Taxation Law Reviewer Beda PDF

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
6. levied for a public purpose.

I. GENERAL PRINCIPLES
REQUISITES OF A VALID TAX
POWER OF TAXATION 1. should be for a public purpose
TAXATION – power by which the 2. the rule of taxation shall be uniform
sovereign through its law-making body 3. that either the person or property
raises revenue to defray the necessary taxed be within the jurisdiction of
expenses of government from among the taxing authority
those who in some measure are 4. that the assessment and collection
privileged to enjoy its benefits and must of certain kinds of taxes guarantees
bear its burdens. against injustice to individuals,
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
The power to tax is an attribute of
6. Subject to be taxed, provided it is sovereignty emanating from necessity. It
within its jurisdiction is a necessary burden to preserve the
7. Situs of taxation State's sovereignty and a means to give
the citizenry an army to resist an
TAXES – enforced proportional aggression, a navy to defend its shores
contributions from the persons and from invasion, a corps of civil servants to
property levied by the law-making body serve, public improvements designed for
of the State by virtue of its sovereignty the enjoyment of the citizenry and those
in support of government and for public which come within the State's territory,
needs. and facilities and protection which a
government is supposed to provide.
CHARACTERISTICS OF TAXES (Phil. Guaranty Co., Inc. v. CIR)
1. forced charge;
2. pecuniary burden payable in money; 3. Benefits-Protection / Reciprocity
3. levied by the legislature; Theory
4. assessed with some reasonable rule Taxation is described as a symbiotic
of apportionment; (see theoretical relationship whereby in exchange of the
justice) benefits and protection that the citizens
5. imposed by the State within its get from the Government, taxes are
jurisdiction; paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE
CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian Cabrera,
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Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court’s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS POWER TO TAX THE POWER TO DESTROY?
THE interference extends to the
1. “Power to tax is the power to administrative realm.
destroy” (Marshall Dictum) – refers
to the unlimitedness and the degree ASPECTS OF TAXATION
or vigor with which the taxing power 1. Levy or imposition of the tax (tax
may be employed to raise revenue. legislation)
- the financial needs of the State may 2. Enforcement or tax administration
outrun any human calculation, so the (tax administration)
power to meet those needs by taxation
must not be limited even though taxes BASIC PRINCIPLES OF A SOUND TAX SYSTEM (KEY:
become burdensome or confiscatory. FAT)
1. Fiscal Adequacy – sufficiency to
2. “Power to tax is not the power to meet government expenditures and
destroy while the Supreme Court sits” other public needs.
(Holmes Dictum) – the power to tax 2. Administrative Feasibility/
knows no limit except those expressly Convenience – capability of being
stated in the Constitution. effectively enforced.
Marshall and Holmes Dictum Reconciled
3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Although the power to tax is almost
progressive. (Ability to Pay Theory)
unlimited, it must not be exercised in an
arbitrary manner. If the abuse is so
great so as to destroy the natural and TAXATIO POLICE EMINENT
fundamental rights of people, it is the N POWER DOMAIN
1. Purpose
duty of the judiciary to hold such an act To raise To promote To facilitate
unconstitutional. revenue public the State’s
purpose need of
PURPOSES AND OBJECTIVES OF TAXATION through property for
1. Revenue – basically, the purpose of regulations public use
taxation is to provide funds or 1. Amount of Exaction
property with which the State No limit Limited to No exaction;
promotes the general welfare and the cost of but private
protection of its citizens. regulation, property is
issuance of taken by the
2. Non-Revenue (Key: PR2EP)
the license State for
a. Promotion of general welfare or public
b. Regulation surveillance purpose
c. Reduction of social inequality
d. Encourage economic growth
e. Protectionism
2. Benefits Received
No special No direct A direct
POWER OF JUDICIAL REVIEW IN TAXATION or direct benefit is benefit
As long as the legislature, in benefit is received; a results in the
imposing a tax, does not violate received by healthy form of just
applicable constitutional limitations or the economic compensatio
restrictions, it is not within the province taxpayer; standard of n to the
merely society is property
of the courts to inquire into the wisdom general attained owner
or policy of the exaction, the motives benefit of
behind it, the amount to be raised or the protection
 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS: Jemina
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the effect that motor vehicle
4. Non-impairment of Contracts registration fees are regulatory
Contracts Contracts Contracts exactions and not revenue measures.
may not be may be may be
impaired impaired impaired
b. The tax imposed on videogram
5. Transfer of Property Rights
establishments is not only regulatory but
Taxes paid No transfer Transfer is
become but only effected in
a revenue measure because the earnings
part of restraint in favor of the of such establishments have not been
public its exercise State subject to tax depriving the government
funds of an additional source of income. (Tio
6. Scope v. Videogram Regulatory Board, 151
All persons, All persons, Only upon a SCRA 208)
property property, particular
and excises rights and property
privileges c. The “coconut levy funds” were
all raised under the state’s taxing and
SYSTEMS OF TAXATION police powers.
Global System Schedular System The state’s concern to make it a
strong and secure source not only in the
A system A system employed livelihood of the significant segment of
employed where where the income the population, but also of export
the tax system tax treatment varies earnings, the sustained growth of which
views and is made to is one of the imperatives of the
indifferently the depend on the kind economic growth.” Philippine Coconut
tax base and or category of Producers Federation, Inc. Cocofed v.
generally treats taxable income of Presidential Commission on Good
in common all the taxpayer.
Government (178 SCRA 236, 252)
categories of
taxable income
of the individual. CONSTRUCTION OF TAX LAWS
A system which A system which 1. Public purpose is always presumed.
taxes all itemizes the 2. If the law is clear, apply the law in
categories of different incomes accordance to its plain and simple
income except and provides for tenor.
certain passive varied percentages 3. A statute will not be construed as
incomes and of taxes, to be imposing a tax unless it does so
capital gains. It applied thereto. clearly, expressly and
prescribes a
unitary but
unambiguously.
progressive rate 4. In case of doubt, it is construed most
for the taxable strongly against the Government,
aggregate and liberally in favor of the
incomes and flat taxpayer.
rates for certain 5. Provisions of a taxing act are not to
passive incomes be extended by implication.
derived by 6. Tax laws operate prospectively
individuals. unless the purpose of the legislature
to give retrospective effect is
EXAMPLES OF TAXES LEVIED WITH A REGULATORY expressly declared or may be
PURPOSE, OR COMBINED EXERCISE OF POLICE implied from the language used.
POWER AND THE POWER OF TAXATION. 7. Tax laws are special laws and
prevail over a general law.
a. Motor vehicle registration fees
are now considered revenue or tax NATURE OFTAX LAWS
measures.(Pal v. Edu, G.R No. L-41383, 1. Not political in character
August 15,1988) 2. Civil in nature, not subject to ex
This case reversed the doctrine post facto law prohibitions
previously held in Republic v. Philippine 3. Not penal in character
Rabbit Bus Lines, Inc., 32 SCRA 211, to
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TAXES ARE PERSONAL TO THE TAXPAYER 1. As to burden:
1. A corporation’s tax delinquency a. Direct Tax – both the incidence
cannot be enforced against its of or liability for the payment of
stockholders. (Corporate Entity the tax as well as the impact or
Doctrine) burden of the tax falls on the
Exception: Stockholders may be same person.
held liable for unpaid taxes of a b. Indirect Tax - The incidence of
dissolved corporation: or liability for the payment of
a. if it appears that the the tax falls on one person but
corporate assets have the burden thereof can be
passed into their hands or shifted or passed on to another.
b. when the stockholders have 1. As to purpose:
unpaid subscriptions to the a. General Tax – levied for the
capital of the corporation general or ordinary
purposes of the
1. Estate taxes are obligations that Government
must be paid by the executor or b. Special Tax – levied for
administrator out of the net assets special purposes
and cannot be assessed against the 1. As to manner of computation:
heirs. a. Specific Tax – the computation
Exception: If prior to the payment of the tax or the rates of the tax
of the estate tax due, the properties is already provided for by law.
of the deceased are distributed to b. Ad Valorem Tax – tax upon the
the heirs, then the latter is value of the article or thing
subsidiary liable for the payment of subject to taxation; the
such portion of the estate tax as his intervention of another party is
distributive share bears to the total needed for the computation of
value of the net estate. (Sec. 9, the tax.
Rev. Regs. No. 2-2003; see CIR vs. 1. As to taxing authority:
Pineda G.R. No. L-22734. a. National Tax – levied by the
September 15, 1967)) National Government
b. Local Tax – levied by the local
CLASSIFICATION OF TAXES government
1. As to subject matter: 1. As to rate:
a. Personal Tax – taxes are of a. Progressive Tax – rate or
fixed amount upon all amount of tax increases as the
persons of a certain amount of the income or earning
class within the to be taxed increases.
jurisdiction without b. Regressive Tax – tax rate
regard to property, decreases as the amount of
occupation or business income to be taxed increases.
in which they may be c. Proportionate Tax – based on a
engaged. fixed proportion of the value of
b. Property Tax – assessed on the property assessed.
property of a certain
class IMPOSITIONS NOT STRICTLY CONSIDERED AS TAXES
c. Excise Tax – imposed on 1. Toll – amount charged for the cost
the exercise of a and maintenance of the property
privilege used.
d. Customs Duties – duties 2. Penalty – punishment for the
charged upon the commission of a crime.
commodities on their 3. Compromise Penalty – amount
being imported into or collected in lieu of criminal
exported from a prosecution in cases of tax
country. violations.
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4. Special Assessment – levied only on Assessment.

land based wholly on benefit
accruing thereon as a result of Tax License Fee
improvements or public works
undertaken by government within Based on the Emanates from
power of taxation police power
the vicinity.
5. License or Fee – regulatory To generate Regulatory
imposition in the exercise of the revenue
police power.
6. Margin Fee – exaction designed to Amount is Amount is limited
stabilize the currency. unlimited to the cost of (1)
issuing the
7. Debt – a sum of money due upon license, and (2)
contract or one which is evidenced inspection and
by judgment. surveillance
8. Subsidy – a legislative grant of
money in aid of a private enterprise Normally paid Normally paid
deemed to promote the public after the start of a before
business commencement of
welfare.
business
9. Customs duties and fees – duties
charged upon commodities on their Taxes, being the License fee may
being transported into or exported lifeblood of the be with or without
from a country. State, cannot be consideration
10. Revenue – a broad term that surrendered
except for lawful
includes taxes and income from
consideration
other sources as well.
11. Impost – in its general sense, it Non-payment does Non-payment
signifies any tax, tribute or duty. In not make the makes the
its limited sense, it means a duty on business illegal business illegal
imported goods and merchandise. but maybe a
ground for
criminal
Tax Special
prosecution
Assessment
Imposed on Levied only on land TEST IN DETERMINING IF THE IMPOSITION IS A TAX OR A

persons, property LICENSE FEE
and excises If the purpose is primarily revenue
or if revenue is, at least, one of the real
Personal liability Cannot be made a and substantial purposes, then the
attaches on the personal liability of
exaction is a tax. If the purpose is
person assessed in the person assessed
case of non- regulatory in nature, it is a license.
payment (PAL v. Edu)
Not based on any Based wholly on Tax Debt

special or direct benefit
benefit An obligation Created by
imposed by law contract
Levied and paid Exceptional both as
annually to time and locality
Due to the May be due to the
government in its government but in
Exemption granted Exemption does
sovereign capacity its corporate
is applicable (Art. not apply.
capacity
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real
Payable in money Payable in money,
Property Tax, it is
property or
also exempt from
services
Special

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Does not draw Draws interest if public authority by private
interest except in stipulated or individual
case of delayed
delinquency
COMPENSATION OR SET-OFF
General Rule: Taxes cannot be the
Not assignable Assignable
subject of compensation or set-off.
Not subject to Subject to Reasons:
compensation or compensation or 1. lifeblood theory
set-off set-off 2. taxes are not contractual
obligation but arise out of duty
Non-payment is No imprisonment in to the government
punished by case of non- 3. the government and the
imprisonment payment (Art. III,
taxpayer are not mutually
except in poll tax Sec. 20 1987
Constitution) creditors and debtors of each
other. (Francia v. IAC)
Imposed only by Can be imposed by Exception: When both obligations are
public authority private individual due and demandable as well as fully
TEST IN DETERMINING IF THE IMPOSITION IS A TAX OR A liquidated and all the requisites for a
LICENSE FEE valid compensation are present,
If the purpose is primarily revenue or compensation takes place by operation
if revenue is, at least, one of the real of law. (Domingo v. Garlitos)
and substantial purposes, then the
exaction is a tax. If the purpose is DOCTRINE OF EQUITABLE RECOUPMENT NOT
regulatory in nature, it is a license. FOLLOWED IN THE PHILIPPINES
(PAL v. Edu) A tax presently being assessed
against a taxpayer which has prescribed
Tax Debt may not be recouped or set-off against
an overpaid tax the refund of which is
An obligation Created by also barred by prescription. It is against
imposed by law contract public policy since both parties are
guilty of negligence.
Due to the May be due to the
government in its government but Tax Toll
sovereign capacity in its corporate
capacity Enforced A sum of money for
proportional the use of
Payable in money Payable in money, contributions from something, a
property or persons and consideration
services property which is paid for
the use of a
Does not draw Draws interest if property which is
interest except in stipulated or of a public nature;
case of delayed e.g. road, bridge
delinquency
A demand of A demand of
Not assignable Assignable sovereignty proprietorship
Not subject to Subject to No limit as to the Amount of toll

amount of tax depends upon the
compensation or compensation or
cost of construction
set-off set-off
or maintenance of
the public
Non-payment is No imprisonment improvement used
punished by in case of non-
imprisonment payment (Art. III, Imposed only by the May be imposed by:
except in poll tax Sec. 20 1987 State (1) Government
Constitution) (2) Private
individuals or
Imposed only by Can be imposed entities

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the enforcement of an invalid
Tax Penalty or unconstitutional law
Enforced Sanction imposed LIMITATIONS ON THE TAXING

proportional as a punishment
contributions from for violation of a POWER
persons and law or acts
property deemed injurious; A. INHERENT LIMITATIONS (KEY: SPINE)
violation of tax 1. Territoriality or Situs of
laws may give rise taxation
to imposition of 2. Public purpose of taxes
penalty 3. International comity
4. Non-delegability of the taxing
Intended to raise Designed to
power
revenue regulate conduct
5. Tax Exemption of the
May be imposed May be imposed government
only by the by:
government (1) Government (1) TESTS IN DETERMINING PUBLIC PURPOSE
(2) Private A. Duty Test – whether the thing to be
individuals or furthered by the appropriation of
entities public revenue is something, which
is the duty of the State, as a
Tax Tariff government, to provide.
All embracing A kind of tax B. Promotion of General Welfare Test

term to include imposed on articles – whether the proceeds of the tax
various kinds of which are traded will directly promote the welfare of
enforced internationally the community in equal measure.
contributions upon
persons for the
attainment of (1) NON-DELEGABILITY OF THE TAXING POWER
public purposes General Rule: The power of taxation is
peculiarly and exclusively exercised by
TAXPAYERS’ SUIT the legislature. (See Scope of
A case where the act complained of Legislative Taxing Power, supra)
directly involves the illegal disbursement - refers to tax legislation
of public funds derive from taxation Exceptions to Non-delegability:
(Justice Melo, dissenting in Kilosbayan, 1. Flexible Tariff Clause: Authority of
Inc vs Guingona, Jr.) the President to fix tariff rates,
import and export quotas, tonnage
TAXPAYERS AND PUBLIC OFFCIALS HAVE LOCUS and wharfage dues, and other duties
STANDI or imposts. (Art. VI, Sec.28(2), 1987
REQUISITES FOR TAXPAYERS’ SUIT Constitution)
a. The tax money is being 2. Power of local government units to
extracted and spent in levy taxes, fees, and charges. (Art.
violation of specific X, Sec. 5, 1987 Constitution)
constitutional protections 3. Delegation to administrative
against abuses of legislative agencies for implementation and
power. collection.
b. That public money is being - merely refers to tax administration
deflected to any improper or implementation
purpose (Pascual vs
Secretary of Public Works) (1) SITUS OR TERRITORIALITY OF TAXATION
c. That the petitioner seeks to The power to tax is limited only to
restrain respondents from persons, property or businesses within
wasting public funds through the jurisdiction or territory of the taxing
power.

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Franchise Tax State which
FACTORS THAT DETERMINE THE SITUS: granted the
a. Kind or classification of the franchise
tax being levied
b. Situs of the thing or property SITUS OF TAXATION OF INTANGIBLE PERSONAL
taxed PROPERTY
c. Citizenship of the taxpayer General Rule: Domicile of the owner
d. Residence of the taxpayer pursuant to the principle of the mobilia
e. Source of the income taxed sequuntur personam or movables follow
f. Situs of the excise, privilege, the person.
business or occupation being Exceptions:
taxed 1. When the property has acquired a
business situs in another jurisdiction;
APPLICATION OF SITUS OF TAXATION 2. When an express provision of the
Kind of Tax Situs statute provide for another rule.
Illustration: For purposes of estate
Personal or Residence or and donor’s taxes, the following
Community tax domicile of the intangible properties are deemed
taxpayer with a situs in the Philippines:
(1) franchise which must be
Real property tax Location of exercised in the
property (Lex rei Philippines;
sitae)
(2) shares, obligations or bonds
Personal property -tangible: where it
issued by any
tax is physically corporation organized
located or or constituted in the
permanently kept Philippines in
(Lex rei sitae) accordance with its
-intangible: laws;
subject to Sec. 104 (3) shares, obligations or bonds
of the NIRC and by any foreign
the principle of corporation eighty-five
mobilia sequuntur
personam
percent (85%) of the
business of which is
located in the
Business tax Place of business Philippines;
(4) shares, obligations or bonds
Excise or Privilege Where the act is issued by any foreign
tax performed or corporation if such
where occupation shares, obligations or
is pursued bonds have acquired a
business situs in the
Sales tax Where the sale is
Philippines; and
consummated
(5) shares or rights in any
Income Tax Consider partnership, business or
(1) citizenship, industry established in
(2) residence, and the Philippines. (Sec.
(3) source of 104, 1997 NIRC).
income (Sec. 42,
1997 NIRC) (1) EXEMPTION OF THE GOVERNMENT
As a matter of public policy,
Transfer tax Residence or property of the State and of its
citizenship of the
municipal subdivisions devoted to
taxpayer or
location of government uses and purposes is
property deemed to be exempt from taxation

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although no express provision in the law 3. The amount of all bequests,
is made therefor. legacies, devises or transfers to or
for the use of the Government or
General Rule: The Government is tax any political subdivision for
exempt. exclusively public purposes is
- However, it can also tax itself. deductible from the gross estate.
(Sec.86 (A)(3), NIRC)
RULES: 4. Gifts made to or for the use of the
1. Administrative Agencies National Government or any entity
A. Governmental function - created by any of its agencies which
tax exempt unless when is not conducted for profit, or to any
the law expressly political subdivision of the said
provides for tax. (Sec. Government are exempt from
32 B7) donor’s tax. (Sec. 101(A)(2), NIRC)
B. Proprietary function – taxable 5. Local government units are
unless exempted by law. (Sec. expressly prohibited by the LGC
27C) from levying tax upon National
1. GOCCs Government, its agencies, and
General Rule: Income is taxable at instrumentalities, and local
the rate imposed upon corporations government units. [Sec. 133 (o),
or associations engaged in a similar LGC]
business, industry, or activity. 6. Unless otherwise provided in the
Exception: GSIS, SSS, PHIC, PCSO Local Government Code (LGC), tax
and PAGCOR. (Sec. 27(C), NIRC) exemptions granted to all persons,
2. Government Educational Institutions whether natural or juridical,
A. Property or real estate tax – including GOCC, except local water
property actually, directly and districts, cooperatives duly
exclusively used for educational registered under RA No. 6938, non-
purposes – exempt but income stock and non-profit institutions, are
of whatever kind and character withdrawn upon effectivity of the
from any of their properties, LGC. (Sec. 193, LGC)
real or personal, regardless of 7. Real property owned by the
the disposition, is taxable. (Sec. Republic of the Philippines or any of
30, last par., NIRC) its political subdivisions except when
B. Income received by them as the beneficial use thereof has been
such are exempt from taxes. granted, for consideration or
However, their income from any otherwise, to a taxable person shall
of their activities conducted for be exempt from payment of real
profit regardless of the property tax. (Sec. 234, LGC)
disposition, is taxable. (Sec. 30,
last par., NIRC) (1) INTERNATIONAL COMITY
1. Income derived from any public These principles limit the authority
utility or from the exercise of any of the government to effectively impose
essential governmental function taxes on a sovereign state and its
accruing to the Government of the instrumentalities, as well as on its
Philippines or to any political property held and activities undertaken
subdivision thereof is not included in in that capacity. Even where one enters
gross income and exempt from the territory of another, there is an
taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
2. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable A. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
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1. Due Process Clause (Art. III, Sec. 1, No law impairing the obligation
1987 Constitution) of contract shall be passed. (Sec.
Requisites: 10, Art. III, 1987 Constitution)
A. The interests of the public as The rule, however, does not
distinguished from those of a apply to public utility franchises or
particular class require the right since they are subject to
intervention of the State. amendment, alteration or repeal by
(Substantive limitation) the Congress when the public
B. The means employed must be interest so requires. (Cagayan
reasonably necessary to the Electric & Light Co., Inc. v.
accomplishment of the Commissioner, GR No. 60216,
purpose and not unduly September 25, 1985)
oppressive. (Procedural
limitation) RULES:
The constitutionality of a legislative A. When the exemption is
taxing act questioned on the ground of bilaterally agreed upon
denial of due process requires the between the government and
existence of an actual case or the taxpayer – it cannot be
controversy. withdrawn without violating
the non-impairment clause.
1. Equal Protection Clause (Art. III, B. When it is unilaterally granted by
Sec. 1, 1987 Constitution law, and the same is
Requisites of a Valid Classification: withdrawn by virtue of
a. based upon substantial another law – no violation.
distinctions C. When the exemption is granted
b. germane to the purposes of the under a franchise – it may be
law withdrawn at any time thus,
C. not limited to existing conditions not a violation of the non-
only impairment of contracts
d. apply equally to all members of
the class 1. Presidential power to grant
reprieves, commutations and
1. Freedom Of Speech And Of The pardons and remit fines and
Press (Art. III, Sec. 4, 1987 forfeitures after conviction (ART.
Constitution) VII, SEC. 19, 1987 CONSTITUTION)
There is curtailment of press Due Equal Uniformit
freedom and freedom of thought and Process Protection y
expression if a tax is levied in order Taxpayer Taxpayers Taxable
to suppress this basic right and may not shall be articles, or
impose a prior restraint. (Tolentino be treated alike kinds of
vs. Secretary of Finance, GR No. deprived under like property of
of life, circumstance the same
115455, August 25, 1994)
liberty or s and class, shall
property conditions be taxed at
2. Non-Infringement Of Religious without both in the the same
Freedom And Worship (Art. III, Sec. due privileges rate. There
5, 1987 Constitution) process conferred should
A license tax or fee constitutes a of law. and liabilities therefore,
curtailment of religious freedom if Notice imposed. be no
imposed as a condition for its must, direct
exercise. (American Bible Society therefore double
vs. City of Manila, GR No. L-9637, , be taxation
given in
April 30, 1957) case of
failure to
3. Non-Impairment Of Contracts (Art. pay taxes
III, Sec. 10, 1987 Constitution)

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B. SPECIFIC OR DIRECT and educational purposes. (Lladoc

CONSTITUTIONAL LIMITATIONS vs. Commissioner, GR No. L-19201,
June 16, 1965)
1. Non-Imprisonment For Debt Or Non- The present Constitution
Payment Of Poll Tax (Art. III, Sec. required that for the exemption of
20, 1987 Constitution) “lands, buildings and
improvements”, they should not only
2. Rule Requiring That Appropriations, be “exclusively” but also “actually”
Revenue And Tariff Bills Shall and “directly” used for religious and
Originate Exclusively From The charitable purposes. (Province of
House Of Representatives (Art. VI, Abra vs. Hernando, GR No. L-49336,
Sec. 24, 1987 Constitution) August 31, 1981)
The test of exemption from
1. Uniformity, Equitability And taxation is the use of the property
Progressivity Of Taxation (Art. for the purposes mentioned in the
VI, Sec. 28(1), 1987 Constitution. (Abra Valley College
Constitution) Inc. vs. Aquino, GR No. L-39086,
Uniformity – all taxable articles or June 15, 1988)
kinds of property of the same class
are taxed at the same rate. EXCLUSIVE BUT NOT ABSOLUTE USE
Equitability – the burden falls to The term “ exclusively used” does
those who are more capable to pay. not necessarily mean total or absolute
Progressivity – rate increases as the use for religious, charitable and
tax base increases. educational purposes. If the property is
incidentally used for said purposes, the
Q: Is a tax law adopting a regressive tax exemption may still subsist. (Abra
system of taxation valid? Valley College Inc. vs. Aquino, Gr No. L-
A: Yes. The Constitution does not 39086, June 15, 1988)
really prohibit the imposition of indirect Corollarily, if a property, although
taxes which, like the VAT, are actually owned by a religious, charitable
regressive. The Constitutional provision and educational institution is used for a
means simply that indirect taxes shall be non- exempt purpose, the exemption
minimized. The mandate to Congress is from tax shall not attach
not to prescribe, but to evolve, a
progressive tax system. (EVAT En Banc ART. XIV, ART. VI,
Resolution, Tolentino, et al vs Secretary SEC 4(3) SEC 28(3)
of Finance, October 30, 1995) Grantee Non- stock, Religious,
non profit educational
educational , charitable
2. Limitations On The Congressional
institution institutions
Power To Delegate To The
Taxes Income tax Property
President The Authority To Fix covered Custom tax
Tariff Rates, Import And Export Duties
Quotas, Etc. (Art. VI, Sec. 28(2), Property tax
1987 Constitution) (DECS Order
No. 137-
3. Tax Exemption Of Properties 187)
Actually, Directly And Exclusively
Used For Religious, Charitable And 4. Voting Requirement In Connection
Educational Purposes. (Art. VI, With The Legislative Grant Of Tax
Sec. 28(3) 7, 1987 Constitution) Exemption (Art. VI, Sec. 28(4),
The constitutional provision 1987 Constitution)
(above cited) which grants tax 5. Non-Impairment Of The
exemption applies only to property Jurisdiction Of The Supreme Court
or realty taxes assessed on such In Tax Cases (Art. VIII, Sec. 2 And
properties used actually, directly 5(2)(B), 1987 Constitution)
exclusively for religious, charitable
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6. Exemption From Taxes Of The c. imposed by the same taxing
Revenues And Assets Of authority
Educational Institutions, Including d. within the same jurisdiction
Grants, Endowments, Donations e. during the same taxing
And Contributions. (Art. XIV, Sec. period
4(3) And (4), 1987 Constitution) f. covering the same kind or
character of tax.
OTHER SPECIFIC TAX PROVISIONS IN (Villanueva vs. City of Iloilo)
THE CONSTITUTION
1. Power of the President to veto any (1) Indirect Duplicate Taxation – not
particular item or items in an legally objectionable. The absence
appropriation, revenue, or tariff bill. of one or more of the above-
(Art VI, Sec. 27(2), 1987 mentioned elements makes the
Constitution) double taxation indirect.
2. Necessity of an appropriation before
money may be paid out of the public (2) Domestic- this arises when the taxes
treasury. (Art. VI, Sec. 29 (1), 1987 are imposed by the local or national
Constitution) government (within the same state)
3. Non-appropriation of public money (3) International- refers to the
or property for the use, benefit, or imposition of comparable taxes in
support of any sect, church, or two or more states on the same
system of religion. (Art. VI, Sec. 29 taxpayer in respect of the same
(2), 1987 Constitution) subject matter and for identical
4. Treatment of taxes levied for a periods.
special purpose. (Art. VI, Sec. 29
(3), 1987 Constitution) REMEDIES OF DOUBLE TAXATION
5. Internal revenue allotments to local 1. Tax Sparing Rule – same
government units. (Art. X, Sec. 6, dividend earned by a NRFC
1987 Constitution) within the Phil. is reduced
by imposing a lower rate of
15% (in lieu of the 35%), on
Double taxation the condition that the
country to which the NRFC
DOUBLE TAXATION – taxing the same is domiliced shall allow a
property twice when it should be taxed credit against the tax due
but once. from the NRFC, taxes
deemed to have been paid
IS PHILIPPINES?
DOUBLE TAXATION PROHIBITED IN THE in the Phil. (Sec.28 B 5b)
No. There is no constitutional (CIR vs Procter & Gamble)
prohibition against double taxation. It is (GR No. 66838, Dec. 2,
not favored but permissible. (Pepsi Cola 1991)
Bottling Co. v. City of Butuan, 1968). 2. Tax deductions
Example: vanishing deduction under
KINDS OF DOUBLE TAXATION Section 86(A)(2), NIRC
(1) Direct Duplicate Taxation / 3. Tax credits
Obnoxious – double taxation in the Instances under the NIRC:
objectionable or prohibited sense.
This constitutes a violation of
• For VAT purposes, the tax on inputs
or items that go into the
substantive due process.
manufacture of finished products
(which are eventually sold) may be
Elements:
credited against or deducted from
a. the same property or subject
the output tax or tax on the finished
matter is taxed twice when
product.
it should be taxed only once.
b. both taxes are levied for the •Foreign income taxes may be
same purpose credited against the Phil. Income
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tax, subject to certain limitations, income, in effect exempting the
by citizens, including members of payment from being further taxed.)
general professional partnerships or 2. The credit method- although the
beneficiaries of estates or trusts income or capital which is taxed in
(pro rata), as well as domestic the state of source is still taxable in
corporations. the state of residence. The tax paid
•A tax credit is granted for estate in the former is credited against the
taxes paid to a foreign country on tax, levied in the latter.
the estate of citizens and resident (Commissioner of Internal Revenue
aliens subject to certain limitations. v. S.C Johnson and Son, Inc. et al.,
G.R No. 127105, June 25, 1999)
•The donor’s tax imposed upon a
citizen or a resident shall be
Exemption
credited with the amount of any Credit Method
Method
donor’s tax imposed by the authority
Focus is on the Focus is on the tax
of a foreign country, subject to income or capital
certain limitations. itself
1. Tax Exemptions
2. Principle of Reciprocity NOTE: Computational illustration
3. Treaties with other states between a tax deduction and a tax
credit:
METHODS RESORTED TO BY A TAX TREATY IN
ORDER TO ELIMINATE DOUBLE TAXATION Tax deduction method
Gross income
FIRST METHOD: The tax treaty sets out Less: allowable deductions
the respective rights to tax by the state including
of source or situs and by the state of foreign taxes paid
residence with regard to certain classes Income subject to tax
of income or capital. In some cases, an Multiplied by rate
exclusive right to tax is conferred in one Income tax due
of the contracting states; however, for
other items of income or capital, both Tax credit method
states are given the right to tax although Gross income
the amount of tax that may be imposed Less: allowable deductions
by the state of source is limited. excluding
SECOND METHOD: The state of source is foreign taxes paid
given a full or limited right to tax Income subject to tax
together with the state of residence. In Multiplied by rate
this case, the treaty makes it incumbent Income tax due
upon the state of residence to allow Less: foreign taxes paid
relief in order to avoid double taxation. Net income tax due
TWO METHODS OF RELIEF ARE USED UNDER THE SECOND

METHOD: Forms of Escape from
TAxation
1. The exemption method- the income
or capital which is taxable in the
(1) SHIFTING – the process by which the
state of source or situs is exempted
tax burden is transferred from the
in the state of residence, although in
statutory taxpayer (impact of
some instances it may be taken into
taxation) to another (incident of
account in determining the rate of
taxation) without violating the law.
tax applicable to the tax payer’s
remaining income or capital.(This
IMPACT OF TAXATION – point on which tax is
may be done using the tax deduction
originally imposed.
method which allows foreign income
taxes to be deducted from gross
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INCIDENCE OF TAXATION – point on which the corporation for shares) (Delpher Trades
tax burden finally rests or settles down. Corp. vs. IAC, 157 SCRA 349)
Illustration: Value added tax. The (4) TAX EVASION – use by the taxpayer of
seller is required by law to pay tax, but illegal or fraudulent means to
the burden is actually shifted or passed defeat or lessen the payment of the
on to the buyer. tax.
KINDS OF SHIFTING FACTORS IN TAX EVASION

A. Forward shifting- when burden of 1. the end to be achieved, i.e.
tax is transferred from a factor of payment of less than that known by
production through the factors of the taxpayer to be legally due, or
distribution until it finally settles on paying no tax when it is shown that
the ultimate purchaser or consumer the tax is due;
B. Backward shifting- when burden is 2. an accompanying state of mind
transferred from consumer through which is described as being evil, in
factors of distribution to the factors bad faith, willful, or deliberate and
of production not coincidental; and
C. Onward shifting- when the tax is 3. a course of action which is unlawful.
shifted 2 or more times either
forward or backward INDICIA OF FRAUD IN TAX EVASION
1. Failure to declare for taxation
(1) CAPITALIZATION – a mere increase in the purposes true and actual income
value of the property is not income derived from business for 2
but merely an unrealized increase consecutive years (Republic vs
in capital. No income until after Gonzales, L-17962)
the actual sale or other disposition 2. Substantial under-declaration of
of the property in excess of its income tax returns of the taxpayer
original cost. for 4 consecutive years coupled with
EXCEPT: if by reason of appraisal, the cost intentional overstatement of
basis of property increased and the deductions (CIR vs Reyes, 104 PHIL
resultant basis is used as the new tax 1061)
base for purposes of computing the
allowable depreciation expense, the net TAX TAX
difference between the original cost AVOIDANCE EVASION
basis and new basis is taxable under the
economic benefit principle. (BIR Ruling Validity Legal and not Illegal and
No. 029, March 19, 1998) subject to subject to
criminal penalty criminal
penalty
(2) TRANSFORMATION – the manufacturer or
producer upon whom the tax has
Effect Minimization of Almost
been imposed, fearing the loss of taxes always
his market if he should add the tax results in
to the price, pays the tax and absence of
endeavors to recoup himself by tax payments
improving his process of production,
thereby turning out his units at a (1) TAX EXEMPTION – a grant of immunity
lower cost. to particular persons or
corporations from the obligation to
(3) TAX AVOIDANCE – the exploitation by pay taxes.
the taxpayer of legally permissible
alternative tax rates or methods of LEGAL BASIS: No law granting any tax
assessing taxable property or exemption shall be passed without the
income, in order to avoid or reduce concurrence of a majority of all the
tax liability. members of Congress (ART VI. SEC 28(4) OF
Example: “estate planning” THE 1987 CONSTITUTION)
(conveyance of property to a family
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KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
A. Constitutional – immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. C. He who claims exemption should
B. Statutory – those which emanate prove by convincing proof that he
from legislation is exempted.
Examples of Statutory Exemptions D. Taxation is the rule; tax exemption
Sec. 27, NIRC is the exception.
Sec. 105 Tariff and Customs E. Tax exemption must be strictly
Code construed against the taxpayer and
Sec. 234 Local Government Code liberally in favor of the taxing
Special Laws, such as the authority.
Omnibus Investment Code of 1987 f. Tax exemptions are not presumed.
(EO 226), Philippine Overseas G. Constitutional grants of tax
Shipping Act (RA 1407 as amended), exemption are self-executing.
Fertilizer Industry Act (RA 3050, as H. Tax exemptions are personal.
amended), Mineral Resources
Development Decree of 1974 (PD 463 THE FOLLOWING PARTAKE THE NATURE OF TAX
as amended), Cottage Industry Act EXEMPTION
(RA 318, as amended) and 1. Deductions for income tax purposes
exemptions in “Housing for Low 2. Claims for refund
Income Group” (PD 1205, as 3. Tax amnesty
amended) 4. Condonation of unpaid tax liabilities
C. Contractual- agreed to by the NOTE: must be strictly construed
taxing authority in contracts against the taxpayer
lawfully entered into by them
under enabling laws WHEN EXEMPTIONS ARE CONSTRUED LIBERALLY IN
d. Treaty FAVOR OF GRANTEE
e. Licensing Ordinance 1. When the law so provides for such
1. As to form liberal construction.
(1) Express – expressly granted by 2. Exemptions from certain taxes,
organic or statute law granted under special circumstances
(2) Implied – when particular to special classes of persons.
persons, property or excises are 3. Exemptions in favor of the
deemed exempt as they fall government, its political subdivisions
outside the scope of the taxing or instrumentalities.
provision itself. 4. Exemptions to traditional
1. As to extent exemptees, such as those in favor of
(1) Total – absolute immunity religious and charitable institutions.
(2) Partial – one where a collection 5. If exemptions refer to the public
of a part of the tax is dispensed property
with
1. As to object Q: May a tax exemption be revoked?
(1) Personal – granted directly in A: Yes. It is an act of liberality which
favor of certain persons could be taken back by the government
(2) Impersonal – granted directly in unless there are restrictions. Since
favor of a certain class of taxation is the rule and exemption
property therefrom is the exception, the
exemption may be withdrawn by the
PRINCIPLES GOVERNING TAX EXEMPTION taxing authority. (Mactan Cebu
A. Exemptions from taxation are International Airport Authority vs.
highly disfavored in law and are Marcos, 261 SCRA 667)
not presumed.
B. He who claims as exemption must RESTRICTIONS ON REVOCATION OF TAX EXEMPTIONS
be able to justify his claim by the
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A. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.
parties based on material Reason: Relates to the circumstances
consideration of a mutual nature, of a particular accused and not the
which then becomes contractual and character of the acts charged in the
is covered by the non-impairment information.
clause of the Constitution.
B. Adherence to form- if the tax Tax amnesty Tax exemption
exemption is granted by the
Constitution, its revocation may be Immunity from all Immunity from
effected through Constitutional criminal, civil and civil liability only
amendment only administrative
liabilities arising
C. Where the tax exemption grant is in
from non payment
the form of a special law and not by of taxes
a general law even if the terms of
the general act are broad enough to Applies only to Prospective
include the codes in the general law past tax periods, application
unless there is manifest intent to hence retroactive
repeal or alter the special law application
(Province of Misamis Oriental vs
Cagayan Electric Power and Light
Co. Inc) DOCTRINE OF IMPRESCRIPTIBILTY
As a rule, taxes are imprescriptible
NATURE OF TAX AMNESTY as they are the lifeblood of the
1. General or intentional overlooking by government. However, tax statutes may
the state of its authority to impose provide for statute of limitations.
penalties on persons otherwise guilty The rules that have been adopted
of evasion or violation of a revenue are as follows:
or tax law. a.) National Internal Revenue Code
2. Partakes of an absolute forgiveness of The statute of limitation for
waiver of the government of its right assessment of tax if a return is filed is
to collect. within three (3) years from the last day
3. To give tax evaders, who wish to prescribed by law for the filling of the
relent and are willing to reform a return or if filed after the last day,
chance to do so. within three years from date of actual
filling. If no return is filed or the return
RULES ON TAX AMNESTY filed is false or fraudulent, the period to
1. Tax amnesty assess is within ten years from discovery
a) like tax exemption, it is never of the omission, fraud or falsity.
favored nor presumed The period to collect tax is within
b) construed strictly against the three years from date of assessment. In
taxpayer (must show complete the case, however, of omission to file or
compliance with the law) if the return filed is false or fraudulent,
the period to collect is within ten years
2.Government not estopped from from discovery without need of an
questioning the tax liability even if assessment.
amnesty tax payments were already
received. b.) Tariff and customs code
Reason: Erroneous application and It does not express any general
enforcement of the law by public statute of limitation; it provided,
officers do not block subsequent however, that ‘’ when articles have
correct application of the statute. The entered and passed free of duty or final
government is never estopped by adjustment of duties made, with
mistakes or errors of its agents. subsequent delivery, such entry and
Basis: Lifeblood Theory passage free of duty or settlement of
duties will, after the expiration of one
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(1) year, from the date of the final 1. Where the taxpayer deliberately
payment of duties, in the absence of misstates or omits material facts
fraud or protest, be final and conclusive from his return or any document
upon all parties, unless the liquidation required of him by the BIR.
of import entry was merely tentative.” 2. Where the facts subsequently
(Sec 1603,TCC) gathered by the BIR is materially
different from the facts on which
c.) Local Government Code the ruling is based.
Local Taxes, fees, or charges shall 3. Where the taxpayer acted in bad
be assessed within five (5) years from faith.
the date they became due. In case of
fraud or intent to evade the payment of PRINCIPLE OF LEGISLATIVE APPROVAL OF AN
taxes, fees or charges the same may be ADMINISTRATIVE INTERPRETATION THROUGH
assessed within ten (10) years from REENACTMENT
discovery of the fraud or intent to Where a statute is susceptible of the
evade payment. They shall also be meaning placed upon it by a ruling of
collected either by administrative or the government agency charged with its
judicial action within five (5) years enforcement and the legislature
from date of assessment (Sec. 194. LGC) thereafter reenacts the provision
without substantial change, such action
is to some extent confirmatory that the
Tax enforcement and ruling carries out the legislative purpose.
Administration
RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT
SOURCES OF TAX LAWS (Key: SPEC2TRA BLT) General Rule: The Government is not
1. Statutes estopped by the mistakes or errors of its
2. Presidential Decrees agents; erroneous application and
3. Executive Orders enforcement of law by public officers do
4. Constitution not bar the subsequent correct
5. Court Decisions application of statutes. (E. Rodriguez,
6. Tax Codes Inc. vs. Collector, L-23041, July 31,
7. Revenue Regulations 1969)
8. Administrative Issuances Exception: In the interest of justice and
9. BIR Rulings fair play, as where injustice will result
10. Local Tax Ordinance to the taxpayer. (see CIR vs. CA, GR No.
11. Tax Treaties and Conventions 117982, Feb. 6, 1997; CIR vs. CA, GR No.
107135, Feb. 3, 1999)
REQUISITES OF TAX REGULATIONS
1. Reasonable AGENCIES INVOLVED IN TAX ADMINISTRATION
2. Within the authority conferred 1. Bureau of Internal Revenue
3. Not contrary to law – internal revenue taxes
4. Must be published Agents of the CIR
a. Commissioner of Customs with
NOTE: Administrative regulations must respect to taxes on imported goods
always be in harmony with the b. head of the appropriate
provisions of the law. In case of government office with respect to
discrepancy between the basic law and energy tax
the implementing rule or regulation, the c. banks duly accredited by the CIR
former prevails. (Sec. 12, 1997 NIRC)
2. Bureau of Customs – customs law
NON-RETROACTIVITY OF BIR RULINGS enforcement
General Rule: Rulings are not 3. Provincial, city and municipal
retroactive if they are prejudicial to the assessors and treasurers – local and
taxpayer. (Sec. 246, NIRC) real property taxes
Exceptions:
ORGANIZATION AND FUNCTION OF THE
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1
BUREAU OF INTERNAL REVENUE (BIR) d. In estimating the revenues that may

BIR shall be under the supervision be collected by government in the
and control of the Dept. of Finance (Sec. coming year. (Mamalateo,
2, NIRC) Victorino. Reviewer on Taxation,
2004)
POWERS AND DUTIES OF THE BIR
Assessment and collection of all
national internal revenue taxes, fees, KINDS
and charges 1. SELF- ASSESSMENT- one in which the tax
1. Enforcement of all forfeitures, is assessed by the taxpayer himself
penalties, and fines connected 2. DEFICIENCY ASSESSMENT- made by the tax
therewith
assessor himself whereby the correct
2. Execution of judgments in all cases
amount of the tax is determined
decided in its favor by the Court of
after an examination or investigation
Tax Appeals (CTA) and the ordinary
is conducted. The liability is
courts
determined and assessed for the
3. Give effect to and administer the
following reason:
supervisory and police powers
a. amount ascertained exceeds that
conferred to it by the Code or other
which is shown as the tax by the
laws
taxpayer in his return
b. no amount of tax is shown in the
ASSESSMENT – a finding by the taxing
return
authority that the taxpayer has not paid
c. taxpayer did not file any return
the correct taxes. It is also a written
at all
notice to a taxpayer to the effect that
the amount stated therein is due as a 3. ILLEGAL AND VOID ASSESSMENT-
tax and containing a demand for the assessment wherein tax assessor has
payment thereof. no power to assess at all
General rule: Taxes are self-assessing 4. ERRONEOUS ASSESSMENT- assessor has
and thus, do not require the issuance of power to assess but errs in the
an assessment notice in order to exercise thereof
establish the tax liability of a taxpayer.
BURDEN OF PROOF IN PRE-ASSESSMENT PROCEEDINGS
Exceptions: There is a presumption of
1. Tax period of a taxpayer is correctness and good faith on the part of
terminated [Sec. 6(D), NIRC] the CIR; thus, the burden lies on the
taxpayer. Otherwise, the finding of the
2. Deficiency tax liability arising from a
CIR will be conclusive and he will assess
tax audit conducted by the BIR [Sec. the taxpayer. The same is true even if
56(B), NIRC] the CIR is wrong, if the taxpayer does
3. Tax lien [Sec. 219, NIRC] not controvert. (Cagayan Robina Sugar
4. Dissolving corporation [Sec. 52(c), Milling Co. vs. Court of Appeals, GR.
NIRC] No. 122451, October 12, 2000)
Reasons: a. lifeblood theory
SIGNIFICANCE OF ASSESSMENT b. presumption of regularity in
a. In the proper pursuit of judicial and performance of public
extrajudicial remedies to enforce functions
taxpayer liabilities and certain NOTE: Assessments by the BIR must have
matters that relate to it, such as the on its face the law and facts upon which
imposition of surcharges and the presumption is made.
interests,
b. In the application of statute of PRINCIPLES GOVERNING TAX ASSESSMENTS
limitations, 1. Assessments are prima facie
c. In the establishment of tax liens, presumed correct and made
and in good faith.

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2. It should be based on actual 1. taxpayer’s books do not clearly
facts. reflect his income or the taxpayer
3. It is discretionary on the has no books, or if he has books, he
part of the Commissioner. refuses to produce them;
2. there is evidence of possible source
or sources of income to account for
increases in networth;
3. there is a fixed starting point or
4. The authority of the opening networth; and
Commissioner to assess taxes 4. there must be proper adjustments to
may be delegated, except conform with the income tax laws.
the power to make final
assessments.
5. It must be directed to the POWERS AND DUTIES OF THE COMMISSIONER
right party. I. SECTION 4 (power to interpret tax law
and decide tax cases)
Authority of a Revenue Officer -
pursuant to a Letter of Authority issued 1. Interpret provisions of this Code
by the Regional Director and other tax laws subject to
a. To examine taxpayers review of the Secretary of
within the jurisdiction Finance
of the district in order (Quasi-legislative)
to collect the correct 2. Decide: (Quasi-judicial)
amount of tax; a) disputed assessment
b. To recommend the b) refunds of internal
assessment of any revenue taxes, fees
deficiency tax due in and charges
the same manner that c) penalties imposed in
the said acts could relation thereto
have been performed d) other matters arising
by the Revenue from this Code or
Regional Director. other laws or
General Rule: income tax returns are portions thereof
confidential. administered by the
Exception: inquiry into income tax BIR subject to the
returns may be authorized- exclusive appellate
jurisdiction of the
1. inspection is authorized upon CTA (Sec. 4)
written order of the President of the
Philippines; II. SECTION 5 (power to obtain
2. inspection is authorized under information, summon, examine and take
Finance Regulations No. 33 of the testimony of persons)
Secretary of Finance;
3. production of the tax return is 1. For the Commissioner to
material evidence in a criminal case ascertain:
wherein the government is (a) correctness of any return or in
interested in the result; or making a return where none has
4. production or inspection thereof is been made
authorized by the taxpayer himself. (b) liability of any person for any
internal revenue tax or in
Networth Method- inventory method of correcting such liability
income tax verification. (c) tax compliance
• Applies the accounting principle: The Commissioner is authorized:

assets – liabilities = networth 1. to Examine any relevant Book, paper,
Condition for its use: record or other data
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2. to Obtain any information (costs, a
volume of production, receipts, sales, s
gross income, etc), on a regular basis b
from: e
i. any person other than the person e
under investigation or n
ii. any office or officer of the f
national/local government, gov’t il
agencies and instrumentalities e
(Bangko Sentral, gov’t owned and d
controlled corporations) (e.g. LTO, t
Register of Deeds) h
3. to Summon e
i. the person liable for tax or C
required to file a return or o
ii. any officer or employee of such m
person or m
iii. any person having in his i
possession/custody/care s
-- the books of accounts, s
-- accounting records of entries i
relating to the business of the o
person liable for tax or any other n
person e
-- to produce such books, r
papers, records, and other data o
and to give testimony r
4. to take the Testimony of the person h
concerned, under oath as may be i
relevant to the inquiry s
5. to cause revenue officers and r
employees to make a Canvass of any e
revenue district or region p
r
Nothing in Section 5 shall be e
construed as granting the Commissioner s
the authority to inquire into bank e
deposits other than as provided for n
under sec. 6 (F) of the Code. t
a
III. SECTION 6 (power to make t
assessments, prescribe additional i
requirements for tax administration v
and enforcement) e
m
2. Examination of returns and a
determination of tax due y
A. After a
a u
r t
e h
t o
u r
r i
n z
h e
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i. the n
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A. Failu z
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1

f o
a r
n ii. from
y su
t ch
a in
x fo
p r
a m
y at
e io
r n
; as
* Any tax or deficiency tax so h
assessed shall be paid upon e
notice and demand from the ca
Commissioner or his n
representative o
* Any return, statement or bt
declaration filed in any ai
authorized office shall not be n
withdrawn; but within three th
years from date of filing, the ro
same may be modified, ug
changed or amended; h
provided that no notice for te
audit or investigation of such st
return, has in the meantime, i
been actually served upon the m
taxpayer. o
ny
2. Failure to submit required or
returns and other documents ot
If a person h
i. fails to file a required return or er
report at the time prescribed or wi
ii. willfully or otherwise files a se
false or fraudulent return, w
The Commissioner shall Make or hi
Amend the return from ch
i. his sh
o al
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e
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o m
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1

a if there is reason to
n believe that such is not
d declaring his correct income,
su sales or receipts for tax
ffi purposes.
ci The findings may be used
e as basis for assessing the
nt taxes and shall be deemed
fo prima facie correct.
r
al B. Commissioner may prescribe a
l Minimum amount of gross
le receipts, sales and taxable base
ga (taking into account the sales and
l income of other persons engaged
p in similar business):
ur i. When a person
p has failed to
os issue
es receipts as
required by
1. Inventory-taking, Surveillance, sec.113
Presumptive Gross Sales (Invoice
A. Commissioner may, at any time requirement
during the taxable year s for VAT-
(a) order the registered
inven persons) and
tory Sec. 237
taking (Issuance of
of Receipts or
goods Commercial
of any Invoices) or
taxpa
ii. When the books
yer or
of accounts
(b) may or records
place do not
the correctly
busin reflect the
ess declarations
opera made or
tions required to
of any be made in a
perso return,
n Such minimum amount shall
(natur be considered correct.
al/jur 1. Terminate taxable period
idical Commissioner shall declare the tax
) period of a taxpayer Terminated and
under send notice to the taxpayer of such
obser decision with a request for immediate
vation payment of the tax when it has come to
or the knowledge of the Commissioner:
Survei a) that a taxpayer is
llance retiring from
, business subject to
tax or
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1

b) is intending to leave the shall authorize the Commissioner to
Phils. or inquire into his bank deposits.
c) to remove his property 2. Authority to Register tax agents
therefrom or (a) The Commissioner shall accredit
d) to hide or conceal his and Register, individuals and
property or general professional partnerships
e) is performing any act and their rep. who prepare and
tending to obstruct file tax returns and other papers
the proceedings for or who appear before the BIR
the collection of (b) The Commissioner shall create
tax national and regional
accreditation boards.
1. Prescribe Real Property Values
The Commissioner is authorized to: Those who are denied
a. Divide the Phils. into different accreditation may appeal the same
zones or areas and to the Sec. Of Finance who shall
b. Determine the fair market value rule on the appeal within 60 days
of real properties located in each from receipt of such appeal. Failure
zone or area to do so within the prescribed
period shall be deemed as approval
For tax purposes, the value of for accreditation.
the property shall be whichever is
higher of: 3. Authority to Prescribe Additional
a) Fair market value as Requirements
determined by the The Commissioner may prescribe
Commissioner; or the manner of compliance with any
b) Fair market value as documentary or procedural
shown in the Requirement for the submission or
schedule of values of preparation of financial statements
the provincial and accompanying tax returns.
city assessors.
IV. SECTION 7 (Authority to Delegate
1. Authority to Inquire into Bank Power )
Deposit 1. The Commissioner may delegate
Notwithstanding R.A. 1405 (Bank the powers vested in him to
Secrecy Law) the Commissioner is - subordinate officials with rank
authorized to inquire into the Bank equivalent to Division Chief or
deposits of: higher, subject to
(a) a decedent to limitations/restrictions imposed
determine his under the rules and regulations
gross estate EXCEPT, (the following powers
(b) a taxpayer who has shall NOT be delegated)
filed an a) power to Recommend
application to the promulgation of
compromise rules and
payment of tax regulations by the
liability by reason Sec. of Finance
of financial b) power to Issue rulings of
incapacity first impression or
to Reverse, revoke
The taxpayer’s application for modify any existing
compromise shall not be considered rule of the BIR
unless he waives in writing his c) power to Compromise or
privilege under RA 1405 and other Abate any tax
general or special laws. Such waiver liability

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appliances, and the
acknowledgment of
payment of taxes (Sec. 8)
2. Authority to administer oaths

provided however that the and to take testimony (Sec.
regional evaluation board may 14)
compromise:
1. assessments 3. Authority to make arrests and
issued by seizures (Sec. 15)
regional
offices
involving
4. Authority to employ, assign or
reassign internal revenue
deficienc
officers involved in excise
y taxes
tax functions to
of
establishments where
P500,000
articles subject to excise
or less
tax are produced or kept
and
(Sec. 16)
2. minor
criminal
violations 5. Authority to assign or reassign
as may internal revenue officers
be and employees of the BIR to
determin other or special duties
ed by the connected with the
rules and enforcement or
regulatio administration of the
ns revenue laws (Sec. 17)
3. discovered
by ARE LEGAL OFFICERS OF THE BIR AUTHORIZED TO
regional INSTITUTE APPEAL PROCEEDINGS WITHOUT THE
and PARTICIPATION OF THE SOLICITOR GENERAL?
district NO. The institution or
officials commencement before a proper court of
civil and criminal actions and
Regional Evaluation Board is proceedings arising under the Tax
composed of: Reform Act which shall be conducted by
i. Regional Director as Chairman legal officers of the BIR is not in dispute.
ii. Asst. Regional Director An appeal from such court, however, is
iii. Heads of the Legal, Assessment not a matter of right. It is still the
and Collection Div. Solicitor General who has the primary
iv. Revenue District Officer having responsibility to appear for the
jurisdiction over the taxpayer government in appellate proceedings.
(Commissioner vs. La Suerte Cigar and
d) power to Assign or reassign Cigarette Factory, GR No. 144942, July
internal revenue officers to 4, 2002)
establishments where
articles subject to excise tax SOURCES OF REVENUE
are kept. The following taxes, fees and
charges are deemed to be national
V. SECTIONS 8, 14, 15, 16, 17 (Other internal revenue taxes. (Sec. 21, NIRC)
Powers) 1. Income tax
1. Duty to ensure the provision and 2. Estate and donor's taxes
3. Value-added tax
distribution of forms,
4. Other percentage taxes
receipts, certificates, and
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5. Excise taxes 1. Realization Test - unless the income
6. Documentary stamp taxes is deemed "realized," there is no
7. Such other taxes as are or hereafter taxable income.
may be imposed and collected by 2. Economic-Benefit Principle Test
the Bureau of Internal Revenue. -flow of wealth realized is
taxable only to the extent that
the taxpayer is economically
II. NATIONAL TAXATION benefited.
A. INCOME TAXATION CRITERIA IN IMPOSING INCOME TAX

1. Citizenship Principle – A citizen of
the Philippines is subject to Philippine
DEFINITIONS
income tax (a.) on his worldwide
INCOME TAX – tax on all yearly profits
income, if he resides in the Philippines,
arising from property, possessions,
or (b.) only on his income from sources
trade or business, or as a tax on a
within the Philippines, if he qualifies as
person’s income, emoluments,
nonresident citizen.
profits and the like (61 CJS 1559)
2. Residence Principle – resident alien
– tax on income,
is liable to pay income tax on his income
whether gross or net. (27 Am. Jur.
from sources within the Philippines but
308)
exempt from tax on his income from
sources outside the Philippines.
INCOME – all wealth, which flows into the
3. Source Principle – An alien is subject
taxpayer other than as a mere
to Philippine income tax because he
return of capital.
derives income from sources within the
Philippines. Thus, a nonresident alien is
CAPITAL – resource of person, which can
liable to pay Philippine income tax on
be used in producing goods and
his income from sources within the
services.
Philippines such as dividend, interest,
Income Capital
rent, or royalty, despite the fact that he
has not set foot in the Philippines.
All wealth, which Fund or property
flows into the which can be used CLASSIFICATION OF TAXPAYERS
taxpayer other in producing
than as a mere goods or services Individuals
return of capital. a. citizens
(1) resident citizens (RC)
Flow of Wealth Fund or property
(2) non-resident citizens (NRC)
Source of wealth Wealth a. aliens
(1) resident aliens (RA)
REQUISITES FOR INCOME TO BE TAXABLE (2) non-resident aliens (NRA)
1. There must be a gain or profit. (a) engaged in
2. The gain must be realized or trade
received. or
3. The gain must not be excluded by busines
law or treaty from taxation. s
within
TESTS ON TAXABILITY OF INCOME the
1. Flow of Wealth Test – The Phils.
determining factor for the (NRAE
imposition of income tax is TB)
whether any gain was derived (b) not
from the transaction. engage
d in
trade
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1

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

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A non-resident alien individual consortium agreement under
who shall come to the Philippines a service contract with the
and stay therein for an aggregate Government.
period of more than 180 days during
any calendar year shall be deemed a CORPORATIONS EXEMPT FROM INCOME TAXATION
non-resident alien doing business in (FOR INCOME REALIZED AS SUCH) UNDER NIRC
the Philippines Section 22(G) 1. Those enumerated under
notwithstanding [Sec. 25(A)(1)] Sec. 30.
3. Non-resident alien not Exempt corporations are
engaged in trade or business within subject to income tax on their
the Philippines. (NRANETB) income from any of their properties,
real or personal, or from any other
ONLY RESIDENT CITIZENS are taxable activities conducted for profit,
for income derived from sources within regardless of the disposition made of
and without the Philippines. All other such income.
individual income taxpayers are taxable 2. With respect to GOCCs, the
only for income derived from sources general rule is that these
within the Philippines. corporations are taxable as any
other corporation except:
 Tax Rates: Please refer to a. GSIS
Annex A. b. SSS
c. PHIC
A. CORPORATIONS d. PCSO
e. PAGCOR [Sec. 27
WHO ARE TAXABLE? (C)]
1. Domestic Corporation – 3. Regional or Area
created or organized in the Phils. or Headquarters under Sec. 22 (DD) –
under its law [Sec. 22(C), NIRC] not subject to income tax
2. Resident Foreign
Corporation – engaged in trade or Regional operating
business within the Philippines [Sec. headquarters under Sec. 22(EE) shall
22(H), NIRC] pay a tax of 10% of their taxable
3. Non-resident Foreign income.
Corporation – not engaged in trade
or business within the Philippines ONLY DOMESTIC CORPORATIONS are
[Sec. 22(I), NIRC] taxable for income derived from sources
A Corporation Includes: within and without the Philippines. All
1. Partnerships, no matter how other corporate income taxpayers are
created or organized; taxable only for income derived from
2. Joint-stock companies; sources within the Philippines.
3. Joint accounts (cuentas en
participacion)  Tax Rates: Please refer to
4. Associations; or Annex B.
5. Insurance companies [Sec.
22(B), NIRC]. A. ESTATES AND TRUSTS
Excludes: ESTATE – refers to the mass of properties
1. General professional left by a deceased person.
partnerships;
2. Joint venture or consortium RULES ON TAXABILITY OF ESTATE
formed for the purpose of When a person who owns property
undertaking construction dies, the following taxes are payable
projects or engaging in under the provisions of the income tax
petroleum, coal, geothermal law:
and other energy operations 1. Income tax for
pursuant to an operating or individual under
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Sec. 24 and 25 themselves, an
(to cover the unregistered
period beginning partnership is created
January to the and the estate
time of death); becomes liable for the
2. Estate income payment of corporate
tax under Sec. income tax.
60 if the estate (Evangelista vs.
is under Collector, GR No. L-
administration or 9996, October 15,
judicial 1957; Oña vs.
settlement. Commissioner, GR No.
L-19342, May 25,
1972)
2. If the heirs, without
ESTATES UNDER JUDICIAL SETTLEMENT contributing money,
A. During the Pendency of the property or industry to
Settlement improve the estate,
General Rule: An estate under simply divide the fruits
judicial settlement is subject to thereof
income tax in the same manner as between/among
individuals. Its status is the same as themselves, a co-
the status of the decedent prior to ownership is created,
his death. and individual income
Exceptions: tax is imposed on the
1. The entitlement to income received by
personal exemption is limited each of the heirs,
only to P20,000. payable in their
2. No additional exemption separate and
is allowed. individual capacity.
3. The distribution to the (Pascual vs.
heirs during the taxable year of Commissioner, GR No.
estate income is deductible from L-78133, October 18,
the taxable income of the 1988; Obillos vs.
estate. Such distributed income Commissioner, GR No.
shall form part of the respective L-68118, October 29,
heirs’ taxable income. 1985)
Where no such distribution to
the heirs is made during the ESTATES NOT UNDER JUDICIAL SETTLEMENT
taxable year that the income is Pending the extrajudicial
earned, and such income is settlement, either of the following
subjected to income tax situations may arise:
payment by the estate, the 1. If the heirs contribute
subsequent distribution thereof money, property,
is no longer taxable on the part or industry to the
of the recipient. estate with the
intention of
B. TERMINATION OF THE JUDICIAL SETTLEMENT dividing the profits
(WHERE THE HEIRS STILL DO NOT DIVIDE THE between/among
PROPERTY) themselves, an
1. If the heirs contribute to unregistered
the estate money, partnership is
property, or industry created and the
with intention to estate becomes
divide the profits liable for the
between/among payment of
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corporate income returned by the
tax; or grantor.
2. If the heirs, without b. In a trust where the
contributing income is held for the
money, property or benefit of the grantor,
industry to the the income of the trust
estate, simply becomes income to the
divide the fruits grantor.
thereof c. In the case of trust
between/among administered in a
themselves, a co- foreign country, the
ownership is income of the trust;
created and undiminished by any
income tax is amount distributed to
imposed on the the beneficiaries shall
income received be taxed to the
by each of the trustee.
heirs, payable in
their separate and IRREVOCABLE TRUSTS (irrevocable both as to
individual corpus and as to income) –
capacity.
Trust itself, through the trustee or
TRUST – A right to the property, whether fiduciary, is liable for the payment of
real or personal, held by one person for income tax. Taxed exactly in the same
the benefit of another. way as estates under judicial settlement
and its status as an individual is that of
WHEN TRUSTS ARE TAXABLE ENTITIES the trustor. It is entitled to the
1. A trust, the income of which is to be minimum personal exemption (P20,000)
accumulated and distribution of trust income during
2. A trust in which the fiduciary may, at the taxable year to the beneficiaries is
his discretion, either distribute or deductible from the trust’s taxable
accumulate the income. income.
RULES ON TAXABILITY OF THE INCOME OF A TRUST REVOCABLE TRUSTS – the trustor, not the
1. The income of the trust for trust itself, is subject to the payment of
the taxable year which is to income tax on the trust income.
be distributed to the
beneficiaries – filing and EXEMPTION OF EMPLOYEES’ TRUST
payment of tax lie on the Provided:
beneficiaries. 1. the employee’s trust
must be part of a
2. The income of the trust pension, stock
which is to be accumulated bonus or profit
or held for future sharing plan of the
distribution whether employer for the
consisting of ordinary benefit of some or
income or gain from the sale all of his
of assets included in the employees;
"corpus" of the estate – filing 2. contributions are made
of return and payment of to the trust by
tax become the burden of such employer, or
the trustee or fiduciary. such employees, or
Exceptions: both;
a. In the case of a revocable 3. such contributions are
trust, the income of made for the
the trust will be purpose of
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distributing to such (a) undertaking construction projects
employees both (b) engaged in petroleum, coal and
the earnings and other energy operation under a
principal of the service contract with the
fund accumulated government
by the trust, and General co-partnerships (GCP)
4. that the trust are partnerships, which are by law
instrument makes assimilated to be within the context
it impossible for of, and so legally contemplated as,
any part of the corporations. The partnership itself
trust corpus or is subject to corporate taxation. The
income to be used individual partners are considered
for, or diverted to, stockholders and, therefore, profits
purposes other distributed to them by the
than the exclusive partnership are taxable as dividends.
benefit of such The taxable income for a taxable
employees. (Sec. year, after deducting the corporate
60B, NIRC) income tax imposed therein, shall be
deemed to have been actually or
Tax exemption is likewise to be constructively received by the
enjoyed by the income of the pension partners in the same taxable year
trust; otherwise, taxation of those and shall be taxed to them in their
earnings would result in a diminution of individual capacity whether actually
accumulated income and reduce distributed or not. [Sec. 73(D),
whatever the trust beneficiaries would NIRC]
receive out of the trust fund.
(Commissioner vs. Court of Appeals, LIABILITY OF A PARTNERSHIP
Court of Tax Appeals and GCL 1. General Professional
Retirement Plans, GR No. 95022, March Partnership .- They are not
23, 1992) subject to income tax, but
are required to file returns
A. PARTNERSHIPS of their income for the
purpose of furnishing
KINDS OF PARTNERSHIP FOR TAX PURPOSES UNDER information as to the share
THE NIRC of each partner in the net
1. General Professional gain or profit, which each
Partnerships (GPP) - formed partner shall include in his
by persons for: individual return. The
a. the sole purpose of partnership shall act as the
exercising a common withholding agent.
profession and The net income (income for
b. no part of the income of distribution) shall be computed in
which is derived from the same manner as a corporation.
engaging in any trade Date of filing of the return is April 15
or business. [Sec. of each year.
22(B), NIRC]. 2. Taxable or Business
1. Taxable or Business Partnership - The income
Partnership – tax of this type of
All other partnerships except Partnership is computed and
general professional partnerships no taxed like that of a
matter, how created or organized. corporation. This kind of
It includes unregistered joint partnership, like a regular
ventures and business partnerships. corporation, is also required
However, joint ventures are not to file a quarterly corporate
taxables as corporations when it is; income tax return. Filing and
payment of quarterly return
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is within 60 days after the 24A (Effective January
end of each quarter while 1, 1982)
the annual return is on or
before April 15 of the 1. Share of a partner in
following year. Taxable or Business
partnership
LIABILITY OF A PARTNER a. Share of a partner in the
Rules: net income of a
1. Share of a partner in taxable or business
general professional partnership (dividend)
Partnership shall be subject to a
a. Each partner shall report final tax as follows.
as gross income • Resident
(business income) his Citizen,
distributed share Non-
actually or resident
constructively received Citizen
in the net income of and
the partnership. (Sec. Resident
26, NIRC) [The same Alien (2000
share shall be subject and
to creditable onward) –
withholding tax of 10% (Sec.
10%.] They are liable 24B2)
in their separate and • Non-
individual capacity. resid
ent
b. Share of a partner in the Alien
loss of a general enga
professional ged
partnership may be in
taken by the individual trad
partner in his return of e or
income. busin
ess –
20%
c. Each partner in a general (Sec.
professional 25
partnership shall, A2)
report as gross income • Non-
his distributed share in
resid
the net income of the
ent
GPP, based on his
alien
agreed ratio, whether
not
he, avails of itemized
enga
or optional standard
ged
deduction.
in
trad
d. Payments made to a e or
partner of a GPP for busin
services rendered shall ess –
be considered as 25%
ordinary business (Sec.
income subject to Sec. 25B)

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a. Share of a partner in the b. Gross income from
loss of a taxable or profession, trade or
business partnership business;
maybe taken by the c. Gains form dealings in
individual partner in property;
his return of income. d. Interests;
b. Payments made to a e. Rents;
partner of a business f. Royalties;
or taxable partnership g. Dividends;
for services rendered h. Annuities;
shall be considered as i. Prizes and winnings;
compensation income j. Pensions;
subject to sec. 24A. k. Partner’s share in the
net income of the
KINDS OF INCOME TAXES general professional
partnership
UNDER THE NIRC
 See Annex D for detailed
1. Net Income Tax
discussion of items.
2. Optional Corporate Income tax
3. Minimum Corporate Income Tax
KINDS OF DIVIDENDS
4. Improperly Accumulated
1. Cash
Earnings Tax
and
5. Preferential Rates or Special
Prop
Rates of Income Tax
erty
6. Gross Income Tax
Divid
7. Final Income Tax
ends
8. Fringe Benefits Tax
Individual Taxpayer
9. Capital Gains Tax
a. Fro
(1) NET INCOME TAX m
Do
DEFINITION: Means gross income less me
deductions and/or personal and sti
additional exemptions (Sec. 31, NIRC) c
Co
NET INCOME TAX FORMULA rp
Entire Income ora
Less: Exclusions and Income subject tio
to Final Tax (e.g. Passive ns
Income) • RC, NRC, RA – 10% (Sec.
Gross Income 24A)
Less: Deductions (and/or additional • NRAETB – 20% (Sec.
exemptions, if applicable) 25A2)
Net Taxable Income
• NRANETB – 25% on gross
Multiply by: Tax Rate (%)
income (Sec. 25B)
Net Income Tax Due a. Fro
Less: Tax Credit, if any m
Tax Still due, if any For
eig
GROSS INCOME n
Co
DEFINITION: Means all income derived from rp
whatever source, including but not ora
limited to the following (Sec. 32) tio
a. Compensation; ns

Jhundee
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1
• RC, NRC, RA, NRAETB – Appeals,

5-32% (Sec. 24, 25A1) Court of Tax
• NRANETB – 25% on gross Appeals &
income (Sec. 25B) ANSCOR, GR
No. 108576,
Corporate Taxpayer Jan. 30, 1999)
a. Foreign to Domestic Corp. – 32% a. the recipient is other than
(Sec. 32A) the shareholder
b. Domestic to Domestic Corp. – (Bachrach vs. Seifert,
Exempt; intercorporate GR No. L-2659, October
dividends (Sec. 27D) 12, 1950)
c. Domestic to Foreign Corp. - b. change in the stockholder’s
• Resident Foreign Corp. – equity results by virtue
Exempt (Sec. 28 [A] 7d) of the stock dividend
• Nonresident Foreign issuance.
Corp. – 15% subject to
the condition stated in 2. Liquidating Dividends – When a
Sec. 28 [B] 5. corporation distributes all of its
Otherwise, it shall be assets in complete liquidation or
taxed at 32%. (See dissolution, the gain realized or
Commissioner vs. loss sustained by the
Procter and Gamble, GR stockholder, whether individual
No. 66838, December 2, or corporation, is taxable
1991) income or deductible loss, as the
case may be. (Sec. 73A)
1. Stoc A liquidating dividend is not
k a dividend income. The
Divi transaction is considered a sale
dend or exchange of property
s between the corporation and the
General rule: Not subject to tax stockholder.
because it does not constitute
income; it represents transfer of EXCLUSIONS FROM GROSS INCOME
NOTE: Under the 1997 Tax Code, the term
surplus to capital account. (Sec.
73B, 1997 NIRC) “exclusions” refers to items that are not
Exceptions: included in the determination of gross
a. Sec. 73B, 1997 NIRC income either because:
(1) there is (a) they represent return of capital
redemption or or are not income, gain or profit; or
cancellation (b) they are subject to another kind
(2) the transaction of internal revenue tax; or
involves stock (c) they are income, gain or profit
dividends, and that are expressly exempt form income
(3) the “time and tax under the constitution, tax treaty,
manner” of Tax Code, or a general or special law.
the
transaction 1. Proceeds of life insurance
makes it paid by reason of the death of the
“essentially insured to his estate or to any
equivalent to beneficiary (individual, partnership,
a distribution or corporation, but not a transferee
of taxable for a valuable consideration),
dividends”. directly or in trust.
(see NOTE: if the proceeds are
Commissioner retained by the insurer, the interest
vs. Court of thereon is taxable;
Jhundee
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1
5. Income exempt under

2. Return of insurance Treaty;
premium;
NOTE: if such amounts (when added 6. Retirement benefits,
to amounts already received before pension, gratuities, etc.
the taxable year under such a. those derived under R.A.
contracts) exceed the aggregate 7641 (pertains to
premiums or considerations paid private firms without
(whether or not paid during the retirement trust fund);
taxable year), then the excess shall b. those received by officials
be included in the gross income. and employees of
However, in the case of a transfer for private employers in
a valuable consideration, by accordance with a
assignment or otherwise, of a life reasonable private
insurance, endowment or annuity benefit plan;
contract, or any interest therein, Requisites:
only the actual value of such (1) in the service of the
consideration and the amount of the same employer for at
premiums and other sums least 10 years;
subsequently paid by the transferee (2) at least 50 years old;
are exempt from taxation. No loss is (3) must be availed of only
realized on surrender of a life once
insurance policy for its surrender (4) plan approved by the BIR
value. (R.R.2-98);
a. separation pay because of
3. Gift, bequest or devise death, sickness, or
Gifts, bequests, and devises other physical
(which are subject to estate or gift disability or for any
taxes) are excluded, but not the cause beyond the
income from such property. If the control of the official
amount received is on account of or employee (e.g.
services rendered, whether retrenchment,
constituting a demandable debt or redundancy or
not, or the use of the opportunity to cessation of business);
use of capital, the receipt is income “for any cause beyond the
(Pirovano vs. Commissioner, 14 control of said official or
SCRA 832) employee” – connotes
involuntariness on the part of
4. Compensation for personal the official or employee;
injuries or sickness, whether by separation must not be asked or
suit or agreement initiated by the official or
NOTE: The phrase “personal employee.
injuries” should be given a b. social security benefits,
restrictive meaning to refer only to retirement gratuities,
physical injuries. The theory for this pensions and other
is that recoupment on account of similar benefits
such losses is not income, since it is received by citizens
not derived from capital, from labor and aliens who come
or from both combined. And the to reside permanently
fact that the payment of here from foreign
compensation for such loss was sources private or
voluntary does not change its public;
exempt status. It was in fact c. benefits due to residents
compensation for a loss, which under the laws of the
impaired petitioner’s capital. U.S. administered by

Jhundee
Guillermo
1

the U.S. Veterans c. GSIS,SSS, Medicare and
Administration union dues of
d. SSS benefits; and individuals;
e. GSIS benefits. d. Gains derived from debt
securities with a
1. Miscellaneous items maturity of more than
a. Passive income derived in 5 years;
the Philippines by: e. Gains from redemption of
(1) Foreign shares in Mutual Fund.
governments
; EXCLUSIONS VS. DEDUCTIONS
(2) Financing
institutions Exclusions Deductions
owned, [Sec. 32(B)] [Sec. 34]
controlled or
enjoying Refer to flow of Refer to the
refinancing wealth which are amounts which the
from foreign not treated as part law allows to be
governments of gross income subtracted from
because: gross income in
(3) International or
(1) exempted by the order to arrive at
regional fundamental law; net income
financial (2) exempted by
institutions statute; (3) do not
established come within the
by foreign definition of income
governments
a. Income derived from any Pertain to the Pertain to the
public utility or from computation of computation of the
the exercise of any gross income net income
governmental
Something earned or Something spent or
function; received by the paid in earning of
b. Prizes and awards made taxpayer which do gross income
primarily in not form part of
recognition of gross income
religious, charitable,
scientific, educational,
artistic, literary, or DEDUCTIONS
civic achievement
Requisites: DEFINITION: Items or amounts which the
(1) recipient was law allows to be deducted from gross
selected without income in order to arrive at the taxable
any action on his income.
part; and
(2) recipient is not BASIC PRINCIPLES GOVERNING DEDUCTIONS
required to render a. The taxpayer seeking a
substantial future deduction must point to
services. some specific provisions of
a. Prizes and awards granted the statute authorizing the
to athletes in sports deduction; and
competitions and b. He must be able to prove
sanctioned by their that he is entitled to the
national sports deduction authorized or
association ; allowed. (Atlas
b. 13th month pay and other Consolidated Mining & Dev.
benefits up to Corp. vs. Commissioner, GR
P30,000.00;
Jhundee
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1

No. L-26911, January 21, m
1981) e
c. Any amount paid or payable n
which is otherwise t
deductible from, or taken s
into account in computing o
gross income or for which n
depreciation or amortization h
may be allowed, shall be e
allowed as deduction only if a
it is shown that the tax l
required to be deducted and t
withheld therefrom has been h
paid to the BIR. [Sec. 34(K), a
NIRC] n
d
NOTE: Deductions for income tax /
purposes partake of the nature of tax o
exemptions; hence, if tax exemptions r
are to be strictly construed, then it h
follows that deductions must also be o
strictly construed. s
p
TAXPAYERS WHO CANNOT AVAIL OF DEDUCTIONS i
FROM GROSS INCOME t
1. Citizens and resident aliens a
whose income is purely l
compensation income i
(except for premium z
payments on health and/or a
hospitalization insurance); t
2. Non-resident aliens not i
engaged in trade or business o
in the Philippines; and n
3. Non-resident foreign i
corporation n
s
CLASSES OF DEDUCTIONS u
1. Individuals r
a. with gross a
compensation n
income from c
employer- e
employee (2) p
relationship only e
(1) p r
r s
e o
m n
i a
u l
m a
d
p d
a i
y t
Jhundee
Guillermo
1

i z
o e
n d
a
l d
e e
x d
e u
m c
p t
t i
i o
o n
n s
s (3) p
b. gross income r
from business or e
practice of m
profession i
(1) O u
p m
t
i p
o a
n y
a m
l e
S n
t t
a s
n o
d n
a h
r e
d a
l
D t
e h
d a
u n
c d
t /
i o
o r
n h
o
( s
O p
S i
D t
) a
(2) I l
t i
e z
m a
i t
Jhundee
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1

i Available only to individuals
o (business income and compensation
n income earners).
i NRAETB may be entitled to

n personal exemptions (only) subject
s to reciprocity, i.e.,
u a. the
r coun
a try
n of
c whic
e h he
(4) p is a
e subje
r ct or
s citiz
o en
n has
a an
l inco
a me
d tax
d law;
i and
t b. the
i inco
o me
n tax
a law
l of
e his
x coun
e try
m allow
p s
t pers
i onal
o exem
n ption
s to
2. Corporations citiz
• Itemized Deductions ens
of
the
KINDS OF DEDUCTIONS Phili
a. Optional standard ppin
deductions (OSD) –10% of the gross es
income. not
The OSD may be availed of only by resid
individuals (except nonresident ing
alien) who are not purely there
compensation income earners. in,
b. Personal and additional but
exemptions deriv
ing
Jhundee
Guillermo
1

inco prop
me erty;
ther g. depletio
efro n of
m oil
and and
not gas
to wells
exce and
ed mine
the s;
amo h. charitabl
unt e
allow and
ed in other
NIRC contr
. ibuti
ons;
The personal exemption shall be i. research
equal to that allowed by the income and
tax law of his country to a citizen of deve
the Philippines not residing therein, lopm
or the amount provided in the NIRC, ent;
whichever is lower. j. pension
trust
Individuals not entitled to these contr
exemptions: ibuti
a. Non-resident Alien not ons
engaged in trade or business of
b. Alien individual employed by empl
Regional or Area oyee
Headquarters of s;
Multinational Companies and
c. Alien individual employed by k. premium
Offshore Banking Units paym
d. Alien individual employed by ents
Petroleum Service on
Contractor and healt
Subcontractor h
and/
a. Itemized deductions or
a. ordinary hospi
and taliz
nece ation
ssary insur
expe ance
nses .
b. interests (This
c. taxes is
d. losses the
e. bad only
debt dedu
s ction
f. deprecia whic
tion ha
of comp
Jhundee
Guillermo
1

ensat c.
ion 61)
inco
me PERSONAL EXEMPTIONS
earn
er A. Amounts of Personal Exemptions
may [Sec. 35, NIRC]
clai 1. P 20,000 –
m as Single
a individua
dedu l or
ction married
.) individua
l
a. Special deductions judicially
a. private decreed
pro legally
prie separate
tary d
edu without
cati qualified
ona depende
l nt
inst children.
itut
ions
2. P 25,000 – Head
and of the
hos family or
pita married
ls individua
tha l
t judicially
are decreed
non legally
- separate
pro d with
fit qualified
(Se depende
c. nt
34 children.
A, 3. P 32,000 – For
2) each
b. insuran legally
ce married
co individua
mp l.
ani
es Head of the Family
(Se 1. Unmarried or legally
c. separated person with one
37) or both parents, or one or
c. estates more brothers or sisters, or
and one or more legitimate,
trus recognized natural or legally
ts adopted children living with
(Se and dependent upon the
Jhundee
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1

taxpayer for their chief 2. H
support; and u
“Chief support” means more s
than one-half of the b
requirements for support. a
2. Where such brother / sister n
or children are not more d
than 21 years of age,
unmarried and not gainfully i
employed, or where such s
dependents regardless of w
age, are incapable of self – o
support because of mental r
or physical defect. k
i
Parents, brothers, sisters and senior n
citizen with the tax payer, whether g
relative or not, may qualify the a
taxpayer, to the personal exemption of b
P25,000 as head of the family but not to r
the additional exemption of P8,000. o
a
B. Additional Exemption for d
Dependents [Sec. 35, NIRC]
P 8,000 – For each of the qualified l
dependent children not i
exceeding four (4) in k
number. e
The additional exemption refers a
only to qualified dependent children n
such as legitimate, recognized natural, O
illegitimate and legally adopted. F
The proper claimant of the W
additional exemption is the husband
being the head of the family except o
under the following cases: r
1. H a
u s
s e
b a
a m
n a
d n
3. H
i u
s s
u b
n a
e n
m d
p
l e
o x
y p
e l
d i
Jhundee
Guillermo
1

c
i t
t h
l e
y w
w i
a t
i h
v h
e o
d l
d
h i
i n
s g
r e
i x
g e
h m
t p
o t
f i
t o
h n
e c
e
e r
x t
e i
m f
p i
t c
i a
o t
n e
.
i
n A Senior Citizen is:
1. a
f n
a y
v r
o e
r s
o i
f d
h e
i n
s t
w c
i i
f t
e i
z
i e
n n
Jhundee
Guillermo
1

o h
f o
t h
h a
e v
e
P r
h e
i t
l i
i r
p e
p d
i
n f
e r
s o
2. a m
t
l b
e o
a t
s h
t g
s o
i v
x e
t r
y n
6 m
0 e
y n
e t
a o
r f
s f
o i
l c
d e
, s
i a
n n
c d
l
u p
d r
i i
n v
g a
t t
h e
o e
s n
e t
e
w r
Jhundee
Guillermo
1

p o
r s
i (
s 6
e 0
s ,
, 0
a 0
n 0
d )
p
3. h e
a r
s a
a n
n n
u
i m
n
c s
o u
m b
e j
e
o c
f t
n t
o o
t t
m h
o e
r r
e e
v
t i
h e
a w
n
o
S f
i t
x h
t e
y N
t a
h t
o i
u o
s n
a a
n l
d E
c
p o
e n
s o
Jhundee
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1

m allowed by his country to Filipinos
i not residing therein, and shall not
c exceed the aforementioned
D amounts. NRANETB cannot claim
e any personal or additional
v exemptions.
e
l C. Change of Status [Sec. 35, NIRC]
o 1. I
p f
m t
e h
n e
t t
A a
u x
t p
h a
o y
r e
i r
t s
y h
( o
N u
E l
D d
A
) m
e a
v r
e r
r y
y o
t r
h s
r h
e o
e u
l
y d
e
a h
r a
s v
. e
a
Parents and dependents qualify d
the taxpayer, to the personal d
exemption of P25,000 as head of the i
family but not to the additional t
exemption of P8,000. i
o
NOTE: NRAETB may deduct personal n
exemption (not additional a
exemption), but only to the extent l
Jhundee
Guillermo
1

d o
e n
p d
e i
n n
d g
e e
n x
t e
s m
d p
u t
r i
i o
n n
g s
t i
h n
e f
u
t l
a l
x f
a o
b r
l s
e u
c
y h
e y
a e
r a
, r
h .
e 2. I
f
m t
a h
y e
c t
l a
a x
i p
m a
y
t e
h r
e s
h
c o
o u
r l
r d
e
s d
p i
Jhundee
Guillermo
1

e n
d
d i
u n
r g
i e
n x
g e
t m
h p
e t
i
t o
a n
x s
a a
b s
l i
e f
h
y e
e d
a i
r e
, d
h
i a
s t
e t
s h
t e
a c
t l
e o
s
m e
a o
y f
c s
l u
a c
i h
m y
e
t a
h r
e .
3. I
c f
o t
r h
r e
e s
s p
p o
o u
Jhundee
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1

s b
e e
c
o o
r m
a e
n t
y w
d e
e n
p t
e y
n -
d o
e n
n e
t y
s e
h a
o r
u s
l o
d l
d
d
i d
e u
r
o i
r n
a g
n t
y h
d e
e y
p e
e a
n r
d ,
e o
n r
t s
s h
h o
o u
u l
l d
d
b
m e
a c
r o
r m
y e
o g
r a
Jhundee
Guillermo
1

i h
n e
f s
u p
l o
l u
y s
e e
m o
p r
l d
o e
y p
e e
d n
, d
t e
h n
e t
d
t i
a e
x d
p
a o
y r
e a
r s
m i
a f
y s
c u
l c
a h
i d
m e
p
t e
h n
e d
e
e n
x t
e m
m a
p r
t r
i i
o e
n d
s ,
a b
s e
i c
f a
t m
Jhundee
Guillermo
1

e o
s
t e
w o
e f
n s
t u
y c
o h
n y
e e
a
y r
e .
a 4. F
r o
s r
o a
l n
d y
o
o t
r h
b e
e r
c e
a v
m e
e n
t
g a
a n
i d
n
f f
u o
l r
l w
y h
e i
m c
p h
l t
o h
y e
e r
d e
a
a r
t e
t n
h o
e s
p
c e
l c
Jhundee
Guillermo
1

i f
f t
i h
c e
r t
u a
l x
e p
s a
a y
p e
p r
l a
i t
c t
a h
b e
l e
e n
d
f
r o
o f
m t
h
t e
h y
e e
a
a r
b s
o h
v a
e l
- l
m d
e e
n t
t e
i r
o m
n i
e n
d e
, h
t i
h s
e e
x
s e
t m
a p
t t
u i
s o
o n
Jhundee
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1

s
. NECESSARY EXPENSE – appropriate and helpful
( in the development of taxpayer's
s business and are intended to minimize
t losses or to increase profits. These are
r the day-to-day expenses.
i ORDINARY EXPENSE – normal or usual in
c relation to the taxpayer’s business and
t the surrounding circumstance.
l
y REQUISITES OF BUSINESS EXPENSE TO BE
DEDUCTIBLE
c 1. ordinary and necessary;
o 2. paid or incurred w/in the
n taxable year;
s 3. paid or incurred in carrying
t on a trade or business;
r 4. substantiated with official
u receipts or other adequate
e records.
d 5. if subject to withholding
taxes proof of payment to
a the Bureau of Internal
g Revenue must be shown.
a 6. must be reasonable (when
i the expense is not lavish,
n extravagant or excessive
s under the circumstances)
t 7. must not be contrary to law, public
t policy or morals.
h
e NOTE: While illegal income will form
part of income of the taxpayer,
t expenses which constitute bribe,
a kickback and other similar payment,
x being against law and public policy are
p not deductible from gross income.
a (Subsec. A, 1, c)
y
e CAPITAL EXPENDITURE – An expenditure that
r benefits not only the current period but
) also future periods. It is not deductible
Examples: but depreciable, except, if the taxpayer
• became legally is a non-profit proprietary educational
separated – can only institution which may elect either to
claim P 20,000 deduct the capital expense or
• 25 years old child depreciate it.
became incapacitated –
cannot claim additional  See Annex E – Business Expenses
exemption
 See Annex F – Ceiling on
ITEMIZED DEDUCTIONS “Entertainment, Amusement and
Recreational Expenses”
A. ORDINARY AND NECESSARY
EXPENSES A. INTEREST
Jhundee
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1

ecte
INTEREST – shall refer to the payment for d
the use or forbearance or detention of with
money, regardless of the name it is the
called or denominated. It includes the taxp
amount paid for the borrower's use of, ayer'
money during the term of the loan, as s
well as for his detention of money after trad
the due date for its repayment. e,
busin
REQUISITES FOR DEDUCTIBILITY (REV. REG. NO. ess
13-2000) or
1. Ther exer
e cise
must of
be prof
an essio
inde n;
bted 5. The
ness; inter
2. Ther est
e expe
shoul nse
d be must
an have
inter been
est paid
exp or
ense incur
paid red
or durin
incur g the
red taxa
upon ble
such year;
inde 6. The
bted inter
ness; est
3. The must
inde have
bted been
ness stipu
must lated
be in
that writi
of ng;
the 7. The
taxp inter
ayer; est
4. The must
inde be
bted legal
ness ly
must due;
be 8. The
conn inter
Jhundee
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1

est n,
arra the
nge same
ment , was
must not
not treat
be ed as
betw a
een capit
relat al
ed expe
taxp nditu
ayer re.
s; 11. The interest is not expressly
9. The disallowed by law to be deducted
inter from gross income of the taxpayer.
est
must RULES ON DEDUCTIBILITY OF INTEREST EXPENSE
not General Rule - In general, the amount of
be interest expense paid or incurred within
incur a taxable year of indebtedness in
red connection with the taxpayer's trade
to business or exercise of profession, shall
finan be allowed as a deduction from the
ce taxpayer's gross income.
petr
oleu Limitation - The amount of interest
m expense paid incurred by a taxpayer in
oper connection with his trade, business or
ation exercise of a profession from an existing
s; indebtedness shall be reduced by an
and amount equal the following percentages
10. In of interest income earned which had
case been subjected to final withholding
of depending on the year when the interest
inter income earned, viz:
est 38% - beginning January 1, 2000 and
incur thereafter
red
to Aim of Limitation: To discourage so-
acqu called “back-to-back” loans where a
ire taxpayer secures a loan from a bank,
prop turns around and invests the loan
erty proceeds in money market placements.
used By imposing a limit as to the amount of
in interest expense that can be deducted
trad from gross income, the previous practice
e, of tax arbitrage was absolutely nullified.
busin
ess Tax Arbitrage – is a method of
or borrowing without entering into a
exer debtor/creditor relationship, often to
cise resolve financing and exchange control
of problems. In tax cases, back-to-back
prof loan is used to take advantage of the
essio lower of tax on interest income and a
Jhundee
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1

higher rate of tax on interest expense depositors, if it is shown that
deduction. the tax on such interest was
withheld.
Illustration: 4. Interest paid by a corporate
On June 1, 2000 Company X has: taxpayer who is liable on a
1. Obtained a loan from ABC mortgage upon real property of
Financing Corporation in which the said corporation is the
connection with the operation legal or equitable owner, even
of its business and its interest though it is not directly liable
expense on the loan amounted for the indebtedness.
to P 120,000.
2. Deposit account in DEF Bank and NON-DEDUCTIBLE INTEREST EXPENSE
derived interest income 1. An individual taxpayer reporting
thereof amounting to P200,000 income on the cash basis incurs an
on which the final tax of indebtedness on which an interest is
P40,000 has been withheld. paid in advance through discount or
Assume that Company X’s net otherwise:
income before the deduction of
interest expense is P500,000. • allowed as a
deduction in the
The deductible expense shall be year the
computed as follows: indebtedness is
paid
Year 2000 • if the indebtedness
is payable
Net Income before periodic
interest expense P500,000 amortization on,
Less: Interest Expense P120,000 the amount of
Less: 38% of interest interest which
income from deposit corresponds to
(38% x P200,000) 76,000 the amount of
Deductible Interest the principal
Expense 44,000 amortized or
Taxable Income P456,000 paid during the
year shall be
allowed as
Deductible Interest Expense deduction in
1. Interest on taxes, such as those such taxable
paid for deficiency or year.
delinquency, since taxes are 1. Interest paid on indebtedness
considered indebtedness between related taxpayer
(provided that the tax is a 2. If the indebtedness is incurred to
deductible tax, except in the finance petroleum exploration
case of income tax). However, 3. Interest on preferred stock, which
fines, penalties, and surcharges in reality is dividend
on account of taxes are not 4. Interest on unpaid salaries and
deductible. The interest on bonuses
unpaid business tax shall not be 5. Interest calculated for cost keeping
subjected to the limitation on on account of capital or surplus
deduction. invested in business which does not
2. Interest paid by a corporation on represent charges arising under
scrip dividends interest-bearing obligation.
3. Interest-on deposits paid by 6. Interest paid when there is no
stipulation for the payment thereof.
authorized banks of the Bangko
Sentral ng Pilipinas to
OPTIONAL TREATMENT OF INTEREST EXPENSE
Jhundee
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1

At the option of the taxpayer, 1. Taxe
interest incurred to acquire property s of
used in trade or business may be shar
allowed as a deduction or treated as ehol
capital expenditure. [Sec 34 (B)(3), der
NIRC] upon
his
A. TAXES inter
est
Taxes mean TAXES PROPER, and as
therefore no deductions are allowed for: such
1. interest and
2. surcharges paid
3. penalties or fines by
incident to the
delinquency (Sec. corp
80, Rev. Reg. 2) orati
on
REQUISITES FOR DEDUCTIBILITY with
1. must be in connection with out
taxpayer’s business; reim
2. tax must be imposed by law on, and burs
payable by taxpayer (direct tax); eme
and nt
3. paid or incurred during the taxable from
year. him,
can
TAXES NOT DEDUCTIBLE be
1. income tax; clai
2. estate and donor’s tax; med
3. special assessments; by
4. excess electric consumption tax; the
5. foreign income tax, war profits and corp
excess profits tax, if the taxpayer orati
makes use of tax credit; and on as
dedu
6. final taxes, being in the nature of ction
income tax.
.
NOTE: Taxes allowed as deductions, 2. A
when refunded or credited, shall be corp
included as part of gross income in the orati
year of receipt to the extent of the on
income tax benefit of said deduction. payi
(Tax Benefit Rule) ng
the
For NRAETB and RFC, taxes paid or tax
incurred are allowed as deductions only for
if and to the extent that they are the
connected from income within the hold
Philippines. er its
bond
EXCEPTIONS to requirement that only s or
such persons on whom the tax is othe
imposed by law can claim deduction r
thereof: oblig
ation
Jhundee
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1

cont
ainin FORMULA FOR COMPUTING LIMITATION
g a 1. Per country limitation
tax- Taxable
free income from
cove foreign country X Phil. = Tax Credit
nant Taxable income income tax Limit
claus from all sources
e
cann 2. Over-all limitation
ot Taxable
clai income from
m outside sources X Phil. = Tax Credit
Taxable income income tax Limit
dedu from all sources
ction
for The allowable tax credit is the “lower
such amount” between the tax credit
taxe computed under No. 1 and No. 2.
s
paid WHEN CREDIT FOR TAXES MAY BE TAKEN
by it The credit for taxes provided by
purs Section 30(C)(3) to (9) may ordinarily be
uant taken either in the return for the year in
to which the taxes accrued or on which the
such taxes were paid, dependent upon
cove whether the accounts of the taxpayer
nant are kept and his returns filed upon the
. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer to 1) The amount of credit in respect
deduct from income tax payable the to the taxes paid or accrued
foreign income tax he has paid to his to any country shall not
foreign country subject to limitation. exceed the same proportion
of the tax against which such
WHO CAN CLAIM TAX CREDIT credit is taken, which the
1. resident citizens of the Philippines taxpayer’s net income from
2. resident aliens under the principle of sources within such country
reciprocity taxable under Title II
3. domestic corporations which include (income Tax) bears to his
partnerships except general entire net income for the
professional partnership same taxable year; and
4. beneficiaries of estates and trusts 2) The total amount of the credit
5. members of beneficiaries of local shall not exceed the same
partnerships proportion of the tax against
which such credit is taken,
WHO ARE NOT ENTITLED TO TAX CREDIT which the taxpayer’s net
1. non-resident citizens income from sources without
2. resident aliens, if without the Philippines taxable under
reciprocity Title II (Income Tax) bears to
3. resident aliens whose income is his entire net income for the
derived solely from sources within same taxable year.
the Philippines
4. foreign corporations (resident and
A. LOSSES
non-resident)
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gross income of the
LOSSES – refer to such losses which do not business for any
come under the category of bad debts, taxable year, which
inventory losses, depreciation, etc., and had not been
which arise in taxpayer's profession, previously offset as
trade or business. deduction from gross
income.
REQUISITES FOR DEDUCTIBILITY  Can be carried over as a
1. Actually sustained during the deduction from gross
taxable year income for the next
2. Connected with the trade, business 3 consecutive years
or profession immediately
3. Evidenced by a close and completed following the year of
transaction such loss.
4. Not compensated for by insurance  For mines, other that oil
or other form of indemnity and gas well, net
5. Not claimed as a deduction for operating loss
estate tax purposes incurred in any of
6. Notice of loss must be filed with the the first ten years of
Bureau of Internal Revenue operation may be
within 45 days from the date of carried over for the
discovery of the casualty or next 5 years.
robbery, theft or
embezzlement.
 Requirements:
NOTE: The taxpayer’s failure to record (1) The taxpayer was not
in his books the alleged loss proves that exempt from income tax
the loss had not been suffered, hence, in the year of such net
not deductible. (City Lumber vs. operating loss;
Domingo and Court of Tax Appeals, GR (2) The loss was not incurred in
No. L-18611, January 30, 1964) a taxable year during
CATEGORY AND TYPES OF LOSSES the taxpayer was
1. ORDINARY LOSSES exempt from income
a. Incurred in trade tax; and
or business, or (3) There has been no
practice of substantial change in the
profession ownership of the
• Net business or enterprise.
op There is no substantial
er change in the ownership of
ati the business when:
ng (a) not
los les
s s
ca th
rry an
- 75
ov %
er in
(N no
OL mi
CO) na
 Refers to the excess of l
allowable va
deductions over lu
Jhundee
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1

e on
of be
th ha
e lf
ou of
tst th
an e
di sa
ng m
iss e
ue pe
d rs
sh on
ar .
es
is NOTE: The 3 year period shall
he continue to run notwithstanding
ld that the corporation paid its taxes
by under MCIT, or that the individual
or availed the 10% OSD.
on
be  See Annex S for illustration.
ha
lf a. Of property
of
connected,
th
with the trade,
e
business or
sa
profession, if
m
the loss arises
e
from fires,
pe
storms,
rs
shipwreck or
on
other
s;
casualties, or
or
from robbery,
(b) not
theft, or
les
embezzlement
s
.
th
(1) Total destruction
an
The replacement
75
cost to restore the property
%
to its normal operating
of
condition, but in no case
th
shall the deductible loss be
e
more than the net book
pa
value of the property as a
id
whole, immediately before
up
casualty.
ca
(2) Partial Destruction
pit
The excess over the
al
net book value immediately
is
before the casualty should
he
be capitalized, subject to
ld
depreciation over the
by
or
Jhundee
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1

remaining useful life of the with respect to a transaction made in
property. the ordinary course of the business of
such dealer, losses from such sale is
1. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE deductible.
ONLY TO THE EXTENT OF CAPITAL Elements of Wash Sales:
GAINS) (1) The sale or other disposition
a. Losses from sale or of stock resulted to a
exchange of loss;
capital assets (2) There was an acquisition or
b. Losses resulting contract or option for
from securities acquisition of stock or
becoming securities within 30 days
worthless and before the sale or 30 days
which are after the sale; and
capital assets. (3) The stock or securities sold
c. Losses from short were substantially the
sales of same as those acquired
property. within the 61-day period.
d. Losses due to
failure to c. Abandonment losses
exercise in petroleum
privilege or operation and
option to buy producing well.
or sell (1) In case a contract area where
property. petroleum operations are
undertaken is partially or
1. SPECIAL KINDS OF LOSSES wholly abandoned, all
accumulated exploration
a. Wagering losses - and development
deductible only expenditures pertaining
to the extent of thereto shall be allowed
gain or winnings. as a deduction.
[Sec. 34 (D)(6)]; (2) In case a producing well is
deemed to apply abandoned, the
only to unamortized cost thereof,
individuals as well as the
b. Losses on wash undepreciated cost of
sales of stocks - equipment directly used
not deductible therein, shall be allowed
because these as deduction in the year
are considered the well, equipment or
to be artificial facility is abandoned.
loss.
c. Losses due to
Wash sales – a sale or other voluntary removal
disposition of stock or securities of building incident
where substantially identical to renewal or
securities are acquired or purchased replacements -
within 61-day period, beginning 30 deductible expense
days before the sale and ending 30 from gross income.
days after the sale. [Sec. 38]
d. Loss of useful value
General rule: Losses from wash sales of capital assets
are not deductible. due to charges in
Exception: When the sale is made by business conditions -
a dealer in stock or securities and deductible expense
Jhundee
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1

only to the extent of 4. Actually ascertained to be worthless
actual loss sustained and uncollectible as of the end of
(after adjustment the taxable year.; and
for improvement, 5. Actually charged off in the books of
depreciation and accounts of the taxpayer as of the
salvage value) end of the taxable year.
EQUITABLE DOCTRINE OF TAX BENEFIT

A recovery of bad debts previously
deducted from gross income constitutes
e. Losses from sales or taxable income if in the year the
exchanges of account was written off, the deduction
property between resulted in a tax benefit. (Tax Benefit
related taxpayers Rule)
-losses of this nature
is not deductible but
gains are taxable. Illustration:
Case A Case B Case C
Net
f. Losses of farmers - if income
incurred in the (loss)
operation of farm before
business, it is write off
for bad P10,000 (P 9,000) P 5,000
deductible. debts
Less:
h. Loss in shrinkage in value of stock – Accounts
if the stock of the corporation becomes written
off as bad
worthless, the cost or other basis may be debts 3,000 2,000 6,000
deducted by the owner in the taxable Final Net
year in which the stock of its Income
worthlessness is made. Any amount (Loss) P 7,000 (P11,000) (P1,000)
Bad debts
claimed as a loss on account of shrinkage recovery
in value of the stock through fluctuation in a
in the market or otherwise cannot be subse- 3,000 2, 000 6, 000
deducted from gross income. quent
year
TAXABLE
BAD DEBTS INCOME
upon the
bad debt
BAD DEBTS – shall refer to those debts
recovery P3,000 P -0 P5,00
resulting from the worthlessness or - 0
uncollectibility, in whole or in part, of
amounts due the taxpayer by others, ASCERTAINMENT OF WORTHLESSNESS
arising from money lent or from • Proof of Two Facts:
uncollectible amounts of income from 1. taxpayer did in
goods sold or services rendered. fact ascertain the
debt to be
REQUISITES FOR DEDUCTIBILITY worthless, in the
1. Existing indebtedness due to the year for which
taxpayer which must be valid and deduction is
legally demandable; sought,
2. Connected with the taxpayer's
2. that in so doing,
trade, business or practice of
he acted in good
profession;
faith. (Collector
3. Must not be sustained in a
vs. Goodrich
transaction entered into between
International
related parties;
Rubber, GR No.
Jhundee
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1

L-22265, Dec. 22, absence of such provisions, on the basis
1967) of the trust income allowable to each.
• Depends upon
the particular METHODS OF DEPRECIATION
facts and the The term "reasonable allowance"
circumstances shall include (but not limited to) an
of the case. allowance computed in accordance,
with the regulations prescribed by the
• Good faith does
Department of Finance, under any of the
not require
following methods.
that the
1. St
taxpayer be
ra
an
ig
“incorrigible
ht
optimist” but
-
on the other
li
hand, he may
n
not be unduly
e
pessimistic.
m
et
DEPRECIATION h
o
DEPRECIATION – the gradual diminution in d
the service or useful value of tangible 2. D
property due from exhaustion, wear and e
tear and normal obsolescence. cl
The term also applies to in
amortization of intangible assets, the in
use of which in trade or business i s of g-
limited duration. b
al
REQUISITES FOR DEDUCTIBILITY a
1. The allowance for depreciation n
must be reasonable. c
2. It must be for property use or e
employment in trade or business or m
out of its not being used et
temporarily during the year. h
3. The allowance must be charged off o
within the taxable, year. d
4. Schedule on the allowance must be 3. S
attached to the return. u
m
PROPERTY HELD BY ONE PERSON FOR LIFE WITH of
THE REMAINDER TO ANOTHER PERSON th
The deduction shall be computed as e
if the life tenant was the absolute owner y
of the property and, as such the expense e
shall accrue to him. ar
s-
PROPERTY HELD IN TRUST di
Allowable deduction shall be gi
apportioned between the income t
beneficiaries, and the trustees in m
accordance with the pertinent provisions et
of the instrument creating or in the h
Jhundee
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1

o e
d n
4. A d
n at
y io
ot n
h of
er th
m e
et C
h o
o m
d m
w is
hi si
c o
h n
m er
a of
y In
b te
e rn
pr al
es R
cr e
ib v
e e
d n
b u
y e.
th
e METHODS OF DEPRECIATION
D Kind Formula
e 1)Straight-line cost- salvage value
p estimated life
2)Declining cost – depreciation x
ar balance Rate
t estimated life
m 3)Sum of the nth period x cost-
e years digits salvage
(SYD) SYD
nt
of
Fi Illustration: A machine is used in the
n manufacturing department of
a Corporation A, compute the depreciation
n per annum with the following facts:
c Cost = P15,000 Salvage
e Value= P5,000
u
p
o
n 1. Straight Line Method with
re estimated life = 5 years
c 15,000 – 5,000 = P2,000
o 5 years
m
m 2. Declining balance with rate of 200%
Jhundee
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1

Year 1: 15,000 – 0 x 200% = P6,000 DB to
5 SL
Year 2:15,000–6,000 x 200% =P3,600 metho
5 d
• Useful
3. Sum of the years digits life: 10
SYD for 5 years = 5+4+3+2+1 or 15 years
Year 1: 5/15 x (15,000 – 5,000) or
= P3,333.33 shorter
Year 2: 4/15 x (15,000 – 5,000) life as
= P2,666.67 allowe
d by
AGREEMENT AS TO USEFUL LIFE ON WHICH the
DEPRECIATION RATE IS BASED Commi
The Bureau of Internal Revenue and ssioner
the taxpayer may agree in writing on the • Useful
useful life of the property to be life of
depreciated. The agreed rate may be proper
modified if justified by facts or ty not
circumstances. The change shall not be directl
effective before the taxable year on y
which notice in writing by certified mail relate
or registered mail is served by the party d to
initiating. produc
SPECIAL TYPES OF DEPRECIATION tion: 5
1. Petroleum Operations years
• Deprec under
iation straigh
of all t line
proper metho
ties d
directl 1. Mining Operations
y • Depreciation on all properties in
relate mining operations other than
d to petroleum operations at the
produc normal rate if expected life is
tion of less than 10 years.
petrol • If expected life is more than 10
eum years, depreciation shall be any
shall number of years between 5
be years and the expected life.
allowe
d 1. Depreciation deductible by non-
under resident aliens engaged in
straigh trade/business or non-resident
t-line corporation
(SL) or a. Only when such property is
declini located in the Philippines.
ng
balanc
A. DEPLETION OF OIL AND GAS
e (DB)
metho WELLS AND MINES
d
• May DEPLETION - exhaustion of natural
shift resources as in mines, oil, and gas wells.
from The natural resources are called
Jhundee
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1

“wasting assets”. As the physical units Phili agencies or
representing such resources are ppin political
extracted and sold, such assets move es; subdivisions
towards exhaustion. (b) Any of
its For a non-priority
Known as cost of depletion age activity in any of the
allowance for mines, oil gas wells and ncie areas mentioned in A,
other natural deposits starting calendar s or and exclusively for a
year 1976 and fiscal year beginning July poli public purpose.
1,1975 tical
sub
divis
TO WHOM ALLOWED ions
Only mining entities owning ; or
(c) Any
economic interest in mineral deposits. fully
Economic interest means interest in -
minerals in place investment therein or own
secured by operating or contract ed
agreement for which income is derived, gov
and return of capital expected, from the ern
extraction of mineral. men
Mere economic or pecuniary t
advantage to be derived by production corp
orat
by one who has no capital investment in
ion
the mineral deposit does not amount to
economic interest. For priority
activity in:
FEATURES 1. S
1. Intangible Exploration and
development drilling cost in 2. E
petroleum exploration shall be
3. C
treated either as:
a. revenue expenditures; or 4. H
b. capital expenditures
2. The total amount deductible for 5. E
exploration and development
6. H
expenditures shall not exceed
50% of net income from mining 7. Youth and
operation. The excess shall be Sports
carried forward to the Development
succeeding year until fully
deducted. 2) Recipient is a 2) Non-government
foreign or organizations
international
A. CHARITABLE AND OTHER
organization
CONTRIBUTIONS with an
agreement
TAX TREATMENT with the
Philippine
A. Deductible B. Deductible Government on
deductibility,
In Full Subject To
or in
Limitation accordance
with special
1) Recipient is: 1) Recipient is:
law.
(a) Govern (a) Government
men of the
t of Philippines; 3) Recipient is an 3) Recipient is an
the (b) Any of its
Jhundee
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accredited non- accredited corporati
government domestic on or to
organization, corporation or the state.
organized/ association
operated for organized/operat
(purposes): ed for (purposes):
(a) Scientific; (a) Scientific

(b) Educational;(b) Educational;
(c) Cultural; (c) Cultural;
(d) Character (d) Youth and sports
building development
/youth (e) Charitable
and (f) Social welfare
sports (g) Religious
develop
ment (h) Rehabilitation
(e) Charitable of Veterans
(f) Social
welfare If the
(g) Health conditions in
(h) Research Table A is not
complied
And satisfying with:
the following
conditions: Subject to
limitation:
1. The (a
donation ) I
must be
utilized (b
not later ) C
than the
15th day
of the 3rd
month
following
the close
of its
taxable
year. REQUISITES FOR DEDUCTIBILITY
2. The 1. The contribution or gift must be
administr actually paid.
ative 2. It must be given to the
expense organizations specified in the
must not
code.
exceed
30% of 3. The net income of the institution
total must not inure to the benefit of
expenses. any private stockholder or
3. Upon individual.
dissolutio
n, assets VALUATION
must be Charitable contribution of property
distribute other than money shall be based on the
d to
acquisition cost of said property.
another
non-profit
domestic
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1
A. RESEARCH AND DEVELOPMENT or other mineral including oil or

(R&D) gas.
TAX TREATMENT A. PENSION TRUST CONTRIBUTIONS

Either as:
1. Revenue Expenditures PENSION TRUST CONTRIBUTIONS – a deduction
Requisites: applicable only to the employer on
a. Paid or incurred account of its contribution to a private
during the pension plan for the benefit of its
taxable year employee. This deduction is purely
b. Ordinary and business in character.
necessary
expenses in
connection with
trade business or REQUISITES FOR DEDUCTIBILITY
profession 1. The employer must
c. Not chargeable have established a
to capital pension or
account retirement plan to
2. Deferred Expenses provide for the
Requisites: payment of
a. Paid or reasonable pensions
incurred in to his employees;
connection with 2. The pension plan is
trade, business, reasonable and
or profession actuarially sound;
b. Not treated as 3. It must be funded by
expense the employer;
c. Chargeable to 4. The amount
capital account contributed must be
but not no longer subject to
chargeable to the control and
property subject disposition of the
to depreciation employer;
or depletion. 5. The payment has not
yet been allowed as
Amount deductible: a deduction; and
Amount ratably distributed 6. The deduction is
over a period of 60 months beginning apportioned in equal
with the month taxpayer realized parts over a period
benefits from such expenditures. of 10 consecutive
years beginning with
EXCLUSION FROM RESEARCH AND DEVELOPMENT the year in which
EXPENDITURES the transfer or
1. Any expenditure for the acquisition payment is made.
or improvement of land or for
the improvement of property to SUMMARY OF RULES ON RETIREMENT BENEFITS PLAN
be used in connection with / PENSION TRUST
research and development 1. Exempt from
subject to depreciation and Income Tax –
depletion. employees’ trust
2. Any expenditure paid or incurred under Sec. 60(B)
for the purpose of ascertaining 2. Exclusion from
the existence, location, extent Gross Income –
or quality of any deposit of ore amount received by

Jhundee
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the employee from 3. That said family has a gross income
the fund upon of not more than P250,000 for
compliance of the taxable year.
certain conditions 4. In case of married individual, only
under Sec. 32(B)(6) the spouse claiming additional
3. Deduction from exemption shall be entitled to
Gross Income – this deduction.
a. Amounts
contributed by WHO MAY AVAIL OF THE DEDUCTION
the employer 1. Individual taxpayers earning purely
during the compensation income during the
taxable year into year.
the pension plan 2. Individual taxpayer earning business
to cover the income or in practice of his
pension liability profession whether availing of
accruing during itemized or optional standard
the year – deductions during the year.
considered as
ordinary and
3. Individual taxpayer earning both
compensation, and business or
necessary
practice of profession during the
expenses under
year.
Sec. 34(A)(1)
b. 1/10 of the
reasonable
NON-DEDUCTIBLE EXPENSES
amount paid by
the employer to REASONS FOR NON-DEDUCTIBILITY
cover pension 1. Personal expenses
liability 2. Capital expenditures
applicable to the 3. Items not normally subject to
years prior to income tax and therefore are not
the taxable deductible.
year, or so paid 4. Items taken advantage of by the
to place the taxpayer to avoid payment of
trust in a sound income tax.
financial basis –
deductible under SPECIFIC ITEMS (SECTION 36)
Sec. 34(J) 1. Personal, living or family
expenses;
2. Amount paid out for new
A. PREMIUM PAYMENTS
buildings or for permanent
ON HEALTH AND/OR improvements, or
HOSPITALIZATION INSURANCE betterment made to
increase the value of any
DEFINITION: It is an amount of premium on property or estate,
health and/or hospitalization paid by an Except that intangible
individual taxpayer (head of family or drilling and development cost
married), for himself and members of his incurred in petroleum operations are
family during the taxable year. deductible;
3. Amount expended in
REQUISITES FOR DEDUCTIBILITY restoring property or in
1. Insurance must have actually been making good the exhaustion
taken thereof for which an
2. The amount of premium deductible allowance has been made;
does not exceed P2,400 per
4. Premiums paid on any life
family or P200 per month during
insurance policy covering the
the taxable ear.
life of any officer or
Jhundee
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1

employee, or of any person such
financially interested in any indiv
trade or business carried on idual
by the taxpayer, individual ;
or corporate, when the b. betw
taxpayer is directly or een
indirectly a beneficiary two
under such policy. [Sec. 36] corp
5. Losses from sales or orati
exchanges of property ons
between related taxpayers. more
[S ec. 36] than
50%
TRANSACTIONS BETWEEN RELATED PARTIES in
1. Between members of the family; valu
“Family” includes only the e of
brothers, sisters (whether by the the
whole or half blood), spouse, outst
ancestors, and lineal andi
descendants of the taxpayer. ng
2. Except in the case of distributions in stock
liquidation: of
a. betw each
een of
an whic
indiv h is
idual own
and ed,
a direc
corp tly
orati or
on indir
more ectly
than , by
50% or
in for
valu the
e of same
the indiv
outst idual
andi , if
ng eithe
stock r one
of of
whic such
h is corp
own orati
ed, ons,
direc with
tly resp
or ect
indir to
ectly the
, by taxa
or ble
for year
Jhundee
Guillermo
1

of APPLIES TO:
the 1. Domestic corporations (DC)
corp 2. Resident foreign corporations (RFC)
orati
on RATE OF TAX AND DATE OF EFFECTIVITY
prec 15% of the Gross Income effective
edin January 1, 2000
g the
date CONDITIONS OR REQUIREMENTS
of 1. A tax effort ratio of 20% of Gross
the National Product
sale 2. A ratio of 40% income tax collection
of to total tax revenues
exch 3. A VAT tax effort of 4% of GNP
ange 4. A 0.9% ratio of Consolidated Public
was Sector Financial Position (CPSFP) to
a GNP
pers
onal OTHER FEATURES
holdi 1. Available only to firms whose
ng ratio of:
com
pany Cost of sales
or a <=55%
forei Gross sales or receipts from all
gn sources
pers
2. The election shall be irrevocable
onal
for three (3) consecutive years
holdi
ng
MEANING OF GROSS INCOME
com
General concept –
pany
Gross sales
; or
Less:
1. Between the grantor and a fiduciary
(1) Sales Return;
of any trust;
(2) Discount and
2. Between the fiduciary of a trust and
allowances
the fiduciary of another trust if the
(3) Cost of goods sold -
same person is a grantor with
means all business
respect to each trust;
expenses directly
3. Between a fiduciary of a trust and a
incurred to produce
beneficiary of such trust.
the merchandise to
bring them to their
TAX CONSEQUENCES
present location and
The following are not deductible:
use.
1. Interest expense [Sec. 34 (B)
(2)]
(3) MINIMUM CORPORATE
2. Bad debts [Sec. 34 (E)(1)]
INCOME TAX (MCIT)
3. Losses from sales or
exchanges of property [Sec
SECTION 27 (E)
36 (B)]
WHO ARE COVERED?
MCIT is imposed on domestic and
(2) OPTIONAL CORPORATE
resident foreign corporations
INCOME TAX 1. Whenever such
SECTION 27 (A) corporation has zero or

Jhundee
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1

negative taxable
income; or
2. Whenever the amount of RELIEF FROM MCIT
MCIT is greater than the
normal income tax due The Secretary of Finance is
from such corporation authorized to suspend the imposition of
determined under the MCIT on any corporation which
Section 27[A]. suffers losses because of:
a. prolonged labor
LIMITATIONS dispute;
b. force majeure; or
1. The MCIT shall apply only to c. legitimate business
domestic and resident foreign reverses.
corporations subject to the normal
corporate income tax (income tax “Substantial losses from a prolonged
rates under Sec 27[A] of the CTRP). labor dispute" means losses arising from a
2. In the case of a domestic strike staged by the employees which
corporation whose operations or lasted for more than six (6) months
activities are partly covered by the within a taxable period and which has
regular income tax system and partly caused the temporary shutdown of
covered under a special income tax business operations.
system, the MCIT shall apply on “Force majeure" means a cause due
operations covered by the regular to an irresistible force as by "Act of God"
corporate income tax system. like lightning, earthquake, storm, flood
3. In computing for the MCIT due from and the like. This term shall also
a resident foreign corporation, only include armed conflicts like war and
the gross income from sources within insurgency.
the Philippines shall be considered “Legitimate business reverses" shall
for such purpose. include substantial losses sustained due
to fire, robbery, theft, or
WHEN DOES A CORPORATION BECOME embezzlement, or for other economic
LIABLE UNDER THE MCIT? reason as determined by the Secretary
of Finance.
MCIT is imposed beginning on
the fourth taxable year immediately TAX RATE: 2% of gross income or
following the year in which such taxable base pertinent to a
corporation commenced its business. trading/merchandising concern or a
The taxable year in which the business service entity
operations commenced shall be the year
when the corporation registers with the TAX BASE: Gross Income
BIR. MEANING OF GROSS INOME
Carry Forward of the Excess Minimum General concept - gross income means:
Tax Gross sales
Less:
•Any excess of MCIT over the normal (1) Sales Return;
income tax can be carried forward (2) Discount
on an annual basis. and
•The excess can be credited against allowanc
the normal income tax due in the es
next 3 immediately succeeding (3) Cost of
taxable years. goods
•Any amount of the excess MCIT which sold -
cannot be credited against the means
normal income tax due in the next all
3-year period shall be forfeited. business
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expenses B. Cost of Sales = All
directly Manufacturing cost of production
incurred Gross Income of finished goods,
to (Same) such as
produce 1. raw
the materia
merchan ls used;
dise to 2. direct
bring labor;
them to 3. manufact
their uring
present overhea
location d;
and use. 4. freight
cost;
KINDS OF BUSINESS 5. insurance
premiu
A. Trading or Merchandising Concern ms;
Gross Income = Cost of Sales = 6. other
gross sales/ 1. Invoice costs
receipts less cost of incurre
sales returns, the d to
discounts and goods bring
allowances and sold; the raw
cost of goods 2. import materia
sold duties; ls to the
factory
3. freight in or
transpo wareho
rting use.
the
goods
to the
place
where
the
goods
are
actually
sold;
4. insurance
while
the
goods
are in
transit.

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1
C. Services Cost of Services = DEFINITION: “Improperly accumulated

Gross Income = All direct costs earnings (IAE)” are the profits of a
Gross receipts and expenses corporation that are permitted to
less sales necessarily accumulate instead of being distributed
returns, incurred to by a corporation to its shareholders for
allowances, provide the the purpose of avoiding the income tax
discounts and services required with respect to its shareholders or the
costs of services by the customers shareholders of another corporation.
and clients
including: TAX RATE: 10% of the Improperly
a. Salaries and Accumulated Taxable Income (in
employee addition to other taxes).
benefits of Rationale behind IAET
personnel, If the earnings and profits were
consultants distributed, the shareholders would then
and be liable to income tax thereon,
specialists whereas if the distribution were not
directly made to them, they would incur no tax
rendering in respect to the undistributed earnings
the service; and profits of the corporation. Thus, a
b. Cost of tax is being imposed;
facilities a. in the nature of a
directly penalty to the
utilized in corporation for the
providing improper
the service. accumulation of its
It shall not earnings, and
include interest b. as a form of deterrent to
expense except for the avoidance of tax
banks and other upon shareholders
financial who are supposed to
institutions. pay dividends tax on
the earnings
• Gross income excludes distributed to them
passive income subject to by the corporation.
final tax.
• Other income and “IMPROPERLY ACCUMULATED TAXABLE
Extraordinary Income are INCOME”
included since RR 9-98
provides that gross sales Taxable income for the year
include sales contributory to Add:
income taxable under the Income exempt from tax;
regular corporate tax. Income excluded from gross income;
Income subject to final tax;
 See Annex T for interplay of Net operating loss carry-over (NOLCO)
normal tax, optional corporate Total
income tax and MCIT. Less:
Income tax paid/payable for the taxable
year
(4) IMPROPERLY ACCUMULATED Dividends actually or constructively
paid/issued from the applicable year’s
EARNINGS (IAE) TAX taxable income
SECTION 29 Amount reserved for the reasonable
needs of the business as defined in the
(REVENUE REGULATIONS NO. 2 – 2001) Regulations
Tax base of improperly accumulated
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1
earnings tax
Exception: The said tax shall not apply
EXCLUSIONS to:
1. Publicly held corporations
• For corporations using the (Sec. 29)
calendar basis the 2. Banks and other non-banks
accumulated earnings tax Financial intermediaries
shall not apply on IAE as of (Sec. 29)
Dec. 31, 1997. 3. Insurance companies (Sec.
• For fiscal year basis, the tax 29)
shall not apply to the 12- 4. Taxable partnerships
month period of fiscal year (deemed to have actually
1997-1998. or constructively received
the taxable income under
IAE as of the end of a calendar Sec. 73D)
or fiscal year period on or after Dec.
31, 1998 shall be subject to the 10%
5. General professional
partnerships (exempt;
tax.
taxable against the
partners)
WHO ARE COVERED?
6. Non- taxable joint
ventures and
General Rule: The IAE tax shall apply to
7. Enterprises duly registered
every corporation formed or availed
with the Philippine
for the purpose of avoiding the
Economic Zone Authority
income tax with respect to its
(PEZA) under R.A. 7916,
shareholders or the shareholders of
and enterprises registered
any other corporation, by permitting
pursuant to the Bases
earnings and profits to accumulate
Conversion and
instead of being divided or
Development Act of 1992
distributed. These are:
under R.A. 7227, as well as
1. Domestic corporations as other enterprises duly
defined under the Tax Code; registered under special
2. Corporations which are classified economic zones declared
as closely-held corporations. by law which enjoy
• those corporations payment of special tax
at least fifty percent rate on their registered
(50%) in value of the operations or activities in
outstanding capital lieu of other taxes,
stock or at least fifty national or local.
percent (50%) of the 8. Foreign corporations [RR
total combined No. 02-2001]
voting power of all
classes of stock EVIDENCE OF PURPOSE TO AVOID
entitled to vote is INCOME TAX
owned directly or
indirectly by or for
not more than
1. The fact that any corporation is a
mere holding company or investment
twenty (20)
company shall be prima facie
individuals.
evidence of a purpose to avoid the
• Domestic corporations
tax upon its shareholders or
not falling under the
members.
aforesaid definition
are, therefore,
publicly-held
corporations.
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Instances indicative of purpose to Directors or
avoid income tax upon equivalent body;
shareholders: c. Reserved for
1. Investment of building, plants
substantial earnings and or equipment
profits of the corporation in acquisition as
unrelated business or in stock approved by the
or securities of unrelated Board of
business; Directors or
2.Investment in bonds and equivalent body;
other long-term securities; d. Reserved for
3.Accumulation of earnings in compliance with
excess of 100% of paid-up any loan
capital, not otherwise covenant or pre-
intended for the reasonable existing
needs of the business as obligation
defined in these Regulations. established
under a
1. The fact that the earnings or profits legitimate
of a corporation are permitted to business
accumulate beyond the reasonable agreement;
needs of the business shall be e. Earnings
determinative of the purpose to required by law
avoid the tax upon its shareholders or applicable
or members unless the corporation, regulations to be
by the clear preponderance of retained by the
evidence, shall prove the contrary. corporation or in
respect of which
“Reasonable needs of the there is legal
business” includes the reasonably prohibition
anticipated needs of the business against its
such as: distribution;
a. Allowance for f. In the case of
the increase in subsidiaries of
the foreign
accumulation of corporations in
earnings up to the Philippines,
100% of the all undistributed
paid-up capital earnings
of the intended or
corporation as of reserved for
Balance Sheet investments
date, inclusive within the
of accumulations Philippines as
taken from other can be proven by
years; corporate
b. Earnings records and/or
reserved for relevant
definite documentary
corporate evidence.
expansion
projects or The controlling intention of the
programs as taxpayer is that which is manifested at
approved by the the time of accumulation, not
Board of subsequently declared intentions, which
are merely the product of afterthought.
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A speculative and indefinite purpose will
not suffice. 1.It is constituted as a full and final
Definiteness of plan/s coupled with payment of the income tax due
action/s taken towards its from the payee on a particular
consummation is essential. type of income subject to final
withholding tax (FWT).
PERIOD FOR PAYMENT OF DIVIDEND/ The finality of the
PAYMENT OF IAET withholding tax is limited only to the
Dividends must be declared and paid payee’s income tax liability and does
or issued not later than one year not extend to other taxes that may
following the close of the taxable year, be imposed on said income.
otherwise, the IAET, if any, should be 2.The income subjected to final
paid within fifteen (15) days thereafter. income tax is no longer subject
to the net income tax;
otherwise, there would be a
(5) INCOME SUBJECT TO violation of prohibited double
PREFERENTIAL OR SPECIAL taxation.
RATES 3.The liability for the payment of
the tax rests primarily on the
Pertains to income derived by a payor as withholding agent.
particular individual or corporation 4.The payee is not required to file
belonging to a class of income taxpayer an income tax return for the
that is subject to either a preferential or particular income subjected to
special rate. FWT. It is the withholding agent
who files the return.
 Tax Rates: Please refer to 5.The rate of the final tax is
Annex C. multiplied to the gross income.
Thus, deductions and/or
(6) GROSS INCOME TAX (GIT) personal and additional
exemptions are not allowed.
GROSS INCOME TAX (GIT) FORMULA
(8) FRINGE BENEFIT TAX (FBT)
Entire Income
Less: Exclusions and Income subject FRINGE BENEFIT TAX is a final income
to Final Tax (e.g. Passive tax on the employee which shall be
Income) withheld and paid by the employer on a
Gross Income quarterly basis.
Multiply by: Tax Rates (%)
FRINGE BENEFIT means any good,
Net Income Tax Due service, or other benefit furnished or
granted by an employer, in cash or in
GIT APPLIES TO kind, in addition to basic salaries, to an
individual employee (except rank and
1. Non-resident alien not file employees) such as, but not limited
engaged in trade or business to the following:
(25%); and 1. Housing
2. Non-resident foreign 2. Expense Account
corporation. (32%) 3. Vehicle of any kind
4. Household personnel, such as maid,
 Tax Rates: Please refer to driver and others
Annex A and B. 5. Interest on loan at less than market
rate to the extent of the difference
between the market rate and actual
(7) FINAL INCOME TAX rate granted.
GENERAL PRINCIPLES
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6. Membership fees, dues and other the Grossed up divisor. The Grossed up
expenses borne by the employer for divisor is the difference between 100%
the employee in social and athletic and the applicable rates.
clubs and similar organizations
7. Expenses for foreign travel GROSSED UP
YEAR RATE
8. Holiday and vacation expenses DIVISOR
9. Educational assistance to the 1998 66% 34% FWT
employee or his dependents; and 1999 67% 33% FWT
10. Life or health insurance and other 2000
68% 32% FWT
non-lire insurance premiums or onwards
similar amounts on excess of what
the law allows. FRINGE BENEFITS NOT SUBJECT TO FBT
PERSONS LIABLE 1. Fringe benefits not considered as

gross income –
The EMPLOYER (as a withholding a. if it is required or necessary to
agent), whether individual, professional the business of employer
partnership or a corporation, regardless b. if it is for the convenience or
of whether the corporation is taxable or advantage of employer
not, or the government and its 1. Fringe Benefit that is not taxable
instrumentalities under Sec. 32 (B) – Exclusions from
Gross Income
TAX RATE: 32% (from January 1, 2000 2. Fringe benefits not taxable under
onwards) of the Grossed up Monetary Sec. 33 Fringe Benefit Tax:
Value (GMV) of fringe benefits. a. Fringe Benefits which are
In the case of aliens, the tax rates to authorized and
be applied on fringe benefit shall be as exempted under special
follows: laws, such as the 13th
1. NRANEBT 25% month Pay and Other
2. Aliens employed by regional Benefits with the ceiling
HO 15 % of P30,000.
3. Aliens employed by OBU 15% b. Contributions of the
4. Aliens employed by employer for the
Petroleum Service benefit of the employee
Contractors and to retirement,
Subcontractors 15% insurance and
hospitalization benefit
“GMV” OF THE FRINGE BENEFIT plans;
REPRESENTS c. Benefits given to the Rank
and File Employees,
1. The whole amount of income whether granted under
realized by the employee a collective bargaining
which includes the net agreement or not; and
amount of money or net d. The De minimis benefits –
monetary value of property benefits which are
which has been received; relatively small in value
plus offered by the employer
2. The amount of fringe benefit as a means of
tax thereon otherwise due promoting goodwill,
from the employee but paid contentment, efficiency
by the employer for and in of Employees
behalf of the employee. The term “Rank and File
Employees” shall mean all
“GMV” of the fringe benefit employees who are holding
shall be determined by dividing the neither managerial nor
monetary value of the fringe benefit by
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supervisory position as defined 5. Actual yearly medical benefits not
in the Labor Code exceeding P10,000 per annum;
In the case of rank and file 6. Laundry allowance not exceeding
employees, fringe benefits other P300 per month;
than those excluded from gross 7. Employees achievement awards e. g.
income under the Tax Code and for length of service or safety
other special laws, are taxable achievement, which must be in the
under the individual normal tax form of a tangible personal property
rate. other than cash or gift certificate,
DEDUCTIBILITY TO THE TAXABLE with an annual monetary value of
INCOME OF THE EMPLOYER not exceeding P10,000 received by
the employee under an established
General Rule: The amount of taxable written plan which does not
fringe benefit and the fringe benefits tax discriminate in favor paid
shall constitute allowable deductions employees;
from gross income of the employer. 8. Gifts given during Christmas and
Exception: major anniversary celebrations not
If the basis for computation of the exceeding P3, 000 per employee per
fringe benefits tax is the depreciation annum;
value, the zonal value or the fair market 9. Flowers, fruits, books or similar
value, only the actual fringe benefits tax items given to employees under
paid shall constitute a deductible special circumstances
expense for the employer. The value of 10. Daily meal allowance for overtime
the fringe benefit shall not be work not exceeding 25% of the basic
deductible and shall be presumed to minimum wage.
have been tacked on or actually claimed
as depreciation expense by the Time for filing of quarterly remittance
employer. Provided, however, that if the return of final income taxes withheld
aforesaid zonal value or fair market The tax imposed under Sec. 33 shall
value of the said property is greater than be treated as a final income tax on the
its cost subject to depreciation, the employee that shall be withheld and
excess amount shall be allowed as a paid by the employer, whether a large
deduction from the employer's gross taxpayer or non-large taxpayer, on or
income as fringe benefit expense. (Sec. before the 10th day of the month
2.33[D], Rev. Reg. No. 3-98) following the calendar quarter in which
the fringe benefits were granted (RR 04-
EXAMPLE OF DE MINIMIS BENEFITS NOT 2002).
SUBJECT TO FBT (RR NO. 8-2000 AND
10-2000)  For Additional Rules on
Fringe Benefits, refer to Annex H.
1. Monetized unused vacation leave
credits of PRIVATE employees not (9) CAPITAL GAINS TAX
exceeding (10) days during the year
and the monetized value of leave SUMMARY OF TAX RATES
credits paid to government officials
and employees 1. Individuals
2. Medical cash allowance to a. On sale of shares
dependents of employees not of stock of a
exceeding P750.00 per employee per domestic
semester or P125 per month; corporation not
3. Rice subsidy of P1,000.00 or one (1) listed and traded
sack of 50kg. rice per month thru a local
amounting to not more than stock exchange,
P1,000:00, held as capital
4. Uniform and clothing allowance not asset
exceeding P3,000 per annum;
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On the Net Capital Gain in the inventory of
Not over P100,000 – the taxpayer;
FT of 5%
Amount in excess of P100,000 – b. Property held by the
FT of 10% taxpayer primarily
b. On sale of real for sale to customers
property in the in the ordinary
Philippines held course of business;
as capital asset
On the gross selling price, or the
c. Property used in
current fair market value at the
time of sale, whichever is higher –
trade or business
FT of 6% and subject to
2. Corporations depreciation; and
a. On sale of shares
of stock of a d. Real property used
domestic in trade or business.
corporation not
listed and traded a. Capital Assets include all
thru a local property held by the
stock exchange, taxpayer whether or not
held as capital connected in trade or
asset business but not including
On the Net Capital Gain – those enumerated above
Not over P100,000 – FT of (#1) as ordinary assets.
5%
Amount in excess
of P100,000 – FT of
CAPITAL GAIN CAPITAL LOSS
10%
b. On sale of The gain derived The loss incurred
land/building from the sale or from the sale or
held as capital exchange of exchange of
asset capital assets. capital assets.
On the gross selling price, or the
current fair market value at the
time of sale, whichever is higher
– FT of 6%
(Reyes, Virgilio. Income Tax Law and
NET CAPITAL NET CAPITAL
Accounting – A New Approach, 2002)
GAIN LOSS
CAPITAL GAINS AND LOSSES – The excess of the The excess of the
IN GENERAL gains from sales/ losses from sales or
exchanges of exchanges of
CONCEPT OF CAPITAL ASSETS capital assets over capital assets over
the gains from the gains from
Under the tax code, there is no such sales/ such sales or
exchanges. exchanges.
definition for the term "capital assets".
What it gives is the meaning of ordinary
assets:
 TRANSACTION RESULTING IN TAXABLE GAINS BUT
a. Ordinary assets (Sec. 39, NON-RECOGNITION OF LOSSES
NIRC) a. Sale or exchange between
a. Stock in trade of the related parties;
taxpayer or other b. Wash sales by non-dealers of
properties of a kind securities and when not
which would subject to the stock transfer
properly be included tax;
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1

c. Exchanges not solely in kind hence
in merger and consolidation; , the
and net
d. Sales or exchanges that are capita
l loss
not at arms length.
is not
deduc
REQUISITES FOR RECOGNITION OF tible.
CAPITAL GAIN/LOSS Exception: If any
domestic bank or
1. The transaction must trust company, a
involve property substantial part of
classified as capital whose business is
asset; and the receipt of
deposits, sells any
bond, debenture,
2. The transaction must be a note or certificate
sale or exchange or or other evidence
one considered as of indebtedness
equivalent to a sale or issued by any
exchange. corporation
(including one
Rules on the recognition of capital issued by a
gains or losses government or
political
subdivision)
INDIVIDUAL CORPORATION  Net Capital • Not

 Loss allo
 Holding Capital gains and Carry – wed
Period losses are Over
The percentages recognized to • Allowed
of gain or loss to be the extent of The net capital loss
taken into account 100%. (in an amount not in
shall be the (There is no excess of the taxable
following: holding period) income before
a. 1 personal exemption
for such year) shall
b. 50% - if be treated in the
succeeding year (but
the
not beyond 12
capital
months) as a
asset deduction as short-
has term capital loss (at
been 100%) from the net
held for capital gains.
more
than 12
mos.
 See Annex U for illustration.
 Non- • Capital SALE OR EXCHANGE OF CAPITAL ASSETS

deduc losses
tibilit are The following are considered as sale
y of allowe or exchange of capital assets:
Net d only 1. Retirement of bonds
Capita to 2. Short sales of property
l extent 3. Failure to exercise privilege
losses of the
or option to buy or sell
• C capita
l
property
gains;
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1

4. Securities becoming SUMMARY OF TAX TREATMENT OF
worthless GAINS/LOSSES IN THE EXCHANGE OF
5. Distribution in liquidation of PROPERTIES
corporations
6. Readjustment of interest in General Rule: Upon the sale or
a general professional exchange of property, the entire gain or
partnership. loss, as the case may be, shall be
TAX FREE EXCHANGES recognized. [Sec. 40 (C, 1)]
Sales or exchanges resulting in non-
recognition of gains or losses: Exceptions:
1. Exchange solely in kind in legitimate 1. Transactions where gains and losses
mergers and consolidation; are not recognized –
includes: a. Exchange solely in kind in
a. Between the legitimate mergers and
corporations which consolidation
are parties to the b. Transfer to a controlled
merger or corporation [Sec. 40(C, 2)]
consolidation 1. Transactions where
(property for stocks); gain is recognized
b. Between a stockholder but not the loss –
of a corporation party a. T
to a merger or r
consolidation and the a
other party n
corporation (stock for s
stock); a
c. Between a security c
holder of a t
corporation party to a i
merger or o
consolidation and the n
other party s
corporation (securities b
for securities) e
t
2. Transfer to a controlled corporation w
– exchange of property for stocks e
resulting in acquisition of corporate e
control by a person, alone or n
together with others not exceeding r
four. e
“Control” means ownership of l
stocks in a corporation amounting to a
at least 51% of the total voting t
power of all classes of stocks e
entitled to vote. d
t
SALE OR EXCHANGE OF ORDINARY ASSETS a
x
General rules of income taxation p
apply to both gain and loss. a
y
e
 See Annex D (Gross Income – Gains r
from dealings in property) s
[
Jhundee
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1

S o
e p
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. r
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6 y
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b. Il n
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Jhundee
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1

o 2. Corporat
n e
s taxpayer
o ,
li domestic
d or
a foreign
t 3. Other
i taxpayer
o s such as
n estate,
s trust,
[ trust
S funds
e and
c pension
. among
4 others.
0
, RATES OF TAX
(
C 1. Shares of stock not traded through
, a local stock exchange – Net capital
3 gains derived during the taxable
) year from sale, exchange, or
] transfer shall be taxed as follows (on
a per transaction basis):
IMPORTANT DISTINCTION Not over P 100,000 - 5%
If it is an ordinary asset, the Over P 100,000 - 10%
ordinary gains and losses are considered 2. Shares of stock listed through a
in determining income or loss from local stock exchange – ½ of 1% of
trade, business or profession. (See Secs. the gross selling price of the stock.
32A, 34D) EXCEPTIONS TO THE TAX
If it is a capital asset, determine
further whether or not it is a real
1. Gains derived by dealers in
securities.
property located in the Philippines. If it
is, then it is subject to capital gains tax. 2. All other gains which are specifically
(See Secs. 24D, 27D5) (See also Sec s. exempt from income tax under
24C, 27D2) If not, the capital gains and existing investment incentives and
losses are considered in determining the other special laws.
taxable income. (Sec. 39)
BASIS FOR COMPUTING GAIN OR LOSS (BIR RULING
CAPITAL GAINS AND LOSSES – 146-98)
SHARES OF STOCK
• The fair market value (FMV)
The taxation of shares of stock of the sale of shares not
whether or not listed and traded in the traded but listed in the stock
stock exchange is subject to final tax. exchange is the highest
closing price on the day the
WHO ARE LIABLE TO THE TAX shares were sold,
1. Individua transferred or exchanged.
l • When no sale is made in the
taxpayer stock exchange, the FMV
, citizen shall be the highest selling
or alien price on the day nearest to

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the day of sale, transfer or
exchange. 2. Not traded through the stock exchange
• For shares not listed in the - It shall be paid by the seller on a per
exchange, the FMV shall be transaction basis upon filing of the
the book value nearest the required return within 30 days
valuation date following each sale or other
disposition of shares of stock.
The above rules shall be used in
computing for the net capital gain/loss
CAPITAL GAINS AND LOSSES
for disposition of shares.
(REAL PROPERTY)
IMPORTANT FEATURES
PERSONS LIABLE AND TRANSACTIONS AFFECTED
1. Sale of shares of
1. Individual taxpayers, estates and
stock of a domestic
trusts
corporation listed
Sale or exchange or other
and traded in a local
disposition of real property
stock exchange and
considered as capital assets.
that of initial public
The said sale shall include "pacto
offering shall be
de retro sale" and other conditional
subject to
sale.
Percentage tax
2. Domestic Corporation
(Business Tax)
Sale or exchange or disposition
2. Capital losses of lands and/or building which are
sustained during the not actually used in business and are
year (not listed and treated as capital asset.
traded in a local
stock exchange)  EXCEPTIONS TO THE TAX
shall be allowed as a 1. Gains derived by dealers in real
capital loss estate
deductible on the
same taxable year RATE AND BASIS OF TAX
only (no carry-over) A final tax of 6% is based on the
3. The entire amount gross selling price or fair market value
of capital gain and or zonal value whichever is higher.
capital loss (not Note: Gain or loss is immaterial,
listed and traded in there being a conclusive presumption of
a local stock gain.
exchange) shall be
considered without
 See Annex G – Guidelines in
taking into account
Determining Whether a Real
holding period
Property is a Capital or an Ordinary
irrespective of who
Asset.
is the taxpayer (all
100%)
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE CAPITAL
4. Non-deductibility of GAINS TAX ON THE SALE OR DISPOSITION OF A
losses on wash sales. PRINCIPAL RESIDENCE
FILING AND PAYMENT OF TAX Conditions:
a. Sale or disposition of the old
1. Listed and Traded in the Stock principal residence;
Exchange - The stockbroker shall b. By natural persons - citizens
turn over the tax collected to the or aliens provided that they
B.I.R. within five (5) banking days are residents taxable under
from the date of collection. Sec. 24 of the Code (does
Jhundee
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1

not include an estate or a Commissioner clearly
trust); reflects the income.
c. The proceeds of which is • Taxable income is
fully utilized in (a) acquiring computed based on
or (b) constructing a new calendar year if:
principal residence within 1. accounting period is
eighteen (18) calendar other than a fiscal year
months from date of sale or 2. taxpayer has no
disposition; accounting period
d. Notify the Commissioner 3. taxpayer does not keep
within thirty (30) days from books
the date of sale or 4. taxpayer is an individual
disposition through a
prescribed return of his
• Fiscal year: accounting
period of 12 months
intention to avail the tax
ending on the last
exemption;
day of any month
e. Can only be availed of only other than December
once every ten (10) years;
• Calendar year:
f. The historical cost or accounting period
adjusted basis of his old
from January 1 to
principal residence sold,
December 31
exchanged or disposed shall
be carried over to the cost
A. Periods in which items of
basis of his new principal
gross income included (Sec.
residence
44)
g. If there is no full utilization,
• Amount of all items of
the portion of the gains
gross income shall be
presumed to have been
included in the gross
realized shall be subject to
income for the
capital gains tax.
taxable year in which
received by the
GROSS INCOME FROM DIFFERENT SOURCES (SEC.
taxpayer, unless, any
42)
such amounts are to
 Please refer to Annex I. be properly
accounted for in a
ACCOUNTNG PERIODS AND METHODS OF ACCOUNTING different period
under methods of
I.ACCOUNTING PERIODS accounting permitted
A. General rule (Sec. 43) • In case of death of
Taxable income is computed taxpayer: include for
upon the basis of taxpayer’s the taxable year in
annual accounting period (fiscal or which falls the date
calendar year) in accordance with of his death, all
the method of accounting amounts which
employed. accrued up to the
• If no method of date of his death; if
accounting employed not otherwise
or method does not properly includible in
clearly reflect the respect of such
income, computation period or a prior
shall be made in period
accordance w/ such
method as the A. Period for which deduction
opinion of the and credits taken (Sec. 45)

Jhundee
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1
• Deductions provided in (1) Returns for short period

this Title shall be resulting from change of
taken for the taxable accounting period
year in which ‘paid or • taxpayer is other than
incurred, dependent an individual
upon the method of • with the approval of
accounting upon the the Commissioner
basis of which the net • If change is from fiscal
income is computed, year to calendar
unless, in order to year:
reflect the income, - separate
deductions should be final or
taken as of a adjustme
different period. nt return
• In case of death of be made
taxpayer: deductions for the
allowed for the period
taxable period in between
which falls the date the close
of his death, amounts of the
accrued up to the last fiscal
date of his death if year for
not otherwise which
properly allowable in return
respect of such was
period or a prior made
period. and the
following
A. Change of accounting period Decembe
(Sec.46) r 31
• Kinds of changes: • If change is from
- from fiscal year to calendar calendar year to
year fiscal year:
- from - separate
calendar final or
year to adjustme
fiscal nt return
year be made
- from one for the
fiscal period
year to between
another the close
• Effect of change: Net of the
income, shall, with last
the approval of the calendar
Commissioner, be for which
computed on the return
basis of the new was
accounting period, made
subject to Sec. 47. and the
date
A. Final or adjustment returns designat
for a period of less than 12 ed as the
months close of
the fiscal
year
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1
• If change is from one ge

fiscal year to in
another: ac
- separate co
final or un
adjustme tin
nt return g
be made pe
for the rio
period d
between b. In
the close all
of the ot
former he
fiscal r
year and cas
the date es
designat wh
ed as the er
close of ea
the new se
fiscal pa
year rat
(2) Income computed on basis of e
short period fin
• In what cases? al
a. Wh or
er adj
ea ust
se me
pa nt
rat ret
e ur
fin n
al is
or re
ad qui
jus re
tm or
en pe
t rm
ret itt
ur ed
n by
is R&
ma R
de pr
on esc
ac rib
co ed
un by
t Se
of c.
a of
ch Fin
an an
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1

ce. remaining
up unpaid
on
rec 1. Accounting for
om long-term contracts
me • Long-term
nd contracts:
ati building,
on installation or
of construction
Co contracts
m covering a period
mi in excess of 1 yr
ssi
on
• Persons whose
gross income is
er
derived in whole
• Both shall be made for
or in part from
a fractional part of a
such contracts
year.
shall report such
• Then income is income upon the
computed on the basis of
basis of the short percentage of
period for which completion
separate final or
• The return is
adjustment return is
accompanied by
made.
a return
certificate of
I. METHODS OF ACCOUNTING
architects or
engineers
A. Cash method showing the
Recognition of income percentage of
and expense dependent on completion
inflow or outflow of cash. during the
taxable year of
1. Accrual method the entire work
Method under which performed under
income, gains and profits are the contract
included in gross income when
• Deductions from
earned whether received or not,
gross income: all
and expenses are allowed as
expenditures
deductions when incurred:
made during the
although not yet paid. It is the
taxable year on
right to receive and not the
account of the
actual receipt that determines
contract:
the inclusion of the amount in
account being
gross income
taken of the
• Examples: material and
1. interest or rent supplies on hand
income earned at the beginning
but not yet and end of the
received taxable period
2. rent expense for use in
accrued but not connection with
yet paid the work under
3. wages due to the contract but
workers but
Jhundee
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1

not yet so casual
applied. sales of
• Amended return Personal
may be ty
permitted • In cases
/required by the of:
Commissioner: if a. cas
upon completion ual
of contract, sal
taxable income e
has not been or
clearly reflected ot
for any year(s). he
r
1. Installment cas
basis ual
(1) Sales of dis
dealers po
in siti
personal on
property of
Under rules and pe
regulations prescribed by the rso
Sec. of Finance, a person nal
who regularly sells or pr
otherwise disposes of op
personal property on the ert
installment plan may return y
as income there from in any (ot
taxable year that proportion he
of the installment payments r
actually received in that tha
year, which the gross profit n
realized or to be realized inv
when payment is completed, en
bears to the contract price. tor
y
Example: Sale in 2000 on
Contract price (CP) ha
(installments nd
receivable) P200, 000 of
Cost 150,000 th
Gross profit (GP) 50,000 e
tax
Installments payable in 2 pa
equal annual installments yer
GP/CP ratio at
= 50,000/200,000 = th
25% e
Collections in 2000=P100,000 clo
Income for 2000 se
= P100,000 x 25% = P25,000 of
th
(2) Sales of e
realty tax
and abl
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1

e pri
ye ce
ar) • How may
for incom
a e be
pri return
ce ed:
> same
P1, as in
00 sales
0, of
or dealer
b. sal in
e person
or al
oth proper
er ty
dis above
po
siti
• Initial
payme
on
nts:
of
payme
rea
nts
l
receiv
pro
ed in
pe
cash or
rty
proper
, if
ty
in
other
eit
than
her
eviden
cas
ces of
e
indebt
th
edness
e
of the
ini
purcha
tia
ser
l
during
pa
the
ym
taxabl
en
e
ts
period
do
in
not
which
ex
the
ce
sale or
ed
other
25
disposi
%
tion is
of
made.
th
e
(3) Sales of
sel
real
lin
propert
g
y

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1

conside actually
red as received
capital during any
asset such year on
by account of
individ sales or
uals other
• Individual who dispositions
sells of of property
disposes of made in any
real prior year
property, shall not be
considered excluded.
as capital
asset and is 1. Allocation of
otherwise income and deductions
qualified to • Applicable
report the to: cases of
gain under 2 or more
(2) above organizatio
may pay the ns, trades
capital gains or
tax in businesses
installments (incorporat
under rules ed and
and organized
regulations within the
to be Philippines)
promulgated owned or
by the Sec. controlled
of Finance. directly
/indirectly
(3) Change by the
from same
accrual interest
to • Commission
install er is
ment authorized
basis to
distribute,
• taxpayer must apportion
be entitled or allocate
to benefits gross
under (1) income or
hereof sales deductions
of dealers in between or
personal among such
property organizatio
• in computing n, trade or
income for business, if
the year of he
change or determines
any that such
subsequent distribution
year: ,
amounts apportionm
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1

ent or 2. Exempt from income tax under
allocation Sec. 30 of NIRC but has not
is necessary shown proof of exemption.
in order to
prevent INDIVIDUALS EXEMPT FROM FILING INCOME TAX
evasion of RETURN
taxes or to
clearly 1. Individual whose gross income does
reflect the not exceed total personal and
income of additional exemptions;
any such 2. Individual with respect to pure
organizatio compensation income derived from
n, trade or sources within the Philippines, the
business. income tax on which has been
correctly withheld;
FILING OF TAX RETURN AND PAYMENT OF TAX 3. Individual whose sole income has
been subjected to final withholding
TAX RETURN – This is a report made by the income tax;
taxpayer to the BIR of all gross income
received during the taxable year, the
4. Individual who is exempt from
income tax.
allowable deductions including
exemptions, the net taxable income, the
– is when the employer’s
SUBSTITUTED FILING
income tax rate, the income tax due,
annual return may be considered as the
the income tax withheld, if any, and the
“substitute” Income Tax Return (ITR) of
income tax still to be paid or
employee inasmuch as the information
refundable.
provided in his income tax return would
exactly be the same information
contained in the employer’s annual
return.
PERSONS REQUIRED TO FILE INCOME TAX RETURN
HOW IS “SUBSTITUTED FILING” DIFFERENT FROM
a. Individual
“NON-FILING”?
1. Resident citizen;
2. Non-resident citizen on income
from within the Phil.; • Substituted Filing – an individual
3. Resident alien on income from taxpayer although required
within the Phil.; under the law to file his
4. NRAETB on income from within income tax return, will no
the Phil. longer have to personally file
5. An individual (citizens / aliens) his own income tax return.
engaged in business or practice – but instead the
of a profession within the Phil. employer’s annual information
regardless of the amount of return filed is the considered
gross income; “substitute” income tax return
of the employee inasmuch as the
6. Individual deriving compensation information in the employer’s
income concurrently from two or
return is exactly the same
more employers at any time
information contained in the
during the taxable year;
employee’s return.
7. Individual whose pure
compensation income derived
from sources within the Phil.
• Non-filing – applicable to certain
types of individual taxpayers
exceeds P60,000.
who are not required under
a. Taxable Estate and Trust
the law to file an income tax
b. General Professional Partnership
return.
c. Corporation
1. Not exempt from income tax;
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Example: employee whose whichever is higher, and opted
pure compensation income does for non-withholding of tax on
not exceed P60,000 and has only said income.
one employer for the taxable 4. Individuals deriving other non-
year and whose tax withheld is business, non-profession-
equivalent to his tax due. related income in addition to
compensation income not
SUBSTITUTED FILING OF INCOME TAX RETURNS BY otherwise subject to final tax.
EMPLOYEES RECEIVING PURELY COMPENSATION 5. Individuals receiving purely
INCOME. [SECTION 4, RR 3-2002; RMC 01- compensation income from a
03] single employer although the
income tax of which has been
Requisites: correctly withheld, but whose
1. The employee receives purely spouse falls under 1 to 4
compensation income (regardless of above.
amount) during the taxable year. 6. Non-resident aliens engaged in
2. The employee receives the income trade or business in the
only from one employer during the Philippines deriving purely
taxable year. compensation income, or
compensation income and
3. The amount of tax due from the other non-business, non-
employee at the end of the year profession-related income.
equals the amount of tax withheld
by the employer. NOTE: Non-filing of ITR, for employees
4. The employee's spouse also complies who are qualified for the substituted
with all three (3) conditions stated filing shall be OPTIONAL for the taxable
above. year 2001, the returns for which shall be
5. The employer files the annual filed on or before April 15, 2002.
information return (BIR Form No. Thereafter, substituted filing where
1604-CF) applicable shall be MANDATORY. [Sec 5
6. The employer issues BIR Form 2316 RR 3-2002)
(Oct 2002 ENCS) version to each
employee
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED FILING REQUIREMENT OF BANKS FOR SUBMISSION OF AN ITR
(STILL REQUIRED TO FILE) FOR LOAN O R CREDIT CARD APPLICATIONS
1. Individuals deriving compensation Banks may require the submission of

from two or more employers BIR Form No. 1700 (for employees not
concurrently or successively entitled to substituted filing of ITR).
during the taxable year. However, for employees entitled to
2. Employees deriving compensation substituted filing of ITR, the submission
income, regardless of the of the Joint Certification will suffice.
amount, whether from a
single or several employers JOINT CERTIFICATION - It is a sworn statement
during the calendar year, the made by the employer and employee,
income tax of which has not which serve the following purposes:
been withheld correctly (i.e. 1. It contains the employee's consent
tax due is not equal to the tax that BIR Form No. 1604CF may be
withheld) resulting to considered his substituted return, in
collectible or refundable lieu of BIR Form No. 1700, which the
return. employee no longer filed.
3. Employees whose monthly gross 2. It contains the employer's
compensation income does not certification that he has reported
exceed P5,000 or the the employee's income to the BIR
statutory minimum wage, and that he has remitted the taxes
Jhundee
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on the employee's income, as 2. Second quarter -August 15 of current
indicated in BIR Form No. 1604-CF. year
3. It serves as proof of financial 3. Third quarter – November 15 of current
capacity in case the employee year
decides to apply for a bank loan or a 4. Final quarter - April 15 of the following
credit-card, or for any other year.
purpose, as if he had in fact filed a
BIR Form No. 1700. Note: When the tax due is in excess of P2,
000 - the taxpayer may elect to pay in two
INDIVIDUALS REQUIRED TO FILE AN INFORMATION (2) equal installments:
RETURN 1st installment - April 15
2nd installment - on or before July 15
Individuals not required to file an
income tax return may nevertheless be EXTENSION OF TIME TO FILE RETURN
required to file an information return
pursuant to rules and, regulations The Commissioner may on
prescribed by the Secretary of Finance meritorious cases grant a reasonable
upon recommendation of the extension of time for filing income tax
Commissioner. return and may subject the imposition of
twenty (20) percent interest per annum
PLACE OF FILING from the original due date.
1. Legal RETURN OF HUSBAND AND WIFE

residence -
authorized • File one (1) return for the
agent bank; taxpayer year if following
Revenue requisites complied;
District a. Married individuals (citizens,
Officer; resident or nonresident
Collection aliens)
agent or duly b. Do not derived income
authorized purely from compensation.
treasurer
2. Principal
• If impracticable to file one
return: each spouse file a
place of
separate return of income
business
but the return so filed shall
3. With the
be consolidated by the
Office of the
Bureau for the purposes of
Commissione
verification for the year.
r
UNMARRIED MINOR
• Income of unmarried minors

TIME FOR FILING (PAY AS YOU FILE SYSTEM)
derived from property
received by the living
April 15 – for those earning sole
compensation income or solely business, parent shall be included in the
practice of profession or combination of return of the parent, except:
business and compensation. a. when donor’s tax has been
paid on such property, or
RETURN AND PAYMENT OF ESTIMATED INCOME TAX BY b. when transfer of such
INDIVIDUAL (SELF-EMPLOYED OR PRACTICE OF property is exempt from
PROFESSION) donor’s tax
1. First quarter - April 15 of current year

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following the close of either a-fiscal on
PERSONS UNDER DISABILITY calendar year.
If a taxpayer is unable to make his  See Annex V for Illustration.

own return, it may be made by his
1. duly authorized agents; WHO SHALL FILE?
2. representative; The return shall be filed by the
3. by guardian; president, vice-president, or other
4. other person charged with the care principal officer, and shall be sworn to by
of his person or property; such officer and by the treasurer or
• who will assume the responsibility of assistant treasurer.
making the return and incurring
penalties provided for erroneous, WITHHOLDING TAXES
false or fraudulent return.
WITHHOLDING TAXES
RETURN OF ESTATE, TRUST AND PARTNESHIP Kinds:
1. Withholding Tax at Source:
Estate and Trust with gross income a. Final Withholding Tax
of P20,000 or more and partnership b. Creditable
(whether professional or business) shall Withholding Tax
file their income tax return on or before (Expanded
April 15. withholding tax)
2. Withholding Tax on
TAX RETURNS OF GENERAL PROFESSIONAL Compensation (Wages)
PARTNERSHIPS (GPP) 3. Withholding Tax on Creditable
• Each GPP shall file in Value-Added Tax
duplicate, a return of its 4. Withholding of Percentage Tax
income (except those
income exempt) FINAL CREDITABLE
• Shall set forth: WITHHOLDING WITHHOLDING
a. items of gross income and TAX SYSTEM TAX SYSTEM
deductions allowed
b. names of partners The amount of Taxes withheld on
c. TIN income tax certain income
d. address and share of each withheld by the payments are
partner withholding agent intended to equal
is constituted as a or at least
full and final approximate the
TAX RETURN OF A CORPORATION payment of the tax due from the
Those required to file: income due from payee on the said
1. Corporation subject to tax having the payee on the income.
existed during the taxable year, said income. [Sec.
whether with income or not. 2.57 (a), Rev. Reg.
2. Corporation in the process of 2-98]
liquidation or receivership.
3. Insurance company doing business in The liability for The income
the Philippines or deriving income payment of the tax recipient is still
rests primarily on required to file an
therein the payor or the income tax return
4. Foreign corporation having income withholding agent. and/or pay the
from within the Philippines The payee is not difference
required to file an between the tax
FILING OF RETURN (PAY AS YOU FILE SYSTEM) income tax return withheld and the
Quarterly returns for the first three for the particular tax due on the
(3) quarters on a strictly sixty (60) day income. income. [Sec.
basis and the final or adjusted return on 2.57(B), Rev. Regs.
the 15th day of the fourth (4th) month 2-98]

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TIME TO WITHHOLD TAX AT SOURCE to be
withheld is
- arises at the time an income is paid not paid to
or payable, whichever comes first. The the BIR.
term “payable” refers to the date the (Sec.
obligation becomes due, demandable or 2.58.5,
legally enforceable. (Sec. 2.54.4 Rev. Rev. Reg.
Regs. 2.98) 2-98)
NATURE WITHHOLDING AGENT’S LIABILITY

OF WITHHOLDING TAX ON COMPENSATION
The withholding agent is directly Every employer must withhold
and independently liable for the correct from compensation paid, an amount
amount of the tax that should be computed in accordance with the
withheld from the dividend remittance. regulations.
(Commissioner vs. Procter and Gamble,
GR No. 66838, December 2, 1991) Exception:
Where such compensation
CONSEQUENCES FOR FAILURE TO WITHHOLD: income of an individual:
1. liable for 1. Does not exceed the statutory
surcharges minimum wages; or
and 2. Five thousand (P5,000) monthly
penalties; (P60,000 a year)
2. liable upon • whichever is higher.
conviction
to a ELEMENTS OF WITHHOLDING ON COMPENSATION
penalty 1. There must be an employer-
equal to employee relationship
the total 2. There must be payment of
amount of compensation or wages for
the tax not services rendered
withheld,
or not 3. There must be a payroll
accounted period.
for and COMPENSATION EXEMPTED
remitted.
(Sec. 251, 1. Remunerations received as
1997 NIRC) an incident of employment
3. any 2. Remunerations paid for
income agriculture labor
payment 3. Remunerations paid for
which is domestic services
otherwise 4. Remunerations for casual
deductible not in the course of an
from the employer's trade or business.
payor’s 5. Compensation for services of
gross a citizen, resident of the
income Philippines, for a foreign
will not be government or an
allowed as international organization
a 6. Damages
deduction 7. Life insurance
if it is 8. Amount received by the
shown that insured as return of premium
the income 9. Compensation for injuries
tax and sickness
required 10. Income exempt under treaty
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11. Thirteenth (13th) month pay B. TRANSFER TAXES
and other benefits
12. GSIS; SSS; Philhealth and
other contributions,
TRANSFER TAX INCOME TAX
TAX-FREE COVENANT BOND [SEC. 57(C)] Tax on transfer of Tax on income
property.
COVENANT BONDS – bonds, mortgages, deeds
of trust and other similar obligations of Rates are lower Rates are higher
domestic/resident foreign corporation, --5% to 20% - -- 5% to 32%
which contain a contract/provision by estate tax
which the obligor agrees; -- 2% to 15 % or
1. to pay any portion of the tax 30% - donor’s
tax
imposed upon the obligee;
2. to reimburse the obligee for any Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the
obligor may be required/permitted (1) ESTATE TAXES
to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
• Obligor shall deduct and withhold a transmitting property at the time of
tax = 30% of the interest and other death and on the privilege that a person
payments whether interest or other is given in controlling to a certain extent
payments are payable annually or at the disposition of his property to take
a shorter period; whether bonds, effect upon death.
securities, obligations had been/will
be issued/ marketed and the ESTATE TAX FORMULA
interest and other payments paid
within and without the Philippines if Gross Estate (Sec. 85)
the interest or other payment is Less: (1) Deductions (Sec. 86)
payable to a non-resident alien or a (2)Net share of the SS in the CPP
citizen or resident of the Philippines Net Taxable Estate
INCOME OF RECIPIENT [SEC. 58 (D)] Multiply by: Tax rate (Sec. 84)
Estate Tax due
• Income which any creditable tax is Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source 110[B]
shall be included in the return of its Estate Tax Due, if any
recipient.
• The excess of the amount of tax
withheld over the tax due on his GROSS ESTATE
return shall be refunded to him,
subject to Section 204 (abatement, A DECEDENT’S GROSS ESTATE INCLUDES (SEC. 85)
refund/credit taxes).
• If amount withheld at source is less RESIDENT & NON-
NON-RESIDENT
than the tax due on his return, the RESIDENT CITIZEN,
ALIEN
difference is paid in accordance with RESIDENT ALIEN
DECEDENT
Section 56 (payment and assessment DECEDENT
of income tax).
• All taxes withheld shall be 1. Real property 1. Real property
considered as trust funds and wherever situated in the
situated Philippines.
maintained in a separate account
and not commingled with any other 2. Personal property 2. Personal
funds of the withholding agent. wherever property
situated a) Tangible
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1

a) Tangible, property foreign country which at the time of
and situated in his death
b) Intangible the
Philippine
a. did not impose a transfer
s tax or death tax of any
b) Intangible character
personal 1. in respect of
property intangible personal property of
with a citizens of the Philippines not
situs in the residing in that foreign country;
Philippine or
s unless 1. the laws of the foreign country of
exempted
which the decedent was a citizen
on the
basis of and resident at the time of his death
reciprocity a. allow a similar exemption
. from transfer taxes or
death taxes of every
THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE character
TAX b. in respect of intangible
personal property owned
The statute in force at the time of by citizens of the
death of the decedent shall govern Philippines not residing in
estate taxation. that foreign country
(Reciprocity).
INTANGIBLE PERSONAL PROPERTIES WITH A SITUS IN THE
PHIL. (SEC. 104, 1997 NIRC) VALUATION OF THE GROSS ESTATE
1. Franchise which must be exercised The properties comprising the gross

in the Philippines; estate shall be valued based on their fair
2. Shares, obligations or bonds issued market value as of the time of death.
by any corporation or sociedad
anonima organized or constituted in PROPERTY VALUATION
the Philippines in accordance with
its laws; 1) Real Property - fair market value
3. Shares, obligations or bonds issued a) as determined
by any foreign corporation eighty- by the
Commissio
five per centum (85%) of the
ner or
business of which is located in the b) as shown in
Philippines; the
4. Shares, obligations or bonds issued schedule
by any foreign corporation, if such of values
shares, obligations or bonds have fixed by
acquired a business situs in the the
Philippines; provincial
5. Shares or rights in any partnership, and city
assessors
business or industry established in
WHICHEVER IS HIGHER
the Philippines.
2) Shares of
Stock
INTANGIBLE PERSONAL PROPERTY, WITH A SITUS IN THE Unlisted -book value
PHILIPPINES, OF A DECEDENT WHO IS A NON-RESIDENT Common -par value
ALIEN SHALL NOT FORM PART OF THE GROSS ESTATE IF Shares -arithmetic mean
(RECIPROCITY CLAUSE) (SEC. 104) Preferred between the highest
Shares and lowest quotation
1. the decedent at the time of his at a date nearest the
Listed date of death, if none
death was a citizen and resident of a
is available on the date
Jhundee
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1

of death itself. terminated by the decedent alone or in
conjunction with any other person, or
3)Right to - shall be taken into where any such power is relinquished in
usufruct, use or account the probable contemplation of the decedent’s death.
habitation, as life of the beneficiary It is enough that the decedent had the
well as that of in accordance with the
annuity latest basic standard
power to alter, amend or revoke though
mortality table, to be he did not exercise such power.
approved by the
Secretary of Finance, Exception: bona fide sale for an
upon recommendation adequate and full consideration in
of the Insurance money or money’s worth.
Commissioner.
4. TRANSFER UNDER GENERAL POWER
4) Personal - whether tangible or OF APPOINTMENT
property intangible, appraised
A power of appointment is the right
at FMV. “Sentimental
value” is practically to designate the person or persons who
disregarded. will succeed to the property of the prior
A. decedent.
The general power of appointment
may be exercised by the decedent:
INCLUSIONS IN THE GROSS ESTATE (SEC. 85)
1. by will; or
2. by deed executed in contemplation
1. DECEDENT’S INTEREST
of his death; or
To the extent of the interest in
3. by deed under which he has retained
property of the decedent at the time of
for his life or for any period not
his death.
ascertainable without reference to
his death or for any period which
2. TRANSFER IN CONTEMPLATION OF
does not in fact end before his
DEATH
death:
1. A transfer motivated by the thought
a. the possession or enjoyment of,
of impending death although death
or the right to the income from
may not be imminent; or
the property; or
b. the right, either alone or in
2. A transfer by which the decedent
conjunction with any person, to
retained for his life or for any period
designate the persons who shall
which does not in fact end before his
possess or enjoy the property or
death:
the income therefrom.
a. the possession or
enjoyment of, or the
Exception: bona fide sale for an
right to the income from
adequate and full consideration in
the property, or
money or money’s worth.
b. the right, either alone or
in conjunction with any
5. PROCEEDS OF LIFE INSURANCE
person, to designate the
Proceeds of life insurance taken by
person who shall possess
the decedent on his own life shall be
or enjoy the property or
included in the gross estate if the
the income therefrom.
beneficiary is:
Exception: bona fide sale for an a. the estate of the decedent, his
adequate and full consideration in executor or administrator
money or money’s worth. (regardless whether the designation
is revocable or irrevocable); or
3. REVOCABLE TRANSFER b. a third person other than the estate,
A transfer whereby the terms of executor or administrator where the
enjoyment of the property may be designation of the beneficiary is
altered, amended, revoked or revocable.

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6. TRANSFERS FOR INSUFFICIENT
CONSIDERATION B. DEDUCTIONS ON GROSS ESTATE
The value to be included in the gross APPLICABLE TO
estate is the excess of the fair market C. RESIDENT ALIENS AND CITIZENS
value of the property at the time of the
D. (REVENUE REGULATIONS 2-
decedent’s death over the consideration
received. This is applicable in cases of 2003)
transfer in contemplation of death,
revocable transfer and transfer under The following are deductible from
general power of appointment made for the gross estate of citizens and resident
a consideration but is not a bona fide aliens:
sale for an adequate and full 1. Expenses, losses, indebtedness,
consideration in money or money’s taxes, etc. (ordinary deductions)
worth. 2. Transfer for public use
3. Vanishing deduction
7. PRIOR INTERESTS 4. Family home
All transfers, trusts, estates, 5. Standard deduction equivalent to
interests, rights, powers and one million pesos (P1,000,000)
relinquishment of powers made, 6. Medical expenses
created, arising, existing, exercised or 7. Amounts received by heirs under RA
relinquished before or after the 4917 (Retirement Benefits)
effectivity of the NIRC. 8. Net share of the surviving spouse in
the conjugal or community property
PROPERTY RELATIONS BETWEEN HUSBAND AND WIFE
The property relations between the 1. ORDINARY
spouses shall be governed by contract DEDUCTIONS
(marriage settlement) executed before
the marriage. A. FUNERAL EXPENSES
The amount deductible is the lowest
In the absence of such contract, or if among the following:
the contract is void: 1. actual funeral expenses
On marriages contracted before August 2. 5% of the gross estate
3, 1988, the system of conjugal 3. P200,000.
partnership of gains shall govern;
On marriages contracted on or after It includes the following:
August 3, 1988 (effectivity of the 1. Mourning apparel of the surviving
Family Code of the Philippines), the spouse and unmarried minor children
system of absolute community of of the deceased, bought and used in
property shall govern. the occasion of the burial.
2. Expenses of the wake preceding the
EXEMPT TRANSMISSIONS (SEC. 87) burial including food and drinks.
1. The merger of usufruct in the owner 3. Publication charges for death
of the naked title; notices.
2. Fideicommisary substitution; 4. Telecommunication expenses in
3. The transmission from the first heir, informing relatives of the deceased.
legatee or donee in favor of another 5. Cost of burial plot. Tombstone
beneficiary, in accordance with the monument or mausoleum but not
will of the predecessor; and their upkeep. In case deceased
All bequests, devices, legacies or owns a family estate or several
transfers to social welfare, cultural and burial lots, only the value
charitable institutions no part of the net corresponding to the plot where he
income of which inures to the benefit of is buried is deductible.
any individual; Provided, that not more 6. Interment fees and charges.
than 30% of the said bequests, legacies 7. All other expenses incurred for the
or transfers shall be used by such performance of the ritual and
institutions for administration purposes.
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ceremonies incident to the under a different category of
interment. deductions;
Expenses incurred after the 2. The liability was
interment, such as for prayers, masses, contracted in
entertainment, or the like are not good faith and
deductible. for adequate and
Any portion of the funeral and burial full consideration
expenses borne or defrayed by relatives in money or
and friends of the deceased are not money's worth;
deductible. 3. The claim must be a
debt or claim
B. JUDICIAL EXPENSES OF THE TESTAMENTARY OR which is valid in
INTESTATE PROCEEDINGS law and
Expenses allowed as deduction under enforceable in
this category are those: court;
1. incurred in the inventory-taking 4. The indebtedness
of assets comprising the gross must not have
estate, been condoned
2. administration, by the creditor
3. payment of debts of the estate, or the action to
as well as the distribution of the collect from the
estate among the heirs. decedent must
In short, these deductible items are not have
expenses incurred during the settlement prescribed.
of the estate but not beyond the last day
prescribed by law, or the extension D. CLAIMS AGAINST INSOLVENT PERSONS
thereof, for the filing of the estate tax
return. Requisites:
1. The amount thereof has been
C. CLAIMS AGAINST THE ESTATE initially included as part of his gross
The word "claims" is generally estate (for otherwise they would
construed to mean debts or demands of constitute double deductions if they
a pecuniary nature which could have were to be deducted)
been enforced against the deceased in
2. The incapacity of the debtors to pay
his lifetime and could have been
their obligation is proven.
reduced to simple money judgments.
C. UNPAID MORTGAGE
Claims against the estate or
• In case unpaid mortgage
indebtedness in respect of property may
payable is being
arise out of:
claimed by the
1. Contract;
estate, verification
2. Tort; or
must be made as to
3. Operation of Law.
who was the
beneficiary of the
loan proceeds.
Requisites:
1. The liability represents a • If the loan is found to be merely an
personal obligation of the accommodation loan where the loan
deceased existing at the time of proceeds went to another person,
his death except unpaid the value of the unpaid loan must be
obligations incurred incident to included as a receivable of the
his death such as unpaid funeral estate.
expenses (i.e., expenses • If there is a legal impediment to
incurred up to the time of recognize the same as receivable of
interment) and unpaid medical the estate, said unpaid obligation/
expenses which are classified mortgage payable shall not be
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allowed as a deduction from the DEFINITION: The deduction allowed from
gross estate. the gross estate for properties that were
• In all instances, the mortgaged subject to donor’s or estate taxes. It is
property, to the extent of the called vanishing deduction because the
decedent's interest therein, should deduction allowed diminishes over a
always form part of the gross period of five years. The rate of
taxable estate. deduction depends on the period from
the date of transfer to the death of the
F. TAXES decedent, as follows:
Taxes which have accrued as of the
death of the decedent which were PERIOD DEDUCTION
unpaid as of the time of death. • 1 year or 100%
less
The following are not deductible: • 1 year – 2 80%
1. income tax on income received years
after death • 2 years – 3 60%
2. property taxes not accrued years
• 3 years – 4 40%
before death
years
3. estate tax
• 4 years – 5 20%
years
G. LOSSES
Requisites:
Requisites:
1. It should arise from fire, storm, 1. the present decedent died
shipwreck, or other casualty, within 5 years from transfer
robbery, theft or embezzlement; of the property from a prior
2. Not compensated by insurance decedent or donor.
or otherwise; 2. The property must be located in
3. Not claimed as deduction in an the Phils.
income tax return of the taxable 3. The property formed part of the
estate; taxable estate of the prior
4. Occurring during the settlement decedent, or of the taxable
of the estate; and gift of the donor.
5. Occurring before the last day for 4. The estate tax or donor’s tax on
the payment of the estate tax the gift must have been
(last day to pay: six months after finally determined and paid.
the decedent’s death). 5. The property must be identified
as the one received from the
2. TRANSFER FOR PUBLIC USE prior decedent, or something
acquired in exchange
Requisites: therefor.
1. The disposition is in a last will and 6. No vanishing deduction on the
testament property was allowable to
2. To take effect after death the estate of the prior
3. In favor of the government of the decedent.
Phil., or any political subdivision
thereof E. 4. FAMILY HOME
4. For exclusive public purposes.
Conditions:
Note: This should also include bequests, 1. The family home must be the actual
devices, or transfers to social welfare, residential home of the decedent
cultural and charitable institutions. and his family at the time of his
death, as certified by the Barangay
3. VANISHING DEDUCTION Captain of the locality where the
family home is situated;

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2. The total value of the family home
must be included as part of the gross NET SHARE OF THE SURVIVING
estate of the decedent; and SPOUSE IN THE CONJUGAL
3. Allowable deduction must be in an PARTNERSHIP OR COMMUNITY
amount equivalent to PROPERTY
1. the current fair market
value of the family home as
declared or included in the gross After deducting the allowable
estate, or deductions (only the ordinary
deductions) appertaining to the conjugal
2. the extent of the decedent's or community properties included in the
interest (whether gross estate, the share of the surviving
conjugal/community or exclusive spouse must be removed to ensure that
property), whichever is lower, only the decedent's interest in the
but not exceeding P1,000,000 estate is taxed.
F. 5. STANDARD
DEDUCTION H. DEDUCTIONS ON GROSS
A deduction in the amount of One I. ESTATE APPLICABLE TO
Million Pesos (P1,000,000) shall be J. NON-RESIDENT ALIENS
allowed as an additional deduction
without need of substantiation. The following are deductible from the gross
The full amount of P1,000,000 shall estate of non-resident aliens:
be allowed as deduction for the benefit 1. Expenses, losses, indebtedness and
of the decedent. taxes (ELIT) (ordinary deductions)
G. 6. MEDICAL Formula:
EXPENSES Tax = Phil. Gross
Credit Estate X World
• Any amount of medical expenses Limit World Gross ELIT
incurred within one year from death Estate
in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be 2. Transfer for public use
allowed as a deduction under this
subsection. 3. Vanishing deduction on property in
• Neither can any unpaid amount the Philippines.
thereof in excess of the P500,000
threshold nor any unpaid amount for 4. Conjugal share of the surviving
medical expenses incurred prior to spouse
the one-year period from date of
death be allowed to be deducted K. ESTATE TAX CREDIT
from the gross estate as claim
against the estate. A tax credit is granted for estate
taxes paid to a foreign country on the
AMOUNT RECEIVED BY HEIRS UNDER estate of citizens and resident aliens
REPUBLIC ACT NO. 4917 subject to the following limitations
1. One foreign country

Any amount received by the heirs
only
from the decedent's employer as a
The tax credit is whichever is
consequence of the death of the
lower between:
decedent-employee in accordance with
1. Estate tax paid to the foreign country
Republic Act No. 4917 is allowed as a
2. Tax Credit Limit =
deduction provided that the amount of
NTE, foreign country X Phil. estate
the separation benefit is included as
NTE, world Tax
part of the gross estate of the decedent.

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(NTE - Net Taxable Estate) ownership thereof in the name of
the transferee.
2. More than one foreign country
The credit shall be that TIMEFOR FILING OF THE ESTATE TAX RETURN
which is the lower amount between The estate tax return shall be filed
Limit A and Limit B. within six (6) months after the death of
the decedent.
Limit A. Whichever is lower
between: Extension: The BIR may, in meritorious
• Estate tax paid to a foreign country cases, grant an extension of not
• Tax Credit Limit = exceeding thirty (30) days for the filing
NTE, foreign country X Phil. estate of the estate tax return.
NTE, world
Tax WHEN THE GROSS ESTATE EXCEEDS P2,000,000,
THE ESTATE TAX RETURN SHALL BE ACCOMPANIED
Limit B. Whichever is lower BY A STATEMENT WHICH IS CERTIFIED BY AN
between: INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
• Total of estate taxes paid to all STATING
foreign countries 1. the itemized assets of the decedent
• Tax Credit Limit = with its corresponding gross value at
NTE outside Phil. X Phil. estate the time of his death, or in the case
NTE, world Tax of a non-resident, not citizen of the
Philippines, that part of his gross
estate situated in the Philippines;
2. the itemized deductions from the
A. SETTLEMENT OF THE gross estate;
B. ESTATE TAX 3. the amount of tax due, whether paid
or still due and outstanding.
A. FILING
PLACE WHERE TO FILE THE ESTATE TAX RETURN
NOTICE OF DEATH TO BE FILED
In all cases of transfers subject to 1. Resident Citizen
tax, or where, though exempt from tax, - with the Accredited Agent
the gross value of the estate exceeds Bank (AAB), Revenue District Officer,
P20,000, the executor, administrator or Collection Officer or duly authorized
any of the legal heirs, within two Treasurer of the city or municipality
months after the decedent’s death, or where the decedent was domiciled at
within a like period after qualifying as the time of his death.
such executor or administrator, shall
give a written notice thereof to the 2. Non-resident (citizen or alien)
Commissioner. (Sec. 89) a. has registered executor or
administrator
AN ESTATE TAX RETURN IS REQUIRED TO BE FILED - with the Revenue District
1. when the estate is subject to estate Office where such executor or
tax; or administrator is registered
2. when the estate is not subject to b. executor or administrator is not
estate tax but the gross estate registered
exceeds P 200,000; or - with the Revenue District
3. regardless of the amount of the Office having jurisdiction over
gross estate, where the gross estate the executor’ or administrator’s
consists of registered or registrable residence
property such as motor vehicle or c. no executor or administrator
shares of stock or other similar - with the Office of the
property for which clearance from Commissioner (Sec. 9C, Rev. Reg.
the BIR is required as a condition 2-2003)
precedent for the transfer of
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B. PAYMENT by the Commissioner, withdraw an

amount not exceeding twenty thousand
PAYMENT OF THE ESTATE TAX DUE pesos (P20,000) without the said
The estate tax due shall paid at the certification.
time when the estate tax return is filed.
When the Commissioner finds that
the payment of the estate tax on the
due date would impose undue hardships
upon the estate or any heir:
a. the payment of the estate tax
may be extended for a period
not to exceed five (5) years if There is nothing in the Tax Code and
there is a judicial settlement of in the pertinent remedial law that
the estate; or implies the necessity of the probate
b. the payment of the estate tax court or estate settlement of court’s
may be extended for a period approval of the State’s claim for estate
not to exceed two (2) years if taxes before the same can be enforced
there is an extra-judicial and collected by the BIR. On the
settlement of the estate. contrary, under Section 94, it is the
NOTE: In case the available cash is not probate or settlement court which is
sufficient to pay its total estate tax bidden not to authorize the delivery of
liability, the estate may be allowed to the distributive share to any interested
pay tax by installment. (Sec. 9F, Rev. party without a certification from the
Reg. 2-2003) CIR showing the payment of the estate
tax. (Marcos II vs. Court of Appeals, GR
LIABILITY FOR PAYMENT No. 120880, June 5, 1997)
The estate tax shall be paid by the
executor or administrator before delivery COLLECTION OF TAX FROM THE HEIRS
to any beneficiary of his distributive share An estate or inheritance tax,
of the estate. whether assessed before or after the
Such beneficiary to the extent of his death of the deceased, can be collected
distributive share of the estate shall be from the heirs even after the
subsidiarily liable for the payment of distribution of the properties of the
such portion of the estate tax as his decedent. (Palanca vs. Commissioner of
distributive share bears to the value of Internal Revenue, GR No. 16661,
the total net estate. (Sec. 9G, Rev. Reg. January 31, 1962)
2-2003)
No judge shall authorize the The Government has two ways of
distribution of the estate unless a collecting taxes due from the estate.
certification from the Commissioner that a. By going after all the heirs and
tax has been paid is shown. (Sec. 94) collecting from each one of
No shares or other forms of securities them the amount of the tax
shall be transferred in the books of any proportionate to the inheritance
corporation, partnership, business or received, or
industry organized in the Philippines, b. Pursuant to the lien created by
unless a similar certification by the Section 219 of the Tax Code
Commissioner is shown. (Sec. 97) upon all property and rights to
When a bank has knowledge of the property belonging to the
death of a person who maintained a taxpayer for unpaid income tax,
joint account, it shall not allow any is by subjecting said property of
withdrawal by the surviving depositor the estate which is in the hands
without the above certification. (Sec. of an heir or transferee to the
97) payment of the tax due the
Provided: that the administrator of estate. (Commissioner of
the estate or any one (1) of the heirs of Internal Revenue vs. Pineda, GR
the decedent may, upon authorization
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No. L –22734, September 15, gift. The transfer is perfected from the
1967) moment the donor knows of the
acceptance by the donee; it is
completed by the deliver, either
actually or constructively, of the
donated property to the donee. Thus,
the law in force at the time of the
perfection/completion of the donation
shall govern the imposition of the
donor’s tax.
A gift that is incomplete because of

(2) DONOR’S TAXES reserved powers, becomes complete
when either:
1. the donor renounces the
DEFINITION: A tax on the privilege of power; or
transmitting one’s property or property 2. his right to exercise the reserved
rights to another or others without power ceases because of the
adequate and full valuable happening of some event or
consideration. contingency or the fulfillment of
some condition, other than
COVERAGE OF THE TAX (SEC. 104) because of the donor's death.
RESIDENT & NON- • Renunciation by the surviving spouse
RESIDENT of his/her share in the conjugal
NON-RESIDENT partnership or absolute
CITIZEN,
ALIEN DONOR community after the dissolution
RESIDENT ALIEN
DONOR of the marriage in favor of the
heirs of the deceased spouse or
1. Real property 1. Real property any other person/s is subject to
wherever situated in the donor's tax.
situated Philippines. • Whereas general renunciation by
an heir, including the
2. Personal 2. Personal surviving spouse, of his/her
property property
wherever a. Tangible
share in the hereditary
situated property situated estate left by the decedent
a. Tangible, and in the Philippines is not subject to donor's tax,
Intangible b. Intangible unless specifically and
personal property categorically done in favor
with a situs in of identified heir/s to the
the Philippines exclusion or disadvantage of
unless exempted the other co-heirs in the
on the basis of hereditary estate. (Sec. 11,
reciprocity.
Rev. Reg. 2-2003)
REQUISITES
STRANGER - a person who is not a brother,
sister, spouse, ancestor and lineal
1. Capacity of the donor
descendant, or of a relative by
2. Donative Intent
consanguinity in the collateral within the
3. Delivery, whether actual or
4th civil degree.
constructive, of the subject gift
4. Acceptance by the donee • A legally adopted child is entitled to
all the rights and obligations
LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX provided by law to legitimate
children, and therefore, donation to
The donor’s tax shall not apply him shall not be considered as
unless and until there is a completed donation made to stranger.
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• Donation made between business within one

organizations and those made year
between an individual and a business thereafter by
organization shall be considered as parents to
donation made to a stranger. each of their
legitimate,
VALUATION OF GIFTS OF PROPERTY illegitimate
The fair market value of the or adopted
property given at the time of the gift children to
shall be the value of the gift. the extent of
the first P10,
000.
b. Gifts made to or
INTANGIBLE PERSONAL PROPERTIES WITH A SITUS IN THE for the use of
PHIL. (SAME AS IN ESTATE TAX SUBJECT TO THE the National
RECIPROCITY RULE) (SEC. 104) Government
or any entity
Formula: (On a cumulative basis over a created by
period of one calendar year) any of its
agencies
1. On the 1st donation of a year which is not
conducted for
Gross gifts xxx profit, or to
Less: Deductions from gross xxx any political
gifts subdivision of
Net gifts xxx the said
Multiply by: Tax Rate xxx government.
Donor’s tax on the net gifts xxx c. Gifts in favor of
educational,
charitable,
2. On donation of a subsequent
religious,
date during the year
cultural or
social welfare
Gross gifts made on this date XX
corporation,
Less: Deductions from gross gifts XX
institutions,
Net gifts XX
foundations,
Add: All prior net gifts within XX
trust or
the year
philanthropic
Aggregate net gifts XX organization,
Multiply by: Tax Rate XX research
Donor’s tax on aggregate net XX institution or
gifts organization,
Less: Donor’s tax on all prior net XX accredited
gifts non-
Donor’s tax on the net gifts on XX government
this date organization
(NGO).
EXEMPTION OF CERTAIN GIFTS Provided,
that no more
1. Gifts made by a resident than 30% of
a. Dowries or gifts said gifts
made on shall be used
account of by such donee
marriage and for
before its administratio
celebration or n purposes.
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1. Gifts made by a non-resident not which such credit is taken,
a citizen of the Phil. which the decedent’s net
a. same as (b) gift situated outside the
b. same as (c) Philippines taxable under the
except NIRC bears to his entire net
accredited gift.
non-
government FORMULA OF TAX CREDIT LIMIT
organization
(NGO) 1. For donor’s taxes paid to one
foreign country
A NON-PROFIT EDUCATIONAL AND/OR CHARITABLE
CORPORATION, INSTITUTION, ACCREDITED NON- NG situated Tax
GOVERNMENT ORGANIZATION, TRUST OR PHILANTROPHIC in a foreign country X PDT = Credit
ORGANIZATION, RESEARCH INSTITUTION OR Entire net gift Limit
ORGANIZATION IS
(NG - Net Gifts; PDT - Phil. Donor's Tax)
1. one incorporated as a non-stock
entity 2. For donor’s taxes paid to two or
2. paying no dividends more foreign country
3. governed by trustees who receive no
compensation, and NG outside the Phil. X PDT = Tax
4. devoting all its income whether Entire net gifts Credit
students’ fees or gifts, donations, Limit
subsidies or other forms of
philantrophy to the accomplishment The allowable tax credit is the
and promotion of the purposes lower amount between the tax credit
enumerated in its Articles of limit under (a) and (b).
Incorporation.
TAX CREDIT FOR DONOR’S TAXES PAID TO A FOREIGN SETTLEMENT OF THE DONOR’S TAX
COUNTRY
TIME FOR FILING OF RETURN AND PAYMENT OF THE
1. Donor was a Filipino citizen or DONOR’S TAX
resident alien The donor’s tax return is filed and
2. At time of foreign donation the donor’s tax due is paid within thirty
3. Donor’s taxes of any character and (30) days after the date the gift is made.
description The return shall be under oath in
4. Are imposed and paid by the duplicate setting forth:
authority of a foreign country. 1. Each gift made during the calendar
year which is to be included in
LIMITATIONS ON TAX CREDIT computing net gifts;
2. The deductions claimed and
1. The amount of the credit in allowable;
respect to the tax paid to 3. Any previous net gifts made during
any country shall not exceed the same calendar year;
the same proportion of the 4. The name of the donee;
tax against which such credit 5. Relationship of the donor to the
is taken, which the donee; and
decedent’s net gifts situated 6. Such further information as may be
within such country taxable required by rules and regulations
under the NIRC bears to his made pursuant to law.
entire net gift; and
2. The total amount of the credit NOTE: The filing of a notice of donation
shall not exceed the same is not required, unlike in estate tax
proportion of the tax against where notice of death is required.
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jurisdiction under RA 1125 (as amended
PLACE FOR FILING OF RETURN AND PAYMENT OF THE by RA 9282).
DONOR’S TAX
Conditions for the Issuance of an
1. Resident Injunction by the Court of Tax Appeals
• With an authorized agent bank, The CTA may enjoin collection of
the Revenue District Officer, taxes:
Revenue Collection Officer or a. If in its opinion the same may
duly authorized Treasurer of jeopardize the interest of the
the city or municipality where government and/or the taxpayer.
the donor was domiciled at the b. In this instance, the court may
time of the transfer, or if require the taxpayer either to deposit
there be no legal residence in the amount claimed or file a surety bond
the Philippines, with the for not more than double the amount
Office of the Commissioner. with the court.
2. Non-resident
* Before enforcement of remedies,
• Filed with the Philippine assessment is necessary to trigger the
Embassy or Consulate in the
process. If no return is filed, the
country where he is domiciled
Commissioner is empowered to obtain
at the time of the transfer, or
information, and to summon/examine,
directly with the Office of the
and take testimony of persons to
Commissioner.
determine the amount of tax due. (Sec.
5, 1997 NIRC)
TAX RATE
TAX REMEDIES UNDER THE 1997 TAX CODE:

If the donee is a stranger, the rate of
tax shall be 30% of the net gifts.
1. Summary – remedies at the
If the donee is not a stranger,
administrative level or regulation that
the rate shall be from 2% to 15% of the
are executed without ceremony or
net gifts.
delay; short or concise
2. Substantive – remedies provided for
 See Annex W - Donor’s Tax by law or regulation; an essential part or
constituent or relating to what is
essential
C. TAX REMEDIES 3. Procedural – remedies involving law of
UNDER THE NIRC pleading, evidence, jurisdiction, etc.
4. Administrative – remedies available at
the administration (BIR) level
I.TAX REMEDIES OF THE 1. Judicial – remedies that are
GOVERNMENT enforced through judicial action,
which may be civil or criminal
IMPORTANCE
TAX REMEDIES OF THE GOVERNMENT TO EFFECT
COLLECTION OF TAXES
1. They enhance and support the
government’s tax collection.
2. They are safeguards of taxpayer’s 1. Compromise (Sec. 204)
rights against arbitrary action. 2. Distraint (Actual and
Constructive) (Secs. 205-
TAX COLLECTION CANNOT BE RESTRAINED BY COURT
208)
INJUNCTION (SEC. 218, 1997 NIRC) 3. Levy (Sec. 207B)
4. Tax Lien (Sec. 219)
Justification: Lifeblood Theory 5. Civil Action (Sec. 221)
6. Criminal Action (Secs. 221, and
Exception: Injunction may be issued by 222)
the CTA in aid of its appellate
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7. Forfeiture of Property (Sec. the heads of the Legal,
224-225) Assessment and Collection
8. Suspension of business Divisions, and
operations in violation of VAT a. the Revenue
(Sec. 115) District
9. Enforcement of Administrative Officer having
Fine jurisdiction
over the
The remedies of distraint and levy as taxpayer, as
well as collection by civil and criminal members;
actions may, in the discretion of the • on assessments issued by the
Commissioner, be pursued singly or regional offices involving
independently of each other, or all of basic taxes of P500,000 or
them simultaneously. less, and minor criminal
violations.
(1) COMPROMISE CASES WHICH MAY BE COMPROMISED
DEFINITION: A contract whereby the 1. Delinquent accounts

parties, by reciprocal concessions, avoid 2. Cases under administrative protests
litigation or put an end to one already 3. Civil tax cases being disputed before
commenced (Art. 2028, New Civil Code). the courts
4. Collection cases filed in courts
REQUISITES 5. Criminal violations, other than those
1. The taxpayer must have a tax already filed in court or those
liability. involving criminal tax fraud; and,
2. There must be an offer (by the 6. Cases covered by pre-assessment
taxpayer of an amount to be paid by notices but taxpayer is not agreeable
the taxpayer) to the findings of the audit office as
3. There must be an acceptance (by confirmed by the review office.
the Commissioner or taxpayer as the (Sec.2, Rev. Reg. 7-2001)
case may be) of the offer in the
settlement of the original claim. EXCEPTIONS
OFFICERS AUTHORIZED TO COMPROMISE 1. Withholding tax cases;

2. Criminal tax fraud cases;
1. The Commissioner of Internal 3. Criminal violations already filed in
Revenue (CIR) with respect court;
to criminal and civil cases 4. Delinquent accounts with duly
arising from violations of the approved schedule of installment
Tax Code [Secs. 7(C) and payments;
204, 1997 NIRC]. This power 5. Cases where final reports of
of the CIR is discretionary reinvestigation or reconsideration
and once exercised by him have been issued resulting to
cannot be reviewed or reduction in the original assessment
interfered with by the and the taxpayer is agreeable to
Courts. (Koppel, Philippines such decision.
vs. Commissioner, GR No. L- 6. Cases which become final and
1977, September 21, 1950) executory after final
2. By the Regional Evaluation judgment of a court, where
Board composed of: compromise is requested on
a. the Regional Director as the ground of doubtful
Chairman, validity of the assessment
b. Assistant Regional Director, (RR. 30–2002);
7. Estate tax cases where
compromise is requested on
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the ground of financial his authorized
incapacity of the taxpayer. representative, in
(RR. 30–2002) some cases, within
30 days from
COMMISSIONER MAY COMPROMISE THE PAYMENT OF ANY receipt thereof and
INTERNAL REVENUE TAX WHEN there is reason to
believe that its is
1. A reasonable doubt as to the lacking in legal
validity of the claim against the and/or factual
taxpayer exists; or basis; or
a. The delinquent account or f. The assessment were
disputed assessment is one issued on or after
resulting from a jeopardy Jan. 1, 1998, where
assessment. the demand notice
b. The assessment seems to allegedly failed to
be arbitrary in comply with the
nature, appearing formalities
to be based on prescribed under
presumptions, and Sec. 228 of the
there is reason to 1997 NIRC; or
believe that its is g. Assessments made based
lacking in legal on the “Best
and/or factual Evidence
basis; or Obtainable Rule”
c. The taxpayer failed to and there is reason
file an to believe that the
administrative same can be
protest on account disputed by
of the alleged sufficient and
failure to receive competent
notice of evidence.
assessment or h. The assessment was
preliminary issued within the
assessment and prescriptive period
there is reason to for assessment as
believe that its is extended by the
lacking in legal taxpayer's
and/or factual execution of Waiver
basis; or of the Statute of
d. The taxpayer failed to Limitations the
file a request for validity or
reinvestigation/rec authenticity of
onsideration within which is being
30 days from questioned or at
receipt of final issue and there is
assessment notice strong reason to
and there is reason believe and
to believe that its is evidence to prove
lacking in legal that it is not
and/or factual authentic. (RR. 30–
basis; or 2002)
e. The taxpayer failed to i. The assessment is based
elevate to the CTA on an issue where a
an adverse decision court of competent
of the jurisdiction made
Commissioner, or an adverse decision
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against the Bureau, deferred credits and amounts
but for which the payable to stockholders/owners
Supreme Court has reflected as liabilities, except
not decided upon business-related transactions)
with finality. (RR. from total assets (net of prepaid
08-2004). expenses, deferred charges, pre-
operating expenses, as well as
2. The financial position of the appraisal increases in fixed
taxpayer demonstrates a clear assets), taken from the latest
inability to pay the assessed tax audited financial statements,
[Sec. 204(A), 1997 NIRC). In such provided that in the case of an
case, the taxpayer should waive the individual taxpayer, he has no
confidentiality privilege on bank other leviable properties under
deposits under RA No. 1405 [Sec. the law other than his family
6(F)(2), NIRC]. home; (Sec. 3, RR. 30–2002).
Financial Incapacity. — The offer
to compromise based on financial a. The taxpayer is a compensation
incapacity may be accepted upon earner with no other source of
showing that: income and the family’s gross
a. The corporation ceased operation monthly compensation does not
or is already dissolved. Provided, exceed (P10,500/month if single;
that tax liabilities corresponding P21,000/month if married), and
to the Subscription Receivable or that it appears that the taxpayer
Assets distributed/distributable to possesses no other leviable/
the stockholders representing distrainable assets, other than his
return of capital at the time of family home; or
cessation of operation or
dissolution of business shall not be b. The taxpayer has been granted by
considered for compromise; or the SEC or by any competent
tribunal a moratorium or
b. The taxpayer, as reflected in its suspension of payments to
latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of bankrupt or insolvent. (Sec. 3, RR.
Internal Revenue, is suffering from 07-2001)
surplus or earnings deficit
resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1.The submission of
which are properly includible in all pertinent
the regular "accounts payable" are information,
by fiction of law considered as including but not
part of capital and not liability, limited to
and provided further that the industry audits,
taxpayer has no sufficient liquid collection
asset to satisfy the tax liability; or performance
data, status
reports on
criminal actions
initiated against
persons; and
c. The taxpayer is suffering from a 2.The submission of
networth deficit (total liabilities taxpayer
exceed total assets) computed by returns.
deducting total liabilities (net of
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This is more so, when the court
has rendered a final judgment. As a
MINIMUM COMPROMISE RATES (MCR) OF ANY TAX mere agent of the Government, the
LIABILITY Commissioner is not authorized to
a. In case of financial incapacity: accept anything less than what is
MCR = 10% of the basic assessed tax adjudicated in favor of the
b. Other cases: Government. By virtue of such final
MCR = 40% of the basic assessed tax judgment, the Government has
[Sec. 204(A), 1997 NIRC] already acquired a vested right.
APPROVAL OF THE COMPROMISE BY THE EVALUATION NATURE OF A COMPROMISE IN EXTRAJUDICIAL

BOARD IS REQUIRED WHEN SETTLEMENT OF THE TAXPAYER’S CRIMINAL LIABILITY
a. the basic tax involved FOR HIS VIOLATION
exceeds P1,000,000.00,
or It is consensual in character, hence,
b. the settlement offered is may not be imposed on the taxpayer
less than the MCR. without his consent. The BIR may only
suggest settlement of his tax liability
NOTE: The MCR may be less than the through a compromise. The extra-
prescribed rates of 10% or 40%, as the judicial settlement and the amount of
case may be, provided it is approved by the suggested compromise penalty
the Evaluation Board (composed of the should conform with the schedule of
BIR Commissioner and the four BIR compromise penalties provided under
Deputy Commissioners). the relevant BIR regulations or orders.
COMPROMISE OF CRIMINAL VIOLATIONS REMEDY IN CASE THE TAXPAYER REFUSES OR FAILS TO

General Rule: All criminal violations ABIDE THE TAX COMPROMISE
under the CTRP may be compromised.
1. Enforce the compromise
Exceptions: a. If it is a judicial compromise, it
1. Those already filed in court can be enforced by mere
2. Those involving fraud [Sec. 204(B), execution. A judicial compromise
1997 NIRC]. is one where a decision based on
the compromise agreement is
EXTENT OF THE COMMISSIONER’S DISCRETION TO rendered by the court on request
COMPROMISE CRIMINAL VIOLATIONS of the parties.
b. Any other compromise is
1. Before the complaint is filed with extrajudicial and like any other
the Prosecutor’s Office: The CIR contract can only be enforced by
has full discretion to compromise court action.
except those involving fraud. 1. Regard it as rescinded and insist
upon original demand (Art. 2041,
2. After the complaint is filed with Civil Code).
the Prosecutor’s Office but before
the information is filed with the COMPROMISE PENALTY
court: The CIR can still compromise
provided the prosecutor must give It is an amount of money that the
consent. taxpayer pays to compromise a tax
violation. This is paid in lieu of criminal
3. After information is filed with the prosecution. A taxpayer cannot be
court: The CIR is no longer compelled to pay a compromise penalty.
permitted to compromise with or If he does not want to pay, the CIR must
without the consent of the institute a criminal action.
Prosecutor. (People vs. Magdaluyo,
GR No. L-16235, April 20, 1961) COMPROMISE VS. ABATEMENT

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Compromise involves a reduction of the amount due [Sec. 204(B),
the taxpayer’s liability, while 1997 NIRC].
abatement means that the entire tax a. Abatement of penalties on
liability of the taxpayer is cancelled. assessment confirmed by the
ABATEMENT lower court but appealed by the
taxpayer to a higher court
THE COMMISSIONER MAY ABATE OR CANCEL A TAX b. Abatement of penalties on
LIABILITY WHEN withholding tax assessment under
meritorious circumstances
1. The tax or any portion c. Abatement of penalties on
thereof appears to be delayed installment payment
unjustly or excessively under meritorious circumstances
assessed; [Sec. 204(B), 1997 d. Abatement of penalties on
NIRC]. assessment reduced after
a. When the filing of the reinvestigation but taxpayer is
return/payment is made at the still contesting reduced
wrong venue; assessment; and
b. When the taxpayer’s mistake in e. Such other circumstances which
payment of his tax is due to the Commissioner may deem
erroneous written official advice analogous to the enumeration
of a revenue officer; above. (Sec. 3, Rev. Reg. 13-2001)
c. When the taxpayer fails to file the
return and pay the tax on time 1. The Commissioner may also,
due to substantial losses from even without a claim
prolonged labor dispute, force therefor, refund or credit any
majeure, legitimate business tax where on the face of the
reverses, provided, however, the return upon which payment
abatement shall only cover the was made such payment
surcharge and the compromise appears clearly to have
penalty and not the interest been erroneously paid (Sec.
imposed under Sec. 249 of the 229, 1997 NIRC)).
Code;
d. When the assessment is brought
about or the result of taxpayer’s (1) DISTRAINT
non-compliance with the law due
to a difficult interpretation of said DEFINITION: It is the seizure by the
law. government of personal property,
e. When the taxpayer fails to file the tangible or intangible, to enforce the
return and pay the correct tax on payment of taxes. The property may be
time due to circumstances beyond offered in a public sale, if taxes are not
his control, provided, however, voluntarily paid. It is a summary remedy.
the abatement shall only cover
the surcharge and the compromise NATURE OF THE WARRANT OF DISTRAINT OR LEVY
penalty and not the interest
imposed under Sec. 249 of the The warrant is a summary procedure
Code; “forcing” the taxpayer to pay. The
f. Late payment of the tax under receipt of a warrant may or may not
meritorious circumstances (ex. partake the character of a final decision.
Failure to beat bank cut-off time, If it is an indication of a final decision,
surcharge erroneously imposed, the taxpayer may appeal to the CTA
etc.) (Sec. 2, Rev. Reg. 13-2001) within 30 days from service of the
warrant.
1. The administration and
collection costs involved do ☛ Duties of the officer serving the
not justify the collection of warrant of distraint:

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1. Make an account of the personal ACTUAL CONSTRUCTIVE
properties distrained; DISTRAINT DISTRAINT
2. Sign the list of personal properties
distrained to which shall be
added, a statement of the sum
demanded and note of the time
and place of sale;
Both
3. Leave either with the owner or
Are summary remedies for the collection
person from whose possession of taxes;
such personal properties were NOTE: Refer only to personal property;
taken, or at the dwelling or and
place of business of such person cannot be availed of where the amount of
with someone of suitable age the tax involved is not more than P100
and discretion (Sec. 208, CTRP)
TWO TYPES OF DISTRAINT REQUISITES FOR THE EXERCISE OF THE REMEDY OF

DISTRAINT
1. Actual: there is taking of
possession of the personal 1. The taxpayer must be delinquent
property from the taxpayer by (except in constructive
the government. Physical distraint) in the payment of
transfer of possession is not tax;
always required. This is true in 2. There must be a subsequent
the case of intangible property demandfor its payment
such as stocks and credits. (assessment);
2. Constructive: the owner is 3. The taxpayer must fail to pay the
merely prohibited from disposing tax at the time required; and
of his property. 4. The period within which to
assess or collect the tax has
ACTUAL VS. CONSTRUCTIVE DISTRAINT not yet prescribed.
ACTUAL CONSTRUCTIVE PERSONS WHO SHALL SEIZE AND DISTRAINT PERSONAL
DISTRAINT DISTRAINT PROPERTY (ACTUAL DISTRAINT)
Made only on the Made on the 1. Amount of delinquent tax is more

property of a property of any than P1,000,000 – Commissioner or
delinquent taxpayer taxpayer, whether his duly authorized representatives.
delinquent or not 2. Amount of delinquent tax is
P1,000,000 or less – Revenue District
There is taking of The taxpayer is
Officer. (Sec. 207(A), 1997 NIRC)
possession merely prohibited
from disposing of
his property AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO
BANK DEPOSIT ACCOUNTS
Effected by leaving Effected by
a list of distrained requiring the Distraint includes garnishment of
property or by taxpayer to sign a money even in bank deposits because RA
service of a warrant receipt of the 1405 (Bank Secrecy Law) covers only
of distraint or property or by the divulging of information of deposits. No
garnishment revenue officer inquiry is made on garnishment for it
preparing and
leaving a list of
only earmarks a portion of the deposits.
such property Notwithstanding any contrary
provision of RA 1405, the Commissioner
An immediate step Not necessarily so is authorized to inquire into the bank
for collection of deposits of:
taxes 1. a decedent to determine his gross
estate
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2. a taxpayer who waives his right by securities
reason of financial incapacity to pay his .
tax liability (Sec.5, NIRC) 3. Bank accounts shall be garnished by
serving a warrant of distraint –
(a) upon the
PROCEDURES FOR THE ACTUAL DISTRAINT OR taxpayer;
GARNISHMENT and
(b) upon the
I president
Commencement of distraint ,
proceedings manager,
treasurer
, or other
Either by the CIR or his duly authorized responsib
representative; or by the Revenue le officer
District Officer of the
bank.
Note: Upon receipt of the warrant of
distraint, the bank shall turn over to the
Commissioner so much of the bank
II accounts as may be sufficient to satisfy
Service of Warrant of Distraint the claim of the government.
(Sec. 208) 4. Debts and credits –
(a) persons owing
or having in
With respect to:
his
1. Personal property –
possession
(a) upon the owner of the goods,
the debts;
chattels, or other personal
(b) or under his
property; or
control such
(b) upon the person from
credits; or
whose possession such
(c) upon his agent.
properties are taken.
2. Stocks and other securities
Note: The warrant of distraint shall be
(a) upon the
sufficient authority to the person owing
taxpayer;
the debts or having in his possession or
and
under his control any credits belonging
(b) upon the
to the taxpayer to pay to the
president
Commissioner the amount of such debts
,
or credits.
manager,
treasurer
or other
responsib
le officer
of the Taxpayer must sign
corporati receipt
on,
company
or
associati
on which
issued III
the said Posting of Notice
stock and (Sec. 209, NIRC)

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Notice specifying the time and place
of sale and the articles distrained. The
posting shall be made in not less than
two (2) public places in the city or muni-
cipality where the distraint is made. Remedy when taxpayer didn’t sign
One place for posting of such notice is at receipt
the Office of the Mayor of such city or
municipality.
If the taxpayer or person in possession of
the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall
(a) proceed to prepare a list of such
IV property and
Sale of Property Distrained (b) in the presence of two (2) witnesses
leave a copy thereof in the premises
where the property distrained is located,
after which the said property shall be
THE TAXPAYER’S PROPERTY MAY BE PLACED UNDER deemed to have been placed under
CONSTRUCTIVE DISTRAINT WHEN HE constructive distraint.
1. is retiring from any business (3) LEVY

subject to tax;
2. is intending to – DEFINITION: It refers to the act of seizure
a. leave the Philippines, of real property in order to enforce the
b. remove his property payment of taxes. The property may be
therefrom, offered in a public sale, if after seizure,
c. hide or conceal his the taxes are not voluntarily paid.
property,
1. is performing any act tending to REQUISITES FOR THE EXERCISE OF THE REMEDY OF
obstruct the proceeding for LEVY
collecting the tax due or
which may be due from him Same as in the remedy of distraint.
(Sec. 223, 1997 NIRC).
PROCEDURE FOR THE CONSTRUCTIVE DISTRAINT OF

WHEN MAY LEVY BE EFFECTED?
PERSONAL PROPERTY
Real property may be levied upon
Taxpayer’s obligation to preserve before, simultaneously, or after the
distraint of personal property belonging
to the delinquent [Sec. 207(B), 1997 NIRC];
CIR shall require the taxpayer or any and the remedy by distraint and levy
person having possession or control of may be repeated if necessary until the
such property to full amount, including all expenses, is
(a) sign a receipt covering the property collected (Sec. 217, 1997 NIRC).
distrained and
(b) obligate himself to PROCEDURE OF LEVY ON REAL PROPERTY
1. preserve the same intact and
unaltered and
2. not to dispose of the same in I
any manner whatsoever Prepare Certificate of Levy
without the express I
authority of the Preparation of a duly authen-ticated
Commissioner of Internal certificate containing:
Revenue.
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(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due
from him. This certificate shall
operate with the force of a legal IV
execution throughout the Philippines Sale
(Sec. 207B, 1997 NIRC).
DISTRAINT VS. LEVY
DISTRAINT LEVY
II
Service of Notice Refers to personal Refers to real
property property
Service of written notice to: Forfeiture by the Forfeiture is

government is not authorized
(a) the delinquent taxpayer; or
provided
(b) if he is absent from the Philippines,
to his agent or manager of the business The taxpayer is not The right of
in respect to which the liability arose; or given the right of redemption is
c. to the occupant of the property. redemption with granted in case of
d. the proper Register of Deeds shall respect to real property levied
also be notified of the levy (Sec. distrained personal upon and sold, or
207B, 1997 NIRC). property. forfeited to the
government.
Both
• Are summary remedies for the
collection of taxes; and
III • Cannot be availed of where the
Advertisement of the Time and amount of the tax involved is not
Place of Sale more than P100
The advertisement shall contain: REDEMPTION OF PROPERTY SOLD

1. the amount of tax and penalties due;
2. name of the taxpayer against whom Within 1 year from the date of sale,
taxes are levied; the property may be redeemed by the
3. short description the property to be delinquent taxpayer or anyone from him,
sold. upon payment of the taxes, penalties
and interest thereon from the date of
The advertisement shall be made delinquency to the date of sale,
within 20 days after the levy, and the together with interest on purchase price
same shall be for a period of at least 30 at 15% per annum from the date of sale
days. It shall be effectuated by: to the date of redemption. (Sec. 214,
a. posting a notice at the main entrance NIRC).
of the municipal building or city hall
and in a public and conspicuous FORFEITURE TO THE GOVERNMENT
place in the barrio or district in which
the real property lies; and If there is no bidder in the public
b. by publication once a week for 3 sale or if the amount of the highest bid
weeks in a newspaper of general is insufficient to pay the taxes, penalties
circulation in the municipality or city and costs, the real property shall be
where the property is located (Sec. forfeited to the Government.
213, CTRP).
FURTHER DISTRAINT AND LEVY

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The remedy of distraint and levy property the taxpayer
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from
the taxpayer. Otherwise, a clever (5) CIVIL ACTIONS
taxpayer who is able to conceal most of
the valuable part of his property would DEFINITION: For tax remedy purposes,
escape payment of his tax liability by these are actions instituted by the
sacrificing an insignificant portion of his government to collect internal revenue
holdings. taxes. It includes filing by the
government with the probate court
(4) TAX LIEN claims against the deceased taxpayer.
DEFINITION: It is a legal claim or charge on WHEN RESORTED TO?
property, either real or personal,

established by law as a security in 1. When a tax is assessed but the
default of the payment of taxes (51 assessment becomes final and
AmJur 881). Generally, it attaches to unappealable because the taxpayer
the property irrespective of ownership fails to file an administrative
or transfer thereof. protest with the CIR within 30 days
from receipt; or
EXTENT AND NATURE
2. When a protest against assessment is
filed and a decision of the CIR was
The tax, together with interests, rendered but the said decision
penalties, and costs that may accrue in becomes final, executory, and
addition thereto is a lien upon all demandable for failure of the
property and rights to property taxpayer to appeal the decision to
belonging to the taxpayer. the CTA within 30 days from
receipt of the decision.
The lien shall not be valid against
any mortgagee, purchaser, or judgment NOTE: Judicial action may be resorted
creditor until notice of such lien shall be to even before assessment although
filed by the Commissioner of Internal impractical, as stated in Sec. 203, 1997
Revenue in the Office of the Register of NIRC, “… and no proceeding in court
Deeds of the province or city where the without assessment for the collection of
property of the taxpayer is situated or such taxes shall be begun after the
located (Sec. 219, 1997 NIRC). expiration of such (3year) period.”
It should be noted that no civil
or criminal action for the recovery of
taxes shall be filed in court without the
WHEN DOES IT ATTACH?
approval of the Commissioner.
Not only from the service of the
WHERE TO FILE
warrant of distraint but from the time
tax became due and payable.
1. Court of Tax Appeals – where the
principal amount of taxes and fees,
LIEN VS. DISTRAINT
exclusive of charges and penalties
claimed is One million pesos and
LIEN DISTRAINT
above.
2. Regional Trial Court, Municipal
Directed against Need not be
the property directed against the
Trial Court, Metropolitan Trial
subject to the tax property subject to Court – where the principal amount
tax of taxes and fees, exclusive of
charges and penalties claimed is less
Regardless of the Property seized than One million pesos. (Sec. 7, RA
owner of the must be owned by No. 9282)
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conducted by the legal officers of
THE CIR IS ESSENTIAL IN CIVIL
APPROVAL OF THE the BIR.
CASES. However, under Sec. 7, 1997 NIRC,
the Commissioner may delegate such EFFECT OF ACQUITTAL OF THE
power to a Regional Director. TAXPAYER IN A CRIMINAL ACTION
DEFENSES WHICH ARE PRECLUDED BY FINAL AND It does not necessarily result in the
EXECUTORY ASSESSMENTS exoneration of said taxpayer from his
civil liability to pay taxes.
1. Invalidity or illegality of the Rationale: The duty to pay tax is
assessment; and imposed by statute prior to and
2. Prescription of the government’s independent of any attempt on the part
right to assess. of the taxpayer to evade payment. It is
not a mere consequence of the felonious
(4) CRIMINAL ACTIONS acts charged, nor is it a mere civil
liability derived from a crime. (Republic
The judgment in the criminal case vs. Patanao, GR No. L-14142, May 30,
shall not only impose the penalty but 1961)
shall also order the payment of taxes
subject of the criminal case as finally EFFECT OF SUBSEQUENT SATISFACTION
decided by the Commissioner (Sec. 205, OF CIVIL LIABILITY
NIRC).
The subsequent satisfaction of civil
WHERE TO FILE liability by payment or prescription does
not extinguish the taxpayer’s criminal
1. Court of Tax Appeals – on criminal liability.
offenses arising from violations of
the NIRC or TCC and other laws NO SUBSIDIARY IMPRISONMENT
administered by the BIR and the
BOC, where the principal amount of In case of insolvency on the part of
taxes and fees, exclusive of charges the taxpayer, subsidiary imprisonment
and penalties claimed is One million cannot be imposed as regards the tax
pesos and above. which he is sentenced to pay.
2. Regional Trial Court, Municipal However, it may be imposed in cases
Trial Court, Metropolitan of failure to pay the fine imposed. (Sec.
Trial Court – on criminal 280, 1997 NIRC)
offenses arising from
violations of the NIRC or TCC
and other laws administered
by the BIR and the BOC,
where the principal amount
of taxes and fees, exclusive CRIMINAL ACTION MAY BE FILED
of charges and penalties DURING THE PENDENCY OF AN
claimed is less than One ADMINISTRATIVE PROTEST IN THE BIR
million pesos or where there
is no specified amount It is not a requirement for the
claimed. (Sec. 7, RA No. filing thereof that there be a precise
9282) computation and assessment of the tax,
since what is involved in the criminal
IMPORTANT CONSIDERATIONS action is not the collection of tax but a
criminal prosecution for the violation
1. No criminal action shall be begun of the NIRC. Provided, however, that
without the approval of the there is a prima facie showing of a
Commissioner. (Sec. 220, 1997 NIRC) willful attempt to evade taxes. (See
2. It shall be brought in the name of Ungab vs. Cusi, GR Nos. L-41919-24, May
the Government and shall be 30, 1980 in relation to Commissioner vs.
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Court of Appeals, GR No. 119322, June may be sold or destroyed
4, 1996) at the discretion of the
Commissioner. Forfeited
(4) FORFEITURE property shall not be
destroyed until at least 20
DEFINITION: divestiture of property days from seizure.
without compensation, in consequence
of a default or offense. EFFECT OF THE FORFEITURE OF
PROPERTY
ENFORCEMENT OF THE REMEDY OF
FORFEITURE The effect is to transfer the title to
the specific thing from the owner to the
a. In case of personal property – government. All the proceeds in case of
The forfeiture of chattels a sale go to the coffers of the
and removable fixtures of government (U.S. vs. Surla, GR No.
any sort is enforced by 6536, September 2, 1911). In seizure for
seizure and sale or the enforcement of a tax lien, the
destruction of the specific residue, after deducting the tax liability
forfeited property. and expenses will go to the taxpayer
b. In case of real property – The (Bank of the Phil. Island vs. Trinidad,
forfeiture of real property GR No. 16014, October 4, 1941).
is enforced by a judgment
of condemnation and sale INFORMER’S REWARD (Sec 282)
in a legal action or A. For violations of the NIRC, a reward
proceeding, civil or of 10% of the revenues, surcharges,
criminal, as the case may or fees recovered and/or fine or
require. penalty imposed and collected or P 1
c. In case of distilled spirits, M per case, whichever is lower shall
liquors, cigars, cigarettes be given to:
manufactured, products 1. any person
of tobacco and apparatus who
used for their production voluntarily
– Upon forfeiture, may be gives
destroyed by order of the definite
Commissioner where the and sworn
sale may be injurious to informatio
public health or n not yet
prejudicial to law in the
enforcement. possession
of the BIR
leading to
the
discovery
of fraud
upon the
Internal
Revenue
Laws
d. Other articles subject to and/or
excise tax which have any
been manufactured or violations
removed in violation of thereof
the Code, dies for 2. an informer
printing or making fake where the
revenue stamps and offender
labels – Upon forfeiture has
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1

offered to RATIONALE OF PRESCRIPTIVE PERIODS
compromis
e the Such periods are designated to
violation secure the taxpayers against
of law unreasonable investigation after the
comiited lapse of the period prescribed. They are
by him also beneficial to the government
and his because tax officers will be obliged to
offer has act promptly.
been
accepted RULES ON PRESCRIPTION
and
collected 1. When the tax law itself is silent
by the CIR on prescription, the tax is
. This imprescriptible;
excludes 2. When no return is required, tax
an is imprescriptible;
Internal Note: Remedy of taxpayer is to file a
Revenue return.
Officer/e 3. Defense of prescription is
mployee waivable;
or other
public WHAT CONSTITUTES ASSESSMENT?
official/e
mployee, An assessment contains not only
or his a computation of tax liabilities but also
relative a demand for payment within a
within the prescribed period.
sixth
degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
General Rule:
B. For the discovery and seizure of Three (3) years after the date
smuggled goods the return is due or filed, whichever is
- a reward of 10% of the FMV of the later (Sec. 203, 1997 NIRC).
smuggled and confiscated goods or
P 1 M per case, whichever is Exceptions:
lower, shall be given to persons 1. Failure to file a return: ten (10)
instrumental in the discovery and years from the date of the
seizure of such smuggled goods. discovery of the omission to file
the return (Sec.222[A]);
* This does not apply to all public 2. False or fraudulent return with
officials whether incumbent or retired, intention to evade the tax: ten
who acquired the information in the (10) years from the date of the
course of performance of their duties discovery of the falsity or fraud
during their incumbency. (Sec.222 [A]);
Note: Nothing in Section 222(A)
shall be construed to authorize the
PRESCRIPTIVE PERIODS FOR examination and investigation or
inquiry into any tax return filed in
THE ASSESSMENT AND accordance with the provisions of
COLLECTION OF TAXES any tax amnesty law or decree.

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1
• Fraud must be alleged and trial court (Commissioner vs.

proved as a fact. It must be Ayala Securities)
the product of a deliberate d. Fraud is never imputed and the courts
intent to evade taxes. It never sustain findings of fraud
may be established by the: upon circumstances that only
a. Intentional and create suspicion (Commissioner
substantial vs. Javier)
understatement of e. Mistakes of revenue officers on three
tax liability by the different occasions remove
taxpayer; element of fraud (Aznar vs. CTA
b. Intentional and and Collector)
substantial
overstatement of 1. Agreement in writing to the
deductions of extension of the period to assess
exemptions; and/or between the CIR and the
c. Recurrence of the above taxpayer before the expiration
circumstances of the 3-year period. NB: The
• Falsity constitutes a deviation extended period agreed upon
from the truth due to mistake, can further be extended by a
carelessness or ignorance. subsequent written agreement
made before the expiration of
There is fraud in the following decided the extended period previously
cases: agreed upon (Sec. 222[b]).
1. Fraud must be the product of a 2. Written waiver of renunciation
deliberate intent to evade taxes of the original three (3) year
(Jalandoni vs. Republic) limitation, signed by the
2. Simple statement that return filed taxpayer (Sambrano vs. Court of
was not fraudulent does not disprove Tax Appeals, GR No. L-8652,
existence of fraud (Tayengco vs. March 30, 1957).
Collector)
3. Substantial under-declarations of Note: Notice of the assessment is
income for six consecutive five years released, mailed or sent to the taxpayer
demonstrate fraudulence of return also within the 3 year period. It is not
(Perez vs. CTA) required that the notice be received by
4. Presence of fictitious expenses, with the taxpayer within the prescribed
no evidence presented, proves period. But the sending of the notice
existence of fraud (Tan Guan vs. must clearly be proven. (Basilan Estate,
Commissioner) Inc. vs. Commissioner, GR No. L-22492,
September 5, 1967)
However, the courts did not consider
the tax returns filed as false or AMENDMENT OF RETURN
fraudulent with intent to evade payment
of tax in the following cases: If the amended return is
a. Mere understatement in the tax substantially different from the original
return will not necessarily imply return, the prescriptive period shall be
fraud (Jalandoni vs. Republic) counted from the filing of the amended
return. But the said period shall run
b. Sale of a real property for a price less from the filing of the original return if
than its fair market value is not
the same is sufficiently complete to
necessarily a false return
enable the Commissioner to make a
(Commissioner vs. Ayala
proper assessment. (Commissioner vs.
Securities)
Phoenix Assurance Co., GR No. L-19727,
c. Fraud is a question of fact and the May 20, 1965)
circumstances constituting fraud
must be alleged and proved in the

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When Substantive: d. When the warrant of distraint or
a. substantial under declaration levy is duly served, and no
(exceeding 30% of that declared) property is located; and
of taxable sales, receipts or e. When the taxpayer is out of the
income, Philippines (Sec. 223, 1997
b. or a substantial overstatement NIRC).
(exceeding 30% of deductions)
(Sec. 248) A TAX RETURN IS CONSIDERED FILED
FOR PURPOSES OF STARTING THE
PRESCRIPTIVE PERIOD FOR THE RUNNING OF THE PERIOD OF
COLLECTION OF TAXES LIMITATIONS IF
General Periods: a. The return is valid – it has complied

Five (5) years – from assessment substantially with the requirements
or within period for collection agreed of the law; and
upon in writing before expiration of the
5-year period (Sec. 222, 1997 NIRC). b. The return is appropriate – it is a
Ten (10) years – without return for the particular tax required
assessment in case of false or fraudulent by law.
return with intent to evade or failure to
file return (Sec. 222, 1997 NIRC). Note: A defective tax return is the
same as if no return was filed at all.
WHAT IS THE PRESCRIPTIVE PERIOD
WHERE THE GOVERNMENT’S ACTION IS
ON A BOND WHICH THE TAXPAYER PRESCRIPTIVE PERIOD FOR THE
EXECUTES IN ORDER TO SECURE THE VIOLATION OF ANY PROVISION OF THE
PAYMENT OF HIS TAX OBLIGATION? TAX CODE (SEC. 281, 1997 NIRC)
Ten (10) years under Art. 1. Should be filed within five

1144(1) of the Civil Code and not three (5) years from the (a) day of
(3) years under the NIRC. In this case, the commission of the
the Government proceeds by court violation of the law, and if
action to forfeit a bond. The action is the same be not known,
for the enforcement of a contractual from the (b) discovery
obligation. (Republic vs. Araneta, GR thereof and the institution
No. L-14142, May 30, 1961) of the judicial proceedings
for its investigation and
GROUNDS FOR SUSPENSION OF THE punishment.
RUNNING OF THE STATUTE OF
LIMITATIONS 2. Illustrative case: (Lim vs.
Court of Appeals GR Nos.
a. When the CIR is prohibited from 48134-37, Ocober 18 , 1990)
making the assessment or a. charge is failure or refusal to
beginning the distraint or levy or pay deficiency income tax –
a proceeding in court, and for committed only after the finality
sixty (60) days thereafter; of the assessment coupled with
b. When the taxpayer requests for the taxpayer’s willful refusal to
a reconsideration which is pay the taxes within the allotted
granted by the CIR; period. (i.e. cannot be
c. When the taxpayer cannot be committed upon filing the
located in the address given by return)
him in the return, unless he b. charge is filing of false or
informs the CIR of any change in fraudulent return with intent
his address. to evade the assessment – in
addition to the fact of discovery,
there must be a judicial
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1

proceeding for the investigation repository of all arguments.
and punishment of the tax It can be used in court in
offense before the 5 year case administrative remedies
prescriptive period begins to have been exhausted. It is
run. also the formal act of the
taxpayer questioning the
official actuation of the CIR.
II. TAX REMEDIES OF THE This is equivalent to a
pleading.
TAXPAYER b. Entering into a
compromise (Sec.
204, 1997 NIRC).
GENERAL REMEDIES After Payment
Filing of claim for refund
A. ADMINISTRATIVE or tax credit within 2 years from
Before Payment date of payment regardless of
a. Protest – filing a petition any supervening cause (Sec. 229,
for reconsideration or 1997 NIRC).
reinvestigation within
30 days from receipt B. JUDICIAL
of assessment Within Civil Action
60 days from filing of a. Appeal to the Court of Tax
protest, all relevant Appeals – within 30 days from
supporting documents receipt of decision on the protest
should have been or from the lapse of 180 days due
submitted, otherwise, to inaction of the Commissioner
the assessment shall (Sec. 228, 1997 NIRC).
become final – cannot b. Action to contest forfeiture of
be appealed (Sec. chattel, at any time before the
228, 1997 NIRC). sale or destruction thereof, to
recover the same, and upon giving
Note: Submission of documents proper bond, enjoin the sale; or
within the 60 day period is after the sale and within 6
optional to the taxpayer. months, an action to recover the
net proceeds realized at the sale
"That the relevant (Sec. 231, 1997 NIRC); and
supporting documents c. Action for damages against a
mentioned in the law refers revenue officer by reason of any
to such documents which the act done in the performance of
taxpayer feels would be official duty (Sec. 227, 1997
necessary to support his NIRC).
protest and not what the Criminal Action
Commissioner feels should a. Filing of criminal complaint
be submitted, otherwise, against erring BIR officials and
taxpayer would always be at employees.
the mercy of the BIR which b. Injunction – when the CTA in its
may require production of opinion, the collection by the BIR
such documents which may jeopardize taxpayer.
taxpayer could not produce."
(Standard Chartered Bank Note: With the enactment of the new
vs. CIR, CTA Case No. 5696, CTA law (RA No. 9282) amending RA No.
August 16, 2001) 1125, CTA now has jurisdiction over
A protest is a vital criminal cases. (See Chapter VI - Court
document which is a formal of Tax Appeals.)
declaration of resistance of
the taxpayer. It is a Substantive Remedies
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1. Questioning the constitutionality or (Commissioner vs. Union
validity of tax statutes or regulations Shipping Corp.)
2. Non-retroactivity of rulings (Sec.246, b. Referral by the Commissioner of
NIRC) request for reinvestigation to
3. Failure to inform the taxpayer in the Solicitor General (Republic
writing of the legal and factual bases vs Lim Tian Teng Sons)
of assessment makes it void (Sec. c. Reiterating the demand for
228, NIRC) immediate payment of the
4. Preservation of books of accounts and deficiency tax due to taxpayer’s
once a year examination (Sec. 235, continued refusal to execute
NIRC) waiver (Commissioner vs. Ayala
Securities Corp.)
ASSESSMENT AND PROTEST d. Preliminary collection letter may
 Assessment serve as assessment notice
General rule: Taxes are self assessing (United International Pictures
and thus, do not require the issuance of vs. Commissioner)
an assessment notice in order to
establish the tax liability of a taxpayer. ACTS OF BIR COMMISSIONER
Exceptions: CONSIDERED AS DENIAL OF PROTEST
1. Tax period of a taxpayer is WHICH SERVE AS A BASIS FOR APPEAL
terminated (Sec. 6(D), NIRC) TO THE COURT OF TAX APPEALS
2. Deficiency tax liability arising
from a tax audit conducted by 1. filing by the BIR of a civil suit for
the BIR (Sec. 56(B), NIRC) collection of the deficiency
3. Tax lien (Sec. 219, NIRC) tax (Commissioner vs. Union
4. Dissolving Corporation (Sec. Shipping Corporation, GR
52(c), NIRC) No. 66160, May 21, 1990)
2. indication to the taxpayer by the
 Protest Commissioner “in clear and
1. Direct denial of protest unequivocal language” of his
Admnistrative decision on a disputed final denial. (Commissioner
assessment - The decision of the vs. Union Shipping
Commissioner or his duly authorized Corporation, GR No. 66160,
representative shall (a) state the facts, May 21, 1990)
the applicable law, rules and regulation 3. BIR demand letter reiterating his
or jurisprudence on which such decision previous demand to pay,
is based otherwise, the decision shall be sent to the taxpayer after his
void, in which case the same shall not be protest of the assessment.
considered a decision a disputed (Surigao Electric Co., Inc. vs.
assessment and (b) that the same is his CTA, GR No. L-25289, June
final decision (Sec. 3.1.5, Rev. Regs. No. 28, 1974; Commissioner vs.
12-99) Ayala Securities
Corporation, GR No. L-
2. Indirect denial of protest 29485, March 31, 1976)
a. Commissioner did not rule on the 4. The actual issuance of a warrant
taxpayer’s motion for of distraint and levy in
reconsideration of the certain cases cannot be
assessment – it was only when considered a final decision
respondent received the on a disputed settlement.
summons on (Commissioner vs. Union
Shipping Corporation, GR
the civil action for the No. 66160, May 21, 1990)
collection of deficiency income
tax that the period to appeal
commenced to run

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1
FILING OF CLAIM FOR until the whole or entire tax liability

TAX REFUND OR TAX CREDIT is fully paid. (Collector vs. Prieto,
GR No. L-11976, August 29, 1961)
3. Taxpayer merely made a deposit
GROUNDS FOR FILING A CLAIM FOR TAX
REFUND OR TAX CREDIT - counted from the conversion of
the deposit to payment (Union
1. Tax is collected erroneously or Garment vs. Collector, CTA Case No.
illegally. 416, November 17, 1958)
2. Penalty is collected without - Merely making a deposit is not
authority. equivalent to payment until the
3. Sum collected is excessive. amount is actually applied to the
specific purpose for which it was
TAX REFUND VS. TAX CREDIT deposited.
4. Tax has been withheld from source
TAX REFUND TAX CREDIT (through the withholding tax
system)
The taxpayer asks The taxpayer asks - counted from the date it falls due
for restitution of that the money so at the end of the taxable year
the money paid as paid be applied to - A taxpayer who contributes to the
tax his existing tax withholding tax system does not
liability really deposit an amount to the
government, but in truth, performs
Two-year period to Two-year period and extinguishes his tax obligation
file claim with the starts from the date
for the year concerned. (Gibbs vs.
CIR starts after the such credit was
payment of the tax allowed (in case Commissioner, GR No. L-17406,
or penalty credit is wrongly November 29, 1965)
made). 5. End of taxable year vs. date of the
filing of the final adjusted return
REQUISITES OF TAX REFUND OR TAX - from the date when the final
CREDIT adjusted return was filed.
- the rationale in computing this
1. Claim must be in writing; period is the fact that it is only then
2. It must be filed with the the corporation can ascertain
Commissioner within two (2) years whether it made profits or incurred
after the payment of the tax or losses in its business operations.
penalty. (ACCRA Investments vs. Court of
Note: No suit or proceeding shall be Appeals, GR No. 96322, December
begun after the expiration of the 20, 1991)
said two (2) years regardless of any 6. Date when quarterly income tax
supervening cause that may arise was paid vs. date when final
after payment. adjusted return was filed
3. Show proof of payment. - from the date when final adjusted
return was filed
COMMENCEMENT OF THE TWO (2) YEAR - The filing of the quarterly income
PERIOD (JURISPRUDENCE) tax return (Sec. 68) and payment of
quarterly income tax should only be
1. Tax sought to be refunded is considered mere installments of the
illegally or erroneously collected annual tax due. (Commissioner vs.
- from the date the tax was paid. TMX Sales, GR No. 83736, January
(Commissioner vs. Victorias Milling, 15, 1992)
GR No. L-24108, January 31, 1968) 7. Date when the final adjustment
2. Tax is paid only in installments or return was actually filed (ex. Apr.
only in part 2) vs. Last day when the
- from the date the last or final adjustment return could still be
installment or payment because for filed (ex. Apr. 15)
tax purposes, there is no payment
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- from the date the final adjustment Exceptions:
return was actually filed. 1. When the CIR acted with patent
(Commissioner vs. Court of Appeals, arbitrariness. Arbitrariness
GR No 117254, January 21, 1999) presupposes inexcusable or obstinate
8. Tax was not erroneously or illegally disregard of legal provisions.
paid but the taxpayer became (Commissioner vs. Victorias Milling,
entitled to refund because of GR No. L-19667, Nov. 29, 1966)
supervening circumstances 2. Under Sec. 79(C)(2) with respect to
- from the date the taxpayer income taxes withheld on the wages
becomes entitled to refund and not of the employees.
from the date of payment.
(Commissioner vs. Don Pedro TAX CREDIT CERTIFICATE
Central Azucarera, GR No. L-28467,
Feb. 28, 1973) 1. May be applied against any internal
PAYMENT UNDER PROTEST IS NOT revenue tax except withholding
NECESSARY UNDER NIRC taxes,
2. Original copy is surrendered to the
A suit or proceeding for tax refund revenue office,
may be maintained “whether or not such 3. No tax refund will be given resulting
tax, penalty or sum has been paid under from availment of incentives granted
protest or duress” (Sec. 229, NIRC). by law where no actual payment was
made (Sec. 204C, 1997 NIRC).
Note: Similarly, payment under protest
is not necessary in refund for local FORFEITURE OF CASH REFUND/TAX
taxes. (See Sec. 196, LGC). CREDIT
However, payment under protest is 1. Forfeiture of refund in favor of the

necessary in claim for refund for real government when a refund check or
property taxes (Sec. 252, LGC) and for warrant remains unclaimed or
customs duties (Sec. 2308, TCC). uncashed within five (5) years from
date of mailing or delivery.
SUSPENSION OF THE TWO-YEAR 2. Forfeiture of Tax Credit – a tax
PRESCRIPTIVE PERIOD credit certificate which remains
unutilized after five (5) years from
1. There is a pending litigation date of issue, shall be invalid, unless
between the Government and the revalidated (Sec. 230, 1997 NIRC).
taxpayer; and
2. CIR in that litigated case agreed to
abide by the decision of the SC as to REGLEMENTARY PERIODS
the collection of taxes relative IN INCOME TAX IMPOSED
thereto (Panay Electric Co. vs.
Collector, GR No. L-10574, May 28, BY LAW UPON THE TAXPAYER
1958). (PURSUANT TO REV. REG. NO. 12-99,
SEC. 228 OF THE 1997 NIRC, AND RA
INTEREST ON TAX REFUNDS NO. 1125 AS AMENDED BY RA NO.
9282)
General Rule:
Government cannot be required BIR makes a tax assessment
to pay interest on taxes refunded to the 
taxpayer in the absence of a statutory If taxpayer is not satisfied with the
provision clearly or expressly directing assessment file a protest within 30 days
or authorizing such payment. from receipt thereof
(Commissioner vs. Sweeney, GR No. L-
12178, August 29, 1959) 

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Submit supporting documents within excess creditable withholding
60 days from date of the filing of the tax for a taxable period was
protest determined to have carried over
and automatically applied the
 same amount claimed against
If protest is denied, elevate the matter
the estimated tax liabilities for
to the Commissioner of Internal Revenue
the taxable quarter or quarters
(CIR) within 30 days from receipt of the
of the succeeding taxable year;
decision of the CIR’s duly authorized
or
representative officer
4. When the excise tax due on
 excisable articles has not been
Appeal to the Division of the Court of paid;
Tax Appeals (CTA) within 30 days from 5. When an article locally
receipt of final decision of CIR or his purchased or imported by an
duly authorized representative (the exempt person, such as, but not
taxpayer has the option to appeal limited to, vehicles, capital
straight to the CTA upon receipt of the equipment, machineries and
decision of the CIR’s duly authorized spare parts, has been sold,
representative) traded or transferred to non-
 exempt persons.
If the CIR or his duly authorized
Notes:
representative fails to act on the
protest within 180 days from date of • As a general rule, payment
submission by taxpayer, the latter may under protest is not required
appeal within 30 days from lapse of the under the NIRC, except when
180-day period with the CTA Division partial payment of
uncontroverted taxes is
 required under RR 12-99.
The Party adversely affected by the CTA The Commissioner may, even
Division’s decision may file one motion without a written claim
for reconsideration/new trial within 15 therefor, refund or credit
days from receipt of decision. If the MR any tax, where on the face
is denied file a petition for review with of the return upon which
the CTA en banc payment was made, such
 payment appears clearly to
Appeal to the Supreme Court within 15 have been erroneously paid.
days from receipt of the CTA en banc • In case of the CIR’s final
decision under Rule 45 of the Rules of denial of the claim for
Court refund, the 30-day period to
appeal with the CTA must be
PRE-ASSESSMENT NOTICE, WHEN NOT REQUIRED within the 2-year peremptory
(SEC. 228, NIRC) period for instituting judicial
action.
1. When the finding for any
deficiency tax is the result of  See Annex N – Assessment
mathematical error in the Process and Appeal
computation of the tax as
appearing on the face of the
return; or ADDITIONS TO THE TAX
2. When a discrepancy has been (SECS. 247-252 NIRC)
determined between the tax
withheld and the amount
actually remitted by the DEFINITION: increments to the basic tax
withholding agent; or incident due to the taxpayer’s non-
3. When a taxpayer who opted to compliance with certain legal
claim a refund or tax credit of requirements.
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1. CIVIL PENALTY / SURCHARGE tax due for
1. 25% surcharge which no
a. Failure to file return is
any return required to
and pay the be filed, on
tax due or before the
thereon as date
required prescribed
under the for its
provisions of payment.
this Code or (Sec. 248)
rules and 1. 50% surcharge
regulations a. in case of willful
on the date neglect to
prescribed; file the
or return within
b. Unless otherwise the period
authorized prescribed
by the by the Code,
Commissione or
r, filing a • will not apply in case
return with a taxpayer,
an internal without notice
revenue from the
officer other Commissioner, or
than those his duly
with whom authorized
the return is representative,
required to voluntarily files
be filed; or the said return
c. Failure to pay (only 25% shall
the be imposed)
deficiency • 50% surcharge shall
tax within be imposed in
the time case the
prescribed taxpayer files
for its the return only
payment in after prior notice
the notice of in writing from
assessment; the
or Commissioner or
d. Failure to pay his duly
the full or authorized
part of the representa-tive
amount of (Sec. 4.2, Rev.
tax shown on Reg. 12-99)
any return
required to
be filed
under the
provisions of a. in case a false or
this Code or fraudulent
rules and return is
regulations, willfully made
or the full
amount of
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Prima Facie evidence a. to create
• substantial underdeclaration its
(exceeding 30% of that own
declared) of taxable sourc
sales, receipts or es of
income, reve
nue
• or a substantial
and
overstatement
b. to levy
(exceeding 30% of actual
taxes
deductions) of
,
deductions (Sec. 248)
fees
and
2. INTEREST
char
- 20% per annum or such higher rate
ges.
as may be prescribed by the rules
and regulations
a. Deficiency interest (Sec. 249B)

b. Delinquency interest (Sec. 249C)
c. Interest on Extended Payment
(Sec. 249D)
Congress cannot enact laws
3. OTHER CIVIL PENALTIES OR depriving LGU from exercising such
ADMINISTRATIVE FINES power to tax but it may set guidelines
and limitations for the exercise.
a. Failure to file Such taxes, fees, and charges
certain shall accrue exclusively to the local
information government units.
returns (Sec.
250) NATURE OF THE TAXING POWER
b. Failure of a a. Not inherent;
withholding b. Exercised only if delegated to
agent to collect them by law or Constitution;
and remit tax a. Not absolute; subject to
(Sec. 251) limitations provided for
c. Failure of a by law.
withholding
agent of refund Under the present constitutional
excess rule, “where there is neither a grant nor
withholding tax a prohibition by statute, the tax power
(Sec. 252) must be deemed to exist although
Congress may provide statutory
limitations and guidelines. The basic
rationale for the current rule is to
II. LOCAL TAXATION safeguard the viability and self-
sufficiency of local government units by
POWERS AND LIMITATIONS directly granting them general and broad
tax powers.” (Manila Electric Co. vs.
NATURE AND SOURCE OF LOCAL Province of Laguna, G.R. No. 131359)
TAXING POWER (SEE. SEC 5, ART. X,
1987 CONSTITUTION AND SEC. 129, ASPECTS OF LOCAL TAXING POWER
LGC) a. local taxation
b. real property taxation
The Local Government Unit has the
power:
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FUNDAMENTAL PRINCIPLES GOVERNING LOCAL Adjustment of the tax rates as
TAXATION (SEC. 130, LGC) prescribed herein should not be oftener
a. Shall be uniform in each local than once every five (5) years, and in no
sub-unit case shall such adjustment exceed ten
b. Shall be equitable and based as percent (10%) of the rates fixed under
much as possible on the the LGC.
taxpayer’s ability to pay
c. Levied for public purposes POWER TO GRANT LOCAL TAX EXEMPTIONS (SEC.
d. Shall not be unjust, excessive, 192, LGC)
oppressive, or confiscatory Local government units may,
e. Shall not be contrary to law, through ordinances duly approved,
public policy, national grant tax exemptions, incentives or
economic policy, or in restraint reliefs under such terms and conditions,
of trade as they may deem necessary.
f. Collection of local taxes and
other impositions shall not be TAX EXEMPTIONS EXISTING BEFORE THE EFFECTIVITY
let to any person OF THE LGC HAS BEEN ABOLISHED (SEC. 193, LGC)
g. The revenues collected under Unless otherwise provided in this
the Code shall inure solely to Code, tax exemptions or incentives
the benefit of, and subject to granted to, or presently enjoyed by all
disposition by, the LGU levying persons, whether natural or juridical,
the tax or other imposition including government-owned or
unless otherwise specifically controlled corporations are hereby
provided therein withdrawn upon the effectively of the
h. Each LGU shall, as far as LGC
practicable, evolve a except the following:
progressive system of taxation. 1. local water districts,
2. cooperatives duly registered under
LOCAL TAXING AUTHORITY (SEC. 132, LGC) R.A. No. 6938, non-stock and non-
Shall be exercised by the Sanggunian profit hospitals and
of the LGU concerned through an 3. educational institutions.
appropriate ordinance.
The power to grant tax exemptions,
POWER TO PRESCRIBE PENALTIES FOR TAX VIOLATIONS tax incentives and tax reliefs shall not
AND LIMITATIONS THEREON (SEC. 516, LGC) apply to regulatory fees which are
1. The Sanggunian is authorized levied under the police power of the
to prescribe fines or LGU.
other penalties for Tax exemptions shall be conferred
violations of tax through the issuance of a non-
ordinances. transferable tax exemption certificate.
a. in no case shall fines be less
than P1,000 nor more than GUIDELINES FOR THE GRANTING OF TAX EXEMPTIONS,
P5,000 TAX INCENTIVES AND TAX RELIEFS (ART. 282[B],
b. nor shall the imprisonment be RULES AND REGULATIONS IMPLEMENTING THE LGC)
less than one (1) month nor
more than six (6) month. 1. On the grant of tax exemptions
2. Such fine or other penalty or tax reliefs:
shall be imposed at the a. the same may be granted in
discretion of the court. cases of natural calamities, civil
3. The Sangguniang Barangay disturbance, general failure of
may prescribe a fine of crops, or adverse economic
not less than P100 nor conditions such as substantial
more than P1,000. decrease in prices of agricultural
or agri-based products.
POWER TO ADJUST LOCAL TAX RATE (SEC. 191, b. The grant shall be through an
LGC) ordinance.
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c. Any exemption or relief granted 1. The procedure applicable to local
to a type or kind of business shall government ordinances in general
apply to all business similarly should be observed (Sec. 187, LGC)
situated. 2. Procedural details (Secs. 54, 55, and
a. The same shall take 59, LGC):
effect only a. necessity of a quorum
during the next b. submission for approval by the
calendar year for local chief executive
a period not c. he matter of veto and overriding
exceeding 12 the same
months as may d. the publication and affectivity
be provided in 3. Public hearings are required before
the ordinance. any local tax ordinance is enacted
b. In the case of shared (Sec.187, LGC)
revenues, the 4. Within 10 days after their
exemption or approval, publication in full
relief shall only for 3 consecutive days in a
extend to the newspaper of general
LGU granting circulation. In absence of
such exemption such newspaper in the
or relief. province, city or
2. On the grant of tax incentives: municipality, then the
a. The same shall ordinances may be posted in
be granted only at least 2 conspicuous and
to new publicly accessible places
investments in (Sec. 189, LGC)
the locality and
the ordinance RESIDUAL TAXING POWERS OF THE LOCAL
shall prescribe GOVERNMENT UNITS(SEC. 186, LGC)
the terms and To levy taxes, fees or charges on any
conditions base or subject NOT:
therefore. 1. Specifically enumerated in LGC
b. The grant shall 2. Taxed under the provisions of
be for a definite the NIRC, as amended, and
period of not 3. Other applicable laws
exceeding 1
calendar year. Conditions:
c. The grant shall 1. That the taxes, fees, or charges shall
be by ordinance not be unjust, excessive, oppressive,
passed prior to confiscatory or contrary to declared
the 1st day of national policy
January of any
year. 2. The ordinance levying such taxes,
d. Any grant to a fees or charges shall not be enacted
type or kind of without any prior public hearing
business shall conducted for the purpose.
apply to all
businesses
similarly
situated. LIMITATIONS OF THE RESIDUAL POWER
1. Constitutional limitations on
LEVYING OF LOCAL TAXES (LOCAL TAX taxing power
ORDINANCE) 2. Common limitations prescribed
Requisites: in Sec. 133 of the LGC
3. Fundamental principles
governing the exercise of the
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taxing power of the LGUs 5. Taxes, fees, charges and other
prescribed under Sec. 130 of impositions upon goods carried
the LGC into or out of, or passing
4. The ordinance levying such through, the territorial
residual taxes shall not be jurisdictions of local government
enacted without any prior units in the guise of charges for
public hearing conducted for wharfage, tolls for bridges or
the purpose and otherwise.
5. The principle of preemption. 6. Taxes, fees or charges on
agricultural and aquatic products
PRINCIPLE OF PREEMPTION OR EXCLUSIONARY when sold by marginal farmers
DOCTRINE
or fishermen;
Where the National Government
elects to tax a particular area, it
7. Taxes on business enterprises
certified by the Board of
impliedly withholds from the local
Investments as pioneer or
government the delegated power to tax
non-pioneer for a period of 6
the same field. This doctrine principally
and 4 years, respectively, from
rests on the intention of the Congress.
the date of registration;
Excluded impositions (pursuant to the 8. Excise taxes on articles
doctrine of preemption): enumerated under the NIRC, as
a. Taxes which are levied under the amended, and taxes, fees or
NIRC, unless otherwise provided charges on petroleum products;
by LGC of 1991; 9. Percentage or value-added tax
b. Taxes, fees, etc. which are (VAT) on sales, barters or
imposed under the Tariffs and exchanges or similar transactions
Customs Code; on goods or services except as
c. Taxes, fees, etc., the imposition otherwise provided herein;
of which contravenes existing 10. Taxes on the gross receipts of
governmental policies or which transportation contractors and
violates the fundamental persons engaged in the
principles of taxation; transportation of passengers or
d. Taxes, fees and other charges freight by hire and common
imposed under special law. carriers by air, land or water,
except as provided in the Code;
COMMON LIMITATIONS ON LOCAL 11. Taxes on premiums paid by way
TAXING POWER (SEC. 133, LGC) of Reinsurance or retrocession;
Local government units cannot levy:
12. Taxes, fees or charges for the
1. Income tax, except on banks and registration of motor vehicles
other financial institutions; and for the issuance of all kinds
2. Documentary stamp tax; of licenses or permits for the
3. Estate tax, inheritance, gifts, driving thereof, except tricycle;
legacies and other acquisitions 13. Taxes, fees or other charges on
mortis causa except as Philippine products actually
otherwise provided exported, except as otherwise
4. Customs duties, registration fees provided in the Code;
of vessels and wharfage on 14. Taxes, fees or charges on
wharves, tonnage dues and all Countryside and barangay
other kinds of customs fees, business enterprises and
charges and dues except cooperatives duly registered
wharfage on wharves under R.A. 6810 and R.A. 6938,
constructed and maintained by (Cooperatives Code of the
the local government unit Philippines) ; and
concerned; 15. Taxes, fees or charges of any
kind on the National
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Government, its agencies and
instrumentalities, and local 1. Municipal Taxes- taxes on the
government units. businesses of the following:
a. On manufacturers, assemblers,
CLASSIFICATION OF COMMON repackers, processors, brewers,
LIMITATIONS distillers, rectifiers, and
1. Taxes which are levied compounders of liquors, distilled
under the NIRC unless spirits, and wines or
otherwise provided by manufacturers of any article of
the LGC commerce of whatever kind or
• Numbers 1, 2, 3, 8, 9, 10 b. On wholesalers, distributors, or
2. Taxes, fees, etc. which are imposed dealers in any article of
under the Tariffs and Customs Code commerce of whatever kind or
c. On exporters, and on
• Number 4 manufacturers, millers,
2. Taxes, fees and charges where the
producers, wholesalers,
imposition of which contravenes
distributors, dealers or retailers
existing governmental policies or
of essential commodities
which are violative of the
d. On retailers
fundamental principles of taxation
e. On contractors and other
• Numbers 5, 6, 7, 11, 13, 14, 15 independent
2. Taxes, fees, and charges imposed f. On banks and other financial
under special laws. g. On peddlers engaged in the sale
• Number 12 of any merchandise or article of
commerce
TAXES AND OTHER IMPOSITIONS THAT h. On any business, not otherwise
THE LOCAL GOVERNMENT MAY LEVY specified in the preceding
paragraphs, which the
(A) PROVINCES sanggunian concerned may deem
(SECS. 134-141, LGC) proper to tax.
1. Tax on Transfer of Real Property
2. Tax on Business of Printing and 2. Municipal non-revenue fees and
Publication charges
3. Franchise Tax The municipality may impose
4. Tax on Sand, Gravel and other and collect such reasonable fees and
Quarry Resources extracted from charges on business and occupation
Public Land except professional taxes reserved for
5. Professional Tax provinces. (Sec. 147. LGC)
6. Amusement Tax
7. Annual Fixed Tax for every RATES OF TAX WITHIN THE METROPOLITAN MANILA
Delivery Truck or Van of AREA (SEC. 144, LGC)
Manufacturers or Producers,
Wholesalers of, Dealers, or - Not to exceed by 50% the
Retailers in, certain products maximum rates prescribed in the
preceding Section.
 See Annex J for the rates and
details.
(B) MUNICIPALITIES
PAYMENT OF BUSINESS TAXES
(SEC. 143, LGC)

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a. It shall be payable for every preceding calendar year of
separate or distinct P50,000 or less (for barangays in
establishment or place where the cities) and P30,000 or less
business subject to the tax is (for barangays in municipalities)
conducted and one line of b. Rate = not exceeding 1% of such
business does not become gross sales or receipts.
exempt by being conducted with c. Service Fees or Charges – For
some other business for which services rendered in connection
such tax has been paid. with the regulation or the use of
b. The tax on a business must be barangay-owned properties or
paid by the person conducting service facilities such as palay,
the same. copra or tobacco dryers
c. In cases where a person
conducts or operates 2 or more
d. Barangay Clearance – No city or
municipality may issue any
of the businesses mentioned in
license or permit fee for any
Section 143 of LGC
business or activity unless a
- which are subject to the
clearance is first obtained from
same rate of tax, the tax shall be
the barangay where such
computed on the combined total
business or activity is located or
gross sales or receipts of the said 2
conducted.
or more related businesses.
- which are subject to e. Other Fees and Charges – The
different rates of tax, the gross barangay may levy reasonable
sales or receipts of each business fees and charges:
shall be separately reported for the 1. On Commercial breeding of
purpose of computing the tax due fighting cocks, cockfights
from each business. and cockpits;
2. On places of Recreation
which charge admission fees;
 See Annex K for the rates and and
details.
3. On Billboards, signboards,
neon signs and outdoor
(C) CITIES
advertisements.
(SEC. 151, LGC)
SITUS OF LOCAL TAXATION
• The city may levy the taxes, fees,
and charges which the province or A. Situs According to the Cases
municipality may impose. With respect to excise tax, the
• The tax rates that the city may levy tax is upon the performance of an act,
may exceed the maximum rates enjoyment of a privilege or the engaging
allowed for the province or in an occupation. The power to levy such
municipality by not more than 50% tax is not dependent on the domicile of
except the rates of professional and the taxpayer, but on the place in which
amusement taxes. the act is performed or the occupation is
engaged in; not upon the location of the
(D) BARANGAYS office, but the place where the sale is
(SEC. 152, LGC) perfected. (Allied Thread Co., Inc. v.
City Mayor of Manila, L-40296)
Barangays may levy the following taxes,
fees, and charges which shall accrue With respect to sale, it is the
exclusively to them: place of the consummation of the sale,
associated with the delivery of the
things which are the subject matter of
a. Taxes – On stores or retailers the contract that determines the situs of
with fixed business the contract for purposes of taxation,
establishments with the gross and not merely the place of the
sales or receipts for the
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perfection of the contract. (Shell Co., 1. Service fees and
Inc. v. Municipality of Sipocot, charges for services
Camarines Sur 105 Phil 1263) rendered
2. Public Utility Charges
B. Situs According to Sec. 150, LGC for the operation of
public utilities
Branch or sales office – a fixed place in owned, operated
the locality which conducts the and maintained by
operation of the business as an extension LGUs within their
of the principal office jurisdiction.
3. Toll fees or charges for
Principal office- the head or the main the use of any
office of the business; the city or the public road, pier or
municipality specifically mentioned in wharf, waterway,
the Articles of Incorporation or official bridge, ferry or
registration papers as being the official telecommunication
address of said principal office shall be system funded and
considered the situs thereof. constructed by the
local government
1. Place of sale (with branch or sales unit concerned
outlet therein): Exceptions:
• Municipality or city where the a. Officers and enlisted
branch or outlet is located. men of the AFP
2. Place of sale (no branch or sales and PNP;
outlet): b. Post office
• Municipality or city of principal personnel
office (not in the place of delivering mail;
sale) and
3. If manufacturer, assembler, c. Physically
contractor, producer, or exporter handicapped and
(MACPE) with factory, project office, disabled citizens
plant or plantation (FPPP) who are
4. 30% of recorded sales in the principal sixty-five (65)
office: city or municipality where years or older.
the principal office is located (Sec. 152, LGC)
1. 70% of recorded sales in the
principal office: city or When public safety and welfare so
municipality where the FPPP is requires, the sanggunian concerned may
located discontinue the collection of the tolls,
• pro rata if FPPP are located in and thereafter the said facility shall be
different municipalities or free and open for public use.
cities in proportion to their
respective volumes of COMMUNITY TAX
production. Cities or municipalities may levy a
1. If plantation is located in some other community tax.
place than where the factory is
located, the foregoing 70% shall A.Individuals Liable (Sec. 157)
be subdivided as follows: a. every inhabitant of the
• 60% to the city or municipality Philippines;
where the factory is located b. eighteen (18) years of age or
• 40% to the city or municipality over;
where the plantation is c. under any of the following
located. instances:
d. who has been regularly
COMMON REVENUE-RAISING POWERS OF employed on a wage or salary
LGUs (SEC. 153 TO 155)
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basis for at least thirty (30) THE FOLLOWING ARE EXEMPT FROM
consecutive working days THE COMMUNITY TAX (SEC. 159)
during any calendar year; or 1. Diplomatic and
e. who is engaged in business or consular
occupation; or representatives
f. who owns real property with ; and
an aggregate assessed value 2. Transient visitors
of P1,000 or more; or when their stay
g. who is required by law to file in the
an income tax return Philippines does
not exceed
Tax Rate = P5.00 and an annual three (3)
additional tax of P1.00 for every months.
P1,000 of income regardless of
whether from business, exercise of PLACE OF PAYMENT: place of residence
profession or from property which in of the individual, or in the place where
no case shall exceed P5,000. the principal office of the juridical
In case of husband and wife, entity is located.
the additional tax herein imposed
shall be based upon the total TIME OF PAYMENT: accrues on the 1st
property owned by them and the day of January of each year which shall
total gross receipts or earnings be paid not later than the last day of
derived by them. February of each year.
A.Juridical Persons (Sec. 158) PENALTIES FOR DELINQUENCY: an

Every corporation no matter how interest of 24% per annum from the due
created or organized, whether date until it is paid shall be added to the
domestic or resident foreign, amount due.
engaged in or doing business in the
Philippines shall pay an annual A community tax certificate may
community tax. also be issued to any person or
corporation not subject to the
Tax Rate = P500 and an annual community tax upon payment of P1.00
additional tax which in no case shall (Sec. 162, LGC).
exceed P10,000 in accordance with the
following schedule: PRESENTATION OF COMMUNITY TAX CERTIFICATE ON
1. For every P5,000 worth of real CERTAIN OCCASIONS – (SEC. 163)
property owned by it during the A. Individual
preceding year based on the 1. When an individual
valuation used for the payment subject to the
of the real property tax - P2.00; community tax
and acknowledges
any document
2. For every P5,000 of gross before a notary
receipts or earnings derived by public;
it from its business in the 2. takes the oath of
Philippines during the preceding office upon
year - P2.00. election or
appointment to
The dividends received by a any position in
corporation shall, for the purpose of the the government
additional tax, be considered as part of service;
the gross receipts or earnings of said 3. receives any license,
corporation. certificate or
permit from
any public
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authority; pays Unless otherwise provided, the
any tax or fee; tax period shall be the calendar
4. receives any money year.
from any public Such taxes, fees, and charges
fund; may be paid in quarterly
5. transacts other installments.
official
business; or Accrual of Tax – (Sec. 166, LGC)
6. receives any salary Unless otherwise provided, shall
or wage from accrue on the first day of January of
any person or each year.
corporation. However, new taxes, fees or
The presentation of the community tax charges, or changes in the rates
certificate shall not be required in thereof, shall accrue on the first
connection with the registration of a day of the quarter next following
voter. the effectivity of the ordinance
imposing such new levies or rates.
A. Corporation
1. receives any license, Time of Payment – (Sec. 167, LGC)
certificate or permit Unless otherwise provided shall
from any public be paid within the first twenty (20)
authority; days of January or of each
2. pays any tax or fee; subsequent quarter as the case may
3. receives money from be.
public funds; or May, for a justifiable reason or
4. transacts other official cause, be extended without
business. surcharges or penalties, but only for
The city of municipal treasurer a period not exceeding six (6)
deputizes the barangay treasurer to months.
collect the community tax in their
respective jurisdictions. (Sec. 164, LCG) Surcharges and Penalties on Unpaid
Taxes, Fees or Charges – (Sec. 168,
The proceeds of the community tax LGC)
actually and directly collected by the Surcharge not exceeding 25% of
city or municipal treasurer shall accrue the amount of taxes, fees or charges
entirely to the general fund of the city or including surcharges, until such
municipality concerned. amount is fully paid.
But in no case shall the total
Proceeds of the community tax
interest on the unpaid amount or
collected through the barangay
portion thereof exceed thirty-six
treasurers shall be apportioned as
(36) months.
follows:
• 50% accrues to the Interests on Other Unpaid Revenues –
general fund of the (Sec. 169, LGC)
city or municipality An interest thereon at the rate
concerned; and not exceeding 2% per month from the
• 50% accrues to the date it is due until it is paid, but in no
barangay where the case shall the total interest on the
tax is collected. unpaid amount or portion thereof
exceed thirty-six (36) months.
COLLECTION OF LOCAL TAXES
COLLECTION OF LOCAL REVENUES BY THE TREASURER
Tax Period and Manner of Payment – – (SEC. 170 LGC)
(Sec. 165, LGC) All local taxes, fees and charges
shall be collected by the provincial, city,

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municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal b. Regular judicial courts are not
treasurer may designate the barangay prohibited from enjoining the
treasurer or his deputy to collect local collection of local taxes, subject
taxes, fees or charges. to Rule 58 (Preliminary
In case a bond is required for the Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the Note: Unlike the NIRC, the Local Tax
premiums thereon in addition to the Code does not contain any specific
premiums of the bond that may be provision prohibiting courts from
required under the Code. enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
UNDER THE LGC negate the procedural rules and
requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989)
1. TAX REMEDIES OF THE
LOCAL GOVERNMENT UNITS (LGUs)
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND
CIVIL REMEDIES OF THE LOCAL GOVERNMENT UNITS
COLLECTION
(LGU) TO EFFECT COLLECTION OF TAXES
OF LOCAL TAXES
(1) Local Government’s Lien – Local
PRESCRIPTIVE PERIODS OF ASSESSMENT
taxes, fees, charges and other
1. Local taxes, fees, or charges – five
revenues constitute a lien, superior
(5) years from the date they became
to all liens, charges or
due. (Sec. 194, LGC).
encumbrances in favor of any
2. When there is fraud or intent to
person, enforceable by any
evade the payment of taxes, fees
appropriate administrative or
or charges – ten (10) years from
judicial action.
discovery of the fraud or intent to
evade the payment (Sec. 194, LGC).
(2) Civil Remedies
PRESCRIPTIVE PERIOD OF COLLECTION
(a) by administrative action through
Local taxes, fees, or charges
distraint of personal property
may be collected within five (5) years
and by levy upon real property
from the date of assessment by
administrative or judicial action. No
(b) by judicial action
such action shall be instituted after the
expiration of such period (Sec. 194,
LGC).
Either of these remedies or all may
GROUNDS FOR THE SUSPENSION OF
be pursued concurrently or
THE RUNNING OF THE PRESCRIPTIVE
simultaneously at the discretion of the
PERIODS
LGU concerned.
a. The treasurer is legally
prevented from the assessment
JURISDICTION OF COURTS OVER LOCAL
or collection of the tax;
TAXATION CASES
b. The taxpayer requests for a
reinvestigation and executes a
a. With the amendment brought by
waiver in writing before the
RA No. 9282, the Court of Tax
expiration of the period within
Appeals now has appellate
which to assess or collect; and
jurisdiction over local taxation
c. The taxpayer is out of the
cases decided by the Regional
country or otherwise cannot be
located (Sec. 194, LGC).
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two year period is about to lapse
2. TAX REMEDIES OF (Sec. 195 LGC)
THE TAXPAYER • if remedies available does not
provide plain, speedy and
REMEDIES OF THE TAXPAYER IN LOCAL TAXATION adequate remedy.
1. Action for declaratory relief
A.ADMINISTRATIVE 2. Injunction – if irreparable damage
Before assessment would be caused to the taxpayer
a. Appeal – any question on and no adequate remedy is
constitutionality or legality of tax available.
ordinance within 30 days from
effectivity thereof to Secretary of
Justice (Sec. 187 LGC) IV. REAL PROPERTY
b. Declaratory relief whenever TAXATION
applicable.
After assessment DEFINITIONS:

a. Protest – within 60 days from REAL PROPERTY TAXATION – A direct
receipt of assessment (Sec. tax on ownership of lands and
195 LGC). Payment under buildings or other improvements
protest is not necessary. thereon payable regardless of
whether the property is used or
b. Payment & subsequent refund or not, although the value may vary
tax credit – within 2 years in accordance with such factor.
from payment of tax to local Under the LGC, it covers
treasurer (Sec. 196 LGC). It is the administration, appraisal,
to be noted that, unlike in assessment, levy and collection
internal revenue taxes, the of Real Property Tax, i.e. tax on
supervening cause applies in land and building and other
local taxation because the structures and improvements on
period for the filing of claims it, including machineries.
for refund or credit of local
taxes is counted not REAL PROPERTY – subject to the
necessarily from the date of definition given by Art. 415 of
payment but from the date the Civil Code.
the taxpayer is entitled to a
refund or credit. IMPROVEMENT – valuable addition made
to a property or amelioration in
c. Right of redemption – 1 year from its condition amounting to more
the date of sale or from the than a mere replacement of
date of forfeiture (Sec. 179, parts involving capital
LGC). expenditures and labor.
B. JUDICIAL
1. Court action
• within 30 days after receipt of NATURE AND CLASSES
decision or lapse of 60 days of
Secretary of Justice’s inaction CHARACTERISTICS OF REAL PROPERTY
(Sec. 187 LGC) TAX
1. Direct tax on the Ownership of
• within 30 days from receipt real property
when protest of assessment is
denied (Sec. 195 LGC) 2. Ad valorem tax. The value is
based on the tax base.
• if no action is taken by the
treasurer in refund cases and the
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3. Proportionate – the tax is municipalities
calculated on the basis of a outside Metro
certain percentage of the value Manila) on lands
assessed. comprised within
4. Indivisible single obligation its territorial
5. Local tax jurisdiction
specially
TAXING AUTHORITIES (SEC. 233, LGC) benefited by
public works,
Rate of Basic Real projects or
LGU
Property Tax improvements
funded by the
1. Province not exceeding 1% of local government
assessed value unit concerned.
Provided:
2. City not exceeding 2%
 Special levy shall not exceed
3. Municipality not exceeding 2%.
60% of the actual cost of
within Metro such projects and
Manila improvements, including the
costs of acquiring land and
such other real property in
FUNDAMENTAL PRINCIPLES GOVERNING connection therewith
REAL PROPERTY TAXATION (SEC. 198,  not apply to lands exempt
LGC) from basic real property tax
1. Real property shall be appraised at and the remainder of the
its current and Fair market value; land have been donated to
2. Real property shall be classified for the local government unit
assessment purposes on the basis of concerned for the
actual Use. construction of said
3. Real property shall be assessed on projects. (Sec. 240, LGC).
the basis of Uniform classification
within each LGU FOR PURPOSES OF REAL PROPERTY
4. The appraisal, assessment, levy and TAXATION IDLE LANDS SHALL INCLUDE:
collection of RP Tax shall not be let (SEC. 237, LGC)
to any Private person 1. Agricultural lands more than one
5. The appraisal and assessment of real hectare in area one-half of which
property shall be Equitable. remain uncultivated or unimproved by
the owner of the property or person
EXTENT OF THE POWER TO LEVY having legal interest therein.
• Basic real property Agricultural lands planted to
tax; permanent or perennial crops with
• 1% additional real at least 50 trees to a hectare shall
estate tax to not be considered idle lands.
finance the Lands actually used for grazing
Special Education purposes shall likewise not be
Fund; (Sec. 236) considered idle lands; and
• 5% additional ad 2. Lands other than agricultural
valorem tax on located in a city or municipality
Idle lands; (Sec. more than one thousand square meters
236, LGC) and in area one-half of which remain
• Special levy or unutilized or unimproved by the
special owner of the property or person
assessments having legal interest therein.
(may be imposed
even by
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IDLE LANDS EXEMPT FROM TAX (SEC. purposes (Art. VI, Sec. 28,
238, LGC) Constitution);
3. Machineries and equipment that
By reason of: are actually, directly and
1. force majeure exclusively used by local water
1. civil disturbance utilities and GOCC’s engaged in
2. natural calamity the supply and distribution of
3. or any cause which physically or water and/or electric power;
legally prevents the owner of 4. Real property owned by duly
the property or person having registered cooperatives as
legal interest therein from provided for in RA 6938; and
improving, utilizing or 5. Machinery and equipment used
cultivating the same. for pollution control and
environmental protection.
CLASSIFICATION OF LANDS FOR PURPOSES OF
ASSESSMENT SEC. 218 (A)
ACTUAL USE OF PROPERTY AS BASIS
FOR ASSESSMENT (SEC. 217 LGC)
a. Commercial
b. Agricultural
Real property shall be classified,
c. Residential
valued and assessed on the basis of
d. Mineral
actual use regardless of where located,
e. Industrial
whoever owns it, and whoever uses it.
f. Timberland
g. Special
Unpaid realty taxes attach to the
property and is chargeable against the
SPECIAL CLASSES OF REAL PROPERTY
person who had actual or beneficial use
(SEC. 216, LGC)
and possession of it regardless of
whether or not he is the owner. To
1. Hospitals
impose the real property tax on the
2. Cultural and Scientific purposes
subsequent owner which was neither the
3. owned and used by Local water
owner nor the beneficial user of the
districts
property during the designated periods
4. GOCCs rendering essential public
would not only be contrary to law but
services in the supply and
also unjust. (Estate of Lim vs. City of
distribution of water and/or
Manila, GR No. 90639, February 21,
generation or transmission of
1990)
electric power.
PROPERTIES EXEMPT FROM REAL PROCEDURE

PROPERTY TAX (SEC. 234, LGC)
Exemption is limited only to the STEP 1: DECLARATION OF REAL
following: PROPERTY
1. Real property owned by the
government except when the DECLARATION BY OWNER OR ADMINISTRATOR (SEC.
beneficial use thereof has been 202-203)
granted to a taxable person; • File a sworn declaration with the
2. Charitable institutions, assessor
churches, personages or - once every 3 years during
convents appurtenant thereto, the period from January 1
mosques, non-profit or religious to June 30.
cemeteries and all lands, • For newly acquired property –
buildings and improvements WHEN: Must file with the assessor within
actually, directly and 60 days from date of transfer
exclusively used for religious, WHAT: Sworn statement containing the
charitable or educational fair market value and description of the
property.
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• For improvement on property municipal

WHEN: Must file within 60 days upon assessor.
completion or occupation (whichever
comes earlier) STEP 3: APPRAISAL AND
WHAT: Sworn statement containing the VALUATION OF REAL PROPERTY
fair market value and description of the (SECS. 212-214, 224-225)
property.
DETERMINATION OF FAIR MARKET VALUE (FMV)
DECLARATION BY PROVINCIAL / CITY / MUNICIPAL
For land
ASSESSOR (SEC. 204)
 Assessor of the
WHEN: Only when the person under Sec. province/city or
202 refuses or fails to make a municipality
declaration within the prescribed time. may summon
the owners of
No oath by the assessor is required. the properties
to be affected
Notes: Proof of Exemption of Real and may take
Property from Taxation - (Sec. 206) depositions
concerning the
WHO: By any person or for whom real property, its
property is declared. ownership,
amount, nature
• Claim for exemption must be filed and value (Sec.
with the assessor together with 213, LGC)
sufficient documentary evidence to  Assessor
support claim prepares a
schedule of
WHEN: within 30 days from the date of FMV for
declaration of property. different
classes of
IF PROPERTY IS DECLARED FOR THE FIRST TIME – properties.
(SEC.222)  Sanggunian
If Declared for the first time, real enacts an
property shall be assessed for back ordinance
taxes:  The schedule of
For not more than 10 years prior to FMV is
date of initial assessment published in
Taxes shall be computed on the basis a
of applicable schedule of values in force newspaper
during the corresponding period. of general
circulation
STEP 2: LISTING OF REAL in the
PROPERTY IN THE ASSESSMENT province,
ROLLS (SECS. 205, 207) city or
municipality
concerned
 All declarations shall or in the
be kept and absence
filed under a thereof,
uniform shall be
classification posted in
system to be the
established by provincial
the provincial, capitol, city
city or or
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municipal (d) For Advance and Prompt Payment
hall and in 1. Advance payment – discount not
two other exceeding 20% of annual tax (Sec.
conspicuous 251, LCG)
public 2. Prompt payment – discount not
exceeding 10% of annual tax due
places (Art 342 IRR)
therein
(Sec. 212,
LGC)
COLLECTION OF TAX (SEC. 247)
It shall be the responsibility of the
For machinery city or municipal treasurer concerned.
1. For Brand new The city or municipal treasurer may
machinery: deputize the barangay treasurer to
FMV is the collect all taxes on real property located
acquisition in the barangay; provided, the barangay
cost treasurer is properly bonded.
2. In all other
PERIOD TO COLLECT (SEC. 270)
cases:
1. within five (5) years from the
FMV
date they become due
= Remaining eco. life X Replacement
2. within ten (10) years from
Estimated Eco.Life Cost
discovery of fraud, in case there
is fraud or intent to evade
STEP 4: DETERMINE ASSESSED VALUE
(SEC. 218) SUSPENSION OF PRESCRIPTIVE PERIOD (SEC. 270)
1. local treasurer is legally
Determine Assessed Value prevented to collect tax.
Procedure 2. the owner or property requests
1. Take the schedule of FMV for reinvestigation and writes a
2. Assessed Value = FMV x waiver before expiration of
Assessment level period to collect.
3. Tax = Assessed value x Tax rate 3. the owner of property is out of
the country or cannot be
STEP 5: PAYMENT AND located.
COLLECTION OF TAX
REAL PROPERTY TAX
(a) Accrual of Tax: January of every REMEDIES UNDER THE LGC
year and such will constitute as
a superior lien. (Sec. 246) 1. TAX REMEDIES OF THE LOCAL
GOVERNMENT TO EFFECT
(b) Time and Manner of Payment: COLLECTION OF TAXES
(Sec. 250)
1. basic real property tax in 4 equal A. ADMINISTRATIVE
installments (March 31, June 30, 1. Real Property tax lien (Secs. 257,
September 30, December 30) LGC) – superior to all liens, charges
2. special levy – governed by or encumbrances;
ordinance 2. Distraint (Sec. 254[B], LGC);
3. Levy (Sec. 254[A], 258 LGC);
(c) Interest for Late Payment (Sec. 255) 4. Purchase of property by local
1. two percent (2%) for each month treasurer for want of bidder (Sec.
on unpaid amount until the 263, LGC).
delinquent amount is paid B. JUDICIAL
2. provided in no case shall the Civil Action ( Sec. 266, 270 LGC)
total interest exceed thirty-six
(36) months. PRESCRIPTIVE PERIODS FOR THE
COLLECTION OF REAL
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PROPERTY TAXES
Remedy against the Assessment/Appeal
1. Basic real property tax and any 1st: within 60 days from notice of
other tax levied under the title on assessment of provincial, city or
Real Property Taxation– five (5) municipal assessor to LBAA (Sec. 226
years from the date they became LGC)
due. (Sec. 270, LGC). 2nd: within 30 days from receipt of
2. When there is fraud or intent to decision of LBAA to CBAA (Sec. 230
evade the payment of taxes – ten LGC)
(10) years from discovery of the 3rd: within 30 days from receipt of
fraud or intent to evade the decision of CBAA to Court of Tax
payment (Sec. 270, LGC). Appeals en banc
4th: within 15 days from receipt of
GROUNDS FOR THE SUSPENSION OF decision of Court of Tax Appeals en
THE RUNNING OF THE PRESCRIPTIVE banc to the Supreme Court
PERIODS
APPEALS IN REAL PROPERTY
1. The treasurer is legally prevented TAXATION
from the assessment or collection of
the tax;
2. The taxpayer requests for a PROVINCIAL, CITY OR MUNICIPAL
reinvestigation and executes a
waiver in writing before the
expiration of the period within within 60 days
which to assess or collect; and Owner/Person with legal interest
must file:
3. The taxpayer is out of the country or 1) Written Petition under Oath
otherwise cannot be located (Sec. 2) With Supporting Documents
270, LGC).
2. TAX REMEDIES OF LOCAL BOARD OF ASSESSMENT APPEALS

THE TAXPAYER (LBAA should decide within 120 days
from receipt of petition)
A. ADMINISTRATIVE
within 30 days
Protest – payment under protest is
required within 30 days to provincial,
city, or municipal treasurer. No protest CENTRAL BOARD OF ASSESSMENT
shall be entertained unless the tax is APPEALS
first paid. (Sec. 252 LGC)
within 30 days
Claim for Tax Refund or Credit (Sec.
253)
a) the taxpayer may file a written COURT OF TAX APPEALS (EN BANC)
claim for refund or credit with
the provincial or city treasurer
within two years from the date within 15 days
the taxpayer is entitled to such
reduction or adjustment. SUPREME COURT
b) in case of denial of refund or

credit, appeal to LBAA as in A. JUDICIAL
protest case. 1.Court Action – appeal
of CBAA’s decision to
Redemption of real property (Sec. 261 Court of Tax Appeals
LGC) en banc.

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2.Suit assailing validity 2. Wharfage due – counterpart of

of tax; recovery of license, charged not for the use of
refund of taxes paid any wharf but for a special fund
(Sec. 64 PD 464). known as the Port Works Fund.
3.Suit to declare 3. Berthing fee
invalidity of tax due 4. Harbor fee
to irregularity in 5. Tonnage due
assessment and
collection (Sec. 64 MEANING AND SCOPE OF THE TARIFF AND CUSTOMS
PD 464) LAWS
4.Suit assailing the Include not only the provisions of the
validity of tax sale Tariff and Customs Code (TCC) and
(Sec. 83 PD 464) regulations pursuant thereto, but all
(Sec. 267 LGC) other laws and regulations that are
subject to the Bureau of Customs (BOC)
CONDONATION OF REAL PROPERTY TAXES or otherwise within its jurisdiction.
1. By the Sanggunian As to its scope, therefore, tariff and
Real property taxes may be customs laws extend not only to the
condoned wholly or partially in a provisions of the TCC but to all other
given local government unit when: laws as well, the enforcement of which
a. There is general failure of crops; is entrusted to the BOC.
b. There is substantial decrease in
the price of agricultural or THE BUREAU OF CUSTOMS
agri-based products; or
c. There is calamity. FUNCTIONS OF THE BUREAU OF
2. By the President of the Philippines CUSTOMS
• when public interest so
requires. 1. Assessment and collection of
revenues from imported articles and
all other impositions under the tariff
V. TARIFF AND and customs laws;
2. Control smuggling and related
CUSTOMS CODE frauds;
3. Supervision and control over the
entrance and clearance of vessels
DEFINITIONS and aircraft engaged in foreign
TARIFF: Customs duties, toll or tribute commerce;
payable upon merchandise to the 4. Enforcement of TCC and related
Government. laws;
5. Supervision and control over the
CUSTOM DUTIES: Tax assessed upon handling of foreign mails arriving in
merchandise from or exported to, a the Philippines;
foreign country. (Garcia v. Executive 6. Supervise and control all import and
Sec., GR No. 101273, July3, 1992)) export cargoes for the protection of
government revenue;
Note: Customs and tariffs are 7. Exclusive original jurisdiction over
synonymous with one another. They seizure and forfeiture cases under
both refer to the taxes imposed on the tariff and customs laws.
imported or exported wares, articles, or
merchandise. JURISDICTION OF COLLECTOR OF
CUSTOMS OVER IMPORTATION OF
OTHER TYPES OF FEES CHARGED BY THE BUREAU OF
ARTICLES
CUSTOMS
1. Cause all articles for importation to
be entered in the customhouse,
1. Arrastre charge

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2. Cause all such articles to be a. Live animals and animal

appraised and classified, products;
3. Assess and collect the duties, taxes a. Vegetable products;
and other charges thereon, and b. Animal or vegetable fats; oils and
their cleavage products;
4. Hold possession of all imported prepared edible fats; animal
articles until the duties, taxes and or vegetable waxes;
other charges are paid thereon. c. Prepared foodstuffs; beverages,
(Sec. 1206, TCC) spirits and vinegar; tobacco
and manufactured tobacco
TERRITORIAL JURISDICTION OF THE substitutes;
BOC d. Mineral products;
1. All seas within the jurisdiction of the e. Products of chemical or allied
Philippines industries;
2. All coasts, ports, airports, harbors, f. Plastics and articles thereof;
bays, rivers and inland waters rubber and articles thereof;
whether navigable or not from the g. Raw hides and skins; leather,
sea. (1st par, Sec. 603, TCC) etc.;
h. Wood and articles of wood, etc.;
CUSTOMS DUTIES i. Pulp of wood, etc.;
j. Textiles and textile articles;
WHEN TARIFF AND CUSTOMS APPLIED k. Articles of stone; plaster,
Only after importation has begun but cement, etc.;
before importation is terminated. l. Footwear, headgear, etc.;
m.Natural or cultured pearls
Importation begins: precious/semi-precious
1) when the conveying vessel or stones;
aircraft n. Base metals and articles of base
2) enters the jurisdiction of the metals;
Phil. o. Machinery and mechanical
3) with intention to unload therein appliances; electric
equipment; sound recorders,
Importation is deemed terminated: etc;
p. Vehicles, aircraft, vessels and
(a) upon payment of the duties, taxes associated transport
and other charges due upon the articles. equipment;
q. Optical, photographic, medical,
(b) and legal permit for withdrawal surgical instruments, etc.;
shall have been granted. r. Arms, ammunition, parts and
accessories;
s. Miscellaneous manufactured
• In case the articles are free articles; and
of duties, taxes and other
charges, until they have legally t. Works of art, collector's pieces
left the jurisdiction of the arid antiques (Sec. 104, Title
customs (Sec. 1202, TCC) 1, TCC).
INTENTION TO UNLOAD 1. Prohibited from being

Even if not yet unloaded, and there is imported (Prohibited
unmanifested cargo, forfeiture may take importation)
place because importation has already a. Absolutely prohibited such
begun. as: weapons of war;
gambling devices;
ARTICLES UNDER TCC narcotics or prohibited
May either be: drugs; immoral, obscene
1. Subject to duty – or insidious articles; and

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those prohibited under (1) Exemptions under the TCC;
special laws (Sec.102, (2) Exemptions granted to
TCC). government agencies,
b. Qualifiedly prohibited instrumentalities or GOCCs with
Where such conditions as to existing contracts,
warrant a lawful importation do commitments, agreements, or
not exist, the legal effects of the obligations with foreign
importation of qualifiedly countries;
prohibited articles are the same (3) Exemptions of international
as those of absolutely prohibited organizations pursuant to
articles. (Auyong Hian vs. CTA, agreements or special laws; and
GR No. L-28782, September 12, (4) Exemptions granted by the Pres.
1974) of the Phil. upon
recommendation of NEDA (Sec.
1. Conditionally-free from 105, TCC).
tariff and customs duties LIABILITY OF IMPORTER FOR CUSTOM DUTIES
(conditionally-free • A personal debt which can be
importation) discharged only by payment in
• Those provided in Sec. 105, full thereof;
TCC;
• A lien upon the imported articles
• Those granted to while they are in custody or
government agencies, GOCCs subject to the control of the
with agreements with government. (Sec. 1204, TCC).
foreign countries;
• Those given to international EXTENT OF IMPORTER’S LIABILITY
institutions entitled to The liability of an importer is
exemption by agreement or limited to the value of the imported
special laws; and merchandise. In case of forfeiture of
• Those that may be granted the seized material, the maximum civil
by the President upon penalty is the forfeiture itself.
NEDA’s recommendation. (Mendoza vs. David, GR No. L-9452,
March 27, 1961)
1. Free from TC duties (duty-
free) DRAWBACK
Imported goods must be A device resorted to for enabling a
entered in a customhouse at their commodity affected by taxes to be
port of entry otherwise they shall be exported and sold in foreign markets
considered as contraband and the upon the same terms as if it had not
importer is liable for smuggling (See been taxed at all. (Uy Chaco Sons vs.
Sec. 101, TCC). Collector of Customs, GR No. 7618,
All articles when imported March 27, 1913)
from any country into the Philippines
shall be subject to duty upon each IMPORT ENTRY
importation, even though previously It is a declaration to the BOC
exported from the Philippines, showing particulars of the imported
except as otherwise specifically article that will enable the customs
provided for in the TCC or other authorities to determine the correct
laws. duties. An importer is required to file an
import entry. It must be accomplished
LIABILITY FOR CUSTOMS DUTIES from disembarking of last cargo from
General Rule: All importations / vessel.
exportations of goods are subject to
customs duties (Sec. 105, TCC). TRANSACTION VALUE UNDER RA NO. 8181
It is the invoice value of the
Exceptions: goods plus freight, insurance, costs,
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expenses and other necessary expenses. B.Special duties – those which
This replaces the Home Consumption are imposed and collected in
Value as basis of valuation of goods. addition to the ordinary
customs duties usually to
CLASSIFICATION OF CUSTOM DUTIES protect local industries
A. Regular Duties – those which are against foreign competition.
imposed and collected
merely as a source of 1. Dumping duty
revenue. 2. Countervailing duty
1. Ad valorem duty: This is a duty 3. Marking duty
based on the value of the 4. Discriminatory duty
imported article.
2. Specific duty: This is a duty NATURE OF SPECIAL CUSTOMS DUTIES
based on the dutiable Special customs duties are
weight of goods (either the additional import duties imposed on
gross weight, legal weight, specific kinds of imported articles under
or net weight). certain conditions.
3. Alternating duties: This is a duty PURPOSE OF SPECIAL CUSTOMS DUTIES
which alternates ad valorem The special customs duties are
and specific. imposed for the protection of consumers
4. Compound Duty: This is a duty and manufacturers, as well as Phil.
consisting of ad valorem and products from undue competition posed
specific duties. by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATOR
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
Y DUTY
1.Nat Imposed upon foreign Imposed upon Imposed upon

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

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

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DISCRIMINATOR
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
Y DUTY
1. Imposing Secretary of Finance Commissioner President of the

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

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

Commission of an
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THE TARIFF COMMISSION (TC) 1. Administrative Assistance to the

President and Congress (Sec. 506,
FUNCTIONS OF THE TARIFF TCC)
COMMISSION
1. Investigative Powers (Sec. 505,
TCC)
a. the administration of and
the fiscal and industrial TAX REMEDIES UNDER THE
effects of the tariff and TARIFF AND CUSTOMS CODE
customs laws of this country
now in force or which may (TCC)
hereafter be enacted;
b. the relations between the TAX REMEDIES OF THE
rates of duty on raw GOVERNMENT
materials and the finished or
partly finished products; A. ADMINISTRATIVE
c. the effects of ad valorem 1. Tax Lien (Sec. 1204 TCC)
and specific duties and of • attach
compound specific and ad es
valorem duties; on
d. all questions relative to the the
arrangement of schedules good
and classification of articles s,
in the several schedules of rega
the tariff law; rdles
e. the tariff relations between s of
the Philippines and foreign own
countries, commercial ershi
treaties, preferential p,
provisions, economic whil
alliances, the effect of e
export bounties and pref- still
erential transportation rates; in
f. the volume of importations, the
compared with domestic cust
production and consumption; ody
g. conditions, causes, and or
effects relating to cont
competition of foreign rol
industries with those of the of
Philippines, including the
dumping and cost of Gove
production; and rnm
h. in general, to investigate the ent
operation of customs and • availe
tariff laws, including their d of
relation to the national rev- whe
enues, their effect upon the n
industries and labor of the the
country and to submit impo
reports of its investigation as rtati
provided. on is
neit
her
proh

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ibite • Civil Action (Sec. 1204,
d TCC)
nor
impr
• Criminal Action
oper
ly TAX REMEDIES OF THE TAXPAYER
mad
e A. ADMINISTRATIVE
1. Administrative Fines and 1. Protest
Forfeitures a. Any importer or interested
• applied when the party if dissatisfied with
importation is unlawful, published value within 15
• and it may be exercised even days from date of
where the articles are not or publication, or within 5 days
no longer in Custom’s from the date the importer
custody is entitled to refund if
- unless the importation is payment is rendered
merely attempted in which erroneous or illegal by
case it may be effected only events occurring after the
while the goods are still payment.
within the Customs b. Taxpayer – within 15 days
jurisdiction or in the hands from assessment. Payment
of a person who is aware under protest is necessary.
thereof (Sec. 2531 & 2530, (Sec. 2308, 2210 TCC)
TCC) 1. Refund
• under Sec. 2530(a) of the a. A written claim for refund
TCC, in order to warrant may be submitted by the
forfeiture, it is not necessary importer in abatement cases
that the vessel or aircraft on missing packages,
must itself carry the deficiencies in the contents
contraband. The of packages or shortages
complementary if collateral before arrival of the goods in
use of the Cessna plane for the Philippines, articles lost
smuggling operation is or destroyed after such
sufficient for it to be arrival, dead or injured
deemed to have been used animals, and for manifest
in smuggling. (Llamado vs. clerical errors; and
Commissioner of Customs, b. Drawback cases where the
GR No. L-28809, May 16, goods are re-exported (Sec.
1983) 1701-1708 TCC).
1. Reduction of customs 1. Settlement of any seizure
duties / compromise by payment of fine or
• subject to approval of Sec. redemption
of Finance (Sec. 709, 2316 • But this shall not be allowed
TCC) in any case where
importation is absolutely
1. Seizure, Search, Arrest prohibited, or the release
(Sec. 2205, 2210, 2211 TCC) would be contrary to law, or
when there is an actual and
B. JUDICIAL intentional fraud (Sec. 2307
1. this remedy is normally TCC).
availed of when the tax
lien is lost by the 1. Appeal
release of the goods • Within 15 days to the
Commissioner after
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notification by Collector of A. CUSTOMS PROTEST CASES

his decision (Sec. 2313
TCC). DEFINITION: These are cases which deal
solely with liability for customs duties,
B. JUDICIAL fees, and other charges.
1. Appeal
Note: Before filing a protest, there
• Within 30 days from receipt
must first be a payment under protest.
of decision of the
Commissioner or Secretary of
WHEN CUSTOMS PROTEST APPLICABLE
Finance to the division of the
CTA (Sec. 2403 TCC, Sec. 7
The customs protest is required to be
RA 1125, as amended by Sec.
filed only in case the liability of the
9 RA 9282)
taxpayer for duties, taxes, fees and
• Since Sec.11 of RA 1125 as other charges is determined and the
amended by RA 9282 taxpayer disputes said liability.
empowers the Tax Court to
issue injunctions, it would WHEN CUSTOMS PROTEST NOT REQUIRED
appear that an importer may
appeal without first paying Where there is no dispute, but the
the duties, such as in claim for refund arises by reason of the
seizure, but not in protest happening of supervening events such as
cases. when the raw material imported is
1. Action to question the utilized in the production of finished
legality of seizure products subsequently exported and a
2. Abandonment (Sec. 1801 duty drawback is claimed.
TCC)
a. expressly (Sec. 1801 REQUIREMENTS FOR MAKING A PROTEST
TCC)
b. impliedly – 1. Must be in writing
a. failure to file 2. Must point out the particular
an import decision or ruling of the Collector of
entry within Customs to which exception is taken
30 days from or objection made;
the 3. Must state the grounds relied upon
discharge of for relief;
goods or 4. Must be limited to the subject
b. having filed matter of a single adjustment;
an entry fails 5. Must be filed when the amount
to claim claimed is paid or within 15 days
within 15 after the payment;
days but it 6. Protestant must furnish samples of
shall not be goods under protest when required.
so effective
until so PROCEDURE IN CUSTOMS PROTEST
declared by CASES
the
collector. The Collector acting within his
(Sec. 1801, jurisdiction shall cause the imported
as amended goods to be entered at the customhouse
by RA 7651) 
The Collector shall assess, liquidate, and
TWO KINDS OF PROCEEDINGS IN collect the duties thereon, or detain the
THE BUREAU OF CUSTOMS (BOC) said goods if the party liable does not
pay the same
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and civil in nature and is directed
 against the res or imported articles and
The party adversely affected (the
entails a determination of the legality of
protestant) may file a written protest on
their importation. These are actions in
his foregoing liability with the Collector
rem.
within 15 days after paying the
Thus, It is of no defense that the
liquidated amount (the payment under
owner of the vessel sought to be
protest rule applies)
forfeited had no actual knowledge that
 his property was used illegally. The
Hearing within 15 days from receipt of absence or lack of actual knowledge of
the duly presented protest. Upon such use is a defense personal to the
termination of the hearing, the Collector owner himself, which cannot in any way
shall decide on the same within 30 days absolve the vessel from the liability of
forfeiture. (Commissioner of Customs
  vs. Manila Star Ferry, Inc., GR Nos.
31776-78, October 21, 1993)
If decision is adverse to If decision is adverse to
the protestant the government
SMUGGLING
  1. An act of any person who shall:
Appeal with the Automatic Review by a. Fraudulently
Commissioner within the Commissioner import any
15 days from notice article

Automatic review by contrary to
 the Secretary of law, or
Appeal with the Court b. Assist in so
Finance
of Tax Appeals Division doing, or
within 30 days from  c. Receive,
notice conceal,
If decision of buy, sell,
 Commissioner or facilitate,
Appeal with the
Secretary of Finance is transport,
CTA en banc
adverse to the conceal or
 protestant, he may sell such
Appeal by certiorari appeal to the CTA and article
with the Supreme SC under the same knowing its
Court within 15 days procedure on the left. illegal
from notice importation
(Sec. 3601,
TCC)
d. Export contrary
to law. (Sec.
REASONS FOR THE AUTOMATIC REVIEW OF DECISIONS
3514, TCC)
ADVERSE TO THE GOVERNMENT
2. The Philippines is divided into
1. To protect the interest of the various ports of entry – entry other
Government than port of entry, will be
2. A favorable decision will not be SMUGGLING.
appealed by the taxpayer and
certainly a Collector will not PORT OF ENTRY
appeal his own decision. A domestic port open to both
3. Lifeblood Theory foreign and coastwise trade including
“airport of entry”. (Sec. 3514, TCC)
B. SEIZURE AND FORFEITURE CASES ALL articles imported into the
Philippines whether subject to duty or
DEFINITION: These refer to matters
involving smuggling. It is administrative
Jhundee
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1

not shall be entered through a 18,
customshouse at a port of entry. 1995
ENTRY: in Customs law means- )
1. the
docu CONTRABAND: Articles of prohibited
men importations or exportations. (Sec. 3514,
ts TCC)
filed
at
the
Cust EVIDENCE FOR CONVICTION IN
oms SMUGGLING CASES
hous Mere possession of the article in
e question - unless defendant could
2. the explain that his possession is lawful to
sub the satisfaction of the court (Sec. 3601,
missi TCC). Payment of the tax due after
on apprehension is not a valid defense
and (Rodriguez vs. Court of Appeals, GR No.
acce 115218, September 18, 1995)
ptan
ce of THINGS SUBJECT TO CONFISCATION IN
the SMUGGLING CASES
docu Anything that was used for
men smuggling is subject to confiscation, like
ts the vessel, plane, etc. (Llamado vs.
3. the Commissioner of Customs, GR No. L-
proc 28809, May 16, 1983).
edur
e of Exception: Common carriers that are
passi not privately chartered cannot be
ng confiscated.
good
s RIGHT OF CUSTOMS OFFICERS TO
thro EFFECT SEIZURE & ARREST (SEC. 2205)
ugh 1. May seize any vessel, aircraft, cargo,
the article, animal or other movable
cust property when the same is subject to
oms forfeiture or liable for any time as
hous imposed under tariff and customs
e laws, rules & regulations
(Rod 2. May exercise such powers only in
rigu conformity with the laws and
ez provisions of the TCC
vs.
Cour COMMON CARRIERS; FORFEITURE
t of 1. Common carriers are
App generally not subject to
eals, forfeiture although if the
GR owner has knowledge of its
No. use in smuggling and was a
1152 consenting party, it may also
18, be forfeited.
Sept 2. If a motor vehicle is hired to
emb carry smuggled goods but it
er has no Certificate of Public
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1

Convenience (CPC), it is not
a common carrier. It is thus REGIONAL TRIAL COURTS (RTC)
subject to forfeiture, and VS.
lack of personal knowledge BUREAU OF CUSTOMS (BOC)
of the owner or the carrier is
not a defense to forfeiture. • The RTCs do not have
jurisdiction over seizure and
PROPERTIES NOT SUBJECT TO forfeiture proceedings
FORFEITURE IN THE ABSENCE OF PRIMA conducted by the BOC and to
FACIE EVIDENCE interfere with these
The forfeiture of the vehicle, vessel proceedings. The Collector
or aircraft shall not be effected if it is of Customs has exclusive
established that the owner thereof or his jurisdiction over all
agent in charge of the means of questions touching on the
conveyance used as aforesaid has no seizure and forfeiture of
knowledge of or participation in the dutiable goods.
unlawful act: • No petitions for certiorari,
Provided, however, that a prima prohibition or mandamus
facie presumption shall exist against the filed with the RTC will lie
vessel, vehicle or aircraft under any of because these are in reality
the following circumstances:
attempts to review the
1. If the conveyance has been used
Commissioner's actuations.
for smuggling at least twice
Neither replevin filed with
before;
the RTC will issue.
2. If the owner is not in the
Rationale: Doctrine of
business for which the
Primary Jurisdiction.
conveyance is generally used;
and • Even if a Customs seizure is
3. If the owner is financially not in illegal, exclusive jurisdiction
a position to own such (to the exclusion of regular
conveyance. courts) still belongs to the
Bureau of Customs (Jao v.
DOCTRINE OF HOT PURSUIT Court of Appeals, GR No.
Requisites: 104604, October 6, 1995).
1. Over Vessels
a. An act is done in Phil. Waters GOODS IN CUSTOM’S CUSTODY BEYOND
which constitutes a violation of REACH OF ATTACHMENT
the tariff and customs laws Goods in the custom’s custody
b. a pursuit of such vessel began pending payment of customs duties are
within the jurisdictional waters beyond the reach of attachment. As long
which as the importation has not been
(i) may continue beyond the terminated, the imported goods remain
maritime zone, and under the jurisdiction of the Bureau of
(ii) the vessel may be seized Customs. (Viduya vs. Berdiago, GR No.
on the high seas. L-29218, October 29, 1976)
1. Over Imported Articles ADMINISTRATIVE AND JUDICIAL

a. There is a violation of the tariff PROCEDURES RELATIVE TO CUSTOMS
and customs laws SEIZURES AND FORFEITURES
b. As a consequence they may be
pursued in the Phil. Determination of probable cause and
c. With jurisdiction over them at issuance of warrant
any place therein for the 
enforcement of the law. (2nd Actual seizure of the articles
par. Sec. 603, TCC)

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Listing of description, appraisal and their duties, when
classification of seized property the payment of
internal taxes are
 involved;
Report of seizure to the Comm. of
4) officers generally
Customs and the Chairman, Comm.
empowered by law
on Audit
to effect arrests and
 execute processes of
Issuance by the Collector of a courts, when acting
warrant of detention under the direction
 of the Collector.
Notification to owner or importer
REQUIREMENTS FOR CUSTOMS
 FORFEITURE
Formal hearing 1. The wrongful making by the
 owner, importer,
District collector renders his exporter or consignee of
decisions any declaration or
affidavit, or the
wrongful making or
  delivery by the same
If decision is not If decision is not persons of any invoice,
favorable to the favorable to the letter or paper - all
aggrieved owner or government touching on the
importer importation or
  exportation of
Appeal by the Automatic merchandise.; and
aggrieved owner or Review by the 2. That such declaration,
importer Commissioner affidavit, invoice, letter
or paper is false.
(Farolan, Jr. vs. Court
PERSONS HAVING POLICE AUTHORITY of Tax Appeals, GR No.
TO ENFORCE THE TARIFF & CUSTOMS 42204, January 21,
LAWS AND EFFECT SEARCHES, 1993)
SEIZURES AND ARRESTS (SEC. 2203,
TCC) PLACES WHERE SEARCHES & SEIZURES
1) officials of the BOC, MAY BE CONDUCTED
district collectors, (a) enclosures
police officers, (b) dwelling
agents, inspectors, house
and guests of the (there
BOC; must be
2) officers of the Phil. search
Navy and other warrant
members of the AFP issued by
and national law a judge)
enforcement (c) vessels or
agencies when aircrafts
authorized by the and
Commissioner of persons
Customs or
articles
3) officials of the BIR conveye
on all cases falling d
within the regular therein
performances of

Jhundee
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1

(d) vehicles, 3. when there is fraud. (Sec. 2307,
beasts TCC)
and
persons
(e) persons
arriving
from ACQUITTAL IN CRIMINAL CHARGE NOT
foreign RES JUDICATA IN SEIZURE OR
countrie FORFEITURE PROCEEDINGS
s. Reasons:
1) Criminal proceedings are actions in
Note: Burden of proof in seizure or personam while seizure or
forfeiture is on the claimant. (Sec. forfeiture proceedings are
2535, TCC) actions in rem.
2) Customs compromise does not
REQUIREMENTS FOR MANIFEST extinguish criminal liability. (People
A manifest in coastwise trade for vs. Desiderio, GR No. L-208005,
cargo and passengers transported from November 26, 1965)
one place or port in the Philippines to
another is required when one or both of Note: At any time prior to the sale, the
such places is a port of entry (Sec. 906, delinquent importer may settle his
TCC). Manifests are also required of obligations with the Bureau of Customs,
vessel from a foreign port (Sec. 1005, in which case the aforesaid articles may
TCC). be delivered upon payment of the
corresponding duties and taxes and
IS MANIFEST REQUIRED ONLY FOR compliance with all other legal
IMPORTED GOODS? requirements (Sec. 1508, TCC)
NO. Articles subject to seizure
do not have to be imported goods. ABATEMENT
Manifests are also required for articles The reduction or non-imposition of
found on vessels or aircraft engaged in customs duties on certain imported
coastwise trade. (Rigor vs. Rosales, GR materials as a result of:
No. L-33756, October 23, 1982) 1) Damage incurred during voyage;
2) Deficiency in contents packages
UNMANIFESTED CARGO IS SUBJECT TO 3) Loss or destruction of articles
FORFEITURE whether the act of after arrival
smuggling is established or not under the 4) Death or injury of animals
principle of res ipsa loquitur. It is
enough that the cargo was unmanifested FRAUDULENT PRACTICES CONSIDERED
and that there was no showing that AS CRIMINAL OFFENSES AGAINST
payment of duties thereon had been CUSTOMS REVENUE LAWS
made for it to be subject to forfeiture. 1) Unlawful
importation;
SETTLEMENT OF FORFEITURE CASES 2) Entry of
General Rule: Settlement of cases by imported or
payment of fine or redemption of exported
forfeited property is allowed. article by
means of
Exceptions: any false or
1. the importation is absolutely fraudulent
prohibited or practices,
2. the surrender of the property to invoice,
the person offering to redeem declaration,
would be contrary to law, or affidavit, or

Jhundee
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1

other by RA 9282)
documents;
3) Entry of goods
at less than  See ANNEX O for comparison of CTA
their true as created by RA No. 1125 and the
weights or amendments made by RA No. 9282.
measures or
upon a
classification
NATURE AND POWERS
as to quality
or value;
ELEVATION OF RANK
4) Payment of less
shall be of the same level as the
than the
Court of Appeals, possessing all the
amount due;
inherent powers of a Court of Justice
5) Filing any false
or
COMPOSITION
fraudulent
• Consists of a
claim for the
Presiding
payment of
Justice and
drawback or
five (5)
refund of
Associate
duties upon
Justices
the
exportation • May sit en banc or
of in two (2)
merchandise Divisions, each
; or Division
consisting of
6) Filing any
three (3)
affidavit,
Justices. The
certificate
Presiding
or other
Justice and the
document to
most Senior
secure to
Associate
himself or
Justice shall
others the
serve as
payment of
chairmen of
any
the two
drawback,
divisions
allowance or
refund of
QUORUM
duties on
the • Four (4) Justices shall constitute a
exportation quorum for sessions EN BANC.
of mdse. • Two (2) Justices for sessions of a
greater than DIVISION.
that legally PROVIDED: in case the required quorum
due thereon. cannot be had due to any vacancy,
(Sec. 3602, disqualification, inhibition, disability,
TCC) or any other lawful cause, the Presiding
Justice shall designate any Justice of
other Divisions of the Court to sit
V. COURT OF temporarily therein.
TAX APPEALS POWERS

(RA 1125 as amended 1. to administer oaths;
2. to receive evidence;
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1

3. to summon witnesses by This remedy shall not be exclusive
subpoena; and shall not preclude the Court from
4. to require production or papers availing of other means under the Rules
or documents by subpoena duces of Court.
tecum;
5. to punish contempt; JURISDICTION
6. to promulgate rules and
regulations for the conduct of its I. EXCLUSIVE APPELLATE JURISDICTION
business; TO REVIEW BY APPEAL
7. to assess damage against
appellant if appeal to CTA is (a) Decisions of
found to be frivolous or dilatory; the
8. to suspend the collection of the Commission
tax pending appeal; and er of
9. to render decisions on cases Internal
brought before it Revenue
10. to issue order authorizing 1. in cases involving
distraint of personal property disputed assessments,
and levy of real property refunds of internal
revenue taxes, fees or
DISTRAINT OF PERSONAL PROPERTY other charges, penalties
AND LEVY OF REAL PROPERTY in relation thereto,
Upon the issuance of any ruling, 2. or other matters arising
order or decision by the CTA favorable to under the NIRC or other
the national government, the CTA shall laws administered by the
issue an order authorizing the BIR, BIR;
through the Commissioner: (a) Inaction by
the
1. to seize and distraint Commission
any goods, er of
chattels, or Internal
effects and the Revenue
personal 1. in cases involving
property, disputed assessments,
including stocks refunds of internal
and other revenue taxes, fees or
securities, other charges, penalties
debts, credits, in relation thereto,
bank accounts, 2. or other matters arising
and interests in under the NIRC or other
and rights to laws administered by the
personal BIR, where the NIRC
property and/or provides a specific
2. levy the real period for action, in
property of such which case the inaction
persons in shall be deemed a
sufficient denial;
quantity to (a) Decisions,
satisfy the tax or orders or
charge together resolutions
with any of the RTC
increment – in local tax cases originally
thereto incident decided or resolved by them in
to delinquency. the exercise of their original or
appellate jurisdiction;
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1
(b) Decisions of under Section 2315 of the Tariff

the and Customs Code;
Commission (c) Decisions of
er of the
Customs Secretary
1. in cases of Trade
involving and
liability for Industry in
customs the case of
duties, fees nonagricultu
or other ral product,
money commodity
charges, or article,
seizure, and the
detention or Secretary of
release of Agriculture
property in the case
affected, of
fines, agricultural
forfeitures product,
or other commodity
penalties in or article,
relation – involving dumping and
thereto, countervailing duties under Secs.
2. or other matters 301and 302, respectively, of the
arising Tariff and Customs Code, and
under the safeguard measures under RA
Customs Law No, 8800, where either party
or other may appeal the decision to
laws impose or not to impose said
administere duties.
d by the
Bureau of II. JURISDICTION OVER CASES
Customs; INVOLVING CRIMINAL CASES
(a) Decisions of
the Central (a) Exclusive original jurisdiction
Board of over all criminal cases arising from
Assessment violations of the NIRC or Tariff and
Appeals Customs Code and other laws
– in the exercise of its appellate administered by the BIR or the
jurisdiction over cases involving Bureau of Customs
the assessment and taxation of • Provided
real property originally decided however,
by the provincial or city board of where the
assessment appeals; principal
(b) Decisions of amount of
the taxes and
Secretary fees,
of Finance exclusive
– on customs cases elevated to of charges
him automatically for review and
from decisions of the penalties
Commissioner of Customs which claimed is
are adverse to the Government less than
one

Jhundee
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1

million CTA, the
pesos (P1, filing of
000, 000. the
00) or criminal
where action
there is no being
specified deemed to
amount necessarily
claimed - carry with
the it the
offenses or filing of
penalties the civil
shall be action,
tried by and no
the right to
regular reserve
courts and the filing
the of such
jurisdictio civil action
n of the separately
CTA shall from the
be criminal
appellate. action will
• Any provision be
of law or recognized
the Rules .
of Court to
the (b) Exclusive appellate jurisdiction
contrary in criminal offenses
notwithsta • Over appeals from the
nding, the judgments, resolutions
criminal or orders of the RTC in
action and tax cases originally
the decided by them, in
correspond their respective
ing civil territorial jurisdiction.
action for • Over petitions for review of
the the judgments,
recovery resolutions, or orders of
of civil the RTC in the exercise
liability of their appellate
for taxes jurisdiction over tax
and cases originally decided
penalties by the Metropolitan Trial
shall at all Courts, Municipal Trial
times be Courts, and Municipal
simultaneo Circuit Trial Courts in
usly their respective
instituted jurisdiction.
with, and
jointly III. JURISDICTION OVER TAX
determine COLLECTION CASES
d in the (a) Exclusive original jurisdiction
same in tax collection cases involving
proceeding final and executory assessments
by the
Jhundee
Guillermo
1

for taxes, fees, charges and 00
penalties. 0,
• In 00
col 0.
lec 00)
tio –
n sha
cas ll
es be
wh tri
ere ed
the by
pri the
nci pro
pal per
am Mu
ou nic
nt ipa
of l
tax Tri
es al
an Co
d urt
fee ,
s, Me
ex tro
clu pol
siv ita
e n
of Tri
ch al
arg Co
es urt
an ,
d an
pe d
nal Re
tie gio
s, nal
cla Tri
im al
ed Co
is urt
les .
s
tha (b) Exclusive appellate jurisdiction
n in tax collection cases
on • Over appeals
e from the
mil judgments
lio ,
n resolutions
pes or orders
os of RTC in
(P tax
1, collection
Jhundee
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1

cases
originally “OTHER MATTERS”
decided by Those controversies which can be
them, in considered within the scope of the
their function of the BIR / BOC under ejusdem
respective generis rule (e.g. action for the nullity of
territorial distraint and levy; questioning the
jurisdictio propriety of the assessment; collection
n. of compromise penalties).
• Over petitions
for review APPEAL
of the
judgement WHEN
s, Within 30 days after the receipt of
resolutions such decision or ruling or after the
or orders expiration of the period fixed by law for
of the RTC action.
in the
exercise of MODES OF APPEAL
their (1)By filing a petition for review under a
appellate procedure analogous to that provided
jurisdictio for under Rule 42 of 1997 Rules on
n over tax Civil Procedure
collection
cases • decision, ruling, or inaction
originally of the Commissioner of
decided by Internal Revenue,
the Commissioner of Customs,
Metropolit the Secretary of Finance,
an Trial the Secretary of Trade and
Courts, Industry or the Secretary of
Municipal Agriculture or the Regional
Trial Trial Courts
Courts and • this appeal shall be heard by
Municipal a Division of the CTA
Circuit (1)By filing a petition for review under a
Trial procedure analogous to that
Courts, in provided for under Rule 43 of 1997
their Rules on Civil Procedure
respective • decisions or rulings of the
jurisdictio Central Board of
n. Assessments Appeals and the
Regional Trial Courts in the
 In criminal and collection cases, the exercise of its appellate
Government may directly file the jurisdiction
said cases with the CTA covering • this appeal shall be heard by
amounts within its exclusive and the CTA en banc.
original jurisdiction.
PROCEDURE
A. Any party adversely affected by a
 See ANNEX P – Comparative ruling, order or decision of a Division
Diagrams on CTA
of the CTA may file a motion for
jurisdiction.
reconsideration or new trial before
the same Division within 15 days
from notice

Jhundee
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reconsideration
.
• At times there is
B. Any party adversely affected by a an exchange of
resolution of a Division of the CTA on communication
a motion for reconsideration or new s between
trial may file a petition for review taxpayer and
with the CTA en banc. Commissioner
states that his
C. Any party adversely affected by a action is final,
decision or ruling of the CTA en banc then, period
may file with the Supreme Court a for appeal
verified petition for review on begins to run.
certiorari pursuant to Rule 45 of the • Commissioner must
1997 Rules on Civil Procedure. state that his
decision is
THIRTY (30) DAY PRESCRIPTIVE PERIOD FOR APPEAL final, for
Starts to run from the date the period of
taxpayer receives the appealable appeal to run.
decision. If the taxpayer’s request for • Final decision
reconsideration (i.e., the protest is cannot be
denied or the original assessment is implied from
maintained, the appealable decision is issuance of
the decision denying the request for warrant of
reconsideration. distraint and
The said period is jurisdictional and levy, unless it
non-extendible. Requests or motions for is issued after
reconsideration, however, operate to a request for
suspend the running of the period to reconsideration
appeal. A pro forma request for .
reconsideration or one which is directed GENERAL RULE: New issues cannot be
to the Secretary of Finance does not raised for the first time on appeal.
suspend the running of the 30-day
reglementary period. EXCEPTIONS:
a. Defense of prescription
ONLY A FINAL DECISION IS APPEALABLE TO THE Reason: This is a statutory right.
COURT OF TAX APPEALS (Visayan Land Transportation vs.
Collector)
• Preliminary b. Errors of administrative officials
collection Reason: State can never be in
letters, post estoppel and lifeblood theory.
reporting (Commissioner vs. Procter and
notices and Gamble Phils. Mfg. Corp, GR No.
pre-assessment 66838, April 15, 1988)
notices are not
appealable, NOTE: However, this was reversed in
because they Supreme Court’s subsequent resolution
are not the wherein it was held that “in the absence
final decision of explicit statutory provisions to the
of the contrary, the Government must follow
Commissioner. the same rules of procedure which bind
• An assessment can private parties.” (Commissioner vs.
be appealed if Procter and Gamble, GR No. 66838,
taxpayer does December 2, 1991, Resolution)
not seek a
TAX COLLECTION NOT SUSPENDED DURING APPEAL
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1

imposed by
General Rule: No appeal taken to the Tax Code.
CTA shall suspend the payment, levy or • The provision in
distraint, and/or sale of any property of Tax Code
the taxpayer. refers to
courts other
Exception: The CTA is empowered to than the CTA.
suspend the collection of internal (Blaquera vs.
revenue taxes and custom duties only Rodriguez, GR
when there was a – No. L-11295,
a) showing that collection of March 29,
the tax may 1958)
jeopardize the interest • Appeal to the CTA
of the government and does not
/ or the taxpayer; automatically
b) deposit of the amount suspend
claimed or file a collection
surety bond for not unless CTA
more than double the issues
amount of tax with the suspension
Court when required; order at any
and stage of
c) showing by taxpayer that proceedings.
appeal is not frivolous
nor dilatory. SIMULTANEOUS FILING OF AN APPLICATION FOR REFUND
OR CREDIT AND INSTITUTION OF A CASE BEFORE THE
CAN THE CTA ENJOIN COLLECTION OF TAXES? CTA ALLOWED
• Sec. 11 of RA No. The law fixes the same period of

1125 as two (2) years for filing a claim for refund
amended by with the Commissioner and for filing a
Sec. 9 of RA case with the CTA. The two-year period
No. 9282 for both starts from the date after the
grants CTA payment of the tax or penalty, or from
power to the approval of the application for
suspend credit.
collection of
tax if such Observation: If we are not going to
collection allow the taxpayer to file a refund
works to before the CTA and let him wait for the
serious CIR’s decision, and the latter failed to
prejudice of render a decision within the 2-year
either period, the said taxpayer can no longer
taxpayer or file a refund before the CTA because his
government. right to appeal has prescribed.
• However, Sec. 218
of the Tax WEIGHT OF DECISION OF CTA
Code provides
no court may • Decisions of Tax
grant Court have
injunction to persuasive
restrain effect and may
collection of serve as
any tax, fee or judicial
charge guides. They

Jhundee
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1

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

with the exception of importation of 2. Foreign Currency Denominated Sale
course. as provided in Section 106 (A)(2)(b)
3. Sale to persons or entities which is
The rule of regularity, to the VAT exempt under special laws or
contrary notwithstanding, services as international agreements to which
defined in this Code rendered in the the Philippines is a signatory as
Philippines by non-resident foreign provided in Section 106 (A)(2)(c)
persons shall be considered as being 4. Transactions subject to zero-rated
course of trade or business. (0%) as provided in Section 108(B)
Importation is subject to VAT REGISTRATION UNDER THE VAT SYSTEM

regardless of whether or not it is in the (SECTION 236 OF THE NIRC)
course of trade or business
General Rule: Failure to register is
The reason for the rule is to protect subject to temporary closure of the
our local or domestic goods or articles establishment for 5 days as provided in
and to regulate the entry or introduction Section 115(b).
of foreign articles to our local market.
Regulation is one of the purposes of Exception: It does not apply to an
Taxation. exporter who fails to register. The effect
is, instead of treating the transaction as
Tax Rates: zero-rated (0%), it is treated as an
1. 10% - the rate used in sale of exempt transaction.
commodities and goods, sale of
services, and importation. What is the difference? In zero-rated
2. Zero-rated (0%) - the rate used in (0%) transactions, tax credit is
exportation. available. However, in exempt
transactions, tax credit is not available.
MANNER OF COMPUTING THE VAT:

A. 10% rate of Tax EXEMPT TRANSACTIONS (SECTION 109):
1. In Section 109(a) and (c), food and
1. In sale of commodities and goods, non-food products are VAT-exempt
10% is multiplied with the Gross as long as these products are in its
Selling Price. original state. The simple process of
2. In sale of services, 10% is multiplied preparation or preservation for the
with the Gross Receipts. market such as freezing, drying,
3. In importation, 10% is multiplied salting, broiling, roasting, smoking,
with the rates used by the Bureau of or stripping does not remove the
Customs in imposing tariff and product from its category of being in
customs duties plus customs duties, its original state.
excise taxes, if any, and other • However, even if the products
charges, such tax to be paid by the were no longer in its original
importer prior to the release of such state, it can still be VAT-
goods from customs custody: exempt under Section
Provided, That where the customs 109(r), if sold by agricultural
duties are determined on the basis cooperatives duly registered
of the quantity or volume of the by Cooperative Development
goods, the value-added tax shall be Authority.
based on the landed cost plus excise 2. Under Section 109(m), private
taxes, If any. customs duties. educational institutions are exempt
from VAT if duly accredited by the
B. Zero-rated (0%) rate of tax DECS or by the CHED. In case of
government educational institution,
1. Export Sales as provided in Section no accreditation is required.
106(A)(2)(a)
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3. Transactions in the field of Arts are considered the importers
VAT-exempt only, as provided in thereof, who shall be liable
Section 109(n), if the seller is the for any internal revenue tax
artist himself or the artist’s services on such importation. The tax
performed for the production of due on such importation
such works. shall constitute a lien on the
goods superior to all charges
4. Section 109(p) makes Regional or or liens on the goods,
Area Headquarters exempt from irrespective of the possessor
VAT. thereof.
5. Under Section 109(w) in order for TRANSACTIONS DEEMED SALE:

the sale or lease of real property to
be exempted from VAT, the The following transactions shall be
transaction must NOT be conducted deemed sale therefore making them
in the ordinary course of trade or covered by VAT:
business. It complements Section
106(A)(1)(a) where it states that in (1) Transfer, use or consumption not in
order for the sale or lease of real the course of business of goods or
property to be covered by VAT, it properties originally intended for sale or
must be made in the ordinary course for use in the course of business;
of trade or business. (2) Distribution or transfer to:
(a) Shareholders or investors as
6. Revenue Regulations No. 6-97 adds a share in the profits of the VAT-registered
requirement in order for the lease of persons; or
residential units with a monthly (b) Creditors in payment of debt;
rental of not more than P8,000.00, (3) Consignment of goods if actual sale is
as provided in Section 109(x), to be not made within sixty (60) days following
VAT exempt, that the annual gross the date such goods were consigned; and
receipts must not exceed (4) Retirement from or cessation of
P550,000.00. business, with respect to inventories of
taxable goods existing as of such
7. Section 109(z) provides that the sale retirement or cessation.
or lease of goods or performances of
services other than those mentioned How to determine the VAT: The tax
in the preceding paragraphs are VAT shall be computed by multiplying the
exempt if the Gross Annual Receipts total amount indicated in the invoice by
do not exceed P550,000.00. one-eleventh (1/11).
However, the limitation of
P550,000.00 does apply for those Example: the total amount indicated in
transactions from Section 109(a) to the invoice is P110. P110/11 = P10. P10
(y), except (x) because Revenue is the amount of VAT.
Regulations No. 6-97 imposes a
P550,000.00 limitation. TAX CREDIT AND REFUND
• In cases of tax-free importation Formula for Tax Credit:

of goods into the Philippines Output
by persons, entities or Less: Input
agencies exempt from tax VAT due.
where such goods are
subsequently sold, • If Input is greater than Output,
transferred or exchanged in Tax Credit is available.
the Philippines to non-
exempt persons or entities,
the purchasers, transferees "INPUT TAX" means the value-added tax
or recipients shall be due from or paid by a VAT-registered
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person in the course of his trade or taxable month or quarter shall be
business on importation of goods or local reduced
purchase of goods or services, including
lease or use of property, from a VAT-
registered person. It shall also include reduced by the amount of claim for
the transitional input tax determined in refund or tax credit for value-added tax
accordance with Section 111 of the and other adjustments, such as purchase
NIRC. returns or allowances and input tax
attributable to exempt sale.
"OUTPUT TAX" means the value-added The claim for tax credit referred to
tax due on the sale or lease of taxable in the foregoing paragraph shall include
goods or properties or services by any not only those filed with the Bureau of
person registered or required to register Internal Revenue but also those filed
under Section 236 of the NIRC. with other government agencies, such as
the Board of Investments or the Bureau
• If at the end of any taxable of Customs.
quarter the output tax
exceeds the input tax, the The Commissioner within 120 days,
excess shall be paid by the in proper cases, from the date of
VAT-registered person. If the submission of complete documents in
input tax exceeds the output support of the application shall grant a
tax, the excess shall be refund or issue the tax credit certificate
carried over to the for creditable input taxes.
succeeding quarter or
quarters. Any input tax Remedy in case of full, or partial
attributable to the purchase denial, or failure on the part of the
of capital goods or to zero- Commissioner to act upon the
rated sales by a VAT- application for tax credit or refund: the
registered person may at his taxpayer affected may, within thirty (30)
option be refunded or days from the receipt of the decision
credited against other denying the claim or after the expiration
internal revenue taxes, of the one hundred twenty day-period,
subject to the provisions of appeal the decision or the unacted claim
Section 112. with the Court of Tax Appeals.
RETURN AND PAYMENT OF VAT

OPTIONS OF A TAXPAYER AS PROVIDED
IN SECTION 112: Every person liable to pay the value-
1. to claim for tax credit; or added tax shall file a quarterly return of
2. to claim for refund the amount of his gross sales or receipts
within 25 days following the close of
The claim, which must be in writing, each taxable quarter prescribed for each
for both cases, must be filed within 2 taxpayer: Provided, however, That VAT-
years after the close of the taxable registered persons shall pay the value-
quarter when the sales were made for: added tax on a monthly basis.
a) the issuance of a tax credit
certificate; b) refund of creditable input Any person, whose registration has
tax due or paid attributable to such been cancelled in accordance with
sales. Section 236, shall file a return and pay
the tax due thereon within 25 days from
HOW TO DETERMINE CREDITABLE INPUT the date of cancellation of registration:
TAX Provided, That only one consolidated
The sum of the excess input tax return shall be filed by the taxpayer for
carried over from the preceding month his principal place of business or head
or quarter and the input tax creditable office and all branches.
to a VAT-registered person during the
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MEMORY AID IN TAXATION LAW

6. levied for a public purpose.

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

4. Special Assessment – levied only on Assessment.

Imposed on Levied only on land TEST IN DETERMINING IF THE IMPOSITION IS A TAX OR A

Not based on any Based wholly on Tax Debt

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Not subject to Subject to No limit as to the Amount of toll

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Enforced Sanction imposed LIMITATIONS ON THE TAXING

All embracing A kind of tax B. Promotion of General Welfare Test

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

B. SPECIFIC OR DIRECT and educational purposes. (Lladoc

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TWO METHODS OF RELIEF ARE USED UNDER THE SECOND

MEMORY AID IN TAXATION LAW

KINDS OF SHIFTING FACTORS IN TAX EVASION

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

BUREAU OF INTERNAL REVENUE (BIR) d. In estimating the revenues that may

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

• Applies the accounting principle: The Commissioner is authorized:

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

2. Authority to administer oaths

MEMORY AID IN TAXATION LAW

A. INCOME TAXATION CRITERIA IN IMPOSING INCOME TAX

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

• RC, NRC, RA, NRAETB – Appeals,

MEMORY AID IN TAXATION LAW

5. Income exempt under

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

i NRAETB may be entitled to

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW