8 TAX: Ingles and Chavez

A. Concept of Taxation
1. Enforced proportional contribution, imposed by the state by its sovereign capacity, to
support the government
2. A pecuniary burden. Pay with cash and not with anything else
3. Power is inherent to the State, the right to impose taxes exist apart from the
Constitution
4. State free to select the subjects of taxation and those who are exempt (Congress)
- Power to tax is power to destroy therefore it should be exercised with caution to
minimize the injury to the proprietary rights of a taxpayer must be exercised fairly,
equally and uniformly
- Power to tax is attribute of sovereignty
- Due process clause may be invoked where the taxing statute is so arbitrary and find no
support in the constitution
- Collection of local taxes, fees and other impositions shall not be let to any private
person (LGC)
- A destructive power which interferes with personal property for the support of the gov’t
-
- Coconut levy funds are raised with the use of police and taxing power of the state.
Imposed for the benefit of coconut industry

Characteristics of Taxation
1. Enforced contribution
2. Progressive
3. Payable in money
4. Public purpose
5. Levied by legislative

Purpose of taxation
1. Public purpose
2. Social justice
3. Revenue generation

B. TAX DISTINGUISH FROM OTHER EXACTIONS

TAX LICENSE FEE SPECIAL ASSESSMENT TOLL FEES
Source: Taxing Power  Police power  Imposed only to  Imposed by private
Purpose: Raise  Regulate right to land bcus of person
revenue. exercise privilege public  Reimbursement for
Object:Person, (Imposition must improvement the cost and
 property and privilege relate to an benefits and expenses incurred
Power can be used as occupation/ increase the in the construction
an implementation of activity) value of the land of toll ways
police power i.e  Basis: Attribute of
regulate certain  (LGU may ownership
industries (Socialized imposed special -Indirect Tax. Paid by the
Housing Tax) levy on lands public to tollway
specially operators for use of the
benefited by tollway
public works, -VAT on tollway
projects, operations is not a tax
improvements on the tollway user, but
funded by LGU) on the tollway operator.
VAT is imposed on any
person in the conduct of
trade or business
 It is a Tax if the primary purpose is to generate revenue and regulation is merely incidental.
 Not a tax if regulation is the primary purpose and revenue generation is merely incidental
 Regulatory Fees- Universal charge imposed thru EPIRA to ensure viability of the Philipine’s
electric power industry
 Reglatory Fee: fees for construction of special projects like cell sites are regulatory fees- to
regulate certain construction. Building fees.
 Regulatory fee: fees imposed per liter basis on fuel entering clark this in relation to high
volume of fuel bought into the zone hence greater extent of supervision and inspection
 License Fee - imposed by a city on liquor vendors for privilege of selling liquor
 A charge which bears no regulation to the cost of inspection and regulation may be
considered as a Tax. Hence, exacting amount of money as employees fees from aliens who
already have been cleared for employment has no justification as a regulatory fee.

Tax Police Power Eminent Domain

 Raise Revenue  General Welfare  Public use
 Enforced contribution  To implement laws  Just compensation
 By National and LGU  By Nat’l and LGU  By Gov’t or public utility
 Broader in scope companies
 For safety and regulation  Common interest

C. THEORY AND BASIS OF TAXATION

1. Life Blood Theory
 - Taxes are life blood of the state thru which the government and its agencies continue to
operate. Without taxes, State would be paralyzed. Hence, injunction generally does not
lie against the collection of taxes
- Collected without necessary hindrance
- State is not estopped from collecting taxes by the mistake/error of its agents
2. Necessity Theory
- Government cannot continue to operate without taxes to pay for the expenses hence
can compel citizens to pay. Taxes are what we pay for civilized society
3. Benefits-Received Theory
- Taxpayers and the government have reciprocal obligation: taxpayer to pay taxes and the
government to provide protection and benefits

D. JURISDICTION OVER SUBJECT AND OBJECTS

E. PRINCIPLE OF SOUND TAX SYSTEM (FAT)

1. FISCAL ADEQUACY
- Sources of revenue should be adequate to meet gov’t expenditures and their variations
2. ADMINISTRATIVE FEASIBILITY
- Tax system should be capable of being effectively administered and enforce with least
convenience to the taxpayer
- Non-observance will not render the tax invalid except specific constitutional/ statutory
limitation is impaired
3. THEORETICAL JUSTICE
- Tax system should be fair and based upon the ability to pay

SCOPE OF POWER TO TAX (CUPS)

1. Comprehensive- no limits. Tax legislations are presumed constitutional
2. Unlimited
3. Plenary
4. Supreme

F. INHERENT LIMITATION OF TAXATION (Memorize!) GIPIT

1. For public purpose
2. Inherently legislative in nature
- Ex: Delegation to PAL
a. President to impose tariff rates, custom duties
b. Administrative Bodies to fix rates within the limits of the law
c. LGU are granted autonomous authority to create their own sources of revenue
3. GEAI: Gov’t entities, agencies and instrumentalities are generally exempt
 - MIAA is a gov’t instrumentality exempt from real property tax
- GOCCs are not exempt from tax
4. International comity
- To minimize harshness of int’l double taxation
- Tax treaty must take precedence over an administrative issuance
5. Territorial jurisdiction
- Power to tax is limited only to territorial jurisdiction
- Expn:privity of relationship exist between the State and the taxpayer (ex: resident
citizen are taxed on all income derived within and without Ph)

CONSTITUTIONAL LIMITATION ON THE POWER TO TAX

1. DUE PROCESS
- Substantive: law must be reasonable and for public purpose. Who, when, how to
tax
- Procedural: no arbitrariness in the assessment and collection of taxes
- Requires notice to the taxpayer to give him the chance to pay delinquent taxes
before he can be deprived of his property
2. EQUAL PROTECTION OF LAWS
- Equal protection of law is not absolute but is subject to reasonable classification and
substantial distinction.
- Classification must be:
o Substantial distinction
o Germane to the purpose of the law
o Not be limited to the purpose of the law
o Apply equally to all members of same class
- Identically situated person shall be taxed alike. Treated on equal footing, same class.
- Tax exemptions do not violated equal protection of laws since legislature have
inherent power to grant such
- An ordinance was passes imposing a tax on installation managers. At that time, only
1 installation manager in the municipality. The ordinance is unconstitutional
violating equal protection clause because it is discriminatory
- RA7227 granting tax and duty incentives only to business and residents within the
secured area of Subic Special Economic Zone and denying those lived outside is
constitutional. There is substantial difference between big investors who are being
lured to establish and operate their industries in the so called secured area.
3. RELIGIOUS FREEDOM
- Tax imposed on the distribution of sales of bibles and other religious literature is
invalid. However, income of religious orgs from activities for profit or from their
property is subject to income tax
4. NON-IMPAIRMENT CLAUSE
- Taxation is the rule and exemption is the exemption- which may be withdrawn at
the pleasure of taxing authority.
- Covers only contractual tax exemptions and not franchises or licenses- can be
revoked anytime
- Ff are contractual tax exemptions protected by non-impairment clause:
a. Gov’t bonds and debentures
b. Perfected mining concession
5. NON-IMPRISONMENT OF NONPAYMENT OF POLL TAX
6. UNIFORMITY AND EQUALITY OF TAXATION AND PROGRESSIVE SYSTEM OF TAXATION
- Reasonable classification do not violate uniformity.
- Same class, taxed at the same rate
- Imposition of different tax rates to the same class of products violates the rule on
uniformity
7. DELEGATED AUTHORITY
8. PROHIBITION AGNST TAXATION OF REAL PROPERTY OF CHARITABLE INSTITUTIONS,
CHURCHES,PARSONAGES OR CONVENTS, MOSQES AND NONPROFIT CEMETERIES (prove
ADE)
- ADE use of property for charitable purposes is the direct and immediate and actual
application of the property itself for the purpose for which the charitable institution
is organized.
- Exempted only as to real property taxes (Actual use of the property)
- Principle: charitable institution does not lose its character and its exemption from
taxes simply because it derives income from paying patients- so long the money
received is used to the charitable object. The portions of the land occupied by the
hospital and portions of the hospital used for its patients whether paying or non-
paying are exempt from real property taxes. BUT those portions leased to private
entities as well as those parts of the hospital leased to private individuals are NOT
exempt from taxes.
- A school devoted to a hospital and garage necessary for the school are exempt from
rpt
- Lodging house for people who participate in religious activities and a vegetable
garden used by the priest, both adjacent to a church are incidental and necessary
for religious purposes and are exempt from rpt
- The use by the Director of a school of a floor for residential purposes is incidental to
educational purposes hence exempt from rpt
- If the real property is used for one or more commercial purposes(lease) then subject
to tax
 - When portions of a hospital and portions of the land are leased to private entities
these portions are no longer exempt hence subject to tax

9. PROHIBITION AGNST TAXATION OF NONSTOCK, NONPROFIT EDUCATIONAL INSTITUTIONS

- Exempt from: income,rpt, donor’s tax,custom duties (All revenue assets)
- Revenue and assets must be used ADE for educational purposes. Test is the use
- Where university leases portion of a school building to a bookstore/ canteen, leased
portion is no longer used for educational purposes hence subject to rpt
- Incomes from cafeterias, canteens and bookstore are exempt from tax if owned and
operated by educational institution and located with school premises

10. PROHIBITION ON USE OF TAX LEVIED FOR SPECIAL PURPOSE

- If fulfilled, the balance of special fund shall be transferred to the general fund

11. PRESIDENT’S VETO POWER ON ART BILLS(APPROPRIATION, REVENUE, TARIFF)

12. POWER OF LGU TO CREATE THEIR OWN SOURCES OF REVENUE subject to limitation by the
congress

13. MAJORITY VOTES OF CONGRESS FOR TAX EXEMPTIONS

- Exemption granted by presidential proclamation is invalid.

14. TAX BILLS SHOULD ORIGINATE IN HOR

- Senate may propose or concur with amendments. May even entirely abolished/
amend HB and substitute it with their own

15. JUDICIAL POWER TO REVIEW LEGALITY OF TAX

G. STAGES AND ASPECTS OF TAXATION

1. Levy
- By legislative dep’t. Determination of who, where and how to tax
- Uniform and equitable and progressive
2. Collection
- By executive department (BIR- under supervision and control of Dept of finance

H. REQUISITE OF A VALID TAX

I. KINDS OF TAXES
Classification of Taxes
 1. Local taxes
- The right of LGU to collect taxes due must always be upheld to avoid severe tax
erosion
- LGU have no power to tax instrumentality of nat’l govt (PAGCOR- exempt from local
taxes)
2. National taxes
a. Income tax
b. Estate
c. Excise
d. Documentary Stamp
e. VAT
f. Percentage tax
g. Other taxes (Withholding taxes on compensation)
3. Direct taxes
- Exacted from the very person intended to pay. Taxpayer is directly liable on
transaction or business he is engaged in
4. Indirect Taxes
- Paid by one person/ seller which he can shift to his buyer

J. CONCEPTS
1. Prospectivity of tax laws
- Tax laws must be applied prospectively. Exemption statutes are not retroactive
- Expn: Express provision of law
- Non-retroactivity of Rulings, circulars, rules and regulation promulgated by CIR if
applying them will prejudice taxpayer. BUT when rulings etc was nullified by the
Court and not by CIR, nonretroactivity rules does not apply

2. Imprescriptible

3. Situs of taxation
- Only resident citizens and domestic corporation are taxed from income sources
worldwide
- It is important to determine whether such income is realized in the Ph or abroad

Double Taxation
a. Strict Sense
- Direct double taxation. Prohibited. Same property is taxed twice , for same
purpose, by same taxing authority, within same jurisdiction during same tax period
b. Broad Sense
 - indirect double taxation. Two or more pecuniary impositions on a subject matter
(pay business tax by LGU and income tax to national government). Not prohibited by the
constitution.

Tax treaties as relief from double taxation

International double taxation

− Imposition of comparable taxes in two or more states on same taxpayer in same subject
matter for same period.

Remedies angst double taxation

− tax treaties, tax credit, tax sparing rule, exemption method, reciprocity clause

Real estate (direct tax on the ownership of lands and buildings and other improvements
thereon, payable regardless the property is used or not) and tenement tax imposed by
an ordinance, altho imposed by same taxing authority are not the same kind

Escape from taxation

a. Shifting of tax burden
b. Tax Avoidance
-Tax saving device legally sanctioned by law (estate planning)
c. Tax evasion
-Scheme used outside of those lawful means.
-Payment of less, state of mind is evil, action is unlawful
-Crime is complete when the taxpayer knowingly and willfully filed a fraudulent
return with an intent to evade and defeat tax.

Exemption from Taxation

- Waiver of the government’s right to collect tax. Freedom from the burden.
- Claim for tax exemption is strictly construed against taxpayer. There must be a
specific provision of the law
- Revenue regulation that requires tax-exempt entities to pay taxes with the
possibility of subsequent refund is invalid. Tax exempt entities shouldn’t be required
to pay in the first place

4. Equitable Recoupment
- When a taxpayer has a claim for a refund against the govt, but was not able to file
his written claim for tax refund because of reglementary period within which to file
a valid claim for tax refund has already prescribed. Despite such lapse of period,
 allows that the tax should have been refunded be credited instead to his existing or
other tax liabilities. Not allowed in our jurisdiction.

5. Prohibition on Compensation and set-off (Lifeblood theory)

- Taxes cannot be subject to compensation bcus taxpayer and the govt are not
creditors and debtors of each other. Tax is compulsory and does not depend on the
consent of the taxapayer.
- No off-setting of taxes against the claims that the taxpayer may have against the
government bcus taxes are duties. Collection of taxes cannot await the result of a
lawsuit against the government
- Debts vs tax: Debts are due to the govt in its corporate capacity. Taxes due to the gvt
sovereign capcity.
- Xpn: taxes can only be subject to compensation or set-off if the ff concur:
o Obligation are due and demandable
o Fully liquidated
o Finally adjudged by the court for set-off/compensation

6. Compromise

7. Tax Amnesty
- Pardon by the state to persons guilty of evasion or violation of a revenue or a tax
- Absolute forgiveness.
- Never presumed.

Tax Refunds
- Nature of tax exemptions. Strictly construed

Tax exclusions
- Removal of taxable items from the reach of taxation. Strictly construed. (ex: exclusion
from gross income and allowable deductions)

- A tax cannot be imposed unless it is supported by the clear and express language of the
statute. A tax statute strictly construed against the government. Burden of the State to
first prove that a taxpayer is in fact covered by the Tax Statute
Tax Credit
- If taxpayer is qualifies, option to deduct foreign income tax in his gross income or claim
tax credit
- To determine tax credit: chooses whichever is lower
Taxpayer Suit
a. Public funds are disbursed illegally
b. Standing of petitioner
- When the alleged public property (painting, silverwares of the Marcoses) and not public
funds, a taxpayer suit is improper.
- When the questioned contract is a contract enetered into by a GOC wherein a public
fuds will be used, a taxpayersuit is proper

Re Injunction
- GR: Not allowed
- Xpn: Files a bond, taxpayer has a clear and unmistakable right to refuse payment,
collection by gov’t agencies would jeoparadize gov’t or taxpayer interest

Re Indirect Taxes (VAT),

- The tax exemption of the buyer does not exempt him form payment of indirect taxes.
- If the buyer is exempt from indirect taxes, the seller bear the burden of the tax, the
seller can claim a refund
- Proper party to seek a refund is the statutory taxpayer. The buyer is not the proper
party to seek a refund as the buyer is not the statutory taxpayer.

Exemptions for RPT under LGC

- All machineries, equipment ADE by local water district and gocc engaged in the supply
and distribution of water and /or generation and transmission of electric power.
- MIAA is not a gocc but a gov’t instrumentality and LGU have no power to taxed
instrumentalities of national govt, hence MIAA is exempt from rpt. If MIAA leases its real
property to a taxable property tax. (Beneficial Use Doctrine on RPT)

Re: Percentage Tax (Pldt case)

- Pldt franchise stipulates that pldt shall pay a franchise tax equivalent to 3% of all its gross
receipts in lieu of all taxes. LGC took effect which grants provinces and other LGU the power
to impose local franchise tax on business enjoying franchise, hence all tax exemptions
privileges enjoyed were withdrawn including those of pldt. The court ruled that Pldt is still
liable to pay local frnachise tax

INCOME TAX
I. TAXING AUTORITY
II. INCOME TAX
- Income: a flow, profit or gain
-Capital: a fund
-Cash dividends are taxed as income bcus they have been realized/ received. There is an
actual receipt of profit
-Stock dividends are not taxed as income bcus they are merely an inchoate representation.

General Principles of Income Taxation (Sec23 NIRC)

1. Resident citizen of ph: taxable on all income derived from sources within and without the Ph
2. Citizen of ph working and deriving income abroad as OCW: taxable only on income derived
within ph (seaman who receives compensation for services abroad is considered ocw)
3. Alien individual resident or not of ph:taxable only on income derived within ph
4. Domestic corporation: taxed on all income derived within or without ph
5. Foreign corporation whether engaged or not in trade or business in Ph : taxable only on
income derived within ph

- An offer to buy is just an offer. No realization of income yet.

A. INCOME TAX SYSTEM

1. Global (unitary tax system)
- All items of gross income, deductions, exemptions are reported in 1 itr and a single
tax is imposed
2. Schedular
- Different types of activities are subjected to different tax rates
- Specific tax (eg: Indivdual taxes)
3. Semi-global, semi-schedular
- Certain passive income and capital gains are subject to final taxes with other income
are adde to arrive at the gross income
- Ph follows this

B. CRITERIA IN IMPOSING INCOME TAX LAW

1. Citizenship
2. Residence
3. Source (Gross Income in Ph)
1. Interest
- Loan was used in ph or debtor is in ph
2. Dividends
- From domestic and foreign corporation
3. Services
 - Compensation for labor or personal services performed in ph
- Test of source: place of performance of services
- If a domestic corporation entered into a managenet service contract with a
non-resident foreign corp, where the domestic corp will provide managerial
services for the nonresident foreign corp and all said services shall be
performed in Hong Kong, the compensation for services for nonresident
foreign corp shall not be subject to income tax. The test to determine the
compensation for the services is where the services are performed. If
performed abroad, the income is not taxable in Ph (in this case, in Hong
Kong)
4. Sale of RP
- Gains from the sale of rp located in ph
5. Sale of Personal property
- Place of signing a contracts is never an issue or factor in determining the
source of income
6. Rentals and royalties
- Test of source of income: location of property subject of rents or place of
the use of intangible property (if royalty)
- If a ABC domestic corp enetered into a software license agreement with a
XYZ non-resident foreign corp for the right to use a computer system
program, the transaction will subject XYZ corp to tax liability in ph. Income
derived from the use of technical knowledge or know-how within ph
(royalties) is considered income source within ph

 Source of income is PAS (property, activity or services that produce the income)
 Place of activity creating the income is controlling and not the place of business or residence
of a corporation.
 Sale of airline ticket thru general sales agent in the ph is considered income from Philippine
source, even if the tickets pertain to an airline company which does not maintain any flights
to and from ph
 Situs of sales of stock in a domestic corporation: derived entirely within ph

D. TYPES OF PH INCOME TAX

E. KINDS OF TAPAYERS
1. INDIVIDUAL (Classifications)
i. Resident Citizen
ii. Non-resident citizen (Immigrant, permanent employee, contract worker)
iii. Resident Aliens
 iv. Non-resident Aliens (Engaged in trade or business or not)
 Important to know different kinds of taxpayer because tax liability of each differs
 Income of OFW/OCW earned outside ph is exempt from income tax
 Special aliens (those employed by RHQS, OBU or foreign petroleum contractors) are now
subject to regular income tax rate. The preferential tax rate is no longer applicable under
TRAIN law

2. PARTNERSHIPS
3. CORPORATIONS
4. ESTATE AND TRUST

F. TAXABLE PERIODS
1. Calendar year
2. Fiscal year

CONCEPTS OF INCOME
 When income is taxable
a. Existence of Income
b. Realization of income
c. Recognition of Income

 TEST IN DETERMINING WHETHER INCOME IE EARNED FOR TAX PURPOSE

1. Realization Principle- income is recognized when ff are met
 Earning is complete/ virtually complete
 Exchange has taken place
2. Claim of right doctrine
- If taxpayer receives earning, earnings are considered as income
3. Economic benefit theory
- Anything that benefits a person materially or economically in whatever way is
taxable
4. Severance test theory
- Income is recognized when there is a separation of something which is of
exchangeable value.
5. All-events test
- Accrual of income and expenses is permitted when the ff are met:
- Fixing of right of income or liability to pay
- Availability of the reasonable accurate determination of such income or
liability
  METHODS OF ACOUNTING
a. Cash method
b. Accrual Method
c. Special Method:
 Installment
 Deferred payment
 Percentage of completion (in long term contracts)

GROSS INCOME
B. Distinguish:
Gross Income Taxable Income Net Income
- All income derived from  Gross income less
whatever source deduction= taxable
including but not limited income
to:
1. Annuities
2. Business income
3. Compensation income
4. Dividends
5. Interest
6. Rents
7. Royalties
8. Professional income
9. Prizes and winnings
10. Pensions
11. Partner’s distributive
share from the income of
gpp
12. Gains from dealings of
properties

 Gross receipt and gross income do not include monies or receipts entrusted to the taxpayer
which do not belong to them and do not redound to the taxpayer’s benefit
 A high ranking executive was given an apartment where he would host parties for the clients
of his company and would also travel The rental and travel allowances are not part of his
gross income. No part of these redounded to the personal benefit of the taxpayer. The bills
being directly paid by the company/ employer- these are company expenses. (Convenience
of the employer rule)
  RATA is now 90K. The additional compensation allowance of govt officials in excess of 90k is
subject to tax

C. SOURCES OF INCOME SUBJECT TO TAX

1. BUSINESS INCOME
- Gross income derived from the conduct of trade or business or exercise of
profession

2. COMPENSATION INCOME
- For services in whatever form paid
- Compensation earners are not allowed to deduct any other deductions from their
salary

3. INCOME FROM DEALINGS OF PROPERTY (distinguish first if ordinary or capital assets- have
special rules)
- Gain or loss on sale of property is recognized when the property received in
exchange is essentially different from the property disposed and the property
received has market value.

Ordinary Assets and Ordinary Income

- Property held by the taxpayer connected to his trade or business
o RP used in trade or business
o Property held primarily for the sale to customers in the ordinary course of trade
or business
o Stock in trade
o Other property of kind which would properly be included in the inventory of the
taxpayer if on hand at the close of taxable year
- Ordinary Income: Gain from the sale of ordinary assets. Taxed at 30%
- No limit for ordinary gains or losses

Capital Assets
- All assets other than ordinary assets
- Property held by taxpayer whether or not connected with his trade or business but does
not include ordinary assets.
- Personal and real property not used in trade or business
- Residential, movable properties
 Property initially classified as capital asset may later become ordinary asset and vice versa
  The nature of property can change in the hands of the buyer/ transferee.
 Shares of stocks would be ordinary assets only to a dealer in securities or person engaged in
the purchase and sale of or active trader in securities
 Property changing from real estate business to non-real estate business cannot be changed
to a capital asset
 Properties acquired by real estate business and subsequently abandoned and idle cannot be
classified as capital assets
 Real estate business transfers property to an ordinary person become a capital assets

Capital gains and losses (50-100% limits)

- Individual percentage for the gain or loss taken into account in computing net capital
gain, net capital loss and net income
o 100% of gain/loss I fthe asset has been held for not more than 12 months
o 50% of gain/loss if the asset has been held for more than 12 months
- Net capital gain: excess of the gains from sale or exchanges of capital assets over losses.
Shall be reported in ITR subject to graduated tax rate 9-35%
- Sample Case: An ordinary income of 25K, capital gains of 6K from sale of a painting held
for 4 yrs, capital losses of 4K from sale of vintage bike held for 2yrs. Taxable income is
26K (Gains of 6K held for 4yrs is 50% so 3K, loss from sale of 4K held for 2 yrs is 50% so
2K, 4k-2k=1k+25K=26K) pg204 Ingles
- Losses from the sale/ exchange of capital assets shall be allowed only to the extent of
the gains from such sales or exchanges.
- Rules on capital gains and losses do not apply to sale or exchange of: shares of stocks
not traded in the stock market, real property held as capital assets (these are all subject
to final taxes)
- Except:
i. Capital gains from sale of RP held as capital assets
ii. Sale of shares of stocks not traded at stock exchange (subject to final tax)
iii. Percentage tax on the sale or exchange of stocks listed and traded at the stock
exchanged based on gross selling price
iv. Percentage tax on the sale or exchange thru IPO at the stock exchange

Tax Free exchanges of sale/ exchange of property

- No gain/ loss is realized in the ff
1. Merger/consolidation of property: corp exchanges property solely for stocks of another corp
2. Stocks for stock:shareholder exchange stock for stock in another corp
- Exchange of securities: a security holder of corp exchanges his securities solely for stock or
securities in another corp
- Exchange not solely in kind in merger or consolidation: involves exchange of property not
solely for stocks were absorbed corp receives stocks and other property (cash or non-cash)
- Sample case: A merger of Zombie inc with vampire books in exchange of latter shares of
stock worth15M plus 1M cash. The 1M cash is taxable. (if instead of 15M stock plus 1M,
Zombie Inc is given 8M plus 7M cash the exchange is not taxed. No gain, none was realized)

3. Property for stocks: property is transferred to a corp by person in exchange for stock in corp
- If the amnt of liability assumed exceeds the total adjusted basis of the property
transferred the excess is considered gain
- Sample Case: Toby transfer property to Epol with adjusted basis of 15M in exchange for
Epol stocks plus Epol will assume Tobys liability of 10M. Exchange is tax free. (if the
liability of Toby is 20M this will exceed the adjusted basis of 15M so the 5M will be
considered as a gain and will be taxed.
 If transferor later on sells/exchanges the stock he got tax free, basis for determining the
gain/loss is substituted basis Fri

4. INCOME FROM ANY SOURCE

- Condonation of indebtedness
- Recovery of accounts previously written off
- Receipt of tax refunds or credit

5. PRIZES AND AWARDS

- Taxable
- Xpn: not taxed/ excluded in the gross income of:
 Recipient was selected without any action on his part to enter the contest
and he is not required to render substantial future services
 Those granted in local and international sports competitions sanctioned by
their respective national sports associations
 Gifts

6. PASIVE INCOME
- Interest
- Income from interest is included in computing gross income (Bank deposits)
- BUT interest income which are already subject to final tax need not be
included in the gross income

- Dividend
 - Any distribution whether in cash or in kind or other property in the ordinary
course by a corp, joint stock corp, partnership, association, insurance
company to shareholders/ members
- Liquidating dividends are taxabl: corp distributes its assets in complete
liquidation. The liquidating corp is not liable for income tax on eiher the
transafer of its assets to its stockholders or receipts of the shares
surrendered by its stockholders
- Liquidating shares are taxed at 30% for resident corp
- Redeemed shares are taxed at 10%
- GR: Cash (10% final tax on individual) and property dividends are taxable
- Xpn: stock dividends are not taxable
- Xpn to xpn: stock dividends causes change in the corporate identity or a
change in the nature of the shares issued whereby the proportional
interest of the stockholders is essentially different from his former interest
(shareholder interest is different from that which his former stock
represented)

 Not dividends: Cash amounts given by domestic corp to foreign shareholder for the
redemption of shares are not dividends, not distribution out of its earnings or
profits.
 When a corp receives dividends, which are ax free (intracorp dividends) it become
taxable as dividends when it distributes the same to its shareholders

- Royalty Income
- Payment of any kind for the use or right to use of patent, trademark, design
or model, secret formula or process, industrial, commercial or scientific
equipment, information concerning industrial, commercial or scientific
experience.

- Rental Income
- Rents deposited by the tenants in bank account of lessor bcus he refused to
received is income- deemed to have constructively received.
- The amount paid for lease is part of gross income

 Lessee erects a building/ make improvements per agreement with lessor: lessor
may report the income at his option, outright method or spread out method
 Outright method: Lessor will report the income at the time when such building/
improvements are completed, fmv of building or improvement
 Spread out method: the lessor may spread over the life of the lease
  If lease is terminated (not thru purchase of lessor) lessor come into possession of
property prior to the originally fixed: lessor is considered to received additional
income for that yr (if the value of the building exceeds the amnt already reported as
income)
 If building is destroyed before the expiration of lease: lessor is entitled to deduct as
loss for the yr destruction occurred the amnt previously reported as income less
salvage value
 If useful life is less than remaining term of lease: lessor will not report any income
 Conditional sales (rent to own schemes): treated as sale. Rules on gains from the
sale of assets will apply. Gains are income

7. PENSION, RETIREMENT BENEFIT OR SEPARATION PAY

- A gratuity granted in favor/ reward or paid in a given conditions to person following
retirement from service – excluded from gross income

8. ANNUITIES AND PROCEED FROM LIFE INSURANCE OR OTHER TYPES OF INSURANCE

- Money payable yearly or at regular intervals
- Xpn: Life insurance annuinity is excluded in the gross income

9. INCOME FROM ANY SOURCE (subject to tax)

A. Condonation of indebtedness (Cancellation or forgiveness of debt)
- Payment of income: taxable when a person performs a service for a
creditor who cancels debt
- Payment of dividends: taxable if a corporation forgives the debt of a
stockjolder

B. Recovery of amnts previously written off

-
C. Receipts of tax refund or tax credit
- Taxes previously claimed and allowed as deductions but subsequently
refunded or grated as a tax credit should be declared as part of gross
income of that year refunded or credited.
- Xpn:
i. Estate and donor’s tax
ii. Stocks transaction tax
iii. Taxes assessed angst local benefits of a kind tending to increase
the value pf the property assessed
iv. Income, war profit and excess profit taxes imposed by a foreign
country
 v. Taxes not allowed as deductions under the law

D. Acquisition by the govt of private properties thru expropriation with just

compensation, the sale/ disposition of property is included in the gross
compensation and subject to taxed.
E. Damages (depends on the nature)
- Taxable if for: Compensation for loss of income and exemplary damages
which represents loss of capital
- Not taxable if: Moral damages, reimbursement for hospital bills, return of
capital/ property

10. FRINGE BENEFIT TAX

- Fringe benefit is any good, service or other benefit granted in cash or kind by employer
to his employee. Taxed at 35% (25% for NRANE in trade or business) imposed on
managerial and supervisory employee. Withheld by the employer who files the return
and remits within 25 days from close of each calendar quarter
- Grossed up monetary value of fbt is divided by 65%
- To compute FBT (Gross up monetary value of 1M/65%X35%)
- Fringe benefit is deductible to employer’s expense in gross income
- List is not exclusive
1. Expenses for foreign travel
2. Expense account
3. Edu assistance to employee and his dependents
4. Housing
5. Holiday and vacation expense
6. Household personnel (maids, drivers etc)
7. Life/health or non-life insurance
8. Vehicle of any kind
9. Membership fees, dues and other expense in social and athletic clubs or similar org
10. Interest or loans at less than market rate

Ff are NOT fringe benefit tax (see pg221, Ingles)

1. De minimis benefit
2. Business expense paid for by ER for foreign travel of E in connection of
trade/business/profession
3. Exempted from income tax or special law
4. Contribution of ER for the benefit E to retirement, insurance, hospitalization benefit plans
5. Granted to rank and file employees under CBA
6. Granted to employees requires by nature, necessary to the trade/business/profession of ER
7. Granted for the convenience of ER
a. Housing privilege of military officers inside or near military camps
b. Housing unit inside or at most 50m from perimeter of business premises
c. Temporary housing of Es for 3 months or less
d. Expenses of E reimburse by ER which are receipted under the name of ER and not
personal expenses of E

DE MINIMIS BENEFIT (exclusive list)

1. Rice subsidy: 2k or 1 sack of 50kg p
2. Uniform and clothing allowance not exceeding 6k/mo
3. Laundry allowance: 300/mo
4. Medical Cash allowance:1,500/e per semester or 250/mo
5. Yearly medical benefits:10k/mo
6. Monetized unused vacation leave credits of private employees not exceeding 10 days/yr
7. Monetized vacation and sick leave credits paid to govt official and e: no limit
8. Gifts during Christmas and major anniversaries:5K/yr
9. E achievement award:10k
10. Daily meal allowance fo OT:25% of basic minimum wage
11. Benefits by virtue of CBA and productivity incentive schemes:10K
- Amnt of de minimis benefit is not computed in determining 90k ceiling of ‘other benefit’
excluded in gross income. BUT excess of de minimis benefit over their respective ceilings
shall be considered part of other benefits. Any excess shall be taxed
- Any amnt given by the ER as benefits, whether de minimis or other shall be deductible as
business expense
- FB given to Rank and file E is not subject to FBT
- FB given to supervisory or managerial employee is subject to FBT
- De minimis benefit given to rand and file/managerial/ supervisory is not subject to tax

D. EXCLUSIONS FROM GROSS INCOME (ff are exempt and not included in the gross income)
1. Life insurance
2. Amnt received by insured as a return of premium
3. Benefits received from US Veteran Administration
4. Compensation for personal injuries or sickness (+ any damages received)
5. Income exempt from treaty
6. Gifts, bequest, devise or descents (but income on such property be included in the gross
income)
7. Retirement benefits, pension, gratuities
8. Separation pay
 - Caused by death, sickness or other disability or any separation beyond the
control of official/employee
- If separated bcus fault of the employee (just causes), the separation pay
granted shall be included in the gross income
9. Social security benefits, pension, retirement gratuities from foreign govt
10. SSS benefits
11. GSIS benefits
12. Medicare, pag-ibig fund
13. Intercompany dividends
14. De minimus benefits
15. Terminal leave pay of gvt official/ employee on occasion of compulsory retirement
16. Minimum wage earners (bonuses and other benefits exceeding 90k is taxable)
- Income from employee’s trust is exempt in all kinds of taxes including fwt on
interest income
17. Income earned by foreign govts in ph from deposit/investment
18. Income earned by Ph govt or its political subdivisions
19. Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary or civic achievement (only if selected without any action on
his part and bot required to render substantial future service)
20. Winnings from PCSO exempt up to 10k only
21. 13th month pay, Christmas Bonus, productivity incentive bonus, loyalty award, gift in
cash or in kind and other benefits (only up to 90k)
22. Gains for sale of bonds, debentures or other certificate of indebtedness with maturities
of more than 5 yrs (If less than 5 yr, taxable subject to regular income tax rate)
23. Gains from redemption of shares in mutual funds
- Rationale:
- Taxpayers who may avail:

Distinguish:
Exclusions Deductions Tax Credit
- exempt and not included in -
the gross income

DEDUCTIONS (from gross income)

- Amounts allowed by law to reduce the gross income to taxable income . Taxpayer claiming
must prove compliance required

I. OPTIONAL STANDARD DEDUCTION(OSD)

 - Individual: In lieu of itemized deduction, individual subject tax other than nonresident alien,
may elect OSD of 40% of gross sales (if use accrual basis of accounting for his income and
deductions) or gross receipts (if use cash basis) as the case maybe
- Corp: OSD of 40% of its gross income
- Taxpayer must signify in his return the availment of OSD, otherwise considered to avail
himself itemized deduction.
- Election of OSD is irrevocable for the taxable year return is made
- No need to substantiate with receipts
- GPP and partners may only used OSD once, either by GPP or the partners. If GPP avails OSD,
the partners may not anymore and instead avail itemized deduction
- If GPP avails OSD in computing its net income, the partners can no longer claim further
deduction from their share in the net income
- Maybe Availed of:
1. Citizen
2. Resident Alien
3. Domestic corp
4. Resident foreign corp
5. Taxable estate and trust
- Ff are not allowed to use USD and must use Itemized deduction
1. Corp: Exempt in tax code Sec30
2. Indididual: Mrgy Micro Business

II. ITEMIZED DEDUCTIONS (ff)

1. Expenses
- Deduction for gross income all ordinary and necessary expenses in carrying on the
development, management and operation of trade or business or profession, including
reasonable allowance for:
1. Salaries , wages
2. Travel expenses in pursuit of trade and business
3. Rentals for the continued use of property
4. EAR- entertainment, amusement and recreation expenses directly connected to
trade, business or profession but should not be contrary to law, morals, etc.
- Req:
1. Expenses must be ordinary and necessary
2. Paid/ incurred during taxable yr
3. Paid/incurred in carrying on trade/business/profession
4. Supported by evidence or receipt, records, other pertinent papers
- Req for deductibility of EAR:
1. Paid/ incurred during taxable year
 2. Directly connected to the development, management and operation of trade,
business or profession
3. Not contrary to law, public morals etc
4. Not been paid to an official of the govt or to private individual, corp or gpp as
kickback
5. Substantiated with proof
6. Taxes must have been withheld (if applicable) and paid to BIR if subject to final tax
- Ff are not EAR:
1. Compensation/ fringe benefits
2. Expenses for charitable and fund raising
3. ‘’ for bona fide meeting of stockholders
4. ‘’events for promotion, marketing
5. ‘’ for attending/ sponsoring an employee to a business league/ professional org
- Taxpayer who is authorized to deduct expenses for the current yr but failed to do so cannot
deduct the same for the next yr
- Ordinary: normal and in relation to the business
- Necessary: appropriate and helpful in the development of the business
- Re advertising expense:
1. Stimulate current sale: deductible as business expense
2. Stimulate future sale: not deductible, not business expense but a capital
expenditure.
- Bonuses: deductible provided does not exceed reasonable compensation for service
rendered
- Repair expenses: deductible provided that no increase in the property due to repairs
- Lease agreement expenses: deductible(Where a leasehold is acquired for business purposes
for specific sum, the purchaser may take deduction in his return for an aliquot part.
- Cost of leasehold improvement: not deductible being a capital investment rather than a
business expense
- Taxes paid by tenant to/for landlord for business property: deductible. Constitute as an
additional rent
- Litigation expense: not deductible
- Professional expense: ff are allowed deductions
1. Cost of supplies
2. Rent
3. Expenses for utilities
4. Expenses for hiring office assistants’
5. Expenses for operation and repair of transportation equipment used in making
professional class
6. Books, furniture and professional equipment with short useful life
- Allowed business expense: discounts to senior citizens/pwd
- Expenses in training scheme to jewelry industry
- Expenses in adopting a school based on adoption school program
- Free legal servic es of lawyer

2. Interest
- Interest paid/ incurred during taxable year in connection to trade or business of taxpayer
- Req:
1. Indebtedness of a taxpayer
2. Connected with trade, business or profession
3. An interest expense upon indebtedness
4. Interest stipulated in writing
5. Legally due
6. Interest not between related taxpayer
7. Not incurred to finance petroleum operations
8. Not treated as capital expenditure (in case the interest was incurred to acquire
property used in trade,business, profession
- If interest paid/incurred on taxes related to business, trade or profession can be deductible
in full
- Late payment of tax is a debt- interest on taxes is interest on indebtedness and deductible
- Ff interest are not deductible:
i. Related taxpayers: members of family, 2 corp where more than 50% of outstanding
stock of each is owned by the other, an individual and a corp where more than 50% of
the outstanding stock of corp is owned by the individual, grantor and fiduciary/
beneficiary of any trust
ii. Indebtedness in incurred to finance petroleum operations
iii. Interest is paid in advance (if individual is on cash basis) – allowed as deduction in the
year indebtedness is paid and not in the year interest was paid
- Re: Tax Credits: only resident citizen, domestic corp, gpp and beneficiaries of estate/trust
can avail

3. Bad debts
- Amounts borrowed from the taxpayer which have become worthless/ uncollectible
- Req:
1. Existing indebtedness legally due
2. Connected with t/b/p
3. Worthless, uncollectible and charged off within taxable yr (diligent effort to collect)
4. Show that it is uncollectible even in the future
5. Not between related parties
- Included in the gross income in the yr of recovery, if recovered (Tax benefit Rule/ bad debts
written off)

4. Depreciation
- Deduction of reasonable allowance for exhaustion, wear and tear of property used in t/b/p
- The gradual diminution in the useful value of tangible and intangible property
- Depreciation value must not be beyond the acquisition cost
- Taxpayer and CIR agreement as to useful life on which depreciation is based, is binding
- No depreciation on the ff:
1. Yachts
2. Helicopter
3. Airplane/ aircrafts
4. Land vehicles which exceed the threshold amnt (unless taxapayer line of business is
transport operation or lease of transportation)

5. Depletion
- Reasonable allowance for depletion or amortization of oil and gas wells or mines. Computed
using cost-depletion method.
- Limited depletion: for non-resident alien or a resident foreign corporation
- No further allowance: allowance for depletion = capital invested

6. Losses
- Losses actually sustained during taxable yr and not compensated by insurance or other
forms of indemnity deductible
1. if incurred in trade, business or profession or
2. of property connected with t/b/f if loss arises from fire, storms, shipwreck or other
casualties, robbery, theft, embezzlement
- Sworn declaration of lost (SDL) with 45days from the time of loss. Must, for the BIR to
conduct its own investigation
- Non-resident individuals and foreign corp: losses actually sustained during taxable yr
incurred in t/b/p within ph

7. Taxes
- Taxes paid or incurred within the taxable year in connection with taxpayer’s trade, business
or profession is deductible
- Ff are not deductible
1. Income tax on domestic and imposed by foreign country for income sourced
outside
2. Estate tax
 3. Donors tax
4. Special assessment
5. Stock transaction tax
6. VAT

8. Pension Trust
- Employer who establish pension trust for his employees can deduct it but there must be no
- When employer makes a contribution to his employees PERA, he can claim this amount as
deduction only to the extent of the employer contribution that would complete the
maximum allowable PERA contribution
i. double deduction: not have been previously allowed for deduction
ii. Apportioned in equal parts over 10 consecutive yrs beginning when payment is
made

9. Charitable and other contribution

A. Donations partially deductible (SANG)
1. Social welfare institution
2. Accredited domestic corp/ association organized exclusively for religious, charitable,
scientific, youth and sports dev’t, cultural or educational purposes, rehab of
veterans (no part of net income inures to the benefit of any private stockholder)
3. Non-accredited NGO (amnt deductible not exceed (individual) 5-10% (corp) of
taxpayer taxable income derived from t.b.p
4. Gov’t exclusive for public purposes (Christmas funds are not deductible bcus spent
not for public purpose)
B. Donations deductible in full
1. Accredited NGO
2. Foreign institution/Int’l organizations (treaty based)
3. Via special laws
4. Govt exclusively to finance priority activities (in edu, youth, health, sports devt,
human settlements, science and culture, economic devt of NEDA plan)
- Admin expenses does not exceed 30% of the total expenses and must utilized contribution
C. Exempt Donations
1. UP
2. National Book trust fund
3. Foster child agencies
- Donation given to a chapel of a privately-owned center for learning which grants yearly
dividends to its stockholders is not exempt from donor’s tax. The law only allow as
deduction in the gross income, charitable donations given to a domestic corporation
 organized and operated exclusively for educational purpose and no part of its net income
inures to the benefit of any private stockholder.

10. Research and development

- Expenses for RD can be treated as ordinary and necessary expense, can fully deduct or
amortize provided:
1. Incurred during taxable year
2. In connection with taxpayers t.b.p
- Not applicable to expenses of:
1. Acquisition/ improvement of land or property to be used in connection with RD (this
is subject to depreciation or depletion)
2. Incurred for the purpose of ascertaining the existence, location, extent or quality of
any deposit of minerals and oil.

III. REQUIREMENTS FOR DEDUCTIBILITY:

- A taxpayer who claim deductions for expenses subject to withholding tax, must prove said
deductions were in fact subjected to proper withholding (No withholding, no deduction)
- No deduction notwithstanding payments of withholding tax at the time of the audit
investigation/reinvestigation/
reconsideration in cases where no withholding tax was made in accordance (Withhold and
pay before the audit investigation/reinvestigation/ reconsideration in order to still be able to
claim the deduction.

- SEE PAGE 191, INGLES

Expenses and losses related to trade or business or practice of profession

- Do not apply to taxpayers earning compensation income from E-ER relationship

IV. ITEMS NOT DEDUCTIBLE (PAPA)

1. Personal, living or family expenses
2. Amnt paid for new buildings or permanent improvements made to increase the value of
property
3. Amnt for restoration of property
4. Premiums paid for life insurance policy covering the life of any officer/employee if the
taxpayer is directly or indirectly a beneficiary
5. Professional rents a property for residential purposes but receives clients in connection with
his work, no part of the rent is allowable as business expense (if use part of his house as an
office, that portion is considered business expense hence deductible)
 6. Restoration of property
7. Cost for defending/ perfecting title of property
8. Architect’s service
9. Amnt paid under agreement between bondholders and shareholders
10. Expense for administration of estate, court cost, attys fees, executor commissions

INCOME TAX ON INDIVIDUALS

- Tax rate of 0-35%
- Married individuals shall compute separately their individual income tax based on their
respective taxable income. May file separately or jointly of ITR

I. Resident Citizen- residence is within ph

II. Non-resident citizen (Immigrant, permanent employee, contract worker)
- Citizen of ph whose residence is not within ph
- Establishes physical presence abroad
- Leaves ph during taxable year to reside abroad either as immigrant or employment on
permanent basis
- Citizens who has been previously considered as nonresident citizen and who arrives in
Ph at anytime during taxable year to reside permanently in ph shall be treated as
nonresident with respect to income derived from sources abroad until the date of
arrival in ph

III. Resident Aliens- residence in ph but not citizens thereof. Mere physical or bodily presence is
enough
IV. Non-resident Aliens- temporarily in the country maybe engaged in trade or business or not
i. Engaged in trade or business:
- Derives income in ph or stays in ph for more than 180 days during any calendar
year.
- Mere intention to change his residence does not change status from resident alien
to non-resident alien
ii. Not engaged in trade or business:
- Tax rate of 25% of entire gross income sourced within ph (entire income hence no
deductions allowed)
- 15% of gross income received as compensation, salaries, and other emoluments by
reason of employment
- Capital gains tax liabilities are same with nonresident aliens engaged in trade or
business
 V. Income tax of Aliens employed by RHQ (Regional headquarters) ROHQ, OBU (Offshore
banking units), petroleum service contractor
- Regular income tax rate since preferential tax rate is no longer applicable under
TRAIN Law

VI. Individual taxpayers exempt from income tax

i. Minimum Wage Earner
- Exempt from payment of income tax on their taxable income (earn up to 250k
yearly)
- Holiday pay, ot pay, night shift differential and hazard pay received is also exempt
up to 90K only

ii. Exemptions granted under international agreements

Tax on COMPENSTION INCOME

I. Purely Compensation Income
- All remuneration for services by employee for employer under E-ER relationship
- Taxed at 0-35% (graduated tax rates)
II. Self Employed Income (profession/ business)
- Earning purely from self-employment or practice of profession whose gross
sales/receipts does not exceed 3M (VAT threshold)
- If exceeds VAT Threshold, you are automatically subjected to graduated tax rate and be
subject to other business taxes
- Have 2 choices to avail of
i. Graduated rates (0-35%)
ii. Avail 8% tax rate
- 1st 250K is not subject to tax, excess of 250k is taxed
- Not anymore liable for 3% percentage tax (8% in lie of 3%)
- Must signify his intention to avail 8% rate in ITR (if not, deemed considered to
have chosen graduated rates)

8% Tax Rate is NOT available to the ff:

1. Purely compensation income earners
2. Partners of GPP (since distributive share from GPP is already net costs and expenses)
3. VAT registered taxpayer regardless of gross sales/ receipts
4. NonVAT taxpayer exceed 3M VAT threshold
5. Subject to Percentage taxes
6. Individual enjoying tax exemptions
 III. Mixed Income Earners
- Earn income from both compensation and self-employment
- Total income tax liability is the sum of the liability for compensation income and
business/ practice of profession
- Not entitled to250k reduction because already been applied in computing the income
tax on compensation.
- Compensation income: taxed straight out graduated tax rates
- Self-employment income: taxed depend on VAT threshold
i. If exceeds VAT threshold: graduated rates
ii. If does not exceed VAT threshold: graduated rate or 8%

Tax of PARTNERS IN A GPP and GPP

- GPP is tax exempt, a pass-through corp. It is the partners that are taxed in their separate and
individual capacities
- GPP may avail itemized deduction or 40% OSD
- Each partner shall report as gross income his distributive share actually or constructively
received in the net income of gpp
- Net income of the gpp is computed in the same manner of the corporation.
- Professional and legal fees from various clients should be included in the gross income of the
law firm, these are income derived from the conduct of profession.
- When GPP receives deposits/advance from the clients, GPP must issue OR and booked as
income of GPP and shall form part of gross receipts and be subjected to VAT if applicable
- When GPP pays 3rd party in behalf of the client, GPP can claim such expenses provided that
OR issued by 3rd party is in the name of GPP
- Cash prize receive as a recognition for exemplary service of the law firm shall not be
included in the gross income since recipient was selected without any action on its part

Tax on CAPITAL GAINS

- 6% tax on sale or disposition of capital real property
- Who are liable:
i. Individual taxpayer (citizen/alien)
ii. Corporate taxpayer (domestic/foreign)
iii. Estate/trust/trust funds and pension funds
- Who are exempt from capital gains tax:AID
i. All other person specifically exmpt
ii. Investors in shares of stocks in mutual fund company
iii. Dealers in securities
- CGT on foreclosure of mortgage:
 1. No CGT if mortgagor exercise right of redemption within 1yr.
2. CGT if mortgagor did not exercise right of redemption within 1 yr. CGT of 6% will be
based on the bid price of the highest bidder.
 Mortgagee pays for the CGT
 Tax of property due to dissolution of community property is not subject to capital gains tax.
Transfer is equivalent to a conveyance without monetary consideration made in accordance
with court decision
 Termination. Liquidation and reversion of property held in trust back to the trustor from
trustee is not subject to income tax, capital gains and withholding tax. The conveyance is not
motivated by valuable consideration and merely consolidate the legal title and beneficial
ownership.
 Transfer of RP based on compromise agreement duly approved by court is subject to capital
gains tax
 CGT for Stock Transaction tax: imposed on gross selling price. Imposed whether or not there
was a gain.
 Rate of CGT
1. Sale of real property in ph 6% of gross selling price/fmv at
held as capital assets the time of sale whichever is
higher
2. Sale, exchanges, transfer 6% of gross selling price/fmv or
made to govt/gocc of real under normal income tax tare:
properties classified as capital option of taxpayer
assets
3. Sale of shares of stocks of 15% of net capital gains
domestic corporation not FMV if not listed and not traded:
traded thru local stock exchange value pf shares of stocks at the
time of sale
FMV if listed but not traded:
closing price on the day share
was sold, transferred or
exchanged.
4. Sale of shares of stocks listed 6/10 of 1% of gross selling price/
and traded thru local stock gross value in money
exchange FMV: actual selling price

INCOME TAX ON CORPORATIONS

Corporation include
1. Association
2. Insurance companies
 3. Joint accounts
4. Joint stock companies
5. Partnerships, no matter how created
Does not include
1. GPP
2. Joint vebture or consortium formed for the purpose of undertaking construction projects or
engaging in petroleum, coal, geothermal, and other energy operation pursuant to an
operating consortium agreement under a service contract with govt
Classification of Corporation (Tax liability differs)
1. Domestic
- Incorporated in Ph.
- Subject to ff tax rate:
i. Normal tax 35% rate on taxable income sourced worldwide
ii. MCIT of 2% on gross income
iii. IAT of 10%
iv. Capital gains tax of 6% or 15%
v. Final tax of 15-20%
vi. Gross income tax

2. Foreign
1. Resident foreign corp
1. Incorporated abroad but licensed to do business in ph
2. Non-resident foreign corp

MCIT
2. Beginning with the 4th year of operations, a domestic corporation/ resident foreign corp is
taxed whichever is higher between normal tax of 30% or MCIT of 2% of gross income.
3. Any excess of MCIT shall be carried forward and credited against normal tax rate for 3
immediately succeeding years
4. Not a tax on capital. It is imposed on gross income
5. Relief from MCIT: by Sec of Finance, whenever there is (grounds)
1. Legitimate business reverses
2. Forced majeure
3. Prolonged labor dispute
4. Suffered losses
6. Exempted from MCIT
1. Resident foreign corp doing business as intl carrier
2. Resident foreign corp as OBU
3. Resident foreign corp as ROH
 4. Non-resident foreign corp
5. Non-profit hospital
6. Proprietary education institution
7. Depositary banks under FCDU
8. Real estate investment trust
9. Firms taxed under special income tax (like PEZA or other economic zones)

IAET: IMPROPERLY ACCUMULATED EARNIGS TAX

- Tax of 10% of improperly accumulated taxable income on corp that permit earnings and
profits to accumulate instead of being distributed or divided
- To compel corp to distribute earnings and in return, be taxed
- Coverage:
1. Domestic closely held corp – where at least 50% in value of outstanding capital
stock or at least 50% of total combined voting power of all classes of stock is owned
directly/ indirectly by not more than 20 individuals
- Not covered: (BIGPENT)
1. Banks and financial institutions
2. Insurance companies
3. GPP
4. Public held corp
5. Enterprises registered with PEZA
6. Non-taxable joint ventures
7. Taxable partnership
- Prima facie evidence of IAE
 Accumulation of earnings in excess of 100% of paid up capital
 Corp is mere holding/ investment company
 Profits are permitted to accumulate beyond the reasonable needs of the business
 Investment in bonds and other long term securities
 Investment of substantial earnings in unrelated business or in stock/ securities of an
unrelated business

Tax on CGT of Corporation

- 6/10 of 1% of gross selling price of gross value: If shares of stocks is listed and traded thru
local stock exchange
- 15% of capital gains”If shares not traded thru local stock exchange

PROPRIETARY EDUCATIONAL INSTITUTION and PROPRIETARY HOSPITAL

- Any private school/ hospitalmaintained and administered by private individual or groups.
With issued permit
 - Non-profit: no net income or asset accrues to or benefit any member
- Tax Rate: 10% of their taxable income (except passive income) or
- Tax Rate of 30% if gross income from unrelated trade, business, or other activity exceed 50%
of their total gross income
- Unrelated trade, business or other activity: conduct is not substantially related to the
exercise/ performance to its primary purpose
- If failed to meet above definition, taxed at 35%
- Bank deposits of proprietary educational institutions are exempts from withholding taxes
provided show proof that income is used to fund proposed projects for their institutions
improvement
- They are withholding agents for their employees compensation income subject to
withholding tax

GOCC’s, Agencies or Instrumentalities

- Pay tax upon their taxable income
- PAGCOR is subject to 5% franchise tax
- Except:
1. GSIS
2. SSS
3.

Intercorporate dividends
- . Dividends received by domestic corp from another domestic corp shall not be subject to tax
bcus dividends received will be injected to the capital and eventually taxed.

Tax on PASSIVE INCOME of DOMESTIC CORP and FOREIGN RESIDENT CORP

Passive Income Final Tax Rate of DC RFC
1. Interest under Expanded 15% 7.5%
FCDS (foreign currency deposit
system)
2. Interest on any current bank 20% 20%
deposit from deposit
substitute, trust fund and
similar agreement
3. Royalty of all types in Ph 20% 20%
4. Intercorp dividends Exempt Exempt

Tax rate of BANKS on Income derived under EXPANDED FCDS

1. Income derived by depositary Exempt
 banks from foreign currency
transaction with non-residents,
OBUs, etc
2. Interest income from foreign 10%

INCOME TAX on RESIDENT FOREIGN CORP

1. Regular corporate income tax: 30%
2. MCIT: 2%
3. BPRT (Branch profit remittance tax): 15% of total profits
4. Tax on passive income
5. Tax on capital gains
- 5% -10%of net capital gains: stocks not traded in local stock exchange
-
Tax on BRANCH PROFIT REMITTANCE TAX
- Any profit remitted by a branch to its head office shall be taxed at 15% tax based on total
profits applied or earmarked for remittance without any deduction for the tax component
- Exception: Registered with PEZA
- Ff are not treated ad branch profits
- Dividends
- Interest
- Rents
- Royalties
- Payment for technical service
- Salaries and wage premiums
- Annuities, emoluments, other fixed or determinable casual gains
- Profits, income and capital gains except if connected with the conduct of foreign
corp trade, business in Ph
- Passive income

PREFERENTIAL TAX RATES of RESIDENT FOREIGN CORP

A. International carrier
- pay tax of 2.5% on gross ph billings
- Gross Ph Billings: the amnt of gross revenue derived from carriage of persons,
excess baggage, cargo and mail originating from Ph in continuous and uninterrupted
flight irrespective of place of sale or issuance of ticket
- Off line carrier: an intl carrier with no flight operation to and from ph
- Online carrier: int’l carrier having or maintaining flight operations to and from ph
 - Offline airline which has a branch/agent in Ph and sells passage documents to cover
offline flights of its principal or other airline is not considered engaged in business as
an intl air carrier in the country and not subject to GPB
- If an airline has flights which originate from any point in Ph, subject to 2.5 GPB tax
unless subject to different tax rate under a treaty
- If an int’l carrier maintain flights to and from ph, taxed at 2.5% GPB. If they do not
have flights to an from Ph but nonetheless earn income from other activities, taxed
at normal corporate income tax rate.

B. Foreign Currency Deposit

C. Offshore Banking Units
- Final tax 10% on income derived by OBUs authorized by BSP
- Income of nonresidents (individuals/ corp) from transaction with OBUs are exempt
- Fees, commission and other charges which are integral parts of the income from
foreign currency loan transaction are exempt

D. Regional Area Head Quarters

- Exempt from income tax
- Branch established in Ph by multi-nationals which do not earn income from ph and
act as supervisory, communications and coordinating centers

E. Regional Operating Head Quarters

- Tax at 10% on taxable income
- Branch established in Ph by multinationals which are engaged in any of the ff service
o General admin and planning
o Logistic services
o Business devt
o Business planning and coordination
o Marketing control an etc.

TAX on NON-RESIDENT FOREIGN CORPORATION (NRFC)

- 30% income tax on gross income derived in all sources within Ph
- If foreign corp transact business in Ph independently of its branch: principal agent
relationship between corp and the branch is set aside. Transaction becomes that of foreign
corp and not the branch hence, the corp is considered a non-resident foreign corp for that
isolated and independent transaction.
- Casual activity in Ph by foreign corp does not amount to engaging business in Ph (it must be
continuous to be considered as engaging in business)
PREFERENTIAL TAX RATE OF NRFC (No MCIT)
1. NR Cinematographic film 25% on gross income all sources
owner, lessor or disrubutor within Ph
2. NR owner/lessor of vessels 4.5% of gross rentals, lease or
chartered by Ph Nationals charter fees
3. NR owner/lessor of aircraft, 7.5 % of gross rental fees
machineries and other equipment

Tax on PASSIVE INCOME of NRFC

1. Interest on foreign loans 20%
2. Dividend from domestic corp 15%

TAX TREATIES
- Incentives on part of foreigners to invest in Ph bcus tax rates are lower at the same time
credited against domestic tax abroad.

Most favored nation clause

- Establish principle of equality of int’l treatment

- Failure of taxpayer to comply with BIR issuance on availing tax treaty benefits should not
divest the taxpayer of the benefit of lower tax treaty rates. To allow such would makes a
local admin regulation trump a treaty.

INCOME TAX EXEMPT CORP

1. Govt educational institution
2. Non-stock and non-profit educational institution
3. Non-stock corp or association exclusively for religious, charitable, scientific, athletic, cultural
purposes
4. Cemetery company owned and exclusively for its members
5. Civic league for social welfare
6. Business league chamber of commerce or board of trade
7. Beneficiary society operating for exclusive benefit of the members
8. Brgy Micro business enterprise
9. Tourism enterprise zone
10. Foster child agencies
11. Asso dues and income derived from rentals of homeowners association properties
12. Labor, agricultural and horticultural org
13. Farmer’s and other mutual typhoon insurance company
 14. Farmer’s, fruit growers, like association organized and operated as sales agent for marketing
15. Mutual savings bank without capital stock
16. GPP
17. Joint venture or consortium for construction projects or engaging in petroleum. Coal.
Geothermal, and other energy operations.

- Not subject to income tax on income received essential to or necessarily connected with the
their purpose
- BUT subject to income tax on income of whatever kind and character from any properties
(real/personal) or any unrelated activities conducted for profit, regardless of disposition
made
- If charitable institution is engaged in activities conducted for profit it does not lose its tax
exempt status but the income derived from such activities shall be subject to tax

JOINT VENTURES
- Formed to undertake construction project are not considered taxable corporation hence not
subject to income tax provided:
o Should involve joining or pooling resources by license local contracts/ PCAB
o Contractors are engaged in construction business
o Joint venture itself must be licensed under PCAB
- When 2 corp enter into a Joint Delevelopment Agreement for the formation of a joint
venture wherein one will contribute property and the other is services, the resulting joint
venture is not taxable as a joint venture for the purpose of undertaking a construction
project.

FILLING OF RETURNS AND PAYMENT

I. INDIVIDUAL RETURN
Who are Required to File ITR
1. Resident citizen- income worldwide
2. Non-resident citizen- income within only
3. Resident Alien- income within only
4. Non-resident alien engaged in business in ph- income within only

NOT required to File ITR (but must file INFORMATION RETURN)

1. Minimum wage earner
2. Purely compensation income sources within
- Those with 2 or more employers at any time during taxable yr must file their ITR
3. Sole income has been subjected to FWT
4. Taxable income does not exceed 250k
 - provided that a citizen of Ph and any alien individual engaged in business or practice of
profession within Ph shall file ITR regardless of gross income

Filing of Return covering CAPITAL GAINS TAX

A. Sale/disposition of RP: within 30 days following each sale/ disposition
B. Sale/exchange of stock not traded thru local stock exchange: within 30 days after each
transaction and final consolidated return on or before April 15
C. Gains received in installment: within 30 days from receipt each installment

WHERE to File ITR

1. Authorized agent bank
2. Revenue district officer
3. Collection agent
4. Duly authorized city treasurer where he is legally residing
5. Office of the commissioner

WHEN to File ITR:

- On or before April 15 each yr
- GR: Pay as you file
- Xpn: On installment if tax due exceeds 2K

ITR of H&W: Married individual who do not derive income purely from compensation shall file ITR to
include income from both sps or file separately

- Parents must include income of unmarried minors derived from property received from a
living parent. Xpn: donor’s tax already paid, or transfer is exempt from donor’s tax

II. CORPORATE RETURNS

A. Quarterly ITR
- (When)File in duplicate within 60 days following the close of each quarter. Summary
declaration of its gross income and deduction on cumulative basis

B. Final Adjustment Return

- Covers total taxable income for preceding calendar/ fiscal yr
- When to file: on or before April 15 or 15th day of the 4th m off the close of fiscal yr
- If the sum of the quarterly returns is not equal to the total tax due, corp shall either:
o Pay the balance,
o Carry over the excess credit perpetually, or
o Credited or refund with the excess amnt
 - Corp can choose only one option and it is irrevocable, even if you didn’t get the benefit of
the overpayment

WHERE to File: same as individuals

Return of corporation contemplating dissolution/reorganization

- Short period return shall be file after corp adopts a plan or resolution from its
dissolution it must submit to BIR, within 30 days from dissolution
- Tax clearance cert that will be submitted to SEC before its dissolution
- Copy of resolution
- Balance sheet and income statement
- Names and addresses of shareholders and their holdings
- Value and description of the assets receive din dissolution

RETURN of GPP and Joint venture for construction

- File tax return and specify their items of gross income, deductions, names, tin and
addresses of each partner

WITHOLDING TAX
- Embedded in income tax. Not a separate kind of tax. Simply way of collecting tax
A. FINAL WITHOLDING TAX
- No longer formed part of gross income to be reported in ITR
- Being a final tax, represent the true and actual tax due on the income
- Generally, passive income are subject to this
- Once full payment has been withheld and remitted, no more tax obligation. Tax withheld is
full and final
- Liability for payment of tax rest primarily on withholding agent as payor- if fails to
withhold/underwitholds, agent will be liable for deficiency
- Payee not required to file any ITR for particular income
- Finality of the withheld tax is limited on that particular income and will not extend to
payee’s other tax liability on said liability (eg: bank received income subject to final
withholding tax, same can still be subject to 3% percentage tax)

Income subject to FT of Citizen FT of FT of

FWT and Resident Aliens NRAETB NRANETB
1. Royalty from 10% 10%
books, literary
works, musical
2. Dividend from 10% 20%
domestic corp, joint
stock etc
3. Interest under 15% Exempt
expanded foreign
currency deposit
4. Capital gains 15% 15% 15%
from sale of shares
of stock of domestic
corp, not traded
thru local stock
exchange
5. Royalty other 20% 20%
than above
6. Interest on any 20% 20%
currency bank
deposit
7. Prizes exceeding 20% 20%
10K
8. Other winnings 20% 20%

9. Capital gains 6% 6% 6%
from RP located in
ph
10. Income from all 25%
sources within Ph

FT of DOMESTIC CORPORATION FT
1. Capital gains from RP located in 6%
Ph as capital asset
2. Capital gains from sale of share 15%
of stock of domestic corp not
traded thru local stock exchange
3. Income by depositary bank 10%
4. Interest under EFCDS 15%
5. Royalty of all types within Ph 20%/ 30% if from abroad
6. Interest on any current bank 20%
depost from deposit substitute,
trust fund
7. FBT 35% on gross up monetary value
 25% on grossed up monetary value
(NRANETB)
8. Informers award 10%

B. CREDITABLE WITHOLDING TAX (see pg 68, Ingles)

- Form part of gross income to be reported in ITR. Withheld at source and still be included in
the ITR of recipient
- Any excess shall be refunded, any deficiency shall be paid by taxpayer
- Liability to pay arises upon accrual not from remittance- to compel agent to withhold under
all circumstance
- Intends to approximate tax on the payee. Subsequent remittal does not remove the burden
on the income recipient. He still has to file for credit
- Max rate 15%
- Tax already withheld shall be the claimed as tax credit to be deducted from the amnt of
income tax
- Types of CWT
1. Expanded Withholding Tax (applies to)
- Expense is paid by taxpayer, which is income to the recipient subject to
income tax
- Income is fixed or determinable at the time of payment
- Income is one of income payments listed in the regulations
- Income recipient is a resident of Ph liable to income tax (If recipient is non-
resident taxpayer it is subject to TWT)
- Payor-witholding agent is also a resident of Ph
- Withholding of creditable withholding tax shall not apply to income payments
to:
o Nat’l govt and its instrumentalities and public (except GOCCs)
o Enjoying exemption from payment of income taxes pursuant law
- Ff are not required to deduct and withhold for the creditable withholding
taxes
o Any juridical person, whether or not engaged in trade or business
o Individual with respect to payments made in connection with trade or
business
o All govt offices including gocc, provincial, city and municipal govt

2. Withholding Tax on Compensation

CWT Rate
1. Income payments to certain 2%
contractors, general
 engineering, general building,
specialty and other contractors
2. Cinema film rentals and other 5%
payments
3. Rentals for continued use or 5%
possession of rp used in
business, which payor has not
taken title, billboards
4. Income payments made by 5%
pol parties and candidate for all
purchases as campaign
expenditure

WITHOLDING AGENT
- Person required to deduct and withhold any tax
- Haas the legal interest to file a claim for refund bcus: considered as taxpayer under NIRC
as he is personally liable for withholding tax, agent of taxpayer, his authority to file ITR
and remit the tax withheld
- If withholding agent gets a refund, his duty to remit to the principal taxpayer, otherwise
unjustly enriching himself.
ESTATE TAX
Estate Tax
- Tax on the right to transmit property at death and certain transfers by decedent during his
lifetime.
- Accrues upon death notwithstanding the postponement of the actual possession or
enjoyment by the beneficiary
- Excise tax and not a property tax
- Date of death valuation
- Tax of 6% based on net value is measured by the value of the property transmitted at time
of death, regardless of its appreciation or depreciation
- Payment of estate tax before delivery to heirs as well as registration with ROD
- Sec84 re Rates of estate tax is not entirely abandoned because of “law enforced at the time
of death” hence, if unsettled, unpaid, estate prior to TRAIN law, tax table is still applicable

CLASSIFICATION OF DECEDENT
A. Resident
B. Non-resident

Gross Estate
 - Any interest or right in the nature of property, but less than title, having value or capable of
having value like dividends, partnership profits, right of usufruct

COMPOSITION OF GROSS ESTATE

- Citizen: All property of decedent at the time of death, real, personal, tangible or intangible
wherever situated, valued at the time of death (All properties wherever situated)
- Non-resident decedent who at the time of death was not a citizen: entire gross estate is only
those situated in Ph shall be included in taxable income (Only properties located in Ph)
o Except: Intangible personal property subject to rule on reciprocity

PROPERTIES NOT IN THE ESTATE BUT SHOULD BE INCLUDED IN THE GROSS ESTATE
- Bcus already transferred during the lifetime of decedent and purpose of the transfer is to
evade estate tax
1. Decedents Interest
2. Transfer in contemplation of death
3. Transfer under general power of appointment
4. Transfer for insufficient consideration
5. Revocable transfer
6. Proceeds of life insurance
7. Prior interest
- Values included in the determination of gross estate for estate tax purposes
- If the transfer is for a bona fide consideration, will not form part of gross estate

Transfer in contemplation of death

- Transfer by trust or otherwise. Motivated by the thought of death, altho death may not be
imminent
- Except: Bona fide sale
- Sample Case: Donated a house and lot to his son and paid donor’s tax but in the Deed of
donation it expressly reserved for the donor the usufruct over the property for as long as he
lived. The donation is a transfer in contemplation of death, and should be part of the gross
income. It retained for the donors life the possession/ enjoyment of the property.

Revocable Transfer
- Where the terms of enjoyment of the property may be altered, amended, revoked, or
terminated by decedent.
- Sufficient that decedent had the power to revoke, tho did not exercise it
- Xpn: Bona fide sale

Transfer under GPA

 - Power of appointment: right to designate the person who will succeed the property of a
prior decedent
- GPA: exercised in favor of anybody (included in gross estate)
- LPA: only in favor of certain person designated by prior decedent (Carles donated property
to Andres with a provision that Andres should transfer the property to Iker and only Iker.
The value of the property should not be included in the gross estate of Andres)

Life Insurance Proceeds

- Part of gross estate if the beneficiary is the estate, executor or administrator (irrevocable or
not) or 3rd person and designation is revocable.
- Not part of gross estate if designation to 3rd person is irrevocable. Accident insurance is not
part

Transfer for Insufficient Consideration

- If consideration received is less than adequate and full: value to include in the gross estate
will be excess of fmv at the time of decedents death
- If no consideration on transfer: value to include in the gross estate will be fmv of the
property at the time of decedent’s death
- Xpn: Bona fide sale
- FMV minus consideration of the sale = inclusion in the gross estate

Capital of Surviving Sps

- Not part of decedent’s gross estate

DEDUCTIONS FROM GROSS ESTATE

1. Accrued taxed and losses
2. Amnt received by heirs under RA4917
3. Standard deduction of 5M
4. Family home 10M
5. Claims against estate
6. Claims against insolvent person
7. Vanishing deductions
8. Transfer for public use
- Don’t forget to deduct 5M (matic) every time you compute net estate

Claims against Estate

- Claim: debts which could have been enforced against the deceased in his lifetime
- At the time the indebtedness was incurred, debt instrument must be notarized (except
financial institution, where notarization is not part of the business practice) and if loan was
 contracted within 3 yrs before death of decedent, administrator or executor shall submit
statement showing the disposition of the proceeds of the loan
- Req:
o Personal obligation of deceased at the time of his death
o Liability contracted in GF for adequate and full consideration
o Debt is valid and enforceable
o Indebtedness not have been condoned by creditor during the lifetime of decedent
and not yet prescribed
o If arose out of debt instrument- must be notarized (if does not, notarization does
not apply)
- If debts were condoned after death: deaths are still deductible ff date of death valuation
rule- post death development is immaterial in determination of deductibility in gross estate
bcus property is transferred from the moment of death
- No need to add the amount in the gross estate in order to be deductible

Claims against Insolvent Person

- Full value of decedent’s interest must first be included in the gross estate to be deductible

Unpaid Mortgages/ Indebtedness on property

- Value must be included in the gross estate to be deductible
- If loan is merely an accommodation loan, where proceeds went to another person: value of
the unpaid load must be included in the receivable of the estate
Taxes
- Deducted if taxes accrued prior to death (if after death- not deductible)
- Taxes not deductible: Income tax received after death, property taxes accrued before death
estate tax

Losses
- Losses must have occurred before the last day for payment of estate tax -1 yr after the
decedent’s death
- Reg:
o Arising from: fire, storm, shipwreck, other casualty, robbery, theft, embezzlement
o Not compensated by insurance or otherwise
o Not claimed as deduction in ITR of the estate
o Occurred during the settlement of the estate
o Occurred before the last day for payment of estate tax

Vanishing Deductions (req)

 - Present decedent died within 5 yrs from receipt of property prior decedent/ donor
- Property located in Ph
- Property formed part of taxable estate pf prior decedent or taxable gift of donor
- Estate tax on prior succession finally determined and paid
- Property identified as one received from prior decedent
- No vanishing deduction on the property was allowed to the estate of the prior decedent
- Vanishing deduction of 20-100%

Transfer for Public Use

- Gov’t, pol subdivision, exclusively for public use

Family Home
- 10M. Only one family home which is the actual home
- Total value of fam home must be included in gross estate

Amounts received under RA 4917

- Amnt received by heirs from the decedent’s employee as a consequence of death is
deductible but must be first included in the gross estate
- Retirement benefits is exempt from all taxes

DEDUCTION FOR NON-RESIDENT, NOT CITIZEN OF PH

1. Standard decution of 500k
2. Claims against estate
3. Claim against insolvent person
4. Transfer for public use
5. Vanishing deduction
6. Unpaid mortgages, taxes, casualty losses

 If a Filipino citizen resident abroad (Alabama, USA) died all his estate within and those in
USA are to be included in the gross estate for determination of estate tax.

EXEMPTION FROM ESTATE TAX (certain acquisition and transmission)

1. Merger of usufruct in the owner of naked title
2. GSISS/SSS benefits
3. Retirement benefits of private firm approved by BIR
4. Separate property of ss
5. Irrevocable life insurance to 3rd person
6. Transmission/ delivery of inheritance/legacy by fiduciary to fideicommissary
 7. Transmission from 1st heir to another beneficiary, desire of predecessor
8. All bequest, devises, legacies or transfers to social welfare cultural and charitable
institutions, no part of net income inures to the benefit of any individual, not more than 30%
are used by such institutions for the administration purposes

TAX CREDIT FOR FOREIGN ESTATE TAX

- Choose whatever is lower between tax paid in foreign country and tax credit limit here
(whichever is lower between per country is allowed as tax credit in Ph)
- To minimized effect of taxing same property twice
FILING OF ESTATE TAX RETURN
- Under oath and in duplicate, setting forth:
- Value of gross estate, deductions allowed, supplemental date
- If gross value exceed 5M- shall be supported with a statement of CPA
- File: within 1 yr from decedent’s death. Can be extended by Commissioner in meritorious
cases not exceeding 30 days
- Place of Filing: Place of domicile at the time of death. If no legal residence in Ph, filed in the
office of the Commissioner
- Non-filling: subject to administrative, civil, criminal and surcharges

PAYMENT OF ESTATE TAX

- Pay as you file
- Can be thru installment within 2 yrs form statutory date for its payment without penalty

 If the return was made in the wrong form, filing thereof did not stop the running of the
period of limitations
 Approval of court is not mandatory in collection of estate tax
 Return need not be complete in all particulars, sufficient if it complies substantially with the
law
 Estate tax shall be paid by executor/administrator before delivery to any beneficiary of his
distributive share of the estate
 There must be a certification from the Commissioner that the estate tax return has been
paid
 ROS shall not register the document transferring real property or real rights therein or any
chattel mortgages unless certification of the Commissioner that tax has been paid
 If a bank knows the death of a person who maintained a bank deposit account alone or
jointly, allow any withdrawal from the said deposit account, subject to final withholding tax
of 6%
  Govt in collecting unpaid taxes accruing before the death of decedent has 2 ways of
collecting said taxes:
o Going after ALL HEIRS and collecting from EACH, proportionate to the inheritance
o Go against ONE HEIR for the entire tax, subject to reimbursement from co-heirs

NOTICE OF DEATH
- Filed within 2 months after decedents death: all cases of transfers subject to estate tax or
value of estate exceeds 20K

DONOR’S TAX
- Tax of 6% imposed upon transfer by any person, resident or non-resident, of property (real,
personal, tangible or intangible) by gift in excess of 250K
- Law enforced at the time of perfection/completion of the donation shall govern the
imposition of donor’s tax
- Donor’s tax shall not apply unless and until there is a completed gift.
- Transfer of gift is perfected from the moment donors knows of the acceptance by the done;
completed by delivery, actually or constructively
- FMV of the property at the time of donation
- Reported by calendar year
- To avoid paying donor’s tax: split the donation (Dec 31 and Jan 1)

Subject to donor’s tax:

- Renunciation by surviving spouse of his/her share in the conjugal partnership or absolute
community after dissolution of marriage in favor of heirs
- Subject to donor’s tax: renunciation by an heir, surviving spouse of share in the hereditary
estate to a specified and identified heir to the exclusion or disadvantage of co-heirs
- Donation made by corp to heirs of deceased officer out of gratitude for past services

 Not subject to donor’s tax: general renunciation by a heir, surviving spouse of share in
hereditary estate
 If property donated is mortgaged, deduct the amount of mortgage

GROSS GIFTS
- Includes real, personal property whether tangible or intangible, or mixed wherever situated.

CLASSIFICATION OF DONOR
1. Resident citizen: gross gift consists real and tangible and intangible personal property
regardless of location
 2. Non-resident not citizen of p: real estate located in ph, tangible and intangible personal
property (subject to reciprocity clause) located in ph

FF ARE CONSIDERED AS GIFT (subject to donor’s tax)

1. Transfer for insufficient consideration (applies only to Capital assets)
- Property is transferred less than adequate and full consideration are considered
donations to the extent by which fmv of donated property exceeds the value of
consideration
- Difference in price is considered as donation subject to tax
- Xpn: Ordinary assets where transfer was made in the ordinary course of business,
considered as adequate and full consideration (req)
 Bona fide transaction
 Free from donative intent
 Arm’s length
2. Condonation or remission of debt
- Creditor cancels the debt without any consideration, and debtor accepts, amnt of
debt is donation by creditor

VALUATION OF GIFTS
- Fmv of the property donated/ given at the time of donation or assessed by city assessor,
whichever is higher shall be the value of gross gifts

EXEMPTION OF CERTAIN GIFTS

1. Gifts to Natl govt, any of its agencies
2. Gifts to educational and/or charitable, religious, cultural or social welfare corporation,
institutions accredited NGOs, trust, philanthropic org, research institutions or org, provided
that not more than 30% of said gifts shall be used by such done for administration purposes
(nonstock, paying no dividends, governed by trustees who receive no compensation,
devoting all its income to its purpose)
3. Gift to UP
4. Donation to qualified foster care agencies
5. Contributions to National books trust fund
6. Contribution to candidate or pol parties duly reported to BIR
 Unutilized excess of campaign funds shall be subject to income tax
 Must file with comelec his statement of expenditures

DONOR’S TAX RETURN

- Oath, duplicate
 - Set forth: gifts made in a calendar year, deductions allowed, any previous gift made in a
calendar year, name of done, other information (aggregate rule)
- Aggregate Rule: add all prior net gift made and the first 250K is exempt from tax
- All donations of one date, only one return
- Filing: within 30 days after date of gift is made
- Place of filing: Domicile of donor
- Payment: Pay as you file
- Gift made by nonresident; return maybe file in Ph embassy or consulate where he is
domiciled or directly to the office of the Commissioner
- In case of husband and wife as donors, the return of husband will be separate of the return
of the wife

DONOR’S TAX CREDIT

- For a foreigner’s donors tax paid in foreign country, a credit is allowed tp reduce the Ph
donor’s tax to pay
- Allowed tax credit is whichever is lower of the foreign donor’s tax paid and limit

VALUE ADDED TAX

VAT
- 12% VAT imposed upon any person who \(persons liable)
o Sells, barters or exchanges goods or properties in the course of trade or business
o Sell services in the course of ordinary trade or business
o Imports goods whether or not in the course of ordinary trade or business
- Tax on consumption. Indirect tax
- Vat is imposed upon the seller not buyer (except importation) ; statutorily liable for payment
which he may shift or passed upon the buyer, transferee or lessee
- If seller is vat exempt- no need to pay on VAT on his sales. But he will shoulder the burden of
VAT passed to him by his supplier
- Govt entities, nonstock, nonprofit organization are subject to VAT as long as the service is
done for a fee
- If taxpayer is nonresident foreign person, no need for regularity of conduct. Service
rendered is subject to VAT.

Ordinary course of trade or business

- Regular conduct or pursuit of commercial or economic activity. Includes transaction
incidental thereto
  An automobile shop who sells 5 parcels of land and real estate dealer who sold a parcel of
land, both subject to VAT
 MKI a catering business sold its automobile- Subject to VAT
 If the lease agreement is signed outside Ph (Singapore) but the subject matter or rendition
of services is within Ph- subject to VAT. Vat is imposed upon rendering services in Ph

Subject to VAT:
- Importation of goods for personal use
- If taxpayer rendered a services to an affiliate for a fee, even if fee is merely to reimburse
costs
- Fees collected by tollway operators
- Sale of vehicle used in the business of the taxpayer while isolated
- Cash deposit/ advances received by taxpayer (other than GPP) from clients and customers

Not subject to VAT

- When affiliate provides funds to a taxpayer who then use the funds to pay a 3rd party,
transaction is not subject to VAT. No sale, exchange between affiliate and taxpayer
- Transaction is outside Ph

Destination Principle
- Exports are 0-rated, imports are taxed
- Xpn: services performed in ph for a recipient doing business outside ph and foreign currency
denominated sales

Cross-border Principle

Gross Selling Price

- Total amnt of money or its equivalent which purchaser pay or obligated to pay to the seller
except VAT.
- Does not mean gross sales

Gross receipts
- Cash or its equivalent actually or constructively received as to payment or deposits or
advance not including VAT
- Do not include amnt which do not redound to the benefit of the payor (settle obligation for
another person)

IMPOSITION OF VAT (3 categories)

1. Sale of goods and properties
 2. Sale of services
3. Importation

VAT on Sale of Goods and properties

- VAT of 12% on gross selling price or gross value, collected on every sale, exchange, barter of
gods or properties, paid by seller.

Transaction deemed Sale (subject to VAT)

1. Consignment of goods if actual sale is not made within 60 days ff date of such goods
consigned
2. Retirement or cessation of business with respect to inventories of taxable goods existing
3. Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or use in the course of business
4. Distribution or transfer to:
a. Creditors in payment of debts
b. Shareholder/ investors as share in the profits of the VAT registered person
- Sample: If Zombie sol’n sells on regular basis axes and later gave its counsel an ax- ax given
shall be subjected to VAT as transaction deemed sale.

VAT on Sale of Services and Use or Lease of Properties (see pg322, Ingles)
- Vat of 12% gross receipts from sale or exchange of services, use or lease of property
- Rendered in Ph. Covers all kind of services
- Lease of property shall be subject to vat irrespective of the place where the contract or lease
or licensing agreement was executed if the property is leased or used in Ph

VAT on Importation
- 12% on every importation whether for business or not
- Tax based on: total value used by Customs or landed cost (all cost in bringing the item in Ph)
- Paid prior to release of goods from customs. If subject to both excise tax and Vat- both pay
prior to release.
- Seller of goods/ services who imports stuff can claim the VAT paid on importation during
taxable period as input taxes creditable against the output taxes on sales

Transfer of Goods by Tax-Exempt Persons

- Tax free import to Ph of goods where such goods are subsequently sold, transferred, or
exchanged in Ph to non-exempt persons- shall be considered importers and liable for
payment of VAT on such importation. Tax due shall be a lien on the goods superior to all
charges
Difference between 0-rated/ effectively 0-rated transactions and Vat- exempt : is the ability to
recover VAT already paid to the seller

Ecozones
- Considered foreign territories
- Articles brought into and remain herein are not taxable importation. Tax free
o Xpn: once introduced into ph customs territory shall be considered as technical
importation and subjected to VAT.
o Sales by supplier from outside the ecozones to separate custom territory are
deemed export sales
- Hence, VAT on petroleum products into ecozones is inavalid

INPUT TAX
- VAT due or pais by VAT registered person in the course of his trade or business on
importation of goods or local purchases
- Must be evidenced by VAT invoice or OR
- Seeks to recover what it
- shouldered
- Available as tax credit or refund

OUTPUT TAX
- VAT due on the sale or lease of taxable goods, properties, services by any person registered
or required to register under VAT system
- What seller passes to purchaser
- Output tax for the seller is input tax for the buyer
- Doesn’t come out of its own pockets, can pass the burden to buyers

 If the purchaser is a VAT registered person, he can use the input tax as credit to the output
tax that he is liable to remit to the BIR

0-RATED TRANSACTION
- Export sale of goods and supply of services
- Seller charges no output tax but can claim refund or credit for VAT previously charged by
suppliers (benefits the seller)
- Total relief for purchaser from burden of tax. He does not have to pay any VAT on the
transaction
- Exempt with credit bcus can be credited or refunded
- Purpose: to exempt transaction completely from VAT previously collected since input taxes
passed to him may be recovered as refund or credit
0-Rated goods
1. Export sales
2. Sale of raw materials to a non-resident buyer for delivery to a resident local export-oriented
enterprise
3. Sale of raw material or packaging materials to export-oriented enterprise whose export sales
exceed 70% of total annual production
4. Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operation; provided such is used for int’l shipping or air transport

0-Rated Services
1. Processing, manufacturing or repacking goods for other persons doing business outside Ph
which goods are subsequently exported
2. Services rendered to a person engaged in business conducted outside ph
- A call center operated by a domestic enterprise in Makati which handles
reservations of hotel chain which are all located in North America is a 0-rated
transaction since these are services performed for a foreign corp doing business
outside ph, paid in foreign currency
3. Services rendered to person or entities whose exemptions under special laws or intl
agreements which Ph is signatory
- Construction by a company for ADB in Ortigas
4. Services rendered to persons engaged in int’l shipping or int’l air transport
5. Services performed by subcontractors and/or contractors in processing, converting or
manufacturing goods for an enterprise whose export sales exceeds 70% of annual
production
6. Transport of passengers and cargo by domestic air or sea vessels from Ph to foreign country
7. Sale of power or fule generated thru renewable sources of energy

Effectively 0-rated transaction

- Sale of goods or services to persons or entities whose exemption under special laws or int’l
agreements which Ph is a signatory.
- Does not yield any tax chargeable against the purchaser. (benefit the purchaser)

EXEMPT TRANSACTION
- Partial relief
- Seller is not allowed any tax refund or credit for input taxes paid on his purchases from
supplier
- Exempt without credit bcus can’t credit input tax
- Unrecovered VAT shall be considered cost
1. Sale of gold
2. Sale/ importation of agricultural and marine food product in original state (irrespective of
the seller or buyer)
3. Sale/ Importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and
poultry feeds
4. Sales by agricultural cooperative
5. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with
Cooperative Devt
6. Sale of RP not primarily held for sale to customers or held for lease in the ordinary course of
trade or business or real property utilized for low-cost and socialized housing
7. Sale/ importation, printing or publication of books, newspaper, magazine, review or bulletin
8. Sale, importation or lease of passenger or cargo vessel and aircraft for domestic and int’l
transport
9. Sale or lease of goods and services to senior citizen and pwd
10. Sale of drugs and medicines prescribed for diabetes, high cholesterol and hypertension
11. Sale or lease of good or properties or the performance of services, gross annual sale or
receipts do not exceed 3M
12. Services subject to percentage tax
13. Services by agricultural contract growers and milling for other
14. Services pursuant to E-ER relationship (
15. Services by RAHQ
16. Services of bank, non-bank financial intermediaries perfoming quasi-banking functions and
other non-bank financial intermediaries
- Services provided by them like money changers or pawnshops are subject to 3%
percentage tax
17. Importation of personal and household effects belonging to the residents of Ph returning
from abroad and non-resident citizens coming to resettle in Ph
18. Importation of professional instruments and implements
19. Importation of fuels, goods, and supplies by person engaged in int’l shipping or air transport,
provided used for that purpose
20. Medical, dental and veterinary services (except rendered by professionals)
- If hosp or clinical operates a pharmacy or drug store, sale of medicine is subject to
VAT
- Health care company which merely provides and arranges for the provision of pre-
need care services to its members is not vat-exempt as it merely arranges for
medical services
21. Educational services by private institutions duly accredited by CHED
22. Export sales by persons not VAT Registered
23. Gross receipts from lending activities by credit or multipurpose cooperatives
 24. Lease of residential unit with a monthly rental not exceeding 15K
25. Transport of passenger by int’l carriers
26. Transfer of property pursuant Sec40C2- tax free exchanges
27. Association dues, membership fees and other assessment and charges collected by
homeowners association and condo uit

 Foreign currency denominated sales are no longer 0-rated but now subject to VAT
 Self-employed individuals and professionals availing 8% income tax on gross sales/ receipts
are exempt
 Fees, per diems, honoraria or allowance given to directors of corporation is VAT Exempt
since not considered derived from economic or commercial activity. Not liable to 3%
percentage tax
 If Vat registered person erroneously imposes VAT on 0-rated or VAT exempt transaction- it
can claim a refund on the basis of erroneously paid taxes
 Sale of Orchids are not agricultural food products and thus not tax exempt. Subject to VAT
 If the purchaser is VAT registered person, he can use the input tax as credit to the output
taxes he is liable to remit to the BIR.
 Input tax attributable to VAT Exempt sales shall not be allowed as credit against output tax
but treated as cost
 At the end of taxable quarter, output tax exceeds input taxes: excess be paid by VAT
registered person (NET VAT Payable)
 Input tax exceeds output tax: excess input tax shall be carried over to the succeeding
quarters
 Any input tax attributable to 0-rated sales by VAT registered person may at is option be
refunded or applied for tax credit certificate used in payment of internal revenue taxes.
 Unapplied input taxes: cannot be treated as deductible expense for income tax purposes

Rule on Capital goods

 With estimated useful life or more than 1 yr
 Treated as depreciable under the income tax law
 Used directly or indirectly in the production or sale of taxable goods or services

 If the aggregate acquisition cost on capital goods purchased or imported in a calendar

month does not exceed 1M
 Input tax shall be allowed in the month of purchased

 If the aggregate acquisition cost excluding VAT exceed 1M

 If the estimated useful life is 5 yrs or more: input tax will be evenly spread over the
months of acquisition and 59 succeeding months
  If the estimated life is less than 5 yrs: input tax will be spread evenly on monthly
basis by dividing the input tax by actual number of months comprising the
estimated useful life of the asset

 Asset acquired in installment for an acquisition cost of more than 1M, excluding VAT: subject
to the amortization of input tax despite monthly payments/ installments may not exceed 1M

Transitional Input Tax Credit (from NonVAT to VAT registered)

 Allowed input tax on his beginning inventory of goods, materials and supplies equivalent to
2% of the value of inventory or actual VAT paid on such goods, whichever is higher
 To benefit newly VAT registered person, whether or not they previously paid taxes in
acquisition of their beginning inventory
 To alleviate the impact of VAT on the taxpayer

Presumptive Input Tax Credit

 Rate of 4% of gross value in money, given those who are engaged in:
o Processing of milk, mackerel, sardines
o Manufacturing of refined
 Sugar
 Cooking oil
 Packed noodles based instants
 Because the goods used are VAT exempt

WITHHOLDING OF VAT ON SALES TO GOVT (pol subdivisions, agencies, instrumentalities, gocc) (Pg
355, Ingles)
 Before making payment on account of each purchase of goods and services subject to VAT,
deduct and withhold a final VAT of 5% of gross payment. Beginning Jan 2021, VAT
withholding System shall shift to creditable system
 5% final withholding VAT represent the net VAT payable for the seller, remaining 7%
accounts for the standard input VAT for sales of goods or services to the govt in lieu of
actual input VAT directly attributable or ratably apportioned to such sales
 If actual input VAT attributable to sales to govt exceed 7% of gross payments: excess may
form part of the seller’s expense or cost
 If actual input VAT attributable to sale to govt is less than 7%: difference is income

WITHHOLDING VAT on Transaction with Nonresidents

 12% withheld with the ff payments:
o Lease or use of properties or property rights owned by nonresidents
o Other services rendered in Ph by NonResidents
 The payors are withholding agents
  Sample Case: If Jay lives in a condo owned by nonresident Teves. Jay will withhold 12 Php of
the total amnt including VAT of the lease of 112 Php. J will only pay Teves 100 php. Jay will
be the one who remits the 12% to the govt when he files his ITR and can state there in that
he is entitled to input tax credit

REFUNDS OR TAX CREDIT on INPUT TAX (see case samples pg 361, Ingles)
Period for Refund
- CIR process the refund within 90 days from date of submission of OR/ invoices (mandatory)
- If BIR does not act on application within 90 days, relevant official, agent or employee shall be
liable under Sec269

3 Instances to avail VAT Refund

1. 0-rated and effectively 0-rated sales
2. Cessation of business
3. Cessation of VAT Status

Refund for 0-rated transaction

- The application for refund shall be file within 2 yrs after the close of taxable quarter when
sales were made. 2 yr period is reckoned from the close of taxable quarter when relevant
sales were made regardless when input tax was paid
- Taxpayer cannot apply for tax credit certificate or input tax for transitional input tax

1. Admin Claim (2 yr period)

- Claim must be filed within 2 yr prescriptive period. Reckoning date is the close of taxable
quarter when relevant sale were made

2. Judicial Claim (90+30 day period)

- CIR denies the claim within 90 dyas : file a claim within 30 days (mandatory,
jurisdictional and always applies
- CIR did not act on the claim within 90 days: file a claim within 30 days from the
expiration of 90 day period

 GR: The 30day period to appeal is both mandatory and jurisdictional, otherwise refund will
be dismissed by CTA
 Xpn: premature judicial filings between Dec 10, 2003 and Oct 5, 2010, where BIR Ruling No.
DA-489-03 still in force.
 Application for VAT refund must be accompanied by complete supporting documents,
attached and under oath, otherwise application will be denied
 No additional supporting documents: 120 day period begin on the date the claim files
  If wants to submit additional supporting documents: submit within 30 days from filing of the
claim, unless longer period is given by CIR. 120 day period starts from the completion of
documents submitted
 If taxpayer manifest in his claim he doesn’t want to submit any other additional documents,
120 day period begins from date of filing
 When OR presented as evidence to prove input tax is not in the name of the taxpayer, the
input tax pertaining to such OR cannot be given as a refund/ credit

Refund for Cessation of Business

- VAT-registered person whose registration has been cancelled due to retirement/ cessation
of business, may within 2 yrs from date of cancellation apply for tax credit certificate of any
unused input tax
- Entitled to refund if has no internal revenue tax liabilities against

Procedure for Claiming VAT refund or Tax credit of Input VAT

- Taxpayer 1st file an admin claim with CIR within 2 yrs from the end of taxable quarter when
relevant sales were made.
- CIR has 120 days to rule on the claim
- Taxpayer has 30 days, from the decision of CIR to or expiration of 120 days period if CIR does
not act, to file judicial claim with CTA, even if beyond 2 yr prescriptive period.
- The 120+30 day rule is mandatory

Procedure for claiming refund of tax erroneously or illegally collected under Sec 229 of NIRC
- Taxpayer must file both administrative and judicial claim within 2 years from payment of the
tax. The administrative claim is mandatory and CTA will dismiss the case without it

VAT on REAL PROPERTIES

Sale of the ff are subject to VAT
- Sale to customer in ordinary course of trade or business
- Lease in ordinary course of trade or business
- Those incidental to taxpayer’s main business

Sale, transfer or disposal of 2 or more adjacent lots, house and lots, other residential dwellings is
also subject to VAT when:
- It is within 12-mo period
- Favor of one buyer from same seller
- Purpose of utilizing the lots, house and lots or other residential dwellings as one residential
area
- Aggregate value of adjacent properties exceed 1,919,500 for R and 3,199,200 for R and L
Sale on Installment of RP by Real Estate Dealer
- 12% VAT on installment payments, including interest and penalties, actually or
constructively received by dealer
- Cash sale with VAT at the time of sale if : Initial payment exceed 25% gross selling price

VAT on LEASE
- Lease of property shall be subject to VAT regardless of the place where the contract of lease
or licensing agreement was executed if the property leased is in Ph

VAT REGISTRATION
1. Every taxpayer subject to VAT, register with BIR and pay annual fee of 500 for every
separate and distinct establishment
2. Every taxpayer not subject to VAT but subject to excise or percentage tax, register with
BIR and pay 500 for every separate and distinct establishment
3. Vat exempt person must register as Non-Vat taxpayers

Mandatory registration for:

- Any person, in the course of trade or business, sells, barers or exchanges goods or properties
xxx gross sales or receipts for past 12 months exceed 3M or reasonable ground to believe
that for next 12 months will exceed 3M

Optional Registration
- Any person not required to register as VAT taxpayer
 Any person who elects to register shall not be entitled to cancel his registration for the
next 3 yrs. XPN: franchise grantees of radio and TV whose annual gross receipt do not
exceed 10M
 Any person taxed of NIRC who elected to pay 8% tax on gross sales or receipts shall not
be allowed to avail this option

CANCELLATION OF VAT REGISTRATION (ff circumstances)

- Written application.
- Cancellation effective from 1st day of the ff month
A. Demonstrate in satisfaction that his gross sales or receipts for the following 12 months
will not exceed 1,919,500
B. Cease to carry on trade or business and does not expect to recommence within next 12
months

COMPLIANCE REQUIRMENTS
Invoicing and accounting Req for Vat-Reg
- VAT reg person shall issue
o VAT Invoice: for every sale, barter or exchange of goods or properties
o VAT OR: for every lease of goods or properties , sale barter or exchange of services

Info Contained in VAT Receipt

1. Statement that seller is VAT registered and his TIN
2. Total consideration+VAT
3. If VAT-exempt or 0-rated, must be indicated therein
4. Clear breakdown of VAT, VAT-exempt or 0-rated
5. Date of transaction, quantity, cost and decription

 If sale VAT-exempt, 0-rated : term ‘VAT-exempt sale/ 0-rated’ shall be written/ printed
prominently on the OR/ Invoice
 If sale involves some subject to VAT and some 0-rated or VAT-exempt: Invoice/ OR shall
clearly indicates the breakdown of the sale [rice between taxable and 0-rated/ VAT-exempt
or seller may issue separate invoices or receipts.
 Failure to print the word “0-rated” on VAT invoices or OR is fatal to claims for refund or
credit of unutilized input VAT on 0-rated sales
 If VAT is erroneously billed in the invoice, total invoice amnt shall be presumed to be
compromised of the gross selling price/ gross receipts+ correct amnt of the VAT

Issuing Erroneous VAT Invoice or OR

- If person who is not a VAT-registered issues an invoice or receipts he shall be liable for
o 12%VAT,
o 3% percentage Tax, and
o 50% surcharges

RETURN AND PAYMENT OF VAT

 File: quarterly return of his gross sales/ receipts within 25 days following each close of
taxable quarter
 Where to File:
o Authorized agent bank
o Revenue Collection officer
o Duly authorized city or mun treasure in ph located within revenue district where
taxpayer is registeres
 Pay: monthly basis
  Seller to buyer: output tax
 Buyer to seller: input tax
 Note: Sec 127
 Stock Exchange insufficiency is subject to 3% percentage tax and not transfer tax
 Basis of Percentage tax: gross receipts

PERCENTAGE TAX

EXCISE TAX

DOCUMENTARY STAMP TAX

TAX REMEDIES UNDER NIRC

1. ASSESSMENT OF INTERNAL REVENUE

2 KINDS OF TAX ASSESSMENT

1. Self-assessment
 Taxpayer computes his own liability, files return, and pay tax based on his computation
2. Deficiency assessment
 Occurs upon discovery of BIR that self-assessment was either deficient or no return was
made by the taxpayer.
 Official action by administrative officer to determine tax due of taxpayer.
 Consist of: Computation of the amnt of tax and demand to pay within specified period
 Not a valid demand, invalid assessment if: No definite amount or date when tax must be
paid

Req of a Valid Assessment

1. In writing (formal letter) issued by CIR or his duly authorized representatives
2. Inform taxpayer of the law and the facts which the assessment is made
3. Computation of tax liabilities
4. Demand for payment
5. Sent by: registered mail or personal delivery

 When Assessment deemed made: On the date the demand letter or notice of assessment is
released, mailed or sent even the same is actually received by the Case taxpayer after the
expiration of the prescriptive period.
 Case sample: X was assessed for deficiency taxes on his 2009 ITR. The FLD assessment was
stamped April 14, 2013, denoting the date of its release in the mail- the assessment is not
yet barred by prescription. So long the release of the assessment/ demand is affected before
 the prescription sets in, assessment deemed made on time eventho received by taxpayer
after expiration of prescriptive period.
 Advice of tax deficiency, given by CIR to an employee of the taxpayer, as well as the
preliminary 5-day letter, are not valid substitutes for the mandatory notice in writing
 The law requires that legal and factual bases of the assessment be stated in the formal letter
of demand and assessment notice
 When legal and factual bases can be found in a series of correspondence between BIR and
taxpayer, there was a substantial compliance with the requirement (Samar case)
 Affidavit executed by revenue officers stating tax liabilities of a taxpayer and attached to a
criminal complaint for tax evasion, cannot be deemed a valid assessment.

Power to issue assessment:

 CIR
 Can authorize/delegate any revenue officer to conduct an examination or assessment. But
there must be a clear grant of authority embodied in a Letter of Authority (LOA) before the
delegated revenue officer can examine or assess

Letter of Authority
 Letter informing a taxpayer that a revenue officer is authorized to examine the books of
accounts and other accounting records of the taxpayer for the purpose of verifying his tax
liabilities during a taxable year.
 Must be served within 30 days from issuance otherwise null and void.
 Without LOA, assessment or examination is nullity (due process)
 Cannot be for unverified prior years. Period or years shall be specifically indicated in LOA
 Having an LOA that covers a specific taxable year and unverified prior years does not make
the LOA vid. The assessment for specific taxable year indicated in LOA is still valid.
 Undated LOA is null and void.
 Letter of notice is not equivalent to LOA and subsequent PAN, FAN is void

 Tax assessments by tax examiners re presumed correct and made in good faith
 But assessments cannot be based on mere presumptions on the part of the government.
There must be a minimum effort on the govt before the presumption of correctness sets in
 Mandamus does not lie to compel the CIR to impose tax assessment not found by him to be
proper
 For income tax purposes, examination and inspection shall be made only once in a taxable
year, except:
o Fraud
o Irregularity or mistakes as determined by CIR or others
  Sample Case: A Letter of authority was issued in 2010 for deficiency income tax of
Mr A in 2009, he paid. In 2011, he received another LA for the same year (2009) on
the ground that his 2009 return was fraudulent.
 Notices (Preliminary assessment notice, Final letter of demand, Final assessment notice,
Final decision on a disputed assessment) may be served on the ff mode:
o Personal service: to taxpayer
o Substituted service: leaving notice with someone at taxpayers’ known address
o Service by mail: service to the agent deemed service to the taxpayer

PRESCRIPTIVE PERIOD FOR ASSESSMENT

GR: Right to assess exercised within 3 years from:
 Filing of return, or
 Last day of filing of return (whichever is later)- to benefit the government, so they have
more time to make assessment on the taxpayer)
XPN:
1. 10 years if:
 False or fraudulent return with intent to evade tax: within 10 years from discovery
of falsity or fraud
 Failure or omission to file return: within 10 years after discovery of failure or
omission to file return

 False return: deviation from truth due to mistake, carelessness or ignorance

 Fraudulent return: intentional or deceitful entry with intent to evade taxes due.
 Circumstances constituting fraud must be alleged and proven in court. IF fraud is not proven,
the govt cannot use the 10 yr prescriptive period to make assessment. Not enough that
fraud is allege din the complaint, it must be established
 An honest mistake as to valuation of the property cannot be indicative of fraud
 Entry of wrong information due to mistake, carelessness or ignorance, without intent to
evade tax does not constitute a false return

2. Valid waiver of statute of Limitation

 Up to the period agreed upon by BIR and taxpayer
 must be made before the expiration of the 3 yr period of assessment of taxes:
period agreed upon.
 Applies to both assessment and collection
 Mutual agreement by taxpayer and govt in writing the prescriptive period for
assessment and collection of taxes (need not be notarized)
 Failure to follow the forms will not invalidate the waiver, as long as the ff are
complied with (substantial compliance)
 o Waiver executed before expiration of period of assess or collect taxes
o Date of execution specifically indicated
o Signed by taxpayer of his duly authorized representative (for corp, signed by duly
responsible officials)
o Expiry date of the period agreed upon to assess/ collect after the regular 3 yr period
should be indicated
o Accepted by CIR’s authorized representative
 Waiver of collection: particular taxes should be indicated
 Waiver take effect upon execution
 Taxpayer duty to submit the duly executed waiver to relevant BIR officer
 BIR officer shall indicate acceptance of waiver by signing it
 Bothe the execution and acceptance of waiver must be done prior to the expiration of the
period
 Taxpayers’ waiver of statute of limitations does not cover taxes have already prescribed
 Effect of waiver of statute of limitation: Not a waiver of right to invoke the defense of
prescription. Waiver is merely an agreement in writing that the period to assess and collect
taxes is extended to a date certain.

 Starting point of prescriptive period: filing of return which must be substantially complete.
 If taxpayer files amended return, substantially different from the original return, the period
of prescription of the right to issue the deficiency assessment should be counted from the
filing of amended return and not the original return.
 Files wrong return: filed no return at all. Even if necessary, information was reflected in the
erroneous return. 10 yr prescriptive period still applies.
 Tax laws provides statute of limitation in the collection of taxes to safeguard taxpayers from
any unreasonable examination, investigation or assessment. It should be liberally construed
in order to afford protection to the taxpayer
 Negligence of oversight on the part of BIR with regard to make a timely assessment cannot
prejudice taxpayers, prescriptive period was intended to give them peace of mind.
 Surtax on excess profits (IAET) does not prescribe there being no law providing prescriptive
period therefore.
 Deficiency tax assessments cannot be enforced where the tax collector cannot prove that
said assessments were served on the taxpayer.
 If taxpayer make a direct denial of receipt of a mail demand letter: denial shifts the burden
to the Govt to prove such letter was indeed received by taxpayer. Govt show substantial
evidence that demand letter was sent on time
 To determine if prescription to assess has set in: remember the date when the demand
letter or notice is release, mailed or sent by CIR to the taxpayer.
 o If the release was affected before prescription sets in, assessment is deemed made
on time even if the taxpayer actually receives it after the prescriptive period.
o If the assessment notice was mailed before prescription period sets in must be
proved with substantial evidence by CIR. Presumption that it was mailed and
received in the regular course of mail cannot be applied.
 If waiver is invalid (CIR didn’t sign it) but the taxpayer still paid within the extended period
provided by the waiver: taxpayer is estopped from questioning the waiver. Taxpayer could
have refused to make any payment based on any assessment against it.

Grounds for suspension of running of Statute of Limitations: PRAWO

1. Commissioner is Prohibited from making an assessment or beginning of destraint or levy or
a proceeding in court and for 60 days thereafter
2. Request for reinvestigation by the taxpayer is granted
3. Taxpayer cannot be located in the address
4. No property could be located when warrant of distraint or levy was served
5. Taxpayer is out of Ph

Imposition of Penalties and Interest

 Apply to all taxes, fees and charges imposed by NIR
 Not penal but compensatory
 Penalties for delinquencies: intended to hasten tax payments by punishing evasion or
neglect of duty

2 Categories of Civil Penalties

1. 25% surcharge on the amount due will be imposed on the ff
a. Failure to file any return and pay tax due
b. Filed in wrong venue
c. Failure to pay the deficiency tax within the time prescribed in the notice
d. Failure to pay full or part of the amnt of tax stated in the return on or before the
date prescribed
 No 25% surcharge if you file on time but return filed and amount paid was erroneous
 Not imposable where non-payment arose form legitimate dispute on whether an article is
subject to tax or not
2. 50% surcharge
a. Willful neglect to file return
b. False or fraudulent

TAX DELINQUENCT (taxpayer fails to)

 A. Pay the amnt of the tax due on any return required to be filed (Filed a return but did not
pay)
B. Pay on the date appearing in the demand of CIR
 Self-assessed tax was not paid at all or only partially paid.
 Can be collected administratively (distraint or levy) or Judicially

TAX DEFIENCY
 Amount tax imposed by law exceeds the amount shown as tax by the taxpayer in his return
or no return is made
 Assessed prior to collection

Jeopardy Assessment
 Tax assessment is assessed without the benefit of complete or partial audit. Reason to
believe that the assessment and collection of deficiency tax will jeopardized by delay
because of the taxpayer’s failure to comply with audit and investigation requirements

Interest
 Increment to any unpaid amount of tax twice the legal rate of BSP: 12%
 Deficiency and delinquency interest shall not be imposed simultaneously

4 Kinds of Interest
1. General
 20% interest on unpaid taxes per annum from the date prescribed for payment until
fully paid
2. Deficiency
 Shortgage of taxes paid, rate of 20% per annum on any deficiency tax due from date
prescribed for its payment until fully paid
3. Delinquency
 Delay in payment of taxes, rate of 20% per annum on unpaid amnt in case of failure to
pay:
a. Amnt tax due on any return
b. Amnt tax due for which no return is required
c. Deficiency tax or any surcharge
4. Extended Payment
 20% per annum where taxpayer is qualified na elects to pay tax on installment, but fails
to pay the tax or any installment, or pays beyond the period of payment

 Prima facie evidence of false or fraudulent return when there is substantial under
declaration of taxable income or substantial overstatement of deductions
 Willful neglect of taxpayer: voluntarily files the return without notice from BIR (no demand
BIR)
o Only 25% surcharge will be imposed for late filing and payment of tax
 Taxpayer fails to file return only after prior notice in writing from BIR (demand from BIR)
o 50% surcharge will be imposed
 Late filing and late payment of tax; no BIR intervention/ demand (forgot to file on April 15.
Filed on June 30)
o 25% surcharge for late filing and payment
o 20% general interest
 Tax return file don time, but filed on wrong venue
o 25% surcharge only. No interest since filed on time
 Late filing and late payment due to taxpayers’ willful neglect; did not file, BIR notified him to
pay only then he paid
o 50% surcharge
o 20% general interest from date due until time paid
 Penalty imposed for deficiency tax
o No surcharge imposed on deficiency tax and basic tax.
o If the amnt due inclusive of penalties is not paid on or before the date due,
surcharge will be imposed
 Paid on time, error in computation resulting to deficiency tax
o 20% deficiency interest imposed on deficiency tax from date due up to time paid.
No surcharge
 Paid on time, BIR disallowed deductions resulting to deficiency tax
o 20% deficiency interest from date due to time paid. No surcharge
 Paid on time, return found to be false and fraudulent resulting to deficiency tax
o 50% surcharge
o 20% deficiency interest
 Late payment of deficiency tax assesses (pg 409. Ingles)
o 25% surcharges
o 20% deficiency interest
 If taxpayer request to pay his income tax liability in installment and request is approved
o No 25% surcharge for late payment since deadline payment is extended
o 20% interest per annum for the extended payment shall be imposed if taxpayer
does not pay on time
 If taxpayer request for extension of the period which to pay is made on or before the
deadline prescribed for payment of the tax due
o No 25% surcharge
 If request for extension is made after the deadline prescribed for payment
 o 25% surcharge imposed since taxpayer is already late on payment

Failure of Withholding Agent to Collect and Remit Tax

 Liable for penalty equivalent to total amount of tax not withheld or not accounted for and
remitted

Failure of Withholding Agent to Refund Excess Withholding Tax

 In addition to penalties, liable to the total amnt of refunds not refunded to the employee

Remedies for the Collection of Delinquent Taxes

1. Civil Action
 Filing of civil case for collection before regular court
2. Criminal
 Criminal liability arises upon failure of debtor to satisfy civil obligation
 Judgment in criminal case shall not only impose penalty but also order payment of taxes
subject to crim case
 No criminal action for recovery of taxes shall be filed without approval f CIR – approval can
be delegated by subordinate officials
 Criminal complaint is instituted not to demand payment but to penalized taxpayer for
violation of Tax Code
 Acquittal of taxpayer in criminal case does not exonerate him for tax liability. Legal duty to
pay cannot be affected
 Computation of tax assessment of deficiency of taxes is not prerequisite for criminal
prosecution. Protesting assessment cannot stop criminal prosecution under NIRC
 When fraudulent tax returns: proceeding in court after the collection of such tax maybe
begun even without assessment. Crime is complete when the violator knowingly and
willfully filed a fraudulent return
 Acquittal of the accused does not necessarily result in exoneration of the taxpayer from his
civil liability to pay taxes

Prescription of Criminal Cases

 5 yrs. Begin to run depends on the nature of the violation
o If failure/ refusal to pay taxes due: 5 yrs begin from the service of the final notice
and demand for payment
o If filing of false/fraudulent return: from discovery and institution of judicial
proceedings for investigation and punishment

Willful Blindness Doctrine

  Taxpayer can no longer raise the defense that the errors on their tax returns are not their
responsibility or that it is the fault of their accountants they hired. Only thing that needs to
be proven is that the taxpayer was aware of his obligation to file tax return but nevertheless
voluntarily, knowingly, and intentionally failed

Power of Collection of Taxes

 Where assessment is final and unappealable
 GR: govt can only file a proceeding in court to collect once the assessment has become final
and unappealable
 Xpn: Case of fraudulent/ false return with intent to evade tax or failure to file return,
proceeding for collection may be filed without assessment at any time within 10 years after
the discovery of falsity, fraud or omission.

2 Modes of Collection of Taxes (Govt remedies in collection of Taxes)

1. Summary or Administrative remedies (distraint and levy, tax lien ect)
2. Judicial Remedies (civil or criminal)
a. Civil – Filing of collection case before a regular court
b. Criminal- crimes punishable under NIR
i. Attempt to avoid and defeat tax
ii. Failure to file return
iii. Failure to pay tax
iv. Failure to supply correct and accurate info
v. Failure to refund excess taxes withheld on compensation
 Judgment in crim case shall impose penalty and order payment of tax
 Acquittal in crim action does not necessarily exonerate taxpayer from his liability to pay
tax
 Previous assessment is not necessary before a criminal action may be filed against a
taxpayer. Only requirement is prima facie showing of willful attempt to evade taxes
 Filing of crim action against taxpayer is not an implied assessment. Tax Code requires
that an assessment must contain computation of tax liabilities, demand for payment
within prescribed period and duly served to taxpayer

 Satisfaction of civil liability does not affect criminal liability of tax

 In case of insolvency of taxpayer, subsidiary imprisonment cannot be imposed with regards
to tax liability but can be in cases of failure to pay the fine imposed
 BIR can file collection case pending decision of the admin protest. The request for
reinvestigation and reconsideration is in effect, denied by CIR when the latter filed a civil suit
for collection of deficiency income tax
  Remedies of distraint and levy, collection by civil and criminal action may be pursued singly
or independently of each or all of them simultaneously

Distraint
 Seizure by the govt of personal property, tangible or intangible to enforced payment of
taxes, to be followed by its public sale, if taxes are not voluntarily paid
 Property exempt from attachment and execution under ROC are not exempt from distraint
 Cannot be availed of where the amnt does not exceed 100php
 Req:
a) Delinquent payment of tax by taxpayer
b) Demand for payment
c) Fails to pay
d) Period to assess/ collect not yet prescribed
 Not subject to distraint:
o Property under judicial settlement or in custodia legis
o Bond or cash deposit for possession of firearm
o Benefits by GSIS and SSS

1. Actual distraint
 Actual delinquency in tax payment where taxpayer is divested of the power of control over
his property.
 Resorted upon the failure of the person owing any delinquent tax/ revenue to pay the same
at the time required
 Personal property is actually seized
 Procedure
a. Distraint proceeding
b. Service of warrant of distraint
c. Notice of sale
d. Release of distrained property, prior to sale
e. Sale of property
f. Purchase by government: when amnt of bid for the property under distraint is not
equal to the amnt of tax or very much less than the actual market value of the
articles offered for sale, CIR may purchase and maybe resold.

2. Constructive distraint (preventive remedy)

 No actual delinquency is necessary and owner is merely prohibited from disposing his
personal property. Resorted when CIR believes that taxpayer:
a. Intend to leave Ph
b. Intend to remove property from Ph
 c. Intent to hide/ conceal property
d. Retiring from any business subject to tax
e. Performs any act tenting to obstruct the proceeding for collecting tax due
o How: Taxpayer required to sign a receipt covering the property distrained and
obligate himself to preserve it, and not dispose any of it in any manner
o If taxpayer refused: officer will prepare a list of the properties distraint

Levy
 Seizure of real properties and interest for the satisfaction of taxes due.
 When effected: before, simultaneously or after distraint of personal property
 Procedure:
o Levy proceedings
o Service of warrant of levy
o Advertisement for sale
o Public sale
o Redemption of property sold
o Forfeiture to the govt for want of bidder
o Resale
o Further distraint and levy
 RP may be levied upon, before simultaneously, or after distraint of personal property
 Failure of the heir to receive a copy of notices of levy does not bar its effectivity since the
taxpayer is in fact the estate
 Redemption of property sold: within 1 yr from the date of sale

Forfeiture
 In case no bidder for real property or highest bid amount is insufficient
 ROD to transfer forfeited property to the govt

 Distraint and levy proceedings are commenced by the issuance of warrant and service
thereof on taxpayer
 No valid protest on the assessment, it become final, unappealable, and collectible. Once
assessment become final and executor action to collect tax assessed is akin to enforcement
of judgment and there can be no longer be any inquiry on merits of the original case.
 Fails to contest the BIR assessment in the CTA cannot contest the same in the action to
collect
 To be a valid protest, the claim on the assessment must be substantiated
  RTC can acquire jurisdiction over a claim for collection of deficiency taxes only after the
assessment made by the CIR has become final and unappealable, and not when there is still
a pending CTA case.
 GR: Injunction not available to restraint collection of tax of any NIRC, fee or charge
 XPN: Only CTA can issue injunction and only allowed when the ff concur:
o Appeal to the CTA
o Opinion of the court, collection by the govt agencies may jeopardize the interest of
the govt and/or taxpayer
o Taxpayer files a bond

Tax Lien
 Administrative remedy granted to BIR
 Charge on the property, either real or personal, established by law as security in default of
payment of taxes. It shall be a lien in favor of the govt from the time assessment was made
by CIR until paid with interest, penalties, cost upon all property and rights to property
belonging to the taxpayer
 Claim of the govt predicated on tax lien is superior to the claim of private litigant predicated
on judgment
 Lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of
such lien is registered in ROD
 Strictly construes, prospective application, does not arise by mere power to tax unless
expressly made so by the statute
 Extinguishment:
o Payment
o Prescription of right of the govt to assess and collect
o Failure to file notice of lien with ROD (but taxpayer is still liable with respect to
other properties)
o Destruction of property (but taxpayer is still liable with respect to other properties)

Suspension of Operation of Business

 By CIR or authorized representatives, suspend or temporarily close the business of VAT-
registered person for understatement of taxable sales/ receipts by 30% or more of his
correct taxable sales/ receipts for a taxable quarter
 Duration: not less than 5 days and shall be lifted only upon compliance of whatever
requirements

COMPROMISE and ABATEMENT

 Compromise as a contract, mutual agreement.
 Tax liability of taxpayer is reduced or cancelled. Remedy for both taxpayer and govt
  Authority of the CIR to compromise and abate cannot be delegated. XPN:
1. Assessment of deficiency taxes of 50K or less
2. Minor criminal violations
 Req for Compromise:
1. Tax liability of taxpayer
2. Offer (by taxpayer /Commisioner) of an amount to be paid
3. Acceptance of the offer
4. Based on the ff grounds
 Grounds for compromise:
1. Doubtful validity of the claim against taxpayer- those based on presumptions,
arbitrary
2. Financial incapacity of taxpayer- corp ceased/ dissolved but tax liabilities for the
assets distributed to stockholders as return of capital cannot be compromised,
taxpayer has a surplus deficit resulting to capital impairment by at least 50%,
taxpayer is a compensation earner and no more leviable assets, declared to be
bankrupt

Cases that maybe compromised

1. Criminal violations
2. Civil taxes being disputed before courts
3. Collection cases in court
4. Delinquent accounts
5. Pending admin case under protest after issuance of final assessment notice to taxpayer

Cases cannot be compromised

1. Criminal tax fraud
2. Crim violation already filed in court
3. Final and executory cases
4. Estate tax
5. Delinquent accounts with duly approved schedule of installment payments
6. Withholding tax cases, unless the applicant- taxpayer invokes provision of law that cast
doubt of the taxpayer obligation to withhold

 Who may compromise: GR Only the CIR can compromise.

 Xpn: Regional Evaluation Board on assessment of deficiency tax of 500K or less and minor
crim violation
 Compromise must be approved by Nat’l Evaluation Board when tax exceeds 1M or
settlement offered is less than the prescribed rates
 The court has no power to compel the CIR to exercise such discretion
  Remedy of govt in case of failure of taxpayer to comply with compromise:
o Enforce compromise, or
o Insist the original demand and regard compromise as rescinded

Abatement of penalties and interest (allowed in)

1. Administration and collection costs do not justify the collection of the amnt due
2. Taxes or any portion appears to be unjustly or excessively assessed

TAXPAYER REMEDIES
1. PROTESTING AN ASSESSMENT (PAN)
2. REFUND/RECOVERY OF TAX ERRONEOUSLY AND ILLEGALLY COLLECTED

PROTESTING AN ASSESSMENT: 1st Issuance of PAN (Recon or Reinvistigation)

 Taxpayer questions an assessment and ask to reconsider or cancel the same bcus he
believes he is not liable. He shall state the ff otherwise void :
o Nature of his protest whether reconsideration of reinvestigation
o Date of assessment notice (timeliness of filing of protest)
o Basis of his protest
 After CIR finds that proper taxes should be assessed, notify the taxpayer by issuing a Pre-
assessment notice. (Revenue officer must first secure LOA before examining or assessing
taxpayer as part of due process
 Issuance of PAN: there must be sufficient basis for assessment, stating facts, laws, rules,
regulations and jurisprudence which it is base
 Sending of PAN is part of due process requirement in the issuance of deficiency tax
assessment
 Taxpayer have 15 days from receipt of PAN to respond
o If he doesn’t respond: Formal letter of demand and Final Assessment Notice
(FLD/FAN) shall be issued
o If does respond: FLD/FAN will be issued within 15 days from filing/ submission of
taxpayers’ response
 If no PAN given: FAN subsequently issued is void
 Failure to protest PAN within 15 days: taxpayer is considered in default, in which case FAN/
FLD shall be issued calling for payment. However, this will not affect the taxpayer. It is the
FAN that must be protested, otherwise assessment will become final and demandable

PAN is not needed in the ff: and FAN can be issued right away
1. Deficiency results from mathematical error (mathematical error)
2. Discrepancy between tax withheld and the amnt actually remitted by withholding agent
(discrepancy in withholding tax)
 3. Excise tax due not paid
4. Taxpayer who opted to claim refund/ credit for excess cwt carried it over and automatically
applied the amnt claimed
5. Article locally purchased/ imported by an exempt person has been sold, traded, transferred
to non-exempt person

2nd FLD/FAN
 Issued only after PAN has been served, stating the facts, law, rules, regulations, and
jurisprudence on which the assessment is based, to be valid
 When legal and factual bases can be found on the series of correspondence between BIR
and Taxpayer and not in formal letter of demand, there is substantial compliance

 FLD without corresponding Assessment Notice/ LOA cannot be validly enforced on taxpayer-
shall be informed in writing of the law and the facts on which assessment is made
 Undated FAN is void. Date certain for the payment of tax liabilities is indispensable in
assessment as it dictates when penalties, interest and surcharges begin to accrue. Lack of
definite date negate BIR’s demand for payment

3rd Protest on FLD/FAN

 Taxpayer must file a letter of protest (reconsideration/ reinvestigation) within 30 days from
the date of receipt of FLD/PAN
 Effect of Failure to file protest: assessment become final, executory and demandable and
BIR shall issue a collection letter requiring taxpayer to pay tax
 Protest must state: Nature of protest, Date of FAN, Applicable rules, law, etc
 Reinvestigation: taxpayer shall submit all relevant supporting documents 60 days from date
of filing of letter of protest. 60 days period do not apply reconsideration
 BIR can only inform the taxpayer to submit additional documents, cannot demand what type
of supporting documents should be submitted

 No request for reconsideration or reinvestigation shall be grated on tax assessment that

have already become final, executory and demandable
 Presumptions in favor of the correctness of the assessment by the CIR
 Decision of CIR is appealable to CTA which shall state the facts, applicable laws, and
regulations or jurisprudence and same is a final decision- failure to comply with these
requirements, the 30 day period to appeal shall not begin to run yet

4th Recourse in case of inaction/ denial of protest

1. Protest is denied: 2 options for the taxpayer
 o Appeal to CTA division within 30 days from date of receipt of decision via Petition
for Review R42(Judicial Appeal); or
o Reconsideration with CIR within 30 days from receipt of decision (Admin Appeal)
 Recon is denied by CIR: appeal to CTA within 30 days from receipt of
decision
2. Protest is not acted upon by CIR within 180 days from filing of protest: taxpayer either

o Appeal to CTA within 30 days from expiration of 190 day period; or

o Wait for the final decision of CIR and appeal to CTA within 30 days after receipt
 Appeal or wait are mutually exclusive

 Acts equivalent to denial of protest

o Filing of crim action
o Civil collection
o Issuance of warrant of distraint and levy to enforce collection
o Referral by CIR of request for reinvestigation to SolGen

FDDA: Final decision on disputed assessment

 State facts, law, rules, regulation and jurisprudence which it is based, otherwise void
 If FDDA is void, as if there was no decision by the CIR

RECONSIDERATION
 Plea for re-evaluation of assessment on the basis of existing records without need of
additional evidence. Mere re-evaluation on the existing records.
 Does not suspend the running or prescriptive period
 Involves question of fact or law or both

REINVESTIGATION
 Plea for reevaluation on the basis of newly discovered evidence/ additional evidence
 Suspend the 60 days’ prescriptive period, submit all relevant documents within 60 days from
date of filing of protest, otherwise assessment become final and taxpayer is barred form
disputing the correctness of assessment
 Involves question of fact or law or both

REFUND OF TAX
Instances for refund maybe availed of
1. Tax collected erroneously or illegally
2. Penalty collected without authority
3. Sum collected is excessive
Tax Refund
 Actual reimbursement of tax.
 Liberty of disposal
 2 yr period to file claim with CIR starts after payment of tax or penalty

Tax Credit
 Tax certificate/ tax credit memo is issued to taxpayer and can be applied any sum due and
collectible from the taxpayer except withholding taxes
 Cannot be transferred or assigned
 Manner of disposal is restricted to the application against any taxes due
 2 yr period to file claim with CIR starts from the date such credit is allowed

 Tax refund or tax credit are alternative and choice of one precludes the other. Failure to
indicate a choice by the taxpayer will not bar a valid request for a refund shuld this option
be chosen later on

Req for Tax Credit/ refund

1. Written claim filed with CIR (return filed showing overpayment considered as written claim).
XPN (no need for written claim):
A. Return filed showing an overpayment
B. On the face of the return it appears clearly that tax paid erroneously
2. Demand for reimbursement
3. Filed within 2 yrs after actual payment of tax or penalty
4. Proof of payment of tax

Req for overpaid creditable withholding tax

1. Filed within 2 yrs from the payment of tax
2. Established the fact of withholding with copies of CWT Cert
3. Show income received was part of gross income

Venues for Refund:

1. BIR(Admin)
2. CTA(Judicial)

 Written claim for credit/ refund filed with CIR is mandatory, a condition precedent. If fails to
comply, any action on recovering tax will necessary fail. If judicial action is brought for
recovery, it will be dismissed
  2 yr period to claim refund for overpaid quarterly corporate income tax commence to run
only from the time refund is ascertained

 Govt is not liable to pay interest on taxes it refunds

 Withholding agent can file a refund. If withholding does get the refund, he has the obligation
to remit the same to principal taxpayer
 Taxpayer may also claim for refund it should be directed to BIR, not taxpayers withholding
agent
 Taxpayer does not have a cause of action for erroneously collected tax against the
withholding agent
 Payment under protest is not necessary in order to obtain refund to internal revenue taxes

Prescriptive period for Refund of:

 Overpaid Withholding Taxes: 2 yr period counted from the end of taxable year
 Creditable withholding taxes: 2 yr period counted from filing of taxpayer’s final adjustment
return
 Tax is paid in installment: 2 yr period counted from date of payment of last installment
 2 yr prescriptive period cannot be extended by BIR by a mere revenue memorandum
 GR: 2 yr prescriptive period is mandatory
 Xpn:
o Taxpayer and govt agree to wait for the outcome of the case
o Payment not due because of error or wrongful collection, but because of a patriotic
duty to help the cause of the nation
o Taxpayer made to believe that refund was going to be allowed by the govt
o In CTA, where 2 yr prescriptive period is not jurisdictional and may be suspended for
reasons of equity and other special circumstances

Claim of refund to CTA

 Both claim, refund and appeal to CTA must be done within 2 yr period
 If the period for refund is about to expire, and CIR has not acted upon the claim, taxpayer
may file and appeal with CTA, without waiting the CIR. The proceeding must be started in
CTA before the end of 2 yr period without waiting the decision of CIR
 Case sample: If you filed an ITR and realized that you overpaid your taxes. You have 5 days
before the prescriptive period lapses. Remedy is you exhaust all admin remedies by filing a
claim for refund with the BIR and file an appeal with CTA.

Claim for refund for tax erroneously and illegally collected taxes
 File both admin claim and judicial claim within 2 yrs from payment of tax. The admin claim
is mandatory and CTA will dismiss the case without it
Refund and Credit for Corporations: 3 options to a taxable corp whose total quarterly income tax
payments in given taxable year exceeds total income due
1. Tax refund
2. Tax credit
3. Carry over the excess credit
 If chose carry-over option, irrevocable for that taxable period and for the whole amount of
excess income tax, thus prohibiting taxpayer from applying for a refund. Keep carrying taxes
over until they are fully exhausted.
 Unutilized excess tax credits will remain in the taxpayer’s account and will be carried over
and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until
fully utilized.

 In PhilAm Management Case, PhilAM did not make the appropriate marking in the BIR
form, SC said that despite the failure to do so, filing of its written claim effectively
serves as an expression of its choice to request for tax refund, instead of tax credit.
 Failure to signify’s in one’s intent to carry-over/ refund the excess taxes is not a bar to
claim for a refund, as the marking on the final adjustment return is merely for
administrative purposes.

LOCAL TAXATION
Fundamental principles: re Taxing and revenue-raising power
1. Taxation shall be uniform in each LGU
2. Collection not be let to nay private person (NIRC taxes are allowed)
3. Evolve progressive system of taxation
4. Revenue collected inure solely to the benefit of LGU, unless otherwise specifically provided
in LGC
5. Taxes, fees, charges and other impositions shall be
a. Equitable and based on taxpayer’s liability to pay
b. For public purpose
c. Not be unjust, excessive, oppressive, or confiscatory
d. Not be contrary to law, public policy, national economic policy, or in restrai nt of
trade

Nature of Local taxation

1. Direct – not inherent but granted directly under Constitution
 2. Not unlimited – subject to limitations and guidelines by congress
3. Legislative in nature – exercised by Sanggunian
4. Territorial - taxing power cannot extend beyond territorial jurisdiction of LGU

 LGC widens tax base including taxes on mining operations, mineral, forest products, forest
concessionaires
 Indicates min and max rates and leaves determination of actual rates to Sanggunian

Power of LGUs (Provinces, Cities, Municipalities)

1. To create its own sources of revenue
2. To levy taxes, fees, and charges
 Accrue exclusively to LGUs. Hence a provision of law redirects amusement tax collection
from the city to the hands of movie producers, that provision of law is void and
unconstitutional.
 Sec129 LGC: Each LGU shall exercise its power to create its own sources of revenue and to
levy taxes, fees, and charges

Limitation of LGUs Power (Sec186)

1. Public hearing for ordinance prior to its enactment
2. Local taxes shall not unjust excessive, confiscatory or contrary to national policy
3. Those already subject to tax under NIRC or other applicable laws cannot be taxed again

 Exclusionary rule: province may not levy excise taxes on articles already taxed by NIRC
 Province may not ordinarily impose taxes on stones, sand, gravel etc from private lands
since those are already taxed by NIRC
 PBA is liable to pay amusement taxes to National govt and not LGU

Instances where LGU cannot impose taxes (Sec133)

1. Agricultural products or aquatic products when sold by marginal farmers or fishermen
 xpn: if entered into the market
2. Business enterprise certified by BOI as pioneer or non-pioneer
3. Documentary stamp tax
4. Custom duties
 xpn: wharfage on wharves constructed and maintained by LGU
5. Countryside and brgy business enterprise and cooperative duly registered under
Cooperative Code
6. Income tax.
  xpn: levied by banks and other financial institutions
7. Estate tax, inheritances, legacies other acquisitions mortis causa, except otherwise provided
8. Excise taxes
9. Petrol products other taxes, fees on petrol
10. Percentage tax or VAT. Xpn: otherwise provided
11. Ph products actually exported. Xpn: otherwise provided
12. Premiums pay by way of reinsurance or retrocession
13. Goods carried into or out, or passing thru territorial jurisdiction of LGUs
14. Gross receipts of transportation contractors and person engaged in transport of passengers
and common carrier
 xpn: otherwise provided by LGU
 Grantee of pipeline concession is a common carrier and exempt from business tax
imposed by LGU
 A local ordinance which impose local business tax on gross receipts on persons who
transport passengers or freight for hire and common carrier was held invalid
15. Registration of motor vehicles, license, permits (xpn: tricycles)
16. Taxes and fees of any kind on:
 Nat’l govt
 Agencies and instrumentalities
 LGUs

 City of Mnl enacted an ordinance levying a 2% tax on gross receipts of shipping lines (XYZ
Corp) using the Port of Mnl. The said ordinance is invalid. LGC prohibits the imposition of
local taxes on common carriers
 City of Makati assessed ABC Corp as a contractor on the sell of services. The act of City of
Makati is wrong. It cannot impose local business tax on income except when levied by banks
and other financial institutions

Business Taxes
 Imposed only by city and municipalities on the exercise of police power for regulatory
purpose for the privilege of carrying on a business in the yr tax paid. Paid at the beginning of
the year
 Payable for every separate or distinct establishment, paid by person conducting the same
 Manner of computing BT: computed based on the previous yr gross sales/ recipts (Paid in
2021- base on 2020 gross sales/ receipts)
 In case a person conduct/ operate two or more business subject to same tax rate, tax shall
be computed on the combines total gross sales or receipts
vs Income taxes
 Tax on yearly profits arising from property, profession, trade or business. Tax on income

Retirement of Business
 Submit a sworn statement of its gross sales or receipts for the current year, upon
termination
 It the tax paid during the year be less than the tax due on said gross sales or receipts of the
current year: difference shall be paid before the business is considered officially retired
 If tax paid is more than the tax due on said gross sales or receipts of the current year: use
the gross sales receipts of the previous year as the basis for the local business tax of the
current year

Taxing Power of Provinces; can impose business taxes on the ff business

1. Amusement Tax
 Resorts, swimming pools, bath houses, hot springs and tourist spots are not ‘other
places of amusement’ which province can tax
 Golf courses are not places of amusement
 Rate of not more than 30$% of the gross receipts from admission fees
2. Transfer of RP Ownership
 Tax on sale, donation, barter or any other mode of transferring property rate of not
more than 50% of 1% of total consideration or fmv whichever is higher
3. Business of Printing and publishing - rate not exceeding 50% of 1% of gross annual receipts
4. Franchise Tax
5. Fixed tax for every delivery truck or van of manufacturers or producers, wholesellers,
dealers, retailers of certain products
6. Sand, gravel and quarry resources on public lands independently from nat’l govt (apply
permit with provincial govt) – 10% of fmv in locality per cubic meter
7. Professional tax
 If you pay PT in Batanes, you can still practice your profession in Mnl, or anywhere
in Ph

Situs of the tax:

A. Operating a Branch/ Sales outlet – record the sale in the branch/ sale outlet and tax shall
accrue and paid to mun or city where such branch/ sale outlet is located. Absence, taxes
pertain to mun or city where principal place of business is located
a. Sales pertain to the Branch – 100%
b. Sales pertain to the Head Office – 100%
B. Sales allocation – 70/30
 a. Principal Office is located – 30%
b. Factory, project office, plantation is located – 70%
C. Plantation located at a place other than the place where the factory is located 70% shall
be divided:
a. 60% - mun or city where factory is located
b. 40% - mun or city where plantation is located
D. Two or more factories, project office, plantation located in different localities,
 70% shall be prorated among the localities in proportion to the volume or
production

Taxing power of Municipalities

 May levy taxes, fees, charges not levied by provinces
 Xpn: otherwise provided
 May charge fees for: sealing and licensing weights and measures, fishery rentals, fees and
charges in municipal waters
 May impose taxes on the ff business
o Exporters and on manufacturers
o Banks and other financial institution
o Contractors and other independent contractors
o Retailers
o Peddler engaged in sale of merchandise
o Manufacturers on any articles of commerce of any kind
o Wholesalers, distributors, dealers of articles of commerce
o Any business not otherwise specified

Taxing power of Cities

 Levy taxes, fees, and charges which the province or municipality may impose
 Rates may exceed maximum rates allowed for province/municipalities by not more than
50% except professional and amusement tax rates
 City may impose tax on the transfer of property.

Taxing power of Barangays

 Taxes, fees, charges shall exclusively accrue to them
1. Brgy Clearance
2. Taxes: on stores/ retailers with fixed business establishments with gross sales or
receipts 50k or less
 3. Service fees or charges: in connection with regulation or use of brgy-owned properties
or service facilities like palay, copra, tabacco
4. Service fees for:
a. Billboards, signboards, neon signs, outdoor ad
b. Commercial breeding of fight cocks, cockfights and cockpits
c. Places of recreation which charges admission fees

COMMON REVENUE RAISING POWERS OF LGUs

1. Fees and charges for services rendered
2. Public utility charges: for operation of public utility within their area (ferr, telco system)
3. Toll fees: for use of public road, pier, wharf, waterway, bridges, ferry, telcom, system funded
and constructed by LGU concerned
 XPN: NO toll fees or charges shall be collected from:
o PWD
o Post office personnel delivering mail
o Senior citizens
o Officers and enlisted men of AFP and members of PNP on missions

COMMUNITY TAX
 Imposed by City or Municipality
 Place of Payment: Residence of individual or principal office of corp
 Time of Payment: Before Feb 1 each year
 Liable to pay:
1. Individual; and
a. 18 y/o and above
b. Required to file ITR
c. Regularly employed for at least 30 consecutive working days during calendar years
d. Engaged in business or occupation
e. Owns RP worth 1K assessed value
2. Corporation; xpn:
a. Diplomats and
b. Consular representatives
c. Transient visitors stay not more than 3 months
d. Person who come to reside in Ph on or after July 1
e. Person who become 18 on or after July 1
f. Corp established and organized on or after July 1
 A-B are absolute
 C-F are exempt for the rest of the current taxable year
COLLECTION of Local Taxes
 Tax period: calendar year unless otherwise provided in LGC
 Payment: quarterly installments
 Accrual: Jan 1 of each yr
 Time of payment: Jan 20 but Sanggunian concerned may for justifiable reason or cause
extend the time for payment without surcharges or penalties only for a period not exceeding
6 months
 Surcharges: not exceeding 25% of the amount of tax if not paid on time (not be applied in
yearly accrual basis)
 Interest: not exceeding 2% per month on amount including surcharges (but no total interest
on the unpaid amount or portion exceeds 36 months)

REMEDIES FOR COLLECTION OF LOCAL TAXES

 Civil remedies
o Admin Action (distraint and levy)
o Judicial Action: maybe pursued concurrently or simultaneously at the discretion of
LGU concerned
 LGC authorizes the LGU to purchase the auctioned property only in instances where there is
no bidder or the highest bid is insufficient

PRESCRIPTIVE PERIODS for:

1. Assessment of local taxes
 Within 5 yrs from the date they become due
 Within 10 yrs in case of fraud/ intent to evade the payment of taxes, from discovery
2. Collection
 Within 5 yrs from date of assessment by admin or judicial action

Suspension of Prescriptive Period; Grounds

1. Treasurer legally prevented from making the assessment or collection of taxes
2. Taxpayer is out of the country/ cannot be located
3. Taxpayer request for reinvestigation and executes a waiver in writing before the expiration
of the period

Residual Taxing power of LGU

 LGU ma exercise the power to levy taxes, fees, charges on any base or subject not
otherwise specifically enumerated in LGC or NIRC; provided it shall not be unjust, excessive,
 oppressive, confiscatory, or contrary to declared national policy and ordinance shall not be
enacted without prior public hearing

Question on Constitutionality of Ordinance

 Raised on appeal to Sec of Justice within 30 days from effectivity (no need for written
protest)
 Sec of Justice shall render decision within 60 days from date of receipt of the appeal
 Inaction of Sec of Justice (within 30 days from the lapse of 60 days): aggrieved party may file
appropriate proceeding with a court of competent jurisdiction
 Sec of Justice can only review the constitutionality or legality of tax ordinance and if
warranted, revoke it on either both of these grounds. He cannot replace it with his own
version of what the Code or ordinance should be. He has no right to determine or declare
that the ordinance is un just, excessive, oppressive or confiscatory
 Appeal to DOJ is mandatory (Sec of justice), if no appeal, RTC will dismiss the case
o Xpn: Pure question of law (appeal to DOJ is not mandatory)
 The appeal however, shall not suspend the effectivity of the ordinance and accrual of
payment of tax
 Taxpayer may file a complaint assailing the validity of the ordinance and praying for a
refund without first filing a protest to the payment of taxes due under the ordinance.

Enforcement of Void/ Suspended Tax Ordinances and Revenue Measures (after due notice of
disapproval or suspension)
 Sufficient ground for admin disciplinary action against local officials and employees
responsible

AUTHORITY TO GRANT TAX EXEMPTION

 LGU thru ordinance duly approved, grant tax exemption
 Sanggunian have the power to grant tax exemptions, tax incentives, and tax reliefs
 For real property tax: LGU cannot add on the exemptions stated in LGC
 Tax exemptions:
o Conferred via tax exemption certificate
o Thru ordinance
o Grounds:
 Adverse economic conditions
 Civil disturbances
 Natural calamities
 General failure of the crops
 Tax Incentives:
 o Only to new investments in the locality
o Ordinance prescribed the terms and conditions
o Ordinance passed prior to Jan 1 of any yr
o For definite period not exceeding 1 calendar yr
o Apply to all business similarly situated

WITHDRAWAL OF TAX EXEMPTIONS

 Those presently enjoyed by all persons (natural or juridical, including GOCCs) were
withdrawn upon enactment of LGC
 XPN:
o Unless provided in the LGC
o Local water districts
o Cooperative duly registered
o Non-stock and non-profit hospitals and educational institutions

 Tax Rates in LGC are the maximum rates that the sanggunian can impose by ordinance. Sec
143 of LGC, gave Sanggunian the authority to tax whatever it pleases, a long as it does not
go against the limitations set in LGC
 Local Business tax based on: gross receipts
 Condo corp are generally exempt from local business taxation under LGC, irrespective of any
local ordinance that seeks to declare otherwise. They are not businesses under LGC
 When municipality or city has already imposed a business tax pursuant to Sec143(A-G) LGC,
it may no longer subject the same taxpayer to a business tax under Sec143(H) of LGC.
Double taxation.
 Rate of tax within the Metro Mnl Area: Mun of Mnl tax shall not exceed 50% the maximum
rate prescribed
 Local busines taxes: paid for the privilege of carrying a business during the year it is paid and
not previous year
 Authority of LGU to adjust rates of tax ordinances once every 5 years but in no case,
adjustment exceed 10% of the rate fixed by LGC
 Prior to the enactment of ordinance: public hearing and publication in full 3 consecutive
days within 10 days of enactment

TAX REMEDIES OF THE TAXPAYER

1. Protest the Assessment
2. Question the ordinance
3. Claim for refund or tax credit
Protesting the Assessment; Procedure
1. Treasurer issues assessment
2. Taxpayer file a written protest with local treasurer within 60 days from receipt of notice of
assessment, otherwise become final
3. Treasure decides within 60 days from filing.
a. If meritorious: cancel the assessment
b. If not: deny the protest
4. Taxpayer have 30 days from receipt of the denial of protest or 30 days from inaction/ lapse
of 60 days’ period to appeal to RTC; otherwise assessment become final
5. Go to CTA within 30 days via
a. R42: Petition for review to CTA Division: if from RTC acting original; or
b. R43: Petition for review to CTA en banc: if from RTC acting in its appellate
jurisdiction
 Written protest is mandatory
 No appeal to DOJ is necessary
 No requirement of payment under protest in protesting of local business tax (if real property
tax- required)
 Injunction can be issued in collection of local taxes

Claim for tax refund/ credit; Req

1. Written claim filed with local treasurer
2. Filed within 2 yrs from
a. Date of payment, or
b. Date when taxpayer is entitled to rend/ credit

 In local taxation, supervening causes are allowed as reckoning points for prescriptive period
purposes. In nation taxes, not allowed
 If a taxpayer wins a case against LGU regarding Local taxes already paid, the taxpayer should
not move for the issuance of writ of execution to get his money back. Taxpayer should
request from the LGU the implementation of the tax refund/ credit

REAL PROPERTY TAX

Fundamental Principles
 RP appraised at its current fmv
 RP classified for assessment purposes on the basis of its actual use
 Assessed on the basis: uniform classification within each LGU
 Appraisal, assessment, levy and collection of RPT shall not be let to any private person
 Who can impose RPT: Provinces, Cities and Mun within Metro Mnl
Kinds of RPT
1. Basic RPT
2. Special Levy on Education Fund
3. Special Levy on Idle Lands – annual tax rate not exceeding 5% of the assessed value of rp in
addition to RPT
4. Special Levy on public works

Real Property and Machinery; Rules

 Machinery:
o ADE used to meet the needs of the particular industry, business or activity of an
enterprise are liable for RPT
o As long as permanently attached to land, buildings is subject to RPT eventho ADE
use for charitable, religious, or educational purpose
o If machinery is only used in general purpose/ not ADE used: not subject to RPT
o If not permanently attached to land, buildings:
 If essential to the principal element of the industry: RPT
 If not essential: not subject to RPT
o Exempt from RPT: Machinery of non-stock, non-profit educational institutions used
ADE for educational purpose

 Between Civil Code and LGC, LGC prevails since it’s a special law granting LGUs the power to
impose RPT
 In determining whether the machinery is Real property subject to tax, the definition and
requirements under LGC are controlling over Civil Code
 Transformers, electric posts, transmission lines, insulators, and electric meters, storage
tanks of MERALCO may qualify as machineries under LGC subject to RPT
 Machineries which are not immobilized by destination and only incidental to the business
are not subject to RPT
 Gasoline station equipment and machineries are permanent fixture for purposes of real
taxation, even if these are on leases land. They are necessary for the operation of the gas
station
 SEF and tax on idle lands maybe impose din addition to RPT

IMPOSITION OF RPT and SPECIAL LEVIES

A. Power to Levy RPT
 Province: can impose RPT not exceeding 1% of the assessed value of the property
 City; and: RPT not exceeding 2% of the assessed value
  Municipality within Metro Mnl: RPT not exceeding 2% of the assessed value
 Mun outside Metro Mnl cannot levy RPT. They can however impose special taxes
 On top of RPT, province, city and mun within metro Mnl, may levy an annual tax of 1% of the
assessed value of Special Education Fund (SEF)
 LGU cam impose SEF at rate less than 1%

Tax on Idle lands

 Tax rate not exceeding 5%, in addition to basic RPT
 If agricultural: more than 1 hectare in area and suitable for whatever and ½ is uncultivated/
unimproved
 If other than agricultural: more than 1,000 sqm and ½ is uncultivated and unimproved
 Proceeds shall accrue to the general fund of province/ city where land is located

Exemption of Idle Lands from Tax if:

1. Civil disturbance
2. Force Majeure
3. Natural disaster
4. Any cause/ circumstance which physically or legally prevents the owner of the property or
person having legal interest therein from improving, utilizing or cultivating the same

Special Levy by LGUs

 Province, city or mun may impose special levy on lands within their territorial jurisdiction
benefitted by public works projects or improvements of rate not exceeding 60% of the total
cost of the gov’t improvements (actual cost of such projects or improvements including the
cost of acquiring the land)
 No special levy to
o lands exempt from basic RPT
o lands donated to LGUs for projects
 Accrual: 1st day of the quarter next following the effectivity of the ordinance
 There must be an ordinance imposing special levy
 Special levy shall be apportioned, computed and assessed according to the assessed value of
the lands affected

B. Properties exemption from RPT

1. Real property owned by govt or any of its political subdivisions (BSP. LLDA. RRI, Fisheries
Devt, GSIS, PEZA, reclaimed lands are public domain)
 Xpn: beneficial use been granted for consideration or otherwise to a taxable person-
liable for RPT
  GOCCs are liable for RPT
2. Charitable institutions, churches, parsonages or convents, appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings and improvements, ADE used for
religious, charitable or educational purpose
 Machineries that are permanently attached to the building is subject to RPT, eventho
ADE used for religious, charitable or educational purpose.
 But improvements are exempt
 Machinery of non-stock, non-profit educational institution ADE used for educational
purpose is exempt (if portions are leased for activities not for charitable, religious or
educational purpose, subject to RPT
3. All machineries and equipment that are ADE by local water districts and GOCC engaged in
supply and distribution of water and or generation and transmission of electric power
 Only machineries and equipment are exempt from RPT (not lands, buildings – subject to
RPT)
 If GOCC which supplies electric power, enters into an agreement with a taxable entity
for the lease for the former’s equipment, the exemption will not extend to that taxable
entity. Privilege granted cannot be extended to the lessee
4. All RP owned by duly registered cooperatives
 Exemption applies even if the land owned by cooperatives are leased to a taxable entity
5. Machinery and equipment used for pollution control and environmental protection
 Exemptions includes infrastructure and improvements
 Exemptions are based on ownership, character and use of property

Proof of Exemption of RPT

 Sufficient documentary evidenced filed within 30 days from date of declaration of property
to provincial, city or mun assessor
 If a Tibetan monks leased a 2-story building owned by a real estate broker, to use as a venue
for their Buddhist rituals and ceremonies and City assessor’s assessment for RPT is wrong.
RPT is assessed based on actual use. The religious use is exempt from RPT
 When a govt instrumentality not organized for non-stock and non-profit corporation
reclaimed several portions of the offshore and foreshore area of Mnl Bay, not subject to RPT
. Reclaimed properties are not subject to RPT since they are part of public domain
 PNR which provides rail transport by providing train stations is not subject to RPT
 Unpaid real estate taxes: attached to the property and chargeable against the taxable
person who had actual or beneficial use and possession of it regardless whether he is the
owner or not. Hence, an estate should not pay for real estate taxes for periods when it did
not have beneficial use for the property. It would be contrary to law an be unjust.
APPRAISAL AND ASSESSMENT of RP
 All RP whether taxable/ exempt shall be appraised at current fmv prevailing at locality
 LGUs may collect real estates properties falling within their jurisdiction. Hence, a boundary
dispute between 2 LGUs is a prejudicial question that must be resolved before determining
the RPT liability of property
 Basis of assessment of RPT: actual use of property, regardless where located, whoever owns
and use it

APPRAISAL OF MACHINERY
 FMV of brand-new machinery, basis: acquisition cost.
 Machinery is imported, basis: acquisition cost, include all charges necessary to bring the
thing into Ph

CLASSES of RP
1. Agricultural
2. Commercial
3. Industrial
4. Residential
5. Mineral
6. Timberland
7. Special: which are lands, buildings and other improvements ADE used for hospitals, cultural
or scientific purposes and those owned and uses by local water districts and GOCCs
rendering essential public services in supply and distribution of water and electricity
 Hospi which are previously classifieds as special cannot be reclassified to commercial, simply
because it charges rental for the use of its offices by its accredited physicians
 A facility incidental and reasonably necessary for operations of hospi shall be classified as
special/
 A special classification prescribes lower assessment than a commercial classification
 Case sample: Within the premises of the hospital, the association constructed the St
Micheals Medical Arts Center which will house medical practitioners who will lease the
spaces for the clinics. The City Assessor classifies the Center as commercial instead of
special, on the ground that the hospital owner gets income from the lease. The city assessor
is wrong. The court held that income generation facility which is incidental and reasonably
necessary for the operations of hospitals, such as offices held for lease to doctors, does not
justify the change in the class of real property from special to commercial

Declaration of RP
  By owner/ administrator of rp to preapare and file a sworn statement declaring the true
value of their property (current fmv) , whether previously declared or underdeclared,
taxable or exempt.
 Filed once every 3 yrs from Jan 1-June 30 to assessor

Person acquiring RP or making improvements thereon

 Duty to file with assessor sworn declaration of the true value of the property, within 60 days
after the acquisition of property or completion or occupancy of improvement

Notification of transfer of RP ownership

 By the transferor within 60 days from date of transfer to assessor concerned

COLLECTION OF RPT
 Date of accrual of tax: Jan 1 and from that date shall constitute a lien on the property, lien
superior to any other lien, mortgage or encumbrance. Extinguished upon payment
 Collection: by treasurer concerned. May deputized brgy treasurer who is properly bonded
 Assessment Roll: furnish by assessor to local treasurer, on or before Dec 31 each yr.
Containing list of all persons whose RP have been newly assessed or reassessed
 Notice of time for collection: on or before Jan 31 each yr
 Payment in installments: 4 equal installments without interest
 Advance payment of Tax: tax discounts granted by sanggunian concerned not exceeding
20% of annual tax due
 Notice of Delinquency: notice issued by treasurer for nonpayment of RPT, shall be published,
specify the date which tax became delinquent and state that personal property may be
distrained to effect payment
 Interest on unpaid RPT: 2% per month on the unpaid amnt till fully paid
 Prescriptive period to collect: 5-10 (discovery of fraud) years from date they become due

Suspension of period to collect RPT

1. Owner cannot be located or is out of the country
2. Owner or person having legal interest request for reinvestigation and executes a waiver in
writing
3. Treasurer is legally prevented from collecting the tax

Condonation of RPT and interest in cases of:

1. Calamity
2. General failure of the crops
3. Substantial decrease in the price of agri products
 4. Condonation by the President when public interest so requires

LGU REMEDIES FOR COLLECTION OF RPT

 Admin (levy on real property
 Judicial

 Only registered owner of the property is deemed taxpayer who is entitled to a notice of
delinquency and other proceedings relative to the tax sale
 Owner of the delinquent RP or person having legal interest or his representative, has the
right to redeem the property within 1 yr from the date of sale upon payment of delinquent
tax and other fees. However, when local ordinance states that the redemption period starts
from date of annotation of sale of property at the proper registry, local ordinance should be
followed because it is more favorable to the owner/ redemptioner.
 Final deed of purchase: issued if owner fails to redeem the delinquent property

TAXPAYER’S REMEDIES
1. Protest against the ordinance
2. Remedy against the assessment
3. Payment under protest
4. Claim a refund

Remedy against Assessment; Contesting the valuation of RP

 Resort when you question the act of the assessor. Taxpayer having legal interest in the
property is not satisfied with the action of the assessor in the assessment
 Appeal to Local Board Assessment Appeals within 60 days from date of receipt of written
notice of assessment
 LBBAA has 120 days from the receipt of the appeal to decide
o If unsatisfied: appeal to CBAA within 30 days after receipt of the decision of LBAA
o If still unsatisfied (from CBAA): appeal to CTA en banc within 30 days (en banc bcus
the decision of CBAA and RTC in the exercise of appellate jurisdiction are appealable
to CTA via R43)
 LBAA in its exercise of appellate jurisdiction shall have the power: summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoenas
 If taxpayer failed to question the assessment before LBAA: assessment becomes final,
executory and demandable.
 Taxpayer protesting must have legal interest
 Appeals on assessment shall not suspend the collection of RPT
Payment under Protest
 Resorted when taxpayer question the excessiveness of the amount of tax imposed on him
(question of fact)
 When taxpayer questions the legality. Validity of an assessment- a question of law- direct
resort to the local courts is allowed
 No protest shall be entertained unless the taxpayer 1st pay tax. Annotated as ‘paid under
protest’
 Posting a surety bond before filing an appeal of the assessment with LBAA is substantial
compliance of the requirement of payment under protest
 Procedure
1. Pay 1st “paid under protest”
2. Protest in writing within 30 days from payment with local treasurer
3. Treasurer has 60 days resolve it
4. In case of denial/ inaction
 Appeal to LBAA within 60 days
 Appeal to CBAA within 30 days
 Appeal to CTA en Banc within 30 days
 In local business tax, payment under protest is not needed

Refund
 File a written claim for refund or credit with treasurer within 2 years
 Treasurer shall decide the claim within 60 days from receipt
 If treasurer denies the claim:
o appeal to LBBA within 60 days (has 120 days to decide)
o appeal to CBAA CBAA within 30 days after receipt of the decision of LBAA
o appeal to CTA en banc CBAA within 30 days after receipt of the decision of CBAA

Allotment of Internal Revenue Taxes

 LGU shall have a share in national internal revenue taxes based on the collection of 3 rd fiscal
yr preceding the current fiscal year
 Automatic release of shares of LGUs without need of any further action, shall not be subject
to any lien or holdback
 Each LGU shall appropriate in its annual budget no less than 20% of its annual internal
revenue allotment for development projects

 LGU shall have an equitable share in the proceeds derived from utilization and development
of national wealth within their jurisdiction
  Amnt of share of LGUs: share of 40% of gross collection derived by national govt from
mining, taxes, royalties, forestry, and fishery charges, and other taxes, fees, charges,
surcharges, interest, or fines in any co-production, joint venture or production, sharing
agreement in the utilization and development of national wealth within their jurisdiction (in
addition to internal revenue allotment)

Compromising RPT Assessment

JUDICIAL REMEDIES
JURISDICTION of CTA
A. ORIGINAL Jurisdiction of CTA Div
a. Criminal Offenses – Principal tax or fee (exclusive of penalties and charges) is more
than 1M
b. Tax Collection Cases – Involving final and executory assessments if principal amnt is
1M
B. APPELLATE Jurisdiction of CTA Div
1. Appeals from judgment of RTC in their original or appellate jurisdiction if principal tax is less
than 1M or no specified amnt (exclusive of penalties)
2. Judgments of RTC in tax collection originally decided/ appellate if principal amnt is less than
1M (exclusive of penalties)
3. Decisions, orders or resolution of RTC on local taxes originally decided/ resolved
4. Decision of CIR
5. Inaction of CIR
6. Decision of COC under Custom Law
7. Decision of CBAA
8. Decision of Sec of Finance on custom case
9. Decision of Sec of Trade and Industry

C. APPELLATE Jurisdiction of CTA En Banc

1. Decisions or resolutions on MR/ NT of CTA div in exercise of exclusive appellate jurisdiction
2. Decision or resolutions on MR/NT of CTA Div in exercise of exclusive original jurisdiction
3. Decision or resolution on MR/NT of RTC in exercise of exclusive appellate jurisdiction
4. Decision or resolution of CBAA in the exercise its of appellate jurisdiction

Jurisdiction of CTA over criminal cases

A. Exclusive original jurisdiction:
  All criminal offenses arising from violation of NIRC/ Tariff and custom code and other laws
when principal amnt of tax claimed is 1M or more
B. Exclusive appellate jurisdiction
 If less than 1M or no specified amnt claimed: CTA exercises exclusive appellate jurisdiction
 Appeals from RTC originally decided
 Petitions for review from RTC

Jurisdiction over tax collection cases

A. Exclusive original jurisdiction:
 Involving final and executory assessments (exclusive of charges and penalties) where amnt
claimed is 1M or more
B. Exclusive appellate jurisdiction
 Amnt claimed is less than 1M or no specifies amnt
 Appeals from RTC in tax cases originally decided
 Petitions for review from RTC in the exercise of appellate jurisdiction

 Jurisdiction of CTA is to review by appeal decisions of CIR on disputed assessments. When

taxpayer does not protest an assessment (FLD/FAN), and appeals the assessment to CTA,
appeal is premature
 However, if taxpayer protested the PAN but not FLDA/FAN which categorically states that it
was CIR’s final decision and that appeal must be made to CTA, the CIR is estopped from
raising the argument that the appeal is premature
 A final demand letter for payment of delinquent taxes may be considered a decision on a
disputed/ protested assessment, and taxpayer can file an appeal with CTA
 BIR should always indicate to the taxpayer in clear and unequivocal language what
constitutes final action on a disputed assessment- to avoid repeated request for
reconsideration and delaying finality of assessment
 Power to make assessment may be delegated to subordinate officers, the act of issuance of
the demand letter by a subordinate officer is appealable to CTA
 RRs, RMOs and RMCs are rulings or opinions of CIR which are under exclusive jurisdiction of
CTA, not RTC. Questioning the constitutionality of an RR and RMC is within the jurisdiction of
CTA
 CTA may take cognizance of case directly challenging the constitutionality or validity of a tax
law, regulation or administrative issuance
 CTA has jurisdiction over CIR issuances reviewed by Sec of Finance (BIR Rulings)
 Issue whether the right of CIR to collect has prescribed is covered by the term of ‘other
matters’ under the jurisdiction of CTA
  CTA has jurisdiction to determine if the warrant of distraint and levy issued by BIR is valid
and to rule if waiver od statute of limitations was validly affected
 Action to collect the bond used to secure the payment of taxes is not a tax collection case
but a simple case for enforcement of contractual liability, nit under the jurisdiction of CTA
 Filing a motion for recon of decision of CIR denying the protest does not toll or suspend the
period to appeal to CTA. 30 day period to appeal to CTA is reckoned from the date the
taxpayer is notified of denial of the CIR
 Period to appeal to CTA can be extended. R42 of ROC allows extension of time to appeal
 CTA can issue writs of certiorari over interlocutory orders of RTC in the exercise of appellate
jurisdiction over RTC in local tax case
 If BIR wrongly appeals to CA, the CA cannot refer the records of the case to CTA for proper
disposition
 In local atx collection cases, the amnt of the claim determines where the case should be filed
 CA does not have the power to review compromise agreements forged by CIR and taxpayer.
It is of CTA jurisdiction

Who may appeal

 Any part adversely affected, file an appeal with CTA within 30 days after the receipt of
decision
 Appeal by petition for review under R42
 May file MR or NT with same division of CTA within 15 days

Procedure of Appeal in CIVIL CASE

Who may appeal
 Any party adversely affected by the decision, ruling etc of CIR on disputed assessment or
claims for refund or decision of Sec of finance, customs etc
 Appeal to CTA by petition for review within 30 days after receipt of the copy of the decision
 In case of inaction of CIR on claims for refund of internal revenues erroneously or illegally
collected, taxpayer must file petition for review within 2 yr period from payment of taxes
 Party may file MR or NT within 15 days to CTA division

Where to Appeal; Mode of Appeal

 CTA division by filing a petition for review under r42: for decision/ ruling or inaction of CIR
on disputed assessment or claim for refund
 Petition for review in r43: for appeal from decision/ resolution of CTA division on MR or NT
shall be taken to the Court by
 Petition for review under R43: for appeal from decision/ ruling of CBAA or RTC in the
exercise of their appellate jurisdiction
Procedure in CRIMINAL CASE
 Review of criminal case: in the Court en banc or Division

Institution of Criminal Action

 CTA division in the exercise of original jurisdiction
 Instituted by filing information which shall interrupt the running period of prescription
 In crim action involving violation of NIRC: CIR must approve their filing
 In crim action involving violation of Tariff and custom code: BOC must approve their filing
 Inclusion of civil action with crim action: the crim action and the corresponding recovery of
civil liability for taxes and penalties shall be deemed jointly instituted with crim case. No
right to reserve the filing of civil action separately
 Period to appeal:
o Appeal from RTC in its original jurisdiction: File notice of appeal within 15 days from
receipt of decision to CTA division
o Appeal to CTA en Banc: file a petition for review under R43 within 15 days from
receipt of decision. Court may, for good cause extend the period not exceeding 15
days
o Appeal from RTC decided in its appellate jurisdiction: file petition for review under
R43 within 15 days

 GR: appeal to CTA Division by petition for review under R42

o XPN: IN case of decision of CBAA or RTC in exercise of its appellate jurisdiction-
appeal to CTA en banc by petition for review under R43
 If decision of CTA Division is adverse: File an MR/NT with same division within 15 days from
receipt of decision (condition precedent before bringing the case to CTA en banc
 If resolution/ decision of Division on MR is still adverse: file a petition for review with CTA en
Banc under R43 within 15 days from receipt of decision (same rule for crim case)
o In crim case: denial of motion to quash is an interlocutory order which is not the
proper subject of an appeal/ petition for review to CTA en banc. The proper remedy
is R65 with SC under R45 within 15 days from receipt of decision
 If decision of CTA En Banc is still adverse: file a petition for review on certiorari with SC
under R45 within 15 days from receipt of decision