by the owner or the administrator,
requirement is the Lung Center case – it is not principally used. The point is the use must be exclusive. So, the Register of Deeds is also mandated to inform the assessor if there was transfer of
if it is not used for religious, charitable or educational, then subject to RPT.
the property.
(c) All machineries and equipment that are actually, directly and exclusively used by local
▪ The buyer/transferee of the property is also mandated to inform the assessor.
water districts and government-owned or - controlled corporations engaged in the
▪ Sir what if exempted ko kay kumbento man ko, pwede ba nimo buhaton? No, you still
supply and distribution of water and/or generation and transmission of electric power;
need to declare but if you want to allege nga you are exempt then present proof of
(d) All real property owned by duly registered cooperatives as provided for under R. A. No.
exemption within 30 days from the date of declaration of the property.
6938; and
SY 2018-2019 404_Taxation 2 - KMA
▪ Kung exempted ka unsay advantage kung ikaw mismo ang mu-declare? Makabalo ka Step 2. Listing of Real Property in the Assessment Roll
when to reckon the 30-day period when you present proof of exemption. It is different
if gi-declare sa assessor mismo kay naa na kay tax declaration nganha and mag- All declarations of real property made under the provisions of this Title shall be kept and filed
inspection baya ang assessor so posible na mulapse ang 30-day period to present proof under a uniform classification system to be established by the provincial, city or municipal
of your exemption. assessor.
▪ What if you declared the property for the first time but it was there for a long period of
time? If declared for the first time, as a rule, real property shall be assessed for back Step 3. Appraisal and Valuation of Real Property
taxes but not for more than 10 years. The tax shall be based on the applicable schedule
of values enforced during the corresponding period. For Land
▪ Proof of exemption of Real Property from Taxation (Sec. 206) 1. The assessor of the city or province may summon the owner of the properties to be affected
o Who: By any person or for whom real property is declared.Claim for exemption must and may take their depositions concerning the property, its ownership, amount, nature and
be filed with the assessor together with sufficient documentary evidence to support value. (Sec. 213, LGC)
claim. Pero karon, dili na kaayo ni common because there are formulas naman for appraisal – like kinsa ang tapad nimo
o When: within 30 days from the date of declaration of property diha na property.
o If the required evidence is not submitted within the period prescribed, the property 2. Assessor prepares a schedule of FMV for different classes of properties.
shall be listed as taxable in the assessment roll. 3. Sanggunian enacts an ordinance
o If the property shall be proven to be tax exempt, the same shall be dropped from 4. The schedule of FMV is published in a newspaper of general circulation in the province, city
the assessment roll. or municipality concerned or in the absence thereof, shall be posted in the provincial capitol,
o If you are exempted from real property taxation, it is not automatic so you have to city or municipal hall and in two other conspicuous public places therein (Sec. 212, LGC)
present your exemption. EXEMPTION is NOT AUTOMATIC!!!
TN:
o Based on experience, it is more organizational test because in NIRC there are 2 tests,
▪ Essentially, the assessor will determine the FMV of the property. So if the property is declared for the first time,
organizational and operational test. But when it comes to proof of exemption of real then the assessor can require the owner to declare how much is the acquisition cost or the valuation of the
property it must be proven within 30 days from the date of the declaration of the property and the assessor is even given the power to take depositions. But of course, if it is already an adjustment
property. to the FMV, there is already formulation there nga buhaton ni assessor taking into consideration the
▪ If property declared for the first time (Sec. 222) developments in the area. Dili na kinahanglan ipatawag pa si owner pero there is a requisite na if a new FMV will
be adopted by the LGU, it must be enacted of an ordinance by the Sanggunian.
o If declared for the first time, real property shall be assessed for back taxes ▪ IOW, initial FMV – there must be an ordinance; when they increase the FMV – there must be another ordinance
a. For not more than 10 years prior to date of initial assessment. passed increasing the FMV.
b. Taxes shall be computed on the basis of the applicable schedule of values in force ▪ Kapila ang extent sa pag increase sa FMV? Under the LGC, the LGU is given 3 years; once every 3 years to adjust
during the corresponding period. the fair market valuation EXCEPT when they are extraordinary happenings or circumstances. As a requisite,
within 90 days from the happening of such extraordinary circumstance, revaluation of the FMV can be done.
o If such taxes are paid on or before the end of the quarter following the date the
notice of assessment was received by the owner or his representative, no interest
for delinquency shall be imposed thereon; otherwise, such taxes shall be subject to For Machinery
an interest at the rate 2% per month or a fraction thereof from the date of the 1. For brand new machinery: FMV is the acquisition cost
receipt of the assessment until such taxes are fully paid. 2. In all other cases:
o FMV = (Remaining economic life/Estimated economic life) x Replacement cost
TN: When we say economic life, this is the life when you expect to have an inflow to benefit from that
particular property. The moment that the cost of maintaining that property becomes higher than your
benefit, then wala na nay economic life, useful life na lang.
SY 2018-2019 404_Taxation 2 - KMA
Step 4. Determining Assessed Value b. Special levy – governed by ordinance
Not necessary na mu-accrue siya by January. There is a public hearing, so there is an agreement as to when
it should be paid.
▪ Diba you already have the schedule of the assessed value as determined by the assessor.
▪ Interest for late payment
Just multiply the FMV with the assessment level as provided by the LGC. Once you get the
a. 2% for each month on unpaid amount until the delinquent amount is paid
assessed value, you multiply it with the tax rate katong basic 1% or not exceeding 2% plus
b. in no case shall the total interest exceed 36 months.
special education fund plus socialized housing fund so you will get the total RPT.
Delinquent amount presupposes that there is an assessment and there was already a demand letter coming
▪ What is this assessment level? This is provided by the LGC. This basically depends on the from the office of the treasurer. So, in 1 year 24% kay 2% times 12. But of course, limited ra to 36 months or
classification of the land – if it is residential, commercial or industrial. Naay nakabutang sa 3 years.
LGC na 60% of the FMV or 50% of the FMV. ▪ For Advance and Prompt payment
▪ Assessed Value = FMV x assessment level a. Advance payment – discount not exceeding 20% of annual tax (Sec. 251, LCG)
▪ RPT = [(Assessed Value x basic rate) + special education fund + socialized housing fund] b. Prompt Payment – discount not exceeding 10% of annual tax due (Art. 342, IRR)
▪ But of course, when it comes to real property tax assessment, we don't expect the assessor ▪ Who collects: The provincial, city, municipal or barangay treasurer
to detail the computation. Automatic na nah sa system. So although the imposition of the ▪ Period to collect: (Sec. 270)
surcharge or interest is max of 36 months, you really have to check if it is being observed by a. Within 5 years from the date they become due
the LGU because automatic ra na naa dayuy figure. b. Within 10 years from the discovery of fraud, in cases there is fraud or intent to evade
▪ FMV may be revised every 3 years except if there is reassessment due to: ▪ This is different from local business tax, in which case we have the period to assess and we
o partial or total destruction, have the prescriptive period to collect. Pila gani to ang prescriptive period to assess? 5 years
o major change in actual use diba and it can go up to 10 years if there is intent to defraud. However, with RPT, diretso na
o great and sudden inflation or deflation of real property values period to collect which is 5 years from the date it become due. IOW, you don’t need an
o gross illegality of the assessment when made and assessment in so far as real property taxation is concerned. All that the treasurer will do is
o any other abnormal cause check the declaration, check the classification of your property. Now if sa local business tax
▪ When it comes to the requirement of public hearing, imposition of RPT do not necessarily kay January 20 man although it may be extended if 20 is not a business day, ang RPT is not
mandate public hearing except if the Sanggunian decides to impose special levy or special necessarily January 20 sad basta mu-accrue siya in advance for that year. But as to when it
assessment. is exactly paid, it depends on the Sanggunian.
▪ Offices involved when it comes to the imposition of RPT: Office of the Provincial / City / ▪ Suspension of Prescriptive Period: (Sec. 270) [PRO]
Municipal Assessor and the treasurer's office. 1. Local treasurer is legally prevented to collect tax.
2. The owner of property requests for reinvestigation and writes a waiver before
Step 5. Payment and Collection of Tax expiration of period to collect.
3. The owner of property is out of the country or cannot be located.
▪ When: January of every year and such will constitute as superior lien. (Sec. 246)
▪ As a rule, payment and collection of RPT is every January and such will constitute as superior
lien. CLASSIFICATION OF PROPERTY
▪ How:
a. Basic RPT in 4 equal installments (March 31, June 30, September 30, December 30) As mentioned, the assessment level will depend on the classification of your property – whether
Depends if gi-adopt sa ordinance. it is residential, industrial, commercial.
SY 2018-2019 404_Taxation 2 - KMA
Definitions [CAR-MITS] REMEDIES
▪ Commercial Land
- when it is devoted principally for the object of profit and is not classified as agricultural, For the LGU
industrial, mineral, timber or residential land
▪ Agricultural Land ▪ Local government’s lien over the property if you failed to pay the RPT
(a) A land devoted principally on planting of trees, raising of crops, livestock or poultry, etc. ▪ Prescriptive period to assess: 5 years from the date they became due or within 10 years
including inland fishing and similar aquaculture activities and other agricultural upon the discovery of fraud or intent to evade.
activities
(b) Not classified as industrial, mineral, commercial, timber or residential land CIVIL REMEDIES
▪ Residential Land
- when the property is principally devoted for habitation (1) Administrative Action; or
▪ Mineral Land ▪ distraint under Sec. 254, LGC and
- land in which minerals, metallic or non-metallic, exist in sufficient quantity or grade to ▪ levy on real property – the procedure is detailed from Sec. 258-265, LGC
justify the necessary expenditures to extract and utilize such minerals o The difference lang from the levy of real property in connection with delinquency in
▪ Industrial Land RPT is that the publication is 1:2, once a week for two consecutive weeks.
- land devoted principally in industrial activity, as capital investment and not classified as o Publication is not enough; personal notice is still required.
residential, mineral, agricultural or commercial, timber land o Redemption – It may still be exercised in connection with the levied property. It is
▪ Timber Land exercised 1 year from the date of sale. Provided the taxpayer will pay the amount of
- forest, reserved area the tax plus interest, cost and expense of the sale, plus 2% interest per month from
▪ Special Land the date of sale to the date of redemption.
- all lands, buildings and other improvements actually, directly and exclusively used for
hospital, cultural or scientific purposes, and those owned by local water districts and (2) Judicial Action
other GOCCs rendering essential public services in the supply and distribution of water ▪ The local government can institute or file a tax collection case against the taxpayer
and electricity before the civil courts of competent jurisdiction not before the CTA even if the claim of
the LGU exceeds 1 million. We follow the jurisdictional amounts for MTC and RTC.
TN:
▪ The special classes of land are the properties owned by those exempt from real property taxation [PWC Owned For the Taxpayer
REC].
▪ The classification is not necessarily the declaration of the owner but rather, it is the actual use. So, if it was
initially declared as agricultural but then after 3 years, nag-inspection si assessor unya daghan na ug balay, the ▪ More or less the same with local business taxes.
LGU can reclassify. The LGU has that power to reclassify it into residential through the passage of what we call a ▪ The taxpayer can question the validity of the ordinance within 30 days from the effectivity
zoning ordinance. of the ordinance.
▪ Naay non-stock non-profit educational institution na initially exempt ang nakatatak sa tax dec nila but it when it
was inspected several years after, it became commercial. Unfortunatel,y when the new tax dec was issued, wala
▪ Raise it before the Secretary of Justice, who is given 60 days to decide.
na na carry over ang exempt. ▪ Upon the lapse of the 60-day period or upon the receipt of the adverse decision, the
▪ Does the LGU has the power to reclassify? Yes. through zoning ordinance. taxpayer can file a case before courts of competent jurisdiction (NOT before the Office of
▪ The passage of a zoning ordinance is an exercise of the police power of the LGU. For example, muana ka na dapat the President)
residential kay balay man ni nako but if ang tapad nimo kay commercial establishments, then that entire zone is
▪ Unsa ang usual ground nimo to question the constitutionality of an ordinance? The usual
classified as commercial area.
ground is lack of the mandatory public hearing. Mao to you need to remember unsa nga
SY 2018-2019 404_Taxation 2 - KMA
ordinance kinahanglan ug public hearing. Again, if it is the passage of local business tax, ▪ The proceedings shall be conducted solely for the purpose of ascertaining the facts without
mandatory. If it is passage of special levy, then mandatory. But if it just real property, it is necessarily adhering to technical rules applicable in judicial proceedings.
not necessary. ▪ The secretary of the Board shall furnish a copy of the decision of the Board to:
▪ If there is already an assessment, pwede ba ko mu protest? Yes. ✓ the owner of the property or the person having legal interest therein and
▪ Is it required that you must pay with protest? Yes. As provided under Section 252, LGC, no ✓ the provincial or city assessor.
protest shall be paid unless the taxpayer paid with a stamp paid under protest. ▪ In case the provincial or city assessor concurs in the revision or the assessment, it shall be
▪ When you pay under protest, asa ka mu-appeal? Within 30 days, you go to the local his duty to notify the owner of the property or the person having legal interest therein of
treasurer and the local treasurer is given 60 days from receipt of your protest to decide on such fact.
your protest. ▪ (1) The owner of the property or (2) the person having legal interest therein or (3) the
▪ So if mudaog ka, eventually you can file for claim for credit or refund. If the local treasurer assessor who is not satisfied with the decision of the Board, may, within 30 days after receipt
decides adverse to you or the 60-day period has lapsed, within 30 days, you go up to the of the decision of said Board, appeal to the Central Board of Assessment appeals.
local board of assessment appeals and the LBAA is given 120 days to decide only on your ▪ The decision of the Central Board shall be final and executory.
protest.
▪ If adverse ang decision ni LBAA or the 120-day period has lapsed already within 30 days, Central Board of Assessment Appeals [Sec. 230, LGC]
appeal to the CBAA or central board of assessment appeals. There is no period for the CBAA ▪ Composition:
to decide on your protest. Maghuwat jud ka na maka-recieve ka ug decision from the CBAA. o Chairman
▪ If adverse ang decision ni CBAA, within 30 days you go the CTA en banc because that is a o 2 members
decision of the CBAA in its appellate jurisdiction. - appointed by the President
▪ If pildi ka, then we follow the usual judicial process. You file a motion for recon or new trial - term: 7 years, without reappointment
within 15 days. ▪ Terms of those first appointed:
▪ If denied then file a petition for review within 15 days from receipt under rule 45 to the SC. o Chairman – 7 years
o 1 member – 5 years
o 1 member – 3 years.
OTHER RELEVANT PROVISIONS ▪ Appointment to any vacancy: only for the unexpired portion of the term of the predecessor.
▪ IN NO CASE shall any member be appointed or designated in a temporary or acting capacity.
Action by the Local Board of Assessment Appeals [Sec. 229, LGC] ▪ Qualifications of the chairman and members of the Board:
▪ Period to decide: within 120 days from the date of receipt of such appeal. ✓ Filipino citizens,
▪ Hearing is necessary. ✓ at least 40 years old at the time of their appointment, and
▪ Decision must be based on substantial evidence or such relevant evidence on record as a ✓ lawyers or CPAs
reasonable mind might accept as adequate to support the conclusion.
▪ In the exercise of its appellate jurisdiction, the Board shall have the power to:
✓ summon witnesses,
✓ administer oaths,
✓ conduct ocular inspection,
✓ take depositions, and
✓ issue subpoena and subpoena duces tecum.

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SY 2018-2019 404_Taxation 2 - KMA

Illustration: o General Power of Appointment – may be exercised in favor of anybody.

Kinds of Decedent Valuation of the Gross Estate (Sec. 5, RR No. 12-2018)

Proceeds of Life Insurance (Sec. 85(E), NIRC)

4. The remaining balance will be multiplied by the corresponding percentage: Solution:

ALLOWABLE DEDUCTIONS FROM GROSS SELLING PRICE Effects of voluntary registration

o zero-rated sale of goods or property

VAT Exempt Transaction (Section 109, NIRC) Illustration

▪ White/Refined Sugar – subject to VAT

(P) Jan 1, 2018 – Dec 31, 2020

OBTAIN INFORMATION AND TO SUMMON, EXAMINE AND MAKE ASSESSMENTS

Authority to terminate taxable periods Accredit and register tax agents

False vs Fraudulent Return Reckoning of prescriptive period of assessment: Where do I begin?

Paying the Final Assessed Tax and Increments

B. Criminal action TAXPAYER’S SUIT

Remedy of the Taxpayer if Protest is Denied

Procedure: A. Two-Year Prescriptive Period

I. ADMINISTRATIVE Doctrine of Primary Jurisdiction over Seizure and Forfeiture Cases

TAX REMEDIES OF THE TAXPAYER

CRIMINAL CASES Four divisions of LGUs

FUNDAMENTAL PRINCIPLES GOVERNING LOCAL TAXATION (PIE-CUP-UP)

▪ This is the fallback provision.

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