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e.) Shares or rights in any partnership, business, INCLUSIONS IN THE GROSS ESTATE (CR2IG
or industry
established in the Philippines. DIP)
GROSS ESTATE
1) Decedent’s interest at a specific
the total value of all property, whether
property
real or personal, tangible or intangible
- To the extent of the interest therein of the
belonging to the decedent at the time of
decedent at the time of his death. (Sec. 85 A)
his death, situated within or outside the
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Philippines, where such decedent was a
- Ex: partnership interest, dividends
resident or citizen of the Philippines.
In the case of a nonresident alien
2) Transfer in contemplation of death
decedent, it shall include only property - A transfer with the thought of death.
situated in the Philippines. - The term “in contemplation of death” means
that the impelling or controlling motive is the
thought of death, regardless of whether the
Property Included in the Gross Estate transferor is near the possibility of death or
(INCLUSIONS): not, which induces the disposition of the
A. In case of resident citizens, nonresident property for the purpose of avoiding the tax.
citizens and resident aliens: - Example: donation was made concurrently
1. Real Property within and without the with the execution of a will (Vidal de Rocs vs.
Philippines; Posadas, 58 Phil 108)
2. Tangible personal property within and without
the Philippines; and Circumstances taken into account in
3. Intangible personal property within and without determining in whether the transfer was made
the Philippines. in contemplation of death:
A.) Age and state of health of the decedent at
B. In cases of nonresident aliens: the time of the gift;
1. Real property within the Philippines; B.) Length of time between the gift and the
2. Tangible personal property within the date of death; and
Philippines and; C.) Concurrent making of a will or making a
3. Intangible personal property within the will within a short time after the transfer.
Philippines, unless there is reciprocity in which
case, it is not taxable. Note: Check the factual settings before and at
time of death because proximity to death is not
Note: These are either: always conclusive.
A) Properties actually owned at the time of death
B) Properties deemed by law to be owned by the Examples of motives precluding the
decedent category of a transfer in contemplation of
under Sec. 85 death:
Inter Vivos Transfers Subject to Estate Tax a.) To relieve the donor from the burden of
management;
The gross estate extends to gratuitous b.) To save income or property taxes;
transfers made by the decedent during his c.) To settle family litigated and unlitigated
lifetime which are treated by the law as disputes;
substitutes for testamentary dispositions. d.) To provide independent income for
They are transfers inter vivos in form but dependents;
mortis causa in substance. e.) To see the children enjoy the property
while the donor is alive;
Rationale for taxability: f.) To protect the family from hazards of
business operations;
To reach such transfers which are really g.) To reward services rendered
substitutes for testamentary dispositions and
thus prevent the evasion of the estate tax.
Note:
These transfers are: The THREE (3) YEAR PRESUMPTION provides
a.) transfers in contemplation of death that any transfer of a material part of his property
(sec.85 b); in the nature of a final disposition or distribution
b.) transfers with retention or reservation of thereof made by the decedent within three years
certain rights (sec.85 b); prior to his death without such adequate and full
c.) revocable transfers (sec.85 c) consideration shall, unless shown to the contrary,
d.) transfers of property arising under a be deemed to be have been made in
general power of appointment ( sec.85 contemplation of death.
d); and
e.) transfers for insufficient consideration This provision, however, has been already
(sec.85 g) deleted in Sec. 100 (b) now sec. 85 (B) of the Tax
Code by PD No. 1705.
Note:
Transfers by virtue of a bona fide sale of Under BIR Ruling No. 261 September 2, 1987, the
property for an adequate and full law does not specify the number of years prior to
consideration in money or money’s worth are a decedent’s death within which a transfer can be
excluded and not taxable. considered in contemplation of death.
Note: In relation to transfers with retention of b.) The alteration, amendment or revocation
rights which are made in contemplation of death takes effect only upon the expiration of a
– if the right of retention by the Decedent is co- stated period after the exercise of the
terminous with his lifetime. power.
- Ex: X has a house and lot which he transferred If the notice has not been given or
to Y the power has not been exercised on or
a) with the condition that X will use it while X before the decedent’s death, such notice
lives or the power shall be considered to have
- Effect: Still part of estate of X as he has been given or exercised on the date of the
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control over it decedent’s death.
b) with the condition that X will use it only for 10 4.) Transfer of property under a general
years and then X dies before 10 years power of appointment
- Effect: Not part of the estate of X as he is not
the actual owner - A transfer where the donor of the power of
appointment authorizes the donee of such power
3.) Transfer with retention or reservation of to designate any person he chooses to be given
certain rights the right over the appointed property.
- This contemplates the instances where the
owner transfers his property during his lifetime - The transferee may choose freely any person
but still retains economic benefits (the possession who will own the property after he dies
or enjoyment of the property or the power to
designate the person who may exercise such - Rationale: the will of the transferee is followed;
rights). hence, part of transferee’s estate
B. Transfer with retention of interest in respect to: A.) A power is general, when it authorizes
- 1. The possession or enjoyment of or the right the donee of the power to appoint any
to the person he pleases including himself, thus
income from the property; or having a full dominion over the property
2. The right either alone or in conjunction with as if he owned it.
any person, to designate the person who shall
possess or enjoy the property or the income B.) It is special when, the donee can appoint
therefrom. And such interest is retained by only among a restricted or designated
the decedent for his life or for any period class of persons other than himself.
which does not in fact end before his death.
Note:
C. Transfer with reversionary interest, wherein If the power of appointment is general, it
there is a possibility that the transferred makes the appointed property a part of the
property may return to the decedent or his donee’s property.
estate or that it may become subject to a
power of disposition by the decedent. Under a general power of appointment,
- Ex: A transfers his property to B in naked title to the property is legally transferred to
ownership and to C in usufruct throughout C’s the donee. Therefore the property shall form
lifetime subject to the condition that if C part of the gross estate of the donee.
predeceases A, the property shall return to A. If A
dies during C’s lifetime, the value of the
reversionary interest of A at death is included in 5.) Transfer for insufficient consideration
his gross estate. - A transfer that is not a bona fide sale of
property for an adequate and full
3.) Revocable transfer consideration in money or money’s worth. The
- the decedent has full control of disposition of excess of the fair market value at the time of
property death over the value of the consideration
- even if the control is not exercised, it is enough received by the decedent shall form part of
that it is his gross estate.
exists
- A transfer where: - However, if the purported absolute sale inter
a.) The decedent or in conjunction with any other vivos by the decedent is shown to be
person has reserved the right to alter, amend, fictitious, then the total value of the property
revoke, or terminate; or transferred is subject to inclusion in the
b.) Any such power is relinquished in taxable estate.
contemplation of the decedent’s death.
- Ex: X owns a house and lot, he wants to help Y
The power to alter, amend or revoke shall be so he sells his house worth P5M for only P1M. At
considered to exist on the date of the decedent’s the time of X’s death, his house and lot is worth
death even though: P10M.
a.) the exercise of the power is subject to a How much is included in the gross estatre of X?
precedent giving of notice; or 10-1 = 9M
- Ex: X bought a car worth P1.3M. X needed Note: Common reasons for 1 and 2 – the will of
money so he sells his car to Y for only P1M. This the first decedent is followed, the second
is not a transfer for insufficient consideration as decedent has no control over the disposition.
this is a bona fide transfer at arm’s length; hence,
a valid transfer. 3. Transfers to social welfare, cultural, and
charitable institutions
6.) Proceeds of life insurance - Requisites:
- Proceeds of life insurance taken by the decedent a) Qualified organization
on his own life shall be included in the gross b) Not more than 30% will be used for
estate if the beneficiary: administrative purposes
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A.) Is the estate of the decedent, his executor, -Reason: to encourage such transfers
or administrator (regardless whether the
designation is revocable or irrevocable); or 4. Proceeds of insurance not includible in
B.) Third person other than the estate, the gross estate of the decedent
executor, administrator but the a) Amount receivable by any beneficiary
designation of the beneficiary is irrevocably designated in the policy of insurance
revocable. by the insured.
- Presumption: proceeds are revocable b) Proceeds of a group insurance policy taken out
- include in the estate only if it is revocable as the by a company for its employees.
decedent retained control over the proceeds c) Proceeds of insurance policies issued by the
GSIS to government officials and employees.
7.) Prior Interest d) Benefits accruing under the Social Security
- Except as otherwise specifically provided Act.
therein, subsections (B), (C), (E) of Section 85 e) Proceeds of life insurance payable to the heirs
referring to transfer in contemplation of death, of deceased members of the military personnel of
revocable transfer and proceeds of life the United States Army or Philippine Army under
insurance respectively shall apply to the laws administered by the United States Veterans
transfers, trusts, estates, interests, rights, Administration.
powers and relinquishment of powers as f) Accident insurance proceeds.
severally enumerated and described therein,
whether made, created, arising, existing, 5. Separate property of the surviving
exercised or relinquished before or after the spouse.
effectivity of the CTRP.
Note:
NOTE: In the determination of the gross estate, the
In most of these transfers the property nature of the property, whether common
remains substantially that of the transferor during property of the spouses, separate or exclusive
his lifetime notwithstanding the transfer since he property either of the deceased or of the
still retains either the “beneficial ownership” or surviving spouse, becomes of vital
“naked title” to the property. importance.
1. Merger of usufruct in the owner of the Under the Civil Code, the husband and
naked title wife who got married before August 3, 1988
- ex: X has a house and lot. X gave the title to Z. are governed by the Conjugal Partnership of
X also allows Y to use the same and that in case Y Gains, while those who got married on or after
dies, the use goes to Z. What are the effects? August 3, 1988 are governed by the Absolute
a) If X dies – include the house and lot in X’s Community of Property, unless a different
estate regime was agreed upon in the marriage
b) If Y dies – exclude from the estate of Y as the settlement.
will of X is being followed, there is a merger of
usufruct in Z (the owner of the naked title). EXEMPTION FROM ESTATE TAX
2. Fideicommisary and transmissions from A. The first P200, 000.00 value of the estate (sec.
the first heir, legatee, or donee in favor of 84 NIRC)
another beneficiary, in accordance with the B. The merger of the usufruct in the owner of the
desire of the predecessor naked title.
- ex: X has a house and lot. In the will of X, Y may C. The transmission from the first heir, legatee, or
have the title to the house and lot but in case Y donee in favor of another beneficiary in
dies, the property will go to Z. What are the accordance with the desire of the predecessor.
effects? D. All bequest, devises, legacies or transfers to
a) If X dies – include as part of X’s estate as he social welfare, cultural and charitable
actually owns it institutions, no part of the net income of which
b) If Y dies – excluded from the estate of Y as he inured to the benefit of any individual and
has no control over its disposition provided that not more than 30% of the said
bequest, etc shall be used by such institution
- Ex: X has a house and lot which he wants to for administration purposes.
give to Y but Y is a minor at the moment so that X E. Intangible personal property of non-resident
institutes T to hold the property in trust for Y until aliens under the principle of reciprocity.
Y reaches the age of majority. X died. The F. Retirement benefits of employees of private
property passed to T. T died. Y reached the age of firms from private pension plans approved by
majority. Effect if T dies: Not part of estate of T. the BIR.
G. Amount received for war damages.
H. Grants and donations to the Intramuros individual benefit of the heirs, legatees, or
administration. devisees are not allowed as deductions.
ALLOWABLE DEDUCTIONS FROM THE GROSS - ex: expenses to be declared as administrator
ESTATE vs. an oppositor is a personal expense
- Granted by mere legislative grace
- Construed strictly against the taxpayer
- Requisites:
a) Substantiate the claim for deduction
b) Identify the provision granting the 3) Claims against the decedent’s estate
deduction.
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- Debts or obligations of the decedent that is
The provision must be clear and definite. enforceable
against the estate provided that the following
RESIDENT DECEDENT requisites are
met:
A. Ordinary Deductions (ELIT): a) They were contracted in good faith and for
an adequate and full consideration in
1) Funeral Expenses money or money’s worth.
- The amount deductible is equal to 5% of the b) They must be existing against the estate.
gross estate or the amount of the actual funeral c) They must be legally enforceable
expenses whichever is lower, but in no case to obligations of the decedent and ought to be
exceed P200,000; enforced by the claimants.
d) They must be reasonably certain in
- “Actual funeral expenses” are those which were amount; and;
actually incurred in connection with the interment e) At the time the indebtedness was incurred,
or burial of the deceased and paid for from the the debt instrument was duly notarized
estate of said deceased. and if the loan was contracted within three
(3) years before the death of the
decedent, the administrator or executor
- Funeral expenses include: shall submit a statement showing the
a) Costs of coffin, tombstone, disposition of the proceeds of the loan.
mausoleum, and burial lot;
b) Funeral parlor fees;
c) Mourning clothing of the surviving 4) Claims against the insolvent persons
spouse and the unmarried minor children; - Requisites for deductibility:
d) Costs of obituary notices; and a) The amount of said claims has been
e) Expenses during the wake. initially included as part of the gross estate;
and
- The following cannot be deducted under funeral b) The incapacity of the debtors to pay their
expenses: obligations is proven and not merely alleged.
a) Cash advances of the surviving spouse and
the heirs; 5) Unpaid mortgages indebtedness
b) Expenses paid by the relatives and friends;
and - Requisites for deductibility:
c) Expenses after the burial. a) The fair market value of the property
mortgaged without deducting the
- Requisites: mortgage indebtedness has been initially
a) The expenses must be due to the included as part of his gross estate;
interment, wake and burial; hence, b) The mortgage indebtedness was
expenses on the death anniversary are not contracted in good faith and for an adequate
included and full consideration in money or money’s
b) The expenses must have been shouldered worth.
by the estate and not by other people
- ex: X obtained a 3M loan from Y and executed a
2) Judicial expenses of the testamentary or Real Estate Mortgage over his house and lot
intestate proceedings worth 5M. X paid 1M. X died.
- Requisite: “administration expenses” to those Effect: in the estate of X, include the 5M in the
actually incurred in the administration of the gross estate of X and claim as deduction the
estate. unpaid 2M.
has dependents or is a head of family with - Concept: if a property located in the Philippines
dependents.) was already subjected to estate tax abroad and
b. Such fact must be certified by the Barangay the same property is also subjected to estate tax
Captain of the locality where the family is in the Philippines, the foreign tax paid is allowed
situated. to reduce his Philippine estate tax
c. The total value of the family home must be
included in the gross estate of the decedent. - Purpose: minimize the effect of international
d. The allowable deduction must be in an amount double taxation
equivalent to the current fair market value of
the family home as declared or included in the - applicable only to residents and citizens, not to
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gross estate not exceeding NRA since he is taxed only on his properties
P1, 000,000. within the Philippines; hence, the NRA will not be
made to pay estate taxes twice for his property
E. Standard Deduction Of P1, 000,000.00 located abroad = no international double taxation
- on top of other deductions, unlike the optional = no tax credit. (Sec. 86 (E)(2))
standard deduction which is in lieu of other
deductions; hence, it does not include the P - Requisites:
200,000 exemption 1. Prove that the foreign estate tax has been paid
2. Prove reciprocity : that in the decedent’s
F. Medical Expenses foreign country, a similar tax credit is given to
- Requisites: Filipinos
a. Must be incurred by the decedent within one
(1) year Limitations on tax credit:
prior to his death A.)The tax credit limit for estate taxes paid to one
b. Must be duly substantiated by receipts; and foreign country is determined by the following:
c. Must not exceed P500, 000
TAX CREDIT LIMIT=
*Opinion of JB: medical expense must be related
to the cause of death as it is the estate that is Decedent’s Net Estate situated in a foreign
being settled. Otherwise, if not related, it is a country x Phil. Estate tax of the Entire net estate
personal expense.
B.) The tax credit limit for estate taxes paid to
G. Amounts Received By Heirs Under RA two or more countries is determined as follows:
4917 From The Decedent’s Employer As A
Consequence Of The Death Of The TAX CREDIT LIMIT =
Decedent–Employee, Provided That Such
Amount Is Included In The Gross Estate Of Decedent’s net estate situated outside of the Phil
The Decedent. X Phil. Estate tax of Entire net Estate
- retirement benefits
- Requisite: include in gross estate Note:
1.) Under limitation A the allowable tax credit is
H. NET SHARE OF THE SURVIVING SPOUSE the lower amount between the tax credit limit
IN THE CONJUGAL / COMMUNITY PROPERTY. and the estate tax paid to the foreign country.
- Requisite: Include the entire amount in the gross
estate then deduct the share of the surviving 2.) Under limitation B the allowable tax credit is
spouse the lower amount between the tax credit limit
- Ex: H owns a car worth 1M and a house and lot computed under (A) and that computed under
worth 5M (B)
W owns a truck worth 2M and jewelry worth
10M
H and W owns a conjugal lot worth 20M B.) IF DECEDENT IS A NON – RESIDENT ALIEN
H died.
The deductions allowed to citizens or
Gross estate of H: residents of the Philippines are also extended to a
Exclusive Conjugal non-resident alien decedent with respect to his
5 M house and lot 20 M lot estates situated in the Philippines at the time of
1M car _________ _______ his death.
6M 20 M
Total gross estate = 26 M In case of deductions for expenses, losses,
indebtedness and taxes, the amount of the
Then claim as deduction the 10M, which is allowable deduction is limited only to the
the ½ share of the surviving spouse in the proportion of such deductions with the value of
conjugal lot. such part of his gross estate which at the time of
his death, is situated in the Philippines, bears to
- Ex: H and W died simultaneously. In computing the value of his entire gross estate wherever
the gross estate of H and W, their shares ½ situated. (Sec. 86 (B))
shares as to the conjugal lot may immediately be
split as there is no surviving spouse left. Formula:
Allowable deduction of non-resident estate =
I) Tax Credit For Estate Tax Paid To A
Foreign Country Philippine Gross Estate x Deductions
- The estate tax imposed by the tax code shall be Claimed
credited with the amount of any estate tax paid Entire Gross estate
to a foreign country.
As a prerequisite to the deduction, it must Where the gross value of the estate exceeds P
be included in the return required to be filed the 20,000 although exempt, the executor,
value at the time of his death, of that part of the administrator, or any of the legal heirs shall give,
gross estate of the non-resident not situated in within 2 months after the decedent’s death or
the Philippines, to determine the ratable portion within like period after the executor or
of the deduction for expenses allowable. administrator qualifies as such, a written notice
thereof, to the Commissioner of Internal Revenue.
(Sec. 89, NIRC)
Valuation of Property
The estate shall be appraised at its fair market - Contents of the letter:
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value (FMV) at the time of death of the decedent 1. The fact that the decedent died
(Sec.88, NIRC). This is regardless of any 2. Residence of the decedent
subsequent contingency affecting the estate. 3. Date of death
(Lorenzo vs. Posadas, 64 Phil. 353)
- Effect of failure to file notice: subject to penalty
1. Real Property not lower than P1,000
- higher amount of :
a) FMV as determined by the Commissioner * Note: Filing with the nearest Revenue District
- This is the zonal value (of the land) as fixed Office is sufficient compliance.
by the CIR, and can be obtained from the BIR
website or regional office Filing of Return and Payment of Tax
5.) When to Pay NOTE: There are two ways the government may
Pay the estate tax at the time you will file enforce collection of estate taxes from the
your estate tax return. (Pay as you file decedent’s heirs:
system) 1. It can collect from all the heirs the amount of
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the estate tax proportionate to the inheritance
6.) Extension for Payment: they received.
- allowed in meritorious cases when the 2. It can subject properties of the estate which
Commisioner finds that the payment of the are in the hands of the heirs/transferees to the
esate tax on the due date would impose payment of the tax. (CIR vs. Pineda, 21 SCRA
undue hardships upon the estate or any heir : 105)
At most 2 years – if estate extrajudicially NOTE: The heirs have a solidary obligation to
settled settle the estate. Hence, the BIR can collect from
At most 5 years – if estate judicially or sue any of the heirs, but only up to the amount
settled of that heir’s share in the hereditary estate. This
is without prejudice to such heir’s right of
- NOTE: The taxpayer must not be guilty of reimbursement from his co-heirs of their share in
a) negligence the payment of the estate tax. (CIR vs. Pineda, 21
b) intentional disregard of the rules and SCRA 105)
regulations, or
c) fraud
Measures to Insure Payment of Estate Tax
- the taxpayer may also be required to pay a
bond not exceeding double the amount of tax and a. No judge shall authorize the executor or
with such sureties, as the Commissioner deems judicial administrator to deliver a distributive
necessary share to any party interested in the estate unless
a certification from the Commissioner that the
estate tax has been paid as shown. (Sec.94)
* Note: The filing of the estate tax return is not - by the court requiring the
sufficient to obtain a tax clearance, the executor/administrator to submit an inventory of
administrator/executor/heir must submit properties of the estate, these properties are to
additional documents to determine the be distributed only after payment of estate taxes
correctness of the values stated by him in the and receipt of clearance by the Commissioner or
estate tax return. his duly authorized representative
- such as the title of the land, tax declaration of - NOTE: The approval of the probate court is not
the land and its improvements or Certificate of required before estate taxes may be collected.
No-improvement, vicinity map to fix the exact The enforcement and collection of taxes are
location and zonal value, etc. executive in nature. (Marcos II vs. CA, 273 SCRA
(Read: Revenue Memorandum Order 15-2003) 47)
* Note: To avoid the imposition of penalties while b. Registers of Deeds shall not register in
there is no extra/judicial settlement yet, any heir the Registry of Property any document
may file a sworn declaration to the BIR stating transferring real property any document
transferring real property or real right therein or
the fact of death, that the estate has not yet
any chattel mortgage, by way of gift inter vivos
been settled and the list of the properties or mortis causa, legacy or inheritance, unless
included in the estate, as basis for payment of certification from the commissioner that the tax
estate tax. has been paid and the y shall immediately notify
the Commissioner, Regional Director, Revenue
District Officer, or Revenue collection Officer or
If Gross Estate >2M, additional
treasurer of the city or municipality where their
requirement:
officer are located, of the non-payment of the tax
- must submit a certificate of an independent
discovered by them. (Sec. 95)
CPA stating:
- before the properties are transferred in the
1. itemized assets of the decedent with
name of the heirs, a Certificate Authorizing
corresponding gross value at the time of
Registration (CAR) must be shown
his death;
or if NRA, that part of his gross estate
c. Any lawyer notary public, or any
situated in the Philippines
Government Officer who, by reason of his official
2. itemized deductions from the gross estate
duties, intervenes in the preparation or
3. amount of tax due, whether paid or still
acknowledgement of documents regarding
due and outstanding
partition or disposal of donation inter vivos or
mortis causa, legacy or inheritance, shall have
Liability for Payment of Estate Tax
the duty of furnishing the Commissioner, etc.,
with copies of such documents and any
Primarily Liable : Executor or administrator -
information whatsoever, which may facilitate the
before delivery to any beneficiary of his collection of the aforementioned tax. (Sec. 95)
distributive shares. After due payment, the - ex: deed of extrajudicial settlement, deed of
executor or administrator shall be discharged donation
from personal liability.
- For this purpose, all withdrawal slips shall 4. Set up a living trust
contain a statement to the effect that all of the - Trust: obligation imposed by a person
joint depositors are still living at the time of regarding his
withdrawal by any one of the joint depositors and property
such statement shall be under oath. Otherwise, - Create an irrevocable trust over your
the joint depositor will be liable for perjury (Sec. properties so that they will not form part of your
267). gross estate when you die. This is because the
Irrevocable Trust is a new taxpayer created.
- joint accounts covered by this rule include “and” - Ex: grandfather (Grantor) during his lifetime
and “and/or” accounts, but do not include an would like to give certain properties to his
account subject to a Survivorship Agreement with grandchild. Until he reaches the age of
maturity, the properties will be held in trust by
a survivor-take-all feature (because there is an X (trustee) for the grandchild (Beneficiary).
automatic transfer of right to the survivor; hence,
not included in gross estate of the joint depositor
who died – tax avoidance scheme)
Payable within 30 days Payable within 6 2.) The donor’s tax is also intended to prevent
from the date of gift months from the date the avoidance of income tax through the
of death device of splitting income among
Imposed on the net Imposed on the net numerous/different donees with the donor
gift estate thereby escaping the effect of the progressive
rates of income taxation.
II. DONOR’S TAX / GIFT TAX
Kinds Of Gift Taxes:
A. NATURE 1. Donor’s tax or tax levied on the act of
giving; it supplements the estate tax; and
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- It is an excise (privilege) tax, imposed on the
privilege of the donor to give or on the privilege 2. Donee’s tax or tax levied on the act of
of the done to receive. It is not a tax on the receiving; it was formerly the counterpart of
property as such because its imposition does not the inheritance tax, which has been
rest upon general ownership. integrated into an estate tax.
- The tax is imposed without reference to the *Both taxes have now been integrated into a
death of the donor unlike in the case of estate donor’s tax.
tax.
Parties To A Donation:
Donation / Gift 1. Donor - the Person who disposes of his
- an act of liberality whereby a person disposes property or right.
gratuitously of a thing or right in favor of another 2. Donee - the Person who receives the property
who accepts it. or right.
- For tax purposes, the term has a much wider Properties Included In The Term “Gift”
meaning, it includes:
(A). In the case of resident citizens, non-
a. any transfer in trust or otherwise, whether resident citizens and resident aliens:
the gift is direct or indirect, and whether the 1. Real property within and without the
property is real or personal, tangible or Philippines.
intangible. (Sec. 98) 2. Tangible personal property within and
without the Philippines; and
b. any transfer of property by gift, except in 3. Intangible personal property within and
forced sales and in the sale of real property without the Philippines.
which is a capital asset, for less than and
adequate and full consideration in money or (B.) In the case of non-resident aliens:
money’s worth. (Sec. 100) 1. Real property within the Philippines.
2. Tangible personal property within the
c. Condonation or remission of debt, where Philippines.
the creditor merely desires to benefit a 3. Intangible personal property within the
debtor and without any consideration Philippines, unless there is reciprocity in
therefore cancels the debt. which case, it is not taxable.
3.) donations made between business states that proprietary educational institutions
organizations may be given the same privileges subject to a
are considered donations made to strangers guideline; as a guideline, the NIRC does not
(RR 2-2003) provide for such exemption to them.
Note: Donees who have no blood relation to the 2. Gifts made by a Non-Resident Alien
donor are considered strangers to the donor, such a.) Gifts made to or for the use of the National
as those made to one’s in-laws or to juridical Government or any entity created by of its
persons. agencies which is not conducted for profit,
or to any political subdivision of the said
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2. Value of the Gift government.
- the higher the value of the gift, the higher the
gift taxes b.) Gifts in favor of educational, charitable,
religious, cultural or social welfare
corporation, institution, foundations trust or
C. DEDUCTIONS / EXEMPTIONS FROM GIFT philanthropic organization, research
TAX organization or institution; Provided, that no
more than 30% of said gifts shall be used by
1. Gifts Made by a Resident: such donee for administration purposes.
Note: doesn’t include accredited NGO
a.) Dowries or gifts made on account of marriage Note:
before its celebration or within one year 1. Intangible personal property in the gross gift of
thereafter by parents to each of their legitimate, a NON-RESIDENT ALIEN donor shall be taxable in
illegitimate or adopted children to the extent of the Philippines, if the PRINCIPLE OF RECIPROCITY
the first P10,000.00. is not cognizable.
Note:
For purposes of exemption, a non-profit
educational and/or charitable corporation,
institution, accredited non-government D. TAX TREATMENT OF PROPERTIES
organization, trust or philanthropic TRANSFERRED FOR LESS THAN FULL /
organization is defined as: ADEQUATE CONSIDERATION
school, trust or university and/ or
charitable corporation, foundation trust or General Rule: The amount by which the FMV of
philanthropic organization and/ or the property exceeded the value of the
research institution or organization consideration shall be deemed a gift
incorporated as a non-stock entity:
paying no dividends. Exception: real properties classified as capital
governed by trustees who receive no assets (not used in business) as there were
compensation; and already subjected to Capital Gains Tax
devoting all its income to the
accomplishment and promotion of the
purposes enumerated in its articles of E. TAX TREATMENT OF POLITICAL
incorporation. CONTRIBUTIONS
- any contribution in cash or in kind to any
candidate, political party or coalition of parties for
campaign purposes shall be governed by the
Note: Election Code; hence, this is not subject to gift
Only donations made to non-stock, non-profit tax (report to COMELEC?)
educational institutions are exempt from gift
taxes as although Article 14 of the Constitution
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REVIEW NOTES FOR TAXATION 2
13
F. TAX CREDIT FOR DONOR’S TAXES PAID TO Between those made to a public officer or his
A FOREIGN COUNTRY wife, descendants, ascendants by reason of
1. Donor was a Filipino citizen or resident alien, at his office.
the time of foreign donation
2. Donor’s taxes of any character and description Note: Effects Of General And Specific
are imposed and paid by the authority of a Renunciation
foreign country. - An heir’s general renunciation of inheritance in
favor of a co-heir is not subject to donor’s tax, but
if it is specifically renounced in favor of a co-heir
Limitations:
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to the exclusion of others, it shall be subject to
A.) For donor’s tax paid to one foreign country; donor’s tax.
The amount of tax credit in respect to the Note: Renunciation of a surviving spouse of
tax paid to any country shall not exceed the his/her share in the conjugal partnership or
same proportion of the tax against which absolute community after dissolution of
credit is taken which the net gifts situated marriage
within such country taxable under the - whether made in favor of the heirs of the
National Internal Revenue Code bears to his deceased spouse or in favor of a third person, the
entire net gift, and same is subject to donor’s tax
I. LAW APPLICABLE
Formula:
- the law in force at the time of the perfection /
1. Donor’s Tax Paid to 1 Foreign Country completion of the donation shall govern the
imposition of donor’s tax. A donation is
Tax Credit Limit = considered as completed FOR TAX PURPOSES at
the time the donee accepts the gift.
Net gift situated in a foreign country X Phil.
Donor’s Tax J. ADMINISTRATIVE PROVISIONS
Net gifts outside the Philippines X Phil. Requisites to be exempt from gift tax :
Donor’s Tax 1. Donor is engaged in business
2. Donee is any of the organizations
Entire net gifts mentioned under Sec. 101(A3) and Sec. 101 (B2)
3. Donor must give notice to the RDO on
Note: every donation worth at least P50,000.
Under limitation A the allowable tax credit 4. The notice must be given within 30 days
limit is the LOWER AMOUNT between the from the issuance by the donee of a Certificate of
tax credit limit and the gift tax paid to the Donation.
foreign country. 5. The certificate of Donation must be
attached to the notice.
Under limitation B the allowable tax credit
2. Filing of Donor’s Tax Return
is the LOWER AMOUNT between the tax
- within 30 days after the completion of the gift
credits; limit computed under A and that
- donation is completed FOR TAX PURPOSES at
computed Under B.
the time the donee accepts the gift
- Contents:
Note: Void Donations Are Not Subject To
1. Gifts made during the calendar year
Donor’s Tax
2. Deductions claimed and allowed
Such as:
3. Previous net gifts made during the
Between husband and wife, even if the
year
relationship has not been solemnized.
4. Name of the done
Between persons guilty of adultery or
5. Relationship of the donor and the done
concubinage. 6. Other information as may be required
Between those found guilty of the same
criminal offenses.
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
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3. Payment of Donor’s Tax Note: Do not deduct the first 100,000 in case of
- pay as you file the tax return donee-relatives as this is incorporated already in
- Note: if the donor’s tax was paid for the the table under Section 99.
transfer, there is no more need to subject the
transfer again to estate tax. Applying the Back General Rule: H and W are considered separate
Tax Theory, there is no tax that remained unpaid and distinct taxpayers for purposes of donor’s
regarding this transfer. tax.
Exception: What was donated is a conjugal
4. Extensions For Payment Of Donor’s Tax property and only H signed. There is only one
- the NIRC does not provide for any extension for donor, without prejudice to the right of W to
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payment of gift tax, as it is presumed that if you question the validity of the donation without
can donate, you still have sufficient properties to her consent.
pay for the tax. Unlike in estate tax where
extension is granted, because the payment of PROBLEMS
the tax may cause undue hardship on the heirs 1. Donations made by X
specifically for non-liquid properties which January – 300,000 to his brother
requires time to be sold first to be converted into April – 400,000 to his sister
cash for payment of the estate tax. August – 500,000 to his mother
For each of H and W the computation is: - No donor’s tax because as if A never inherited
500,000 – to A 250,000 anything from X and the transfer was made
- to B 250,000 directly from X to B and C.
A B
250,000 250,000 VALUE ADDED TAX
-10,000 _______
240,000 250,000 A. Value Added Tax
*2 to 15% * 30% - Indirect Tax
3, 600 75,000 - It is not the tax itself which is shifted or passed but
it is the burden to pay the tax
Why? Tax is Personal. Seller is still liable, required to register while registration is
only that the economic burden is shouldered option for VAT-exempt persons.
by the buyer.
F. Tax Credits
a. Transitional Input Tax Credits (Sec.
B. Transactions Subject to VAT (ISBEL) 111(A), NIRC, as amended by RA 9337)
a. Importation – whether or not in the regular b. Presumptive Input Tax Credits (Sec.
course of business 111(B), NIRC, as amended by RA 9337)
b. SaleBARCOM2008-09
conducted in the
c. Barter
regular course TAX ADMINISTRATION AND ENFORCEMENT
d. Exchange of business
e. Lease A. Tax Administration: Its general
concepts
* The phrase “in the course of business” means the - is the power of the Bureau of
regular conduct or pursuit of a commercial or an Internal Revenue (BIR) to enforced
economic activity, including transactions incidental and administer taxes.
thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, non-profit B. Government agencies involved in tax
private organization (irrespective of the disposition of administration
its net income and whether or not it sells exclusively to - the BIR and Bureau of Customs
members or their guests), or government entity. are tasked to implement revenues
laws as the case may be.
* VAT becomes due when the following conditioned
concur: C. The Bureau of Internal Revenue
filed income tax returns. (see the provisions of this Code, the
Sec.71, NIRC) Commissioner, after taking into account
the sales, receipts, income or other
Any internal revenue officer taxable base of other persons engaged in
who is or shall become interested, similar businesses under similar situations
directly or indirectly, in the or circumstances or after considering
manufacture, sale or importation of other relevant information may prescribe a
any article subject to excise tax minimum amount of such gross receipts,
under Title VI of this Code or in the sales and taxable base, and such amount
so prescribed shall be prima facie correct
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manufacture or repair or sale, of
any die for printing, or making of for purposes of determining the internal
stamps, or labels shall upon revenue tax liabilities of such person.
conviction for each act or omission,
be punished by a fine of not less
than Five thousand pesos (P5,000) d. Power to terminate tax
but not more than Ten thousand period (see Sec. 6 {d}),
pesos (P10,000), or suffer NIRC)
imprisonment of not less than two - When it shall come to the
(2) years and one (1) day but not knowledge of the Commissioner
more than four (4) years, or both. that a taxpayer is retiring from
(see Sec.270, NIRC) business subject to tax, or is
intending to leave the Philippines
or to remove his property
therefore or to hide or conceal his
property, or is performing any act
b. Power to make a returns tending to obstruct the
(Sec.6 {b}, NIRC) proceedings for the collection of
the tax for the past or current
What is “Best quarter or year or to render the
Evidence Obtainable Rule”? same totally or partly ineffective
unless such proceedings are
- In case a person fails to file a begun immediately, the
required return or other document Commissioner shall declare the
at the time prescribed by law, or tax period of such taxpayer
willfully or otherwise files a false terminated at any time and shall
or fraudulent return or other send the taxpayer a notice of
document, the Commissioner such decision, together with a
shall make or amend the return request for the immediate
from his own knowledge and from payment of the tax for the period
such information as he can obtain so declared terminated and the
through testimony or otherwise, tax for the preceding year or
which shall be prima facie correct quarter, or such portion thereof as
and sufficient for all legal may be unpaid, and said taxes
purposes. shall be due and payable
immediately and shall be subject
to all the penalties hereafter
c. Power to conduct inventory prescribed, unless paid within the
taking, surveillance and to time fixed in the demand made by
issue presumptive gross the Commissioner.
sales/receipts (see Sec.6
{c}, NIRC) - the BIR has the power to
- The Commissioner may, at any terminate tax period under the
time during the taxable year, order following instances:
inventory-taking of goods of any taxpayer
as a basis for determining his internal when the taxpayer conceals
revenue tax liabilities, or may place the his properties with the
business operations of any person, natural intention to evade taxes
or juridical, under observation or when the taxpayer is leaving
surveillance if there is reason to believe the Philippines with the
that such person is not declaring his intention to evade taxes
correct income, sales or receipts for when the taxpayer is
internal revenue tax purposes. The obstructing proceedings for
findings may be used as the basis for the collection of taxes
assessing the taxes for the other months when the taxpayer is
or quarters of the same or different
removing properties with the
taxable years and such assessment shall
intention of evading taxes
be deemed prima facie correct.
when the taxpayer is retiring
form business
When it is found that a person has
failed to issue receipts and invoices in
e. Power to fix real property
violation of the requirements of Sections
values (see Sec.6 {e}, NIRC)
113 and 237 of the Tax Code, or when
there is reason to believe that the books of
accounts or other records do not correctly - The Commissioner is authorized to
reflect the declarations made or to be divide the Philippines into different
made in a return required to be filed under zones or areas and shall, upon
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REVIEW NOTES FOR TAXATION 2
19
The power to compromise or abate shall (B) Abate or Cancel a Tax Liability,
not be delegated by the Commissioner, when:
except in the following cases;
(1) The tax or any portion thereof
a. assessments issued by
appears to be unjustly or
the regional offices
excessively assessed; or
involving basic taxes of
(2) The administration and
P 500,000.00 or less
collection costs involved do not
justify the collection of the
b. Minor criminal violations.
amount due.
These cases may be
compromised by the
regional evaluation All criminal violations may be
board. (see Sec.7, NIRC) compromised except: (a) those
already filed in court, or (b) those
involving fraud.
i. Enforcement of police power
(see Sec.15, NIRC)
D. The rule on estoppel in relation to tax ii. CIR v. Reyes, G.R. No. 159694,
administration January 27, 2006
a. Against the government
Tax payers shall be informed in writing of
The error made by a tax official in the assessment the law and the facts on which the
of his tax liabilities does not have the effect of assessment and the assessment is made;
relieving the taxpayer from the obligation to pay otherwise the assessment shall be void.
the full amount of his tax liability, for taxes are (2nd paragraph of section 228 is clear and
fixed by law and the government is never mandatory)
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estopped to collect the legitimate taxes because
of the errors committed by its agents. However, c. Kinds of Assessment
like other principles, the principle of estoppel also
admits exceptions in the interest of justice and d. Statute of Limitation on Assessment
fair play. The Commissioner is precluded from of Internal Revenue Taxes (Sections 203,
adopting a position inconsistent with one 222, NIRC)
previously taken where in justice would result
therefore or where there has been a General rule (sec203)
misrepresentation. Internal revenue taxes shall be assessed
within three years after the last day
Any mistakes committed by prescribed for the filing of the return, and
the agents of the sovereign, namely government no proceeding in court without
officials and employees are their own and cannot assessment for the collection of sluch
bind the government, which cannot be placed on taxes shall begun after the expiration of
estoppel on account of the mistakes of its agents. such period.
and the facts alleged and evidenced NIRC which is within the recognizance of
submitted by the parties were not the CFI. While there can be no civil action
sufficient to support a finding by the to enforce collection before the
supreme court on the matter – assessment procedures provided in the
prescription, being a matter of defense, code have been followed, there is no
imposes the burden on the taxpayer to requirement for the precise computation
prove that the full period of the limitation and assessment of the tax before there
has expired, and this requires him to can be a criminal prosecution under the
positively establish the date when the code.
period started running and when the same
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was fully accomplished. ii. CIR v. CA, G.R. No. 119322, 4 June
1996
g. Instances when pre-assessment is not
required (Section 228) Reading Ungab carefully, the
A preassessment notice shall not be pronouncement therein that deficiency
required in the following cases: assessment is not necessary prior to
When any tax deficiency is the result prosecution is pointedly and deliberately
of mathematical error in the qualified by the Court with following
computation of the tax as appearing statement quoted form Guzik v. U. S.: “the
on the face of the return. crime is complete when the violator has
When a discrepancy has been knowingly and willfully filed a fraudulent
determined between the tax return with intent to evade and defeat a
withheld and the amount actually part or all of the tax.” In plain words, for
remitted by the withholding agent. criminal prosecution to proceed before
When a taxpayer who opted to claim assessment, there must be a prima facie
a refund or tax credit of excess showing of willful attempt to evade taxes.
creditable withholding tax for a There was willful attempt to evade tax in
taxable period was determined to Ungab because of the taxpayer’s failure to
have carried over and automatically declare in his income tax return “his
applied the same amount claimed income derived from banana saplings.” In
against the estimated tax liabilities the mind of the trial court and the Court of
for the taxable quarter or quarters of Appeals, Fortune’s situation is quite apart
the succeeding taxable year. factually since the registered wholesale
When the excise tax due on price of the goods. Approved by the BIR, is
exciseable articles has not been paid. presumed to be the actual wholesale
When the article locally purchased or price, therefore, not fraudulent and unless
imported by an exempt person has and until the BIR has made a final
been sold, traded, or transferred to determination of what is supposed to be
non-exempt persons. the correct taxes, the taxpayer should not
be placed in the crucible of criminal
h. Governing principles concerning prosecution. Herein lies a whale of
assessment difference between Ungab and the case at
bar.
Injunction is not available to restrain the
collection of internal revenue taxes. iii. CIR v. Pascor Realty, 29 June 1999
Exception: the Court of Appeals may issue The issuance of an assessment is vital in
injunctions against administrative determining the period of limitation
collection, when collection could regarding its proper issuance and the
jeopardize the interest of the Government period within which to protest it. Section
or taxpayer. 203 of NIRC provides that internal revenue
taxes must be assessed within three years
i. When do we reckon the period when from the last day within which to file the
the assessment was made? return. Section 222, on the other hand,
specifies a period of ten years in case a
Internal revenue taxes shall be assessed fraudulent return with intent to evade was
within three years after the last day submitted or in case of failure to file a
prescribed by law for the filing of the return. Also, Section 228 of the same law
return. states that said assessment may be
protested only within thirty days from
In case where a return is filed beyond the receipt thereof. Necessarily, the taxpayer
three year period shall be counted form must be certain that a specific document
the day the return was filed. constitutes an assessment. Otherwise,
confusion would arise regarding the period
within which t make an assessment or to
j. Is assessment necessary before a
protest the same, or whether interest and
taxpayer could be prosecuted for violation
penalty may accrue thereon.
of the NIRC?
i. Ungab v. Cusi, May 30, 1980 k. Are the procedures outlined in Section
228 of the NIRC retroactive?
What is involved here is not collection of
taxes where the assessment of the i. CIR v. Reyes, G.R. No. 159694,
commissioner of internal revenue may be January 27, 2006
reviewed by the court of tax appeals, but
a criminal prosecution for violations of the
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
24
final. (Revenue Regulation No. 12-85, dated his protest of the assessment (Surigao Electric
Nov. 27, 1985.) Co. Inc. v. CTA, 57 SCRA 523)
4. The actual issuance of a warrant of
distraint and levy in certain cases cannot be
Effect of a protest on the period to collect considered as final decision on a disputed
deficiency taxes: settlement (CIR v. Union Shipping Corp)
The prescriptive period is arrested by the b. Effect of protest filed out of time
taxpayer's request
BARCOM2008-09for re-examination or
reinvestigation even if he has not previously The pendency of the taxpayer's appeal in the
waived it (CIR vs. Wyeth, G.R. No. 76281,Sep 30, Court of Tax Appeals and in the Supreme Court
1991) had the effect of temporarily staying the hands of
the said Commissioner. If the taxpayer's stand
Failure of the BIR to act within the 180-day that the pendency of the appeal did not stop the
period. running of the period because the Court of Tax
Appeals did not have jurisdiction over the case of
If the Commissioner or his duly authorized taxes is upheld, taxpayers would be encouraged
representative fails to act on the taxpayer’s to delay the payment of taxes in the hope of
protest within 180 days from the date of ultimately avoiding the same. Under the
submission by the taxpayer of the required circumstances, the running of the prescriptive
documents in support of his protest, the taxpayer period was suspended. Deficiency Percentage
may appeal to the CA within 30 days from the Taxes must be imposed.(PROTECTOR'S SERVICES,
lapse of the 180-day period. INC., petitioner, vs. CA, G.R. No. 118176, 2000
Apr 12)
b. Private sale: provided, it is with 4. Period with in to assess or collect has not
the approval of the Secretary of yet prescribed.
Finance.
When remedy not available:
Right of Redemption: Where amount involved does not exceed
a. Personal entitled – taxpayer or P100.
anyone for him In keeping with the provision on the
b. Time to redeem – within one (1) abatement of the collection of tax as the cost of
year from forfeiture same might even be more than P100.
c. Amount to be paid – full amount of Procedure:
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the taxes and penalties, plus 1. Service of warrant of distraint upon
interest and cost of the sale taxpayer or upon person in possession of
d. To whom paid – Commissioner or taxpayer’s personal property.
the Revenue Collection Officer 2. Posting of notice is not less than two
e. Effect of failure to redeem – places in the municipality or city and
forfeiture shall become absolute. notice to the taxpayer specifying time and
place of sale and the articles distrained.
NOTE: 3. Sale at public auction to highest bidder
The Register of Deeds is duty bound to 4. Disposition of proceeds of the sale.
transfer the title of property forfeited to
the government with out necessity of an
order from a competent court. Who may effect distraint Amount
7. Suspension of Business Operations Involved
8. Enforcement of Administrative Fines 1. Commissioner or his In excess of
duly authorized P1,000,000.00
D. ADMINISTRATIVE REMEDIES IN DETAIL representative P1,000,000.00
(SECS. 206-217, NIRC) 2. Revenue District Officer or less
A. DISTRAINT - Seizure by the government (RDO)
of personal property, tangible or intangible, to
enforce the payment of faces, to be followed by
its public sale, if the taxes are not voluntarily
paid.
KINDS How Actual Distraint Effected
a. Actual – There is taking of possession of 1. In case of Tangible Property:
personal property out of the taxpayer into that of a. Copy of an account of the property
the government. In case of intangible property, distrained, signed by the officer,
taxpayer is also diverted of the power of control left either with the owner or person
over the property. from whom property was taken, at
b. Constructive – The owner is merely the dwelling or place of business
prohibited from disposing of his personal and with someone of suitable age
property. and discretion
b. Statement of the sum demanded.
c. Time and place of sale.
- Obligate him to preserve the same b. Time to redeem: one year from date of
properties. sale or forfeiture
- Prohibit him from disposing the - Begins from registration of the deed of
property from disposing the sale or declaration of forfeiture.
property in any manner, with out - Cannot be extended by the courts.
the authority of the CIR. c. Possession pending redemption:
2. Where Taxpayer or person in possession owner not deprived of possession
refuses to sign: d. Price: Amount of taxes, penalties and
- Officer shall prepare list of the interest thereon from date of delinquency
property distrained. to the date of sale together with interest
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- In the presence of two witnesses of on said purchase price at 15% per annum
sufficient age and discretion, leave from date of purchase to date of
a copy in the premises where redemption.
property is located.
Difference between Distraint and Levy
Grounds of Constructive Distraint Distraint Levy
1. Taxpayer is retiring from any business personal property real property
subject to tax. forfeiture by forfeiture by
2. Taxpayer is intending to leave the government, not government authorized
Philippines; or provided where there is no bidder
3. To remove his property there from. or the highest bid is not
4. Taxpayer hides or conceals his property. sufficient to pay the
5. Taxpayer acts tending to obstruct taxes, penalties and
collection proceedings. costs.
Taxpayer no given the Taxpayer can redeem
NOTE: right of redemption properties levied upon
1. Bank accounts may be distrained without and sold/forfeited to the
violating the confidential nature of bank government.
accounts for no inquiry is made. BIR
simply seizes so much of the deposit with 1. Both are summary remedies for collection
out having to know how much the deposits of taxes.
are or where the money or any part of it 2. Both cannot be availed of where amount
came from. involved is not more than P100.
2. If at any time prior to the consummation
of the sale, all proper charges are paid to NOTE:
the officer conducting the same, the goods 1. It is the duty of the Register of Deeds
distrained shall be restored to the owner. concerned upon registration of the
3. When the amount of the bid for the declaration of forfeiture, to transfer the
property under distraint is not equal to the title to the property with out of an order
amount of the tax or is very much less from a competent court
than the actual market value of articles, 2. The remedy of distraint or levy may be
the CIR or his deputy may purchase the repeated if necessary until the full
distrained property on behalf of the amount, including all expenses, is
national government. collected.
MARCOS II V. CA, JUNE 5, 1997 (re: enforcement respondent had literally” laid his
of tax liability during pendency of probate cards on the table.
proceedings)
The BIR is authorized to collect estate tax 2. INTEREST- This is an increment on any
deficiency through the summary remedy unpaid amount of tax assessed at the rate of 20%
of the levying upon and sale of properties per annum or such higher rate as may be
of a decedent, without the cognition and prescribed by the regulations from the date
authority of the court sitting in probate prescribed for payment until the amount is
over the supposed will of the deceased, fully paid.
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because the collection of estate tax is
executive in character. As such the estate Classes of interest
tax is exempted from the application of
the statute of the non – claims, and this is 1. Deficiency interest
justified by the necessity of the 2. Delinquency interest
government finding, immortalized in the 3. Interest on extended payment
maxim that taxes are the lifeblood of the
government Deficiency interest
E. EFFECTS OF FAILURE TO PAY THE TAX ON Any deficiency in the tax due shall be
TIME: ADDITIONS TO THE TAX (CHAPTER I, subject to the interest of 20% per annum
TITLE X, NIRC) which shall be assessed and collected
from the date prescribed for its payment
1. SURCHARGES- a civil penalty imposed until the full payment thereof.
by law as an addition to the main tax required to
be paid. It is not a criminal penalty but a civil When delinquency interest imposed?
administrative sanction provided primarily as
safeguard for the protection of the State Delinquency interest is imposed in case of
revenue and to reimburse the government for the failure to pay:
expenses of investigation and the loss 1. The amount of the tax due on any
resulting from the taxpayer’s fraud. A surcharge return required to be filed; or
added to the main tax is subject to 2. The amount of tax due for which no
interest. return is required; or
3. A deficiency tax or any surcharge or
a. ORDINARY (SEC. 248A, NIRC) interest thereon on the issue date
appearing in the notice and demand of
Penalty: 25% of the amount due, in addition to the Commissioner.
the tax required to be paid
Rate is 20% per annum until the amount is
a. Failure to file any return and to pay fully paid which interest shall form part of
the tax due thereon as required by the tax.
the NIRC or rules.
b. Filing a return with an internal Interest on Extended Payment.
revenue officer other than those 1) any person who is qualified and elects to pay
with whom the return is required to the tax on installment but fails to pay the tax, or
be fired. Not authorized officer. any installment, or any part on or before the date
c. Failure to pay the deficiency tax prescribed; or
within the time prescribed for its 2) where the Commissioner has authorized an
payment in the notice of extension of time within which to pay a tax or a
assessment. deficiency tax or any part thereof,
d. Failure to pay the full or part of the 3) from the date of notice and demand until it is
amount of tax shown on any paid.
return, or the full amount of tax
due for which no return is required Compromise Penalty
to be filed, on or before the date 1. It is a certain amount of money which the
prescribed for its payment. taxpayer pays to compromise a tax
violation.
b. FRAUD PENALTY (SEC. 248B, NIRC) 2. It is pain in lieu of a criminal prosecution.
3. Since it is voluntary in character, the same
Penalty: 50% of the amount due, in addition to may be collected only if the taxpayer is
the tax required to be paid willing to pay them.
a. In case of willful neglect to file the Failure to File Certain Information Returns
return within the period prescribed (Sec. 250, NIRC)
by the NIRC or rule. A) Penalty: P 1,000 for each failure
b. In case a false or fraudulent return B) The aggregate amount for all such failure shall
is willfully made. not exceed P 25,000 during a calendar year
C) Upon notice and demand by the Commissioner
CASE: CIR V. JAVIER, JULY 31, 1991 D) Unless it is shown that such failure is due to
There was no actual intentional reasonable cause and not to willful neglect.
fraud in filing the return. Private In the case of each failure to file:
respondent’s notation on the tax 1) information return;
return was at most an error or 2) statement or list;
mistake of fact or law not 3) keep any record;
constituting fraud, an invitation 4) supply any information
for investigation and private
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REVIEW NOTES FOR TAXATION 2
33
E) required by this Code or by the Commissioner such tax powers subject only to
on the date prescribed thereof. specific exceptions that the law
might prescribe. Under the now
prevailing Constitution, where
LOCAL TAXATION there is neither a grant nor a
prohibition by statute, the tax
A. Local Taxation: General Concepts power must be deemed to exist
1. Nature of Local Taxing Power although Congress may provide
statutory limitations and
a. Constitutional Provision (Section 5, guidelines. The basic rationale for
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Article X) the current rule is to safeguard the
viability and self-sufficiency of local
“Each local government unit shall have government units by directly
the power to create its own sources of granting them general and broad
revenues and to levy taxes, fees and tax powers. Nevertheless, the
charges subject to such guidelines and fundamental law did not intend the
limitations as the Congress may delegation to be absolute and
provide, consistent with the basic policy unconditional; the constitutional
of local autonomy. Such taxes, fees, and objective obviously is to ensure
charges shall accrue exclusively to the that, while the local government
local governments.” units are being strengthened and
made more autonomous, the
b. Delegated Power legislature must still see to it that
i. City of San Pablo Laguna vs. Reyes, (a) the taxpayer will not be over-
March 25, 1999 burdened or saddled with multiple
and unreasonable impositions; (b)
“The power to tax is primarily each local government unit will
vested in Congress. However, in have its fair share of available
our jurisdiction, it may be exercised resources, (c) the resources of the
by local legislative bodies, no national government will not be
longer merely by virtue of a valid unduly disturbed; and (d) local
delegation as before, but pursuant taxation will be fair, uniform, and
to direct authority conferred by just.”
Section 5, Article X of the
Constitution. The important legal iii. Mactan Cebu International Airport
effect of Section 5 is that Authority vs. Marcos, September
henceforth, in interpreting 11, 1996
statutory provisions on municipal
fiscal powers, doubts will have to “The taxing powers of local
resolved in favor of municipal government units cannot extend to
corporations.” the levy of, inter alia, “taxes, fees
and charges of any kind on the
ii. Meralco vs. Province of Laguna, National Government, its agencies
May 5, 1999 and instrumentalities, and local
government units”; however,
“Prefatorily, it might be well to pursuant to Section 232, provinces,
recall that local governments do cities, and municipalities in the
not have the inherent power to tax Metropolitan Manila Area may
except to the extent that such impose the real property tax except
power might be delegated to them on, inter alia, “real property owned
either by the basic law or by by the Republic of the Philippines
statute. Presently, under Article X or any of its political subdivisions
of the 1987 Constitution, a general except when the beneficial use
delegation of that power has been thereof has been granted, for
given in favor of local government consideration or otherwise, to a
units. The 1987 Constitution has a taxable person,” as provided in
counterpart provision in the 1973 item (a) of the first paragraph of
Constitution, which did come out Section 234.”
with a similar delegation of
revenue making powers to local iv. NAPOCOR vs. City of Cabanatuan,
governments. Under the regime of April 9, 2003
the 1935 Constitution no similar
delegation of tax powers was “In recent years, the increasing
provided, and local government social challenges of the times
units instead derived their tax expanded the scope of state
powers under a limited statutory activity, and taxation has become a
authority. Whereas, then, the tool to realize social justice and the
delegation of tax powers granted equitable distribution of wealth,
at that time by statute to local economic progress and the
governments was confined and protection of local industries as
defined (outside of which the well as public welfare and similar
power was deemed withheld), the objectives. Taxation assumes even
present constitutional rule (starting greater significance with the
with the 1973 Constitution), ratification of the 1987
however, would broadly confer Constitution. Thenceforth, the
Petitioner is already paying three (3%) - Those already covered by the Tariff
percent common carrier's tax on its and Customs Code;
gross sales/earnings under the - Duties upon products
National Internal Revenue Code.[19] To about to be exported and
tax petitioner again on its gross goods passing through
receipts in its transportation of territorial jurisdiction
petroleum business would defeat the cannot be taxed by LGUs.
purpose of the Local Government
Code. - Taxation of the National
Government, including its agencies
c. Palma Development Corp. vs. and instrumentalities as we as local
Municipality of Malangas, October 16, government units;
2003 (Sec. 133e)
- Those subjects not within the ambit
By express language of Sections 153 of real taxation by reason of public
and 155 of RA No. 7160, local policy, i.e. Cooperatives registered
government units, through their under RA 6938 (CDA);
Sanggunian, may prescribe the terms
and conditions for the imposition of toll - Those enjoying privileges as
fees or charges for the use of any granted by the Board of
public road, pier or wharf funded and Investments (Investments Priorities
constructed by them. A service fee Plan);
imposed on vehicles using municipal - Both pioneer and non-
roads leading to the wharf is thus pioneer enterprises enjoy
valid. However, Section 133(e) of RA such kind of privileges
No. 7160 prohibits the imposition, in under the Omnibus
the guise of wharfage, of fees -- as well Investments Code.
as all other taxes or charges in any
form whatsoever -- on goods or - Taxes on agricultural or aquatic
merchandise. It is therefore irrelevant products sold by marginal
if the fees imposed are actually for enterprises;
police surveillance on the goods,
because any other form of imposition - Taxes, fees, or charges for the
on goods passing through the registration of motor vehicles and
territorial jurisdiction of the for the issuance of all kinds of
municipality is clearly prohibited by licenses or permits for the driving
Section 133(e). thereof, except tricycles.
d. Batangas Power Corp. vs. Batangas
City, April 28, 2004 (Section 133g) - LTO vs. Butuan – Congress has no
intention to delegate issuance of
Sec. 133 (g) of the LGC, which permits to LGUs. The intention of
proscribes local government units the law is to centralize issuance of
(LGUs) from levying taxes on BOI- permits to drive motor vehicles
certified pioneer enterprises for a including tricycles is to monitor the
period of six years from the date of operation of the same. Section
registration, applies specifically to 133(l) is only for franchise where
taxes imposed by the local to grant the same is within the
government, like the business tax discretion of LGUs. The permit to
imposed by Batangas City on BPC in drive is issued by LTO.
the case at bar. Reliance of BPC on the
provision of Executive Order No. 226, 4. Time of Payment (Section 167, LGC)
[18] specifically Section 1, Article 39,
Title III, is clearly misplaced as the six- Unless otherwise provided in LGC, all local
year tax holiday provided therein taxes, fees, and charges shall be paid
which commences from the date of within the first twenty (20) days of January
commercial operation refers to income or of each subsequent quarter, as the case
taxes imposed by the national may be. The Sanggunian concerned may,
government on BOI-registered pioneer for a justifiable reason or cause, extend
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
36
the time for payment of such taxes, fees, iii. May levy taxes, fees, and charges not
or charges without surcharges or otherwise levied by provinces (Sec.
penalties, but only for a period not 142)
exceeding six (6) months.
satisfy the requirement of proceedings - General Rule: All local taxes, fees and
in personam. As such, mere charges shall be paid within the first 20
publication of the notice of delinquency days of January or of each subsequent
would not suffice, considering that the quarter, as the case may be.
procedure in tax sales is in personam. It - Except:
was, therefore, still incumbent upon the
city treasurer to send the notice of tax i. Unless otherwise provided by the LGC
delinquency directly to the taxpayer in
BARCOM2008-09 ii. The Sanggunian concerned may, for a
order to protect the interests of the
justifiable reason or cause, extend the
latter. time for payment of such taxes, fees, or
charges or penalties, but only for a
In the present case, the notice of period not exceeding 6 months.
delinquency was sent by registered
mail to the permanent address of the Surcharges, Interests and Penalties
registered owner in Manila. In that – (Sec. 168, LGC)
notice, the city treasurer of Baguio City
directed him to settle the charges - Sanggunian may impose:
immediately and to protect his interest
in the property. Under the i. Surcharge – not exceeding 25% of the
circumstances, we hold that the notice amount of taxes, fees or charges not
sent by registered mail adequately paid on time and
protected the rights of the taxpayer,
who was the registered owner of the ii. Interest – not exceeding 2% per month
condominium unit. of the unpaid taxes, fees or charges,
For purposes of the real property including surcharges, until such amount
tax, the registered owner of the is fully paid, BUT in no case shall the
property is deemed the taxpayer. total interest on the unpaid amount or
Hence, only the registered owner is portion thereof exceed 36 months.
entitled to a notice of tax delinquency
and other proceedings relative to the B. REMEDIES OF THE TAXPAYER
tax sale. Not being registered owners of
the property, petitioners cannot claim a. ADMINISTRATIVE
to have been deprived of such notice. In
Appeal to the Secretary of
fact, they were not entitled to it.
Justice; Re: newly enacted tax
ordinance (Sec. 187, LGC) –
b. JUDICIAL (Sec. 174, LGC)
Any question on the
constitutionality or legality of tax
1) Civil Action in the court
ordinances or revenue measures;
Within 30 days from its effectivity.
2) Filed by Local Treasurer
1. Drilon vs. Lim, (August 4, 1994)
3) Within 5 years from the date - Section 187 authorizes the
the taxes, fees or charges Secretary of Justice to review only
became due the constitutionality or legality of
the tax ordinance and, if
warranted, to revoke it on either
Period within which to or both of these grounds. When he
collect – within 5 years alters or modifies or sets aside a
from the date of assessment tax ordinance, he is not also
by administrative or judicial permitted to substitute his own
judgment for the judgment of the
action
local government that enacted the
measure. Secretary Drilon did set
aside the Manila Revenue Code,
c. OTHER PROVISIONS
but he did not replace it with his
Accrual of the tax – (Sec. 166, own version of what the Code
should be. He did not pronounce
LGC)
the ordinance unwise or
- General rule: All local taxes, fees, and unreasonable as a basis for its
charges shall accrue on the 1st day of annulment. He did not say that in
January of each year. his judgment it was a bad law.
What he found only was that it
- Except: was illegal. All he did in reviewing
the said measure was determine if
i. Unless otherwise provided in the LGC, the petitioners were performing
their functions is accordance with
ii. New taxes, fees or charges, or changes law, that is, with the prescribed
in the rates thereof, shall accrue on the procedure for the enactment of
1st day of the quarter next following the tax ordinances and the grant of
effectivity of the ordinance imposing powers to the city government
such new levies or rates under the Local Government Code.
As we see it, that was an act not
Time of payment – (Sec. 167, LGC) of control but of mere supervision.
Remedies from a denial of the located. Under the Local Government Code, local
protest and refund government units are mandated to fix a uniform
rate of basic real property tax applicable to their
- It should not only be the written respective localities, the proceeds of which
claim before the treasurer that exclusively accrue to them. (See Secs. 233 and
must be filed in 2 years but the 271, LGC)”, [Page 479, Tax Law and
taxpayer must also be able to file Jurisprudence, 2000 Edition by Justice Vitug and
a case in court before the Judge Acosta].
expiration of the 2 year period.
BARCOM2008-09
- There is no appellate remedy from CHARACTERISTIC OF REAL PROPERTY TAX:
the denial of the treasurer before 1. Direct tax on the ownership of real
the regular court but an property
independent and original action 2. Ad Valorem tax. The value is based on
for refund. the tax base
3. Proportion - the tax is calculated on the
b. JUDICIAL basis of a certain percentage of the value
assessed
Questioning Tax Sale 4. Indivisible single obligation
5. Local Tax
to meet the needs of a particular (9) Docks and structures which, though
industry, business or activity shall not be floating, are intended by their nature and
considered within the definition of object to remain at a fixed place on a
machinery. (Sec. 290 [o], IRR of RA river, lake, or coast;
7160)
(10) Contracts for public works, and
Improvements include valuable servitudes and other real rights over
additions made to a property or an immovable property. “
amelioration in its condition, amounting to
more than a mere repair or replacement of
BARCOM2008-09
In Caltex vs. CBAA, May 31, 1982:
parts involving capital expenditures and
labor, which is intended to enhance its
value, beauty or utility or to adopt it for Machinery and equipment,
new or further purposes. consisting of underground tanks, elevated
tanks, water tanks, gasoline pumps,
Note: Although the term real property computing pumps, water pumps, car
has not been expressly defined in the LGC, early washer, car and truck hoists, air
decisions of the Supreme Court in compressors and similar articles, installed
Mindanao Bus Co. v City Assessor of Cagayan de by Caltex (Philippines) Inc. in its gasoline
Oro, 6 SCRA `97; Board of Assessment stations, located on leased land, have
Appeals v Meralco, 119 PHIL 328; Manila been held to be real property subject to
Electric Co. v Board of Assessment the tax. (real properties which have
Appeals,10 SCRA 68) seem to suggest that Art. characteristics of permanency, the lease is
415 of the Civil Code could also be controlling, for a long period of time)
to wit:.
2001 BAR QUESTION: Under
“Art. 415. The following are immovable Article 415 of the Civil Code, in order
property: for machinery and equipment to be
(1) Land, buildings, roads and considered real property, they must
constructions of all kinds adhered to the be placed by the owner of the land
soil; and, in addition, must tend to
directly meet the needs of the
(2) Trees, plants, and growing fruits, while industry or works carried on by the
they are attached to the land or form an owner. Oil companies, such as
integral part of an immovable; Caltex and Shell, install underground
tanks in the gasoline stations
located in land leased by the oil
(3) Everything attached to an immovable
companies from others. Are those
in a fixed manner, in such a way that it
underground tanks, which were not
cannot be separated therefrom without
placed there by the owner of the
breaking the material or deterioration of
land but by the lessee, considered
the object;
real property for purposes of real
property taxation under the LGC?
(4) Statues, reliefs, paintings or other SUGGESTED ANSWER FROM UP
objects for use or ornamentation, placed LAW CENTER: Yes. The
in buildings or on lands by the owner of underground tanks although
the immovable in such a manner that it installed by the lessee, Shell and
reveals the intention to attach them Caltex, are considered as real
permanently to the tenements; property for purposes of the
imposition of real property taxes. It
(5) Machinery, receptacles, instruments or is only for purposes of executing a
implements intended by the owner of the final judgment that these machinery
tenement for an industry or works which and equipment, installed by the
may be carried on in a building or on a lessee on a leased land, would not
piece of land, and which tend directly to be considered as real property. But
meet the needs of the said industry or in the imposition of real property
works; tax, the underground tanks are
taxable as necessary fixtures of the
(6) Animal houses, pigeon-houses, gasoline station without which the
beehives, fish ponds or breeding places of gasoline station would not be
similar nature, in case their owner has operational. (Caltex v. CBAA, 114
placed them or preserves them with the SCRA 296).
intention to have them permanently
attached to the land, and forming a SPECIAL CLASSES OF REAL PROPERTY (Sec.
permanent part of it; the animals in these 216, LGC)
places are included; 1. HOSPITALS
2. CULTURAL and SCIENTIFIC purposes
(7) Fertilizer actually used on a piece of 3. owned and used by LOCAL WATER
land; DISTRICTS
4. GOCCs rendering essential public
(8) Mines, quarries, and slag dumps, while services in the supply and distribution of
the matter thereof forms part of the bed, water and/or generation or transmission of
and waters either running or stagnant; electric power.
E. Properties Exempt
Actual Use of Property as Basis for The Court also laid down the procedure in
Assessment (Sec. 217, LGC) computing the real property tax. With the
Real property shall be classified, introduction of assessment levels, tax rates could
valued and assessed on the basis of actual use be maintained, although tax payments can be
regardless of where located, made either higher or lower depending on their
whoever owns it, and whoever uses it. percentage (assessment level) applied to the fair
market value of property to derive its assessed
Beneficial User May Be value which is subject to tax. Moreover, classes
Liable if: and values of real properties can be given proper
* he leased property from consideration, like assigning lower assessment
the government levels to residential properties and higher levels
* he leased property from to properties used in business. The procedural
an exempt owner steps in computing the real property tax are as
* use is not exempt from follows:
real property tax