Taxation 2015 UP Pre-Week
Taxation 2015 UP Pre-Week
Taxation 2015 UP Pre-Week
TAXATION 1
TAXATION LAW
TAXATION LAW
TAXATION LAW 1
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TAXATION 1
I. General Principles of
Taxation
DEFINITION
TAXATION
AND
CONCEPT
OF
Taxation
is a mode by which governments make
exactions for revenue in order to support their
existence and carry out their legitimate
objectives.
Taxes
are enforced proportional contributions from
persons and property levied by the law-making
body of the State by virtue of its sovereignty for
the support of the government and all public
needs.
The power of taxation proceeds upon the
theory that the existence of government is a
necessity; that it cannot continue without
means to pay its expenses; and that for those
means it has the right to compel all citizens
and property within its limits to contribute.
NATURE OF THE POWER OF TAXATION
TAXATION LAW
SCOPE OF TAXATION
Subject to constitutional and inherent
restrictions, the power of taxation is regarded
as supreme, unlimited and comprehensive.
The principal check on its abuse rests only on
the responsibility of the members of the
legislature to their constituents.
ESSENTIAL CHARACTERISTICS OF
TAX
(1) an enforced contribution
(2) generally payable in the form of money
(3) proportionate in character or is laid by
some rule of apportionment which is
usually based on ability to pay;
(4) levied on persons, property, rights, acts,
privileges, or transactions.
(5) levied by the State which has jurisdiction or
control over the subject to be taxed.
(6) levied by the law-making body of the
State; and;
(7) levied for public purpose.
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2. As to scope
3. As to authority
4. As to purpose
5. As to necessity
of delegation
6. As to
affected
Taxation
Police Power
Eminent Domain
Power
to
enforce
contribution to raise
government funds
Plenary, comprehensive
and supreme
Exercised
only
by
government
or
its
political subdivisions
Money is taken to
support the government
The power to make tax
laws
cannot
be
delegated
person
Operates
on
a
community or a class of
individual
7. As to benefits
Continuous
protection
and organized society
8. As to amount of Generally no limit
imposition
9.
As
importance
to
Inseparable
for
the
existence of a nation it
supports police power
and eminent domain
10.
As
relationship
Constitution
to
to
Subject to Constitutional
and Inherent limitations.
Inferior
to
nonimpairment clause.
11. As to limitation
Constraints
by Limited by the demand
Constitutional
and for public interest and
Inherent limitations
due process
Can
be
expressly
delegated to the local
government units by the
law making body
Operates
on
the
particular
private
property of an individual
Market value of the
property expropriated
No imposition
[Valencia and Roxas, Income Taxation 6th Edition (2013-2014), Valencia Educational Supply, pp. 9-10]
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PURPOSE OF TAXATION
1. Revenue-raising
Primary purpose of taxation is to provide funds
or property with which to promote the general
welfare and protection it its citizens.
2. Non-revenue/Special or Regulatory
Taxation is often employed as a device for
regulation by means of which certain effects or
conditions envisioned by governments may be
achieved. These regulatory purposes are also
known as Sumptuary.
Necessity Theory
The power of taxation proceeds upon theory
that the existence of government is a necessity;
that is cannot continue without means to pay
its expenses; and that for those means it has
the right to compel all citizens and property
within its limits to contribute.
Benefits-Protection
Relationship)
Theory
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(Symbiotic
DOCTRINES IN TAXATION
Prospectivity of Tax Laws
General rule - Tax laws are prospective in
operation. Reason: Nature and amount of the
tax could not be foreseen and understood by
the taxpayer at the time the transaction.
Exception - Tax laws may be applied
retroactively provided it is expressly declared
or clearly the legislative intent.(e.g increase
taxes on income already earned)
when retroactive application would be so
harsh and oppressive [Republic v. Fernandez,
G.R. No. L-9141. September 25, 1956].
Exception to the exception - Collection of
interest in tax cases is not penal in nature; it is
but a just compensation to the State. The
constitutional prohibition against ex post facto
laws is not applicable to the collection of
interest on back taxes. [Central Azucarera
v.CTA]
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Imprescriptibility
Incidence of taxation is that point on which the
tax burden finally rests or settles down. It takes
place when shifting has been effected from the
statutory taxpayer to another.
Double Taxation
Transformation
Transformation method of escape in taxation
whereby the manufacturer or producer upon
whom the tax has been imposed pays the tax
and endeavors to recoup himself by improving
his process of production thereby turning out
his units of products at a lower cost. The
taxpayer escapes by a transformation of the
tax into a gain through the medium of
production.
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COMPROMISE
(a) A contract whereby the parties, by making
reciprocal concessions avoid litigation or
put an end to one already commenced.
(Art. 2028, Civil Code). It involves a
reduction of the taxpayers liability.
(b) Requisites of a tax compromise:
(1) The taxpayer must have a tax liability.
(2) There must be an offer (by the taxpayer
or Commissioner) of an amount to be
paid by the taxpayer.
(3) There must be acceptance (by the
Commissioner or the taxpayer, as the
case may be) of the offer in settlement
of the original claim.
TAX AMNESTY
A tax amnesty partakes of an absolute
forgiveness or waiver by the Government of its
right to collect what otherwise would be due it,
and in this sense, prejudicial thereto,
particularly to give tax evaders, who wish to
relent and are willing to reform a chance to do
so and become a part of the new society with a
clean slate.[Republic v. IAC (1991)]
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rule on strict construction does not apply.
[Comm. V. Arnoldus Carpentry Shop, Inc.,
159 SCRA 19 (1988)].
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SCOPE
AND
TAXATION
LIMITATION
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OF
Inherent Limitations
1. Public Purpose
The proceeds of the tax must be used (a) for
the support of the State or (b) for some
recognized objects of government or directly to
promote the welfare of the community.
2. Inherently Legislative
Stated in another way, taxation may
exceptionally be delegated, subject to such
well-settled limitations as
(1) The delegation shall not contravene any
constitutional provision or the inherent
limitations of taxation;
(2) The delegation is effected either by the
Constitution or by validly enacted
legislative measures or statute; and
(3) The delegated levy power, except when
the delegation is by an express provision
of the Constitution itself, should only be in
favor of the local legislative body of the
local or municipal government concerned.
[Vitug and Acosta]
4. International Comity
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Intangible
personal
property
(e.g., credits,
bills
receivables,
bank
deposits,
bonds,
promissory
notes,
mortgage
loans,
judgments
and
corporate
stocks)
Excise Tax
Income
VAT
Poll,
Capitation or
Community
Tax
Residence
of
taxpayer,
regardless of the source of
income or location of the
property of the taxpayer
Donors Tax
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Estate
Others
Situs
Property Tax
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CONSTITUTIONAL LIMITATIONS
(1) Prohibition against imprisonment for nonpayment of poll tax (Art III, Sec 20, 1987
Constitution)
(2) Uniformity and equality of taxation (Art VI,
Sec 28(1), 1987 Constitution)
(3) Taxation does not require identity or
equality under all circumstances, or negate
the authority to classify the objects of
taxation
Prohibition against taxation of non-stock, nonprofit educational institutions (ART XIV, SEC 4,
1987 CONSTITUTION)
This provision covers only non-stock, non-profit
educational institutions
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of
Income, property,
and donors taxes
and custom duties.
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Note:
(1) The LGU shall have the authority to grant
local tax exemption privileges. (Sec. 192,
LGC)
(2) The President may, when public interest so
requires, condone or reduce real property
taxes and interest. (Sec. 277, LGC)
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Taxes
License and
Regulatory Fee
Imposed under the Levied under the
taxing power of the police power of the
state for purposes of state.
revenue.
Forced contributions Exacted primarily to
for the purpose of regulate
certain
maintaining
businesses
or
government
occupations.
functions.
Generally, unlimited Should
not
as to amount
unreasonably exceed
the
expenses
of
issuing the license
and of supervision.
Imposed on persons, Imposed only on the
property
and
to right to exercise a
exercise a privilege.
privilege
Failure to pay does Failure to pay makes
not necessarily make the act or business
the act or business illegal.
illegal.
Tariff
Toll
Taxes
Toll
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Special Assessment
Taxes
Levied not only on
land.
Imposed regardless
of
public
improvements
Contribution of a
taxpayer
for
the
support
of
the
government.
It
has
general
application both as to
License Fee
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Special Assessment
Levied only on land.
Imposed because of
an increase in value
of land benefited by
public improvement.
Contribution of a
person
for
the
construction of a
public improvement
Exceptional both as
to time and locality.
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Special Assessment
Generally intended to
raise revenue
May be imposed only
by the government
Debt
Taxes
Cannot be a subject
of
set
off
or
compensation
Debt
Based on laws
Generally based on
contract, express or
implied.
Generally cannot be Assignable
assigned
Generally paid in May be paid in kind.
money
Cannot be a subject Can be a subject of
of
set
off
or set
off
or
compensation
compensation
(see
Art. 1279, Civil Code)
A person cannot be Imprisonment is a
imprisoned for non- sanction for nonpayment of debt payment
of
tax,
(except when it arises except poll tax.
from a crime),
Governed by the Governed by the
special prescriptive ordinary periods of
periods provided for prescription.
in the NIRC.
Does
not
draw Draws interest when
interest except only it is so stipulated or
when delinquent
where
there
is
default.
Imposed only by Can be imposed by
public authority
private individual
KINDS OF TAXES
As To Object
(1) Personal, Poll or Capitation Tax tax of a
fixed amount imposed on persons residing
within a specified territory, whether citizens
or not, without regard to their property or
the occupation or business in which they
may be engaged (e.g. community (formerly
residence) tax).
(2) Property Tax tax imposed on property, real
or personal, in proportion to its value or in
accordance with some other reasonable
method of apportionment (e.g., real estate
tax).
(3) Privilege/Excise Tax any tax which does
not fall within the classification of a poll tax
or a property tax. Thus, it is said that an
excise tax is a charge imposed upon the
performance of an act, the enjoyment of a
privilege, or the engaging in an occupation,
profession, or business. (e.g., income tax,
value added tax, estate tax, donors tax).
As To Burden Or Incidence
(1) Direct Taxes taxes which are demanded
from persons who also shoulder them; taxes
for which the taxpayer is directly or
primarily liable, or which he cannot shift to
another (eg. Income tax, estate tax, donors
tax, community tax)
(2) Indirect Taxes taxes which are demanded
from one person in the expectation and
Penalty
Taxes
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Penalty
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As To Tax Rates
(1) Specific Tax a tax of a fixed amount
imposed by the head or number or by some
other standard of weight or measurement
(e.g., taxes on distilled spirits, wines, and
fermented liquors; cigars and cigarettes)
(2) Ad Valorem Tax a tax of a fixed proportion
of the value of the property with respect to
which the tax is assessed (e.g. real estate
tax, excise tax on automobiles, nonessential goods such as jewelry and
perfumes, customs duties (except on
cinematographic films)).
(3) Mixed
As To Graduation
(1) Proportionate The rate of tax is based on a
fixed percentage of the amount of the
property, receipts or other basis to be taxed.
Example: real estate tax, value added tax,
and other percentage taxes.
(2) Progressive The rate of tax increases as
the tax base or bracket increases.
Example: income tax, estate tax, donors tax.
(3) Digressive A fixed rate is imposed on a
certain amount and diminishes gradually on
sums below it. The tax rate in this case is
arbitrary because the increase in tax rate is
not proportionate to the increase of tax
base.
(4) Regressive The rate of tax decreases as the
tax base or bracket increases. There is no
regressive tax in the Philippines.
As To Purposes
(1) General or Fiscal Tax levied for the general
or ordinary purposes of the Government
(e.g. income tax, value added tax, and
almost all taxes).
(2) Special/Regulatory/ Sumptuary Tax levied
for special purposes (e.g. protective tariffs
or customs duties on imported goods to
enable similar products manufactured
locally to compete with such imports in the
domestic market).
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FEATURES OF THE
INCOME TAX LAW
1.
2.
3.
Semi-Schedular
System
Or
Semi-Global
4.
5.
6.
Tax
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TAXABLE PERIOD
The accounting periods used in determining
the taxable income of taxpayers are:
(a) Calendar Year - Accounting period of 12
months ending on the last day of December
(b) Fiscal Year - Accounting period of 12 months
ending on the last day of any month other
than December (Sec. 22(Q), NIRC).
(c) Short Period- Accounting period which
starts after the first month of the tax year or
ends before the last month of the tax year
(less than 12 months).
Residence Principle
A resident alien is liable to pay Philippine
income tax on his income from sources within
the Philippines but is exempt from tax on his
income from sources outside the Philippines.
Instances Whereby
Period Arises
Short
Accounting
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Estates
Trusts
KINDS OF TAXPAYERS
Taxpayer- any person subject to tax imposed
by Title II of the Tax Code (Sec. 22(N), NIRC).
Person- means an individual, a trust, estate or
corporation (Sec. 22(A), NIRC).
Individuals
Corporations
and
Partnerships
Coownerships
Primary
Classification
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Individual Taxpayers
Citizens
(2) Resident Citizens (RC)
(3) Non-resident Citizens (NRC)
(a) Citizen of the Philippines who
establishes to the satisfaction of the
Commissioner the fact of his physical
presence abroad with a definite intention
to reside therein.
(b) Citizen who leaves the Philippines during
the taxable year to reside abroad, either
as an immigrant or for employment on a
permanent basis.
(c) Citizen of the Philippines who works and
derives income from abroad and whose
employment thereat requires him to be
physically present abroad most of the
time during the taxable year.
(d) Citizen previously considered as nonresident citizen and who arrives in the
Philippines at any time during the
taxable year to reside permanently in the
Philippines Treated as NRC with
respect to his income derived from
sources abroad until the date of his
arrival in the Philippines
Sub-Classification(s)
Citizens
Residents citizens
of
the
Non-resident
Philippin
citizens
es
Residents
Engaged
in Trade
or
Business
in
the
Philippine
s
NonAliens
residen Not
ts
Engaged
in Trade
or
Business
in
the
Philippine
s
Special
Classes of Minimum
Wage
Individual Earner
s
Domestic Corporations
Resident
Corporations
Foreign
Corporations
Non-resident
Corporations
Aliens
(1) Resident Alien - An alien actually present in
the Philippines who is not a mere transient
or sojourner is a resident for income tax
purposes.
No/Indefinite Intention = RESIDENT
Definite Intention = TRANSIENT:
Exception: Definite Intention but such cannot
be promptly accomplished, then he becomes
a resident.
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corporation engaged in trade or business
within the Philippines.
Corporations
Partnership
The Tax Code mandates that every other type
of business partnership is subject to income
tax in the same manner and at the same rate
as an ordinary corporation.
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INCOME TAXATION
Income Tax is defined as a tax on all yearly
profits arising from property, professions,
trades, or offices, or as a tax on the persons
income, emoluments, profits and the like
(Fisher v. Trinidad).
General Principles
(1) A resident citizen of the Philippines is
taxable on all income derived from sources
within and without the Philippines;
(2) A nonresident citizen is taxable only on
income derived from sources within the
Philippines;
(3) An individual citizen of the Philippines who
is working and deriving income from abroad
as an overseas contract worker is taxable
only on income derived from sources within
the Philippines:
Co-ownership
For income tax purposes, the co-owners in a
co-ownership report their share of the income
from the property owned in common by them
in their individual tax returns for the year and
the co-ownership is not considered as a
separate taxable entity or a corporation.
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Foreign Corporation
INCOME
Income means all wealth which flows to the
taxpayer other than a mere return of capital. It
includes gain derived from the sale or other
disposition of capital assets. Income is a gain
derived from labor or capital, or both labor and
capital; and includes the gain derived from the
sale or exchange of capital assets.
When Income is Taxable
Existence of taxable income
(1) There is INCOME, gain or profit
(2) RECEIVED or REALIZED during the taxable
year
(3) NOT EXEMPT from income tax
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Capital
Realization of Income
Actual vis--vis Constructive receipt
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Examples:
(1) interest or rent income earned but not yet
received
(2) rent expense accrued but not yet paid
(3) wages due to workers but remaining unpaid
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Personal Property
Real Property
Dealer
Dealer in personal Installment
property
who method; Provided,
regularly sells in initial payments do
installment
plan: not exceed 25% of
Installment method selling price
*held as ordinary If exceeds 25%-assetregardless of Deferred payment
amount
of method
percentage of initial
payments
*held as inventory
Casual Sale
Installment
method; Provided:
(1) Selling
price
exceeds
Php1,000
(2)
Initial
payments do not
exceed 25% of
selling price
If either of 2 or both
conditions
not
metDeferred
payment method
Deferred Payment
(a) If the initial payments exceed 25% of the
selling price, the gain realized may be
reported on a deferred payment method.
(b) The taxable gain or income returnable
during the year of sale is the difference
between the selling or contract price and
the cost of the property, even though the
*personal property
not
considered
inventory
Sale by Individuals
Installment
method; Provided,
initial payments do
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not exceed 25% of
selling price
(2)
*held
asset
as
capital
(3)
(4)
(5)
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which would result in the receipt of income
(Eisner v Macomber).
Claim of right doctrine (or Doctrine of
Ownership, command, or control) a
taxable gain is conditioned upon the
presence of a claim of right to the alleged
gain and the absence of a definite
unconditional obligation to return or repay
that which would otherwise constitute a
gain..
Economic benefit test, Doctrine of
Proprietary Interest any economic benefit
to the employee that increases his net
worth, whatever may have been the mode
by which it is effected, is taxable.
Severance Test - Under the doctrine of
severance test of income, in order that
income may exist, is necessary that there
be a separation from capital of something
of exchangeable value. The income
required a realization of gain.
All Events Test - Under the accrual method
of accounting, expenses are deductible in
the taxable year in which: (1) all events
have occurred which determine the
liability; and (2) the amount of liability can
be determined with reasonable accuracy.
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GROSS INCOME
Gross Income means the pertinent items of
income referred to in Section 32(A) of the Tax
Code. It includes all income derived from
whatever source (unless exempt from tax by
law), including, but not limited to, the
following items
(1) Gross income derived from the conduct of
Trade or business or the exercise of a
profession
(2) Rents
(3) Interests
(4) Prizes and winnings
(5) Compensation for services in whatever form
paid, including, but not limited to fees,
salaries, wages, commissions, and similar
items
(6) Annuities
(7) Royalties
(8) Dividends
(9) Gains derived from dealings in property
(10) Pensions
(11) Partners distributive share from the net
income of the general professional
partnership (GPP) [Sec 32A, NIRC]
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Fringe Benefits
Persons liable: The Employer (as a withholding
agent), whether individual, professional
partnership or a corporation, regardless of
whether the corporation is taxable or not, or
the government and its instrumentalities, is
liable to remit the fringe benefit tax to the BIR
once fringe benefit is given to a managerial or
supervisory employee.
(c) Living quarters or meals General Rule - The value to the employee of
the living quarters and meals given by the
employer shall be added to his
compensation subject to withholding.
Exception - If living quarters/meals are
furnished to an employee for the
convenience of the employer the value
needed NOT be included as part of
compensation income.
NRA-NETB
Alien
individual
employed
by
regional or area HQs
of MNCs or by ROHs
of MNCs
Alien
individual
employed by OBUs
of a foreign bank
established
in
Philippines
Alien
individual
Tax Rate
25% FBT
on
the
GMV of
FB
Tax Base
Monetary
value of FB
divided by
75%
15% FBT
on
the
GMV of
FB
Monetary
value of FB
divided by
85%
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employed
by
a
foreign
service
contractor
or
subcontractor
engaged
in
petroleum
operations in Phils.
Any of their Filipino
individual employees
employed
and
occupying the same
position as those by
alien
employees
above
Subject
to
normal
rate
of
FBT or
Employees in special
special
economic zones
rates of
25% or
15% as
provided
above
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Monetary
value of FB
divided by
85%
or
75%
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Taxable
Net
Income
Ordinary
Net
Income
Net Capital
Gains (other
than those
subject to final
CGT)
Ordinary Assets
Capital Assets
which
would
properly
be
included in the
inventory of the
taxpayer if on hand
at the close of the
taxable year.
(2) Property held by
the
taxpayer
primarily for sale to
customers in the
ordinary course of
his
trade
or
business.
(3) Property used in
the
trade
or
business
of
a
character which is
subject
to
the
allowance
for
depreciation, or
(4) Real property used
in the trade or
business of the
taxpayer, including
property held for
rent.
Ordinary Asset
Capital Asset
Types of Properties
Capital v. Ordinary Asset
Ordinary Assets
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Capital Assets
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Part of Allowable
Deductions from
Gross Income
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SUBSTITUTED
BASIS
TRANSFERRED:
OF
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PROPERTY
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Aircraft,
machineries
and
other Equipment
Other assets
7.5%
25%
30%
25%
Vessel
NonResident
Corporation
4.5%
Tax Rate
NonResident
Alien
25%
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Rent
Income
from
leasehold
improvements:
i. Outright method- lessor shall report as
income FMV of the buildings or
improvements subject to the lease in
the year of completion.
ii. Spread-out method- lessor shall
spread over the remaining term of the
lease the estimated depreciated (book)
value
of
such
buildings
or
improvements at the termination of the
lease, and reports as income for each
remaining term of the lease an aliquot
part thereof. estimated BV at the
end of the lease contract/ remaining
lease term = Income per year
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Income
Interest
Dividends
(b) Intangible
General rule: Place of Sale
Exception: Shares of stock of
domestic corporations: Place
of incorporation
of Place of incorporation
of
Shares
Stock
Domestic
Corporation
Income
Situs
Situs
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Exclusion
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Taxpayer
Return of capital
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(g) Retirement
benefits,
pensions,
gratuities, etc.
These are
(1) Retirement benefits under RA 7641, RA
4917, and Section 60(B) of the NIRC
(2) Terminal pay
(3) Retirement Benefits from foreign
government agencies
(4) Veterans benefits
(5) Benefits under the Social Security Act
(6) GSIS benefits
taxable damages
above
Nontaxable
compensation for
damages on account of
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Taxable
compensation for
damages on account
of
(1) Actual damages
for
loss
of
anticipated profits
(2) .Moral
and
exemplary
damages awarded
as a result of
break of contract
(3) Interest for non-
RA 7641
RPBP
Retiring
employee Retiring official or
must be in the service employee must have
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retiring
government
employees
is
considered not part of the gross salary, and
is exempt from taxes. The government
recognizes that for most public servants,
retirement pay is always less than
generous if not meager and scrimpy.
Terminal leave payments are given not
only at the same time but also for the same
policy considerations governing retirement
benefits. (Commissioner v. Castaneda, 203
SCRA 72).
Retirement BENEFITS from foreign
government agencies
The social security benefits, retirement
gratuities, pensions and other similar
benefits received by resident or nonresident citizens or aliens who come to
reside permanently in the Philippines from
foreign government agencies and other
institutions, private or public;
Plan
must
be
reasonable.
Its
implementation must
be fair and equitable
for the benefit of all
employees (e.g. from
president to laborer)
Plan
must
be
approved by BIR
GSIS benefits
Benefits received from GSIS under the
GSIS Act of 1937, as amended, and the
retirement
gratuity
received
by
government officials and employees are
not taxable. [Sec. 32B6., NIRC; Sec. B1, RR
2-98]
40
UP LAW BOC
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Types of deductions
There are three (3) types of deductions from
gross income:
(a) itemized deductions in Section 34(A) to (J)
and (M) available to all kinds of taxpayers
engaged in trade or business or practice of
profession in the Philippines;
(b) optional standard deduction in Section 34(L)
available only to individual taxpayers
deriving business, professional, capital
gains and passive income not subject to
final tax, or other income; and
(c) the special deductions in Sections 37 and 38
of the NIRC, and in special laws like the BOI
law (E.O. 226).
Return of capital (cost of sales or services)
Income tax is levied by law only on income;
hence, the amount representing return of
capital should be deducted from proceeds
from sales of assets and should not be subject
to income tax.
Costs of goods purchased for resale, with
proper adjustment for opening and closing
inventories, are deducted from gross sales in
computing gross income (Sec. 65, Rev. Reg. 2)
Itemized deductions
41
UP LAW BOC
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(1) Expenses
Business expenses deductible from gross
income include the ordinary and necessary
expenditures directly connected with or
pertaining to the taxpayers trade or business.
The cost of goods purchased for resale, with
proper adjustment for opening and closing
inventories, is deducted from gross sales in
computing gross income.
Requisites for deductibility of business
expenses.
(a) Ordinary AND necessary;
(b) Paid or incurred during the taxable year;
(c) Others: (not in the SC syllabus)
(1) Paid or incurred in carrying on or which
are directly attributable to the
development, management, operation
and/or conduct of the trade, business or
exercise of profession;
(2) Substantiated by adequate proof
documented by official receipts or
adequate records, which reflect the
amount of expense deducted and the
connection or relation of the expense to
the business/trade of the taxpayer);
(3) Legitimately paid (not a BRIBE, kickback,
or otherwise contrary to law, morals,
public policy);
(4) If subject to withholding tax, the tax
required to be withheld on the expense
paid or payable is shown to have been
properly withheld and remitted to the
BIR on time;
(5) Amount must be reasonable.
(2) Interest
Requisites for deductibility.
(1) There is an indebtedness.
(2) The indebtedness is that of the taxpayer
(3) The indebtedness is connected with the
taxpayers trade, profession, or business.
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UP LAW BOC
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(3) Taxes
Taxes Proper: Refers to national and local
taxes;
Requisites for deductibility.
Such tax must be:
(a) Paid or incurred within the taxable year;
(b) Paid or incurred in connection with the
taxpayers trade, profession or business;
(c) Imposed directly on the taxpayer.
(d) Not specifically excluded by law from being
deducted from the taxpayers gross income.
Non-deductible taxes.
(1) Philippine income tax, except Fringe Benefit
Taxes;
(2) Income tax imposed by authority of any
foreign country, if taxpayer avails of the
Foreign Tax Credit (FTC)
(a) Exception to exception: When the
taxpayer does NOT signify his desire to
avail of the tax credit for taxes of foreign
countries, the amount may be allowed as
a deduction from gross income of citizens
and domestic corporations subject to the
limitations set forth by law.
(3) Estate and donors taxes
(4) Percentage tax on stock transaction;
(5) Taxes assessed against local benefits of a
kind tending to increase the value of the
property assessed (Special Assessments)
(6) Value Added Tax
(7) Fines and penalties
(8) Final taxes
(9) Capital Gains Tax
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UP LAW BOC
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Special Rules:
1. Treatments of surcharges/interests/fines for
delinquency. The amount of deductible
taxes is limited to the basic tax and shall not
include the amount for any surcharge or
penalty on delinquent taxes. However,
interest on delinquent taxes, although not
deductible as tax, can be deducted as
interest expense at its full amount. (CIR v
Palanca, 18 SCRA 496).
2. Treatment of special assessment.Special
assessments and other taxes assessed
against local benefits of a kind tending to
increase the value of the property assessed
are non-deductible from gross income.
3. Tax credit - amount allowed by law to reduce
the Philippine income tax due, subject to
limitations, on account of taxes paid or
accrued to a foreign country
Formula:
Limit #1
Taxable
Income Per
Foreign
Country
Worldwide
Taxable
Income
Limit #2
Taxable
Income For
all Foreign
Countries
Worldwide
Taxable
Income
Phil.
=
Income Tax
Limit on
amount
of tax
credit
(Per
Country
Limit)
Phil.
=
Income Tax
Limit on
amount
of tax
credit
(World
Wide
Limit)
UP LAW BOC
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except for banks and trust companies
under conditions in Sec. 39 of NIRC
where loss from such sale is not
subject to the foregoing limitation);
(4) Losses
Requisites for deductibility.
(1) Loss must be that of the taxpayer (e.g.,
losses of the parent corp. cannot be
deducted by its subsidiary);
(2) Actually sustained and charged off within
the taxable year;
(3) Incurred in trade, business or profession;
(4) Of property connected with the trade,
business, or profession, if the loss arises
from fires, storms, shipwreck or other
casualties, or from robbery, theft, or
embezzlement;
(5) Sustained in a closed and completed
transaction;
(6) Not compensated for by insurance or other
form of indemnity;
(7) Not claimed as a deduction for estate tax
purposes;
(8) In case of casualty loss, filing of notice of
loss with the BIR within 45 days from the
date of the event that gave rise to the
casualty; and
(9) The taxpayer must prove the elements of
the loss claimed, such as the actual nature
and occurrence of the event and amount of
the loss.
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Other Losses:
(1) Abandonment losses in petroleum operation
and producing well.
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UP LAW BOC
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(6) Depreciation
Requisites for Deductibility.
1. It must be reasonable.
2. It must be charged off during the year.
3. The asset must be used in profession, trade
or business.
4. The asset must have a limited useful life.
5. The depreciable asset must be located in
the Philippines if the taxpayer is a
nonresident alien or a foreign corporation.
[Valencia and Roxas]
UP LAW BOC
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deductible in year the contribution is made,
the remaining balance will be amortized
equally over nine consecutive years
Statutory Limit:
(a) 10% in the case of an individual (individual
donor), and
(b) 5% in the case of a corporation (corporate
donor),
of the taxpayer's/donors income derived from
trade, business or profession computed before
the deduction for contributions and donations
Requisites:
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UP LAW BOC
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OSD is a proxy for all the items of
deductions allowed in arriving at
taxable income. This means that the
OSD is in lieu of the items of
deductions claimed by the GPP and the
items of deduction claimed by the
partners.
c. If the GPP avails of OSD in computing
its net income, the partners comprising
it can no longer claim further
deduction from their share in the said
net income.
d. The type of deduction chosen by the
GPP must be the same type of
deduction that can be availed of by the
partners. (RR 2-2010)
Partnerships
(1) General Co-Partnership
For purposes of taxation, the Code
considers general co-partnerships as
corporations. Hence, rules on OSD for
corporations are applicable to general copartnerships.
UP LAW BOC
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Status-at-the-end-of-the-year rule
Change of Status[Sec 35(C), NIRC]
(1) If taxpayer marries during taxable year,
taxpayer may claim the corresponding BPE
in full for such year (i.e., no need to pro-rate
the exemption).
(2) If taxpayer should have additional
dependent(s) during taxable year, taxpayer
may claim corresponding AE in full for such
year.
(3) If taxpayer dies during taxable year, his
estate may claim BPE and AE as if he died at
the close of such year.
(4) If during the taxable year
(a) spouse dies or
(b) any of the dependents dies or marries,
turns 21 years old or becomes gainfully
employed, taxpayer may still claim same
exemptions as if the spouse or any of the
dependents died, or married, turned 21
years old or became gainfully employed
at the close of such year.
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UP LAW BOC
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exempt corporations
These are:
(1) Proprietary Educational Institutions and
hospitals
(2) Government
owned
and
controlled
corporations
(3) Others
Proprietary Educational Institutions and
hospitals
By way of exception, proprietary educational
institutions and hospitals are liable for net
income at a rate of only ten percent (10%).
Government owned and controlled corporations
All corporations, agencies, or instrumentalities
owned or controlled by the Government are
subject to income tax, except:
(1) GSIS
(2) SSS
(3) PHIC
(4) Local water districts (LWDs)
(5) PCSO
Others
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UP LAW BOC
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for profit regardless of the disposition
made of such income, shall be subject to
tax.
(b) RA 9178 Act to Promote the
Establishment of Barangay Micro
Business
Enterprises
(BMBEs)
implemented by DO 17-04, April 20,
2004
(1) BMBEs shall be exempt from income
tax for income arising from the
operations of the enterprise.
(2) BMBE is any business entity or
enterprise engaged in the production,
processing or manufacturing of
products or commodities, including
agro-processing trading and services,
whose total assets including those
arising from loans but exclusive of
land on which the particular business
entitys office, plant and equipment
are situated, shall not be more than
P3M.
(c) Recreational Clubs - RMC 35-2012
(August 3, 2012) clarifies taxability of
clubs organized exclusively for pleasure,
recreation
and other non-profit
purposes (recreational clubs). Income
from whatever sources including but not
limited to membership fees, assessment
dues, rental income, and service fees are
subject to income tax and VAT.
Note:
(a) Notwithstanding
the
exemptions,
income of whatever kind and character
of the enumerated organizations from
any of their properties, real or personal,
or from any of their activities conducted
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UP LAW BOC
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Taxable Income
Resident Citizen
Income
from
sources within and
outside
the
Philippines
Non-Resident Citizen
Income
from
sources within the
Philippines
Resident Alien
Income
from
sources within the
Philippines
Non-resident
Alien Income
from
Engaged in Trade or sources within the
Business
Philippines
Basic Personal
Exemption
Allowed
Additional
Personal
Exemption
Allowed
Tax Rates
5%-32%
Allowed
Allowed
5%-32%
Allowed
Allowed
5%-32%
Lower
amount No
specific 5%-32%
between
PE provision
allowed to Filipinos
in
the
foreign
country where he
resides vs. PE in the
Philippines
Non-resident
Alien Income
from Not allowed
Not allowed
25%
Not Engaged in Trade sources within the
or Business
Philippines
General rule that resident citizens are taxable on
income from all sources within and without the
Philippines
UP LAW BOC
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fair market value of the thing taken in
payment is the measure of the income
subject to tax.
(a) Fringe benefit not subject to tax
If the recipient of the fringe benefits is a
rank and file employee, and the said
fringe benefit is not tax-exempt, then the
value of such fringe benefit shall be
considered as part of the compensation
income of such employee subject to tax
payable by the employee. (Domondon)
Exclusions
(1) Fringe benefit subject to tax
Convenience of the ER Rule
If meals, living quarters, and other facilities
and privileges are furnished to an employee
for the convenience of the employer, and
incidental to the requirement of the
employees work or position, the value of
that privilege need not be included as
compensation (Henderson v. Collector (1961)).
(2) De minimis benefits - These are exempt from
fringe benefit tax and compensation income
tax.
(3) Bonuses, 13th month pay and other benefits
and payments specifically excluded from
taxable compensation income
(a) Gross benefits received by employees of
public and private entities provided that
the total exclusion shall not exceed
P82,000 (amounts in excess are
considered compensation income) (R.A.
10653)
Deductions
(1) Personal exemptions
and additional
exemptions
(2) Health and hospitalization insurance
(a) Premium
Paid
on
Health
or
Hospitalization Insurance [Sec.34 (M)]
(b) Amount of premium paid on health
and/or hospitalization by an individual
UP LAW BOC
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NRAETB NRANETB
20%
20%
20%
25%
25%
25%
20%
25%
10%
25%
20%
20%
25%
25%
Exempt
Exempt
Exempt
25%
5%
12%
25%
25%
20%
25%
NRAETB NRANETB
20%
25%
20%
25%
20%
25%
UP LAW BOC
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But should the holder of the certificate preterminate the deposit or investment before
the 5th year, a final tax shall be imposed on
the entire income and shall be deducted
and withheld by the depository bank from
the proceeds of the long-term deposit or
investment certificate based on the
remaining maturity thereof:
(a) Four (4) years to less than five (5) years 5%;
(b) Three (3) years to less than four (4) years
- 12%; and
(c) Less than three (3) years - 20%.
UP LAW BOC
General rule: 6% ofwhichever is higher
(a) Gross selling price, or
(b) Fair market value (determined
accordance with Sec. 6(E)).
TAXATION 1
in
TAXATION LAW
Determination of whether short- or longterm: If held for <12 mos, then short-term.
Otherwise, long-term.
Except
(1) In case of sales made to the government, any
of its political subdivisions or agencies, or to
GOCCs, it can be taxed either:
(a) Under Sec. 24(C)(1) 6% CGT, or
(b) Under Sec. 24(A), at the option of the
taxpayer.
(2) In case of the sale of or disposition of their
principal residence by natural persons
(a) Tax treatment: Exempt from capital
gains tax (CGT). If there is no full
utilization of the proceeds of sale or
disposition, the portion of the gain
presumed to have been realized from
the sale or disposition shall be subject
to CGT.
(b) How taxable portion and tax
determined:
[ @ (
)] [
]
Amount in
excess of
P100,000
Section 24(D).Capital Gains Tax from Sale of
Real Property Classified as Capital Asset
RES/CIT NRAETB NRANETB
Tax base:
Gross
selling price
or current
fair market
value,
whichever
is higher
Tax rate:
6%
6%
6%
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Resident
CITIZEN
ALIEN
Category of Income
(1) Compensation
Profession
Business
All sources
Within the
Philippine
s
Non-Resident
CITIZEN
NRAETB NRANETB
Within the
Philippine
s
Within the
Philippine
s
Within the
Philippine
s
GIW
25%
Not
Applicabl
e
Final
EXEMPT
Philippine
EXEMPT
UP LAW BOC
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Resident
CITIZEN
ALIEN
Category of Income
domestic stock exchange)
TAXATION LAW
Non-Resident
CITIZEN
NRAETB NRANETB
(10)
Capital Gains on Sale of Real
Gross Selling Price or FMV, whichever is higher
Property in the Philippines
6% Final Withholding Tax
(11)
Sale of Shares of Domestic
of 1% of the Selling Price (Stock Transaction Tax)
Corp. (traded in a domestic stock
Note: Stock Transaction Tax is not an income tax, but a
exchange)
business (percentage) tax
(12) Sale of Real Property located
Abroad
Schedular Income Tax Rates (Sec. 24, NIRC)
(13) Sale of Shares of Foreign Corp
(i.e, 5% to 32%)
(14) Passive Income from Abroad
Computations
Pure Compensation Income
Gross Compensation Income
Less: Personal
&
Additional
Exemptions
and
hospitalization/health
insurance premium
Taxable Income
x
Rate
Income Tax
Less: Creditable Withholding Tax on
Compensation Income
Tax Payable
insurance premium
Taxable Compensation Income
ADD: Gross Business Income &/or
Income from Practice of
Profession
Less: Allowable Deduction (itemized
or optional deduction)
Taxable Income
x
Rate
Income Tax
Less: Creditable Withholding Tax on
Compensation Income/Other
Allowable Tax Credit
Tax Payable
xx
xx
xx
xx
xx
xx
Less:
Xx
Xx
Xx
Xx
Xx
Xx
Xx
UP LAW BOC
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(b) Personal
&
Additional
Exemptions
and hospitalization/health
insurance premium
Total Taxable Income
x
Rate
Income Tax
Less: Creditable Withholding Tax on
Compensation
Income/Other
Allowable Tax Credit
Tax Payable
Taxation of non-resident
engaged in trade or business
TAXATION LAW
xx
Xx
Xx
Xx
Xx
Except:
(1) The following Royalties shall be subject to a
final tax of ten percent (10%) on the total
amount thereof:
(a) On books as well as other literary works;
and
(b) On musical compositions
(2) Cinematographic films and similar works
shall be subject to twenty-five percent
(25%) of the gross income
(3) Interest income from long-term deposit or
investment in the form of savings, common
or individual trust funds, deposit substitutes,
investment management accounts and
other investments evidenced by certificates
in such form prescribed by the Bangko
Sentral ng Pilipinas (BSP) shall be exempt
from the tax
aliens
general rules
(a) Subject to an income tax in the same
manner as an individual citizen and a
resident alien individual on taxable income
from all sources within the Philippines
(b) Nonresident alien doing business in the
Philippines: a non-resident alien individual
who shall come to the Philippines and stay
therein for an aggregate period of more
than 180 days during any calendar year
But should the holder of the certificate preterminate the deposit or investment before
the fifth (5th) year, a final tax shall be
imposed on the entire income and shall be
deducted and withheld by the depository
bank from the proceeds of the long-term
deposit or investment certificate based on
the remaining maturity thereof:
(a) Four (4) years to less than five (5) years 5%;
(b) Three (3) years to less than four (4) years 12%; and
(c) Less than three (3) years - 20%.
capital gains
61
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senior citizens
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Regular Tax
Normal Corporate Income Tax Rate: 30%of
Taxable Income (effective January 1, 2009)
Gross Income
Less: Allowable Deductions
Taxable Income
XXX
XXX
XXX
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allowable deductions
Itemized deductions
(1) Bad debts
(2) Expenses
(3) Losses
(4) Taxes
(5) Depreciation
(6) Interest
(7) Depletion of oil and gas wells and mines
(8) Charitable and other contributions
(9) Research and development
(10) Pension trusts
Optional standard deduction
(a) Before RA 9504, effective July 6, 2009,
OSD only applied to individuals except nonresident aliens.
65
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expanded foreign currency deposit system
shall
be
exempt
from
incomeexemptfromincome tax
Inter-corporate dividends
Dividends received from another domestic
corporation - exempt
UP LAW BOC
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government
performing
governmental
functions may be subject to tax. Where it is
done precisely to fulfilfulfill a constitutional
mandate and national policy, no one can doubt
its wisdom. (Mactan Cebu Airport v Marcos,
1996)
Taxation
of
Corporations
Resident
Foreign
general rule
A resident foreign corporation is a corporation
organized under the laws of a foreign country,
which is engaged in trade or business in the
Philippines.
(a) A Philippine branch of a foreign corporation
duly licensed by the SEC is considered a
resident foreign corporation. Thus, only the
income of the Philippine branch from sources
within the Philippines is subject to Philippine
income tax.
(b) Marubeni v. Commissioner: As general rule,
the head office of a foreign corporation is
the same juridical entity as its branch in the
Philippines following the single entity
concept. Thus, the income from sources
within the Phils. of the foreign head office
shall thus be taxable to the Philippine
branch.
tax
on
government-owned
or
controlled corporations, agencies or
instrumentalities
For GOCCs:
General rule:GOCCs are taxable as any other
corporation engaged in similar business,
industry or activity, except:
(a) Government Service Insurance System
(GSIS)
(b) Social Security System (SSS)
(c) Philippine Health Insurance Corporation
(PHIC)
(d) Local water districts (LWDs)
(e) Philippine Charity Sweepstakes Office
(PCSO)
(Sec. 27(C), NIRC)
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Intercorporate dividends
(a) (Intercorporate Dividend) 15%, as long as
the country in which the nonresident foreign
corporation is domiciled allows a tax credit
for taxes deemed paid in the Philippines
equivalent to at least15%
(b) 15% represents the difference between the
regular income tax of 30% on corporations
and the 15% tax on dividends (tax sparing
credit)
(c) If the country within which the NRFC is
domiciled does NOT allow a tax credit, a
final withholding tax at the rate of30% is
imposed on the dividends received from a
domestic corporation.
TAXATION LAW
Tax
Rate
Tax Base
Domestic Corporations
Proprietary Educational Institutions and Hospitals
Taxable Income from all sources
(Non-profit)
Depository Banks (Foreign Currency Deposit Units)
(1) With respect to income derived under the Exempt (except that net income
expanded foreign currency deposit system from from such transactions is subject
certain foreign currency transactions
to the regular income tax payable
(2) With respect to interest income from foreign by banks)
currency loans to residents other than offshore
units in the Philippines or other depository banks Amount of interest income
under the expanded system
Resident Foreign Corporations
International Carriers (Preferential Rate/Exempt subj Gross Philippine Billings
to reciprocity RA 10378)
Offshore Banking Units
(1) With respect to income derived by offshore Exempt (except that net income
banking units from certain foreign currency from such transactions is subject
transactions
to the regular income tax payable
(2) With respect to interest income derived from by banks)
foreign currency loans granted to residents other
than offshore banking units or local commercial Amount of interest income
banks
69
10%
10%
2.5%
10%
UP LAW BOC
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Type of Corporation
TAXATION LAW
Tax
Rate
Tax Base
70
10%
10%
25%
4.5%
7.5%
UP LAW BOC
Improperly Accumulated
Corporations
TAXATION 1
Earnings
of
TAXATION LAW
Taxation of Partnerships
Classification of Partnerships for Tax
Purposes
Covered Corporations
Only domestic corporations classified as closelyheld corporations are liable for IAET.
UP LAW BOC
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individual
capacity,
whether
actually
distributed or not. [Sec. 73(D)] Such share will
be subjected to a final tax of 10% to be
withheld by the partnership. [Sec. 24(B)(2)]
TAXATION LAW
Co-ownership
When Co-ownership is not subject to tax
When the co-ownerships activities are limited
merely to the preservation of the co-owned
property and to the collection of the income
from the property. The income derived by a coowner from the property shall be reported in
his individual tax return regardless of whether
such income is actually or constructively
received.
When Co-ownership is subject to tax
The following circumstances would render a
co-ownership subject to a corporate income
tax: (a) When a co-ownership is formed or
established voluntarily, or upon agreement of
the parties; (b) When the individual co-owner
reinvested his share, and (c) When the
inherited property remained undivided for
more than ten years, and no attempt was ever
made to divide to same among the co-heirs,
nor was the property under administration
proceedings nor held in trust, the property
should be considered as owned by an
unregistered partnership.
Joint Venture and Consortium
An unincorporated joint venture is taxed likes a
corporation. The share of the joint venture
partners will no longer be taxable to them
because they partake of dividends if paid to a
domestic or resident corporation.
However, an unincorporated joint venture
formed for the purpose of undertaking a
construction project or engaging in petroleum
operations pursuant to the consortium
agreement with the Philippine Government is
not subject to the corporate income tax. Only
72
UP LAW BOC
Taxation
of
Partnerships
TAXATION 1
General
Professional
TAXATION LAW
Withholding Tax
Withholding tax is a method of collecting
income tax in advance from the taxable income
of the recipient of income. It is a systematic
way of collecting taxes at source, an
indispensable method of collecting taxes to
ensure adequate revenue for the government.
Rules
(1) A GPP is a partnership formed by persons
for the purpose of exercising their common
profession, no part of the income of which is
derived from engaging in trade or business.
A GPP as such shall not be subject to the
income tax. It is not a taxable entity for
income tax purposes.
(2) The partners shall only be liable for income
tax only in their separate and individual
capacities.
(3) For purposes of computing the distributive
share of the partners, the net income of the
GPP shall be computed in the same manner
as a corporation.
(4) Each partner shall report as gross income
his
distributive
share,
actually
or
constructively received, in the net income of
the partnership.
(5) The distributive share of a partner (actual or
constructive) shall be subject to a creditable
withholding income tax of 10% if the amount
share is not more than P720,000 and 15% if
the amount of the share is more than
P720,000. (RR 2- 1998)
(6) If the partnership sustains a net operating
loss, the partners shall be entitled to deduct
their respective shares in the net operating
loss from their individual gross income.
Kinds
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withholding of vat
(1) On gross payments for the purchase of
goods
(2) On gross payments for the purchase of
services
(3) Payments made to government public
works contractors
(4) Payments for lease or use of property or
property rights to non-resident owners
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(b) Royalties
(c) Prizes (except prizes amounting to
P10,000 or less which is subject to tax
under Sec. 25(A)(1) of the Tax Code
(d) Winnings (except from Philippine
Charity Sweepstake Office and Lotto)
(e) Interest income on foreign currency
deposit
(f) Interest income from long term deposit
(g) Cash and/or property dividends
(h) Capital Gains presumed to have been
realized from the sale, exchange or
other disposition of real property
(2) Income Payments to a Non-Resident Alien
Engaged in Trade or Business in the
Philippines
(a) On Certain Passive Income
(1) cash and/or property dividend
(2) Share in the distributable net
income of a partnership
(3) Interest on any bank deposits
(4) Royalties
(5) Prizes (except prizes amounting to
P10,000 or less which is subject to
tax under Sec. 25(A)(1) of the Tax
Code.
(6) Winnings (except from Philippine
Charity Sweepstake Office and
Lotto)
(b) Interest on Long Term Deposits
(c) Capital Gains presumed to have been
realized from the sale, exchange or
other disposition of real property
(3) Income Derived from All Sources Within
the Philippines by a Non-Resident Alien
Individual Not Engaged in Trade or
Business
(a) On gross amount of income derived
from all sources within the Philippines
(b) On Capital Gains presumed to have
been realized from the sale, exchange
or disposition of real property located
in the Philippines
(4) Income Derived by Alien Individual
Employed by a Regional or Area
(5)
(6)
(7)
(8)
75
TAXATION LAW
Headquarters and Regional Operating
Headquarters of Multinational Companies
Income Derived by Alien Individual
Employed by Offshore Banking Unit
Income of Aliens Employed by Foreign
Petroleum Service Contractors and
Subcontractors
Income Payment to a Domestic
Corporation
(a) Interest from any currency bank
deposits and yield or any other
monetary benefit from deposit
substitutes and from trust fund and
similar arrangements derived from
sources within the Philippines
(b) Royalties derived from sources within
the Philippines
(c) Interest income derived from a
depository bank under the Expanded
Foreign Currency Deposit (FCDU)
System
(d) Income derived by a depository bank
under the FCDU from foreign
transactions with local commercial
banks
(e) On capital gains presumed to have
been realized from the sale, exchange
or other disposition of real property
located in the Philippines classified as
capital assets, including pacto de retro
sales and other forms of conditional
sales based on the gross selling price
or fair market value as determined in
accordance with Sec. 6(E) of the NIRC,
whichever is higher
Income Payments to a Resident Foreign
Corporation
(a) Offshore Banking Units
(b) Tax on branch Profit Remittances
(c) Interest on any currency bank deposits
and yield or any other monetary benefit
from deposit substitute and from trust
funds and similar arrangements and
royalties derived from sources within
the Philippines
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TAXATION LAW
(d) Expenses for foreign travel
(e) Holiday and vacation expenses
(f) Educational assistance to employees
or his dependents
(g) Membership fees, dues and other
expense in social and athletic clubs or
other
similar
organizations
- Health insurance
(h) Informers Reward
Income payments
Withholding Tax:
76
subject
to
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pesos (P2,000) per month,
regardless of the number of
shipments during the month
(2) Filling, demolition and salvage
work contractors and operators of
mine drilling apparatus
(3) Operators of dockyards
(4) Persons engaged in the installation
of water system, and gas or electric
light, hear or power
(5) Operators
of
stevedoring,
warehousing
or
forwarding
establishments
(6) Printers,
bookbinders,
lithographers and publishers,
except those principally engaged in
the publication or printing of any
newspaper, magazine, review or
bulletin which appears at regular
intervals, with fixed prices for
subscription and sale
(7) Advertising agencies, exclusive of
payments to media
(8) Independent
producers
of
television, radio and stage
performances or shows
(9) Independent producers of "jingles"
(10) Labor recruiting agencies
(11) Persons engaged in the installation
of
elevators,
central
air
conditioning
units,
computer
machines and other equipment
and
machineries
and
the
maintenance services thereon
(12) Messengerial, janitorial, security,
private detective and other
business agencies
(13) Persons engaged in landscaping
services
(14) Persons engaged in the collection
and disposal of garbage
(15) TV and radio station operators on
sale of TV and radio airtime, and
(16) TV and radio blocktimers on sale of
TV and radio commercial spots
77
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timing of withholding
The obligation of the payor to deduct and
withhold the tax arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense
or asset, whichever is applicable, in the payors
books, whichever comes first.
The term
payable refers to the date the obligation
becomes due, demandable or legally
enforceable.
Where income is not yet paid or payable but
the same has been recorded as an expense or
asset, whichever is applicable, in the payors
books, the obligation to withhold shall arise in
the last month of the return period in which the
same is claimed as an expense or amortized
for
tax
purposes.
(Mamalateo)
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I. ESTATE TAX
BASIC PRINCIPL ES
Time of death governs:
(1) The determination of the extent of the
decedents interest for computing his gross
estate.
(2) The statute that governs estate taxation.
(3) The accrual of the estate tax.
DEFINITION
ESTATE TAX is tax on the (i) right to transmit
property at death and on certain transfers by the
decedent during his lifetime OR (ii) those which
are made by the law equivalent of testamentary
dispositions.
TAXABLE TRANSFERS
Taxable transfers are complete when the
transferor divested himself of all economic
beneficial interest in himself or his estate.
Transfers Mortis Causa
A
donation
which
purports to be one inter
vivos but
withholds
from the donee the
right to dispose of the
donated
property
during the donor's
lifetime is in truth
one mortis causa.
Characteristics:
(i) It conveys no title or
ownership
to
the
transferee before the
death of the transferor;
or what amounts to the
same thing, that the
transferor should retain
the ownership (full or
naked) and control of
the property while
alive;
(ii) That before his
death, the transfer
should be revocable by
the
transferor
at
TAXATION LAW
CLASSIFICATION OF DECEDENT
Estate Tax applies only to individuals. The
decedent may be classified into:
(a) Citizen (RC/NRC)
(b) Resident alien (RA); or
(c) Non-resident alien (NRA).
CONCEPT OF RESIDENCE
Residence
and
domicile
are
interchangeably without distinction.
82
used
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SITUS
OF
PROPERTIES
TAXATION 2
INTANGIBLE
TAXATION LAW
If there is reciprocity, the intangible personal
property of an NRA shall not be included in
his gross estate. If there is no reciprocity,
such intangible personal property will be
included.
PERSONAL
Gross Estate
Net Estate
RULE OF RECIPROCITY
There is reciprocity if the foreign country of which
the decedent was a citizen and resident at the
time of his death:
(a) Did not impose a transfer tax of any
character, in respect of intangible personal
property of citizens of the Philippines not
residing in that foreign country; OR
(b) Allowed a similar exemption from transfer
tax in respect of intangible personal property
owned by citizens of the Philippines not
residing in that country
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NRA
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RC/NRC/RA
Ordinary deductions
(1) Expenses, losses, indebtedness, taxes. (ELIT)
Funeral expenses
Judicial expenses
Claims against the estate
Claims against insolvent persons
Unpaid mortgage and debt
Taxes
Losses
(2) Vanishing deductions
(3) Transfers for public use
(4) Amounts received under R.A. 4917
Special deductions
(a) Family home
(b) Standard deduction
(c) Medical expenses
Share in conjugal property
NRA
Ordinary deductions2
(1) Proportionate deductions for expenses, losses,
indebtedness, taxes. (ELIT)3
Funeral expenses
Judicial expenses
Claims against the estate
Claims against insolvent persons
Unpaid mortgage and debt
Taxes
Losses
(2) Vanishing deductions
(3) Transfers for public use
No Amounts received under R.A. 4917
No special deductions
No deduction shall be allowed for NRA, if the executor, administrator, or anyone of the heirs, DID NOT include in the return
required to be filed under Section 90 of the Code the value at the time of the decedents death of that part of his gross estate NOT
situated in the Philippines. [Sec. 86 (D), NIRC; Sec 7, RR 2-2003]
2
85
ELIT
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UNPAID MORTGAGES,
TAXES (SEC. 86(A)(1)(E))
LOSSES
TAXATION LAW
Not included:
(a) Income tax upon income received after death,
or
(b) Property taxes not accrued before his death,
or
(c) The estate tax due from the transmission of
his estate
CASUALTY LOSSES
Requisites for Deductibility
(a) Incurred during the settlement of the estate
(b) Arising from fires, storms, shipwreck, or other
casualties
from
robbery,
theft,
or
embezzlement
(c) Not compensated by insurance or otherwise
(d) At the filing of the estate tax return, such
losses have not been claimed as a deduction
for income tax purposes in an income tax
return
(e) Incurred not later than the last day for the
payment of the estate tax as prescribed by
law.
AND
UNPAID MORTGAGES
Requisites for Deductibility [Sec. 6-A5(a), RR 22003]
(a) The value of the decedents interest therein,
undiminished by such mortgage or
indebtedness, is included in the value of the
gross estates.
(b) The mortgages were contracted bona fide
and for an adequate and full consideration in
money or moneys worth.
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(2)
Conditions
(1) There must be 2 deceased persons and the
first one is the donor
(2) The second decedent dies within 5 years after
the death of a prior decedent, or in case of
gift, the decedent-donee dies within the
same period after the date of the gift.
Requisites
(1) Death The present decedent died within 5
years from the date of the prior decedent OR
date of gift.
(2) Identity of the property The property with
respect to which deduction is sought can be
identified as the one who received from prior
decedent, or from the donor, or as the
property acquired in exchange for the
original property so received.
(3) Inclusion of the property The property must
have formed part of the gross estate situated
in the Philippines of the prior decedent, or
have been included in the total amount of
the gifts of the donor made within 5 years
prior to the present decedents death.
(4) Previous taxation of property The estate tax
on the prior succession, or the donors tax on
the gift must have been finally determined
and paid by the prior decedent or by the
donor, as the case may be.
(5) No previous vanishing deduction on the
property No such deduction on the property,
or the property given in exchange therefor,
was allowed in determining the value of the
net estate of the prior decedent. This is
intended to preclude the application of the
vanishing deduction on the same property
more than once.
(3)
(a)
(b)
(4)
TAXATION LAW
the aggregate value of such property if more
than one item, as finally determined for the
purpose of the prior estate tax (or gift tax) or
the value of such property in present
decedents gross estate, whichever is lower.
Deduction for mortgage or lien The initial
value (in number 1 above) shall be reduced by
the total amount paid, if any, by the present
decedent on any mortgage or other lien on
the property where a deduction was allowed,
by reason of the payment, of such mortgage
or other lien from the gross estate of the prior
decedent, or gift or donor, in determining the
estate tax of the prior decedent or the
donors tax.
Deductions for expenses, etc. The value as
reduced in #2 shall be further reduced by an
amount which bears the same ratio to the
amounts allowed as deductions for:
Expenses, losses, indebtedness, and taxes
(ordinary deductions), and
Transfers for public use as the amount
otherwise deductible for property previously
taxed bears to the value of the decedents
gross estate; and
Percentage of deductions The vanishing
deduction shall be the value (final basis) in
#3 multiplied by the ff. percentages:
VD
If received by inheritance or gift
Rate
100% Within one (1) year prior to the death of
the present decedent
80% More than one year but not more than
two years prior to the death of the
decedent
60% More than two years but not more than
three years
40%
20%
Limitations
(1) Value of property The deduction is limited
by the value of property previously taxed or
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TAXATION LAW
FORMULA FOR VANISHING DEDUCTIONS:
(please take note of the limitations above)
death of the decedent-employee in accordance
with RA 4917, provided that such amount is
Value Taken of Property
included in the gross estate of the decedent.
Less: Mortgage debt paid, if any
These include:
(1) Retirement benefits from private firms with
= Initial Basis
private benefit plan, if the retiring employee
Less: Proportionate Deduction**
is 50 years old or older. This can only be once
availed.
= Final Basis
(2) Benefits granted in case of separation
Multiplied by Deduction Rate
beyond the control of the employee.
VANISHING DEDUCTION
**Proportionate Deduction
=
( +
SPECIAL DEDUCTIONS
Limitation: P 1,000,000.00
90
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91
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before the marriage by
either spouse who has
legitimate descendants
from a former marriage,
and the fruits as well as
the income, if any, of
such property. (Art. 92
Family Code)
2. Property acquired
during the marriage is
presumed to belong to
the community, unless
it is proved that it is one
of
those
excluded
therefrom.
TAXATION 2
acquires DURING the
marriage by gratuitous
title
c. That which is
acquired by right of
redemption, by barter
or by exchange with
property belonging to
only one of the spouses
d. That which is
purchased
with
exclusive money of the
wife or the husband
(Art. 109, Family Code)
2. Property bought on
instalments paid partly
from exclusive funds of
either or both spouses
and
partly
from
conjugal funds belong
to the buyer or buyers if
full ownership was
vested BEFORE the
marriage subject to
reimbursement
advanced
by
the
conjugal partnership or
by either or both
spouses.
(Art.
118,
Family Code)
3. Whenever an amount
or credit payable within
a period of time
belongs to one of the
spouses, the sums
collated during the
marriage in partial
payments
or
by
instalments on the
principal are considered
the exclusive property
of the spouse. However,
interest falling due
during the marriage on
the principal belong to
the
conjugal
partnership.
TAXATION LAW
4. All property acquired
during the marriage
whether the acquisition
appears to have been
made, contracted or
registered in the name
of one or both spouses,,
is presumed to belong
to
the
conjugal
partnership, unless it is
proved that it pertains
exclusively
to
the
husband or to the wife.
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TAXATION LAW
=
( )
( )
General Rule
The estate tax imposed by the NIRC shall be
credited with the amounts of any estate tax
imposed by the authority of a foreign country.
Limitations on Credit
A. For Estate Taxes paid to one foreign country
(Specific Country Limitation)
The amount of the credit in respect to the tax
paid to any country shall not exceed the same
proportion of the tax against which such credit is
taken, which the decedent's net estate situated
within such country taxable under the tax code
bears to his entire net estate.
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Tax Rates:
If the Net Estate is
Over
P 200,000.00
Exempt
P 200,000.00 500,000.00
500,000.00
2,000,000.00 P 15,000.00
1,215,000.00
TAXATION LAW
C. DONORS TAX
The donors tax is imposed on donations inter
vivos or those made between living persons to
take effect during the lifetime of the donor. It
shall not apply unless and until there is a
completed gift.
A donors tax is levied, assessed, collected and
paid upon the transfer by any person, resident or
nonresident, of the property by gift. (Sec. 98(A),
NIRC). It shall apply
the transfer is in
Plus
Of thewhether
Excess Over
trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or
or intangible. [Sec. 98(B),
5 %personal, tangible
P 200,000.00
NIRC]
8%
500,000.00
a property tax but a tax
11 %Donors tax is not
2,000,000.00
imposed on the transfer of property by way of gift
15 %
5,000,000.00
inter vivos. [Sec 11, RR 2-2003 citing Lladoc v. CIR
20 (1965)]
%
10,000,000.00
NB: If donor is RC/NRC/RA = liable for donors
tax REGARDLESS of where the gift was made or
where property is located
NRA = liable for donors tax only if the
property donated is w/in the Phil.
TRANSFERS
WHICH
MAY
CONSTITUTED AS DONATION
BE
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Rule of Reciprocity
There is reciprocity if the foreign country of which
the decedent was a citizen and resident at the
time of his death:
(a) Did not impose a transfer tax of any
character, in respect of intangible personal
property of citizens of the Philippines not
residing in that foreign country; OR
(b) Allowed a similar exemption from transfer
tax in respect of intangible personal property
owned by citizens of the Philippines not
residing in that country
If there is reciprocity, the intangible personal
property of an NRA shall not be included in his
gross estate. If there is no reciprocity, such
intangible personal property will be included.
CLASSIFICATION OF DONOR
Donors Tax applies to individuals and
corporations (in their secondary purpose). They
may be classified into:
Residents (RC/RA/DC/RFC)
Non-Residents (NRC/NRA/NRFC)
Such classification is important in determining
the deductions from the gross gift of the donor,
and in filing the return.
Situs of Intangible Personal Properties
General Rule: Mobilia Sequuntur Personam
Principle: Taxation of intangible personal
properties (such as credits, bills, bank deposits
promissory notes, and corporate stocks) follows
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DETERMINATION
OF
GROSS
GIFT
(INCLUDING COMPOSITION OF GROSS
GIFT)
RESIDENT
RESIDENT
2. Gifts made to or for
the use of the National
Government or any
entity created by any of
its agencies which is
not
conducted
for
profit, or to any political
subdivision of the said
Government.
NON-RESIDENT
3. Gifts in favor of an
educational
and/or
charitable,
religious,
cultural
or
social
welfare
corporation,
institution, accredited
nongovernment
organization, trust or
philanthropic
organization
or
research institution or
organization, Provided
not more than 30% of
said gifts will be used
by such donee for
administration
purposes.
Note: If there is
reciprocity, intangible
assets are excluded
from gross gifts
Deductions and Exemptions from GROSS gift to
arrive at NET Gifts
Deductions (These are
exempt donations but
are deductible from,
and not treated as
exclusions from the
gross gift)
1. Dowries or donations
made:
a. On account of
marriage
b. Before its celebration
or within one year
thereafter
c. By parents to each of
their
legitimate,
recognized natural, or
adopted children
d. To the extent of the
first P10,000
TAXATION LAW
Common Exemptions
1. Encumbrances on the
property donated if
assumed by the donee
in the deed of donation.
2. Donations made to
entities
exempted
under special laws
NON-RESIDENT
profit, or to any political
subdivision of the said
Government.
2. Gifts in favor of an
educational
and/or
charitable,
religious,
cultural
or
social
welfare
corporation,
institution, accredited
nongovernment
organization, trust or
philanthropic
organization
or
research institution or
organization, provided
not more than 30% of
said gifts will be used
by such donee for
administration
purposes.
Common Exemptions
1. Encumbrances on the
property donated if
assumed by the donee
in the deed of donation.
2. Donations made to
entities
exempted
under special laws.
Note:
NOT SUBJECT TO DONORS TAX
(1) Contributions to candidate or political party
for campaign purposes duly reported to
COMELEC
(2) (ii) Gift to Parish Priest or Church (applies
only to real property tax)
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TAXATION LAW
Note:
Where property is transferred for less than an
adequate and full consideration in money or
moneys worth, then the amount by which the
FMV of the property at the time of the execution
of the Contract to Sell or execution of the Deed of
Sale which is not preceded by a Contract to Sell
exceeded the value of the agreed or actual
consideration or selling price shall be deemed a
gift, and shall be included in computing the
amount of gifts made during the calendar year.
[Sec. 11, RR 2-2003]
VALUATION
PROPERTY
OF
GIFTS
Homeowners
MADE
IN
2. Worldwide Limit
( )
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TAXATION LAW
TAX BASIS
Tax Rate
IF NOT A STRANGER
Net gifts
The net economic benefit from the transfer that
accrues to the donee.
Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the
donee the obligation to pay the mortgage
liability, then the net gift is measured by
deducting from the fair market value of the
property the amount of the mortgage assumed.
(Sec. 11, RR 2-2003)
not
100,000.
00
100,000.
00
The
Of
the
Pl
Tax Shall
Excess
us
be
Over
Exempt
200,000.
0
00
P
200,000. 500,000.
2,000.0
00
00
0
500,000. 1,000,00
00
0.00
General Formula
Gross Gifts
Less: Deductions from gross gifts
------------------------------------------------------Net gifts
Multiply by: Tax rate
------------------------------------------------------= Estate Tax Due
Less: Tax Credit, if any
------------------------------------------------------= Donors Tax Due, if any
1,000,00
0.00
2 100,000.
% 00
4 200,000.
% 00
14,000.0 6 500,000.
0
% 00
3,000,00 44,000.
0.00
00
8 1,000,00
% 0.00
404,000 12 5,000,00
.00
% 0.00
10,000,0
00.00
1,004,00 15 10,000,0
0.00
% 00.00
and over
2) IF A STRANGER: 30%
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TAXATION LAW
Any person, natural or juridical, resident or
non-resident, who transfers or causes to
transfer property by gift, whether in trust or
otherwise, whether the gift is direct or
indirect and whether the property is real or
personal, tangible or intangible.
NB: Eor/Aor has the primary obligation to pay the estate tax
but the heir or beneficiary has subsidiary liability for the
payment of that portion of the estate which his distributive
share bears to the value of the total net estate. The extent of
his liability, however, shall in no case exceed the value of his
share in the inheritance.
ESTATE TAX FORMULAE
EXCLUSIVE
COMMUNITY TOTAL
4
Gross Estate
Add:
Taxable Transfers & Others
Revocable Transfers/Donation Mortis Causa
Transfers in contemplation of death
Property passing under GPoA
Transfers for insufficient consideration5
Decedents Interest Accrued6
Proceeds of Life Insurance w/
revocable beneficiary7
Family Home
Claims against an Insolvent Person8
Amount received by heirs
( + )
100
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Vanishing Deductions
Transfers for Public Use
101
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TAXATION LAW
2. Donors Tax
ON FIRST DONATION
Net Estate
Less: (Special Deductions10)
Standard Deduction
Family Home
Medical Expenses
Amounts received by heirs
Gross Gift
xxx
Less: Deductions (those not beneficial
to the done e.g. mortgage)
xxx
Net Gift
Less: Exemptions, if applicable
xxx
xxx
10
11
102
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TAXATION LAW
xxx
Tax Credit =
Tax
Credit
/ /
OR
/
/ /
13
12
/ /
103
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TAXATION LAW
ESTATE TAX
DEATH
CANCEL TIN
Transfer
properties to
the heirs
Full Exemption
COMPLETION/
PERFECTION OF
DONATION
Exempt
NO TAX RETURN
NECESSARY
Partial Exemption
w/in 30d after
gift was made
Liable
104
No
Notice
of
Donation Necessary
UP LAW BOC
TAXATION 2
TAXATION LAW
Constitutionality of VAT
ABAKADA Guro Party List, et. al. v Ermita
(2005):
The validity of raising the VAT rate from 10% to
12% by the President was upheld by SC.
With respect to Sec. 8, amending Sec. 110 (A),
which provides for 60-month amortization of
the input tax on capital goods purchased: It is
not oppressive, arbitrary, and confiscatory. The
taxpayer is not permanently deprived of his
privilege to credit the input tax. For whatever
is the purpose, it involves executive economic
policy and legislative wisdom in which the
Court cannot intervene.
The tax law is uniform: it provides a standard
rate of 0% or 10% (or 12% now) on all goods or
services. The law does not make any distinction
as to the type of industry or trade that will bear
the 70% limitation on the creditable input tax,
5-year amortization of input tax on purchase of
capital goods, or the 5% final withholding tax
by the government.
It is equitable: The law is equipped with a
threshold margin (P1.5M). Also, basic marine
and agricultural products in their original state
are still not subject to tax. Congress also
CHARACTERISTICS/ELEMENTS
VAT-TAXABLE TRANSACTION
OF
General Characteristics/Nature:
Privilege/Percentage Tax imposed by law
directly not on the thing or service but on the
ACT (sale, barter, exchange, lease, importation,
or perfrormance of service)
Ad Valorem Tax the amount is based on the
gross selling price or gross value in money of
the goods or service, including the use or lease
or properties.
Indirect Tax it may be shifted or passed on to
the buyers, transferee, or lessee of the goods,
105
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TAXATION LAW
Sale of Services16
(1) for
a
valuable
consideration
(actually/constructively received)
(2) performed ICTB in the Phil.
(3) not exempt from VAT (NIRC, special law,
special agreement)
(4) person rendering service is VAT-liable
(5) no ee-er relationship
(6) Importation of Goods
The transfer must be made in the Philippines.
If the title to the goods were transferred
outside the Philippines, then the same is not
subject to VAT.
Taxable
Transactions
and
Specific
Requirements
Sale, Barter, Exchange or Lease (SBEL) of
Goods or Properties14
Goods/Personal Properties
(1) Actual/deemed sale for a valuable
consideration
(2) for use or consumption in the Phil
(regardless of the payment arrangements)
(3) not exempt from VAT (NIRC, special law,
special agreement)
Commercial
Property
(Sale/Lease
)
Residential
Units
(Lease)
14
Sec 106
Residential
Lot
Residential
House and
Lot
15
Casual
Sale
(Capital
Assets)
Regular Sales
(Ordinary
Assets)
16
106
Sec 108
UP LAW BOC
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TAXATION LAW
Input tax the VAT due on or paid by a VATregistered person on importation of goods or
local purchases of goods, properties, or
services, including lease or use of properties, in
the course of his trade or business.
Output tax the VAT due on the sale or lease
of taxable goods or properties or services by
any person registered or required to register
under Section 236 of the Code.
If at the end of any taxable month or quarter:
The output tax exceeds the input tax, the
excess shall be paid by the VAT-registered
person
The input tax exceeds the output tax, the
excess shall be carried over to the succeeding
quarter or quarters
PERSONS LIABLE
Persons Liable:
Any persons who sells, barters, exchanges, or
leases goods or properties, or who renders
services, in the course of trade or buesiness,
and any person who imports goods, whether or
not in the course of business, is liable to pay
either VAT or 3% percentage tax.
DESTINATION PRINCIPLE
This provides that the destination of goods
determines the taxation or exemption from
VAT.
CIR v. American Express International (2005):
As a general rule, goods and services are taxed
only in the country where they are consumed.
(Deoferio Jr. and Mamalateo. The Value Added
Tax in the Philippines, p. 43)
UP LAW BOC
(3)
(4)
(5)
(6)
(7)
TAXATION 2
TAXATION LAW
VAT ON SALE
PROPERTIES
OF
GOODS
OR
Requirements
(1) Done in the course of trade or business (w/n
profit-oriented): rule of regularity +
incidental thereto (including isolated
transactions)
108
UP LAW BOC
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If goods/personal properties
GSP = amount paid in consideration
IF DEEMED SALE: FMV at the time of the
transaction
NB: in retirement/cessation, inventory (raw
materials,
finished
goods,
machinery,
equipment, furniture, fixture), tax base =
whichever is lower,
(1) acquisition cost
(2) current market price of goods
17
Casual
Sale
(Capital
Assets)
Regular Sales
(Ordinary
Assets)
Commercial
Property
(Sale/Lease
)
Residential
Units
(Lease)
Residential
Lot
Residential
House and
Lot
TAXATION LAW
If real property,
GSP = amount higher:
(1) consideration stated in the sales document
109
UP LAW BOC
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TAXATION LAW
Taxable:
IF ON INSTALLMENT (RR16-2005) :
(1) On installment plan
GSP = down payments received + interests +
(2) Pre-selling by real estate dealers
penalties + other charges amount of
(3) Sale of residential lot >P1,919,500 ; or
mortgage (paid)
house and lot/other residential dwelling
Note:
>P3,199,200
If
zonal/FMV,
tax
base
=
(4) Lease of residential units (rental per unit >
( )
12,800/month OR total rental from ALL
,
( )
units>P1,919,500/year)
20
IF DEFERRED21
GSP = entire selling price or zonal/FMV,
whichever is higher
Thus, subsequent receipt of unpaid balance is
NOT subject to VAT
Note: CIR has the power to determine the
appropriate tax base in 1) SBE in deemed sales
110
UP LAW BOC
TAXATION 2
TAXATION LAW
Rate: 0% VAT
Transactions: Every sale, barter or exchange, or
transactions deemed sale of taxable goods or
properties (RR 16-2005)
Zero-Rated Sales on Goods or Property (RR 162005)
A zero-rated sale of goods or properties by a
VAT-registered person is a taxable transaction
for VAT purposes, but shall not result in any
output tax. However, the input tax on
purchases of goods, properties or services,
related to such zero-rated sale, shall be
available as tax credit or refund.
(1) Export Sales
(2) Foreign Currency Denominated Sales
(3) Sales of Goods or Property to perons or
entites who are tax-exempt/Effectively
Zero-Rated Sales
Export Sales [Sec. 106(A)(2)(a), NIRC]
(1) The (i) sale and actual shipment of goods
from the Philippines to a foreign country
AND (ii) paid for in acceptable foreign
currency or its equivalent in goods or
services, AND (iii) accounted for in
accordance with the rules and regulations
of the BSP
(2) 2.(i) Sale of raw materials or packaging
materials to a nonresident buyer (ii) for
delivery to a resident local export-oriented
enterprise (iii) to be used in manufacturing,
processing, packing or repacking in the
Philippines of the said buyer's goods AND
(iv) paid for in acceptable foreign currency
AND (v) accounted for in accordance with
the rules and regulations of the BSP.
111
UP LAW BOC
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TAXATION LAW
UP LAW BOC
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TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
existing as of such retirement or
cessation
Consignment of goods
Consigned goods returned by the consignee
within the 60-day period are not deemed sold.
(RR 16-2005)
Retirement from or cessation of business
With respect to ALL goods on hand, whether
capital goods, stock-in-trade, supplies or
materials, as of the date of such retirement or
cessation, whether or not the business is
continued by the new owner or successor ARE
CONSIDERED DEEMED SALES
Examples: change of ownership of the business
(e.g. when a sole proprietorship incorporates,
or the proprietor sells his entire business) and
dissolution of a partnership and creation of a
new partnership which takes over the business.
(RR 16-2005)
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
Rate: 12%
Basis: Gross receipts derived from the sale or
exchange of services, including the use or lease
of properties.
Gross Receipts - the total amount of money or
its equivalent representing the contract price,
compensation, service fee, rental or royalty,
including the amount charged for materials
supplied with the services and deposits and
advanced payments actually or constructively
received during the taxable quarter for the
services performed or to be performed for
another person, excluding VAT. (Sec. 108 (A),
NIRC)
116
UP LAW BOC
TAXATION 2
TAXATION LAW
117
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
(2)
(3)
(4)
(5)
(6)
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
(2)
(3)
(4)
(5)
(6)
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
DETERMINATION OF OUTPUT/INPUT
TAX; VAT PAYABLE; EXCESS INPUT TAX
CREDITS
= ( 12%)
25
TAXATION LAW
26
125
of
input
tax
on
mixed
UP LAW BOC
TAXATION 2
There are four possible transactions a VATregistered person may enter into: (i) VAT
taxable, (ii) VAT-exempt, (iii) zero-rated VAT
and (iv) sale to governments.
TAXATION LAW
SUBSTANTIATION
CREDITS
OF
INPUT
TAX
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
TAXATION 2
TAXATION LAW
UP LAW BOC
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TAXATION LAW
Sales to Government
(1) The Government or any of its political
subdivisions, instrumentalities or agencies,
including GOCCs shall, before making
129
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TAXATION LAW
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TAXATION LAW
On taxable goods/services
xxx
xxx
Net VAT Payable
xxx
Add Penalties:
Surcharge
xxx
Interest
xxx
Compromise
xxx
xxx
Total Amount Payable
xxx
Actual Sales/Receipts
xxx
Add: Excise Tax
xxx
Remaining Merchandise (Cessation of VATregistered Status)
xxx
Transactions Deemed Sale
xxx
xxx
Less: Sales Returns and Allowances
xxx
Sales Discounts
xxx
xxx
INVOLVING GOVERNMENT
When Actual Input VAT > Standard Input VAT:
excess forms part of sellers expense/cost
When Actual Input VAT < Standard Input VAT:
difference is treated as taxable other income
Sales xxx
Output VAT (Sales x 12%)
Purchases
xxx
Input VAT (Purchases x 12%)
xxx
xxx
MONTHLY RETURN
Gross Sales/Receipts for the Month
xxx
Multiplied by VAT rate
12%
Output VAT
xxx
Less Input Taxes:
Transitional/Presumptive Input Tax
xxx
131
UP LAW BOC
TAXATION 2
S of Services29
(1) for
a
valuable
consideration
(actually/constructively received)
(2) performed ICTB in the Phil.
(3) not exempt from VAT (NIRC, special law,
special agreement)
(4) person rendering service is VAT-liable
(5) no ee-er relationship
(6) I of Goods
Real Properties28:
27
Sec 106
28
Casual
Sale
(Capital
Assets)
Regular Sales
(Ordinary
Assets)
Commercial
Property
(Sale/Lease
)
Residential
Units
(Lease)
Residential
Lot
Residential
House and
Lot
TAXATION LAW
29
132
Sec 108
UP LAW BOC
TAXATION 2
TAXATION LAW
If goods/personal properties,
GSP = amount paid in consideration
IF DEEMED SALE: FMV at the time of the
transaction
NB: in retirement/cessation, inventory (raw
materials,
finished
goods,
machinery,
equipment, furniture, fixture), tax base =
whichever is lower,
(1) acquisition cost
(2) current market price of goods
(3) If real property,
GSP = amount higher:
(1) consideration stated in the sales document
(2) FMV, whichever is higher of
133
UP LAW BOC
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TAXATION LAW
FORMULA
INPUT
TAX
TREATMENT
Untraceable
VAT
Input
x Creditable Input
( )
VAT
Untraceable
VAT
Rates of VAT
(a) Output Tax (Sale/Barter/Exchange/Lease)
12% standard rate: applied directly to TB
0%: applied directly to TB
(b) Input Tax (Purchase from VAT-registered
businesses/Importation of goods)
12% standard rate: applied directly to TB
0%: applied directly to TB
2% transitional VAT: applied to the
(inventory on hand) value of goods (exc.
VAT-exempt good) existing at the date a
person commences business and/or
becomes liable to VAT) or 12% actual input
tax rate, higher
4% presumptive input tax rate: applies to
purchases of VAT-exempt goods used as
inputs by a VAT-registered person in
manufacturing or processing certain food
products
7% FWT (standard input VAT, when
government), 5% withholding
UP LAW BOC
TAXATION 2
TAXATION LAW
0% VAT
Taxable transaction
No output VAT, but input VAT is available as tax credit
or refund
Total relief
All VAT is removed at whatever stage
SALE OF SERVICES
VAT-Exempt
0% VAT
NB: There are 31 VAT-exempt sales of Processing, manufacturing, repacking goods to nonservices (Sec 109 and special laws)
resident (5)
Processing, manufacturing, repacking goods to
export-oriented (3)
Services other than processing, manufacturing,
repacking (4)
Services to exempted persons (3): effectively 0-rate
Sale of power/fuel-generated through renewable
wrt lease of property =exempt
resources (3)
if advance payment = loan, option money, Services rendered to intl shipping/air transport (2)
security deposit
Transport of passengers and cargo by air from Phil to
NB: if security deposit is applied to rental = Foreign (3)
VAT
Transactions of VAT-reg person to foreign embassies
wrt persons engaged in milling, processing, (2)
manufacturing or repacking goods = exempt
if palay rice; corn corn grits; sugar cane
raw sugar
wrt franchise grantees of electric utilities,
telephone and telegraph, radio and/or
television broadcasting = exempt
if annual gross receipts <= 10M;
franchise grantees of gas and water
utilities;
of telephone & telegraph services,
amounts received for overseas dispatch from
Phil.
wrt PREMIUMS of non-life insurance
companies = exempt
if life and disability insurance;
crop insurance;
health and accident insurance
(included are only those with exceptions)
Exceptions to the Exemptions (Subject to VAT)
5. sale/import of agricultural & marine food wrt livestock and poultry DOES NOT INCLUDE
products in their original state; livestock and fighting cocks, race horses, zoo animals and pets
poultry (used/yield for human consumption);
breeding stock and genetic materials
DOES NOT INCLUDE vehicles, vessels, aircrafts,
6. import of professional instruments, machineries, and other goods for use in
implements, wearing apparel, domestic manufacturing in commercial quantities
135
UP LAW BOC
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TAXATION LAW
136
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TAXATION LAW
SALE OF GOODS
VAT-Exempt
Real Property
Not primarily held ICT/B
Low-cost or socialized housing
Residential lot <= 1,919,500
House and/or other residential dwellings <=
3,199,200
Lease
(12,800/unit/year
or
total
1,919,500/year)
Transmission to a trustee
E: if transmission is deemed sale
Transfer to corporation in exchange of SoS
Advance payments/Security Deposits in
lease
E: if applied to the rent
0% VAT
Actual Export Sales (3)
Deemed Export Sales
Internal or constructive export sales
Raw/Packaging materials to non-resident buyer (5)
Raw/Packaging materials to export-oriented (3)
Phil. Port FOB value of export products (2)33
Net selling price of export products (4)34
sales to bonded manufacturing warehouses (2)35
sales to export processing zones36
sales to enterprises duly accredited by Subic Bay
Metropolitan Authority (2)
sales to registered export traders (3)
sales to diplomatic missions etc. (2)
sale by VAT-supplier to manufacturer/producer whose
products are 100% exported (3)
Sale of gold to BSP
Sale of goods/supplies/equipment/fuel to persons
engaged in intl shipping/air transport (4)
Docking/Undocking services to foreign vessels
Foreign currency denominated goods
To a NRC/NRA of goods (5)
To a NRC/NRA of goods locally manufactured for
household and personal use (2)
E: automobiles and non-essential goods
Effectively-zero rated sales (3)
Made by VAT registered supplier from customs
territory to any registered enterprise inside ecozone
Intra-ecozone enterprise sale of service, if PEZA
registered seller is subject to NIRC taxes
137
UP LAW BOC
TAXATION 2
Taxable Activity/Property
TR
Actual SBE of Goods or
Properties
Goods/
Personal
Properties
12%
Real Properties
IF sale is on instalment
plan AND ZV/FMV > SP
(excluding VAT)
Deemed Sale Transactions
Not ICB/T, but originally
intended for sale/use
ICB/T
Transfer to SH in share of
profit or Cr in payment of 12%
debt
Consignment after 60d
Retirement/Cessation of
business
TAXATION LAW
Tax Base
Tax Payable
()
VAT Payable
paid
by
seller/transfer
or
FMV (at the time of transaction)
E: if FMV is unreasonably lower (by more than 30% of AMV) =
AMV or determined by CIR
VAT Payable
paid
by
performer
Importation of Goods
Total Value used by BOC
VAT paid by
=tariff & custom duties + custom duties + excise tax + importer
In general
PRIOR tp the
charges
12%
release
of
When custom duties are
goods
in
based on quantity or
= landed cost + excise tax
Customs
volume
custody
withhold a Final VAT due at the rate of five
(1) Once registered as a VAT person, the
percent (5%) of the gross payment.
taxpayer shall be liable to output tax and
be entitled to input tax credit beginning on
The five percent (5%) final VAT withholding
the first day of the month following
rate shall represent the net VAT payable of the
registration.
seller. The remaining seven percent (7%)
(2) The cancellation for registration will be
effectively accounts for the standard input VAT
effective from the first day of the following
for sales of goods or services to government or
month the cancellation was approved.
any
of
its
political
subdivisions,
What is the treatment for Withholding of
instrumentalities or agencies including GOCCs
VAT on Government Money Payments?
in lieu of the actual input VAT directly
(3) The government or any of its political
attributable or ratably apportioned to such
subdivisions, instrumentalities or agencies,
sales. Should actual input VAT attributable to
including government-owned or controlled
sales to government exceeds seven percent
corporations (GOCCs) shall, before making
(7%) of gross payments, the excess may form
payment on account of each purchase of
part of the sellers' expense or cost. On the
goods and/or services taxed at twelve
other hand, if actual input VAT attributable to
percent (12%) VAT pursuant to Sections
sale to government is less than seven percent
106 and 108 of the Tax Code, deduct and
(7%) of gross payment, the difference must be
closed to expense or cost.
Sale of Services
12
%
138
UP LAW BOC
TAXATION 2
139
TAXATION LAW
UP LAW BOC
VAT-Exempt
Person
Optional Registration
Person
Liable for
VAT
TAXATION 2
TAXATION LAW
VAT-registered
Person
(w/ TIN)
Register
to
RDO for every
separate and
distinct
establishment
Certificate of
Registration
APPROVE
DENY
Certificate of Non-VAT
Register
to
RDO for every
separate and
distinct
establishment
Cancellation/Update
necessitating cancellation
APPROVE
DENY
Minor change in
original registration
w/in
15d
from
change
Notice of Change (f
change of address)
140
RE applications for VAT zero-rating: Taxpayers shall file their application directly with
the Audit Information, Tax Exemption and Incentives Division (AITEID) under the
Assessment Service, or with the LTAID I and II, BIR National Office, as the case may be.
UP LAW BOC
VAT
TAXATION 2
REFUND
OR
VAT
CREDIT
TAXATION LAW
CERTIFICATE
Direct Tax
Credit
Presumptive Input Tax
Transitional Input Tax
Actual Input Tax not related
to zero-rated sales
Carry-over
Tax Credit
VAT- registered
cancelling their
registration (regardless of
the source of input tax)
Application for
refund or TCC to
CIR +
supporting docs
GRANTED
DENIED
VAT-exempt Transactions
w/in 30 days
from receipt
of denial
Apply against
OUTPUT VAT
Non-VAT
Taxpayer
INACTION
w/in 30 days
from expiration
of 120-days
ISSUANCE
Appeal to CTA
NO INPUT TAX
Related OUTPUT
VAT shall be treated
as an operating
expense
GRANTED
Tax Credit
Certificate
141
Tax Refund
UP LAW BOC
TAXATION 2
TAXATION LAW
TAXPAYERS REMEDIES
1. ADMINISTRATIVE (BIR)
a. Before payment
i. Filing a petition or reconsideration or
reinvestigation; and
ii. Entering into a compromise
b. After payment
i. Filing a claim for refund; and
ii. Filing a claim for tax credit
2. JUDICIAL (CTA/RTC)
a. Civil action
i. Appeal to the CTA
ii. Action to contest forfeiture of
chattel; and
iii. Action for damages
b. Criminal action
i. Filing a criminal complaint against
erring BIR officials and employees
ASSESSMENT
Concept of assessment
Assess means to impose a tax; to charge with a
tax; to declare a tax to be payable; to
apportion a tax to be paid or contributed, to fix
a rate; to fix or settle a sum to be paid by way
of tax; to set, fix or charge a certain sum to
142
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Tax Delinquency
Tax Deficiency
It is when:
It is when:
a. Self-assessed
a. The amount of tax
taxpayer filed his
imposed by law is
tax return but did
greater than the
not pay or only
amount shown in
partially paid the
the tax return
tax
b.If no amount is
b.Deficiency
Tax
shown
in
the
assessed by the BIR
return, or if there is
became final and
no return, amount
executory
by which the tax as
determined by the
CIR exceeds the
amount previously
assessed as a
deficiency
CAN be collected CANNOT
be
IMMEDIATELY
immediately
through
collected. CAN be
1.
Administrative collected only AFTER
Actions (warrant of the process of protest
distraint or levy)
2. Judicial Actions
Thus, a civil action for
collection to ordinary
Thus, civil action for courts
pending
collection to ordinary protest
may
be
courts is the proper subject to Motion to
remedy.
Dissmiss
SUBJECT
to SUBJECT
to
administrative
administrative
penalties of:
penalties of:
1. 25% surcharge
1. interest
2. interest
2.
compromise
3.
compromise penalty
Formula:
Increase in Net worth
Add:
Non-deductible Item
Less:
Non-taxable income or receipts subjected
to final tax transfer taxes
Taxable Net Income
Less:
Personal and additional exemptions
NET INCOME SUBJECT TO TAX
JEOPARDY ASSESSMENT
A tax assessment made by an authorized
Revenue Officer (RO) without the benefit of
complete or partial audit, in light of the ROs
belief that the assessment and collection of
the deficiency tax will be jeopardized by delay
caused by the taxpayers failure to: i) comply
with audit and investigation requirements to
143
UP LAW BOC
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TAXATION LAW
penalty
Mamalateo: Reviewer on Taxation (2014) p559
a. Deficiency - amount still due and collectible
from a taxpayer upon audit or investigation. A
deficiency tax has to go through the process of
filing the protest against the assessment by
the by the taxpayer and denial of such protest
by the BIR. (Mamalateo, 2008)
b. Delinquency - failure of the taxpayer to pay
the tax due on the date fixed by law or
indicated in the assessment notice or letter of
demand.
NIRC]
Terminating taxable period and ordering
the immediate payment of the tax for the
terminated period and any remaining tax
that is unpaid, when the taxpayer is:
(a) retiring from business subject to tax, or
(b) intending to leave the Philippines or to
remove his property therefrom or to hide
or conceal his property;
(c) performing any act tending to obstruct
the proceedings for the collection of the
tax for the past or current quarter or year
or to render the same totally or partially
ineffective unless such proceedings are
begun immediately
(5) PRESCRIBE Real Property Values [Sec. 6(E),
NIRC]
(a) Dividing the Philippines into different
zones or areas, and determining the FMV
of real properties in each zone or area,
upon consultation with competent
appraisers from private and public
sectors.
(b) For the purpose of computing any
internal revenue tax, the value of the
property shall be WHICHEVER IS
HIGHER OF:
(i) The FMV as determined by the
Commissioner, or
(ii) The FMV as shown in the schedule of
values of the provincial and city
assessors
(6) INQUIRE into Bank Deposit Accounts [Sec.
6(C), NIRC]
(a) Inventory-taking at any time during the
taxable year, for the purpose of
determining the correct tax liabilities.
(b) Surveillance done if there is reason to
believe that the taxpayer is not declaring
6(F), NIRC]
144
UP LAW BOC
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TAXATION LAW
6(G), NIRC]
Accrediting and registering tax agents (may
be individuals or general professional
partnerships)
based on the following
criteria:
(a) Professional competence
(b) Integrity
(c) Moral fitness
(8) PRESCRIBE additional PROCEDURAL OR
DOCUMENTARY requirements [Sec. 6(H),
NIRC]
In relation to the manner of compliance of
any requirement in connection with the
submission or preparation of financial
statements accompanying the tax returns.
(B) To obtain information and to summon,
examine, and take testimony of persons [Sec. 5,
NIRC]
(1) EXAMINE RETURNS and DETERMINE
TAX DUE [Sec 5, NIRC]
Authorizing the examination of any
taxpayer and the assessment of the
correct amount of tax, WON a return has
been filed by such taxpayer.
Note: Any return filed with the Commissioner
shall not be withdrawn, BUT the taxpayer
may MODIFY, CHANGE or AMEND such
UP LAW BOC
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TAXATION LAW
RR 12-85 (DIFFERENCE
RECONSIDERATION
&REINVESTIGATION)
BETWEEN
Communication v. CIR]
GENERAL
PROVISIONS
ADDITIONS TO THE TAX
ON
146
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Rates of Surcharge:
There shall be imposed a penalty equivalent to
twenty-five percent (25%) of the amount due,
in the following cases:
(1) FAILURE TO FILE ANY RETURN and PAY
THE TAX DUE THEREON on the date
prescribed; or
(2) Filing a return with an internal revenue
officer than those with whom the return is
required to be filed (except when authorized
by the Commissioner); or
(3) FAILURE TO PAY THE DEFICIENCY TAX
within the time prescribed for its payment
(4) FAILURE TO PAY THE FULL OR PART of the
amount of tax shown on any return required
to be filed, or the full amount of tax due for
which no return is required to be filed, on or
before the date prescribed for its payment.
TAXATION LAW
147
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[Mamalateo, 2008]
SECOND
STEP:
ISSUANCE
OF
PRELIMINARY ASSESSMENT NOTICE
(PAN) [SEC. 228, NIRC; RR18-2013]
UP LAW BOC
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228, NIRC]
In the above-cited cases, a FLD/FAN shall be
issued outright.
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SIXTH
STEP:
ADMINISTRATIVE
DECISION ON A DISPUTED ASSESSMENT
The power to decide disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto,
or other matters is vested in the Commissioner,
subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals. The CIR may deny,
approve or not act upon the protest.
DENIAL
The CIR must state the facts and laws upon
which such protest was denied. Denial may be
made by the CIR or any of his authorized
representatives.
[Commissioner v. Algue]
RA 9282 (2004)]
Cultural Corp]
(d) Notice of delinquency [CIR v. Ayala
Securities]
(e) Inaction by Commissioner - If the protest is
not acted upon within one hundred eighty
(180) days from submission of documents,
the inaction by the Commissioner is
considered as a denial of protest.
(f) Referral of case for collection.
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TAXATION LAW
Prescriptive periods
Where return
filed was
NOT false or
fraudulent:
Where no
return filed, or
the return was
false or
fraudulent:
Collection
should
be should
be
with
prior made within made within 5
assessment
5 years from years from the
COLLECTION
151
UP LAW BOC
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Where return
filed was
NOT false or
fraudulent:
the date of
assessment
of the tax.
(Sec. 203 in
relation
to
Sec.
222,
NIRC)
Where no
return filed, or
the return was
false or
fraudulent:
TAXATION LAW
Administrative
(1) Distraint of Personal Property including
garnishment deposit
(2) Summary remedy of levy on real property
(3) Forfeiture to the government for want of
bidder
(4) Further Distraint or Levy
(5) Tax Lien
(6) Compromise and Abatement
(7) Penalties and Fines
date
of
assessment
(based on Sec.
222(c), NIRC)
Judicial
(1) Civil
(2) Criminal
by distraint or
levy, or by
by distraint or judicial
levy, or by proceedings
judicial
proceedings
Collection
should
be should
be
without prior made within made within
assessment
3 years from ten years after
the date of the discovery
filing
of of the falsity,
return or date fraud
or
return is due, omission
to
whichever is file a return.
LATER
(based
on by
judicial
Sec.
203, proceedings
NIRC)
DISTRAINT
PROPERTY
OF
PERSONAL
Kinds of Distraint:
(1) Constructive Distraint
(2) Actual Distraint
by
judicial
proceedings
152
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DISTRAINT
OF
INTANGIBLE
PROPERTIES [SEC. 208, NIRC]
NIRC]
153
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TAXATION LAW
shall be limited to actual expenses of
SEIZURE and PRESERVATION of the
property pending the sale, no charge shall
be imposed for the services of the local
internal revenue officer or his deputy. [Sec.
209, NIRC]
(3) If the proceeds from the sale of the
distrained properties are not sufficient to
satisfy
the
tax
delinquency,
the
Commissioner or his duly authorized
representative shall within thirty (30) days
after execution of the distraint, proceed with
the levy on the taxpayers real property. [Sec.
207(B), NIRC]
NIRC]
210, NIRC]
(H) Purchase by the government at sale upon
distraint
If the amount offered by the highest bidder is
not equal to the amount of the tax or is very
much less than the actual market value of the
articles offered for sale, the Commissioner or
his deputy may purchase the same in behalf of
the National Government for the amount of
taxes, penalties and costs due. The property
so purchased may be resold by the
Commissioner or his deputy. [Sec. 212, NIRC]
(I) Report of sale to BIR
Within two (2) days after the sale, the officer
making the same shall make a report of his
proceedings in writing to the Commissioner
and shall himself preserve a copy of such
report as an official record. [Sec. 211, NIRC]
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TAXATION LAW
city where the property is located and
upon the taxpayer (If he is absent from
the Philippines: to his agent or
manager of business in respect to
which the liability arose or to the
occupant of the property in question).
207(B), NIRC]
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TAXATION LAW
TAX LIEN
Tax Lien is a legal claim or charge on the
property, real or personal, as security for the
payment of same debt or obligation. It
attaches from the time the tax became due
and payable.
(1) When a taxpayer neglects or refuses to pay
his internal revenue tax liability after
demand, the amount so demanded shall be
157
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COMPROMISE
Authority of the Commissioner to compromise
and abate taxes
Compromise - to reduce the amount of tax
payable. This should not be taken similarly
with compromise penalty.
UP LAW BOC
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TAXATION LAW
REFUND
Nature of a claim for refund: It partakes of the
nature of an exemption and is strictly
construed against the claimant. The burden of
proof is on the taxpayer claiming the refund
that he is entitled to the same. (CIR v. Tokyo
Shipping, 1995)
Please note that Sections 229 and 204
appeared several times in previous Bar
examinations.
229, NIRC]
Suit to recover tax based on false or fraudulent
returns
A proceeding in court for the collection of the
tax assessed may be filed without assessment
at any time within ten (10) years after the
discovery of the falsity, fraud or omission.
Provided, that in a fraud assessment which has
become final and executor, the fact of fraud
shall be judicially taken cognizance of in the
civil or criminal action for the collection thereof.
159
UP LAW BOC
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TAXATION LAW
NIRC]
Legal Basis of Tax Refunds
(a) Tax refunds are based on the principle of
quasi-contract or solutio indebiti and the
pertinent laws governing this principle are
160
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(2) CIR does not act on the claim and the 2-year
TAXATION LAW
amended]
Period for claiming refund once granted:
Within five years from the date such warrant or
check was mailed or delivered, otherwise it
shall be forfeited in favor of the government
and the amount thereof shall revert to the
general fund. [Sec. 230, NIRC]
NIRC]
115, NIRC]
(6) Non-availability of injunction to restrain
collection of tax
No court shall have the authority to
grant an injunction to restrain the collection
of any national internal revenue tax, fee or
charge imposed by the National Internal
Revenue Code. [Sec. 218, NIRC]
GOVERNMENT REMEDIES
ADMINISTRATIVE REMEDIES
(1) Tax lien
(2) Levy and sale of real property
(3) Forfeiture of real property to the
government for want of bidder
(4) Further distraint and levy
(5) Suspension of business operation
(6) Non-availability of injunction to
restrain collection of tax
JUDICIAL REMEDIES
(1) Civil Action
(2) Criminal Action
Form and Mode of Proceeding (supra)
Civil Action
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TAXATION LAW
Offender
Penalty
Criminal Action
Any person convicted of a crime under the
Code shall:
(1) be liable for the payment of the tax, and
(2) be subject to the penalties imposed under
the Code. [Sec. 253(A), NIRC]
CPA
Corporations,
associations,
partnerships etc.
NIRC]
Offender
public
office,
and
perpetually disqualified
from holding any public
office, to vote, and to
participate
in
any
election
his license shall be
automatically revoked or
cancelled once he is
convicted
imposed on the partner,
president,
general
manager,
branch
manager,
treasurer,
officer-in-charge
and
employees responsible
for the violation (Sec.
253, NIRC)
Penalty
CRIMINAL OFFENSES
Offense
Who is liable
Penalty
Fine:
P30,000
P100,000
AND
Imprisonment: 2-4 years
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Offense
Who is liable
Unlawful
Possession
of
Cigarette Paper in Bobbins or
Rolls, Etc. (Sec. 260)
TAXATION LAW
Penalty
Plus other penalties
Fine: P10,000 or more
AND
Imprisonment:1-10 years
Plus other penalties
Fine - P10,000 - P20,000
AND
Imprisonment: 1-3 years
Plus other penalties
Fine
P50,000
P100,000
AND
Imprisonment: 2-6 years
Fine:
P20,000
P100,000; AND
Imprisonment - 6 years 1
day - 12 years
Unlawful Use of Denatured Any person who for the purpose Fine:
P20,000
164
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Offense
Alcohol (Sec. 261)
Who is liable
TAXATION LAW
Penalty
UP LAW BOC
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Offense
Who is liable
TAXATION LAW
Penalty
but >P50,000
Misdeclaration
Misrepresentation
Manufacturers
Subject
Excise Tax (Sec. 268)
or
of
to
Fine:
P50,000
P100,000
(4)
AND
V
alue of goods > P150,000
Imprisonment: 10-12 years
Any person who, being required Fine: P 1,000 - P50,000
under Section 237 to issue AND
receipts or sales or commercial Imprisonment: 2- 4 years
invoices
UP LAW BOC
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Offense
Who is liable
TAXATION LAW
Penalty
prescribed for the offense
UP LAW BOC
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TAXATION LAW
Amount of reward:
10% of the revenues, surcharges or fees
recovered and/or fine/penalty imposed, or
P1,000,000, whichever is LOWER.
(a) The same amount shall be given if the
offender offered to compromise and such
offer has been accepted and collected by
the Commissioner.
(b) If no revenue, surcharge or fees be actually
collected, such person is not entitled to a
reward
(c) For discovery and seizure of SMUGGLED
GOODS: The cash reward is 10% of the FMV
of the smuggled and confiscated goods, or
P1,000,000, whichever is LOWER.
UP LAW BOC
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TAXATION LAW
NIRC]
(2) 50% of the tax or of the deficiency tax in the
following cases:
(a) Willful neglect to file the return within
the period prescribed; or
(b) A false or fraudulent return is willfully
made [Sec. 248(B), NIRC]
INTEREST
In General
20% per annum on the unpaid amount of tax,
interest at the rate of twenty percent (20%) per
annum from the date prescribed for payment
until the amount is fully paid. (Sec. 249(A),
NIRC)
Deficiency Interest
20% per annum on any deficiency in the tax
due from the date prescribed for its payment
until the full payment thereof. (Sec. 249(B),
NIRC)
Delinquency interest
20% per annum on the unpaid amount in case
of failure to pay:
(a) The amount of the tax due on any return
required to be filed; or
(b) The amount of the tax due for which no
return is required; or
UP LAW BOC
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Commissioner or
Regional Director
Issues Letter of
Authority (LA)
Is response w/n
15 days? Is it
meritorious?
NO to
either
Yes to
both
Assessment becomes
Final, Warrant of Distraint
& Levy Issued
RO sends notice
of informal
conference
Taxpayer
responds w/in
15 days
Taxpayer
responds w/in 15
days
Regional
Assessment
Division issues a
Preliminary
Assessment Notice
(PAN)
ASSESSMENT
ENDS
YES to
both
Commissioner decides on
protest within 180 days
NO to
either
Decision
favorable to
taxpayer?
YES
ASSESSMENT
ENDS
YES
Commissioner
decides w/n
180 days?
NO
NO
If MR is denied, appeal to
the CTA within remainder
of the 30 days
CTA decides on
the appeal
YES
Appeal made
on time?
NO
Appeal to
Supreme Court
171
Assessment
becomes Final,
Warrant of Distraint
& Levy Issued
END
UP LAW BOC
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TAXATION LAW
START
Delinquent tax
more than 1M?
No
RDO posts notice in at least 2 public
places in the municipality/city where
the distraint is made. One place of
posting must be at the mayors office.
Time of sale shall not be less than 20
days after the notice (Sec. 209)
Commissioner seizes
sufficient
personal property to satisfy the
tax, charge & expenses of seizure
(Sec. 207 (A))
Yes
RDO seizes
sufficient
personal property to satisfy
the tax, charges & expenses
of seizure (Sec. 207 (A))
Officer
conducts
public auction
Yes
Internal
revenue
officer,
designated by the Commissioner,
shall prepare a certificate with the
force of a nationwide legal
execution (Sec. 207 B)
Yes
No bidder or
highest bid
insufficient?
No, bid ok
The Commissioner may,
after 20 days notice, sell
property at public auction
or at private sale with
approval of the SoF.
Proceeds
shall
be
deposited with the National
Treasury (Sec. 216)
172
Excess of proceeds
of the sale over claim
and cost of sale shall
be turned over to the
owner (Sec. 213)
UP LAW BOC
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OF
TAXATION LAW
(3) Understatement of taxable sales or
receipts by thirty percent (30%) or more
of his correct taxable sales or receipts for
the taxable quarter.
THE
Exceptions:
(a) Where the taxpayer deliberately misstates
or omits material facts from his return or
any document required of him by the BIR;
(b) Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
POWER OF THE COMMISSIONER TO SUSPEND
THE BUSINESS OPERATION OF A TAXPAYER [Sec
115, NIRC]
The Commissioner or his authorized
representative is empowered to suspend the
business operations and temporarily close the
business establishment of any person for any
of the following violations:
A. In the case of a vat-registered person. (1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return
as required under Section 114; or
173
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174
TAXATION LAW
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VIII. LOCAL
GOVERNMENT CODE
OF 1991, AS AMENDED
TAXATION LAW
Unless otherwise provided, tax exemptions
or incentives granted to, or presently
enjoyed by all persons, whether natural or
judicial, including government-owned or
controlled corporations, except local water
districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit
hospitals and education institutions, are
withdrawn upon the effectivity of the Code.
(Sec. 193, LGC)
Required:
Not otherwise specifically enumerated in
the LGC or taxed under NIRC or other
applicable laws
(1) Not unjust, excessive, oppressive,
confiscatory or contrary to declared
national policy
(2) Pursuant to an ordinance enacted with
public hearing conducted for the purpose.
LGC]
(D) Withdrawal of exemptions
175
UP LAW BOC
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TAXATION LAW
132, LGC]
(c) Ordinances may be vetoed by local chief
executives of the LGUs, except the
Punong Barangay, on the ground that it
is ultra vires or prejudicial to public
welfare. His reasons shall be stated in
writing. [Sec. 55 (a) and (b), LGC]
(b) Procedure for approval and effectivity of tax
ordinances
(1) A public hearing must be conducted
prior to the enactment of a tax ordinance.
LGC]
Province
Municipality
City
(135)
(151)
(136)
(137)
(138)
(139)
(140)
(141)
176
Barangay
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TAXATION LAW
(143)
(147)
(148)
(149)
(152a)
(152b)
(152c)
(152d)
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TAXATION LAW
TAXPAYERS REMEDIES
UP LAW BOC
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173, LGC]
179
UP LAW BOC
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LGC]
distraint or levy
(ToB-CUPLA)
(a) Tools and implements necessarily
used by the taxpayer in his trade or
employment
(b) one horse, cow, carabao, or other
Beast of burden, such as the
delinquent taxpayer may select and
necessarily used by him in his ordinary
occupation
(c) his necessary Clothing, and that of all
his family
(d) household furniture and utensils
necessary for housekeeping and used
for that purpose by the delinquent
taxpayer, such as he may select, of a
value not exceeding P10,000
(e) Provisions, including crops, actually
provided for individual or family use
sufficient for 4 months
(f) the professional Libraries of doctors,
engineers, one fishing boat and net,
not exceeding the total value of
P10,000 by the lawful use of which a
fisherman earns his livelihood
(g) any material or Article forming part of
a house or improvement of any real
property
180
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specifically
(CAPUE)
(1) Current fair market value is the basis for
assessment
TAXATION LAW
of
Coverage
For a Province, or a City or Municipality within
Metro Manila
(a) Land
(b) Building
(c) Machinery
181
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GOCCs
Philippine Ports Authority vs. City of Iloilo (G.R.
No. 109791, July 14, 2003):GOCCs are NOT
covered by the exemption since the exemption
only refers to instrumentalities without
personalities distinct from the government.
kind on the
national
govt,
its
agencies,
instrumentalit
ies and LGUs.
amending the
law
specifically
deleted
GOCCS from
the
enumeration
Sec 234 (a), in Sec 234(a).
LGC.
Properties
exempt from
RPT: (a) real
properties
owned by the
Republic
or
any of its
political
subdivisions
Manila
Sec 133 (o),
MIAA falls
Airport
LGC
under
the
Authorit
term
y vs. CA Sec 234 (a), instrumenta
(2006)
LGC)
lity outside
the scope of
LGSs local
taxing
powers
under
Sec
UP LAW BOC
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Provision
involved
SC Ruling
TAXATION LAW
133(o).
Charitable Institutions
LUNG CENTER of the PHILS vs. QUEZON CITY
(G.R. No. 144104, June 29, 2004): A charitable
institution doesn't lose its character and its
exemption simply because it derives income
from paying patients so long as the money
received is devoted to the charitable object it
was intended to achieve, and no money inures
to the benefit of persons managing the
institution.
Judicial
The LGU may enforce the collection by civil
action in any court of competent jurisdiction.
REMEDIES
OF
LGUS
FOR
COLLECTION OF REAL PROPERTY
TAX
ADMINISTRATIVE
TAXPAYERS REMEDIES
270, LGC]
ADMINISTRATIVE
(a) Protest
LGC]
Levy
Upon the failure to pay the tax when due, the
local treasurer shall issue a warrant levying the
real property subject to tax. The warrant shall
183
UP LAW BOC
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TAXATION LAW
amended]
Appeal to the SC
Appeal must be filed within fifteen (15) days
from receipt of decision of the CTA [Rule 45,
Rules of Court]
JUDICIAL
UP LAW BOC
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TAXATION LAW
party may file appropriate proceedings
with a court of competent jurisdiction.
(Sec. 187, LGC)
185
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Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Govt Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Owner declares real
property once every 3
years (sec. 202) w/n
Jan 1 to June 30
START
Submit documents
supporting exemption w/
in 30 days from
declaration (sec. 206)
Required
Documents
submitted w/in
30 days?
Property
proven as tax
exempt?
Yes
No
Property shall be
listed as taxable in
the assessment
roll (sec. 206)
Assessor prepares
assessment rolls
wherein real property
shall be listed, valued
and assessed (sec. 205)
Assessor declares
real property if owner/
administrator fails to
do so (sec. 204)
Yes
Yes
Is real property
tax exempt?
Property shall be
dropped from
assessment roll
(sec. 206)
No
END
No
END
Appeal to the
Supreme Court w/
in 15 days
186
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START
Assessor submits
assessment roll to
local
treasurer
(sec. 248)
Amount of tax
protested shall be
refunded or
applied as tax
credit (Sec. 252)
Yes
LT grants
protest?
Yes
LT decides w/in
60 days?
LT must decide w/
in 60 days from
receipt of protest
(sec. 252)
No
Refund or tax credit must
be claimed with the local
treasurer w/in 2 years from
the date taxpayer is entitled
to such (sec. 253)
LT acts on claim
for refund/tax
credit w/in 60
days?
No
Yes
LT grants
refund/tax
credit?
Yes
Taxpayer happy.
END
No
No
END
Appeal to the
Supreme Court w/
in 15 days
187
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Sale is held:
1. at the main entrance
of the LGU building, OR
2. on the property to be
sold, OR at
3. any other place
specified in the notice
Is there a
bidder?
Yes
Bidder pays & 30 days
after the sale, the LT
shall report the sale to
the sanggunian
LT shall deliver to
purchaser certificate
of sale
Proceeds of sale in
excess of delinquent
tax,
interest
&
expenses of sale
remitted to the owner
(sec. 260)
For purposes of this flowchart owner means owner or administrator of real property or any
person having legal interest thereto
Warrant of Levy issued
by the Local Treasurer
(LT), which has the force
of legal execution in the
LGU concerned. (sec.
258)
Warrant is mailed
to or served upon
the delinquent
owner (sec. 258)
No
LT returns to the
purchaser/bidder the
price paid + interest
of 2% per month
(sec. 261)
If property is not
redeemed, the local
treasurer
shall
execute a deed of
conveyance to the
purchaser (sec. 262)
Sanggunian
concerned
may, by ordinance sell
and dispose of the real
property acquired under
the preceding section at
public auction. (sec. 264)
END
188
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IX.
TARIFF
AND
CUSTOMS CODE OF
1978, AS AMENDED
REQUIREMENTS OF IMPORTATION
CUSTOM DUTIES
Import entry
Imported articles must be entered in the
customhouse at the port of entry within fifteen
days from date of discharge of the last package
from the vessel either (a) by the importer, being
holder of the bill of lading, (b) by any other
189
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to duty upon each importation, even though
previously exported from the Philippines,
except as otherwise specifically provided for
in this Code or in other laws. [Sec. 100, TCC]
(2) Prohibited
importation
[Sec.
101,
TCC](POPP-LAW-DING)
(a) Dynamite, gunpowder, ammunitions and
other explosives, firearm and weapons of
war, and detached parts thereof, except
when authorized by law.
(b) Written or printed article in any form
containing:
(1) any matter advocating or inciting
treason, rebellion, insurrection or
sedition against the Government of
the Philippines
(2) forcible resistance to any law of the
Philippines
(3) containing any threat to take the life
of or inflict bodily harm upon any
person in the Philippines.
(c) Written or printed articles, photographs,
engravings,
lithographs,
objects,
paintings,
drawings
or
other
representation of an obscene or Immoral
character.
(d) Articles,
instruments, drugs and
substances designed, intended or
adapted
for
preventing
human
conception or producing unlawful
abortion, or any printed matter which
advertises or describes or gives directly
or indirectly information where, how or
by whom human conception is prevented
or unlawful abortion produced.
(e) Roulette wheels, Gambling outfits,
loaded dice, marked cards, machines,
apparatus or mechanical devices used in
gambling, or in the distribution of money,
cigars, cigarettes or other articles when
such distribution is dependent upon
chance, including jackpot and pinball
machines or similar contrivances.
1301, TCC]
All imported articles, except importation
admitted free of duty, shall be subject to a
formal or informal entry.
Kinds of Import Entry:
(1) Formal Entry
(2) Informal Entry
Types of Formal Entry [Sec. 1302, as amended]:
A formal entry may be:
(a) for immediate consumption, or
(b) under irrevocable domestic letter of
credit, bank guarantee or bond for:
(1) placing the article in customs bonded
warehouse;
(2) Constructive
warehousing
and
immediate transportation to other
ports of the Philippines upon proper
examination and appraisal; or
(3) Constructive
warehousing
and
immediate exportation.
Note: Import entries under irrevocable
domestic letter of credit, bank guarantee or
bond shall be subject to the provisions of Title
V, Book 11 of this Code. All importations
entered under formal entry shall be covered by
a letter of credit or any other verifiable
document evidencing payment." [R.A. 9135,
CLASSIFICATION OF GOODS
(1) Taxable importation
All articles, when imported from any foreign
country into the Philippines, shall be subject
190
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(f) Lottery
and
sweepstakes
tickets,
advertisements thereof and lists of
drawings therein.
Except those authorized
Philippine Government
by
TAXATION LAW
(a) Aquatic
products
(e.g.,
fishes,
crustaceans, mollusks, marine animals,
seaweeds, fish oil, roe), caught or
gathered by fishing vessels of Philippine
registry: Provided, That they are
imported in such vessels or in crafts
attached thereto: And provided, further,
That they have not been landed in any
foreign territory or, if so landed, they
have
been
landed
solely
for
transshipment without having been
advanced in condition;
the
191
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to the Collector of Customs that same
have been in their use abroad for more
than six (6) months and accompanying
them on their return, or arriving within a
reasonable
time
which,
barring
unforeseen circumstances, in no case
shall exceed ninety (90) days before or
after the owners' return: Provided, That
the personal and household effects shall
neither be in commercial quantities nor
intended for barter, sale or hire and that
the total dutiable value of which shall
not exceed two thousand pesos
(P2,000.00): Provided further, That the
returning residents have not previously
received the benefit under this section
within one year from and after the last
exemption
granted:
Provided
furthermore, That a fifty (50) per cent ad
valorem duty across the board shall be
levied and collected on the personal and
household effects (except luxury items)
in excess of two thousand pesos
(P2,000.00): And provided, finally, That
the personal and household effects
(except luxury items) of a returning
resident who has not stayed abroad for
six (6) months shall be subject to fifty
(50)per cent ad valorem duty across the
board, the total dutiable value of which
does not exceed two thousand pesos
(P2,000.00); any excess shall be subject
to the corresponding duty provided in
this Code;
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Customs may extend the time for
exportation or payment of duties, taxes
and other charges for term not exceeding
six (6) months from the expiration of the
original period;
(h) Professional
instruments
and
implements, tools of trade, occupation or
employment, wearing apparel, domestic
animals, and personal and household
effects belonging to persons coming to
settle in the Philippines or Filipinos
and/or their families and descendants
who are now residents or citizens of
other countries, such parties hereinafter
referred to as Overseas Filipinos, in
quantities and of the class suitable to the
profession, rank or position of the
persons importing them, for their own
use and not for barter or sale,
accompanying such persons, or arriving
within a reasonable time, in the
discretion of the Collector of Customs,
before or after the arrival of their owners,
which shall not be later than February 28,
1979 upon the production of evidence
satisfactory to the Collector of Customs
that such persons are actually coming to
settle in the Philippines, that change of
residence was bona fide and that the
privilege of free entry was never granted
to them before or that such person
qualifies under the provisions of Letters
of Instructions 105, 163 and 210, and that
the articles are brought from their former
place of abode, shall be exempt from the
payment of customs duties and taxes:
Provided, That vehicles, vessels, aircrafts,
machineries and other similar articles for
use in manufacture, shall not be
classified hereunder;
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undeveloped, exposed outside the
Philippines by resident Filipino citizens
or by producing companies of Philippine
registry where the principal actors and
artists employed for the production are
Filipinos, upon affidavit by the importer
and identification that such exposed
films are the same films previously
exported from the Philippines. As used in
this paragraph, the terms "actors" and
"artists" include the persons operating
the photographic cameras or other
photographic and sound recording
apparatus by which the film is made;
(k) Importations for the official use of
foreign embassies, legations, and other
agencies of foreign governments:
Provided, That those foreign countries
accord like privileges to corresponding
agencies of the Philippines;
Articles imported for the personal or
family use of the members and attaches
of foreign embassies, legations, consular
officers and other representatives of
foreign governments: Provided, That
such privilege shall be accorded under
special agreements between the
Philippines and the countries which they
represent: And Provided, further, That
the privilege may be granted only upon
specific instructions of the Secretary of
Finance in each instance which will be
issued only upon request of the
Department of Foreign Affairs;
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salvage recovered within the said period
of two (2) years shall be dutiable;
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Economic and Development Authority as
necessary for economic development;
(s) Economic,
technical,
vocational,
scientific, philosophical, historical, and
cultural books and/or publications:
Provided, That those which may have
already been imported but pending
release by the Bureau of Customs at the
effectivity of this Decree may still enjoy
the privilege herein provided upon
certification by the Department of
Education, Culture and Sports that such
imported books and/or publications are
for economic, technical, vocational,
scientific, philosophical, historical or
cultural purposes or that the same are
educational, scientific or cultural
materials covered by the International
Agreement
on
Importation
of
Educational Scientific and Cultural
Materials signed by the President of the
Philippines on August 2, 1952, or other
agreements binding upon the Philippines.
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operations, when certified to as such by
the Secretary of Agriculture and Natural
Resources upon the recommendation of
the Director of Mines, for a period ending
five (5) years from the first date of actual
commercial production of saleable
mineral products: Provided, That such
articles are not locally available in
reasonable quantity, quality and price
and are necessary or incidental in the
proper operation of the mine; and
aircrafts imported by agro-industrial
companies to be used by them in their
agriculture and industrial operations or
activities, spare parts and accessories
thereof;
(w) Spare parts of vessels or aircraft of
foreign registry engaged in foreign trade
when brought into the Philippine
exclusively as replacements or for the
emergency repair thereof, upon proof
satisfactory to the Collector of Customs
that such spare parts shall be utilized to
secure the safety, seaworthiness or
airworthiness of the vessel or aircraft, to
enable it to continue its voyage or flight;
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for expenses and profits. [Sec. 201,
TCC]
General Rule: The following methods are
sequentially applied
CLASSIFICATION OF DUTIES
(1)ORDINARY/REGULAR DUTIES
Ordinary or regular duties refer to those
that, as a matter of course, are imposed on
dutiable articles [Sec. 104, TCC]
(a) Ad valorem; Methods of valuation
The tax rates are based on the cost
(FMV) or price of the imported articles,
in wholesale quantities in the principal
market of the exporting country or the
country of origin, including expenses
connected with the importation, such as
insurance, freight, packaging, loading
and unloading charges, but excluding
internal excise taxes to be remitted or
rebated; or
(a) In case such value is not
ascertainable, the reports of the
Revenue or commercial attaches; or
(b) If still not ascertainable, the
domestic wholesale market price in
the ordinary course of trade less
import duty and not more than 25%
198
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Similar goods must be same commercial
level and substantially same quantity as the
goods being valued.
Similar goods
(a) like characteristics and like component
materials
(b) capable of performing same functions
(c) commercially interchangeable
(d) produced in same country
(e) produced by same producer
Identical goods
(a) Same
in
all
respects
(physical
characteristics, quality and reputation)
(b) Produced in the same country as the goods
being valued
(c) Produced by producer of the goods being
valued
Excludes:
Excludes:
Deductive value
DV is determined on the basis of sales in the
Phil of goods being valued of identical or
similar imported goods less certain expenses
resulting from importation and sale of goods.
Deductive Value is determined by making a
deduction from the established price per unit
for the aggregate of the ff elements:
(a) Commissions OR
(b) additions made in connection with profit
and general expenses AND
(c) transport, insurance and associated
costs
(d) customs duties and other national taxes
199
UP LAW BOC
Less:
Less:
Less:
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TAXATION LAW
PRICE
COMMISSIONS/ADDITIONS
COSTS
DUTIES and TAXES
DEDUCTIVE VALUE
Fallback value
DV cannot be determined using any of
the above methods
DV is calculated by:
determining aggregate of relevant costs,
charges and expenses or value of (1) materials
and (2) production or processing costs:
(a) Costs* (containers, packing, assists,
engineering, artwork, plans and sketches
undertaken in Phil and charged to
producer
(b) profits and general expenses
(c) cost of transport, insurance and charges
to the port or place of importation
200
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REMEDIES
GOVERNMENT
Administrative/Extrajudicial
TAXATION LAW
TAXPAYER
Commissions;
Protest
Form:
(a) Must be in writing
(b) Must point out the particular decision or
ruling of the Collector of Customs to which
exception is taken or objection made
(c) Must state the grounds relied upon for relief
(Sec. 2310, TCC)
Other requirements:
Judicial
201
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When available:
(1) Abatement for Damage incurred during
Voyage (Sec. 1701)
(2) Abatement or Refund for the following:
(a) Missing Packages (Sec. 1702)
(b) Deficiency of Contents in Packages (Sec.
1703)
(c) Articles Lost or Destroyed after Arrival
(Sec. 1704)
(d) Dead or Injured Animals (Sec. 1705)
(3) Refund in case of excess payments due to:
(a) manifest clerical error made in invoice or
entry
(b) error in return of weight, measure and
gauge (certified, under penalties of
falsification or perjury, by examining
official)
(c) error in the distribution of charges on
invoices (which does not involve any
question of law and certified, under
penalties of falsification or perjury, by
examining official) (Sec. 1707)
Automatic Review:
Happens in case a decision is made adverse to
the Government
Abandonment
existence
TAXATION LAW
How:
(1) Claim made in writing
(2) Collector shall verify with the records in his
office
of
202
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203
TAXATION LAW
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Collector determines
probable cause
(illegal importation)
Collectors
decision favorable
to taxpayer/
adverse to govt?
Yes
Amount
involved less
than 5M?
Yes
Collector conducts
hearing
Does
commissioner
decide w/in 30
days?
No
Taxpayer appeals
to Customs
Commissioner 15
days from receipt
of notice
Is
Commissioners
decision favorable
to taxpayer/
adverse to govt?
Yes
No
Inaction construed as affirmation
of Collectors decision
Does
Commissioner
decide w/n 30
days?
No
Yes
Yes
Automatic Review* by
the Secretary of
Finance (SOF) (Sec.
2313, CMO 3-2002)
Is SOFs
decision
favorable to
taxpayer/adverse
to govt?
No
No
Does SOF
decide within
30 days?
Yes
No
Yes
Decision becomes
final &
unappealable
END
Inaction construed
as affirmation of
Collectors
decision
Appeal to the
Court of Tax
Appeals within 30
days from notice
of decision
MR within 15 days
from receipt of
decision
Appeal to CTA en
banc 15 days from
receipt of decision
denying MR
Inaction construed as
affirmation of
commissioners decision
(or of collectors decision
in case of inaction by
commissioner)
Appeal to the
Supreme Court
No
Appeal
to CTA
END
*Automatic review is intended to protect the interest of the Government. W/o auto review, the Commissioner and SoF would not know
about the decision laid down by the Collector favoring the taxpayer. Automatic review is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the taxpayer & adverse to the Government. (Yaokasin v. Commissioner 180 SCTA 591
204
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Anti-Dumping
[Sec. 301, TCC
as amended by
RA 8752]
Where
a
product
or
commodity is
imported in the
Philippines at
an export price
less than the
normal value
in the ordinary
course of trade
for the like
product
or
article destines
for
consumption
in
the
exporting
country
or
materially
regarding
establishment
of a domestic
industry
producing the
like
product
(Sec. 3, RA
8752)
TAXATION 2
TAXATION LAW
If at the time
of
importation
any article (or
its container if
the
article
cannot
be
marked),
is
not marked in
in any official
language of
the
Philippines
and
in
a
conspicuous
place
as
legibly,
indelibly and
permanently
as the nature
of the article
(or container).
This is used to
prevent
deception of
consumers.
Whenever the
President finds
that the public
interest will be
served thereby,
additional
customs duty
shall
be
imposed upon
articles wholly
or in part the
growth
or
product of, or
imported in a
vessel of, any
foreign country
whenever he
shall find as a
fact that such
country
(1)
Imposes,
directly
or
indirectly,
upon any Phil
product
unreasonable
charge,
exaction,
regulation or
limitation
which is not
equally
enforced upon
the like articles
of other foreign
countries; or
(2)
205
(Sec 5) General
Safeguard
Measure:
Whenever
there
is a
positive final
determination
of
the
Commission
that a product
is
being
imported into
the country in
increased
quantities,
whether
absolute
or
relative to the
domestic
production, as
to
be
a
substantial
cause
of
serious injury
or
threat
thereof to the
domestic
industry;
however, in the
case of nonagricultural
products, the
Secretary
of
Agriculture
shall
first
establish that
the application
of
such
safeguard
(Sec
21)
Special
Safeguard
Measure for
Agricultural
Products:
Imposed upon
agricultural
products,
consistent
with
Phil
international
treaty
obligations, if
its:
a) Cumulative
import
volume in a
given
year
exceeds
its
trigger
volume
subject to the
conditions
under Sec. 23,
RA 8800, or
but
not
currently; and
b) Actual CIF
import price is
less than its
trigger price
subject
to
conditions
under Sec. 24,
RA 8800
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Discriminates
measures will
in fact against be
in
the
the commerce public interest
of
the
Philippines, as
to place the
commerce of
the Philippines
at
a
disadvantage
compared with
the commerce
of any foreign
country.
AntiDumping
(Sec. 301,
TCC as
amended by
RA 8752)
Countervailing
(Sec. 302 as
amended by RA
8751)
Marking
(Sec. 303)
AntiEquivalent
Dumping
the subsidy
Duty
=
Normal
Value
Export Price
Discriminatory
(Sec. 304)
President
For
non- Secretary
of
(through
a agricultural
Agriculture
proclamation)
products:
Secretary of
Trade
and
Industry
For
agricultural
products:
Secretary of
Agriculture
206
tariff
For a):
increase,
either
ad appropriately
valorem
or set to a level
specific,
or not exceeding
both, to be one-third
of
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paid through
a cash bond
set at a level
sufficient to
redress
or
prevent injury
to
the
domestic
industry (Sec.
8, RA 8800)
the applicable
out-quota
customs duty
on
the
agricultural
product under
consideration
in the year
when it is
imposed
For
b),
compute
as
follows:
(a) 0 - if price
difference
is at most
10% of the
trigger
price
(b) 30% of the
amount by
which the
price
difference
exceeds
10% of the
trigger
price
(c) 50% - if it
exceeds
40%
but
less than
60%
(d) 70% - if it
exceeds 60
but at most
75%
(e) 90% - if it
exceeds
75%
207
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X. JUDICIAL REMEDIES
TAXATION LAW
originally decided or resolved by them in
their ORIGINAL jurisdiction.
CTA Division
(1) Decisions and Inaction of the Commissioner
of Internal Revenue in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the National Internal
Revenue or other laws administered by the
Bureau of Internal Revenue;
amended]
CTA en Banc
(1) Decisions or resolutions on motions for
reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive
appellate jurisdiction over:
(a) Cases arising from administrative
agencies Bureau of Internal Revenue,
Bureau of Customs, Department of
Finance, Department of Trade and
Industry, Department of Agriculture;
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CTA Division
(1) Over appeals from the judgments,
resolutions or orders of the Regional Trial
Courts in tax cases originally decided by
them, in their respected territorial
jurisdiction.
(2) Over petitions for review of the judgments,
resolutions or orders of the Regional Trial
Courts in the exercise of their appellate
jurisdiction over tax cases originally decided
by the Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial
Courts in their respective jurisdiction.
CTA En Banc
(1) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
original jurisdiction over cases involving
criminal offenses arising from violations of
the National Internal Revenue Code or the
Tariff and Customs Code and other laws
administered by the Bureau of Internal
Revenue or Bureau of Customs;
(2) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
appellate jurisdiction over criminal offenses
mentioned in the preceding subparagraph;
and
(3) Decisions, resolutions or orders of the
Regional trial Courts in the exercise of their
appellate jurisdiction over criminal offenses
mentioned in subparagraph (f).
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JUDICIAL PROCEDURES
JUDICIAL ACTION FOR COLLECTION OF
TAXES
Internal revenue taxes
The remedies for the collection of
internal revenue taxes, fees or charges, and
any increment thereto resulting from
delinquency can be through the institution of a
civil or criminal action. [Sec. 205, NIRC]
CIVIL CASES
Who may appeal, mode of appeal, effect of
appeal
Appeal to CTA Division
Local taxes
The LGU concerned may enforce the
collection of delinquent taxes, fees, charges or
other revenues by civil action in any court of
competent jurisdiction. The civil action shall be
filed by the local treasurer. (Sec. 183, LGC)
MTC/RTC
depending
threshold amount.
on
TAXATION LAW
jurisdictional
Prescriptive period
Local taxes, fees, or charges may be collected
within five (5) years from the date of
assessment by administrative or judicial action.
No judicial or administrative action for
collection can be instituted after lapse of the
period for assessment except when there is
fraud or intent to evade tax. (Sec. 194 LGC)
210
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trial pursuant to Section 2, Rule 53 and
Section 12, Rule 124 of the Rules of
Court. [Sec. 2, Rule 12, A.M. No. 05-11-
07]
(ii) Taking of evidence by:
(a) Justice
The Court may, motu proprio or upon
proper motion, direct that a case, or
any issue therein, be assigned to one of
its members for the taking of evidence,
when the determination of a question
of fact arises at any stage of the
proceedings, or when the taking of an
account is necessary, or when the
determination of an issue of fact
requires the examination of a long
account. The hearing before such
justice shall proceed in all respects as
though the same had been made
before the Court.
NIRC]
Note: The Local Government Code does
not have a provision prohibiting
injunction in the collection of tax.
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Effect:
Who: Any aggrieved party may seek a
When:
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Deciding
Body
CRIMINAL CASES
Institution and prosecution of criminal actions
Regional
Trial Court in
the exercise
of its original
jurisdiction
(to
CTA
Division)
CTA Division
(to CTA En
213
Period to
Appeal
Mode of
Appeal
for
as
UP LAW BOC
Banc)
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TAXATION LAW
decision
provided in
Rule 43 of the
May
be Rules
of
extended for Court
good cause
for not more The Court en
than 15 days
banc shall act
on
the
appeal.
Regional Trial 15 days from Petition for
Courts in the receipt
of review
as
exercise
of decision
provided in
their
Rule 43 of the
appellate
Rules
of
jurisdiction
Court
(To
CTA
division)
taxation
(a) CONCEPT OF LOCUS STANDI: The
doctrine of locus standi is the right of
appearance in a court of justice. The
doctrine requires a litigant to have a
material interest in the outcome of a
case. In private suits, locus standi
requires a litigant to be a "real party in
interest," which is defined as "the party
who stands to be benefited or injured by
the judgment in the suit or the party
entitled to the avails of the suit."
UP LAW BOC
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money is being deflected to any
improper purpose, or that there is
wastage of public funds through the
enforcement of an invalid or
unconstitutional law. A person suing
as a taxpayer, however, must show
that the act complained of directly
involves the illegal disbursement of
public funds derived from taxation. He
must also prove that he has sufficient
interest in preventing the illegal
expenditure of money raised by
taxation and that he will sustain a
direct injury because of the
enforcement of the questioned statute
or contract. In other words, for a
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adequate relief available in any other form
or proceeding.
216