Spectra Notes Tax Law 2 Compilation PDF

Taxation Law 2
Compilation
Based on the outlined discussion of Atty. Bernardino Amago.
Updated as of: AY: 2014 - 2015
Societas Spectra Legis

Taxation Law 2 Compilation
TABLE OF CONTENTS
ESTATE TAXATION ......................................................................................................................................................... 9
ESTATE TAX ................................................................................................................................................................................................................................. 9
RATE OF ESTATE TAX .................................................................................................................................................................................................................. 9
PURPOSES OF ESTATE TAX ......................................................................................................................................................................................................... 9
THEORIES WHICH SUPPORTS THE ESTATE TAX ........................................................................................................................................................................ 9
CLASSIFICATIONS OF A TAXPAYER FOR PURPOSES OF ESTATE TAX ....................................................................................................................................... 9
WHEN DO YOU DETERMINE THAT AN INDIVIDUAL IS A RESIDENT CITIZEN .......................................................................................................................... 9
HOW DO YOU BECOME A NON-RESIDENT CITIZEN ............................................................................................................................................................... 10
RECIPROCITY RULE AS TO INTANGIBLE PERSONAL PROPERTY OF NON-RESIDENT ALIEN .................................................................................................. 10
INTANGIBLE PERSONAL PROPERTIES THAT HAVE SITUS IN THE PHILIPPINES: .................................................................................................................... 10
PROPERTIES COVERED BY GROSS ESTATE, IN GENERAL ........................................................................................................................................................ 11
COMPOSITION OF THE GROSS ESTATE ................................................................................................................................................................................... 11
1. DECEDENTS INTEREST ......................................................................................................................................................................................................................................11
2. TRANSFERS IN CONTEMPLATION OF DEATH ...................................................................................................................................................................................................11
3. REVOCABLE TRANSFER .....................................................................................................................................................................................................................................12
4. PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT ...............................................................................................................................................................13
5. PROCEEDS OF LIFE INSURANCE ........................................................................................................................................................................................................................13
6. PRIOR INTERESTS ...............................................................................................................................................................................................................................................13
7. TRANSFERS FOR INSUFFICIENT CONSIDERATION ...........................................................................................................................................................................................14
8. CAPITAL OF THE SURVIVING SPOUSE ..............................................................................................................................................................................................................14
9. REPUBLIC ACT NO. 4917 ...................................................................................................................................................................................................................................14
ACQUISITIONS AND TRANSMISSIONS NOT SUBJECT TO ESTATE TAX .................................................................................................................................. 15

1. MERGER OR USUFRUCT IN THE OWNER OF THE NAKED TITLE .....................................................................................................................................................................15
2. TRANSMISSION BY THE FIDUCIARY HEIR OR LEGATEES TO THE FIDEICOMISSARY ......................................................................................................................................15
3. TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY ........................................................................................................16
4. BEQUESTS, DEVISES, LEGACIES OR TRANSFERS TO SOCIAL WELFARE, CULTURAL AND CHARITABLE INSTITUTIONS ...............................................................................16
5. OTHERS ..............................................................................................................................................................................................................................................................16
FORMULA ESTATE TAX ............................................................................................................................................................................................................. 17

DEDUCTIONS ALLOWED TO A CITIZEN OR A RESIDENT ......................................................................................................................................................... 17
1. EXPENSES, LOSSES, INDEBTEDNESS AND TAXES (ELIT)...................................................................................................................................................................................17
2. PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTIONS) ..........................................................................................................................................................................22
3. TRANSFERS FOR PUBLIC USE ............................................................................................................................................................................................................................24
4. THE FAMILY HOME ............................................................................................................................................................................................................................................24
5) STANDARD DEDUCTION ...................................................................................................................................................................................................................................25
6. MEDICAL EXPENSES...........................................................................................................................................................................................................................................25
FILING OF THE ESTATE TAX RETURN ....................................................................................................................................................................................... 26

PAYMENT OF THE ESTATE TAX DUE ........................................................................................................................................................................................ 26
PENALTIES FOR NON-COMPLIANCE ........................................................................................................................................................................................ 27
NOTICE OF DEATH .................................................................................................................................................................................................................... 27
WHERE DO YOU FILE & PAY YOUR ESTATE TAX RETURN: ..................................................................................................................................................... 28
TAX CREDITS OF TAXES PAID ABROAD:................................................................................................................................................................................... 28
TWO TYPES OF LIMITATIONS:...............................................................................................................................................................................................................................29
DONORS TAX ............................................................................................................................................................... 32

TWO-FOLD PURPOSE OF DONORS TAX .................................................................................................................................................................................. 32
LAW TO BE IMPOSED ON ESTATE TAX .................................................................................................................................................................................... 32
University of San Carlos School of Law and Governance | Based on the outlined discussion of BA Page 2
FORMULA OF DONORS TAX .................................................................................................................................................................................................... 32

GROSS GIFTS ............................................................................................................................................................................................................................. 32
WHEN DO YOU APPLY DONORS TAX...................................................................................................................................................................................... 33
INCOMPLETE DONATIONS, WHICH BECOME COMPLETE DONATIONS DUE TO AN EVENT ................................................................................................ 33
TYPES OF DONORS FOR TAXATION: ........................................................................................................................................................................................ 33
A. INDIVIDUAL PERSONS: ......................................................................................................................................................................................................................................33
B. JURIDICAL PERSONS: .........................................................................................................................................................................................................................................33
ELEMENTS FOR THERE TO BE A TAXABLE DONATION: (AFRAID-C) ...................................................................................................................................... 34

DONATIVE INTENT .................................................................................................................................................................................................................... 34
CAPACITY OF THE DONOR ....................................................................................................................................................................................................... 35
ACTUAL OR CONSTRUCTIVE DELIVERY.................................................................................................................................................................................... 36
ACCEPTANCE OF THE DONEE DURING THE LIFETIME OF THE DONOR................................................................................................................................. 36
VALUE ADDED TAX ...................................................................................................................................................... 37

DEFINITION OF VAT: ................................................................................................................................................................................................................. 37
RULE OF REGULARITY ............................................................................................................................................................................................................... 37
WHY IS IT CALLED VALUE ADDED TAX: ................................................................................................................................................................................... 37
STEPS IN VAT PROBLEMS/CASES: ............................................................................................................................................................................................ 38
WHO ARE VAT TAXABLE:.......................................................................................................................................................................................................... 38
VAT IN TERMS OF TRANSCATIONS: ......................................................................................................................................................................................... 38
SALE OF GOODS OR PROPERTIES ............................................................................................................................................................................................ 39
TAX RATE & TAX BASE ...........................................................................................................................................................................................................................................39
GROSS SELLING PRICE ...........................................................................................................................................................................................................................................39
GOODS OR PROPERTIES ........................................................................................................................................................................................................................................39
ZERO RATED TRANSACTIONS OF SALE OF GOODS: ................................................................................................................................................................ 40

I. EXPORT SALES: (SEC. 106) .................................................................................................................................................................................................................................40
II. FOREIGN CURRENCY DENOMINATED SALES (FCDS) .......................................................................................................................................................................................43
III. SALES TO PERSONS OR ENTITIES WHOSE EXEMPTION UNDER SPECIAL LAWS OR INTERNATIONAL AGREEMENTS TO WHICH THE PHILIPPINES IS A SIGNATORY
EFFECTIVELY SUBJECTS SUCH SALES TO ZERO RATE. ..........................................................................................................................................................................................46
TRANSACTIONS DEEMED SALE ................................................................................................................................................................................................ 46

CHANGES IN OR CESSATION OF STATUS OF A VAT-REGISTERED PERSON. .......................................................................................................................... 48
SALE OF REAL PROPERTIES SUBJECT TO VAT.......................................................................................................................................................................... 48
SALE OF REAL PROPERTIES WHICH ARE EXEMPTED FROM VAT ........................................................................................................................................... 48
EXEMPT TRANSACTIONS INVOLVING SALE OF REAL PROPERTIES ........................................................................................................................................ 49
VALUE-ADDED TAX ON IMPORTATION OF GOODS (SEC 107) ............................................................................................................................................... 49
VALUE-ADDED TAX ON SALE OF SERVICES (SEC 108) ............................................................................................................................................................ 50
ZERO-RATED TRANSACTIONS .................................................................................................................................................................................................. 52
X. TRANSACTIONS EXEMPT FROM VAT................................................................................................................................................................................... 54
DIFFERENCE BETWEEN PERSONS EXEMPT FROM VAT AND VAT EXEMPT TRANSACTIONS: ...........................................................................................................................54
EXEMPT TRANSACTIONS: ......................................................................................................................................................................................................................................54
OUTPUT & INPUT TAX: ............................................................................................................................................................................................................. 63

TO BE ABLE TO OFFSET INPUT AGAINST OUTPUT USING THE TAX CREDIT METHOD: ........................................................................................................ 63
DIFFERENT TYPE OF INPUT VAT: ............................................................................................................................................................................................. 63
DISTRIBUTION OF INPUT VAT THAT CANNOT BE ATTRIBUTED TO ANY TRANSACTION: .................................................................................................... 65
HOW TO APPLY INPUT VAT ON DEPRECIABLE CAPITAL GOODS: .......................................................................................................................................... 66
WHEN TO APPLY INPUT VAT; WHEN IT ACCRUES: ................................................................................................................................................................. 66
WHEN TO PAY VAT: .................................................................................................................................................................................................................. 66
RULE ON REFUND OR CREDIT OF EXCESS INPUT VAT ............................................................................................................................................................ 66

OTHER PERCENTAGE TAX......................................................................................................................................................................................................... 73
PRELIMINARY MATTERS ON OTHER PERCENTAGE TAX: ........................................................................................................................................................ 73
OTHER PERCENTAGE TAX .....................................................................................................................................................................................................................................73
OTHER PERCENTAGE TAX (SECTIONS 116 128, NIRC)......................................................................................................................................................................................73
DOCUMENTARY STAMP TAX ....................................................................................................................................... 84

DOCUMENTARY STAMP TAX (DST) (SECTIONS 173-201, NIRC, AS AMENDED BY RA NO. 9243) ....................................................................................... 84
THE BUREAU OF INTERNAL REVENUE .......................................................................................................................... 95

CHIEF OFFICIALS OF THE BUREAU OF INTERNAL REVENUE .................................................................................................................................................. 95
POWERS AND DUTIES OF THE BUREAU OF INTERNAL REVENUE.......................................................................................................................................... 95
POWERS OF THE COMMISSIONER .......................................................................................................................................................................................... 95
AGENCIES INVOLVED IN TAX ADMINISTRATION .................................................................................................................................................................... 98
REMEDIES OF A TAXPAYER AFTER ASSESSMENT BUT BEFORE PAYMENT IS MADE ............................................................................................................ 98
REMEDIES OF A TAXPAYER AFTER PAYMENT HAS BEEN MADE............................................................................................................................................ 98
WHEN CAN YOU CLAIM TAX REFUND OR TAX CREDIT: ......................................................................................................................................................... 99
REQUISITE FOR YOU TO FILE A TAX REFUND OR TAX CREDIT: .............................................................................................................................................. 99
2 YEAR PERIOD FOR REFUND: BOTH ADMINISTRATIVE & JUDICIAL ..................................................................................................................................... 99
EFFECTIVITY PERIOD OF THE TAX REFUND: .......................................................................................................................................................................... 100
ADMINISTRATIVE & JUDICIAL PROCESS OF PROTESTING:................................................................................................................................................... 101
REMEDIES OF THE GOVERNMENT: ....................................................................................................................................................................................... 102
TAX LIEN ...............................................................................................................................................................................................................................................................102
DISTRAINT ............................................................................................................................................................................................................................................................102
GARNISHMENT ....................................................................................................................................................................................................................................................103
LEVY ON REAL PROPERTY....................................................................................................................................................................................................................................103
FORFEITURE .........................................................................................................................................................................................................................................................104
COMPROMISE ......................................................................................................................................................................................................................................................104
LEVY ......................................................................................................................................................................................................................................... 106

SUSPENSION OF BUSINESS OPERATIONS IN VIOLATION OF VAT LAWS (SEC. 115) ........................................................................................................... 107
COMPROMISE ......................................................................................................................................................................................................................... 107
ABATEMENT ............................................................................................................................................................................................................................ 109
JUDICIAL REMEDIES ................................................................................................................................................................................................................ 110
CIVIL ACTION........................................................................................................................................................................................................................................................110
CRIMINAL ACTION ...............................................................................................................................................................................................................................................110
STATUTE OF LIMITATIONS FOR TAX REMEDIES ................................................................................................................................................................... 111

SUSPENSION OF PRESCRIPTIVE PERIOD................................................................................................................................................................................ 112
FOR ASSESSMENT ................................................................................................................................................................................................................................................112
FOR COLLECTION .................................................................................................................................................................................................................................................113
FOR JUDICIAL REMEDIES OF THE GOVERNMENT..............................................................................................................................................................................................113
ADDITIONS TO THE TAX DUE (SEC. 247-252, NIRC) ............................................................................................................................................................. 113

A. KINDS OF ADDITIONS TO THE TAX .........................................................................................................................................................................................................113
COURT OF TAX APPEALS .............................................................................................................................................116

APPLICABLE LAW .................................................................................................................................................................................................................... 116
A. REPUBLIC ACT NO. 1125 .................................................................................................................................................................................................................................116
B. REPUBLIC ACT NO. 9282 .................................................................................................................................................................................................................................116
C. REPUBLIC ACT NO. 9503 .................................................................................................................................................................................................................................116
JURISDICTION OF THE CTA ..................................................................................................................................................................................................... 116
JURISDICTION OF CTA UNDER RA 1125: ............................................................................................................................................................................................................117
UNDER RA 9282 ...................................................................................................................................................................................................................................................118
A.M. NO. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS ....................................................................................................................... 118
JURISDICTION OF CTA EN BANC (RULE 4, SEC. 2) ..............................................................................................................................................................................................118
JURISDICTION OF CTA DIVISION (RULE 4, SEC. 3) .............................................................................................................................................................................................119
NO INJUNCTION RULE IN TAX COLLECTION.......................................................................................................................................................................... 120

MANDAMUS, PROHBITION OR CERTIORARI......................................................................................................................................................................... 121
DECLARATORY RELIEF ............................................................................................................................................................................................................ 121
INDEPENDENT CPA ................................................................................................................................................................................................................. 121
A.M. NO. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS ....................................................................................................................................................121
QUORUM ................................................................................................................................................................................................................................ 122

CTA DIVISION .......................................................................................................................................................................................................................................................122
CTA EN BANC .......................................................................................................................................................................................................................................................122
LOCAL TAX ..................................................................................................................................................................123

LOCAL GOVERNMENT UNITS & SCOPE OF LOCAL TAXATION ............................................................................................................................................. 123
TERRITORIAL JURISDICTION:...............................................................................................................................................................................................................................123
DUAL STATUS OF LGUS .......................................................................................................................................................................................................................................123
POWER TO CREATE SOURCES OF REVENUE (ART. 10, SEC. 5, 1987 CONSTITUTION) ....................................................................................................... 123
WHO MAY EXERCISE LOCAL TAXING POWERS ..................................................................................................................................................................... 123
OBJECTIVES FOR IMPOSING LIMITATIONS ON LOCAL TAXATION....................................................................................................................................... 123
FUNDAMENTAL PRINICIPLES (SEC. 130) ............................................................................................................................................................................... 123
WHEN ARE YOUR REQUIRED TO REGISTER WITH THE BIR .................................................................................................................................................. 124
TAXPAYERS IDENTIFICATION NUMBER ................................................................................................................................................................................ 124
KEEPING OF BOOKS OF ACCOUNTS AND RECORDS ............................................................................................................................................................. 124
LANGUAGE IN WHICH BOOKS ARE TO BE KEPT ................................................................................................................................................................... 125
ISSUANCE OF RECEIPTS OR SALES OR COMMERCIAL INVOICES ......................................................................................................................................... 125
ACCOUNTING PERIOD ............................................................................................................................................................................................................ 125
ACCOUNTING METHOD ......................................................................................................................................................................................................... 125
WHAT WILL COMPOSE YOU FINANCIAL STATEMENT .......................................................................................................................................................... 126
INDIVIDUALS REQUIRED TO FILE INCOME TAX RETURNS ................................................................................................................................................... 126
YOU ARE NOT REQUIRED TO FILE AN INCOME TAX RETURN, IF: ........................................................................................................................................ 126
LOCAL GOVERNMENT TAXATION................................................................................................................................127

HOW A LOCAL GOVERNMENT UNIT IMPOSE A TAX ............................................................................................................................................................ 127
LIMITATIONS OF THE RESIDUAL TAXING POWER OF LGUS (SUBSTANTIAL COMPLIANCE): ............................................................................................. 127
PROCEDURE FOR APPROVAL AND EFFECTIVITY OF TAX, ORDINANCES AND REVENUE MEASURES ................................................................................ 127
COMMON LIMITATIONS ON THE TAXING POWERS OF LOCAL GOVERNMENT UNITS ...................................................................................................... 127
TAXES WHICH MAY BE IMPOSED BY THE PROVINCE ........................................................................................................................................................... 128
TAXES WHICH MAY BE IMPOSED BY THE MUNICIPALITIES ................................................................................................................................................. 129
TAXES WHICH MAY BE IMPOSED BY THE CITIES .................................................................................................................................................................. 134
TAXES WHICH MAY BE IMPOSED BY THE BARANGAYS........................................................................................................................................................ 134
AUTHORITY OF LGUS TO ADJUST RATES OF TAX ORDINANCES (SEC. 191) ........................................................................................................................ 135
COMMON REVENUE-RAISING POWERS................................................................................................................................................................................ 135
COMMUNITY TAX CERTIFICATE: .................................................................................................................................136

WHO MAY LEVY COMMUNITY TAX: ...................................................................................................................................................................................... 136
TO WHOM IT MAY BE IMPOSED:........................................................................................................................................................................................... 136
INDIVIDUALS (LGC. 157)......................................................................................................................................................................................................................................136
JURIDICAL PERSON (LGC. 158) ............................................................................................................................................................................................................................136
EXEMPT FROM COMMUNITY TAX:........................................................................................................................................................................................ 137

WHERE TO PAY CTC: ............................................................................................................................................................................................................... 137
WHEN DUE: ............................................................................................................................................................................................................................. 137
CONSEQUENCE FOR FAILURE TO PAY ON DUE DATE: ......................................................................................................................................................... 138
PERSON NOT SUBJECT TO COMMUNITY TAX MAY STILL GET A CTC: ................................................................................................................................. 138
WHY PRESENT CTC FOR NOTARIAL PURPOSES: ................................................................................................................................................................... 138
OTHER INSTANCE WHERE CTC NEEDS TO BE PRESENTED:.................................................................................................................................................. 138
WHO PRINTS THE CTC: ........................................................................................................................................................................................................... 138
HOW DO YOU DISTRIBUTE THE INCOME DERIVED FORM THE CTC: .................................................................................................................................. 138
WHO COLLECTS THE CTC: ...................................................................................................................................................................................................... 139
COLLECTION OF TAXES FOR LOCAL TAXATION:.................................................................................................................................................................... 139
WHEN DOES LOCAL TAX ACCRUE: ......................................................................................................................................................................................................................139
DEADLINE FOR PAYMENT: ..................................................................................................................................................................................................................................139
WHAT ACCOUNTING PERIOD IS FOLLOWED FOR PURPOSE OF LOCAL TAXATION: .......................................................................................................................................139
SURCHARGES & INTEREST FOR LATE PAYMENT: ..............................................................................................................................................................................................139
WHO ARE AUTHORIZE TO COLLECT LOCAL TAXES: ...........................................................................................................................................................................................139
CAN LOCAL TREASURER LOOK AT THE BOOKS OF THE TAXPAYER: .................................................................................................................................................................140
CIVIL REMEDIES FOR COLLECTION OF REVENUES:............................................................................................................................................................... 140

LOCAL GOVERNMENT LIEN .................................................................................................................................................................................................................................140
CIVIL REMEDIES FOR COLLECTION OF LGT: .......................................................................................................................................................................... 140

PROPERTIES THAT CANNOT BE LEVIED OR DISTRAINT: ....................................................................................................................................................................................142
JUDICIAL REMEDIES .............................................................................................................................................................................................................................................142
CAN LOCAL GOVERNMENT UNITS ISSUE TAXES WHICH ARE NOT PROVIDED UNDER THE LGC: ..................................................................................................................142
QUESTIONING THE TAX ORDINANCE: ................................................................................................................................................................................... 142

QUESTIONING THE CONSTITUTIONALITY OR LEGALITY OF THE ORDINANCE .................................................................................................................................................143
PUBLICATION FOR TAX ORDINANCE ..................................................................................................................................................................................................................143
AUTHORITY TO GRANT TAX EXEMPTION ...........................................................................................................................................................................................................143
QUESTIONING THE ASSESSMENT .......................................................................................................................................................................................................................143
REAL PROPERTY TAX ...................................................................................................................................................145

FUNDAMENTAL PRINCIPLES (SEC. 198) ................................................................................................................................................................................ 145
DEFINITION OF TERMS (SEC. 199) ......................................................................................................................................................................................... 145
ADMINISTRATION OF RPT (SEC. 4) ........................................................................................................................................................................................ 147
APPRAISAL AND ASSSESMENT OF REAL PROPERTY ............................................................................................................................................................. 147
ASSESSMENT OF RPT: ............................................................................................................................................................................................................. 157
REMEDY AS TO ASSESSMENT: ............................................................................................................................................................................................... 158
THE REAL PROPERTY TAX ITSELF: .......................................................................................................................................................................................... 158
BASIC REAL PROPERTY TAX:................................................................................................................................................................................................................................158
EXEMPT REAL PROPERTIES: ................................................................................................................................................................................................................................159
SPECIAL LEVY ON REAL PROPERTY TAX: ............................................................................................................................................................................................................159
REMEDY FOR SPECIAL LEVY ................................................................................................................................................................................................................................161
ACCRUAL OF SPECIAL LEVY: ................................................................................................................................................................................................................................161
COLLECTION OF REAL PROPERTY TAX ................................................................................................................................................................................... 161

COLLECTION OF TAXES: .......................................................................................................................................................................................................................................162
NOTICE OF COLLECTION OF TAX: .......................................................................................................................................................................................................................162
TAX DISCOUNT FOR ADVANCE PAYMENT: ........................................................................................................................................................................................................162
REMEDY OF COLLECTION ....................................................................................................................................................................................................... 162

PAYMENT UNDER PROTEST. ............................................................................................................................................................................................................................162
REPAYMENT OF EXCESSIVE COLLECTIONS. .......................................................................................................................................................................................................163
REMEDY OF THE GOVERNMENT: .......................................................................................................................................................................................... 163

ACTION ASSAILING VALIDITY OF TAX SALE. ....................................................................................................................................................................................................165
PERIODS WITHIN WHICH TO COLLECT REAL PROPERTY TAXES. ...................................................................................................................................................................165
SPECIAL PROVISIONS .............................................................................................................................................................................................................. 165
TARRIFF AND CUSTOMS .............................................................................................................................................167

BASIS FOR THE IMPOSITION OF THE TARRIFFS AND CUSTOMS .......................................................................................................................................... 167
TARRIFF AND CUSTOMS CODE .............................................................................................................................................................................................. 167
BASIS- BRUSSELS TARIFF NOMENCLATURE .......................................................................................................................................................................... 167
TARRIFF ................................................................................................................................................................................................................................... 167
CUSTOMS ................................................................................................................................................................................................................................ 168
BUREAU OF CUSTOMS ........................................................................................................................................................................................................... 168
COMMISSIONER ..................................................................................................................................................................................................................... 168
PRIMARY FUNCTION OF THE BUREAU OF CUSTOMS .......................................................................................................................................................... 168
CUSTOMS TERRITORY ............................................................................................................................................................................................................ 168
TERRITORIAL JURISDICTION ................................................................................................................................................................................................... 168
DOCTRINE OF FRESH PURSUIT............................................................................................................................................................................................... 168
JURISDICTION OVER PREMISES USED FOR CUSTOMS PURPOSES....................................................................................................................................... 169
CUSTOM HOUSES ................................................................................................................................................................................................................... 169
POWER OF THE PRESIDENT TO SUBJECT PREMISES TO JURISDICTION OF BUREAU OF CUSTOMS .................................................................................. 169
WHEN IS A PARTICULAR ACTIVITY BE SUBJECT TO THE JURISDICTION OF BUREAU OF CUSTOMS.................................................................................. 169
COMMISSIONER TO MAKE RULES AND REGULATIONS ....................................................................................................................................................... 169
CUSTOMS ADMINISTRATIVE ORDER ..................................................................................................................................................................................... 169
CUSTOMS MEMORANDUM ORDER ...................................................................................................................................................................................... 169
CUSTOMS MEMORANDUM CIRCULAR ................................................................................................................................................................................. 169
PORT ........................................................................................................................................................................................................................................ 170
PRINCIPLES .............................................................................................................................................................................................................................. 170
LIFE BLOOD DOCTRINE ........................................................................................................................................................................................................................................170
DOCTRINE OF PRIMARY JURISDICTION ..............................................................................................................................................................................................................170
DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES .........................................................................................................................................................................170
DOCTRINE OF FRESH PURSUIT (HOT PURSUIT) .................................................................................................................................................................................................171
IMPOSITION OF TAX ............................................................................................................................................................................................................... 172

CLASSES OF IMPORTATION .................................................................................................................................................................................................... 172
CONDITIONALLY- FREE IMPORTATION ................................................................................................................................................................................. 174
RATES OF DUTIES .................................................................................................................................................................................................................... 177
ADDITIONAL DUTY IMPOSED ON PRODUCTS OF FOREIGN COUNTRIES ............................................................................................................................ 177
METHODS TO DETERMINE THE BASIS OF DUTIES ................................................................................................................................................................ 177
BASES OF DUTIABLE WEIGHT ................................................................................................................................................................................................ 179
EFFECTIVE DATE OF RATES OF IMPORT DUTY ...................................................................................................................................................................... 179
CONTENTS OF COMMERCIAL INVOICE. ................................................................................................................................................................................ 179
CERTIFICATION OF INVOICE ................................................................................................................................................................................................... 180
DECLARATION ......................................................................................................................................................................................................................... 180
WHEN ARE YOU SUPPOSE TO FILE YOUR IMPORT ENTRY DECLARATION? ........................................................................................................................ 181
SPECIAL TYPES OF DUTIES ...................................................................................................................................................................................................... 181

OTHER CHARGES, FEES, OR DUES PAYABLE BY CERTAIN ENTITES IN RELATION TO THEIR DEALINGS WITH THE CUSTOMS ......................................... 182
FLEXIBLE TARIFF ...................................................................................................................................................................................................................... 182
POWERS OF THE PRESIDENT UNDER 401(A) ........................................................................................................................................................................ 182
IMPOSITION OF DUTIES ......................................................................................................................................................................................................... 182
PERSONS LIABLE ..................................................................................................................................................................................................................... 182
LIABILITY OF THE IMPORTER FOR THE DUTY ........................................................................................................................................................................ 183
IMPORTATIONS BY THE GOVERNMENT ................................................................................................................................................................................ 183
DECLARATION ......................................................................................................................................................................................................................... 183
IMPORT ENTRIES .................................................................................................................................................................................................................... 183
TWO FORMS OF ENTRIES ....................................................................................................................................................................................................... 183
BY WHOM TO BE SIGNED....................................................................................................................................................................................................... 183
EXAMINATION, APPRAISAL AND CLASSIFICATION ............................................................................................................................................................... 183
READJUSTMENT OF APPRAISAL, CLASSIFICATION OR RETURN .......................................................................................................................................... 184
LIQUIDATION .......................................................................................................................................................................................................................... 184
REMEDIES OF THE GOVERNMENT......................................................................................................................................................................................... 184
REMEDIES OF THE TAXPAYER ................................................................................................................................................................................................ 185
A. REFUND............................................................................................................................................................................................................................................................185
B. PROTEST ...........................................................................................................................................................................................................................................................187
C. ABANDONMENT ..............................................................................................................................................................................................................................................190
REMEDIES OF THE GOVERNMENT......................................................................................................................................................................................... 191

COMPROMISE ......................................................................................................................................................................................................................................................191
SETTLEMENT IN SEIZURE/FORFEITURE CASES: .................................................................................................................................................................... 192

SEIZURE/FORFEITURE CASES: .............................................................................................................................................................................................................................193
PRIMA FACIE KNOWLEDGE OF UNLAWFUL IMPORTATION: ............................................................................................................................................................................193
A VESSEL OR AIRCRAFT MAYBE FORFEITED OR SEIZED EVEN IF NOT ACTUAL VESSEL USED FOR IMPORTATION OR EXPORTATION: ......................................................194
WHEN CAN FORFEITURE BE ESTABLISHED: .......................................................................................................................................................................................................194
WHO HAS JURISDICTION OVER FORFEITURE & SEIZURE PROCEEDINGS: .......................................................................................................................................................194
TRIAL COURT HAS NOT JURISDICTION OVER SEIZURE OR FORFEITURE PROCEDURE: ...................................................................................................................................194
NOTIC OF SEIZURE/FORFEITURE: .......................................................................................................................................................................................................................195
REMEDY FOR SEIZURE/FORFEITURE: .................................................................................................................................................................................................................195
REFUND CASES PRESCRIPTIVE PERIOD: .............................................................................................................................................................................................................195
EFFECT OF LOSS ARTICLES DURING THE PENDENCY OF THE CASE: .................................................................................................................................................................195
PRINCILPLES OF RULES OF CRIMINAL PROCEDURE WITH REGARD TO SMUGGLING: ....................................................................................................................................196
ESTATE TAXATION
ESTATE TAX Estate tax is an excise tax imposed on the privilege of transmitting properties at the time of
death. It is also a tax on inter-vivos transfers or transfers made by the decedent during his lifetime that partake
and is considered by the tax authorities as taking the form of a testamentary disposition of property. It is not
imposed on the property nor on the person who receives the estate nor on the decedent. It is an excise tax.
RATE OF ESTATE TAX: Exempt to 20%
PURPOSES OF ESTATE TAX
1. To raise revenues in order to defray the expenses of the government. (Supplements income tax)
2. Facilitates the distribution of wealth so that those who have more gets to be taxed more.
3. To prevent undue accumulation of wealth.
THEORIES WHICH SUPPORTS THE ESTATE TAX
Benefits-Received Theory The State expects to be paid for the services that it has rendered which you
benefited in a system of distribution or property.
Ability to Pay Theory Those who have more properties to transfer to their heirs upon death shall pay more
estate taxes.
Redistribution of Wealth Theory This is founded upon the principle of reduction of social inequality. The taxes
paid by rich people are programmed for disbursement by Congress more for the benefit of the poor in terms of
social services, education, health, etc.
State Partnership Theory or Privilege Theory Succession to the property of a deceased person is not a
fundamental right and consequently, the legislature can constitutionally burden such succession with a tax. The
government is your partner in increasing you wealth. You get to have that privilege because you have a partner.
CLASSIFICATIONS OF A TAXPAYER FOR PURPOSES OF ESTATE TAX
1. Resident Citizen Taxable for estate within and without the Philippines
2. Non-Resident Citizen Taxable for estate within and without the Philippines
3. Resident Alien Taxable for estate within and without the Philippines
4. Non-Resident Alien Taxable for estate within the Philippines
RESIDENCE - refers to the permanent home or domicile, the place to which whenever absent, for business or
pleasure, one intends to return.
WHEN DO YOU DETERMINE THAT AN INDIVIDUAL IS A RESIDENT CITIZEN
1) You have to qualify as a Filipino citizen under the Constitution:

1. Those who are citizens of the Philippines at the time of the adoption of this Constitution;
2. Those whose fathers or mothers are citizens of the Philippines;
3. Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship upon reaching
the age of majority; and
4. Those who are naturalized in accordance with law.
2) You have to establish domicile or permanent residence here in the Philippines.
HOW DO YOU BECOME A NON-RESIDENT CITIZEN
1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year.
most of the time: it means that that particular citizen stays abroad for 183 days or more during a
calendar year.
4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident
citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.
5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section.
RESIDENT ALIEN - A person not a citizen of Philippines who establishes permanent residency in the Philippines.
NON-RESIDENT ALIEN - A person not a citizen of Philippines who fails to establish permanent residency in the
Philippines.
RECIPROCITY RULE AS TO INTANGIBLE PERSONAL PROPERTY OF NON-RESIDENT ALIEN
A decedents (NRA) intangible personal property may be subject to transfer taxes both in his place of domicile or
residence and in the place where such property has a situs or is located. In order to prevent multiplicity of
taxation, the Tax Code provides that the tax imposed by this Title shall be credited with the amounts of any
estate tax imposed by the authority of a foreign country, subject to limitation (Sec. 86[E], NIRC). If reciprocity
applies, these intangible personal properties will not be included in the computation of the net estate of the
NRA. In all other cases RA, RC, NRC their intangible personal property will always form part of the gross
estate.
RECIPROCITY RULE: No tax shall be imposed in respect to intangible personal property of the NRA:
a) When the foreign country does not impose transfer tax of any character in respect of intangible personal
property of citizens of the Philippines not residing in that foreign country, or
b) When the foreign country imposes transfer taxes but grants similar exemption from transfer taxes in respect
of intangible personal property owned by the citizens of the Philippines not residing in that foreign country.
INTANGIBLE PERSONAL PROPERTIES THAT HAVE SITUS IN THE PHILIPPINES:
1. Franchises, patents, copyrights and royalties exercised in the Philippines.

It may not be registered here in the Philippines as long as it is being used in the Philippines.
2. Shares, obligations, or bonds issued by any corporation or sociedad anonima organized or constituted in the
Philippines in accordance with its laws;
3. Shares, obligations, or bonds issued by any foreign corporation 85% of the business of which is located in the
Philippines;
4. Shares, obligations, or bonds issued by any foreign corporation is such shares, obligations or bonds have
acquired business situs
they are used in furtherance of its business in the Philippines by the foreign corporation in the
Philippines
Example: A US Corporation issued a bond to augment the funds of the corporation in order to expand its
operations in the Philippines. That bond is considered as having situs here in the Philippines because it is
used in furtherance of its business in the Philippines.
5. Shares or rights in partnership, business or industry established in the Philippines (Sec 104, NIRC).
6. Bank deposits of banks located in the Philippines.
7. Accounts receivable from debtors residing in the Philippines.
PROPERTIES COVERED BY GROSS ESTATE, IN GENERAL
All properties and interests of the decedent at the time of his death shall be included in his gross estate
including transfers akin to a testamentary disposition. The properties includible in the gross estate of the
decedent would depend on whether or not the decedent is a citizen or alien and whether or not the alien
decedent is a resident of the Philippines at the time of his death.
Requires ownership but not possession.
COMPOSITION OF THE GROSS ESTATE
The decedents gross estate includes the following (Except for No 8, all these are considered transfers akin to a
testamentary disposition):
1. Decedents interest;
2. Transfers in contemplation of death;
3. Revocable transfers;
4. Property passing under general power of appointment;
5. Proceeds of life insurance;
6. Prior interests;
7. Transfers for insufficient consideration;
8. Capital of the surviving spouse (Sec. 85, NIRC)
1. DECEDENTS INTEREST
The general rule is that all property owned by the decedent has to be included in the gross estate, to the extent
of the value of his interest in such property at the time of his death. Thus, if the decedent fully owns a piece of
property, the value of such property shall be included in the gross estate. However, if he owns only a
proportionate share in the property, or is entitled only to its use, it is only the value of such share or such use
that has to be included.
Requires ownership but not possession.
The decedent may only own the legal title but not the beneficial ownership or vice-versa.
o Example: Usufruct - To determine the value of the right of usufruct, use or habitation, as well as
that of annuity, there shall be taken into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary of
Finance, upon recommendation of the Insurance Commissioner.
2. TRANSFERS IN CONTEMPLATION OF DEATH
Transfers in contemplation of death cover those which are transfers made during the lifetime but are considered
as part of the gross estate. If the motive behind the transfer is due to an impending death that he has been
called or he perceives, then the transfers may be in contemplation of death and at the time of his death it will be
considered as transfer in contemplation of death and it will be considered as part of his gross estate subject to
estate tax.
Controlling motive is the thought of death which made him dispose of his property regardless of time
from the transfer until the time of death.
Example: Mr. A thinks that he will die 10 years from now. He made a transfer to take effect at the time
of his death. Is it a transfer in contemplation of death? Yes as long as it is the thought of death which
made him dispose of his property regardless of time from the transfer until the time of death.
Before, if the transfer was made 3 years before the death of the decedent, it is already considered as in
contemplation of death. Now, it is simply the thought of death which makes it a transfer in
contemplation of death.
CIRCUMSTANCES TAKEN INTO ACCOUNT INCLUDE:
1) Age and state of health of the decedent at the time of gift, especially where he was aware of a serious illness;
2) Length of time between the gift and the date of death. A short interval suggests the conclusion that the
thought of death was in the decedents mind, and a long interval suggests the opposite.
3) Concurrent making of a will or making a will within a short time after the transfer.
3. REVOCABLE TRANSFER
A revocable transfer is made when there is a transfer of property with the transferor or decedent retaining the
rights to alter, amend, terminate or revoke the transfer during his lifetime whether or not such rights to revoke,
terminate, amend or alter has been exercised. So long as that right remains until the day of his death, it is still
under the control of the decedent, it is part of his properties because he actually will enjoy the income, the
rights and the enjoyment of the property.
TAKE NOTE: So long as the transferor will retain those rights until the day of his death, it is as if he has
full dominion of his property and it will form part of his gross estate.
Example: Mrs. J transferred her car to Ms. L with the condition that she reserves the right to revoke the
transfer during Ms. Js lifetime. When Ms. J died, the car will form part of the gross estate of Ms. J.
The right to alter, revoke, amend or terminate the enjoyment of the property by the transferee does not
need to be actually exercised by the transferor as long as the right has been reserved, even if it is in
conjunction with another person.
o Example: Mrs. J, transferor, along with her husband, may reserve the right to alter, amend,
terminate or revoke the transfer during their lifetime.
TRANSFERS WITH RETENTION
Not totally the same as revocable transfers but somewhat takes the form of a revocable transfer because there
is a right (to alter,amend, terminate or revoke) that has been retained or reserved by the transferor during the
time that the property has been transferred during his lifetime. So long as the transferor has retained those
rights until the day of his death, he can still say that he, the transferor, may have at anytime have taken back the
property. So its equivalent to full dominion over the property, still part of his gross estate as if there was no
transfer made.
This may fall under Revocable Transfer or Transfers In Contemplation of Death, provided that the retention of
the right relating to an intention of controlling the property.
Example: You retain the right to income while you transfer the property during your lifetime and the enjoyment
of the income is retained until your death. It may be considered a transfer in contemplation of death rather than
a bona fide transfer.
4. PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT
A power of appointment refers to a right to designate the person or persons who shall enjoy or possess
certain property from the estate of a prior decedent.
GENERAL
It is general when it gives to the donee (decedent) the power to appoint any person he pleases, including
himself, his spouse, his estate, executor or administrator, and his creditor, thus having as full dominion over the
property as though he owned it.
Example: Mr. A, during his lifetime gave a painting to Mrs. B along with a general power of
appointment. Mrs. B appointed Mrs. C to enjoy or possess the painting. When Mrs. B dies, this painting
will be considered part of her gross estate.
SPECIAL
It is special when the donee (decedent) can appoint only among a restricted or designated class of persons
other than himself. The power to dispose of property at death by the exercise of a general power of
appointment is equivalent of ownership.
5. PROCEEDS OF LIFE INSURANCE
The life insurance policy must be taken out by the decedent himself. If it is not taken by the decedent himself, it
shall not be part of the estate.
Taxation of the proceeds of life insurance will depend on the designated beneficiary and the manner of
designation of such beneficiary, such that if the beneficiary is the estate itself, the executor or the
administrator, IT FORMS PART OF THE GROSS ESTATE regardless of the manner of designation.
If the beneficiary is other than the estate, executor, or administrator and the designation is revocable
(which is the default in the insurance code), THE INSURANCE PROCEEDS FORM PART OF THE GROSS
ESTATE.
If the beneficiary is other than the estate, executor, or administrator and the designation is irrevocable,
THE INSURANCE PROCEEDS WILL NOT FORM PART OF THE GROSS ESTATE. The transfer is absolute and
the insured did not retain any legal interest in the insurance.
Example: Mr. A secured a life insurance in favor of his estate for P1M. Later on, Mr. A died and the
proceeds of the insurance policy is now collected. Is it subject to income tax? No, it is exempted from
income tax. Is it subject to estate tax? Yes, regardless of the manner of designation.
o What if the beneficiary is the girlfriend of Mr. A? Is it subject to income tax? No. Is it subject to
estate tax? It depends on the revocability of the designation.
o What if the company of Mr. A secures a life insurance for the benefit of the girlfriend of Mr. A.
The designation is irrevocable. Is it subject to income tax? Yes. How about estate tax? No,
because it is the company was the one who secures the insurance. The revocability of the
designation is irrelevant.
6. PRIOR INTERESTS
- No longer relevant now considering that the law has been in effect for more than 17 years now.
7. TRANSFERS FOR INSUFFICIENT CONSIDERATION
If during the lifetime of the decedent, he has entered into transactions for inadequate or insufficient
consideration, the property that was sold for insufficient consideration will still form part of his gross estate at
the time of his death provided that no prior donors tax has been paid on the said transaction. The law does not
provide for a time frame wherein transfers may be classified as one with insufficient consideration. For as long
as it transpired during the decedents lifetime, it should be included in the gross estate. In transactions
TANTAMOUNT TO A FICTITIOUS SALE OR SIMULATED SALE, where no consideration was in fact given, the FMV
at the time of death less the consideration paid, will form part of the gross estate of the decedent.
TAKE NOTE: Do not include Capital Assets subject to Capital Gains Tax for purposes of Transfers for
Insufficient Consideration.
Classification of the property matters because if the sales involves a capital asset which is subject to
Capital Gains Tax, the tax on that transfer has already been accounted for, based on an assumed gain.
Thus, it can no longer be considered as transfers for insufficient consideration for purposes of Estate
Tax. The property can no longer ba taxed again.
o Example: Mr. M owns a land with a Fair Market Value of P1M. He sold the land to Mr. X for
P200K (selling price). When Mr. M dies, such transfer would no longer be considered as transfer
for insufficient consideration and the land will not form part of his gross estate because the
asset has already been subjected to CGT.
For properties which falls under Transfers for Insufficient Consideration, you have to consider the FMV
of the property at the time of the death of the decedent.
o Example: Mr. M, during his lifetime, sold a property with a FMV of P1M for a gross selling price
of P200,000. At the time of his death, the FMV of the property is P1.5M. The amount that will
formed part of his gross estate would be P1.3M (P1.5M P200K)
o Had the FMV of the property gone down to P400K at the time of Mr. Ms death, the amount
that will formed part of his gross estate would be P200K (P400K P200K)
TAKE NOTE: In all the transfers akin to testamentary disposition, the exception is when the transfer is made
bona fide for an adequate and full consideration in money or moneys worth.
The last two will form part of the gross estate of the decedent but will later be deducted as part of the
Deductions:
8. CAPITAL OF THE SURVIVING SPOUSE
9. REPUBLIC ACT No. 4917

- An act providing that retirement benefits of employees of private firms shall not be subject to attachment,
levy, execution, or any tax whatsoever. The retirement benefits received by officials and employees of private
firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the
employer shall be exempt from all taxes and shall not be liable to attachment, garnishment, levy or seizure by or
under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to
the private benefit plan or that arising from liability imposed in a criminal action. Provided:
1. That the retiring official or employee has been in the service of the same employer for at least ten (10)
years and
2. Is not less than fifty years (50) of age at the time of his retirement
3. Availed of by an official or employee only once:
4. That in case of separation of an official or employee from the service of the employer due to death,
sickness or other physical disability or for any cause beyond the control of the said official or employee,
any amount received by him or by his heirs from the employer as a consequence of such separation shall
likewise be exempt as hereinabove provided.
The term "reasonable private benefit plan" means a pension, gratuity, stock bonus or profit sharing plan
maintained by an employer for the benefit of some or all of his officials and employees, wherein
contributions are made by such employer or officials and employees, or both.
ACQUISITIONS AND TRANSMISSIONS NOT SUBJECT TO ESTATE TAX
These involve transfers or transmittals which do not give rise to estate tax even though it is in some way
connected to someones prior death.
1. MERGER OR USUFRUCT IN THE OWNER OF THE NAKED TITLE
This involves a situation where upon the death of a decedent, property is transferred to one person
(usufructuary) giving the latter the right to enjoy the property, and to a second person (naked or beneficial
owner), the naked title to the property.
When the usufructuary dies and that the enjoyment of the property is transferred to the naked owner (merger),
this transfer is not subject to estate tax because the same property has already been subjected to tax upon the
decedents death. The transfer between the decedent and the usufructuary has already been subjected to
estate tax. The subsequent transfer from the usufructuary to the naked owner should be therefore no longer
taxed.
Example: Upon the death of Mr. D, the naked title of his property is transferred Mr. N, and the usufructuary of
the same property to Mr. U. Upon the transfer of the property from Mr. D to Mr. U, such property will be
subjected to estate tax. When Mr. U dies and the enjoyment of the property will be merge with the naked title
of Mr. N, the property will no longer be subjected to estate tax.
2. TRANSMISSION BY THE FIDUCIARY HEIR OR LEGATEES TO THE FIDEICOMISSARY
This involves fideicomissary substitution wherein the decedent provides in his will that upon the death of the
fiduciary heir, the property shall be transferred to the fideicomissary heir.
The subsequent transfer (from fiduciary heir to fideicomissary) shall be free from estate taxation because the
same property has already been taxed upon the first transfer.
Example: Mr. A died, in his will, he named Mr. B as the fiduciary heir and Mr. C as the fideicommissary. Upon the
transfer of the property from Mr. A to Mr. B, the fiduciary heir, it will be subjected to estate tax. Upon the death
of Mr. B and the transfer of the property from Mr. B to Mr. C, the fideicommissary heir, the property will no
longer be subjected to estate tax.
Review: Requisites of Fideicommissary Substitution:

1) There must be a first heir (fiduciary) called primarily or preferentially to the enjoyment of the property.
2) There must also be a second heir (fideicommissary).
3) There must be an OBLIGATION CLEARLY IMPOSED upon the first heir to PRESERVE AND TRANSMIT to the
second heir the whole or part of the inheritance
4) The first and the second heirs must be only one degree apart.
5) Both heirs must be alive, or at least conceived, at the time of the testators death.
3. TRANSMISSION FROM THE FIRST HEIR, LEGATEE OR DONEE IN FAVOR OF ANOTHER BENEFICIARY
(in accordance with the desire of the predecessor)
This contemplates a situation where the decedents will provides that his property shall be transmitted to two
heirs proportionately. The subsequent transfer from the 1st heir to the 2nd heir will not be subject to estate tax
if such transfer was made in accordance with the will of the decedent. This is so because the estate tax has
already been imposed on the 1st transfer.
Example: If in the will of decedent A there will be two beneficiaries, B and C, each given of the property, if B
transfers his half to C thereby making the property whole, this 2nd transfer is NOT SUBJECT TO ESTATE TAX.
4. BEQUESTS, DEVISES, LEGACIES OR TRANSFERS TO SOCIAL WELFARE, CULTURAL AND CHARITABLE

INSTITUTIONS
This transfer also includes transmissions made to NON-STOCK, NON-PROFIT EDUCATION INSTITUTIONS.
Although not included in the enumeration provided for under the NIRC, such exemption is provided for in Art.
XIV, Sec. 4(4) of the 1987 Constitution which provides that bequests to be actually, directly and exclusively used
for educational purposes shall be exempt from tax.
Requisites for this transmission to be considered non-taxable:

1. Transfer to a social welfare, cultural and charitable institutions;
2. No part of the income inures to the benefit of any individual; and
3. Not more than 30% of the said bequests, devises, legacies or transfers
5. OTHERS
The other transmissions of property or receipts/proceeds of the estate of the decedent that are not subject to
estate tax are the following:
a. Benefits received from SSS or GSIS;
b. Benefits received from U.S. Veterans Administration;
c. War benefits given by the Philippine government and U.S. government due to damages suffered during the
war;
d. Grants and donations to the Intramuros Administration;
e. If the decedent holds a property in trust for someone else, usually a beneficiary, the general rule is that it
does not form part of the estate of the decedent because ultimately, it will be in favor of the beneficiary, unless
it falls under the general power of appointment over which the decedent has been holding on to it with the free
reign to designate himself as the ultimate beneficiary;
f. Transfers by way of bona fide sales of adequate and full consideration;
g. Life insurance proceeds from GSIS and from private insurance companies so long as the beneficiary
designated irrevocably is a third person other than the estate, administrator, executor. It will never form part of
the gross estate of the decedent; anf
h. Capital of the surviving spouse. Even if initially we consider the assets of both spouses during lifetime, we
eventually exclude the exclusive properties of the surviving spouse.
FORMULA ESTATE TAX
Gross estate
Less: Deductions
Less: share of surviving spouse
Net estate
X Estate Tax Rates
Estate tax due
Less: Tax Credits
Estate tax payable
DEDUCTIONS ALLOWED TO A CITIZEN OR A RESIDENT
1. EXPENSES, LOSSES, INDEBTEDNESS AND TAXES (ELIT)
A. FUNERAL EXPENSES
For expenses to be considered under this category, such expenses must be incurred from the moment of
death until interment (burial).
In order for funeral expenses to be deductible, IT MUST BE INCURRED BY THE FAMILY MEMBERS. If the
funeral expense has been paid for voluntary or as a donation by someone else, it cannot be deductible from
the estate. Such rule is also applicable to judicial expenses.
In other words, judicial and funeral expenses must be shouldered by the immediate family; otherwise, such
expenses are not deductible against the estate.
Funeral expenses NEED NOT BE PAID in order to be deductible from the gross estate. It is sufficient that such
funeral expenses have been INCURRED (accounts payable).
Q: What if later on, when you account for the taxable estate, there is this accounts payable for funeral expense.
Can I then choose that as claims against the estate? After all, the funeral parlor under special proceedings, will
have to apply for the settlement of the obligation of the estate as part of the claims?
A: No, it can no longer be considered as claims against the estate because there is a specific category for funeral
expenses. Such claims remain under funeral expenses, whether paid or unpaid.
The following are considered funeral expenses:

1. Mourning apparel of the surviving spouse and unmarried minor children of the deceased, bought and used on
the occasion of the burial
2. Expenses for the deceaseds wake, including food and drinks
3. Publication charges for death notices (obituaries)
4. Telecommunications expenses incurred in informing relatives of the deceased
5. Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the deceased owns a
family estate or several burial lots, only the value corresponding to the plot where he is buried is deductible.
6. Interment and/or cremation fees and charges
7. All other expenses incurred for the performance of the rites and ceremonies incident to interment
How much can you deduct?

- The amount actually paid or incurred, OR
- 5% of the gross estate, WHICHEVER IS LOWER
- But in no case to exceed P 200,000
B. JUDICIAL EXPENSES
Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from the
gross estate of the decedent for purposes of arriving at the value of the net estate, include all expenses essential
to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it.
These expenses include: fees of executor or administrator, attorneys fees, notarial fee paid for the extrajudicial
settlement, court fees, accountants fees, clerk hire, costs of preserving and distributing the estate, costs of
storing or maintaining property of the estate, brokerage fees for selling property of the estate, etc. Expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not deductible. (CIR vs Pajonar)
PERIOD FOR WHICH JUDICIAL EXPENSES INCURRED ARE ALLOWED TO BE DEDUCTED
They must be incurred during the settlement of the estate but not beyond the last day prescribed by law, or the
extension thereof, for the filing of the estate tax return. So expenses within the 6 months period or within the
30 day extension granted (in meritorious cases).
Take note: For filing of the estate tax return, it can only be extended up to 30 days in in meritorious cases while
for payment of the estate tax could be extended up to 2 years for judicial settlement or 5 years if it is an
extrajudicial settlement (when it would impose undue hardship upon the estate or any of the heirs)
C. LOSSES
These are CASUALTY LOSSES losses which arose from fires, storms, shipwrecks or other casualties or LOSSES
FROM ROBBERY, THEFT, OR EMBEZZLEMENT. These are the same type of losses that can be deducted on the
estate under income tax.
WHEN SUCH LOSSES BE INCURRED
Such losses must occur during the settlement of the estate but not later than the last day for payment of the
estate tax. Only losses incurred during the 6 months filing period are deductible. This means that if there was a
30 day extension granted, such loss which incurred during that period are not deductible. (Sec 86(e) only
refers to Sec 91. (A) which only provides for the time of payment when the return is filed. It does not mention
anything about any extension for either filing or payment.)
Losses before death are never deductible losses because the computation of the gross estate is reckoned from
the decedents point of death and therefore does not contemplate property that has been lost prior to his
death.
OPTION OF THE EXECUTOR OR ADMINISTRATOR
The executor or administrator of the decedent has the option to either deduct the loss from the income tax or
the gross estate. Therefore, if the executor opts to deduct it from the GE, such losses must have not been
claimed as a deduction for income tax purposes in an income tax return, and such losses were incurred not later
than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91:
"SECTION 91. Payment of Tax. "(A) Time of Payment. The estate tax imposed by Section 84 shall be PAID AT
THE TIME THE RETURN IS FILED by the executor, administrator or the heirs.
REQUIREMENTS IN ORDER FOR LOSSES TO BE DEDUCTIBLE:
1. INCURRED after death and during the settlement of the estate;

2. Arose from fires, storms, shipwreck or other casualties, or from robbery, theft or embezzlement;
3. Must not be compensated by insurance;
4. Are not claimed as a deduction for income tax purposes in an ITR in favor of either the decedent or the estate
itself; and
5. Were incurred not later than the last day for payment of the estate tax. (6 months filing period)
D. CLAIMS AGAINST THE ESTATE
Here, the estate has a payable. These are debts or demands of a pecuniary nature which could have been
enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore,
the claims existing at the time of death are significant to, and should be made the basis of, the determination of
allowable deductions. (Dizon vs CTA)
DATE-OF-DEATH VALUATION RULE - The deductible amount for a claim against the estate is fixed as of the
decedent's death. For purposes of estate tax, we follow the date-of-death valuation rule
REASONS WHY WE FOLLOW THE DATE-OF-DEATH VALUATION RULE
1. The legislative intent in our tax law is to follow the date-of-death valuation principle.
2. Since this involves taxation, it should be construed strictly against the State and in favor of the taxpayer.
2. Such CONSTRUCTION finds relevance and consistency in our Rules on Special Proceedings wherein the term
"claims" required to be presented against a decedent's estate is generally construed to mean debts or demands
of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death. (Dizon vs CTA)
In case there is a condonation of the debt after the death of the decedent, the value to be considered should be
the value at the time of the death of the decedent.
The requirements for the deductibility of claims against the estate are:
1. Must be a personal obligation of the deceased existing at the time of his death (except unpaid funeral
expenses and unpaid medical expenses);
2. Liability must have been contracted in good faith and for adequate and full consideration in money or
moneys worth;
Example of debt contracted in bad faith: When the decedent obtained a loan at the time when he knew
that he will only be living for 2 months. So such contracted debt will not form part of claims against the
estate.
3. A claim or debt which is valid in law and enforceable in court
4. Indebtedness not condoned by the creditor during the lifetime of the decedent.
5. The action to collect from the decedent must not have prescribed
6. Must be duly substantiated depending on the type of obligation.
If the claim against the estate arose from a contract of loan or a promissory note, the following additional
requirements are needed:
1. The debt instrument must be duly notarized at the time the indebtedness was incurred
Except: Loans granted by financial institutions where notarization is not part of the business
practice/policy of the financial institution-lender
2. Duly notarized certification from the creditor as to the unpaid balance of the debt, including interest as of the
time of death
3. Proof of financial capacity of the creditor to lend the amount at the time the loan was granted, as well as its
latest audited financial statement with a detailed schedule of its receivable showing the unpaid balance of the
decedent-debtor
4. A statement under oath executed by the administrator or executor of the estate reflecting the disposition of
the proceeds of the loan if said loan was contracted within 3 years prior to the death of the decedent.
Debts incurred more than three prior to the death would be difficult to determine where the proceeds
of the loan went.
If the claims against the estate arose from a simple purchase of goods or services:
1. It need not be substantiated by a contract or a promissory note.

2. Usually substantiated by invoices and receipts for the purchase of the goods or services
3. A certification from the creditor still that the amount is collectible, including interest.
E. CLAIMS AGAINST THE INSOLVENT
Here, the estate has a receivable which forms part of the gross estate of the decedent. It is the decedent who is
the creditor who has extended a loan but can no longer collect the loan because the debtor is already insolvent.
A person is insolvent when his liabilities exceed his assets.
For claims against insolvent persons to be deductible from the gross estate (Sec. 86(d), it is important to show
that:
1. The amount of said claims has been initially included as part of his gross estate; and
2. The incapacity of the debtors to pay their obligations is proven, not merely alleged.
Review: Steps to be done to in order to prove its worthlessness/insolvency/bad debts:

1. There must be a Statement Of Account(SOA) sent to the debtor stating the maturity date
2. If there is still no payment at the maturity date then A collection letter is sent by the creditor to the debtor
3. If he failed to pay, refer case to lawyer; Lawyer then send a formal demand letter to the debtor
4. Fails to pay, File an action in court for collection
5. Despite the order of the court there is still no payment then consider it as BAD DEBTS.
F. UNPAID MORTGAGES OR INDEBTEDNESS
Unpaid mortgages upon, or any indebtedness in respect to property shall be deductible from gross estate,
where the value of decedents interest therein, undiminished by such mortgage or indebtedness, is included in
the value of the gross estate. The unpaid mortgages must be contracted bona fide and for an adequate and full
consideration in money or moneys worth (Sec. 86*e+, NIRC).
The property subject of the mortgage must be fully included in the gross estate. However, in the deduction, you
will only deduct the unpaid portion which the decedent is liable. Even if the administrator of the decedent paid
the full amount of the mortgage, and later only it was determined that the decedent was only liable for half the
amount, you can only deduct the portion for which the decedent was liable. The unpaid mortgages must be
contracted bona fide and for an adequate and full consideration in money or moneys worth.
Here, the decedent has mortgaged his property during his lifetime. It is a payable on the part of the decedent in
the form of a mortgage wherein the decedent is a mortgagor. Therefore, the estate should be reduced. It is
likened to a claim against the estate, only that it is in the form of a mortgage.
Requisites in order for unpaid mortgages to be deductible against the gross estate:
1. Value of the decedents interest in the property encumbered by such mortgage or indebtedness is included in
the value of the gross estate.
2. Such deduction shall be limited to the extent that they were contracted bona fide and for an adequate and
full consideration in money or moneys worth, if such unpaid mortgages or indebtedness were founded upon a
promise or an agreement;
3. The mortgage must be personally contracted during the lifetime of the decedent.
What if it is an accommodation mortgage, can you still be allowed to deduct? Yes, but only when the estate
can record the mortgage as a receivable from the person for whom you accommodated the mortgage for will
you be allowed to deduct the unpaid mortgage.
G. UNPAID TAXES
(refers to ALL types of taxes personally incurred by the decedent)
Unpaid income tax upon income received before the death of the decedent, or property taxes accrued before
his death, or any estate tax shall be deductible from gross estate. The unpaid taxes must be contracted bona fide
and for an adequate and full consideration in money or moneys worth. Even if it is already incurred, so long as it
not yet paid, you can deduct it from the estate of the decedent.
Problem: The decedent died on October 1, 2014. Up to what part of the income tax liability can you deduct? All
income earned before his death are deductible while the income earned after October 1 are non-deductible.
When do you pay your income tax? Individual taxpayer - April 15;
Real property taxes are due for payment on January 31. It accrues on January 1 and its supposed to be paid on
January 30. It follows a pay-first incur-later scheme. So a persons real property is already paid on January, such
that when such person dies on October, his estate is no longer liable to pay real property tax because the tax the
decedent paid on January is already good for that year.
Taxpayer has the option to pay in installment.
Requisites for unpaid taxes to be deductible against the gross estate:

1. The taxes must have accrued as of the death of the decedent or prior to the death of the decedent.
Property taxes accrued prior to the decedents death, unpaid taxes on income received by decedent
during his lifetime, donors taxes which are unpaid upon death are properly deductible against the
estate. Any taxes accruing after death will be considered as a separate taxable entity.
2. They were unpaid as of the time of death.
3. This deduction shall not include income tax upon income received after death, or property taxes not accrued
before his death, or the estate tax due from the transmission of his estate.
2. PROPERTY PREVIOUSLY TAXED (VANISHING DEDUCTIONS)
Requisites in order for property previously taxed to be deductible against the gross estate:
1. Prior transfer. There is a prior decedent or donor who gave the property;
It is not required that there must be a prior death because it could be a donation.
2. Death of present decedent within 5 years after receiving the inheritance from the prior decedent or gift from
the prior donor;
3. The property must be identifiable. The property with respect to which deduction is sought can be identified as
the one received from the prior decedent or the donor, or as the property acquired in exchange for the original
property so received;
Includes instances where the property transferred may no longer be in the possession of the decedent
but the property acquired in exchange can be identified.
4. The property must be included in the gross estate of the present decedent.
If the property is no longer in the in the possession of the decedent, the property that must be included
is the property that was exchanged for.
5. Previous Taxation of the Property. The estate tax on the prior succession, or the donors tax on the gift, must
have been finally determined and paid by the prior decedent or by the donor as the case may be.
Example: When Mr. Z transmitted the property to Mr. A by inheritance, the proper estate tax should
have been paid.
6. No Previous Vanishing Deduction on the Property.
Vanishing deduction can only be applied once.
Example: Should Mr. Z also acquire the same property by inheritance or donation last Aug. 8, 2007 (Aug.
8, 2007 until Dec. 8, 2011 is still within the five year period. For purposes of this requirement, if there
had been two transfers, such transfers must have transpired within 5 years of each other.), Mr. Z should
not have claimed vanishing deductions for the same property in the computation of his estate tax if Mr.
A should be allowed to claim the such deductions. If Mr. Z had already claimed vanishing deductions
over the parcel of land, Mr. A can no longer claim for vanishing deductions over the same property.
Vanishing deduction shall be allowed only once.
7. The property should be located in the Philippines.
COMPUTATION
1st: Determine the value of the property for the initial basis of the vanishing deductions allowed:
GR: In including the value of the property in the gross estate, the FMV at the time of death shall be the basis.
EXC: For the initial basis of vanishing deductions, the value shall be prior or present FMV, whichever is lower.
Example: Lets say that the FMV at the time of the inheritance was 1 M and at the time of death, the
FMV was 1.2M. To obtain the initial basis, the FMV of 1M shall be used being the lower amount.
2nd: Deduction for mortgage or other lien. The initial value above shall be reduced by the total amount paid, if
any, by the present decedent, on any mortgage or other lien on the property where a deduction was allowed.
3rd: Deduction for expense, losses, indebtedness, taxes, transfers for public use The value as reduced above
shall be further reduced to the extent of the pro rata deductions based on the principle that a portion of the
expenses (ELIT and TFPU) pertains to the percentage of the property inherited for vanishing deduction over the
total gross estate.
4th: Percentage of Deductions:
100% if the present decedent dies within 1 year,
80% if the present decedent dies more than 1 year but not more than 2 years,
60% if the present decedent dies more than 2 years but not more than 3 years,
40% if the present decedent dies more than 3 years but not more than 4 years
20% if the present decedent dies more than 4 years but not more than 5 years
Example: If the present decedent dies within 1 year, the full amount of 900K is deductible (900K x
100%). If the present decedent died more than 4 years after the death of the first decedent, only 180K is
deductible (900K x 20%)
Problem:
1st Transfer happened on January 1, 2010. Decedent died on January 1, 2014. Determine the vanishing
deduction allowed.
Given:
Gross estate = P9,600,00
ELIT = P200,000
TPU = P100,000
ELIT + TPU = P300,000
Value of property at the time of the first transfer = P1,000,000
Value of property at the time of the death of the decedent = P1,200,000
Value of the mortgage to be assumed at the time of the transfer = P100,000
Unpaid mortgage = P60,000
Calculation:
FMV (Value of the property on the first transfer or the value of the second transfer, whichever is lower)
P1,000,000
Less mortgage payments (deduct the amount of the mortgage already paid) P40,000
INITIAL BASIS P960,000

Less allowable deductions: (Initial Basis/Gross Estate)ELIT + TPU = (P960K/P9.6M)P300K =
P30,000
FINAL BASIS P930,000
X Vanishing Deduction Rate (1st transfer: Jan. 1, 2010; Died on Jan. 1, 2014) = 40%
VANISHING DEDUCTION ALLOWED P372,000
Example: Mr. X is a Filipino. He died while in the U.S. He has a motorcycle in the U.S. at the time of his death. In
his will, he gives the motorcycle to Mr. Y who is in the Philippines. 2 years after Mr. X died, Mr. Y also died who is
already in possession of the motorcycle. Is the motorcycle included in the gross estate of Mr. Y? Yes, it forms
part of decedents interest. Is the same property subject to vanishing deduction? Yes since the 1st transfer was
subjected to a donors tax.
However, if Mr. X is a NRA, Mr. Y would not be subjected to a vanishing deduction because the property
would not be subjected to a tax during its first transfer (Mr. X being an NRA and the property located in
the U.S. at the time of his death)
3. TRANSFERS FOR PUBLIC USE
The whole amount of all the bequests, legacies, devises or transfers to or for the use of the Government of the
RP, or any political subdivision thereof, for exclusively public purposes shall be deductible from gross estate,
provided such amount or value had been included in the gross estate. The transfers to the government or
political subdivisions include only provinces, cities, municipalities and barangays. IT DOES NOT INCLUDE GOCCs.
The transfer happens after the death of the decedent. At the time of the death of the decedent, he still
owns the property. That is why the property must be included in his gross estate. Once the property is
transferred to the government, the estate of the decedent is allowed to deduct the value of the
property from his estate.
For bequests to charitable institutions, social welfare, etc., they are not deductible since in the first
place, they are exempt transmission of property. In other words, they are not included in the gross
estate.
Requisites in order for transfers for public use to be deductible against the gross estate:
1. Transfers to the Government of the RP, or any political subdivision, excluding GOCCs.
2. It must be for public use.
3. The amount must be initially included in the gross estate.
4. The transfer must be made in writing.
4. THE FAMILY HOME
An amount equivalent to the current fair market value of the decedent's family home: Provided, however, That if
the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate
tax. As a sine qua non condition for the exemption or deduction, said family home must have been the
decedent's family home as certified by the barangay captain of the locality.
Rule: FMV of the property or P1M, whichever is lower.
When the Family Home is part of the conjugal property of the married couple, you will divide the value
of the conjugal property by 2 in order to arrive at the deductible amount.
Family Home forms part of the gross estate. Part of the deduction of the gross estate would be the share
of the surviving spouse. This Family Home is considered as part of the special deductions. It is not
accounted for prior to the deduction of the share of the surviving spouse. That being the case, the gross
estate, you will claim there the full amount of the FM but you will deduct a portion of that under the
share of the surviving spouse.
Example 1: Family Home is worth P2M. The share of the surviving spouse is P1M. For purposes of estate
tax, you will only tax P1M.
Example 2: A conjugal Family Home is worth P3M. Half of that is P1.5M, but you can only deduct the
maximum amount of P1M. The remaining P500K will be subject to estate tax.
Family home means the dwelling house, including the land on which it is situated, where the husband and wife,
or a head of the family, and members of their family reside, as certified to by the Barangay Captain of the
locality. The family home is deemed constituted on the house and lot from the time it is actually occupied as a
family residence and is considered as such for as long as any of its beneficiaries actually resides therein (Arts.
152 and 153, Family Code).
For estate tax purposes, the definition of the head of the family is still significant. A head of the family is:
1. An individual who is single, legally separated or widowed, etc. who is chiefly supporting a child, whether
legitimate, illegitimate, legally adopted or naturally acknowledged, not more than 21 years of age, where such
child is NOT GAINFULLY employed, UNMARRIED and he can be more than 21 if he is mentally incapacitated or
physically disabled.
2. An individual who is chiefly supporting a parent living with him and not gainfully employed.
3. An individual who is chiefly supporting a brother or sister living with the former, provided that the latter
shall be no more than 21 years of age, UNMARRIED and not gainfully employed.
4. An individual who is supporting a senior citizen whether or not related to each other, provided that the latter
be 60 years of age or above and not earning more than P 5K a month (P60K a year).
For income tax purposes, among the 4 types of dependents, only a child can entitle a taxpayer to avail of the P
25K additional exemption. But for estate taxes, if youre classified as a married individual or single but head of
the family, then your family home can be considered as a deductible item.
5) STANDARD DEDUCTION
An amount equivalent to One million pesos (P1,000,000).
This only pertains to the deceased. This does not apply to a Non-Resident Alien.
6. MEDICAL EXPENSES
Medical expenses incurred by the decedent within one (1) year prior to his death which shall be duly
substantiated with receipts: Provided, That in no case shall the deductible medical expenses exceed Five
hundred thousand pesos (P500,000).
Example: If decedent died on Dec. 8, 2011, expenses must be incurred on Dec. 9 up to Dec. 8, 2011.
Medical expenses need not pertain to the cause of death.
Take note: Any amount of medical expenses exceeding P 500K, even if unpaid, shall not be allowed as
deduction from the gross estate as claim against the estate (same rule in funeral expenses) because
they are already given special categories under the law.
Requisites for deductibility of medical expenses:

1. The expenses (cost of medicines, hospital bills, doctors fees, etc.) were incurred within one (1) year prior to
the death of the decedent;
2. The expenses are duly substantiated with official receipts for services rendered by the decedents attending
physicians, invoices, statements of account duly certified by the hospital, and such other documents in support
thereof;
3. Provided, that the total amount incurred thereof, whether paid or unpaid, does not exceed Five hundred
thousand pesos (P 500,000)
TYPES OF DEDUCTIONS
1. Ordinary deductions
2. Special deductions It is deducted only after deducting the Share of the Surviving Spouse.
a. Standard Deduction
b. Medical Expenses
c. Family Home
PROPERTY REGIMES THAT GOVERN THE MARRIED COUPLE
1. Absolute Community of Property governs marriages on or after August 3, 1988, provided there is no pre-
nuptial agreement providing for another property regime.
2. Conjugal Partnership of Gains -
3. Complete Separation of Property -
Absolute Community of Property Conjugal Partnership of Gains

As to the GR: Everything you brought into the marriage GR: Everything acquired or gained during the
communal and anything acquired thereafter. marriage using the conjugal funds.
property: EXC: EXC: Anything:
1. Anything received gratuitously, including 1. you owned before the marriage.
its fruits, will be considered as exclusive 2. acquired using an exclusively fund.
property, unless it is expressly provided by 3. received gratuitously will be considered as
the donor, testator or grantor that they shall exclusive property. However, the fruits as
form part of the community property; well as the income thereof, will be considered
2. Property for personal and exclusive use as conjugal property.
of either spouse, except jewelry which shall 4. Property for personal and exclusive use
form part of the community property; of either spouse, except jewelry which shall
3. Property acquired before the marriage by form part of the conjugal property;
either spouse who has legitimate descendants
by a former marriage, and the fruits as well
as the income, if any, of such property.
Example: kato ni activity nato nga by group
FILING OF THE ESTATE TAX RETURN
The estate tax return shall be filed within 6 months from the date of death, unless the period is extended for not
more than 30 days from the 6th month, by the Commissioner on meritorious grounds.
PAYMENT OF THE ESTATE TAX DUE
The estate tax is due and payable at the same time that the return is filed, i.e., within six months after the
decedents death. When the Commissioner finds that the payment on the due date of the estate tax or any part
of the said amount would impose undue hardship upon the estate or any of the heirs, he may extend the time
for payment of such taxes or any part thereof not to exceed 5 years in case of judicial settlement or 2 years in
the case of extrajudicial settlement, reckoned from the 6 month [filing].
PENALTIES FOR NON-COMPLIANCE
In the event of a violation of the law, in respect to the foregoing, as well as of regulations promulgated
thereunder, criminal penalties and civil liabilities (surcharges, ad valorem penalties, and interest) are imposed
(Secs. 93, 247, NIRC).
If its a simple extension of time to pay, the add-on penalty would only be the 20 % interest.
Surcharge would only come in for absolute non-compliance with the requirement. If you file the return
late, you will be imposed of a 25% surcharge.
If you filed an inaccurate return, you will be imposed of a 25% surcharge.
If you filed a fraudulent return, you will be imposed of a 50% surcharge.
Q: When you pay within the extension period, will you be subject to penalties?
A: Yes, if its a simple extension of time to pay, the add-on penalty would only be the 20 % interest.
Take note: Interest, under the law, is not considered a penalty. It is surcharge which is a penalty.
NOTICE OF DEATH
GR: The Commissioner shall be notified of the fact of death in the following cases:
1. In all cases of transfers subject to tax, OR
Notice of death shall be necessary when the death of the decedent would result to estate taxation,
meaning it will be subject to tax beyond the 20K limitation.
2. Where, though exempt from tax, the gross value of the estate exceeds 20K
Take note: Even if the estate is not subjected to tax for as long as the gross value of the estate exceeds
20K, a notice of death shall be necessary.
Purpose. For purposes of the government to be prepared in computing for the estate tax.
When to give notice of death - The notice of death shall be given to the Commissioner or his/her alter ego
within two months after the decedents death or within a like period after the executor or administrator
qualifies as such.
SECTION 89. Notice of Death to be Filed. In all cases of transfers subject to tax, or where, though exempt
from tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or
any of the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like
period after qualifying as such executor or administrator, shall give a written notice thereof to the
Commissioner.
Q: Supposing a decedents only property are shares of stock worth P20K, will you be required to file the notice
of death?
A: No, because the gross value of the estate does not exceed P20K
Q: Are you required to file a return?
A: Yes, because shares of stocks are registrable property.
Take note: Under the law, the government agency is not allowed to cause the registration of the transfer of the
property if the estate tax is not paid. You are required to file the return for purposes of securing the certificate
authorizing registration.
Q: Who else are required to file a return?

A: In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value
of the estate exceeds Two hundred thousand pesos (P200,000).
Q: What do you have to remember about P2M?

A: If the estate tax returns shows a gross value exceeding Two million pesos then it shall be supported with a
statement duly certified to by a Certified Public Accountant containing the following:
1. Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case
of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;
2. Itemized deductions from gross estate allowed in Section 86; and
3. The amount of tax due whether paid or still due and outstanding. (Sec 90[A] 2nd Paragraph)
SECTION 90. Estate Tax Returns.

"(A) Requirements. In all cases of transfers subject to the tax imposed herein, or where, though exempt from
tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross
value of the estate, where the said estate consists of registered or registrable property such as real property,
motor vehicle, shares of stock or other similar property for which a clearance from the Bureau of Internal
Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the
transferee, the executor, or the administrator, or any of the legal heirs, as the case may be, shall file a return
under oath in duplicate... xxx
*CLARIFICATIONS:
As to head of the family: whether for income tax or estate tax, head of the family refers to the same
definition but its just that we do not classify taxpayers whether a person is single, married individual or a
head of the family. They are the same. The DIFFERENCE IS ON THE DEPENDENTS of the head family.
WHERE DO YOU FILE & PAY YOUR ESTATE TAX RETURN:
Except in cases where the Commissioner otherwise permits, the return shall be filed and the estate tax paid at:
1. An Authorized Agent Bank (AAB), or

2. Revenue District Office (RDO), or Collection Officer, or
3. Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of
his death, or
4. If there be no legal residence in the Philippines, with the Office of the Commissioner
If a person does not have a domicile here in the Philippines such as a non-resident, you will have to file
your return in the national office but it was designated that RDO 39 South District of Quezon City should
be the RDO where you should file when you are a non-resident alien. 14:23
TAX CREDITS OF TAXES PAID ABROAD:
There is a limit of the tax credit, which may be granted to resident Citizens, Non-resident citizens or resident
aliens for the reason that there is a chance they are paying foreign estate taxes since they are taxed for
properties outside the Philippines.
We do not include taxes paid by non-resident aliens paid outside because we did not account their properties
outside the Philippines.
TWO TYPES OF LIMITATIONS:
1. PER COUNTRY Limitation

a. if you have only one foreign country you use this or the global limitation, it does not matter if
you have only one foreign country.
b. Formula:
i. Net Estate of Foreign Country A divided by Global Net Estate then multiplied by the
Philippine estate tax due equals per country limit (for essay exam purpose)
ii. NE of Foreign Country x Philippine estate tax due
Global Net Estate
2. GLOBAL Limitation
a. Formula:
i. Total Foreign Country Net estate divided by the Global Net Estate then multiplied by the
Philippine estate tax due equals the global limit (for exam purpose)
ii. Total Foreign NE x Philippine estate tax due
Global Net Estate
EXAMPLE:
1. One Foreign Country: (use either per country or global)
X died with:
Philippine Estate Tax 1M
Japan Estate Tax 50M
Net Estate in Japan 100M
Net Estate of Philippines 300M
Per Country Limit = NE of Foreign Country x Philippine estate tax due

Global Net Estate
Per Country Limit = 100M x 1M

(100M+300M=400M)
Per Country Limit = 250K
You then compare the per limit to the foreign estate tax and choose whichever is lower. In this case, the
tax credit is only 250K which is lower than the 50M japan estate tax.
2. Two FC:
X died with:
Philippine Estate Tax 1M
Japan Estate Tax 50M

Brazil Estate Tax 200K
Net Estate in Japan 100M
Net Estate of Philippines 300M
Net Estate of Brazil 200M
Since you have two countries here or even when there is more than two you apply both limitation to get
whichever is lower from both formula.
1st step: Apply the Per Country
For Japan:
Per Country Limit Japan = NE of Japan x Philippine estate tax due

Global Net Estate
Per Country Limit Japan = 100M x 1M

(100M+300M+ 200M=600M)
Per Country Limit Japan = 166,667
For Brazil:
Per Country Limit Brazil = NE of Brazil x Philippine estate tax

Global Net Estate
Per Country Limit Brazil = 200M x 1M

(100M+300M+ 200M=600M)
Per Country Limit Brazil = 333,333
2nd step: Apply the Global Limit
Global Limit = Foreign Country Estate x Philippine estate tax due

Global Net Estate
Global Limit = (100M+200M= 300M) x 1M

600M
GLOBAL LIMIT = 500,000
3rd Step: Apply the Limit
Estate Tax Per country Whichever is

Paid Limit Lower
Japan 50,000,000 166,667 166,667
Brazil 200,000 333,333 200,000
TOTAL Per Country 366,667
TOTAL PER COUNTRY VS GLOBAL LIMIT = 366,667 vs 500,000

Since Per Country is lower, we the tax credit to be applied is 366,667.00
SOCIETAS SPECTRA LEGIS AND FRIENDS
DONORS TAX
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another,
who accepts it.
Take note there must be two acts that must concur for there to be a valid donation. First the acts of transfer and
second the acceptance. For purpose of taxation this act is subject to tax, to be exact we are taxing the ACT OF
LIBERALITY. Its is the privilege of transferring which is being taxed. You do not tax the person or the property but
the privilege.
TWO-FOLD PURPOSE OF DONORS TAX
1. To Supplement estate tax

2. Avoid Payment of Income tax
- it is to prevent the transfer of properties without paying income tax. For Example when a
person earns income(employee-ee), instead of the boss compensating the employee, the ee
will ask the boss to just donate it to the ees family. In this case, there is no income earned
on the part of the ee because it is the family members who receive the income. So the ee
was able to get away with the income tax, in order to prevent that situation, the
government imposes donors tax so that if ever there is no tax imposed on your income at
least there is a tax imposed on the donation made.
LAW TO BE IMPOSED ON ESTATE TAX

it should be the law prevailing at the time of the donation.
Therefore if the donation was made before 1997, the 1997 NIRC is not applicable it will be the 1979 tax code.
FORMULA OF DONORs TAX
GROSS GIFTS XXX

Less: Deductions (XX)
NET GIFTS XXX
Multiply: Tax Rate %
DONORS TAX PAYABLE XXX
GROSS GIFTS
Composition: Donations made during your lifetime in one calendar year. Take note that it should be during the
calendar year and not fiscal year because the tax code provide so even if the corporation is using a fiscal year.
SEC. 99. Rates of Tax Payable by Donor. -

(A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts made
during the calendar year in accordance with the following schedule..
WHEN DO YOU APPLY DONORS TAX

Apply it during the point of completion.
There is a completion when the object of the donation which is delivered either constructive or actual
to the donee. As opposed to perfection, which is when there is knowledge on the part of the donor of
the acceptance of the donee. TAKE NOTE: it is the knowledge of acceptance of the donee by the donor,
which perfects the donation.
Donors tax is applied when there is a completed donation. If it so that the date of perfection does not
coincide with the date of completion the date COMPLETION should PREVAIL.
INCOMPLETE DONATIONS, WHICH BECOME COMPLETE DONATIONS DUE TO AN EVENT

These are DONATIONS subject to a CONDITION. Example when there is a donation with reservation of
powers there is completion when there is renunciation or the donor cease to have that power or when
the condition has been met.
Take note that there is also reservation of powers in estate tax. So you make a distinction when the
power is withdrawn or the condition is met. If it is done during the life time of the donor then it is
subject to donors tax and not estate tax.
Example: A donates his car to B on the condition that B passes the bar. If A during his lifetime withdraws
the condition and gives the car to B, right then and there A is liable to donors tax. On the other hand, of
B does pass the bar then A is liable to donors tax.
TYPES OF DONORS for taxation:
A. INDIVIDUAL PERSONS:
1. Residents or Citizens Resident citizen (RC), Non-resident citizen (NRC) and Resident Alien (RA)
Properties donated within & without
2. Non-resident and non-citizen Non-resident alien (NRA), whether engaged in trade or business is
immaterial
Tangible Properties donated within, Intangible Properties within subject to rule on reciprocity
B. JURIDICAL PERSONS:
(Corporationor Partnership)
Note: Unlike in estate taxation wherein juridical persons cannot be the transferor of property
1. Domestic Corporation or Resident Foreign Corporation
Properties donated within & without
2. Non-Resident Foreign Corporation
Tangible Properties donated within, Intangible Properties within subject to rule on reciprocity
ELEMENTS FOR THERE TO BE A TAXABLE DONATION: (AFRAID-C)
1. A Actual or Constructive Delivery

2. F Form to Effect Donation
3. R Reduce the Assets or Patrimony of the Donor
4. A Acceptance of the Donee During the lifetime of the Donor
5. I Increase in the Assets or Patrimony of the Donee
6. D Donative Intent
7. C- Capacity of the Donor
DONATIVE INTENT
Intent of the donor to DONATE without consideration since its a gratuitous transfer (act of liberality).
As a RULE there must be an intent to donate these are the DIRECT DONATIONS such as those expressly
made and follow the requirements of the law.
As an EXCEPTION, there are instances though that donations are made but are done INDIRECTLY. These
are those donations by OPERATION OF LAW. Such as:
1. Transfer of Insufficient/Inadequate consideration
this is the same as that in estate tax. To determine which should be taxed either donors tax
or estate tax, we base it on the POINT OF DISCOVERY by the BIR whether during the lifetime
of the transferring/giver/donor (donors tax) or after (estate tax).
As a rule all properties transferred for inadequate consideration is subject to donors tax.
As an exception, The ONLY transfer for inadequate consideration that may NOT be taxed
with donors tax are transfers involving REAL PROPERTIES subjected to CAPITAL GAINS TAX.
o SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where
property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or money's worth,
then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of
gifts made during the calendar year.
o SEC. 24. (D) Capital Gains from Sale of Real Property. -(1) In General. - The
provisions of Section 39(B) notwithstanding, a final tax of six percent (6%)
based on the gross selling price or current fair market value as determined in
accordance with Section 6(E) of this Code, whichever is higher, is hereby
imposed upon capital gains presumed to have been realized from the sale,
exchange, or other disposition of real property located in the Philippines,
classified as capital assets
Reason: real property that are capital assets that are sold are taxed with a capital
gains tax of 6% based on gross selling price or current fair market value, whichever is
higher. So even if the sale was transferred for inadequate consideration the
government does not lose any taxes because it taxed the transfer based on whichever
is higher of the selling price or the market value.
On the other hand, in the case of shares of stocks subject to capital gains tax, which
are transferred for inadequate consideration, are still subject to donors tax.
o Sec. 24 (C) Capital Gains from Sale of Shares of Stock not Traded in the Stock
Exchange. - The provisions of Section 39(B) notwithstanding, a final tax at the

rates prescribed below is hereby imposed upon the net capital gains realized
during the taxable year from the sale, barter, exchange or other disposition of
shares of stock in a domestic corporation, except shares sold, or disposed of
through the stock exchange.
Not over P100,000......................................... 5%
On any amount in excess of P100,000............ 10%
the LEGAL REASON is that law is clear that the only property exempted under sec.
100 of the NIRC are properties subject to CGT under par. D of sec. 24 which are real
properties subject to CGT.
The logic for this is because capital gains on shares of stocks are based on capital gains
realized which is the difference of the selling price and the cost of the shares. Here if
there is an inadequate consideration the government stands to lose taxes from the
transaction therefore to supplement the loss it is subject to donors tax.
2. Condonation of a Debt
this is the gratuitous cancellation of a debt which is free from any material consideration. Its
should not be predicated on a past or future service.
REVIEW: when there is a condonation of debt it could be subject to 3 types of taxes:
o INCOME TAX if it pertains to past service rendered
o DONORS TAX no material consideration either past or future service.
o DIVIDEND TAX if it pertains to a condonation of a debt of a stockholder(debtor); it
could also be seen as an additional investment if the stockholder condones the
corporation where the creditor is the stockholder.
CAPACITY OF THE DONOR

As a rule, we look only at the capacity of the Donor however there are exceptions where the capacity of
the donee is material such as those that are not able to receive as provided for by the civil code.
Donors are capacitated if they are capacitated to enter into contracts.
o Incapacitated donors:
a. Insane persons
b. Minors
C. Spouses (to each other)
Art. 87. Every donation or grant of gratuitous advantage, direct or indirect, between the
spouses during the marriage shall be void, except moderate gifts which the spouses
may give each other on the occasion of any family rejoicing.
o The prohibition shall also apply to persons living together as husband and wife without a valid
marriage. Moderate gifts depend on the financial capacity of the donor
o If donation was void because it is not a moderate gift, then such transfer will be considered as
income tax (all income from whatever source is subject to income tax) on part of the donee.
Again as a rule, The donee need not be capacitated to receive the gift. It can be received by his guardian
or legal representative.
o Exception Incapacitated donees:
a. Those under civil interdiction
b. Spouses and man and woman living together without the benefit of marriage
c. Lawyers who notarized the will is incapacitated to receive donation or inherit
d. Gifts to public officers or their spouses or relatives by reason of public office
e. Those incapacitated to receive in succession due to undue influence (i.e. priests, doctors, one
who accuses the donor on an attempt on his life etc...)
o Gift received by a disinherited heir is subject to donors tax.
ACTUAL OR CONSTRUCTIVE DELIVERY
Actual Delivery delivery by physically placing the thing sold in the hands or in the physically placing it in
the donees possession
Constructive Delivery by operation law or legal delivery
o Traditio symbolica symbolic delivery of a thing part of the thing to be delivered such as a key
to the property
o Traditio longa manu delivery of a movable by long hand, usually by pointing at the thing
o Traditio brevi manu delivery by short hand, takes place when the donee is already in the
possession of the thing to be donated before the donation and continues to be the owner
thereof
o By legal formalities sale made through a public instrument, the execution is equivalent to the
delivery of the thing donated.
ACCEPTANCE OF THE DONEE DURING THE LIFETIME OF THE DONOR

Must be made known to donor during his lifetime
As a rule, Acceptance must generally be made personally
As an exception, can be made through another as long as authorized to accept such SPECIFIC donation
(authorized person with a special power for that purpose or with a general and sufficient power)
Such as when the donee is not capacitated to receive the gift. It can be received by his guardian or legal
representative.
VALUE ADDED TAX

DEFINITION OF VAT:
Value Added Tax is:
a consumption tax on every stage of the distribution process on the sale, barter, exchange, lease of
goods or properties, rendition of services and the importation of goods in the ordinary course of trade
and business.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. The burden can be shifted from the seller to
the buyer. The incidence of the taxation can be transferred from the seller to the buyer. BUT TAKE
NOTE, the statutory taxpayer is always the SELLER. What is merely shifted is the incidence of taxation.
So what is transferred to the buyer is no longer technically a value added tax but an additional cost on
the part of the buyer.
A privilege tax. Not attach to a particular good or a person. It is attach to the privilege of transferring
certain ownership over goods or properties or rendition of services including importation itself.
Therefore it is considered as an EXCISE TAX under classification based on nature.
An ad valorem tax, meaning it is based on a fixed value. It is imposed either on the GROSS SELLING PRICE
(GSP) or GROSS RECEIPTS (GR).
RULE OF REGULARITY
NIRC SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the value-
added tax (VAT)
In the same section in the third paragraph it states that:
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or government entity.
Take note of the word regular, this is referred to as the RULE OF REGULARITY. This rule is generally
applied to all taxpayers. EXCEPT, non-resident foreign entity.
GR: we subject a particular transaction to rule of regularity.
o EXC: Non-resident foreign person or entity. Therefore, when a NR foreign individual or entity
engages in an activity here in the Philippines it is automatically subject to VAT provided all other
requisites are complied with or it is not a vat exempt transaction.
WHY IS IT CALLED VALUE ADDED TAX:

It is the tax in the value added.
For example:
o A to B: A sells a piece of wood. Sold it to B for 100. As a rule 12% will be VAT on the GSP. So total
amount that will be paid by B is 112.
o Now be wants to use the wood to make a chair and then sell it. So B sold it for 200 to C. so plus
the vat of 12% the total price paid by C is 224. Notice that the difference of the value from a
piece of wood @ 100 to a chair @ 200 there is an increase of value of 100 (200-100=100). TAKE
NOTE: B here at first is liable for the vat of 24(12% of 200) upon sale to C which he then shifted.
But B here already paid 12(12% of 100) which was passed by A to B. in effect the tax actually
shouldered by B is 12. (24-12=12).
o Later on you will see that B here made an Output Vat from his sale of 24 less the Input VAT from
his purchase of 12 giving him a Vat due of 12.
GUIDE: PISO P-urchase I-nput; S-ales O-utput
o So as you see, B added a value of 100 to the wood therefore ultimately his shoulders the tax of
12 from the 100 value he added to his piece of wood.
o B to C: So let say C bought from B the chair and added designs to the chair and sold it for 300.
The vat of this is 36(12% of 300). Total is 336. The difference of the value from B to C is 100
(300-200=100). The vat actually shouldered by C is 12 (36-24=12) which is still equivalent to the
vat on the value added which is 100 pesos.
o So the tax shouldered by the people in the process is only the tax on the value added in each
stage of the process. That is why its called value added tax.
o Take note, it its only called value added tax before it reaches the end user. This is because if you
are the end user and you cannot make use of the property anymore or rather you did not add
value to the property anymore you ultimately shoulder the full amount of the VAT.
o C to D: Lets say from C it was sold to D, the end user. D will shoulder the entire 36 from the GSP
of 300.
STEPS in VAT problems/cases:

1. look at the taxpayer involved. Whether he is a VAT registered or NON-VAT registered.
a. If he is a VAT registered then initially you may say this is subject to vat BUT it does not stop
there.
2. Look at the TRANSACTION where the taxpayer is involved in.
WHO ARE VAT TAXABLE:
1. those whose annual gross sales EXCEED 1,919,500.00 (memory tip: 19-19-500); these taxpayers MUST
register itself as a VAT REGISTERED TAXPAYER.
2. Those who do not exceed but who OPT to register as a VAT REGISTERED TAXPAYER.
o What if you were non-vat registered and your sales for the year exceeded 1,919,500. Are you
subject to vat?
YES. More reason for you to pay in addition to other percentage tax you are liable for.
So before you start a business you must project your sales in order to estimate if you
will be subject to vat or not.
VAT IN TERMS OF TRANSCATIONS:

it is imposed on the:
1. Sale goods or properties,

2. Rendition of services
3. Importation of Goods
SALE OF GOODS OR PROPERTIES
TAX RATE & TAX BASE

GR: 12% on Gross Selling Price; EXC: 0% rated transactions
GROSS SELLING PRICE

Gross selling price means the total amount of money or its equivalent, which the purchaser pays or is obligated
to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the
value-added tax.
The phrase obligated to pay is relevant because this means that even if you did not pay it because it
was already incurred you have to automatically subject it to VAT. So when you are talking about SALE OF
GOODS AND PROPERTIES, it does not depend on the payment it depends on the incurrence. When you
are already allowed to record the transaction you are already liable to pay VAT regardless when the
payment is made.
o TAKE NOTE: that this is the DIFFERENCE BETWEEN GROSS SELLING PRICE & GROSS RECEIPTS
because:
GROSS SELLING PRICE taxable upon incurrence of the obligation
GROSS RECEIPT taxable only when there is actual or constructive payment of goods.
GOODS OR PROPERTIES
The term "goods" or "properties" shall mean all tangible and intangible objects which are capable of pecuniary
estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
as stated in the cases, the enumeration of goods and services stated in the NIRC are not exclusive.
Moreover, from the use of the phrase shall include the enumeration is not exclusive therefore there
may be other properties taxable.
As to what are properties, this was discussed in property law. These maybe real or personal.
As to what are goods this was covered in your sales law. These maybe fungible or non-fungible and
others.
This also includes the right and privilege to use intellectual properties.
ZERO RATED TRANSACTIONS OF SALE OF GOODS:

1. EXPORT SALES
2. FOREIGN CURRENCY DENOMINATED SALES (FCDS)
3. EXEMPT UNDER SPECIAL LAWS or EFFECTIVELY ZERO RATED TRANSCATIONS
I. EXPORT SALES: (sec. 106)

1) Direct Export (1st paragraph)
a) Sale and there must be an actual shipments of goods FROM the PHIL to FOREIGN COUNTRY
b) must involve payment of ACCEPTABEL FOREIGN CURRENCY
c) accounted for under the rules and regulations of the Bangko Sentral (BSP)
Example 1:
A(Phil) exports chairs to B(US)
B pays 1000USD through BPI to A
o This is a direct export sale.
o 1st there is a shipment of goods from Phil to foreign country. Take note it will not
matter if FOB shipping point or destination as long it is exported.
o 2nd paid under an acceptable foreign country. Acceptable currencies are generally
those currency of countries not at war with the Philippines. To be exact there is a
complete list in the BSP website.
o 3rd paid for accordance with the rules of the BSP. If you pay with a banking facility
then it is covered by the rules of the BSP.
o Therefore, this is a zero rated sale under category no.1 as a direct export sale.
Example 2:
A(Phil) exports chairs to B(US)
B pays 1000USD directly to A
o This is a direct export sale.
o 1st there is a shipment of goods from Phil to foreign country. Take note it will not
matter if FOB shipping point or destination as long it is exported.
o 2nd paid under an acceptable foreign country. Acceptable currencies are generally
those currency of countries not at war with the Philippines. To be exact there is a
complete list in the BSP website.
o 3rd BUT NOT accounted for accordance with the rules of the BSP. Because no bank
was involve therefore BSP was not involve in the sale.
o Therefore, not an export sale.
2) Indirect Export (2nd paragraph)

a) Sale of RAW materials or PACKAGING materials
b) Sold to a NON RESIDENT BUYER
c) DELIVERED to a RESIDENT LOCAL EXPORT ORIENTED enterprise
d) For the purpose of MANUFACTURING, PROCESSING or PACKING of the said goods in the Philippines
e) Paid for in acceptable foreign currency
f) Accounted for under the rules of the BSP
Example 1:
C(supplier) is selling rattan. B(US buyer) wanted to buy a chair from A(exporter).
B was so picky with the quality of the materials. So he bought from C the raw materials in the
amount of 1000USD through BPI.
B also believes in the skills of A in manufacturing the furniture. So B here instructs C to deliver
the rattan to A for the latter to manufacture it and then ship it to B for 2000USD through BPI.
This problem shows to kinds of transactions:
o First: INDIRECT EXPORT: Sale of C to B
1st there is a sale of RAW materials, which is rattan.
2nd there is a sale to a NON RESIDENT BUYER
3rd C is to DELIVER to A a RESIDENT LOCAL EXPORT ORIENTED enterprise the
rattan
4th it is for the purpose of MANUFACTURING of the said goods in the Philippines
5th it was paid for in acceptable foreign currency which is 1000USD
6th it was accounted for under the rules of the BSP by paying through BPI.
Therefore the sale of C to B was a zero rated transaction being a indirect export
sale.
o Second: DIRECT EXPORT SALE: Sale from A to B
1st there is a shipment of goods from Phil to foreign country.
2nd paid under an acceptable foreign country.
3rd paid for accordance with the rules of the BSP..
Therefore, this is a zero rated sale under category no.1 as a direct export sale.
3) Constructive Export (Paragraph 3)

a) Sale of raw materials or packaging materials
b) Sold To a local export oriented enterprise
c) Sales of the export oriented enterprise MUST EXCEED 70% of its total annual production
i) Export-oriented enterprise primarily devoted to the production of goods and services for export
that demonstrably contributes foreign exchange to the economy
Example 1:
A is local export oriented enterprise. 100% of its sale is export. One of its customers is B who is
in the US.
A is sourcing its raw materials which is rattan from C. so A buys rattan from C here in the
Philippines and paid for in 1000 pesos per strip of rattan through BPI.
The sale of C to A of the rattan is considered as an export sale.
o 1st it is a sale of raw materials
o 2nd it is sold to a local export oriented enterprise
o 3rd sales of the export oriented enterprise EXCEED 70% of its total annual production
o here it does not matter if it was paid in peso or not paid in accordance with the rules of
BSP. Only 3 elements. This is considered as a export sale under paragraph 3.
4) Sale of Gold to BSP

a) Sale of GOLD
b) To BSP
5) Those considered export sales under ART. 23 Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws
According to the article there are three type of exports.
1. Actual Export. Actual is just the same as par. 1.
2. Constructive Export
Article 23.
xxx.Provided, further, That without actual exportation the following shall be
considered constructively exported for purposes of this provision:
(1) sales to bonded manufacturing warehouses of export-oriented manufacturers;

(2) sales to export processing zones;
(3) sales to registered export traders operating bonded trading warehouses supplying raw materials
used in the manufacture of export products under guidelines to be set by the Board in
consultation with the Bureau of Internal Revenue and the Bureau of Customs;
(4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities
granted tax immunities, of locally manufactured, assembled or repacked products whether paid
for in foreign currency or not:
These are sales to foreign instrumentalities. These are exemptions to the
DESTINATION PRINCIPLE & CROSS BORDER DOCTRINE.
As a RULE: Here in the Philippines we follow the DESTINATION PRINCIPLE. This states
that when the goods are sold here in the Philippines for consumption then it is liable
to value added tax.
There is also this CROSS BORDER DOCTRINE, which states that when it crosses the
borders of the Philippines it will be taxed abroad not here.
These two doctrines are complimentary but not exactly the same.
If you are talking about the destination principle you look at the viewpoint of the
Philippines.
If cross border you look at outside. If it is destined outside then Philippines has no
jurisdiction.
THEREFORE as an EXCPETION by OPERATION LAW these sale to foreign
instrumentalities are subject to VAT BUT ZERO RATED.
(5) and Provided, finally, That exportation of goods on consignment shall not be deemed export
sales until the export products consigned are in fact sold by the consignee.
From the Philippines it is shipped to an entity abroad that is just a consignee. Here it is
still not considered an export sale. It will only be considered as an export sale once
consignee actually sales the goods. So upon consignment what is subject to vat is the
consignment fees BUT the sale of the goods will not be subject to vat because it is
export.
Another school of thought is that you can argue that consignment fees should not be
subject to vat because it is transacted abroad. But again BIR will argue that you
perfected the contract within the country. This is highly debatable. Just take a position.
THE POINT HERE is that upon shipment of the consignment it is not yet the export sale
contemplated by the law it only when the consignee sells it.
(6) A. Sales of locally manufactured or assembled goods for household and personal use to Filipinos
abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under
the Internal Export Program of the government and paid for in convertible foreign currency
inwardly remitted through the Philippine banking systems shall also be considered
export sales.
3. Sales made by a VAT-registered supplier to a BOI-registered manufacture/producers
(6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations.
a) sale of goods, supplies, equipment and fuel
b) to persons engaged in international shipping or international air transport operations
c) Domestic entities
later on you will realize that in connection with services rendered to international air
transport operations are also zero rates.
What if the business involves an international length and a local length. Will it affect the
local length operations? It will depend on the stoppage at the airport of these entities
engaged in international shipping or transport is for purposes of BOARDING or UNLOADING
passengers but ultimately will go to an international airport then it maybe considered as
part of the entire international length.
But if the reason of the stoppage is for inter country transfer only subject to vat. Therefore
when we say:
o BOARDING of passengers the trip here is TO THE foreign country. Ex. Trip is CEB to
US but stopover MNL to board passengers to US.
o UNLOADING of passengers the trip here is GOING BACK TO the phil from foreign
country. Ex. US to CEB but stopover MNL first to unload passengers then unload in
CEB.
o So stoppage here is only to unload or load passengers ULTIMATELY going abroad.
TAKE NOTE THE AIRLINES HERE is a DOMESTIC ENITITY engage in international air transport
or shipping. Foreign entities will be covered either by other % tax or under exempt
transaction.
II. FOREIGN CURRENCY DENOMINATED SALES (FCDS)
1. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150,
a. SEC. 149. Automobiles. Automobile shall mean any four (4) or more wheeled motor
vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity
or any other motive power:
i. Provided, That for purposes of this Act, buses, trucks, cargo vans,
jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose
vehicles shall not be considered as automobiles
b. SEC. 150. Non-Essential Goods
i. All goods commonly or commercially known as jewelry, whether real or
imitation, pearls, precious and semi-precious stones and imitations thereof;
goods made of, or ornamented, mounted or fitted with, precious metals or
imitations thereof or ivory (not including surgical and dental instruments,
silver-plated wares, frames or mountings for spectacles or eyeglasses, and
dental gold or gold alloys and other precious metals used in filling, mounting
or fitting the teeth); opera glasses and lorgnettes. The term "precious metals"
shall include platinum, gold, silver and other metals of similar or greater value.
The term imitations thereof shall include platings and alloys of such metals;
ii. Perfumes and toilet waters
iii. Yachts and other vessels intended for pleasure or sports.
2. assembled or manufactured in the Philippines for delivery to a resident in the Philippines,
3. paid for in acceptable foreign currency and
4. accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP).
This is different from a constructive export sale because it is not need to be a raw material or a
packaging material and not delivered to local export oriented enterprise.
Example 1. C sells lenses(not a raw material) to B who is in the US. B instructs that the lens be delivered
to A for the latter to manufacture it further. (take note that under this there is no need for there to be a
purpose of the delivery it may be for manufacturing or just a gift). B paid C 1000USD through BPI. Will
these be export sales?
o NO. because to fall under export sales.
1st there is no actual shipment so it will not fall as a DIRECT EXPORT
2nd it will not fall as an INDIRECT or a CONSTRUCTIVE export because the lens are not
raw materials and is not sold to local export oriented enterprise.
o it is considered an Foreign currency denominated sale (FCDS). Because:
1st sale to a nonresident of good
2nd assembled or manufactured in the Philippines for delivery to a resident in the
Philippines,
3rd paid for in acceptable foreign currency
4th accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas
Example 2. C sells cellphone (manufactured here in the Philippines) to B who is in the US. B instructs
that the phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these be export
sales?
o NO. because to fall under export sales.
1st there is no actual shipment so it will not fall as a DIRECT EXPORT
2nd it will not fall as an INDIRECT or a CONSTRUCTIVE export because the lens are not
raw materials and is not sold or delivered to local export oriented enterprise.
o it is considered an Foreign currency denominated sale (FCDS). Because:
1st sale to a nonresident of good
2nd assembled or manufactured in the Philippines for delivery to a resident in the
Philippines
Take note locally assembled. So iphone cannot qualify maybe cherry mobile or
my phone manufactured here in the Philippine will qualify.
3rd paid for in acceptable foreign currency
4th accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas
Example 3. C sells CAR (manufactured here in the Philippines) to B who is in the US. B instructs that the
phone be delivered to A in the philippines. B paid C 1000USD through BPI. Will these covered by the
FCDS?
o NO. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150
SEC. 149. Automobiles. Automobile shall mean any four (4) or more wheeled motor
vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or
any other motive power:
i. Provided, That for purposes of this Act, buses, trucks, cargo vans,
jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose
vehicles shall not be considered as automobiles
Example 4. C sells JEEPNEY to B who is in the US. B instructs that the phone be delivered to A in the
philippines. B paid C 1000USD through BPI. Will these covered by the FCDS?
o YES. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150
vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or
any other motive power:
Provided, That for purposes of this Act, buses, trucks, cargo vans,
jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles
shall not be considered as automobiles
Example 5. C sells Tricycle to B who is in the US. B instructs that the phone be delivered to A in the
philippines. B paid C 1000USD through BPI. Will these covered by the FCDS?
o YES. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150
vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity
or any other motive power:
Provided, That for purposes of this Act, buses, trucks, cargo vans,
jeeps/jeepneys/jeepney substitutes, single cab, chassis, and special-purpose vehicles
shall not be considered as automobiles
Example 6. C sells Fashion Jewelries to B who is in the US. B instructs that the phone be delivered to A in
the philippines. B paid C 1000USD through BPI. Will these covered by the FCDS?
5. NO. means sale to a nonresident of goods, except those mentioned in Sections 149 and 150,
SEC. 150. Non-Essential Goods
i. All goods commonly or commercially known as jewelry, whether real or imitation, pearls,
precious and semi-precious stones and imitations thereof; goods made of, or ornamented,
mounted or fitted with, precious metals or imitations thereof or ivory (not including
surgical and dental instruments, silver-plated wares, frames or mountings for spectacles
or eyeglasses, and dental gold or gold alloys and other precious metals used in filling,
mounting or fitting the teeth); opera glasses and lorgnettes. The term "precious metals"
shall include platinum, gold, silver and other metals of similar or greater value. The term
imitations thereof shall include platings and alloys of such metals;
ii. Perfumes and toilet waters
iii. Yachts and other vessels intended for pleasure or sports.
III. Sales to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales to zero rate.
First there has to be a treaty. When it says not subject to VAT then it is not.
Second, are entities who are exempted under special laws such as ASIAN DEVELOPMENT BANK (ADB) or
International Rice Institute (IRI) or those enterprise located in export zones.
o As a rule if a person sells to ADB normally the seller will be subject to VAT but under the law the
exemption of ADB is extended to the seller or any of its supplier.
TAKE NOTE: All this Zero rated sales are transacted by VAT REGISTERED PERSONS. Because if they were non- vat
registered then it would have been another transaction which maybe covered by exempt transactions. Non-VAT
registered individuals are NOT COVERED by the Zero Rated Transactions.
TRANSACTIONS DEEMED SALE
Reason: because the government wants to recover the taxes that is due to it. Because upon purchase of the
materials you will be allowed to deduct your Input Vat as an expense but later on you did not sell your products
you are in effect depriving the government of its Output Vat.
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale
or for use in the course of business;
This is will only cover goods intended for sale. Ex. In a Sari2x Store, the sardines you give to carolers is
deemed sale subject to VAT. So if you were selling the sardines for 10.00 then the Vat will be based on
the 10.00.
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
o The goods must be intended for sale. Ex. Real Estate Business. The shareholders are given
property dividends which are condominium units intended for sale therefore the dividends will
be subject to VAT. Basis of the VAT is the FMV of the property.
(b) Creditors in payment of debt;
o Ex. Engage in the Selling of Ferrari Cars. The creditor has an outstanding receivable from your
company and you cannot pay cash so instead you give the creditor a Ferrari car. The distribution
of the car will be subject to VAT.
If the debt is 1M and the car is worth 3M this will always be subject to VAT and it will
always be based on the FMV of the property.
If the debt is 10M and the car is worth 3M again still subject to VAT based on the
FMV of the property which is 3M.
the twist here is that the 7M (10M 3M) of the debt that was condoned is
subject to DONORS TAX who will be paid by the DONOR the creditor who
condoned the debt.
In both case, the seller will be the one who will pay the VAT.
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were
consigned; and
Here still the goods must be intended for sale because the fact that you are consigning it is there is an
intention to sell.
If it is over 60 days and its still not sold it is as if it was sold. So as a consignor before the 60 or at the 60
days days arrive pull out the goods from your consignor.
Consignor will pay the VAT here if it is considered as a transaction deemed sale.
Based still on the FMV of the goods sold.
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.
Here you closed shop. Ex. Sari2x Store you closed business but there were still sardines left. All these will
be deemed sold and subject to VAT. No Mercy BIR.
HOWEVER, if you are engage in the so called TAX FREE EXCHANGE:
o Sec. 40(c) (2)
(2) Exception. - No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation -
o (a) A corporation, which is a party to a merger or consolidation, exchanges property solely for
stock in a corporation, which is a party to the merger or consolidation; or
o (b) A shareholder exchanges stock in a corporation, which is a party to the merger or
consolidation, solely for the stock of another corporation also a party to the merger or
consolidation; or
o (c) A security holder of a corporation, which is a party to the merger or consolidation, exchanges
his securities in such corporation, solely for stock or securities in such corporation, a party to the
merger or consolidation.No gain or loss shall also be recognized if property is transferred to a
corporation by a person in exchange for stock or unit of participation in such a corporation of
which as a result of such exchange said person, alone or together with others, not exceeding
four (4) persons, gains control of said corporation: Provided, That stocks issued for services shall
not be considered as issued in return for property.
This TAX FREE EXCHANGE will not be covered by VAT.
Q: What about the Sari2x Store structure, will it be deemed as sold too?
o This is contestable. But the current position of the BIR is YES it will be considered part of the
inventoriable goods because it is incidental to your business and VAT extends to incidental
activities.
The phrase "in the course of trade or business" means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a nonstock,

nonprofit private organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or government entity.
Changes in or Cessation of Status of a VAT-registered Person.
- The tax imposed shall also apply to goods disposed of or existing as of a certain date if under
circumstances to be prescribed in rules and regulations to be promulgated by the Secretary of Finance,
upon recommendation of the Commissioner, the status of a person as a VAT-registered person changes
or is terminated.
o You were so confident you would reach 1,919,500.00 and yet you can never reach it no matter
how hard you try. You change to a non-vat taxpayer. Those goods bought during the status of
VAT registered will be considered as deemed sold and are VAT taxable.
SALE OF REAL PROPERTIES SUBJECT TO VAT
This includes sale, transfer or disposal within a 12-month period of two or more adjacent residential lots, house
and lots or other residential dwellings in favor of one buyer from the same seller, for the purpose of utilizing the
lots, house and lots or other residential dwellings as one residential area wherein the aggregate value of the
adjacent properties exceeds P1,919,500.00, for residential lots and P3,199,200.00 for residential house and lots
or other residential dwellings. RR No. 13-2012)
To go around this, you might want to sell it on a different period so it will not be covered by VAT.
SALE OF REAL PROPERTIES WHICH ARE EXEMPTED FROM VAT
(P) Sale of real properties 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 as defined by Republic Act No.
7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws,
residential lot valued at P1,919,000.00 and below, house and lot and other residential dwellings valued at
P3,199,200 and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to their present values using the Consumer Price Index, as published by
the National Statistics Office (NSO);
Generally, only those real properties ordinarily sold in the course of business will be subjected to VAT. However,
even if the real properties are not intended for sale but they are used in the business of the taxpayer, they may
be subject to VAT because when a real property is considered an ordinary asset, it is subject to VAT when sold.
5. BIRs justification: Incidental transactions are those which are necessary appertaining to or depending
upon another business (principal business) of the seller or transferor.
6. Exception: Real properties subject to CGT.
Even if the sale involves an ordinary asset but the aggregate sale within a year does not exceed P1,919,000 it
may not be subject to VAT. If such property is ordinary held for sale, it is now subject to percentage tax.
However, if such property is merely used in the business, it is not subject to percentage tax.
EXEMPT TRANSACTIONS INVOLVING SALE OF REAL PROPERTIES
1) Sale of residential lot not exceeding P1,919,000.

This is not based on an aggregate sale but on a per transaction basis.
If a residential lot, within the year, is sold for at least P1,919,000, it will not be subject to VAT.
2) Sale of residential house and lot not exceeding P3,199,200.
3) If two or more adjacent residential lots, house and lots or other residential dwellings are sold or disposed in
favor of
one buyer from the same seller, for the purpose of utilizing the lots, house and lots or other residential dwellings
as one
residential area, the sale shall be exempt from VAT only if the aggregate value of the said properties do not
exceed
P1,919,500.00 for residential lots, and P3,199,200.00 for residential house and lots or other residential
dwellings.
Adjacent residential lots, house and lots or other residential dwellings although covered by separate titles
and/or separate tax declarations, when sold or disposed to one and the same buyer, whether covered by one or
separate Deed/s of Conveyance, shall be presumed as a sale of one residential lot, house and lot or residential
dwelling. (RR No. 13-2012)
4) Sale of other residential dwellings such as condominium units not exceeding P3,199,200.
VALUE-ADDED TAX ON IMPORTATION OF GOODS (SEC 107)
Tax rate: 12%

Tax base: GR: Total transaction value, i.e. the value shouldered by the importer including the shipping, excise
taxes, customs duties and all other cost related to the bringing in of goods up to the customs territory.
That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-
added tax shall be based on the landed cost plus excise taxes, if any.
Take note:
1) In importation, it does not take into consideration if its for business or personal use.
2) That as a general rule, if such goods is exempted from customs duties, it is also exempted from value added
tax.
Example of goods exempted from customs duties: personal apparel that you are wearing when you
come here from abroad.
Technical importation - where the importation or purchase was made by an exempt person (like ADB, IRRI, or
consul) and subsequently sold to a non-exempt person. The transfer to the non-exempt person shall be assessed
of VAT. The transferee will be liable for VAT.
Its usually practiced in the Economic Zone.
VALUE-ADDED TAX ON SALE OF SERVICES (SEC 108)
Tax rate: 12%

Tax base: gross receipt.
The term 'gross receipts' means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding value-
added tax.
It does not matter when the services is rendered as long as payment is actually or constructively
received.
Services are anything which requires for the exercise or use of the physical or mental faculties.
Every activity that can be imagined as a form of "service" rendered for a fee should be deemed included unless
some provision of law especially excludes it. Congress has given the term "services" an all-encompassing
meaning. The listing of specific services are intended to illustrate how pervasive and broad is the VAT's reach
rather than establish concrete limits to its application. "Services" to be subject to VAT need not fall under the
traditional concept of services, the personal or professional kinds that require the use of human knowledge and
skills. (Diaz vs Secretary Of Finance)
Among those included in the enumeration is the "lease of motion picture films, films, tapes and discs." This,
however, is not the same as the showing or exhibition of motion pictures or films. The legislature never
intended operators or proprietors of cinema/theater houses to be covered by VAT. Historically, the activity of
showing motion pictures, films or movies by cinema/theater operators or proprietors has always been
considered as a form of entertainment subject to amusement tax. Amendments to the VAT law have been
consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. These
reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds
true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law
was intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local
government unit and not by the national government is immaterial. (CIR vs SM Prime Holdings)
That a domestic corporation that provided technical, research, management and technical assistance to its
affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing
profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any
intention of realizing profit, any income or profit generated by the entity in the conduct of its activities was
subject to income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service
for a fee, remuneration or consideration, then the service rendered is subject to VAT. (CIR vs Comaserco)
Thus, there MUST be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly,
there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and
not in payment for goods or properties sold, bartered or exchanged by Sony. (CIR vs Sony Philippines)
Distinction between the Comaserco and Sony case.
In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former
reimbursement-on-cost which means that it was paid the cost or expense that it incurred although without
profit. This is not true in the Sony case. Sony did not render any service to SIS at all. The services rendered by the
advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to
Sony in the amount equivalent to the latter's advertising expense but never received any goods, properties or
service from Sony.
Tollway operators render services for a fee
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway
facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this
sense, the tollway operator is no different from the following service providers under Section 108 who allow
others to use their properties or facilities for a fee. Section 108 subjects to VAT "all kinds of services" rendered
for a fee "regardless of whether or not the performance calls for the exercise or use of the physical or mental
faculties." And not only do tollway operators come under the broad term "all kinds of services," they also come
under the specific class described in Section 108 as "all other franchise grantees" who are subject to VAT,
"except those under Section 119 of this Code."
Distinction between toll fees and taxes
A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to
fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the
tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of
public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may
be imposed only by the government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
CIR vs BWSC-Mitsui case [services rendered by the foreign entity to the consortium here in the PH] BWSC
formed a consortium with Mitsui for services rendered of NAPOCOR in the operation of its barges. The
consortium appointed BWSC Denmark as its coordinator-manager. There is services rendered by the
coordinator-manager, so he is being paid. There was imposition VAT on BWSC for services rendered here in the
Philippines. They raise the issue that they should not be imposed with VAT because their transaction is covered
under Sec 108 B(2) "(2) Services other than those mentioned in the preceding paragraph rendered to a person
engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who
is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
SC said that the services were rendered to an entity doing business here in the Philippines.
As distinguished from the case of American Express: branch here collects credit card bills for the HK branch.
Therefore services was rendered by the Phil branch for the HK branch as distinguished from the BWSC case. This
time it is covered by Sec 108 B(2).
The important thing to remember in these two cases is that there is clearly a difference with respect TO WHOM
the services was rendered. Take note that zero rated transactions are an exception to the destination principle
such that even if the services are rendered HERE in the Philippines, but because it is rendered FOR a person
engaged in business OUTSIDE the Philippines. The only thing to consider here is FOR WHOM the services are
rendered. The issue on WHERE the services are rendered is IMMATERIAL.
ZERO-RATED TRANSACTIONS
Sec 108 "(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking [services] goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
Connect this with Section 106 Export Sales (2) Sale of raw materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in
the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
In Section 106(2) there is a sale of goods while in Sec 108 B(1) there is no sale of goods but rather, its
the service that is being exempted from VAT.
Example of Section 108 B(1): B, engaged in a business outside the Philippines, bought chairs from C, but B wants
it packed. So he told C to deliver the goods to A for packaging purposes. We all know the sale from C to B may be
treated as export sales if ultimately the chairs are exported by C to B. Now for it to be covered by Sec 108, it
must be B, who must contract with A for the packaging services. The transaction for the packaging services of
the chairs must be between B and A, paid for in acceptable foreign currency and accounted for under the rules
of the BSP.
Take note of the elements:
o To whom is the service being rendered? To B who is a non-resident
o What service is being rendered? Packaging of the chairs. (It could also be processing or
manufacturing)
o Is it paid for in acceptable foreign currency? Yes
o Is it accounted for under the rules of the BSP? Yes.
Now if its not being packaged and now C ships it to B, what will happen to the transaction between C
and B? It is still a zero-rated transaction covered under paragraph 1.
(2) Services OTHER THAN THOSE mentioned in the preceding paragraph rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is outside
the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
CIR vs American Express - AE Philippines does the collection for and in behalf of AEHK. AEHK pays for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP. In this
instance, the service is covered under Sec 108 B(2).
Call centers, assuming its not in an Economic Processing Zone may be considered as services OTHER THAN
THOSE mentioned in paragraph 1. First, its a services other than processing, manufacturing or repacking goods.
Second, it is being rendered for an entity engaged in business conducted outside the Philippines. Third, it is paid
for in acceptable foreign currency and; Fourth, it is accounted for in accordance with the rules and regulations of
BSP. Again, it does not matter WHERE the service is being rendered. What matters is FOR WHOM is the services
being rendered because we are talking of ZERO-RATED transaction, which is an EXCEPTION to the DESTINATION
principle.
(3) Services rendered to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
Example: Services rendered to ADB or IRRI. If you are contractor and you render service to ABD or IRRI. Your
services will subject to zero-rated VAT. It not required that it be paid paid for in acceptable foreign currency or
that it is accounted for in accordance with the rules and regulations of BSP.
(4) Services rendered to persons engaged in international shipping or international air transport operations,
including leases of property for use thereof.
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing

goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production;
Example: C, is a local export-oriented enterprise whose export sale exceeds 80% of its total annual production. C
subcontracts A, to package [processing] the goods it exports abroad. The transaction between C and A will be
considered zero-rated transaction under Sec 108 B(5).
Try to relate this with Section 106 A(a) (3) Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed seventy percent (70%) of total annual production;
(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
The service has to be rendered by a domestic entity in order to be covered under the zero-rated transaction.
Example: You fly with PAL or CebuPac from Cebu to HK. You will notice in your ticket that the flight is zero-rated.
Revenue Regulation 15-2013 SECTION 6. VALUE-ADDED TAX. The transport of passengers by international
carriers doing business in the Philippines shall be exempt from value-added tax (VAT) pursuant to Sections
109(1)(S) of the NIRC, as amended by RA No. 10378. The transport of cargo by international carriers doing
business in the Philippines shall be exempt from VAT pursuant to Sections 109(1)(E) of the NIRC, as amended by
RA No. 10378, as the same is subject to Common Carriers Tax (Percentage Tax on International Carriers) under
Section 118 of the NIRC, as amended. International carriers exempt under Sections 109(1)(S) and 109(1)(E) of
the NIRC, as amended, shall not be allowed to register for VAT purposes.
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies
such as fuel cells and hydrogen fuels.
This list is not exhaustive.
X. TRANSACTIONS EXEMPT FROM VAT
Difference between persons exempt from VAT and VAT Exempt Transactions:
Persons exempt from VAT is directed on the taxpayer on reason that the seller is exempt while VAT exempt
transaction pertain to transaction which are VAT exempt regardless of the seller.
EXEMPT TRANSACTIONS:
(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a
kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic
materials therefor.
"Products classified under this paragraph shall be considered in their original state even if they have undergone
the simple processes of preparation or preservation for the market, such as: a. freezing, b. drying, c. salting,d.
broiling, e. roasting, f. smoking or g. stripping
There are two transactions here that are exempt. Both Sale & Importation.
Agricultural and Marine FOOD products may be considered to have be considered in their Original State
even if it has undergone through processing BUT has only undergone simple processes of preparation or
preservation such as:
o Freezing
o Drying
o Salting
o Broiling
o Roasting
o Smoking
o Stripping
DRIED MANGOES Not Exempt. Because when they produce this commercialized dried mangoes in the
grocery it does not simply go through drying. There are more process that these mangoes undergone.
However if you LITERALLY sell mangoes that were simply dried then it may be exempt but this is very
unlikely.
DRIED FISH Exempt. Marine Food product that undergone drying.
RICE Exempt. Because it is a Agricultural food product. It is exempt in whatever form. Either it is palay,
rice or cultured rice. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt,
and copra shall be considered in their original state;
WATER Not Exempt. It does not fall under this paragraph because it is neither an agricultural food
product or a marine food product
EGGS: exempt whether red-egg or salted egg. Salting does not deviate the food product from its original
form
ROASTED CHICKEN: Exempt
COFFEE BEANS: Exempt
COTTON or COTTON SEEDS: VATable even in its original state
COPRA: Exempt
PETROLEUM PRODUCTS: VATable
ELECTRICITY: VATable
SUGAR: Only Raw cane Sugar is VAT exempt. Refined sugar is already VATable.
o There is an entire revenue regulations devoted to the payment of VAT on sugar. It is actually
called the Advance Value Added Tax that you pay on every sugar that the sugar miller
produces. So it is not totally exempt unless it falls under raw cane sugar or molasses.
o Cane sugar produced from the following shall be presumed to be refined sugar:
Product of a refining process, Product of a sugar refinery, or Product of a production line
of a sugar mill accredited y the BIR to be producing and/or capable of producing sugar
with polarimeter reading of 99.5% and above
EXEMPT NOT EXEMPT

o Dried fish o Dried mangoes
o Rice o Water
o Eggs o Cotton or Cotton Seeds
o Roasted Chicken o Petroleum
o Coffee Beans o Electricity
o Copra o Refined Sugar
o Raw Cane Sugar or Molasses
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally
considered as pets);
- Not all sale or importation of fertilizers and seeds are exempted from VAT. Specialty feeds are
VATable. Specialty feeds are those feeds for animals that we do not actually consume ordinarily like
pets and zoo animals.
(C) VS (D)
(C) Importation of personal and household effects (D) Importation of professional instruments and
belonging to the residents of the Philippines returning implements, wearing apparel, domestic animals, and
from abroad and nonresident citizens coming to personal household effects (except any vehicle,
resettle in the Philippines: Provided, That such goods vessel, aircraft, machinery, other goods for use in the
are exempt from customs duties under the Tariff and manufacture and merchandise of any kind in
Customs Code of the Philippines; commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons,
or arriving within ninety (90) days before or after
their arrival, upon the production of evidence
satisfactory to the Commissioner, that such persons
are actually coming to settle in the Philippines and
that the change of residence is bona fide;
o BELONG: belonging to residents of the o BELONG: belonging to persons coming to settle

Philippines returning from abroad or NR in the Philippines; not residents citizens or NR
citizens coming to Resettle citizens
o PERIOD: No period required for the o PERIOD: There is a period of (90) days before
importation or after their arrival such importation shall be
o ITEMS: Importation of personal and household made.
effects o ITEMS: Importation of professional
instruments and implements, wearing apparel,
domestic animals, and personal household
effects (except any vehicle, vessel, aircraft,
machinery, other goods for use in the
manufacture and merchandise of any kind in
commercial quantity)
o TAKE NOTE: To be exempt from VAT, the household effects must be primarily exempt from custom
duties. They go hand in hand.
o Goods should not be in commercial quantity (meaning not so much as to indicate it is intended for sale
in the Phils)
o The VAT exemption in this provision does not include Vehicle, Vessel, Aircraft, Machinery, and other
goods for use in the manufacture and merchandise of any kind in commercial quantity
o If you want to be exempt from VAT on vehicles, aircrafts, machineries, do not rely on the
exemption provided under Section 109. Your exemption must be relied upon in another
provision on exemptions granted under International agreements or special laws.
o Consuls, ambassadors or officers of these international organizations that have been granted
from exemption from indirect taxes under international agreements, they can still bring in
vehicles, machineries that are exempt from VAT. But not under this provision because under this
provision what is covered are those which are for personal use not for commercial use such as
machineries for commercial use.
(E) Services subject to percentage tax under Title V;
1. - Generally, if a person is subjected to percentage tax, he would no longer be liable for VAT.
They are mutually exclusive because they are both sales taxes. Examples of percentage taxes: Tax on
land transportation which is specifically called common carriers tax. Gross receipts tax (on banks) or
Amusement taxes
2. - If a certain business or individual is already covered by percentage tax in whatever form it is

imposed, he can no longer be covered by VAT because the nature of percentage tax and VAT is the
same.
o Q: a lawyer for his professional services is subject to VAT as a rule. But once his income does not reach
Php 1.9195M in total gross receipts for any 12- month period, he is exempt from VAT. But is he exempt
from other taxes?
No. He will be liable for percentage taxes. The percentage tax generally for professionals is 3%, even
for business.
o If you are a professional with PRC license or IBP, you are subject to VAT as a general rule. Exceptions are
when there is an employer-employee relationship and if income does not exceed 1.9195 million in any
12 month period.
o If you see a supermarket or a grocery store not registered for VAT purposes because its proceeds or
receipts does not reach Php1.9195M, it may be subject to another kind of tax (percentage taxes) and
not VAT.
o Banks or financial institutions including pawnshops and money changers subject to VAT?
No. banks are subject to gross receipts tax ranging from 5% down to 0%.
o Take note: Life insurance is subject to percentage tax but property insurance (non-life) is subject to
VAT
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar
cane into raw sugar;
o A miller can be subject to VAT if the subject of the transaction does not involve:
palay into rice,
corn into grits and
sugar cane into raw sugar;
o any other type of milling like cassava and other else not mention they are subject to VAT.
(G) Medical, dental, hospital and veterinary services except those rendered by professionals;
must be rendered by a professional who is an employees of the hospital. To determine if a professional

is an employee of the hospital we use the four-fold test.

Medicines used in the hospital are considered as services in the hospital therefore are not also subject
to VAT.
Laboratory cost is part of the hospital services therefore VAT EXEMPT.
As a GR: a pharmacy operated by the hospital within its premises is subject to VAT if it reaches the
threshold and sold to out patients. It is exempt if sold to in-patients.
Professional Fees are liable to VAT if in the breakdown of payments it is separated as an item from
hospital fees.
(H) Educational services rendered by private educational institutions, duly accredited by the Department of
Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills
Development Authority (TESDA) and those rendered by government educational institutions;
Must be educational services rendered by:

o a. PRIVATE educational institutions (needs accreditation)
o b. Government educational institutions (automatic, no need for accreditation)
It does not have to be a formal school to be exempt. The requirement is only that it is duly-accredited by
a. DepEd b. CHED or c. TESDA
Does not need to be non-stock and non-profit
So, Korean online schools may be VAT exempt if duly accredited. However, if they venture in other
services not educational, then such services will be subject to VAT
Non-stock non-profit educational institutions are exempt from TAXES as long as actually, directly and
exclusively (ADE) used for educational purposes. Income from canteens, dormitories or parking lots
owned by the school and within the school is exempt. Even interest from loans used for educational
purposes are exempt.
(I) Services rendered by individuals pursuant to an employer- employee relationship;
(J) Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines
A Main criterion in this paragraph is that it is NOT EARNING INCOME. It is doing business here in the
Philippines that is why it is registered but it does not earn income.
Only applies to Regional or AREA headquarters since it has no income-generating activity. It is exempt
from both income tax and VAT
Regional OPERATING HQs however are subject to 10% income tax and 12% VAT while its employees are
subject to 15% compensation tax.
(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or
under special laws, except those under Presidential Decree No. 529;
It is a matter of choices of these entities. If they enter into zero-rated transactions then they may opt to
be zero-rated but they may also be exempt in services they render.
Ex. Of entity granted VAT exempt status IRRI (International Rice Research Institute). The purchase or
importation need not relate to goods in its original state.
What is covered under the exemption would not run counter to zero-rated sales. Zero-rated and exempt
are not the same. One can actually claim input taxes the other one cannot. So what is covered by the
exemption provision is that transactions entered into by such companies (PEZA-registered) will be
exempt when it sells or when it purchases/imports
(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their
members as well as sale of their produce, whether in its original state or processed form, to non-members;
their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or processing of their produce
Cooperatives must be Duly registered with the Cooperative Development Authority.

Agricultural Cooperatives:
o Sale of their agricultural produce whether in its original state or processed form to members or
non-members EXEMPT
o Sale of fresh bangus to members and non-members still EXEMPT but not by reason of par. L
but par. A of Sec. 109 NIRC. It is a marine food product in its original state.
VAT exemption extends to importation of direct farm inputs, machineries and equipment to be used
directly and exclusively in the production and/or processing of their produce
(M) Gross receipts from lending activities by credit or multi- purpose cooperatives duly registered with the
Cooperative Development Authority
Cooperatives must be Duly registered with the Cooperative Development Authority.
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among
the members
All non-agricultural, non-electric ad non-credit cooperatives are VAT exempt as long as:
o a) Duly registered with the CDA
o b) Share capital contribution of each member does not exceed Php15,000 (regardless of the
aggregate capital and net surplus ratably distributed among the member) So, whether it has
1,000 or more members, it does not matter.
In effect, only ELECTRICAL cooperatives are purely subjected to VAT. Other cooperatives may be VAT
exempt if the above requisites are met but electrical cooperatives are subject to VAT.
(O) Export sales by persons who are not VAT-registered
These transactions if made by VAT-registered entities should have been subjected to zero-rating
however since they are not VAT-registered; these transactions are VAT- exempt. Since they are not VAT-
registered, they cannot claim input VAT and they are also not subjected output VAT.
(P) Sale of real properties 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 as defined by Republic Act No.
7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws,
residential lot valued at One million five hundred thousand pesos (P 1,500,000.00)* (1,919,500.00) and below,
house and lot and other residential dwellings valued at Two million five hundred thousand pesos (P
2,500,000.00)** (3,199,200.00)
If the real property is an ordinary asset, its sale is subject to VAT; but if its not, then not subject to VAT
because it is now subject to capital gains tax.
As a general rule, the sale of real property, if in the course of trade or business, is vatable.
Exception:
1. Those utilized for low-cost housing. - When the real property sales involves low-cost housing
programs where the price does not exceed the ceiling of Php750,000 per housing unit, of course
used for residential purposes, it will be exempt from VAT.
2. Those properties for socialized housing - Same concept as low-cost housing but the price threshold
is different. Its Php 400,000 for socialized housing.
Socialized housing, not more than 400,000; it relates not only to house and lot but it can be lot only
so long as it is covered by the socialized housing program that has been recognized.
3. Sale of lot not exceeding Php 1,919,500;

when a parcel of residential lot is sold and its value does not exceed 1.919500 M, it is
exempt from Vat.
when one and the same person purchases two or more parcels of land adjacent to each
other and the total value of which exceeds 1.919500 M, even if individually it does not
exceed, it will be subject to VAT if the purpose is to build one residential unit over the
parcels of land.
If the purpose is other than that (example: purchasing lots to be donated to children), its
not subject to vat. Its not simply automatically vatable because its more than 1.5M; you
have to look at the purpose. If I were you, do not purchase it altogether, different dates.
4. Sale of residential house and lot and other residential dwellings such as condominium units valued
at not more than Php2.5 M.
5. When you sell real properties not primarily held for sale
(Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10,000) 12,800.
Only applies to residential unit.

As to rent amounts:
o Per rent does not exceed 12,800 Exempt
o Per rent exceed 12800 look at the aggregate for the year of 1,919,500 is not exceeded then
still exempt.
If commercial unit it is liable for VAT if its aggregate receipts for the year exceeds 1,919,500.00
OLD NOTES EXAMPLES:
o One of your classmates is renting out a room in ABC Pension House. Monthly rent is Php12,800.
Is it vatable or not? Hes utilizing it as a temporary home in Cebu. Is a pension house covered
under the term residential unit?
Its vatable. It is not covered. When you say residential unit, the primary purpose is for
dwelling purposes; pension house is for transient.
o ABC Corp vs DEF Corp. (YEAR 2015)
ABC Corp. Total for the

DEF Corp. Total for the yr
yr
Studio (monthly 10K) 2M = Exempt 2M = Exempt
Apartment (M=15K) 1.919500M = Exempt 2M = VAT
Total Gross Receipts for

3.919500M = Exempt 2M = exempt; 2M = VAT
the yr
These corporations, have two types of residential units apartment and studio-type units. Studio-type
units at Php10, 000 per month, while the apartment at Php 15,000 per month. Total gross receipts for
the year 2011 is Php3.919500 M, the other one is Php 4M. Which is subject to VAT?
o ABC Corp is entirely vat-exempt for both types of units while DEF Corp is vatable but only to the
apartment.
o In the law, it states that the monthly rentals should not exceed Php 12,800. And for both
corporations, their studio units are rented at 10K so that is already exempt despite the fact that
it already exceeds the 1.5M threshold limit of the vat. So regardless of the aggregate amount, so
long as the monthly rental does not exceed 12,800 it is exempt.
o The apartment for ABC Corp is still exempt because the gross receipts do not exceed 1.919500
M. So if a corporation or a person engages in both types of residential units one is exceeding
10K the other one not, you dont need to combine the gross receipts for the two types of units.
You have to take it stand alone.
o So for those exceeding 10K, you have to individually determine whether it exceeds the threshold
limit or not. So since 1.5M of ABC Corp is still within the threshold limit for 2011, then it is not
vatable.
o The apartment of DEF Corp is already vatable because it exceeded the threshold. You cannot say
that ABC is vatable because the total proceeds is 3.5M, thus exceeding the 1.5M limit. For vat
purposes, you have to separately consider.
o ABC Corp is entirely vat-exempt for both types of units while DEF Corp is vatable but only to the
apartment.
(R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which
appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to
the publication of paid advertisements;
Involves 4 transactions: Sale, Importation, Printing or Publication

Books must be for religious and educational purpose.
o E-Books. Same applies to the rule on books.
As for newspapers it must be for regular interval, for a fix price and must not be principally devoted for
paid advertisement.
o Ex. Suppose that Sunstars Advertisment is expensive it is still exempt because it is paid at a
fixed price, it is produced in a regular interval and that it is PRINCIPALLY not devoted to paid
advertisement.
magazines, however, which are principally devoted for advertisement (i.e., classified ads). So, they are
vatable.
(S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international transport operations;
The sale, importation and lease of vessels including all parts implemented in the vessel, whether its
engaged in passenger or cargo transportation, domestic or international, is exempt from vat but only
for those weighing 150 tons or more. Those below 150 tons will be subject to vat.
o TAKE NOTE: 150 or more exempt; less than 150 tons VAT.
o Limitations:
For passenger and/or cargo vessels, the age limit is 15 years old;
For tankers, the age limit is 10 years old;
For high-speed passenger crafts, the age limit is 5 years old.
(T) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations;
Here you look at which entity is engaged in the transaction:

o If importation and the one importing is the entity engaged in international shipping Exempt
o But if you are the one selling to the entity engaged in international air transport operation
zero-rated.
Sale by Vat-registered person of goods, supplies, equipments and fuel to an entity that is engaged in
international shipping/air transport will be zero-rated. But if this entity engaged in international
shipping/air transport operations imports product from abroad, the transaction is exempt.
(U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-
bank financial intermediaries; and
Subject to percentage tax
(V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned
in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million
five hundred thousand pesos (P1,919,500)
OUTPUT & INPUT TAX:

Output Tax:
Applies to sale of goods and services.

Applies to importation, because the importer is the statutory taxpayer therefore it is an output VAT.
Input Tax:
Tax on your purchases of goods or services.
To be able to offset Input against Output using the Tax Credit Method:
1. Vat registered taxpayer
2. Must be engage in trade & business
a. That is why a law student cannot offset input vat from books bought because he is not engage in
trade or business. Even if he is also a businessman, still cannot because the purchase is not
related to his trade or business.
3. Must be able to substantiate the claim
a. Services receipts
b. Goods invoice
c. Importation - Import entry declaration or some other supporting documents
Different Type of Input Vat:

1. Transitional Input VAT from being a Non Vat registered to a Vat registered.
a. 2% of the beginning inventory reckoned at the time of the effectivity of your registration OR
actual 12% VAT paid on the beginning inventory whichever is higher.
Situation when you will opt to choose the 2% against the 12%:
normally you would choose to deduct the Vat paid because it is bigger in amount than
just 2%. The reason for this option is because as a requirement to avail of the 12% Vat
paid is that it must be:
1. Substantiated with receipts services or invoices - goods.
2. Import entry declaration or some other supporting documents importation.
But there are times that you loss the receipts and you cannot substantiate the 12%
vat paid. So as an incentive of registering as a VAT taxpayer, so you could at least get
a deduction is to opt for 2% because you cannot claim the 12%.
2. Presumptive Input VAT

Rate of 4%
Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing
refined sugar, cooking oil and packed noodle- based instant meals, shall be allowed a
presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the
gross value in money of their purchases of primary agricultural products which are used as
inputs to their production.
As used in this Subsection, the term "processing" shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for special use to which it could not have
been put in its original form or condition.
Involves the processing of
(a) sardines, (b) mackerel and (c) milk,and
in manufacturing
(d) refined sugar, (e) cooking oil and (f) packed noodle-based instant meals
Pasteurization, canning and activities alter the exterior or inner substance as stated above still
included in the definition of processing
RATIONALE: their primary sources of raw materials are agricultural products in its original state for which it was
purchased or obtained (e.g. fishing). So when it is sold, it will generate full 12% without the benefit of the input
tax because it was purchased or obtained vat-free. So in order to soften the tax liability of manufacturers of
such initial stage of production, all manufacturers of the enumerated agricultural products are allowed to
recognize a presumptive input tax but not fully at 12% - only 4% of the value of the purchases of these
agricultural products, which are the actual process inputs.
Hence, it is presumed that 4% of these goods can be claimed as input tax.
MEMORY TIP: Transitional input tax = 2% arbitrary rate if higher (Two) while Presumptive input tax = 4%
(Por)
3. CREDITABLE WITHOLDING VAT

Creditable Withholding VAT (on payments to non- residents)
There must be a non-resident party, who is the seller. The purchaser withholds the VAT because the
Phils. has no jurisdiction over the seller.
Remember persons who are liable for vat:
1.) those who enter into transaction made in the ordinary course of trade or business
2.) those who import product WON in the course of trade or business
3.) non-resident persons, regularity notwithstanding, rendering services in the Phils.
The third is covered by creditable withholding vat. Because if a non-resident person, not engaged in
trade or business in the Phils., performs service in the Phils., its vatable.
But because we have no jurisdiction over them, we cannot expect that whatever a vat-registered
purchaser pass on as a vat, we can never expect the non-resident person to remit the 12%.
4. FINAL WITHOLDING VAT

Final Withholding VAT (on payments by the Government)
One of the parties is the government and that the government should be the purchaser. The
seller, who should be a vat-registered seller, is liable for vat.
Take note the government is the withholding agent here.
o The withholding vat is at the rate of 5%
o Standard input vat of 7% this cannot be used anymore as credit to you other output
vat.
The 5% is already the final VAT of the transaction.
o That is why you cannot comingle your transaction with the government with your other
transactions.
DISTRIBUTION OF INPUT VAT THAT CANNOT BE ATTRIBUTED TO ANY TRANSACTION:

Apportionment should be based on SALES on each transaction whether it is 12% vat, zero-rated vat,
Exempt or government.
Example:
Sales Input Outpu Vat Distribution Total Input Excess Input VAT
t Pay VAT
abl BASED ON SALES
e (100/400) X 10K =
2500
12% VAT 100K 10K 12K 2K 2500 (may be (10,000 + 500

Sales offset) 2500) =
12,500
0 rated 100K 5K 0 0 2500 (may be (5000 + 7500

sales offset) 2500) =
7500
Exempt 100K 4K 0 0 2500 (cannot

offset) not
allowed
Sale to 100K 7K 5K 0 2500 (cannot 7000

Governm final offset) already standard
ent tax to covered by the 5K input vat
be final tax BUT
paid CANNOT BE
OFFSET
Cannot 10K
be
Attribute
d to any
transactio
n Input
VAT
Example

Equipmen
t used to
manufact
ure goods
of
company
TOTAL TOTAL EXCESS INPUT VAT

SALES: INPUT VAT = 8000
400K = 27,000 BUT, INPUT VAT

THAT MAYBE
REFUND only 7500
from 0 rated.
HOW TO APPLY INPUT VAT ON DEPRECIABLE CAPITAL GOODS:

That the input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (P1,000,000):
Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as
used for depreciation purposes, then the input VAT shall be spread over such a shorter period:
Provided, finally, that in the case of purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.
o So if bought for more than 1M shall be spread over 60 months or 5 years HOWEVER the if
useful life is shorter than 5 years then spread over such shorter period.
WHEN TO APPLY INPUT VAT; WHEN IT ACCRUES:

Sale of Goods gross sales which are perfected. Upon incurrence of the obligation.
Sale of Services gross receipts. Upon payment of the amount. Whenever there is payment.
Importation upon release of the goods in the customs.
WHEN TO PAY VAT:

Upon declaration & filing.
Declaration is made, 20 days after the month of sale
Filing of return, 25 days after the end of the quarter
RULE ON REFUND or CREDIT OF EXCESS INPUT VAT

There must be complete substantiation requirement and filed within the proper period.
Requirements:
1. Must be a vat registered
2. Paid input vat
3. The input vat has not been applied to any output VAT.
4. The claim can be substantiated with receipts or invoices.
5. Must be engaged in trade or business which are subject to zero rated VAT
6. Following the proper invoicing requirements
o Proper invoicing requirements:
a) If Vat registered, it must be stated that he is vat registered followed by his TIN must be
printed in the receipt/invoice
b) if zero rated, a stamp that word zero-rated
c) invoice must show the segregation of the VAT against the price of the good or service
d) date of transaction, quantity, the unit cost,
e) if exceeds more than 1K, the name, TIN, address of the purchaser, customer or client.
CIR vs. Aichi Forging(TN: came out in the BAR)
- Unutilized input VAT must be claimed within two years after the close of the taxable quarter when
the sales were made-
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also
in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of
sales.
- In Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, 44 where we ruled that Section
112 (A) of the NIRC is the applicable provision in determining the start of the two-year period for
claiming a refund/credit of unutilized input VAT, and that Sections 204 (C) and 229 of the NIRC are
inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of
internal revenue taxes."
- Atty A: is VAT an internal revenue tax? Yes. Is it erroneously paid when you have excessive input VAT?
No, you have an excess because you have no output VAT where you can offset it from but it is not
erroneously or illegally paid. So that provision (sec 204 and 229) does not apply, instead, Sec 112 will
apply.
- Atty. A: SC ruled that the two-year period under Sec 112 applies only to administrative claims. So long s
you have filed your administrative claim within the two-year period, the judicial claim need not fall
within the two-year period as well.
- The filing of the judicial claim was premature Section 112 (D) of the NIRC clearly provides that the CIR
has "120 days, from the date of the submission of the complete documents in support of the application
[for tax refund/credit]," within which to grant or deny the claim. In case of full or partial denial by the
CIR, the taxpayer's recourse is to file an appeal before the CTA within 30 days from receipt of the
decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax
refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
- The reckoning frame would always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid. (Commissioner of Internal Revenue v. Mirant
Pagbilao Corporation)
KEPCO Phils. vs. CIR

- Issue: whether Kepco's failure to imprint the words "zero-rated" on its official receipts issued to NPC
justifies an outright denial of its claim for refund of unutilized input tax credits
- Indubitably, said revenue regulation is merely a precautionary measure to ensure the effective
implementation of the Tax Code. It was not used by the CTA to expound the meaning of Sections 113 and
237 of the NIRC. As a matter of fact, the provision of Section 4.108-1 of R.R. 7-95 was incorporated in
Section 113 (B)(2)(c) of R.A. No. 9337, 15 which states that "if the sale is subject to zero percent (0%)
value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or
receipt." This, in effect, and as correctly concluded by the CIR, confirms the validity of the imprinting
requirement on VAT invoices or official receipts even prior to the enactment of R.A. No. 9337 under the
principle of legislative approval of administrative interpretation by reenactment.
- Quite significant is the ruling handed down in the case of Panasonic Communications Imaging
Corporation of the Philippines v. Commissioner of Internal Revenue, 16 to wit:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for
the efficient enforcement of the tax code and of course its amendments. The
requirement is reasonable and is in accord with the efficient collection of VAT from the
covered sales of goods and services. . the appearance of the word "zero-rated" on the
face of invoices covering zero-rated sales prevents buyers from falsely claiming input
VAT from their purchases when no VAT was actually paid. If, absent such word, a
successful claim for input VAT is made, the government would be refunding money it
did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that
are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to
submit the proper invoices, petitioner Panasonic has been unable to substantiate its
claim for refund.
- Atty A: In other words, the requirement of printing of the word zero-rated on the invoice or official
receipts under the regulation is mandatory. Failure to comply with that is fatal to your claim for refund.
Tambunting Pawnshop vs. CIR

- Issue: whether pawnshops are liable to pay VAT
- the Court, in First Planters Pawnshop, Inc. v. Commissioner of Internal Revenue, 21 held:
In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were treated as
lending investors subject to lending investor's tax. Subsequently, with the Court's ruling
in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general
classification of "sale or exchange of services" under Section 108 (A) of the Tax Code of
1997, as amended. R.A. No. 9238 [which was passed in 2004] finally classified
pawnshops as Other Non-bank Financial Intermediaries.
Xxx
Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank
financial intermediaries, finance companies, and other financial intermediaries not
performing quasi-banking functions were specifically exempted from VAT, 28 and the
0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries
was reimposed under Section 122 of the Tax Code of 1997.
In light of the foregoing ruling, since the imposition of VAT on pawnshops, which are non-bank financial
intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax year
1999.
- Atty A: Lets keep this updated the rule now is that pawnshops are not covered by the VAT because they
are subject to other percentage tax. And under the NIRC, those that are subject o other percentage taxes
are exempt from VAT. Financial intermediaries are not subject to VAT even non-bank financial
intermediaries.
Philippine Phosphate vs. CIR

- Petitioner's entire claim for refund, however, was denied for petitioner's failure to present invoices
allegedly in violation of CTA Circular No. 1-95. The CTA in denying petitioner's motion for reconsideration,
also mentioned for the first time that petitioner's failure to present "a certification of an independent
CPA" is another ground that justified the denial of its claim for refund.
- Issue: whether or not the CTA should have granted petitioner's claim for refund.
- The certification of an independent CPA is not another mandatory requirement under the Circular which
petitioner failed to comply with. It is rather a requirement that must accompany the invoices should one
decide to present invoices under the Circular. Since petitioner did not present invoices, on the assumption
that such were not necessary in this case, it logically did not present a certification because there was
nothing to certify.
- Atty A: in this case, they (petitioner) asked the CTA if they could present the invoices but the CTA
automatically dismissed the case for their failure to comply with this requirement. But SC said that if the
government requires its taxpayers to be religious in paying its taxes, they also shouldnt deny the
taxpayers claim for refund if it is clear that they are also entitled for refund. (But the SC here is just being
generous)
CIR vs. San Roque
- G.R. No. 187485 CIR v. San Roque Power Corporation

- Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to
the Commissioner to decide whether to grant or deny San Roque's application for tax refund or credit. It is
indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional.
- Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and renders the petition premature and thus without
a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer's petition.
- San Roque's failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque's void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states
that such void petition cannot be legitimized "except when the law itself authorizes [its] validity." There is
no law authorizing the petition's validity.
- For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any
right arising from such void petition. Thus, San Roque's petition with the CTA is a mere scrap of paper.
- This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day
period just because the Commissioner merely asserts that the case was prematurely filed with the CTA
and does not question the entitlement of San Roque to the refund. The mere fact that a taxpayer has
undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected
from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance with the
mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential
and necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax
exemptions, are strictly construed against the taxpayer. 51 The burden is on the taxpayer to show that
he has strictly complied with the conditions for the grant of the tax refund or credit.
- G.R. No. 196113 Taganito Mining Corporation v. CIR

- Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day
period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of
the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is almost
four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San
Roque both cannot claim being misled, misguided, or confused by the Atlas doctrine.
- However, Taganito can invoke BIR Ruling No. DA-489-03 57 dated 10 December 2003, which expressly
ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial claim after the
issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine. Thus, as will be
explained later, Taganito is deemed to have filed its judicial claim with the CTA on time.
- Atty A: TN: Taganito filed after the BIR ruling which says that the 120-day period is not mandatory and
before the Aichi case. While San Roque filed after the Aichi case; thus, San Roque is bound by the Aichi
case. The SC take cognizance of Taganito because they presumed that they believed in the BIR ruling.
- G.R. No. 197156 Philex Mining Corporation v. CIR

- Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT under
Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in
this case. The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philex's
claim. Since the Commissioner did not act on Philex's claim on or before 17 July 2006, Philex had until 17
August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August
2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for
Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day
of filing. In short, Philex was late by one year and 61 days in filing its judicial claim. (perting late.a! :D)
- Atty A: TN: 120-day period is mandatory.
- SC: There are three compelling reasons why the 30-day period need not necessarily fall within the two-
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period:
First, Section 112 (A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input tax
due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime within
two years. Thus, the application for refund or credit may be filed by the taxpayer with the
Commissioner on the last day of the two-year prescriptive period and it will still strictly comply
with the law.
Second, Section 112 (C) provides that the Commissioner shall decide the application for refund
or credit "within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A)." The
reference in Section 112 (C) of the submission of documents "in support of the application
filed in accordance with Subsection A" means that the application in Section 112 (A) is the
administrative claim that the Commissioner must decide within the 120-day period. (Atty A:
the reference in Sec 112 (C) supports sec 112 (A) that the two-year period only applies to
administrative claims.)
Third, .. The 30-day period granted by law to the taxpayer to file an appeal before the CTA
becomes utterly useless, even if the taxpayer complied with the law by filing his administrative
claim within the two-year prescriptive period. (Atty A: this reason seems flimsy.)
- The input VAT is not"excessively" collected as understood under Section 229 because at the time the
input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and
legally paid by, a VAT-registered seller 61 of goods, properties or services used as input by another VAT-
registered person in the sale of his own goods, properties, or services. (Atty A: its just that there is no
output VAT by which you can off set the input VAT)
TN: The reckoning frame would always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid. (Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation)
CIR vs. Dash Engineering

- Atty A: this case only resonates the ruling in Aichi Forging and San Roque case and clarifie that the 120-
day period is a mandatory period plus the 30 days.
Question: are you given an option to wait for the denial of the BIR or is it mandatory that after the 120-day
period, you must right away file? No, its not mandatory to file just because the 120-day period lapsed.
However, this is mutually exclusive. You have two options:
1. 120 days + 30 days
2. Wait for denial + 30 days
- That if you have already chosen to wait for the 120-day period to lapse, then 30-days after, you have to
file. You will be bound by that option. So that if the BIR decision is released during the 30 day extension,
you cannot opt to wait for another 30 days from the denial. It is a mutually exclusive option.
- Situation: the 120 days had already lapsed, but you filed only after 50 days from the 120 days, so most
likely, the CTA will dismiss the case. If thereafter, the denial of the BIR was realeased, can you still refile
the case? NO. you already chose the first option, you cannot anymore choose to avail of the second
option. Pilde-gana! touch-move! :p
Isnt it mandatory for the BIR to act on the claim within the 120 days?
Atty A: even if the law says that they should, shall or have to, the SC had long threshed that out. It is just a
directive. The 120 day is just directory on the part of the BIR.
What if after the lapse of 120 days, you appealed to the CTA then the BIR ruling was issued which grants
your claim, what happens?
Atty A: the decision of the CTA is moot and academic because after all, there is really no basis for you to file an
appeal. There no case now for you to mention. You have the option to withdraw your appeal but its not a
requirement.
CIR vs. Cebu Toyo Corp
- While the zero rating and the exemption are computationally the same, they actually differ in several
aspects, to wit: ASETHC
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while
an exempted transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales
may be allowed as tax credits or refunded while the seller in an exempt transaction
is not entitled to any input tax on his purchases despite the issuance of a VAT
invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are
required to register while registration is optional for VAT-exempt persons.
Silicon Phil. vs. CIR, Western Mindanao Power Corp vs. CIR, Panasonic Communications vs. CIR
- Failure to comply with the invoicing requirements is fatal to claims for refund. In this 3 cases, the
petitioners failed to print zero-rated in their invoices. Refer to KEPCO ruling.
SUSPENSION OF BUSINESS OPERATIONS

The CIR or his authorized representative is empowered to suspend the business operations and temporarily
close the business establishment of any person for any of the following violations:
a. In case of a VAT-registered person
1. Failure to issue invoices or receipts
2. Failure to file VAT return
3. Understateent of taxable sales or receipts by 30% or more of his correct taxable sales or receipts
for the taxable quarter
b. Failure of any person to register who is mandatorily subject to VAT.
The temporary closure of the establishment shall be for a duration of not less than 5 days and shall be lifted
only upon compliance with whatever requirements prescribed by the CIR in the closure order.
OTHER PERCENTAGE TAX
PRELIMINARY MATTERS ON OTHER PERCENTAGE TAX:

OTHER PERCENTAGE TAX
- It is a business tax
- It is always imposed based on sales. So if it is not based on sales, gross receipts or gross sales, it could not
be considered as a business tax.
- Ex. When an LGU imposes a tax on producers of bottles and they based it on the volume of bottles
produced, say for P 0.10 per bottle produced, it is not considered a percentage tax under the NIRC
because it is not based on gross sales or receipts but based on the production of the bottle, there was not
sale required to impose the tax.
- The exemption for VAT under Sec. 109, except item (e), is also the exemptions for other percentage tax.
Other Percentage Tax (Sections 116 128, NIRC)
What is the nature of other percentage tax?

- It is a direct and business tax. A excise tax. Tax on the privilege to engage in business.
- A business tax based on given ratio between gross sales or receipts and burden imposed upon the
taxpayer.
Entities and/or activities that are subject to OPT?

1. Persons exempt from VAT
2. Domestic Carriers and Keepers and Garages
3. International carriers
4. Franchise Holders and Grantees
5. Persons paying for overseas communications service
6. Banks and Non-bank Financial Intermediaries
7. Finance Companies
8. Life Insurance Companies and Agents of Foreign Insurance Companies.
9. Proprietors, lessees, or operators of amusement places.
10. Winners of prizes in horse races and jai alai and owners of winning race horses.
11. Sellers or transferors of shares of stock listed and traded through local stock exchange.
12. Closely held corporations with respect to shares of stocks sold or otherwise disposed of through initial public
offering of shares of stock in closely held corporations.
SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). - Any person whose sales or receipts are exempt
under Section 109(z) of this Code from the payment of value-added tax and who is not a VAT-registered person
shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That
cooperatives shall be exempt from the three percent (3%)gross receipts tax herein imposed.
We said that entities exempted from VAT under Sec. 109 are also exempt from OPT, so if thats the case? To
what type of persons does Sec. 116 refer?
- If you are engage in business and your business does not exceed 1,919,500, you exempted from VAT but
you maybe subjected to OPT, unless you also fall under the exemption of VAT of Sec. 109. So these go
together. Take note of that.
The rate is 3% based on gross quarterly receipts.
Is there a definition on gross receipts?

- anything received in the engagement of the business subject to no deductions but, of course, we allow
returns, allowances and sales discounts.
Chinabank vs CA
"gross receipts" embraces the entire receipts without any deduction or exclusion.
the amount of the final withholding tax on interest income should not be deducted from the bank's interest
income for purposes of the gross receipts tax.
Atty. A: Remember your interest income under Tax 1, it is subject to 20%. For example you have a deposit of
100k, what you can actually receive there is 80k because 20% of such amount is withheld by the bank for
purposes of remittances to the government. The same way with your bank or financial institution, if you they
have income in their services, like from deposits, they are also subject to this final withholding tax, so this
(chinabank vs ca) case came about because they contented that since that amount is withheld for the
government and they do not receive it, then they should not be subjected to gross receipts tax. But take note
that who actually pays the amount of taxes, supposedly? The taxpayer. And had there be no withholding system,
who would have pay the amount? It should be the bank. (.wa naku kasabot sa iya explanation ani nga part so
Ill skip it nalang)
The case talks about the bank being subject to final withholding tax. So under this case then, it can be said that
the amount withheld from the income of the bank, for taxes, is actually owned by the bank and received
constructively by the bank but it did not pass thru their hands physically because its already withheld by the
withholding agent. And then remitted it to the BIR. So we talk about gross receipts, this amount that is actually
received constructively by the bank falls under the said definition.
How is the Chinabank case differentiated from the Manila Jockey case? (as discussed in Chinabank case)
The Court ruled in Manila Jockey Club that receipts not owned by the Manila Jockey Club but merely held by
it in trust did not form part of Manila Jockey Club's gross receipts. Conversely, receipts owned by the Manila
Jockey Club would form part of its gross receipts.
In the instant case, CBC owns the interest income which is the source of payment of the final withholding
tax. The government subsequently becomes the owner of the money constituting the final tax when CBC
pays the final withholding tax to extinguish its obligation to the government. This is the consideration for the
transfer of ownership of the money from CBC to the government. Thus, the amount constituting the final
tax, being originally owned by CBC as part of its interest income, should form part of its taxable gross
receipts.
Atty A: (murag ang nahitabo ani kay aku raman ang gabasa) So what happened in Manila Jockey is that they
receive income in horse racing but the proceeds will have to be divided into 87.5% as dividends to holders of
winning tickets; 12.5% as 'commission' of the Manila Jockey Club, of which 0.5% was assigned to the Board of
Races and 5% was distributed as prizes for owners of winning horses and authorized bonuses for jockeys. So
these amounts are already earmarked for certain entities. But it is Manila Jockey who collects it and give it to
the said entities based on the apportionment percentage. So SC said that these amounts that are already
earmarked for the other entities are just held in trust by Manila Jockey and should not form part of its gross
receipts for purposes of computing the OPT. They dont received any benefits from it. Unlike in your Chinabank
case, It earns the income and the benefit they receive is that their taxes are already being settled.
The same as in CIR vs Solidbank.

Manila Jockey Club does not apply to this case. Earmarking is not the same as withholding.
Amounts earmarked do not form part of gross receipts, because, although delivered or received, these are
by law or regulation reserved for some person other than the taxpayer. On the contrary,
amounts withheld form part of gross receipts, because these are in constructivepossession and not subject
to any reservation, the withholding agent being merely a conduit in the collection process.
The Manila Jockey Club had to deliver to the Board on Races, horse owners and jockeys amounts that never
became the property of the race track. Unlike these amounts, the interest income that had
been withheld for the government became property of the financial institutions
upon constructive possession thereof. Possession was indeed acquired, since it was ratified by the financial
institutions in whose name the act of possession had been executed. The money indeed belonged to the
taxpayers; merely holding it in trust was not enough.
The government subsequently becomes the owner of the money when the financial institutions pay the
FWT to extinguish their obligation to the government. As this Court has held before, this is the consideration
for the transfer of ownership of the FWT from these institutions to the government. It is ownership that
determines whether interest income forms part of taxable gross receipts. Being originally owned by these
financial institutions as part of their interest income, the FWT should form part of their taxable gross
receipts.
SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. - Cars for rent or hire driven by the
lessee, transportation contractors, including persons who transport passengers for hire, and other domestic
carriers by land, air or water, for the transport of passengers, except owners of bancas and owner of animal-
drawn two wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their
quarterly gross receipts.
The gross receipts of common carriers derived from their incoming and outgoing freight shall not be subjected to
the local taxes imposed under Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
In computing the percentage tax provided in this Section, the following shall be considered the minimum
quarterly gross receipts in each particular case:
Jeepney for hire -

1. Manila and other cities P 2,400
2. Provincial - 1,200
Public utility bus

Not exceeding 30 passengers - 3,600
Exceeding 30 but not exceeding 50 passengers - 6,000
Exceeding 50 passengers - 7,200
Taxis -
1. Manila and other cities - P 3,600
2. Provincial - 2,400
Car for hire (with chauffer) - 3,000
Car for hire (without chauffer) - 1,800
Atty. A: Actually this is so boring to discuss because you just have to read the provision.
The amounts provided in this section accounts for the minimum quarterly gross receipts. Meaning, if you are an
operator for jeepney for hire, your gross receipts tax couldnt be less than 2,400, if youre in Manila and other
cities, and 1,200, if youre in the provinces. So that would 2,400 or 1,200 multiply by 3% for your OPT. so the
2,400 or 1,200, thats your minimum gross receipts. Not the tax yet. Take note that this is just the minimum, so
it could be more. And if the question asked is quarterly, you multiply it by 4.
SEC. 118 Percentage Tax on International Carriers. -
(A) International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their
quarterly gross receipts.
(B) International shipping carriers doing business in the Philippines shall pay a tax equivalent to three percent
(3%) of their quarterly gross receipts.
This applies to air and water carriers. How about land? Land carriers are already subject to VAT. And the rate is
still 3%.
SEC. 119. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding, there shall
be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies
whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000.00), subject to
Section 236 of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of two percent
(2%) on the gross receipts derived from the business covered by the law granting the franchise: Provided,
however, That radio and television broadcasting companies referred to in this Section shall have an option to be
registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That once the option is
exercised, it shall not be revoked.
The grantee shall file the return with, and pay the tax due thereon to the Commissioner or his duly authorized
representative, in accordance with the provisions of Section 128 of this Code, and the return shall be subject to
audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding.
This refers to all franchises on radio, television, electric, gas and water.
For radio and television franchise, theres a threshold amount of 10M. If you do not exceed to 10M, you are
subject to 3% percentage tax. But if you exceed 10M, you may opt to register in VAT, but once you choose to be
VAT-registered, it shall not be revoked. Its perpetual.
For electric, gas and water utilities, there is no threshold amount.
SEC. 120. Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines. -
(A) Persons Liable. - There shall be collected upon every overseas dispatch, message or conversation transmitted
from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment
service, a tax of ten percent (10%) on the amount paid for such services. The tax imposed in this Section shall be
payable by the person paying for the services rendered and shall be paid to the person rendering the services
who is required to collect and pay the tax within twenty (20) days after the end of each quarter.
(B) Exemptions. - The tax imposed by this Section shall not apply to:
(1) Government. - Amounts paid for messages transmitted by the Government of the Republic of the
Philippines or any of its political subdivisions or instrumentalities;
(2) Diplomatic Services. - Amounts paid for messages transmitted by any embassy and consular offices of
a foreign government;
(3) International Organizations. - Amounts paid for messages transmitted by a public international
organization or any of its agencies based in the Philippines enjoying privileges, exemptions and
immunities which the Government of the Philippines is committed to recognize pursuant to an
international agreement; and
(4) News Services. - Amounts paid for messages from any newspaper, press association, radio or
television newspaper, broadcasting agency, or newstickers services, to any other newspaper, press
association, radio or television newspaper broadcasting agency, or newsticker service or to a bona fide
correspondent, which messages deal exclusively with the collection of news items for, or the
dissemination of news item through, public press, radio or television broadcasting or a newsticker service
furnishing a general news service similar to that of the public press.
The tax for overseas dispatch, message, or conversation originating from the Philippines is 10% on the amount
paid for such service.
CIR vs PAL
So is PAL subject to Overseas Communications Tax (OCT)? No.
The language of PHILIPPINE AIRLINES, INCs franchise is clearly all-inclusive --- the basic corporate income
tax or franchise tax paid by respondent shall be "in lieu of all other taxes except only real property tax. It is
not the fact of tax payment that exempts it, but the exercise of its option.
PALs franchise exempts it from paying any tax other than the option it chooses: either the basic corporate
income tax or the 2% gross revenue tax. There being no qualification to the exercise of its options, then
Respondent is free to choose basic corporate income tax, even if it would have zero liability.
SEC. 121. Tax on Banks and Non-bank Financial Intermediaries. - There shall be a collected tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial intermediaries in accordance
with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on
the basis of remaining maturities of instruments from which such receipts are derived:
Short-term maturity (non in excess of two (2) years) - 5%
Medium-term maturity (over two (2) years but not exceeding four (4) years) - 3%
Long-term maturity -
(1) Over four (4) years but not exceeding seven (7) years - 1%
(2) Over seven (7) years - 0%
(b) On dividends - 0%
(c) On royalties, rentals of property, real or personal, profits, from exchange and all other items treated as gross
income under Section 32 of this Code - 5%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru
pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes
of classifying the transaction as short, medium or long-term and the correct rate of tax shall be applied
accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities.
Atty. A: Just read this provision, but take note that most of the cases involving OPT deals with GRT on Banks and
Non-banks Financial Intermediaries. Even BSP is subject to this GRT.
SEC. 122. Tax on Finance Companies. - There shall be collected a tax of five percent (5%) on the gross receipts
derived by all finance companies, as well as by other financial intermediaries not performing quasi-banking
functions dong business in the Philippines, from interest, discounts and all other items treated as gross income
under this Code: Provided, That interests, commissions and discounts from lending activities, as well as income
from financial leasing, shall be taxed on the basis of the remaining maturities of the instruments from which such
receipts are derived, in accordance with the following schedule:
Short-term maturity (non in excess of two (2) years) 5%
Medium-term maturity (over two (2) years but not exceeding four (4) years) - 3%
Long-term maturity -
(1) Over four (4) years but not exceeding seven (7) years - 1%
(2) Over seven (7) years - 0%
Provided, however, That in case the maturity period is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short,
medium or long-term and the correct rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar financing activities.
The tax on these other financial intermediaries is 5% on the gross receipts.
Then theres this issue on whether pawnshops are subject to gross receipts tax (GRT) as decided in the case of
Lhuillier.
CIR vs Lhuiller
Pawnshops are not subject to GRT because they are not lending investors as defined by the NIRC.
Under Section 157(u) of the NIRC of 1986, as amended, the term lending investor includes all persons who
make a practice of lending money for themselves or others at interest. A pawnshop, on the other hand, is
defined under Section 3 of P.D. No. 114 as a person or entity engaged in the business of lending money on
personal property delivered as security for loans and shall be synonymous, and may be used
interchangeably, with pawnbroker or pawn brokerage.
While it is true that pawnshops are engaged in the business of lending money, they are not considered
lending investors for the purpose of imposing the 5% percentage taxes.
SEC. 123. Tax on Life Insurance Premiums. - There shall be collected from every person, company or corporation
(except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines
a tax of five percent (5%) of the total premium collected, whether such premiums are paid in money, notes,
credits or any substitute for money; but premiums refunded within six (6) months after payment on account of
rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts; nor
shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon doing business
outside the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such
premium is imposed by the foreign country where the branch is established nor upon premiums collected or
received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the
Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been
issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on
variable contracts (as defined in section 232(2) of Presidential Decree No. 612), in excess of the amounts
necessary to insure the lives of the variable contract workers.
Cooperative companies or associations are such as are conducted by the members thereof with the money
collected from among themselves and solely for their own protection and not for profit.
Life insurance premiums are subject to 5% of the total premiums collected.
Take note of the exemptions here:

- premiums refunded within six (6) months after payment on account of rejection of risk or returned for
other reason
- reinsurance by a company that has already paid the tax
- upon doing business outside the Philippines on account of any life insurance of the insured, who is a
nonresident. (a domestic corporation which has a branch abroad. And that branch is selling life
insurance in that foreign country)
- upon premiums collected or received on account of any reinsurance , if the insured, in case of personal
insurance, resides outside the Philippines
- upon that portion of the premiums collected or received by the insurance companies on variable
contracts (as defined in section 232(2) of Presidential Decree No. 612.
SEC. 124. Tax on Agents of Foreign Insurance Companies. - Every fire, marine or miscellaneous insurance agent
authorized under the Insurance Code to procure policies of insurance as he may have previously been legally
authorized to transact on risks located in the Philippines for companies not authorized to transact business in the
Philippines shall pay a tax equal to twice the tax imposed in Section 123: Provided, That the provision of this
Section shall not apply to reinsurance: Provided, however, That the provisions of this Section shall not affect the
right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said
owner does not make use of the services of any agent, company or corporation residing or doing business in the
Philippines. In all cases where owners of property obtain insurance directly with foreign companies, it shall be the
duty of said owners to report to the Insurance Commissioner and to the Commissioner each case where
insurance has been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner
required by Section 123.
So agents of foreign insurance companies are subject to tax equal to twice the tax imposed in Sec. 123. So that
would be 10%. But this does not include re-insurance.
SEC. 125. Amusement Taxes. - There shall be collected from the proprietor, lessee or operator of cockpits,
cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax
equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided, however, That boxing exhibitions wherein
World or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided,
further, That at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and
said exhibitions are promoted by a citizen/s of the Philippines or by a corporation or association at least sixty
percent (60%) of the capital of which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games as envisioned in Presidential Decree No.
871: Provided, however, That the tax herein shall be in lieu of all other percentage taxes of whatever nature and
description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective, of whether or
not any amount is charged for admission.
For the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor,
lessee or operator of the amusement place. Said gross receipts also include income from television, radio and
motion picture rights, if any. A person or entity or association conducting any activity subject to the tax herein
imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor,
lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter,
to make a true and complete return of the amount of the gross receipts derived during the preceding quarter and
pay the tax due thereon.
Familiar with the rates. Basin mugawas sa MCQ.
SEC. 126. Tax on Winnings. - Every person who wins in horse races shall pay a tax equivalent to ten percent
(10%) of his winnings or 'dividends', the tax to be based on the actual amount paid to him for every winning
ticket after deducting the cost of the ticket: Provided, That in the case of winnings from double, forecast/quinella
and trifecta bets, the tax shall be four percent (4%). In the case of owners of winning race horses, the tax shall be
ten percent (10%) of the prizes.
The tax herein prescribed shall be deducted from the 'dividends' corresponding to each winning ticket or the
'prize' of each winning race horse owner and withheld by the operator, manager or person in charge of the horse
races before paying the dividends or prizes to the persons entitled thereto.
The operator, manager or person in charge of horse races shall, within twenty (20) days from the date the tax
was deducted and withheld in accordance with the second paragraph hereof, file a true and correct return with
the Commissioner in the manner or form to be prescribed by the Secretary of Finance, and pay within the same
period the total amount of tax so deducted and withheld.
Tax winnings on horse races is subject to 10% of his winnings except if double, forecast/quinella and trifecta
bets, it shall be 4%.
SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock
Exchange or through Initial Public Offering. -
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange. -
There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of
stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the
rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock
sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.
So the rate here is of 1% based on gross selling price. This is in lieu of your income tax. So you will not be
subjected to income tax anymore. Unless you are engaged in selling stocks, a dealer in securities.
Take note that this is based on your gross selling price, as opposed to your capital gains tax which is 5% - 10%
based on net gains.
(B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. - There shall be levied, assessed
and collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock
in closely held corporations, as defined herein, a tax at the rates provided hereunder based on the gross selling
price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in
accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total
outstanding shares of stock after the listing in the local stock exchange:
Up to twenty-five percent (25%) - 4%
Over twenty-five percent (25%) but not over thirty-three and one third percent (33 1/3%) - 2%
Over thirty-three and one third percent (33 1/3%) - 1%
The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary
offering.
For purposes of this Section, the term 'closely held corporation' means any corporation at least fifty percent
(50%) in value of outstanding capital stock or at least fifty percent (505) of the total combined voting power of all
classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals.
For purposes of determining whether the corporation is a closely held corporation, insofar as such determination
is based on stock ownership, the following rules shall be applied:
(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a corporation,
partnership, estate or trust shall be considered as being owned proportionately by its shareholders,
partners or beneficiaries.
(2) Family and Partnership Ownerships. - An individual shall be considered as owning the stock owned,
directly or indirectly, by or for his family, or by or for his partner. For purposes of the paragraph, the 'family
of an individual' includes only his brothers and sisters (whether by whole or half-blood), spouse, ancestors
and lineal descendants.
(3) Option. - If any person has an option acquire stock, such stock shall be considered as owned by such
person. For purposes of this paragraph, an option to acquire such an option and each one of a series of
options shall be considered as an option to acquire such stock.
(4) Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the
application of paragraph (1) or (3) hereof shall, for purposes of applying paragraph (1) or (2), be treated as
actually owned by such person; but stock constructively owned by the individual by reason of the
application of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying
such paragraph in order to make another the constructive owner of such stock.
Initial Public Offering (IPO) means that you are selling your shares for the first time to the public in the local
stock exchange.
These rates (referring to Subsection B) will only apply to closely held corporation. 'Closely Held Corporation'
means any corporation at least fifty percent (50%) in value of outstanding capital stock or at least fifty percent
(50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by
or for not more than twenty (20) individuals.
So is it possible that you will be conducting an IPO but you will not be subject to this tax? Yes, when you are NOT
a closely held corporation. Meaning, there is this family corporation owned by more than 20 individuals. In this
kind of situation, the tax that will apply to you is of 1%. In short, subsection A will apply to you.
(C) Return on Capital Gains Realized from Sale of Shares of Stocks. -
(1) Return on Capital Gains Realized from Sale of Shares of Stock Listed and Traded in the Local Stock
Exchange. - It shall be the duty of every stock broker who effected the sale subject to the tax imposed
herein to collect the tax and remit the same to the Bureau of Internal Revenue within five (5) banking days
from the date of collection thereof and to submit on Mondays of each week to the secretary of the stock
exchange, of which he is a member, a true and complete return which shall contain a declaration of all the
transactions effected through him during the preceding week and of taxes collected by him and turned
over to the Bureau Of Internal Revenue.
(2) Return on Public Offerings of Share Stock. - In case of primary offering, the corporate issuer shall file
the return and pay the corresponding tax within thirty (30) days from the date of listing of the shares of
stock in the local stock exchange. In the case of secondary offering, the provision of Subsection (C)(1) of
this Section shall apply as to the time and manner of the payment of the tax.
(D) Common Provisions. - any gain derived from the sale, barter, exchange or other disposition of shares of stock
under this Section shall be exempt from the tax imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of
this Code and from the regular individual or corporate income tax. Tax paid under this Section shall not be
deductible for income tax purposes.
SEC. 128. Returns and Payment of Percentage Taxes. -
(A) Returns of Gross Sales, Receipts or Earnings and Payment of Tax.
(1) Persons Liable to Pay Percentage Taxes. - Every person subject to the percentage taxes imposed under
this Title shall file a quarterly return of the amount of his gross sales, receipts or earnings and pay the tax
due thereon within twenty-five (25) days after the end of each taxable quarter: Provided, That in the case of
a person whose VAT registration is cancelled and who becomes liable to the tax imposed in Section 116 of
this Code, the tax shall accrue from the date of cancellation and shall be paid in accordance with the
provisions of this Section.
(2) Person Retiring from Business. - Any person retiring from a business subject to percentage tax shall
notify the nearest internal revenue officer, file his return and pay the tax due thereon within twenty (20)
days after closing his business.
(3) Exceptions. - The Commissioner may, by rules and regulations, prescribe:
(a) The time for filing the return at intervals other than the time prescribed in the preceding paragraphs
for a particular class or classes of taxpayers after considering such factors as volume of sales, financial
condition, adequate measures of security, and such other relevant information required to be submitted
under the pertinent provisions of this Code; and
(b) The manner and time of payment of percentage taxes other than as hereinabove prescribed,
including a scheme of tax prepayment.
(4) Determination of Correct Sales or Receipts. - When it is found that a person has failed to issue receipts
or invoices, or when no return is filed, or when there is reason to believe that the books of accounts or other
records do not correctly reflect the declarations made or to be made in a return required to be filed under
the provisions of this Code, the Commissioner, after taking into account the sales, receipts or other taxable
base of other persons engaged in similar businesses under similar situations or circumstances, or after
considering other relevant information may prescribe a minimum amount of such gross receipts, sales and
taxable base and such amount so prescribed shall be prima facie correct for purposes of determining the
internal revenue tax liabilities of such person.
(B) Where to File. - Except as the Commissioner otherwise permits, every person liable to the percentage tax
under this Title may, at his option, file a separate return for each branch or place of business, or a consolidated
return for all branches or places of business with the authorized agent bank, Revenue District Officer, Collection
Agent or duly authorized Treasurer of the city or municipality where said business or principal place of business is
located, as the case may be.
When do you file your return? Within 25 days after the end of each taxable quarter.
When is the payment? Upon filing.
DOCUMENTARY STAMP TAX

Documentary Stamp Tax (DST) (Sections 173-201, NIRC, as amended by RA No. 9243)
Whats the basic rate of DST? Generally, P15.
When does DST apply? Read Section 173.
SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. - Upon documents,
instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the
obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following
Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the
document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine
sources or the property is situated in the Philippines, and the same time such act is done or transaction had:
Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the
other party who is not exempt shall be the one directly liable for the tax.
So whats the nature of DST? It is an excise tax because it is impose on the privilege to enter into a transaction.
Atty. A: It is not a tax on the document because under Sec. 173 it says wherever the document is made, signed,
issued, etc so its really on the transaction itself. But of course, it is evidenced by the document made. Thats
why its called Documentary Tax. It is called stamp tax because the payment of this tax ordinarily entitles to a
certain stamp, like brown, green or white (kanang ipamilit sa mga documents).
Cge beh, who wants to volunteer? Who read the cases? (Ms. Papa volunteer as a tribute )
Phil. Banking Corp. vs CIR
Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.
A DST is actually an excise tax because it is imposed on the transaction rather than on the document. A DST
is also levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments. Hence, in
imposing the DST, the Court considers not only the document but also the nature and character of the
transaction.
Atty. A: memorize this word per word (referring to the emphasized sentence above). If anything will come out in
the exam in DST. This should appear. A lot of the cases assigned to you have this on its decisions.
SEC. 174. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on organization,
reorganization or for any lawful purpose, of shares of stock by any association, company or corporation, there
shall be collected a documentary stamp of One peso (P1.00) on each Two hundred pesos (P200), or fractional
part thereof, of the par value, of such shares of stock: Provided, That in the case of the original issue of shares of
stock without par value, the amount of the documentary stamp tax herein prescribed shall be based upon the
actual consideration for the issuance of such shares of stock: Provided, further, That in the case of stock
dividends, on the actual value represented by each share.
The basis for the DST is the par value of the share.
JAKA Investment Corp vs CIR

the documentary stamp tax imposition is essentially addressed and directly brought to bear upon the
document evidencing the transaction of the parties which establishes its rights and obligations, which in the
case at bar, was established and enforceable upon the execution of the Amended Subscription Agreement
and Deed of Assignment of Property in Payment of Subscription.
Moreover, the documentary stamp tax is imposed on the entire subscription (i.e., subscribed capital stock)
which is the amount of the capital stock subscribed whether fully paid or not. It connotes an original
subscription contract for the acquisition by a subscriber of unissued shares in a corporation, which in this
case is equivalent to a total par value of Php508,806,200.00.
the DST attaches upon acceptance of the stockholder's subscription in the corporation's capital stock
regardless of actual or constructive delivery of the certificates of stock.
when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation to
fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership
over the stocks mentioned on its face. The stocks can be alienated; the dividends or fruits derived therefrom
can be enjoyed, and they can be conveyed, pledged or encumbered. The certificate as issued by the
corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is
considered issued because it is with value and hence the documentary stamp tax must be paid.
Atty. A: DST is paid for every issuance of shares. And take note that it is not the issuance of the stock certificate
that is important because the mere subscription agreement will hold you responsible for the payment of the
DST.
CIR vs First Express Pawnshop

the deposit on stock subscription as reflected in respondent's Balance Sheet as of 1998 is not a subscription
agreement subject to the payment of DST. The deposit on stock subscription is merely an amount of money
received by a corporation with a view of applying the same as payment for additional issuance of shares in
the future, an event which may or may not happen. The person making a deposit on stock subscription does
not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives
and attributes of a stockholder.
Hence, respondent is not liable for the payment of DST on its deposit on subscription for the reason that
there is yet no subscription that creates rights and obligations between the subscriber and the corporation.
SEC. 175. Stamp Tax on Sales, Agreements to Sell. Memoranda of Sales, Deliveries or Transfer of Shares or
Certificates of Stock. - On all sales, or agreements to sell, or memoranda of sales, or deliveries. Or transfer of
shares or certificates of stock in any association, company, or corporation, or transfer of such securities by
assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of
transfer or sale whether entitling the holder in any manner to the benefit of such stock, or to secure the future
payment of money, or for the future transfer of any stock, there shall be collected a documentary stamp tax of
Seventy-five-centavos (P0.75) on each Two hundred pesos (P200), or fractional part thereof, of the par value of
such stock: Provided, That only one tax shall be collected on each sale or transfer of stock from one person to
another, regardless of whether or not a certificate of stock is issued, indorsed, or delivered in pursuance of such
sale or transfer: and Provided, further, That in the case of stock without par value the amount of the
documentary stamp tax herein prescribed shall be equivalent to twenty-five percent (25%) of the documentary
stamp tax paid upon the original issue of said stock.
SEC. 176. Stamp Tax on Bonds, Debentures, Certificate of Stock or Indebtedness Issued in Foreign Countries. -
On all bonds, debentures, certificates of stock, or certificates of indebtedness issued in any foreign country, there
shall be collected from the person selling or transferring the same in the Philippines, such as tax as is required by
law on similar instruments when issued, sold or transferred in the Philippines.
SEC. 177. Stamp Tax on Certificates of Profits or Interest in Property or Accumulations. - On all certificates of
profits, or any certificate or memorandum showing interest in the property or accumulations of any association,
company or corporation, and on all transfers of such certificates or memoranda, there shall be collected a
documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional part thereof,
of the face value of such certificate or memorandum.
Phil. Banking Corp. vs CIR

In this case, SC said SSDA, a super/special savings deposit account, falls under Sec. 178 of NIRC on
certificates of deposits drawing interest because of SSDAs features. And thus, applying said provision, DST
is imposed on Certificates of Deposits Bearing Interest including a special savings account evidenced by a
passbook.
Moreover, a certificate of deposit may be payable to the depositor, to the order of the depositor, or to some
other person or his order. From the use of the conjunction or, instead of and, the negotiable character of a
certificate of deposit is immaterial in determining the imposition of DST.
International Exchange Bank vs CIR

It is well-settled that certificates of time deposit are subject to the DST and that a certificate of time deposit
is but a type of a certificate of deposit drawing interest. Thus, in resolving the issue before Us, it is necessary
to determine whether petitioner's Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and
characteristics as a time deposit.
The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the
required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term
and the reduction of interest rates in case of pre-termination are essential features of a time deposit.
To claim that time deposits evidenced by passbooks should not be subject to DST is a clear evasion of the
rule on equality and uniformity in taxation that requires the imposition of DST on documents evidencing
transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.
SEC. 178. Stamp Tax on Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, and Other
Instruments. - On each bank check, draft, or certificate of deposit not drawing interest, or order for the payment
of any sum of money drawn upon or issued by any bank, trust company, or any person or persons, companies or
corporations, at sight or on demand, there shall be collected a documentary stamp tax of One peso and fifty
centavos (P1.50).
SEC. 179. Stamp Tax on All Debt Instruments. - On every original issue of debt instruments, there shall be
collected a documentary stamp tax on One peso (P1.00) on each Two hundred pesos (P200), or fractional part
thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms of
less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in
accordance with the ration of its term in number of days to three hundred sixty-five (365) days: Provided, further,
That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to
secure such loan.
For purposes of this section, the term debt instrument shall mean instruments representing borrowing and
lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan
agreements, including those signed abroad wherein the object of contract is located or used in the Philippines,
instruments and securities issued by the government of any of its instrumentalities, deposit substitute debt
instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than
the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing
interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or
on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation.
SEC. 180. Stamp Tax on All Bills of Exchange or Drafts. - On all bills of exchange (between points within the
Philippines) or drafts, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two
hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange or draft.
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. - Upon any acceptance or payment of
any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable
in the Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two
hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange, or order, or the
Philippine equivalent to such value, if expressed in foreign currency.
SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of Credit. - On all foreign bills of exchange and
letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or
steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three
(3) or more according to the custom of merchants and bankers, there shall be collected a documentary stamp tax
of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any
such bill of exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign
currency.
SEC. 183. Stamp Tax on Life Insurance Policies. - On all policies of insurance or other instruments by whatever
name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall
be collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional
part thereof, of the amount of premium collected.
CIR vs Manila Bankers Life Insurance Corp.

the documentary stamp tax on insurance policies, though imposed on the document itself, is actually levied
on the privilege to conduct insurance business. Under Section 173, the documentary stamp tax becomes
due and payable at the time the insurance policy is issued, with the tax based on the amount insured by the
policy as provided for in Section 183.
it is clear from the text of the guaranteed continuity clause that what the respondent was actually offering
in its Money Plus Plan was the option to renew the policy, after the expiration of its original term.
Consequently, the acceptance of this offer would give rise to the renewal of the original policy. And thus, it
is indisputably subject to the imposition of documentary stamp tax under Section 183 as an insurance
renewed upon the life of the insured.
For group life insurance plan, whenever a master policy admits of another member, another life is insured
and covered. This means that by approving the addition of another member to its existing master policy, it is
once more exercising its privilege to conduct the business of insurance, because it is yet again insuring a life.
It does not matter that it did not issue another policy to effect this change. Group insurance plan is
embodied in a contract which includes not only the master policy, but all documents subsequently attached
to the master policy.
The assessment for deficiency documentary stamp tax is being upheld not because the additional premium
payments or an agreement to change the sum assured during the effectivity of an insurance plan are subject
to documentary stamp tax, but because documentary stamp tax is levied on every document which
establishes that insurance was made or renewed upon a life.
CIR vs Lincoln Philippine Life Insurance Co.

It is clear from Section 173 that the payment of documentary stamp taxes is done at the time the act is done
or transaction had and the tax base for the computation of documentary stamp taxes on life insurance
policies under Section 183 is the amount fixed in policy, unless the interest of a person insured is susceptible
of exact pecuniary measurement.
The subject insurance policy at the time it was issued contained an automatic increase clause. Although
the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The
distinctive feature of the junior estate builder policy called the automatic increase clause already
formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate
agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age.
The said increase however is imposable with documentary stamp taxes. The original documentary stamps
tax paid by Lincoln Philippine covers the original amount of the policies without the projected increase. The
said increase was already definite at the time of the issuance of the policy. Thus, the amount insured by the
policy at the time of its issuance necessarily included the additional sum covered by the automatic increase
clause because it was already determinable at the time the transaction was entered into and formed part of
the policy.
The deficiency of documentary stamp tax imposed on private respondent is definitely not on the amount of
the original insurance coverage, but on the increase of the amount insured upon the effectivity of the
"Junior Estate Builder Policy."
SEC. 184. Stamp Tax on Policies of Insurance Upon Property. - On all policies of insurance or other instruments
by whatever name the same may be called, by which insurance shall be made or renewed upon property of any
description, including rents or profits, against peril by sea or on inland waters, or by fire or lightning, there shall
be collected a documentary stamp tax of Fifty centavos (P0.50) on each Four pesos (P4.00), or fractional part
thereof, of the amount of premium charged: Provided, however, That no documentary stamp tax shall be
collected on reinsurance contracts or on any instrument by which cession or acceptance of insurance risks under
any reinsurance agreement is effected or recorded.
SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies. - On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage or liability made or renewed by any person, association,
company or corporation transacting the business of accident, fidelity, employers liability, plate, glass, steam,
boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any
office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing
the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public
body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any
mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each Four pesos (P4.00), or fractional part
thereof, of the premium charged.
Philippine Health Care vs CIR

the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any
policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of
indemnity for loss, damage, or liability.
For taxation purposes, SC said that HMO contracts are not insurance contracts and should not be subject to
DST under Sec. 185.
Atty. A: SC said that HMO contract is not an insurance contract, for tax purposes, because DST applies if, first,
the document is an insurance policy or an obligation in the nature of indemnity. Second, the maker should be
transacting the business of accident, fidelity, employers liability, plate, glass, steam, boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance. HMO companies are not engage in the business of insurance,
so it will not comply with the 2nd requirement. So their HMO contracts is not an insurance contract, and thus,
not subject to DST. Lastly, SC said that in HMO contracts, there is no distribution of risks but only reduction of
cost.
SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need Plans. - On all policies of annuities, or other
instruments by whatever name the same may be called, whereby an annuity may be made, transferred or
redeemed, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred
pesos (P200), or fractional part thereof, of the premium or installment payment or contract price collected. On
pre-need plans, the documentary stamp tax shall be Twenty centavos (P0.20) on teach Two hundred pesos
(P200), or fractional part thereof, of the premium or contribution collected.
SEC. 187. Stamp Tax on Indemnity Bonds. - On all bonds for indemnifying any person, firm or corporation who
shall become bound or engaged as surety for the payment of any sum of money or for the due execution or
performance of the duties of any office or position or to account for money received by virtue thereof, and on all
other bonds of any description, except such as may be required in legal proceedings, or are otherwise provided
for herein, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Four pesos
(P4.00), or fractional part thereof, of the premium charged.
SEC. 188. Stamp Tax on Certificates. - On each certificate of damages or otherwise, and on every certificate or
document issued by any customs officer, marine surveyor, or other person acting as such, and on each certificate
issued by a notary public, and on each certificate of any description required by law or by rules or regulations of a
public office, or which is issued for the purpose of giving information, or establishing proof of a fact, and not
otherwise specified herein, there shall be collected a documentary stamp tax of Fifteen pesos (P15.00).
SEC. 189. Stamp Tax on Warehouse Receipts. - On each warehouse receipt for property held in storage in a
public or private warehouse or yard for any person other than the proprietor of such warehouse or yard, there
shall be collected a documentary stamp tax of Fifteen pesos (P15.00): Provided, That no tax shall be collected on
each warehouse receipt issued to any one person in any one calendar month covering property the value of
which does not exceed Two hundred pesos (P200).
SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or Other Authorized Numbers Games. - On each jai-
alai, horse race ticket, lotto, or other authorized number games, there shall be collected a documentary stamp
tax of Ten centavos (P0.10): Provided, That if the cost of the ticket exceeds One peso (P1.00), an additional tax of
Ten centavos (P0.10) on every One peso (P1.00, or fractional part thereof, shall be collected.
SEC. 191. Stamp Tax on Bills of Lading or Receipts. - On each set of bills of lading or receipts (except charter
party) for any goods, merchandise or effects shipped from one port or place in the Philippines to another port or
place in the Philippines (except on ferries across rivers), or to any foreign port, there shall be collected
documentary stamp tax of One peso (P1.00), if the value of such goods exceeds One hundred pesos (P100) and
does not exceed One Thousand pesos (P1,000); Ten pesos (P10), if the value exceeds One thousand pesos
(P1,000): Provided, however, That freight tickets covering goods, merchandise or effects carried as accompanied
baggage of passengers on land and water carriers primarily engaged in the transportation of passengers are
hereby exempt.
SEC. 192. Stamp Tax on Proxies. - On each proxy for voting at any election for officers of any company or
association, or for any other purpose, except proxies issued affecting the affairs of associations or corporations
organized for religious, charitable or literary purposes, there shall be collected a documentary stamp tax of
Fifteen pesos (P15.00).
SEC. 193. Stamp Tax on Powers of Attorney. - On each power of attorney to perform any act whatsoever, except
acts connected with the collection of claims due from or accruing to the Government of the Republic of the
Philippines, or the government of any province, city or municipality, there shall be collected a documentary
stamp tax of Five pesos (P5.00).
SEC. 194. Stamp tax on Leases and Other Hiring Agreements. - On each lease, agreement, memorandum, or
contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a
documentary stamp tax of Three pesos (P3.00) for the first Two thousand pesos (P2,000), or fractional part
thereof, and an additional One peso (P1.00) for every One Thousand pesos (P1,000) or fractional part thereof, in
excess of the first Two thousand pesos (P2,000) for each year of the term of said contract or agreement.
SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. - On every mortgage or pledge of lands, estate,
or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for
the payment of any definite and certain sum of money lent at the time or previously due and owing of forborne
to be paid, being payable and on any conveyance of land, estate, or property whatsoever, in trust or to be sold,
or otherwise converted into money which shall be and intended only as security, either by express stipulation or
otherwise, there shall be collected a documentary stamp tax at the following rates:
(a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20.00).
(b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos
(P5,000), an additional tax of Ten pesos (P10.00).
On any mortgage, pledge, or deed of trust, where the same shall be made as a security for the payment of a
fluctuating account or future advances without fixed limit, the documentary stamp tax on such mortgage, pledge
or deed of trust shall be computed on the amount actually loaned or given at the time of the execution of the
mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on
the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full
amount of the loan or credit, granted under the mortgage, pledge or deed of trust shall be computed on the
amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust. However,
if subsequent advances are made on such mortgage, pledge or deed of trust, additional documentary stamp tax
shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified
above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or
deed of trust is specified in such mortgage, pledge or deed of trust, the documentary stamp tax prescribed in this
Section shall be paid and computed on the full amount of the loan or credit granted.
Lhullier Pawnshop vs CIR

Section 195 of the National Internal Revenue Code (NIRC) imposes a DST on every pledge regardless of
whether the same is a conventional pledge governed by the Civil Code or one that is governed by the
provisions of P.D. No. 114. All pledges are subject to DST, unless there is a law exempting them in clear and
categorical language. This explains why the Legislature did not see the need to explicitly impose a DST on
pledges entered into by pawnshops. These pledges are already covered by Section 195 and to create a
separate provision especially for them would be superfluous.
It is for this reason why the definition of pawnshop ticket, as not an evidence of indebtedness, is
inconsequential to and has no bearing on the taxability of contracts of pledge entered into by pawnshops.
For purposes of Section 195, pawnshop tickets need not be an evidence of indebtedness nor a debt
instrument because it taxes the same as a pledge instrument. Neither should the definition of pawnshop
ticket, as not a security, exempt it from the imposition of DST. It was correctly defined as such because the
ticket itself is not the security but the pawn or the personal property pledged to the pawnbroker.
SEC. 196. Stamp tax on Deeds of Sale and Conveyances of Real Property. - On all conveyances, deeds,
instruments, or writings, other than grants, patents or original certificates of adjudication issued by the
Government, whereby any land, tenement, or other realty sold shall be granted, assigned, transferred or
otherwise conveyed to the purchaser, or purchasers, or to any other person or persons designated by such
purchaser or purchasers, there shall be collected a documentary stamp tax, at the rates herein below prescribed,
based on the consideration contracted to be paid for such realty or on its fair market value determined in
accordance with Section 6(E) of this Code, whichever is higher: Provided, That when one of the contracting
parties is the Government the tax herein imposed shall be based on the actual consideration.
(a) When the consideration, or value received or contracted to be paid for such realty after making proper
allowance of any encumbrance, does not exceed One thousand pesos (P1,000) - fifteen pesos (P15.00).
(b) For each additional One thousand Pesos (P1,000), or fractional part thereof in excess of One thousand
pesos (P1,000) of such consideration or value - Fifteen pesos (P15.00).
When it appears that the amount of the documentary stamp tax payable hereunder has been reduced by an
incorrect statement of the consideration in any conveyance, deed, instrument or writing subject to such tax the
Commissioner, provincial or city Treasurer, or other revenue officer shall, from the assessment rolls or other
reliable source of information, assess the property of its true market value and collect the proper tax thereon.
Atty. A: this is a very important provision. This is very common especially in selling real properties.
Lets recall, in transaction involving real properties, the tax implications are:
- If it is a capital asset, subject to: (1) CGT at a rate of 6% based on FMV, zonal or assessed, or gross selling
price, whichever is higher; and (2) DST at a rate of 15pesos for every 1000pesos.
- If it is an ordinary asset, subject to: (1) income tax collected thru creditable withholding tax at a rate of
6%; (2) VAT or OPT (depending on the value); and (3) DST at a rate of 15pesos for every 1000pesos.
Fort Bonifacio vs CIR

The Special Patent absolutely and irrevocably grant and convey" the legal title over the land to FBDC. In
effect, the Republic admitted that the Deed of Absolute Sale was only a formality, not a vehicle for
conveying ownership.
DST is by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law.
These privileges may cover the creation, modification or termination of contractual relationships by
executing specific documents like deeds of sale, mortgages, pledges, trust and issuance of shares of stock.
The sale of Fort Bonifacio land was not a privilege but an obligation imposed by law which was to sell lands
in order to fulfill a public purpose. To charge DST on a transaction which was basically a compliance with a
legislative mandate would go against its very nature as an excise tax.
Atty. A: this tells us then that theres an exception from DST when the transaction is pursuant to a legal
obligation.
SEC. 197. Stamp Tax on Charter Parties and Similar Instruments. On every charter party, contract or
agreement for the charter of any ship, vessel or steamer, or any letter or memorandum or other writing between
the captain, master or owner, or other person acting as agent of any ship, vessel or steamer, and any other
person or persons for or relating to the charter of any such ship, vessel or steamer, and on any renewal or
transfer of such charter, contract, agreement, letter or memorandum, there shall be collected a documentary
stamp tax at the following rates:
(a) If the registered gross tonnage of the ship, vessel or steamer does not exceed one thousand (1,000) tons,
and the duration of the charter or contract does not exceed six (6) months, Five hundred pesos (P500);
and for each month or fraction of a month in excess of six (6) months, an additional tax of Fifty pesos
(P50.00) shall be paid.
(b) If the registered gross tonnage exceeds one thousand (1,000) tons and does not exceed ten thousand
(10,000) tons, and the duration of the charter or contract does not exceed six (6) months, One thousand
pesos (P1,000); and for each month or fraction of a month in excess of six (6) months, an additional tax
of One hundred pesos (P100) shall be paid.
(c) If the registered gross tonnage exceeds ten thousand (10,000) tons and the duration of the charter or
contract does not exceed six (6) months, One thousand five hundred pesos (P1,500); and for each month
or fraction of a month in excess of six (6) months, an additional tax of One hundred fifty pesos (P150)
shall be paid.
SEC. 198. Stamp Tax on Assignments and Renewals of Certain Instruments. - Upon each and every assignment
or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement,
contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there shall be levied,
collected and paid a documentary stamp tax, at the same rate as that imposed on the original instrument.
SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The provisions of Section 173 to the contrary
notwithstanding, the following instruments, documents and papers shall be exempt from the documentary
stamp tax:
(a) Policies of insurance or annuities made or granted by a fraternal or beneficiary society, order, association or
cooperative company, operated on the lodge system or local cooperation plan and organized and conducted
solely by the members thereof for the exclusive benefit of each member and not for profit.
(b) Certificates of oaths administered to any government official in his official capacity or of acknowledgment by
any government official in the performance of his official duties, written appearance in any court by any
government official, in his official capacity; certificates of the administration of oaths to any person as to the
authenticity of any paper required to be filed in court by any person or party thereto, whether the proceedings be
civil or criminal; papers and documents filed in courts by or for the national, provincial, city or municipal
governments; affidavits of poor persons for the purpose of proving poverty; statements and other compulsory
information required of persons or corporations by the rules and regulations of the national, provincial, city or
municipal governments exclusively for statistical purposes and which are wholly for the use of the bureau or
office in which they are filed, and not at the instance or for the use or benefit of the person filing them; certified
copies and other certificates placed upon documents, instruments and papers for the national, provincial, city or
municipal governments, made at the instance and for the sole use of some other branch of the national,
provincial, city or municipal governments; and certificates of the assessed value of lands, not exceeding Two
hundred pesos (P200) in value assessed, furnished by the provincial, city or municipal Treasurer to applicants for
registration of title to land.
(c) Borrowing and lending of securities executed under the Securities Borrowing and lending Program of a
registered exchange, or in accordance with regulations prescribed by the appropriate regulatory authority:
Provided, however, That any borrowing or lending of securities agreement as contemplated hereof shall be duly
covered by a master securities borrowing and lending agreement acceptable to the appropriate regulatory
authority, and which agreements is duly registered and approved by the Bureau of Internal Revenue. (BIR).
(d) Loan agreements or promissory notes, the aggregate of which does not exceed Two hundred fifty thousand
pesos (P250,000), or any such amount as may be determined by he Secretary of Finance, executed by an
individual for his purchase on installment for his personal use or that of his family and not for business or resale,
barter or hire of a house, lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set
by the Secretary of Finance shall be in accordance with a relevant price index but not to exceed ten percent (10%)
of the current amount and shall remain in force at least for three (3) years.
(e) Sale, barter or exchange of shares of stock listed and traded through the local stock exchange for a period of
five (5) years from the effectivity of this Act.
(f) Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any
agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no change in the maturity
date or remaining period of coverage from that of the original instrument.
(g) Fixed income and other securities traded in the secondary market or through an exchange.
(h) Derivatives: Provided, That for purposes of this exemption, repurchase agreements and reverse repurchase
agreements shall be treated similarly as derivatives.
(i) Interbranch or interdepartmental advances within the same legal entity.
(j) All forebearances arising from sales or service contracts including credit card and trade receivables: Provided,
That the exemption be limited to those executed by the seller or service provider itself.
(k) Bank deposit accounts without a fixed term or maturity.
(l) All contracts, deeds, documents and transactions related to the conduct of business of the Banko Sentral ng
Pilipinas.
(m) Transfer of property pursuant to Section 40(c)(2) of the National Internal Revenue Code of 1997, as
amended.
(n) Interbank call loans with maturity of not more than seven (7) days to cover deficiency in reserves against
deposit liabilities, including those between or among banks and quasibanks.
SEC. 200. Payment of Documentary Stamp Tax.
(A) In General. - The provisions of Presidential Decree No. 1045 notwithstanding, any person liable to pay
documentary stamp tax upon any document subject to tax under Title VII of this Code shall file a tax return and
pay the tax in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
(B) Time for Filing and Payment of the Tax. - Except as provided by rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, the tax return prescribed in this Section shall
be filed within ten (10) days after the close of the month when the taxable document was made, signed, issued,
accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is filed.
Atty. A: as what is being practiced now and as what can be found in the BIR website, the filing of return and
payment is always within the 5th day of the month following the month of the transaction.
(C) Where to File. - Except in cases where the Commissioner otherwise permits, the aforesaid tax return shall be
filed with and the tax due shall be paid through the authorized agent bank within the territorial jurisdiction of the
Revenue District Office which has jurisdiction over the residence or principal place of business of the taxpayer. In
places where there is no authorized agent bank, the return shall be filed with the Revenue District Officer,
collection agent, or duly authorized Treasurer of the city or municipality in which the taxpayer has his legal
residence or principal place of business.
(D) Exception. - In lieu of the foregoing provisions of this Section, the tax may be paid either through purchase
and actual affixture; or by imprinting the stamps through a documentary stamp metering machine, on the
taxable document, in the manner as may be prescribed by rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.
SEC. 201. Effect of Failure to Stamp Taxable Document. - An instrument, document or paper which is required by
law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall
not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in
evidence in any court until the requisite stamp or stamps are affixed thereto and cancelled.
Atty. A: memorize the rates and tax base of the provisions I mentioned. And then take note on those
transactions which are exempt from DST (Sec. 199).
If you issue shares of stock thru the local stock exchange, will it be subject to DST? No, it is not subject to DST.
Theres a new law extending this exemption.
COVERAGE: All of VAT, OPT and DST.
THE BUREAU OF INTERNAL REVENUE

CHIEF OFFICIALS OF THE BUREAU OF INTERNAL REVENUE
1. Commissioner
2. Four (4) assistant chiefs to be known as Deputy Commissioners.
POWERS AND DUTIES OF THE BUREAU OF INTERNAL REVENUE
1. Assessment and collection of all national internal revenue taxes, fees, and charges.
It cannot collect Local Taxes as well as the taxes imposed under the Tariff and Customs Code.
2. Enforcement of all forfeitures, penalties, and fines connected therewith
3. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts.
4. Give effect to and administer the supervisory and police powers conferred to it by this Code or other laws.
POWERS OF THE COMMISSIONER
1) Interpret Tax Laws and to Decide Tax Cases, subject to review by the Secretary of Finance.
How? Through the recommendation of the Commissioner, the Secretary of Finance issues Revenue
Regulations.
Revenue regulation: refers to the general interpretation and implementation of the Tax Code.
(Legislative function). This comes first before any other issuances by the BIR or the Secretary of
Finance.
Revenue ruling: refers to the ruling of the Commissioner based on specific sets of facts and you
want to know the tax implication based on the transaction you are engaged in. (Interpretative)
If you want to question the ruling of the Secretary of Finance, you go to the Office of the President.
CASC
2) The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions
thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.
CTASC
3) Obtain Information, and to Summon, Examine, and Take Testimony of Persons
i. To examine any book, paper, record, or other data which may be relevant or material to such inquiry
ii. To obtain on a regular basis from any person other than the person whose internal revenue tax
liability is subject to audit or investigation.
a. Must be a third party which a taxpayer has relations.
iii. To summon the person liable for tax.
iv. To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry.
4) Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement.
After a return has been filed as required under the provisions of this Code, the Commissioner or his
duly authorized representative may authorize the examination of any taxpayer and the assessment
of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.
Best Evidence obtainable - in case a person fails to file a required return or other document at the
time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document,
the Commissioner shall make or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise, which shall be prima facie correct and
sufficient for all legal purposes.
1. Refers to third party information which are relevant.
Authority to Conduct Inventory-taking, Surveillance.
1. Basis: if there is reason to believe that such person is not declaring his correct income, sales
or receipts for internal revenue tax purposes.
2. Usually applicable to entities subject to Excise tax.
Authority to Prescribe Presumptive Gross Sales and Receipts.
1. Basis: if there is reason to believe that such person is not declaring his correct income, sales
or receipts for internal revenue tax purposes.
2. BIR usually looks at all the other entities within the same industry in order to compare
figures.
3. Example: X is engaged in furniture making, and there are other entities which are also
engaged in the same business. If BIR notices that the sale of X is declining while all the other
business sale are increasing, then BIR make impose presumptive sales on X.
4. The findings may be used as the basis for assessing the taxes for the other months or
quarters of the same or different taxable years and such assessment shall be deemed prima
facie correct.
Authority to Terminate Taxable Period
1. Authority to issue an assessment (Jeopardy Assessment) right away without the benefit of
an audit when the BIR believes that the prescriptive period for making an assessment is
about to expire and the government will be prejudice for reason of the delay attributable to
the taxpayer.
2. Usually resorted to when taxpayer is:
Retiring from business subject to tax
Intending to leave the Philippines
Intending to remove his property therefrom or to hide or conceal his property,
Performing any act tending to obstruct the proceedings for the collection of the tax
for the past or current quarter or year or to render the same totally or partly
ineffective unless such proceedings are begun immediately.
Power to prohibit the withdrawal of returns, statements or declarations filed with the BIR.
1. Any return, statement or declaration filed in any office authorized to receive the same shall
not be withdrawn Provided:
That within three (3) years from the date of such filing, the same may be modified,
changed, or amended;
That no notice for audit or investigation of such return, statement or declaration
has, in the meantime, been actually served upon the taxpayer.
5) Authority of the Commissioner to Prescribe Real Property Values
The CIR is authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers both from the private and public sectors, determine the fair
market value of real properties located in each zone or area.
1. Taxes which requires the BIR to determine the values:
CGT on real property transactions
Estate taxes
Donor taxes
For purposes of computing any internal revenue tax, the value of the property shall be, whichever is
the higher of:
1) the fair market value as determined by the Commissioner; or
2) the fair market value as shown in the schedule of values of the Provincial and City Assessors.
BIR has no power over assessors.

6) Authority of the Commissioner to Inquire into Bank Deposit Accounts
Notwithstanding any contrary provision of Republic Act No. 1405 and other general or special laws,
the Commissioner is hereby authorized to inquire into the bank deposits of:
1) a decedent to determine his gross estate; and
2) any taxpayer who has filed an application for compromise of his tax liability under Sec.
204(A)(2) (Compromise) of this Code by reason of financial incapacity to pay his tax liability.
Condition before a bank may into such account: The taxpayer who filed such
application must waive in writing his privilege under Republic Act No. 1405, Republic
Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the
Philippines, or under other general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a
foreign tax authority pursuant to an international convention or agreement on tax matters
to which the Philippines is a signatory or a party of: Provided, That the information obtained
from the banks and other financial institutions may be used by the Bureau of Internal
Revenue for tax assessment, verification, audit and enforcement purposes. (R.A. No. 10021)
Conditions before a bank may into such account:
i. The exchange of information shall be done in a secure manner to ensure
confidentiality thereof
ii. A statement that the requesting foreign tax authority has exhausted all
means available in its own territory to obtain the information, except those
that would give rise to disproportionate difficulties.
7) Authority to Accredit and Register Tax Agents
8) Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements.
Catch all provision.
9) Authority of the Commissioner to Delegate Power
What are those powers which the Commissioner is prohibited from delegating?
1. Recommend the promulgation of rules and regulations by the Secretary of Finance
Recommendation can only be made by the CIR.
2. Issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;
There has been no ruling on such particular subject matter.
3. Compromise or abate, under Sec. 204(A) and (B) of this Code, any tax liability:
Provided, however, That assessments issued by the regional offices involving basic
deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor
criminal violations, may be compromised by a regional evaluation board which shall
be composed of the Regional Director as Chairman, the Assistant Regional Director,
the heads of the Legal, Assessment and Collection Divisions and the Revenue District
Officer having jurisdiction over the taxpayer, as members;
Example: A taxpayer has a total assessment for income tax of P850,000
(basic tax of P500,000 and a surcharge of P125,000 and an interest of
P200,000). This does not fall under the exclusive power of the CIR because
you only account for the basic deficiency taxes in determining whether or
not if falls under the exclusive power of the CIR.
GROUNDS FOR COMPROMISE
1. A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
A minimum compromise rate equivalent to forty percent (40%) of
the basic assessed tax.
2. The financial position of the taxpayer demonstrates a clear inability to pay

the assessed tax.
A minimum compromise rate equivalent to ten percent (10%) of the
basic assessed tax.
TN: Where the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the Evaluation Board which shall be
composed of the Commissioner and the four (4) Deputy Commissioners.
GROUNDS FOR ABATEMENT
1. The tax or any portion thereof appears to be unjustly or excessively
assessed;
2. The administration and collection costs involved do not justify the collection
of the amount due.
COMPROMISE ABATEMENT
A reduction of your tax liability A cancellation of your tax liability
TN: Under the Revenue Regulation, it appears that what is just allowed to be abated are
only the penalties.
4. The power to assign or reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.
BIR does not want their personnel to establish close relationship with these entities
subject to excise tax.
AGENCIES INVOLVED IN TAX ADMINISTRATION
1. BIR
2. Customs
3. Local Government Units
Loca treasurers can be delegated by the Commissioner.
Usually happens in remote areas.
REMEDIES OF A TAXPAYER AFTER ASSESSMENT BUT BEFORE PAYMENT IS MADE
1. Protest of the assessment - The taxpayer may protest administratively an assessment by filing a written
request for reconsideration or reinvestigation.
i. Motion for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of
existing records without need of additional evidence. It may involve both a question of fact or of law
or both.
ii. Motion for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of
newly-discovered evidence or additional evidence that a taxpayer intends to present in the
investigation. It may also involve a question of fact or law or both.
2. Enter into a compromise or request for abatement.
REMEDIES OF A TAXPAYER AFTER PAYMENT HAS BEEN MADE
1. Claim for refund or tax credit.

Instances when you can ask for refund/ tax credit:
i. Any taxes erroneously or illegally assessed or collected.
ii. Any penalty claimed to have been collected without authority.
iii. Any sum alleged to have been excessively or in any manner wrongfully collected
Tax credit shall mean any of the credits against taxes and/or duties equal to those actually paid or
would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of
Finance or his representative, or the Board, if so delegated by the Secretary of Finance
This tax credit certificate can be used to pay other National Internal Revenue taxes.
Tax credit certificate are not transferrable.
WHEN CAN YOU CLAIM TAX REFUND OR TAX CREDIT:

Take note: Provision for refund under remedies chapter should not apply to vat refunds because it is not
erroneously paid or excessively collected. (Aichi case)
This applies:
o SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged
to have been:
erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, of
any sum alleged to have been excessively or in any manner wrongfully collected without
authority, or of
any sum alleged to have been excessively or in any manner wrongfully collected, until a
claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress. xxx
REQUISITE FOR YOU TO FILE A TAX REFUND OR TAX CREDIT:

show proof of payment such as your ITR
must be in writing
claim for refund must be claim within 2 years from the DATE OF PAYMENT
2 YEAR PERIOD FOR REFUND: BOTH ADMINISTRATIVE & JUDICIAL
Does this 2 year period to file a claim include both admin & judicial claim?
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - xxx
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.
Example: April 15 2001 paid income tax for 2000 of 500,000. It should have been only 50,000.
o 1st step: He must be able to file a tax refund to the BIR on or before April 15 2003. There must
FIRST BE AN ADMINSTRATIVE CASE with BIR.
o BIR DENIES within the 2 years:
If within the 2 yr, let say 5/15/2002 the BIR denies your claim your remedy is to APPEAL
with the CTA within a period of 30 days. So appeal on or before 6/14/2002.
Then if the CTA denies the appeal at 7/15/2002, your remedy is rule 45 with the SC
within 15 days from denial.
o As a rule, this 2-year period should be both for administrative & judicial, but if the BIR DENIES
exactly at April 15,2003 or there is inaction of BIR. Are you barred to appeal because your period
to start and finish the judicial remedy has lapsed?
No. It is NOT REQUIRED that the entire JUDICIAL PROCESS be finished within the 2 yr
period. It is enough that you COMMENCE the judicial proceedings within the 2 yr period.
The moment you made an appeal to CTA at April 15, 2003 the 2-year period is tolled.
Then wait for the CTA decision and if unfavorable you have 15 days to appeal such
decision with the SC.
TAKE NOTE because this is where the trick is, you do not wait for the decision of the BIR
if you know that the 2-year period is about to lapse because they might make a decision
after the 2 year period. So before the end of the period and still you do not get an
answer from the BIR, you should file your appeal with the CTA to toll the running of the
period.
o Can you simultaneously file your judicial and administrative claim, so in the example its
4/15/2003 which is the last day, can you make an appeal with CTA on top of your filing in the
BIR. Is this allowed?
It is allowed considering the 2 year period is about to lap, you dont have any other
option but to pursue them together. BUT YOU CANNOT GO DIRECTLY to Judicial. There
is a requirement that an administrative claim must also be filed.
If it is 4/12/2003, you cannot yet file with the judicial because you have no cause to
pursue the judicial claim because there is still time. It may be filed on the 14th of April, it
is a matter of justifying that there is no more time to file the judicial claim if you wait for
the decision of the BIR but again the CTA may deny the filing by saying that you still have
a day to wait for the BIR. So to be safe the ground to file a judicial despite the lack of
decision from the BIR is when you have NO OTHER OPTION, such as on the day of the
deadline.
EFFECTIVITY PERIOD OF THE TAX REFUND:

SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -
(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the pertinent
provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date
the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and
the amount thereof shall revert to the general fund.
(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent
provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall,
unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue
tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general
fund.
CHECK or WARRANT 5 years from the date the said warrant or check was mailed or delivered or
issued to taxpayer
TAX CREDIT CERTIFICATE 5 years from issue UNLESS revalidated for another 5 years
ADMINISTRATIVE & JUDICIAL PROCESS OF PROTESTING:
PROCESS:
1. Taxpayer is served by the BIR with a Letter of Authority or Notice (LOA) for them to be audit and the
taxpayer to produce some documents. (but not a strict requirement, may or may not be issued)
2. Upon meetings with BIR, most likely you will disagree, so The taxpayer is issued by the BIR with a Pre-
Assessment Notice (PAN). And you must give a REPLY within 15 days.
Failure to reply within 15 days PAN will be considered as final, executor and demandable so a (Final
Assessment Notice) FAN will be issued. If the BIR does not agree with your reply still the BIR will
issue a FAN. Importance of the giving a reply is to get the cooperation of the BIR in assessing your
deficiency rather than do nothing.
GR: PAN is part of the due process of the taxpayer therefore there must first be a PAN before a FAN.
o EXC: PAN is not required in certain instances: SEC. 228. Protesting of Assessment. xxx.
That a pre-assessment notice shall not be required in the following cases:
i. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or(Ex. instead of you
tax due is supposed to be 10K but you wrote there 1K)
ii. When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or (the agent tries defraud the gov. by not
remitting)
iii. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
iv. When the excise tax due on exciseable articles has not been paid; or
v. When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons. (TECHNICAL IMPORTATION)
NEW RULES: Informal Conference is not required anymore.
3. File a protest with the CIR (in manila or a NR individual/NR Foreign Corpo) or BIR-RDO where you file
your return within 30 days from RECEIPT of FINAL LETTER OF DEMAND (FLD)/FINAL ASSESSMENT
NOTICE (FAN).
TYPES OF PROTEST:
Motion for reconsideration there were documents submitted already;
o Under the new rule, MR the 60 days to file your supporting documents do not apply.
Motion for reinvestigation - re-evaluation but based on new evidence or additional evidence;
o 60 days to file your supporting documents.
o Who determines these documents? At whose option is this? Can the BIR say this is not the
supporting documents you are looking for(matching Jedi voice)? These are supporting
documents, which are necessary to support the position of the taxpayer, which is
determined by the taxpayer himself.
o Failure to file the supporting documents will simply continue the process with the same
documents they will not automatically deny your protest but again your wasting the time of
the BIR and aggravates more reason to deny your protest.
4. After the submitting the supporting documents within 60 days (if reinvestigation) or after the lapse of
the 30 days (if reconsideration), the BIR is given 180 days to make their decision on your protest.
a. Total No. of Days: 15 (PAN) + 30 (FAN) + 60 +180 = 285 days. (re-investigation)
b. Total No. of Days: 15 (PAN) + 30 (FAN) + 180 reconsideration
5. After the 180 days:
a. LASCONA CASE: if BIR did not do anything within the 180 day period and it will lapse, the
taxpayer has two options which are mutually exclusive:
i. File a petition with CTA from the lapse of the 180 days
ii. Wait for the BIR decision
b. If within the 180 days BIR denies, your only option is to file a Petition for Review (Rule 43)with
the CTA 30 days from the receipt of the decision.
6. After the CTA and decision is adverse, go to the SC under rule 45 on Petition for Review on Certiorari
REMEDIES OF THE GOVERNMENT:

Administrative
o Distraint of personal property or levy on real property
o Enforcement of lien over the property
o Enforcement of forfeiture
o Compromise
o Abatement
o Suspension of business operation
o Imposition of penalties and fines
Judicial
TAX LIEN
Charge on the property of the taxpayer. Law did not make a distinction whether personal or real as long
as you have a tax liability.
The implication of this is the government has a claim over the property and in fact it is superior.
DISTRAINT
Personal property that can be carried by the BIR
ACTUAL DISTRAINT
How is this effected:
o This is a summary remedy; there is no need for face-to-face encounter. Automatically effected
by the authority.
o Who commences:
More than 1M CIR
1M or less RDO
o PROCEDURE:
the CIR/RDO will cause the service of warrant of distraint
the sherrif will make a report on the distraint
possession of the property will then be divested from the taxpayer
the distraint property may be sold at a public auction
CONSTRUCTIVE DISTRAINT
this is effected when the personal property is so big that it would be unwise to transfer such property
such as big machineries.
PROCEDURE:
o After service of the warrant of constructive distraint, the taxpayer or any person having
possession of the particular property has to sign a receipt covering the property distrained. In
addition, by signing such receipt the person undertakes and obligates himself to preserve the
property intact and unaltered and not to dispose of the property in any manner without the
express authority of the BIR.
o If the peson refuses to sign, the officer who served the constructive warrant has to prepare a list
describing the particular property and in the presence of two witnesses, leave a copy of the list
of the distraint where the property is located.
WHEN REQUIRED:
o SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of
the Government, the Commissioner may place under constructive distraint the property of a
delinquent taxpayer or any taxpayer who, in his opinion:
is retiring from any business subject to tax, or is
intending to leave the Philippines or to remove his property therefrom or
to hide or conceal his property or to perform any act tending to obstruct the
proceedings for collecting the tax due or which may be due from him.
GARNISHMENT
still a form of distraint
HOW EFFECTED:
o SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint
shall make or cause to be made an account of the goods, chattels, effects or other personal
property distrained, a copy of which, signed by himself, shall be left either with the owner or
person from whose possession such goods, chattels, or effects or other personal property were
taken, or at the dwelling or place of business of such person and with someone of suitable age
and discretion, to which list shall be added a statement of the sum demanded and note of the
time and place of sale.
o Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon
the taxpayer and upon the president, manager, treasurer or other responsible officer of the
corporation, company or association, which issued the said stocks or securities.
o Debts and credits shall be distrained by leaving with the person owing the debts or having in
his possession or under his control such credits, or with his agent, a copy of the warrant of
distraint.
The warrant of distraint shall be sufficient authority to the person owning the debts or
having in his possession or under his control any credits belonging to the taxpayer to
pay to the Commissioner the amount of such debts or credits.
o Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and
upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt
of the warrant of garnishment, the bank shall tun over to the Commissioner so much of the bank
accounts as may be sufficient to satisfy the claim of the Government.
LEVY ON REAL PROPERTY

After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed
real property may be levied upon, before simultaneously or after the distraint of personal property
belonging to the delinquent.
any internal revenue officer designated by the Commissioner or his duly authorized representative shall
prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax
and penalty due from him.
Said certificate shall operate with the force of a legal execution throughout the Philippines.
WHEN CAN BE EFFECTED:
Levy shall be affected by writing upon said certificate a description of the property upon which levy is
made.
At the same time, written notice of the levy shall be mailed to or served upon the
o Register of Deeds for the province or city where the property is located and
o upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the
manager of the business in respect to which the liability arose, or if there be none, to the
occupant of the property in question.
If still the taxpayer will not pay, it will make an advertisement of the sale and conduct the public sale of
the property
CAN IT BE DONE TOGETHER WITH DISTRAINT?
After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed
real property may be levied upon, before simultaneously or after the distraint of personal property
belonging to the delinquent.
FORFEITURE
Divestiture of property without compensation
The only condition is that THERE IS NO OTHER BIDDER or BID is NOT ENOUGH TO PAY THE TAX LIABILITY.
COMPROMISE
Contract whereby parties making reciprocal concessions to avoid litigation or put an end to one the has
already commenced
REQ:
o There must be a tax liability
o There must be an offer on the part of the tax payer
o BIR must accept the offer
WHO CAN ENTER INTO A COMPROMISE:
o CIR
o Regional Evaluation Board Basic Deficiency tax(BDT) is 500K or less & minor violations
discovered by regional and district officials
Grounds:
1. Doubtful validity of the taxed assessed (40% of the basic assessed tax) or
2. Financial position of the tax payer demonstrates a clear inability to pay the assessed
tax (10-20-40% depend on the financial position of the taxpayer, 10% lowest)
o National Evaluation Board when the BDT exceeds 1M or where the settlement offered is less
than the prescribed minimum rates
WHEN IS COMPROMISE ALLOWED: (hanging question not ans.: ANS based on net)
o Before the complaint is filed with the prosecutors office: the CIR has full discretion to
compromise EXCEPT those involving FRAUD
o After the complaint is filed with the prosecutor BUT BEFORE the information is filed with the
court: CIR can still compromise PROVIDED with consent of the prosecutor
o After the information is filed with the court: NO LONGER ALLOWED TO COMPROMISE
SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the Government,
the Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer
who, in his opinion, is retiring from any business subject to tax, or is intending to leave the Philippines or to
remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the
proceedings for collecting the tax due or which may be due from him.
Distraint applies to personal properties.
Under what the instances may the government resort to constructive distraint?
3. Taxpayer is delinquent
4. The taxpayer is retiring from any business subject to tax;
5. He intends to leave the Philippines;
6. He removes his property therefrom;
7. Taxpayer hides or conceals his property;
8. He performs any act tending to obstruct the proceedings for collecting the tax due or which may be due
from him
Sir: Constructive distraint can also be effected if there is delinquency. Its just that not in all instances will it be
required that there is delinquency because as a matter of fact, this remedy is granted in order to forestall any
delinquency in the payment of tax. Matter of fact, constructive distraint can be resorted to even if there the TP
is not delinquent but he falls under the instances (as mentioned above).
How is it affected?
Sec. 206. (par. 2 and 3). The constructive distraint of personal property shall be affected by requiring the
taxpayer or any person having possession or control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same ;in any
manner whatever, without the express authority of the Commissioner.
In case the taxpayer or the person having the possession and control of the property sought to be placed under
constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed,
leave a copy thereof in the premises where the property distrained is located, after which the said property shall
be deemed to have been placed under constructive distraint.
General Rule:
- Affected on any person, whether its the TP or other person, having possession or control of such
property
- By letting him sign a receipt
- Obligate himself to preserve and not dispose the said property without the express authority of the
Commissioner
Exception: when there is refusal or failure to sign the receipt, the revenue officer will
- Prepare a list of such property
- in the presence of two witnesses, leave a copy in the premises where property distrained is located
What if no one is interested to buy the distrained property?

- The government will purchase the said property. Thats why theres no forfeiture proceeding.
LEVY
(B) Levy on Real Property.- After the expiration of the time required to pay the delinquent tax or delinquent
revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the
distraint of personal property belonging to the delinquent.
To this end, any internal revenue officer designated by the Commissioner or his duly authorized representative
shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and
penalty due from him.
Said certificate shall operate with the force of a legal execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a description of the property upon which levy is made.
At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the
province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the
Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be
none, to the occupant of the property in question.
In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint
on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency,
the Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the
distraint, proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to
the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the
Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That
the Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of
levy issued in accordance with the provisions hereof.
Levy applies to real properties.
Is it required that there should be an assessment before levy can be affected?

- Yes, it is necessary because delinquency is a requirement
How is effected?
(1) The internal revenue officer shall prepare a duly authenticated certificate
- with the name of the TP; and
- amount of tax and penalty due
(2) Write the description of the property to be levied in the certificate
(3) A written notice of levy shall be served upon
- the registry of deeds of the province or city where the property is located; and
- upon the delinquent taxpayer; or
o if he be absent from the Philippines, to his agent or the manager of the business in respect
to which the liability arose; or
o if there be none, to the occupant of the property in question.
Is there forfeiture in levy proceedings?
- Yes, there is.
What is forfeiture?
- Forfeiture is the divestiture of property without compensation, in consequence of a default or offense.
Forfeiture applies to what type of property?

- Real property.
Sir: Thats why it falls under levy proceedings when the government wants to resort to forfeiture.
So does that mean then that theres no forfeiture in distraint proceedings?

- No.
What happens in distraint when there is no satisfaction of tax liability?

- This is the time it can resort to levy because levy can be done before, simultaneous or after the
execution of the distraint
What if no one is interested to buy the levied property?

- The property is forfeited to the Government.
Distraint Levy
Personal property Real property
No assessment is required Assessment is required before levy can be effected
No forfeiture Forfeiture is authorized
SUSPENSION OF BUSINESS OPERATIONS IN VIOLATION OF VAT LAWS (SEC. 115)
A business may be temporarily suspended for a period of not less than 5 days for any of the following violations:
1) Of a VAT-registered person
a) Failure to issue receipts or invoices;
b) Failure to file a VAT return;
c) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or
receipts for the taxable quarter.
2) Failure of any person to register as required under the Tax Code
COMPROMISE
(A) Compromise the Payment of any Internal Revenue Tax, when:

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the
basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed
tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less
than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board
which shall be composed of the Commissioner and the four (4) Deputy Commissioners.
What are the grounds for compromise?

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
Sir: For the 1st ground of theres a reasonable doubt as to the validity of the claim against the taxpayer exists,
the 40% based on the basic assessed tax is the minimum compromise rate.
Example: if there is total liability of 100K, so you pay 40K.
For the 2nd ground of financial incapacity, the rate is 10%. So in the example, you pay 10K.
What if the rate of the compromise is less than the prescribed minimum rate?
- It can be allowed provided that theres approval of the National Evaluation Board.
Under what other instances do you need approval of the NEB?

- When the basic tax involved is more than 1M.
What are the cases which compromise is allowed?
1. Delinquent accounts
2. Cases under administrative protests when PAN has already been issued and the case is pending with the
BIR
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations not yet filed in court
General Rule: Criminal cases may be compromised
EXCEPTIONS:
- Those already filed in court;
- Those involving tax fraud (absolute prohibition)
What are the cases NOT allowed to be compromise?
1) Withholding tax cases;

- Because taxpayer is merely the tax imposed is not the withholding agents tax liability. Rather, it is
his obligation to remit.
- EXCEPTION: If withholding agent can invoke provision of law that casts doubt on whether or not he
is really liable and he has not withheld the tax, he may offer compromise.
- EXCEPTION TO EXCEPTION: If he has already withheld the tax, no longer compromisable. Criminal
tax fraud cases whether or not filed in court; Criminal violations already filed in court; Delinquent
accounts with duly approved schedule of installment payments;
Why is it not allowed to be compromised? Because these withholding taxes are readily available. This is not
your own tax liability, youre mere obligation is just to remit it. So thats why it cannot be compromised.
2) Criminal tax fraud cases whether or not filed in court

3) Criminal violations already filed in court
4) Delinquent accounts with duly approved schedule of installment payments
- Theres already a concession between the govt and the TP on the installment payments and yet the
TP still committed delinquency.
5) Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in
the original assessment and the taxpayer is agreeable to such decision.
- By giving his conformity to the revised assessment, the taxpayer admits the validity of the
assessment and his capacity to pay the same. (The TP already agreed to the revised assessment)
- If a revised FAN has been issued but the taxpayer disagrees thereto, the same is still compromisable.
6) Cases which become final and executory after final judgment of a court, where compromise is requested on
the ground of doubtful validity of the assessment;
- If a judgment has become final and executory but on ground of financial incapacity, insolvency,
receivership, suspension of payment, etc. (ground is not reasonable doubt), the case is still
compromisable.
7) Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.
ABATEMENT
When is abatement allowed? Sec. 204(B)
1) The tax or any portion thereof appears to be unjustly or excessively assessed;
a. When the filing of the return/payment is made at the wrong venue;

b. When the taxpayers mistake in payment of his tax is due to erroneous written official advice of a
revenue officer;
c. When the taxpayer fails to file the return and pay the tax on time due to substantial losses from
prolonged labor dispute, force majeure, legitimate business reverses, provided, however, the
abatement shall only cover the surcharge and the compromise penalty and not the interest imposed
under Sec. 249 of the Code;
d. When the assessment is brought about or the result of taxpayers non-compliance with the law due to a
difficult interpretation of said law.
e. When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond
his control, provided, however, the abatement shall only cover the surcharge and the compromise
penalty and not the interest imposed under Sec. 249 of the Code;
f. Late payment of the tax under meritorious circumstances (ex. Failure to beat bank cut-off time,
surcharge erroneously imposed, etc.)
2) The administration and collection costs involved do not justify the collection of the amount due.
a. Abatement of penalties on assessment confirmed by the lower court but appealed by the taxpayer to a
higher court
b. Abatement of penalties on withholding tax assessment under meritorious circumstances
c. Abatement of penalties on delayed installment payment under meritorious circumstances
d. Abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting
reduced assessment; and
e. Such other circumstances which the Commissioner may deem analogous to the enumeration above.
JUDICIAL REMEDIES
What are the judicial remedies of the government?

- Filing of a civil action or criminal action
CIVIL ACTION
There are 2 instances where the government gets to participate thru civil action:
(1) By filing a civil case for the collection of a sum of money with the proper court; and
- This is initiated by the government itself
(2) By filing an answer to the petition for review filed by the taxpayer with the CTA.
- If the BIR does not grant your protest, you have an option to file a petition for review with the CTA
within 30 days after receipt of the decision or after the lapse of the 180 days.
CRIMINAL ACTION
Is it required that there be prior assessment before a criminal action can be filed for willful attempt to defeat
and evade income tax?
- An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and
evade the income tax. Ungab vs Cusi
Take note of Fortune Tobacco case which seems to modify the rule. SC said that it is required that there should
be an assessment before a criminal action can be filed. But under this case, there was failure of the BIR to
establish clear probable cause intent to evade taxes. Unlike in the Ungab case, where the BIR has established a
clear case of tax evasion.
So then, as a general rule, as enunciated in the case of Adamson and case of Ungab, it is not required that there
be an assessment before criminal case may be filed.
Now, what if there is a criminal case filed against you and there was an assessment preceding it. So the BIR is
trying to be very cautious. But the case was already filed in court. And then you made payment. Will that
exculpate you from the criminal liability?
- No. Because take note that tax evasion is separate and distinct from your payment of taxes obligation.
What could be reduced by your payment of tax liability is the civil aspect. But the criminal liability stands.
What should the judgment in the criminal case include?

- In addition to the imposition of penalty of imprisonment from the criminal action, it should include an order
of payment of taxes.
STATUTE OF LIMITATIONS FOR TAX REMEDIES
Prescriptive Period: 3 years after the last day prescribed by law for the filing of the return or the day you default.
Sir: there are these 2 dates that you must be mindful of: (a) when is the deadline of the payment of the taxes;
(b) when is the return filed.
Example: If the return is filed on April 20, 2015 for the 2014 taxes, the last day of assessment April 20, 2018
because the last day for filing April 15, 2015.
But what if it was filed on April 10, 2015, the last day of assessment is on April 15, 2018.
Take note that the taxes due for filing and payment on year 2015 are your 2014 tax liabilities. So be mindful as
to when it is supposed to be filed.
In summary and as a GENERAL RULE:

If you made late filing which is beyond the deadline, your reckoning point is the date you actually filed.
If you filed the return before or on time, the reckoning point will be the deadline prescribed by law of
the filing of the return.
EXCEPTIONS: (Sec. 222)

Within 10 years after the discovery
- When you file a false return
- When you file a fraudulent return
- When you failed to file a return
- When there is no return filed
What happens if there is an amendment of the return? Does it affect the prescriptive period? It depends.
If the amendment is substantial (affects the tax liability of the taxpayer): you count from the date when
the amended return was filed
Sir: it affects the TPs tax liability when it increases or decreases your sales or expenses. Either way.
If the amendment is not substantial: you count from the date when the original return was filed
Example 1: if I file a return on April 15, 2015 for my 2014 taxes and I committed a mistake on my registered
address. So I amended it to reflect my correct address on April 30, 2015. When is the last day for the
government to issue its assessment? April 15, 2018.
Example 2: there is a return where it bears a loss of 100K filed on April 15, 2015. It committed a mistake, the loss
incurred was actually 300K. So it filed an amended return on April 30, 2015. When is the last day of assessment?
April 30, 2018. It should be from the day the amended return was filed. Losses affects your tax liability because it
will allow you to claim more net operating loss carry over (NOLCO).
Sir: But the book of Ricalde suggests that the test of substantiality that affects tax liability is when the increase
or decrease in sales or deductions or expenses is more than 30%. But for me, it is when your tax liability is
affected.
When do you say that there is an assessment made? How do we know that the prescriptive period has already
started?
- When the FAN has already been RELEASED, MAILED and SENT.
Sir: So if within the 3-year period there was PAN issued to the taxpayer but the FAN was issued the day after the
expiration of the 3-year period, there is no valid assessment. Because assessment here refers to the FINAL
Assessment Notice.
SUSPENSION OF PRESCRIPTIVE PERIOD
FOR ASSESSMENT
Instances:
a. When the CIR is prohibited from making the assessment or beginning distraint and levy or a proceeding
in court and for sixty (60) days thereafter;
Example: So the TP was served a writ of levy on March 1, 2015. So in order that the writ will not reached
the TP, he will have goons before his gate, so the BIR personnel never served the writ. So 1 year after,
no more goons, so the writ was successfully served. When will the statute of limitation begin to run
again?
- 60 days after March 1, 2016. Take note that theres no question that the CIR was prohibited to serve
the assessment. So from that date, there is suspension of the prescriptive period. Its March 1, 2016
because the law says and for 60 days thereafter.
b. When the taxpayer requests for the reinvestigation which is granted by the CIR;
c. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is
being assessed or collected; provided, that if the taxpayer informs the CIR of any change in address, the
running of the Statute of Limitations will not be suspended;
- Under RR-18-2013, it mentions WHERE it can be served

On the registered address in the return; or
On a KNOWN address
So even if you do not register with the BIR but BIR knows you are actually operating in such an address,
then the BIR can serve your assessment there. So it follows, that the moment the BIR has knowledge
about your known address, even if you did not re-register such address, the prescriptive period begins
to run again.
d. When the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative
or a member of his household with sufficient discretion and no property could be located; and
e. When the taxpayer is out of the Philippines
FOR COLLECTION
If there is return filed: 3 years from the FAN

If the return filed is false or fraudulent, or failure to file a return, or no return is filed at all: 5 years from
the date of the FAN
If there is NO assessment made: 10 years from the discovery
Grounds: same as that for assessment (letters a to e above)
FOR JUDICIAL REMEDIES OF THE GOVERNMENT
In criminal cases:
Violations of the Code shall prescribe after five (5) years, which shall run from
- the commission or violation of the law or if the same is not known at the time from discovery
thereof AND
- the institution of judicial proceedings for its investigation and punishment.
It is as if it is imprescriptible because:
- The Government may allege the violation as a later discovery by the internal revenue officers; or
- It would depend on the institution as well of the judicial proceedings
Can the taxpayer enjoin the collection of taxes?

GR: NO, otherwise, it will hamper the operations of the government. (lifeblood doctrine)
Sec. 218, NIRC (n)o court shall have the authority to grant injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by this Code.
EXCEPTION: Suspension of the collection of the tax liability is allowed when all of the following conditions
concur:
- Issued only by the CTA;
- Issued by the CTA in its appellate jurisdiction; and
- Collection may jeopardize the interest of the Government and/or the taxpayer.
Suspension of collection may be granted by the CTA upon this ground but the taxpayer must either deposit
the amount of taxes assessed or file a bond amounting to not more than twice the value of the tax being
assessed
ADDITIONS TO THE TAX DUE (Sec. 247-252, NIRC)

These are increments to the basic tax incident due to the taxpayers non-compliance with certain legal
requirements.
A. KINDS OF ADDITIONS TO THE TAX

1. CIVIL PENALTY OR SURCHARGE
The payment of the surcharge is mandatory and the CIR is not vested with any authority to waive or
dispense with the collection thereof.
25% Civil Penalty or Surcharge

a. Failure to file any return and pay the tax due thereon; or
b. filing a return with an internal revenue officer other than those with whom the return is required to
be filed; or
-filing the return in a wrong revenue officer (sec 248 a)
c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
d. Failure to pay the full or part of the amount of tax shown on any return or the full amount of tax due
for which no return is required to be filed, on or before the date prescribed for its payment. (Sec.
248)
50% Civil Penalty or Surcharge

The 50% surcharge is not a criminal penalty but a civil or administrative sanction provided primarily as a
safeguard for the protection of the State revenue and to reimburse the Government for the heavy
expense of investigation and the loss resulting from the taxpayers fraud (Castro vs. CIR, L-12174, Apr.
26, 1962)
a. In case of willful neglect to file the return within the period prescribed by the Code, or
- will not apply in case a taxpayer, without notice from the Commissioner, or his duly authorized
representative, voluntarily files the said return (only 25% shall be imposed)
- 50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in
writing from the Commissioner or his duly authorized representative (Sec. 4.2, Rev. Reg. 12-99)
b. in case a false or fraudulent return is willfully made
Test whether willfully not filling or fraudulently filing a return (Prima Facie Evidence rebuttable)
- UNDER reporting sales (or income or receipts) for more than 30% (substantial underdeclaration)
- OVER reporting of deductions for more than 30% (substantial overstatement ) (Sec. 248)
2. 20% INTEREST (per annum)

For purposes of taxation, 1 year is 365 days (based on BIRs computation) -> follow this
o but there is a jurisprudence that says, for purposes of taxation, it is the administrative
code that is followed, not the civil code provision that says 1 year is 360 days. But the
admin code only says that 1 year is composed of 12 months.
The interest shall be computed only on the basic deficiency tax (surcharge is not included in the
computation).
a. Deficiency Interest
Any deficiency in the tax due shall be subject to the interest of 20% per annum which shall
be assessed and collected from the date prescribed for its payment until the full payment
thereof (Sec. 249[B], NIRC).
b. Delinquency Interest In case of failure to pay:

o The amount of the tax due on any return required to be filed; or
o The amount of the tax due for which no return is required; or

o A deficiency tax, or any surcharge or interest thereon on the due date appearing in
the notice and demand of the CIR (Sec. 249[C], NIRC).
Deficiency vs Deliquency
Deficiency is based on self-assessment and the law. If based on self-assessment and provision of
the law you are to pay taxes on this particular period, yet you failed to pay the full amount,
whether there is a partial payment or none at all, you are subject to deficiency interest.
Delinquency is based on assessment. When there is already an assessment and a schedule for
payment, there is already a demand from the government, you are subject to delinquency
interest.
c. Interest of Extended Payment An interest of 20% p.a. shall be assessed and collected in
the following cases:
o When a taxpayer elects to pay the tax on installment but fails to pay the tax or any
installment thereof on or before the date prescribed for its payment;
o Where the CIR has authorized an extension of time within which to pay a tax or a
deficiency tax or any part thereof (Sec. 249[D], NIRC).
3. COMPROMISE PENALTY
It is a penalty imposed in settlement of a tax liability to get away from any criminal prosecution. In
practice, this is imposed whenever there is a criminal violation of the tax code.
Maximum: P 25,000 per taxable year (but there is a table, need not be memorized)
4. OTHER CIVIL PENALTIES AND ADMINISTRATIVE FINES (from mhealler notes; not discussed by atty A)
The Government can impose administrative fines and penalties for specific and different
violations.
Example of violations:
Failure to file certain information returns (Sec. 250, NIRC)
Failure of a Withholding Agent to collect and remit tax (Sec. 251, NIRC).
Failure of a Withholding Agent to refund excess withholding tax (Sec. 252, NIRC).
Failure to register on time.
Failure to file an ITR during an income tax holiday (liable for penalties but not for surcharge
or interest because there is no basis for tax liability; taxpayer is on income tax holiday)
In the foregoing examples, the erring taxpayer will be subjected to fines or penalties but
the penalties are not increments to the basic tax due.
COURT OF TAX APPEALS

APPLICABLE LAW
A. REPUBLIC ACT NO. 1125
o The Law Creating the Court of Tax Appeals.

o Enacted on June 16, 1954
o It only have 3 judges, 1 division
B. REPUBLIC ACT NO. 9282
o An Act Expanding the Jurisdiction of the Court of Tax Appeals, Elevating its Rank to the Level of a
Collegiate Court with Special Jurisdiction and Enlarging its Membership
o 6 justices (1 presiding justice and 5 associate justices), 2 divisions
C. REPUBLIC ACT NO. 9503
o An Act Enlarging the Organizational Structure of the Court of Tax Appeals

o 9 justices (1 presiding justice and 8 associate justices), 3 divisions, 3 justices per division
o Current presiding justice: Justice del Rosario
JURISDICTION OF THE CTA

RA 1125, as amended by RA 9282
Sec. 7. Jurisdiction. - The CTA shall exercise:
"a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
"1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
"2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period
of action, in which case the inaction shall be deemed a denial;
"3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction;
"4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees
or other money charges, seizure, detention or release of property affected, fines, forfeitures or
other penalties in relation thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
"5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided
by the provincial or city board of assessment appeals;
"6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs which are adverse to the Government
under Section 2315 of the Tariff and Customs Code;
"7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not to impose said duties.
"b. Jurisdiction over cases involving criminal offenses as herein provided:
"1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National
Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of
Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount o taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no
specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall
be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of civil liability for taxes and
penalties shall at all times be simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it
the filing of the civil action, and no right to reserve the filling of such civil action separately from
the criminal action will be recognized.
"2. Exclusive appellate jurisdiction in criminal offenses:
"a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax cases originally decided by them, in their respected territorial jurisdiction.
"b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
their respective jurisdiction.
"c. Jurisdiction over tax collection cases as herein provided:
"1. Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provided, however,
That collection cases where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One million pesos (P1,000,000.00)
shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and
Regional Trial Court.
"2. Exclusive appellate jurisdiction in tax collection cases:
"a. Over appeals from the judgments, resolutions or orders of the
Regional Trial Courts in tax collection cases originally decided by them,
in their respective territorial jurisdiction.
"b. Over petitions for review of the judgments, resolutions or orders of
the Regional Trial Courts in the Exercise of their appellate jurisdiction
over tax collection cases originally decided by the Metropolitan Trial
Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction."
ATTY A: (wala ko ka-gets asa ni gi-kuha ni sir, its not entirely the same sa provisions, or wa lang jd ko kita :p)
JURISDICTION OF CTA UNDER RA 1125:

1. decisions of CIR involving disputed assessments or inactions
2. decisions of commissioner of customs
3. automatic review of decisions of Commissioner of Customs incase the decision is unfavorable to the
government; and
4. decisions of secretary of trade and industry
UNDER RA 9282
additional cases:
1. criminal cases
2. RTC decision on local tax cases
3. Decisions of Central Board of Assessment appeals
4. Collection cases
A.M. No. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS
JURISDICTION OF CTA En Banc (Rule 4, Sec. 2)
SEC. 2. Cases within the jurisdiction of the Court en banc. The Court en banc shall exercise exclusive appellate
jurisdiction to review by appeal the following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the
exercise of its exclusive appellate jurisdiction over:
(1) Cases arising from administrative agencies Bureau of Internal Revenue, Bureau of Customs,
Department of Finance, Department of Trade and Industry, Department of Agriculture;
(2) Local tax cases decided by the Regional Trial Courts in the exercise of their original
jurisdiction; and
(3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original
jurisdiction involving final and executory assessments for taxes, fees, charges and penalties,
where the principal amount of taxes and penalties claimed is less than one million pesos;
(b) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by
them in the exercise of their appellate jurisdiction;
(c) Decisions, resolutions or orders of the Regional Trial Courts in tax collection cases decided or resolved
by them in the exercise of their appellate jurisdiction;
NOTE: if the RTC is in the exercise of their appellate jurisdiction, you go directly to CTA En Banc.
Reason: to have a uniform number of appeals that is 2 appeals, from MTC to RTC to CTA En Banc.
If it will still pass through CTA Division, the number of appeals in cases falling under the original
jurisdiction of MTC will become three (3) that is from MTC to RTC to CTA Division to CTA En Banc. It
will be unfair for those cases falling under the original jurisdiction of the RTC because it can only appeal
the decision twice that is from RTC to CTA Division to CTA En Banc.
(d) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in
the exercise of its exclusive original jurisdiction over tax collection cases;
(e) Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
Reason: to have a uniform number of appeals that is 2 appeals, from treasurer automatically reviewed
by the Local Board of Assessment Appeal to CBAA (first appeal) to CTA En Banc (second appeal). Note
that review from treasurer to LBAA is not counted because it is an automatic review.
REMEMBER: there are only TWO (2) levels of Appeal.
This is also the same for criminal cases (for tax violation cases). Only two levels of appeal. So if it falls
under the original jurisdiction of the MTC, it will be appealed to RTC then to CTA En Banc. If it falls under
the original jurisdiction of the RTC, it will be appealed to the CTA Division then to CTA En Banc.
(f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in
the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from
violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or Bureau of Customs;
(g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in
the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding
subparagraph; and
(h) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their appellate
jurisdiction over criminal offenses mentioned in subparagraph (f).
(n)
JURISDICTION OF CTA Division (Rule 4, Sec. 3)
SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law
provides a specific period for action: Provided, that in case of disputed assessments, the inaction
of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section
228 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the
taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of
the Commissioner of Internal Revenue on the tax case; Provided, further, that should the
taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed
assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may
appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided,
still further, that in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of the two-year
period under Section 229 of the National Internal Revenue Code;
(3) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or
resolved by them in the exercise of their original jurisdiction;
RTC Original jurisdiction:
Involve amount exceeding 300k for outside metro manila or 400k for metro manila
(4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees
or other money charges, seizure, detention or release of property affected, fines, forfeitures of
other penalties in relation thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
(5) Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs adverse to the Government under Section
2315 of the Tariff and Customs Code; and
(6) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture, in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not to impose said duties;
(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
(1) Original jurisdiction over all criminal offenses arising from violations of the National internal
Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal
Revenue of the Bureau of Customs, where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is one million pesos or more; and
(2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional
Trial Courts in their original jurisdiction in criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and Customs Code and other laws administered by the
Bureau of Internal Revenue or Bureau of Customs, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than one million pesos or where there is no
specified amount claimed;
*ORIGINAL JURISDICTION:
300k/400k or less MTC
Less than 1M but more than 300k/400k RTC
1M or more CTA Division
Note: In determining jurisdiction, do not include the penalties or surcharges; look at the
basic deficiency taxes.
(c) Exclusive jurisdiction over tax collections cases, to wit:

(1) Original jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges and penalties, where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is one million pesos or more; and
(2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional
Trial Courts in tax collection cases originally decided by them within their respective territorial
jurisdiction. (n)
NO INJUNCTION RULE in tax collection

GR: No court shall have the authority to grant an injunction to restrain the collection of any internal revenue tax,
fee or charge imposed by the Tax Code. (Sec. 218)
EXCEPTION: The CTA may suspend or restrain the collection of the tax when in its opinion, the collection of the
tax may jeopardize the interest of the Government and/or the taxpayer. (Rule 58 preliminary injuction)
MANDAMUS, PROHBITION or CERTIORARI.
CTA cannot issue writs of MANDAMUS, PROHBITION or CERTIORARI.
So, where to file?

If the grave abuse of discretion is committed:
By RTC go to CA
By CTA division go to CA
By CTA En Banc go to SC
*CTA in Division is not equal with the CA. CTA En Banc is equal with the CTA.
DECLARATORY RELIEF
GR: file with the RTC, because it is an action incapable of pecuniary estimation.
Case: British American Tobacco vs. Camacho, GR No. 263583, Aug 20, 2008
SC: Assessment, if its already made by the CIR, and the taxpayer, in disputing or contesting the deficiency
assessment, raises the defense of a question of constitutionality or validity, the CTA can decide or pass upon the
validity or constitutionality of the said law or ordinance.
TN: There must be an assessment. Therefore, the CTA cannot decide on its own, as part of its original appellate
jurisdiction, declaratory relief.
INDEPENDENT CPA
When do you need an independent CPA?
- When a party desires to introduce evidence involving voluminous documents or long accounts, upon
motion and approval of the court, may refer the same to an independent CPA.
- In practice, whenever you make an appeal before the CTA, it always involves an independent CPA
because you need to have 100% audit when you appeal to the CTA.
- You need to be accredited and commissioned by the CTA before you can become an independent CPA
and take cases before the CTA.
A.M. No. 05-11-07-CTA: REVISED RULES OF THE COURT OF TAX APPEALS

RULE 12
SEC. 5. Presentation of voluminous documents or long accounts. In the interest of speedy administration of
justice, the following rules shall govern the presentation of voluminous documents or long accounts, such as
receipts, invoices and vouchers, as evidence to establish certain facts:
(a) Summary and CPA certification. The party who desires to introduce in evidence such voluminous
documents or long accounts must, upon motion and approval by the Court, refer the voluminous
documents to an independent Certified Public Accountant (CPA) for the purpose of presenting:
(1) a summary containing, among other matters, a chronological listing of the numbers, dates
and amounts covered by the invoices or receipts and the amount(s) of taxes paid and
(2) a certification of an independent CPA attesting to the correctness of the contents of the
summary after making an examination, evaluation and audit of voluminous receipts, invoices or
long accounts.
The name of the Certified Public Accountant or partner of a professional partnership of certified public
accountants in charge must be stated in the motion. The Court shall issue a commission authorizing him
to conduct an audit and, thereafter, testify relative to such summary and certification.
(b) Pre-marking and availability of originals. The receipts, invoices, vouchers or other documents
covering the said accounts or payment to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the adverse party who desires to
check and verify the correctness of the summary and CPA certification. The original copies of the
voluminous receipts, invoices or accounts must be ready for verification and comparison in case doubt on
its authenticity is raised during the hearing or resolution of the formal offer of evidence. (n)
How do you appeal from the CTA to the SC?
Rule 45, ROC verified petition for Review on Certiorari
QUORUM
CTA Division
Quorum: at least 2 justices

To promulgate a decision: at least 2 affirmative votes
If the vote of 2 cannot be obtained, the case would be referred to the CTA En Banc.
CTA En Banc
Quorum: 5 justices
Decision or resolution
- Affirmative vote of majority of justices present in case of simple decisions.
- Affirmative vote of 5 members for the reversal or modification of an existing decision.
(Sec. 2, RA 1125, as amended)
LOCAL TAX
(Sections 128 to 196 of R.A. No. 7160)
LOCAL GOVERNMENT UNITS & SCOPE OF LOCAL TAXATION
Territorial jurisdiction:
1. Provinces
2. Cities
3. Municipalities
4. Barangays
5. ARMM
6. CAR
Dual Status of LGUs

1. Governmental Functions agents of the state
2. Proprietary Functions considered as any other legal entity
POWER TO CREATE SOURCES OF REVENUE (Art. 10, Sec. 5, 1987 Constitution)

Power to tax of the LGUs is NOT an inherent power. It is a delegated power from direct authority of
the Constitution and not by Congress. Without the Constitution, LGUs have no power to tax.
Local Government Code is a product of an enactment by Congress of a law for local taxation as
authorized by the Constitution.
Inherent and Constitutional limitations of taxation applies to Local Taxes.
WHO may exercise Local Taxing Powers
Provinces Sangguniang Panlalawigan

City Sangguniang Panlunsod
Municipalities Sangguniang Bayan
Barangay Sangguniang Pambarangay
Objectives for imposing limitations on Local Taxation

1. To have its own source of income, fair share of available resources
2. The national government resources will not be disturbed
3. The taxpayers will not be over burdened with so much taxation
4. To ensure uniform and fair taxes
FUNDAMENTAL PRINICIPLES (Sec. 130)

What are the fundamental principles (Sec. 130)?
1. Taxation shall be uniform in each LGU
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the TPs ability to pay
b. be levied and collected only for public purposes
public purpose not necessarily the entire public will benefit, it is sufficient that the general
majority benefits; includes social welfare
c. not unjust, excessive, oppressive, or confiscatory; and

d. not be contrary to law, public policy, national economic policy, or in restraint of trade
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private
person
Unlike taxes under the national government (BIR), the collection can be delegated to Authorized
Agent Banks (AAB), for local taxes, this cannot be delegated by the LGUs
It is one of the differences between local taxes and national taxes. In local taxation, both RP and
local taxes, the collection of taxes cannot be delegated to any private firm, including banks.
Public funds cannot be used to hire private lawyers
4. The revenue collected shall inure solely to the benefit of and be subject to disposition by the LGU
levying the tax, fee, charge or imposition unless otherwise provided in the LGC
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Progressive system -
WHEN ARE YOUR REQUIRED TO REGISTER WITH THE BIR
Every person subject to any internal revenue tax shall register once with the appropriate Revenue District
Officer:
1. Employee - Within ten (10) days from date of employment, or
2. Self-employed individual, Professional, Estate Trust, Branches of a Corporation - On or before the
commencement of business, or
3. Corporation - Before payment of any tax due, or
4. Partnership, Association, Cooperative, Government Agencies, Instrumentalities, GOCCs - Upon filing of a
return, statement or declaration as required in this Code.
TN: Every January 31, an annual registration fee in the amount of Five hundred pesos (P500) for every separate
or distinct establishment or place of business, including facility types where sales transactions occur, shall be
paid upon registration and every year thereafter on or before the last day of January: Provided, however, That
cooperatives, individuals earning purely compensation income, whether locally or abroad, and overseas workers
are not liable to the registration fee herein imposed.
Distinct establishment or place of business: refers to venues of sale or warehouses.
TAXPAYERS IDENTIFICATION NUMBER
Only one Taxpayer Identification Number (TIN) shall be assigned to a taxpayer. Any person who shall secure
more than one Taxpayer Identification Number shall be criminally liable under the provisions of Section 275 on
'Violation of Other Provisions of this Code or Regulations in General.
KEEPING OF BOOKS OF ACCOUNTS AND RECORDS
1. Simplified set of bookkeeping records - for those whose quarterly sales, earnings, receipts, or output do not
exceed Fifty thousand pesos (P50,000)
2. Journal and a ledger or their equivalents - for those whose quarterly sales, earnings, receipts, or output
exceed Fifty thousand pesos (P50,000) but do not exceed One hundred fifty thousand pesos (P150,000).
3. Books of accounts audited and examined yearly by independent Certified Public Accountants - for those
whose gross quarterly sales, earnings, receipts or output exceed One hundred fifty thousand pesos
(P150,000).
LANGUAGE IN WHICH BOOKS ARE TO BE KEPT
1. In a native language or
2. English or
3. Spanish
ISSUANCE OF RECEIPTS OR SALES OR COMMERCIAL INVOICES
All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services
rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial
invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of
merchandise or nature of service.
ACCOUNTING PERIOD
1. Individuals Calendar only

2. Corporations Calendar or Fiscal year
ACCOUNTING METHOD
1. Cash basis You will only record gross income at the time it is received and you record expenses when
actually paid.
2. Accrual basis When revenues are earned, you will record it on the year it is earned/accrued, regardless of
payment. When expenses are incurred, you will record it on the year it is incurred, regardless of payment.
3. Percentage of completion basis - Usually applies to contracts which extends to more than a year (e.g.
construction contract). The recording of revenues or expenses depends on the percentage of completion.
How do you determine the percentage of completion? Cost incurred under the contract as at the
end of the taxable year/Estimated contract cost.
Example: Cost incurred for that year is P1M and the estimated contract cost is P20M. P1M/P20M =
That is the percentage to be used for purposes of determining how much you can account as
expense for that particular year.
4. Installment basis
Under taxation, if the initial payment exceeds 25%, it should considered installment. However, if it
does not exceed 25%, it is considered as deferred sale or casual sale.
Initial payment refers to the total cash received for one calendar year.
Example: On July 1, 2015, you have a sale with a total price of P1M. You require a down
payment of 10% of P1M or P100,000. If the excess amount is supposed to be divided into 9
equal payments (P100,000 per month), for that particular year, the initial payment would be
P700,000 (consisting of P100K downpayment + P100,000 per month from July to
December). % of initial payment would P700,000/P1,000,000 = 70%. Therefore it is no
longer considered as installment basis.
5. Crop year basis refers to farmers engaged in the production of crops which takes for than a year from the
time of planting to the process of gathering and disposal.
WHAT WILL COMPOSE YOU FINANCIAL STATEMENT
1. Balance sheet
2. Income statement
3. Statement of cash flows
4. Statement of changes in equity
5. Notes to financial statement
6. All other supporting documents
PAY AS YOU FILE SYSTEM - the taxpayer assesses himself, files his return and is required to pay the tax as shown
in his return upon filing thereof.
If your total tax liability is more than P2000, you are entitled to installment payment. One on April 15
and another on July 15.
INDIVIDUALS REQUIRED TO FILE INCOME TAX RETURNS
You are a Filipino citizen living in the Philippines, receiving income from sources within or outside the
Philippines, and if
1. You are employed by two or more employers, any time during the taxable year.
2. You are self-employed, either through conduct of trade or professional practice.
3. You are deriving mixed income. This means you have been an employee and a self-employed individual
during the taxable year.
4. You derive other non-business, non-professional related income in addition to compensation income
not otherwise subject to a final tax.
5. You are married, employed by a single employer, and your income has been correctly withheldthe tax
due is equal to the tax withheldbut your spouse is not entitled to substituted filing.
GR: As much as possible, married individuals are required to file one (1) consolidated return.
EXC: If not possible, they can file separately.
6. You are a marginal income earner.
7. Your income tax during the past calendar year was not withheld correctlyif the tax due is not equal to
the tax withheld.
YOU ARE NOT REQUIRED TO FILE AN INCOME TAX RETURN, IF:
1. You are a minimum wage earner.

2. Your gross income (total earned for the past year purely compensation income) does not exceed your
total personal and additional exemptions.
3. Your income derived from a single employer does not exceed P60,000 and the income tax on which has
been correctly withheld.
4. Your income has been subjected to final withholding tax.
LOCAL GOVERNMENT TAXATION

HOW A LOCAL GOVERNMENT UNIT IMPOSE A TAX
The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the
sanggunian of the local government unit concerned through an appropriate ordinance.
LIMITATIONS OF THE RESIDUAL TAXING POWER OF LGUS (SUBSTANTIAL COMPLIANCE):
1. Constitutional Limitation
2. Fundamental Principles
3. Public Hearing requirement
4. Principle of Pre-emption or Exclusionary Rule
5. Common limitations on the taxing power of LGUs
PROCEDURE FOR APPROVAL AND EFFECTIVITY OF TAX, ORDINANCES AND REVENUE MEASURES
1. Public hearings shall be conducted for the purpose prior to the enactment thereof.
2. Once everything is put into order, the Sanggunian will now pass the ordinance.
3. Approval by the Local Chief Executive.
4. If it requires an implementing rules and regulations, the law may not be implemented until such
implementing rules and regulations are issued.
EXCLUSIONARY RULE refers to the pre-emption of one government unit on the right of another government
unit to impose a tax. Once a tax has been imposed by the National Government, it can longer be imposed by the
LGU. As a rule, the National Government pre-empts the taxing role of the Local Government unit unless
otherwise provided.
A LGU can pre-empt other LGU.
COMMON LIMITATIONS ON THE TAXING POWERS OF LOCAL GOVERNMENT UNITS
The exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:
a) Income tax, except when levied on banks and other financial institutions;
Banks are exempted because they are highly profitable.
b) Documentary stamp tax;
c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except Local Transfer Tax.
d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed and maintained by the local
government unit concerned;
Private individuals using the wharves of the LGU will have to pay wharfage dues.
Another exemption would be when the local municipality will impose a tax on fishing vessel with a
weight 3 tonnes.
e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
Read the case.
f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
Just read the enumeration you will notice that these are taxes already imposed by the National Government.
TAXES WHICH MAY BE IMPOSED BY THE PROVINCE
1) Tax on Transfer of Real Property Ownership.

Basis: consideration
Rate: Not exceeding fifty percent (50%) of the one percent (1%)
It does not matter who owns the property because this is an excise tax on the privilege to transfer
real property.
Example: If USC, a non-stock non-profit organization [exempt from property tax , income tax,
customs duties, VAT], transfers a portion of their land to foundation, such transfer will be subject to
Local Transfer Tax because it does not matter who owns the property. The mere transfer will subject
it to LTT.
Deadline for payment: Within sixty (60) days from the date of the execution of the deed or from the
date of the decedent's death.
TN: The Local Register of Deeds cannot register a transfer of a real property unless this Local
Transfer Tax has been paid.
2) Tax on Business of Printing and Publication
Not a tax on the business of selling books
Rate: 1st year of operation capital investment; Succeeding years - fifty percent (50%) of one
percent (1%) of the gross annual receipts.
3) Franchise Tax
Tax on businesses enjoying a franchise.
Entities exempted from National Franchise Tax are still subject to Local Franchise Tax because this is
a separate tax. Its not double taxation because you have different taxing authority).
Basis: Gross annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
Rate: Not exceeding fifty percent (50%) of one percent (1%)
For purposes of imposing Franchise Tax, A Certificate of Public Convenience is not considered a
Franchise.
4) Tax on Sand, Gravel and Other Quarry Resources
Rate: Not more than ten percent (10%)
Basis: Fair market value in the locality
Coverage: those extracted from public lands.
The proceeds of the revenues generated shall be distributed as follows:
i. Province - Thirty percent where the sand, gravel, and other quarry resources are extracted
(30%);
ii. Component City or Municipality where the sand, gravel, and other quarry resources are
extracted - Thirty percent (30%)
iii. Barangay where the sand, gravel, and other quarry resources are extracted - Forty percent
(40%).
TN: Only the province can impose this type of tax.
5) Professional Tax
GR: Impose on persons engaged in the exercise or practice of his profession requiring government
examination.
i. Does not include Civil Service Exam because such exam is merely a qualification to work for
the government.
EXC: Professionals exclusively employed in the government.
i. Example: Justice Ingles or Judge Singco are not exempted because they are not exclusively
employed by the govt.
Situs of the tax: Province where he practices his profession or where he maintains his principal
office in case he practices his profession in several places.
i. Example: You are a practicing CPA and you become a lawyer and you become a practicing
lawyer, you get to pay 2 professional taxes.
TN: Only the province can impose this type of tax.
6) Amusement Tax
Rate: 10%
Basis: gross receipts
Who are subject to this tax: proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement
o Exception: Those holding of operas, concerts, dramas, recitals, painting and art exhibitions,
flower shows, musical programs, literary and oratorical presentations
Exception to the exception: pop, rock, or similar concerts
Cockpits subject already under the NIRC on Amusement Tax, thus, they are already exempted
here.
Beach resort (came out in the mock bar last sem) not subject to amusement tax because its a
place of amusement. The definition of amusement place here refers to one which is exhibited, one
to look at. (read peliz roy case)
7) Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or
Retailers in, Certain Products
Who are taxable: every truck, van or any vehicle used by manufacturers, producers, wholesalers,
dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks,
cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan,
to sales outlets, or consumers.
o These trucks, are they subject to peddlers tax? No.
TAXES WHICH MAY BE IMPOSED BY THE MUNICIPALITIES
1) Fees and Charges
SEC. 147. Fees and Charges. - The municipality may impose and collect such reasonable fees and charges on
business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of
any profession or calling, commensurate with the cost of regulation, inspection and licensing before any
person may engage in such business or occupation, or practice such profession or calling.
- Who are taxable: impose on any person engage in business, or occupation, or practice of any profession
or calling
o Except: those who are already subject to professional tax under Sec. 139
TN: so any profession that was not subject to professional tax under the provinces power to tax will be
subject to this kind of tax.
2) Fees for Sealing and Licensing of Weights and Measures
SEC. 148. Fees for Sealing and Licensing of Weights and Measures. - (a) The municipality may levy fees for the
sealing and licensing of weights and measures at such reasonable rates as shall be prescribed by the
sangguniang bayan.
(b) The sangguniang bayan shall prescribe the necessary regulations for the use of such weights and
measures, subject to such guidelines as shall be prescribed by the Department of Science and Technology. The
sanggunian concerned shall, by appropriate ordinance, penalize fraudulent practices and unlawful possession
or use of instruments of weights and measures and prescribe the criminal penalty therefor in accordance with
the provisions of this Code. Provided, however, That the sanggunian concerned may authorize the municipal
treasurer to settle an offense not involving the commission of fraud before a case therefor is filed in court,
upon payment of a compromise penalty of not less than Two hundred pesos (P=200.00).
3) Fishery Rentals, Fees and Charges
SEC. 149. Fishery Rentals, Fees and Charges- (a) Municipalities shall have the exclusive authority to grant
fishery privileges in the municipal waters and impose rentals, fees or charges therefor in accordance with the
provisions of this Section.
(b) The sangguniang bayan may:

(1) Grant fishery privileges to erect fish corrals, oyster, mussels or other aquatic beds or bangus fry areas,
within a definite zone of the municipal waters, as determined by it: Provided, however, That duly
registered organizations and cooperatives of marginal fishermen shall have the preferential right to such
fishery privileges: Provided, further, That the sangguniang bayan may require a public bidding in
conformity with and pursuant to an ordinance for the grant of such privileges: Provided, finally, That in
the absence of such organizations and cooperatives or their failure to exercise their preferential right,
other parties may participate in the public bidding in conformity with the above cited procedure.
(2) Grant the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of other
species and fish from the municipal waters by nets, traps or other fishing gears to marginal fishermen
free of any rental, fee, charge or any other imposition whatsoever.
(3) Issue licenses for the operation of fishing vessels of three (3) tons or less for which purpose the
sangguniang bayan shall promulgate rules and regulations regarding the issuances of such licenses to
qualified applicants under existing laws.
Provided, however, That the sanggunian concerned shall, by appropriate ordinance, penalize the use of
explosives, noxious or poisonous substances, electricity, muro-ami, and other deleterious methods of
fishing and prescribe a criminal penalty therefor in accordance with the provisions of this Code: Provided,
finally, That the sanggunian concerned shall have the authority to prosecute any violation of the
provisions of applicable fishery laws.
- Who are taxable?

o Those who were granted fishery privileges
o Granted the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of
other species and fish from the municipal waters
o Issue licenses for the operation of fishing vessels of three (3) tons or less
4) Local Business Tax

- Can only be imposed by the municipality and city
- LBT is a tax based on gross receipts or gross sales not on income. It is a tax on the operation of the
business and also as under the police power of LGUs in regulating the business
- It is not an income tax because this is impose to regulate the business.
- Just look at what is the minimum and maximum rate for every type of business that is subject to
local business tax.
- LBT is imposed on the gross sales or gross receipts based on the preceding year. TN: regardless of
the accounting period used by the business, this type of tax is always imposed on a calendar year
basis.
Who are subject to this LBT?

Manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or
nature
o There is a fixed tax up to the point of the highest bracket wherein it becomes already a
percentage tax of 37 12 % of 1%.
Wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature

o These are businessmen who do not have anything to do with the manufacturing or production
or processes of the products that they are dealing, distributing, or delivering wholesale.
o They shall be taxed at fixed amount of taxes depending on its bracket of sales or receipts but the
highest bracket is not exceeding 50% of 1%. However, such rate may be raised by the cities to
more than the limit provided so long as its not more than 50% higher.
Exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of

essential commodities enumerated hereunder:
1) Rice and corn
2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved
food, sugar, salt and other agricultural, marine, and fresh water products, whether in their
original state or not
3) Cooking oil and cooking gas
4) Laundry soap, detergents, and medicine
5) Agricultural implements, equipment and post- harvest facilities, fertilizers, pesticides,
insecticides, herbicides and other farm inputs
6) Poultry feeds and other animal feeds
7) School supplies; and
8) Cement
Retailers
Contractors and other independent contractors

o General Professional Partnership (GPP) is subject to this tax because they fall under
independent contractors.
Banks and other financial institutions

o RATE: Not exceeding 50% of 1% on the gross receipts of the preceding calendar year
Peddlers engaged in the sale of any merchandise or article of commerce
Any business not otherwise specified

- Catch all provison
o Tax rates within the Metro Manila Area (Sec. 144)
SEC. 144. Rates of Tax within the Metropolitan Manila Area. - The municipalities within the Metropolitan
Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates
prescribed in the preceding Section.
- The tax rates within the Metro Manila Area may be 50% more than what the municipalities can
impose.
- The rate for municipalities within Metro Manila Area is the same as a city.
o Retirement of Business
SEC. 145. 4 Retirement of Business. - A business subject to tax pursuant to the preceding sections shall,
upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If
the tax paid during the year be less than the tax due on said gross sales or receipts of the current year,
the difference shall be paid before the business is considered officially retired.
- Submit sworn statement of gross sales or gross receipts for the current year (but this is just the
estimated tax to be paid because you are retiring from business this year)
- But under the 2nd sentence of the provision, we must look at how much is the tax paid this year
based on the preceding years sales and how much is the gross sales this year. And the difference of
the preceding years tax and this years estimated tax, provided that last years tax was bigger than
this year, must be paid. This is addition to the tax you already paid this year.
- If this years tax is greater than that of last years, you dont need to pay the LBT.
o Payment of Business Taxes

SEC. 146. Payment of Business Taxes. - (a) The taxes imposed under Section 143 shall be payable for
every separate or distinct establishment or place where business subject to the tax is conducted and one
line of business does not become exempt by being conducted with some other business for which such
tax has been paid. The tax on a business must be paid by the person conducting the same.
(b) In cases where a person conducts or operates two (2) or more of the businesses mentioned in Section
143 of this Code which are subject to the same rate of tax, the tax shall be computed on the combined
total gross sales or receipts of the said two (2) or more related businesses.
(c) In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 of
this Code which are subject to different rates of tax, the gross sales or receipts of each business shall be
separately reported for the purpose of computing the tax due from each business.
Example 1: You are a manufacturer and an independent contractor So you will be taxed separately.
Example 2: you have 2 manufacturing plants in the same locality if its on the same business, you
group or consolidate everything and subject it to one tax rate based on the total gross receipts on that
business
o Situs of Business Tax
SEC. 150. Situs of the Tax. - (a) For purposes of collection of the taxes under Section 143 of this Code,
manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled
spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and
other financial institutions, and other businesses, maintaining or operating branch or sales outlet
elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax
thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In
cases where there is no such branch or sales outlet in the city or municipality where the sale or
transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue
and shall be paid to such city or municipality.
(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and
exporters with factories, project offices, plants, and plantations in the pursuit of their business:
(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or
municipality where the principal office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city
or city or municipality where the factory is located; and
(c) In case of a plantation located at a place other than the place where the factory is located, said 70%
mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:
(1) 60% to the city or municipality
(2) 40% to the city or municipality where the plantation is located
(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more
factories, project offices, plants, or plantations located in different localities, the seventy percent (70%)
sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the
localities where the factories, project offices, plants, and plantations are located in proportion to their
respective volumes of production during the period for which the tax is due.
(e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the
locality where the factory, project office, plant, or plan is located.
Situs for LBT: Its the place where the sale is consummated
Example 1: In a catering business, if you have a sale in Lapu-Lapu City but youre business is registered in
Cebu City you will pay your LBT in the place where youre business is registered, in Cebu City, because
you do not have a sales outlet in Lapu-Lapu City.
Example 2: If you have a sales outlet or branch in Lapu-Lapu the situs will be at that sales outlet or
branch
Example 3: Cement Factory, prinicipal office in Ayala, plant in San Fernando. The total sales of the
current year is 1M. How much can be collected as LBT? For City of Cebu 300K (30%); For San Fernando
700K (70%).
Example 4: In connection with example 3, Aside from San Fernando, it has a plant in Naga City. The
distribution will be pro-rated based on the volume of production.
Example 5: youre engage in production of corn kernel in can. Principal place in Cebu City, factory in
Madaue City, Plantation in Carcar. Total gross sales for the year is 1M. The allocation for the distribution
will be 300K (30%) for Cebu City; For Madaue City is 420K (60% of the 70%); For Carcar is 280K (40% of
the 70%).
Example 6: In connection with Example 5, you have another factory in San Fernando, another plantation
in Bogo City. The distribution now will be pro-rated based on the volume production. So we have a
factories in Mandaue and San Fernando and plantations in Carcar and Bogo City. So 60% of the 70% will
go to the factories and you divide it among them based on their productions---420K pro-rated based on
their productions. While the 40% of the 70% will go to the plantations and divide it among them based
on their productions---280K pro-rated based on their productions. Just remember the allocation.
TAXES WHICH MAY BE IMPOSED BY THE CITIES
SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes, fees,
and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall accrue to them and distributed
in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
- All the taxes that we have discussed can be imposed by the City but usually the city will preclude the
municipality if the city is already imposing the said taxes.
- This usually happens to provinces with component cities. Like Cebu Province, the component cities are
Talisay, Mandaue, Bogo, Carcar. So the component city will pre-empt the Province it belongs to, to impose
such taxes.
- The cities have the right to impose taxes 50% higher than what the municipalities and provinces can impose.
- Except for:
1. Professional tax (maximum is P300)
2. Amusement tax (10% of gross receipts from admissions)
PT and AT remains fixed at what the LGC provides. The city cannot impose higher than what the
municipalities and provinces can impose.
Example: when Mandaue City imposes professional tax to Mandaue-based lawyers, can the Province of
Cebu impose also professional tax on the lawyer? No. because there is already pre-emption.
TAXES WHICH MAY BE IMPOSED BY THE BARANGAYS
SEC. 152. Scope of Taxing Powers. - The barangays may levy taxes, fees, and charges, as provided in this Article,
which shall exclusively accrue to them:
(a) Taxes - On stores or retailers with fixed business establishments with gross sales or receipts of the preceding
calendar year of Fifty thousand pesos (P=50,000.00) or less, in the case of cities and Thirty thousand pesos
(P=30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales
or receipts.
- Who are taxable: only stores or retailers with gross receipts of
o P50,000 or less if located in city
o P30,000 or less if located in municipality
- Rate: not exceeding 1%
- Basis: on gross sales or receipts
- Usually applies to sari-sari stores
(b) Service Fees or Charges - barangays may collect reasonable fees or charges for services rendered in
connection with the regulation or the use of barangay-owned properties or service facilities such as palay, copra,
or tobacco dryers.
- You look at what properties or facilities are being used. So it must be owned by the barangay.
(c) Barangay Clearance - No city or municipality may issue any license or permit for any business or activity
unless a clearance is first obtained from the barangay where such business or activity is located or conducted.
For such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall
be acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued
within the said period, the city or municipality may issue the said license or permit.
(d) Other Fees and Charges - The barangay may levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks, cockfights and cockpits;

(2) On places of recreation which charge admission fees; and
(3) On billboards, signboards, neon signs, and outdoor advertisements.
- Take note that cockpits are subject to amusement tax under the NIRC and yet the barangay is allowed to
impose tax of cockpits.
- On recreation places this refers to discoral in the barangay level.
AUTHORITY OF LGUS TO ADJUST RATES OF TAX ORDINANCES (Sec. 191)
SEC. 191. Authority of Local Government Units to Adjust Rates of Tax ordinances. - Local government units shall
have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in
no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.
- Not oftener than once every 5 years, the rates may be increased but such adjustments or increase shall
not exceed 10% of the rates fixed.
COMMON REVENUE-RAISING POWERS
SEC. 153. Service Fees and Charges. - Local government units may impose and collect such reasonable fees and
charges for services rendered.
SEC. 154. Public Utility Charges. - Local government units may fix the rates for the operation of public utilities
owned, operated and maintained by them within their jurisdiction.
- It has to be owned, operated and maintained by the LGU concerned.
SEC. 155. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge,
ferry or telecommunication system funded and constructed by the local government unit concerned: Provided,
That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the
Philippines and members of the Philippine National Police on mission, post office personnel delivering mail,
physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and
welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said
facility shall be free and open for public use.
- Take note of the exceptions
COMMUNITY TAX CERTIFICATE:

WHO MAY LEVY COMMUNITY TAX:
Only cities and municipalities may levy community tax.
SEC. 156. Community Tax. - Cities or municipalities may levy a community tax in accordance with the
provisions of this Article.
TO WHOM IT MAY BE IMPOSED:

INDIVIDUALS (LGC. 157)
o Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive working days during any
calendar year, or
o who is engaged in business or occupation, or
o who owns real property with an aggregate assessed value of One thousand pesos (P=1,000.00)
or more, or
o who is required by law to file an income tax return shall pay:
an annual community tax of Five pesos (P=5.00) and
an annual additional tax of One peso (P=1.00) for every One thousand pesos
(P=1,000.00) of income regardless of whether from business, exercise of profession or
from property which in no case shall exceed Five thousand pesos (P=5,000.00).
o MAXIMUM AMOUNT DUE IS 5,005 (basic 5 + maximum additional of 5000)
o TAX BASE: income of the individual or if no income based on real propertys aggregate assessed
value or both
In the case of husband and wife, the additional tax herein imposed shall be based upon
the total property owned by them and the total gross receipts or earnings derived by
them. You account together only for the purpose of computing the additional
community tax, individually they are still subject to separate CTC.
JURIDICAL PERSON (LGC. 158)

o Every corporation no matter how created or organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall pay an annual community tax
Non resident foreign corporation are not subject to CTC
o TAX BASE:
on the valuation used for the payment of the real property tax under existing laws,
found in the assessment rolls of the city or municipality where the real property is
situated
gross receipts or earnings derived by it from its business in the Philippines during the
preceding year
The dividends received by a corporation from another corporation however shall, for
the purpose of the additional tax, be considered as part of the gross receipts or earnings
of said corporation.
o TAX RATE:
Basic of Five hundred pesos (P=500.00) and an annual additional tax, which, in no case,
shall exceed Ten thousand pesos (P=10,000.00)
MAXIMUM AMOUNT DUE IS 10,500 (basic 500 + maximum additional 10,000)
For every Five thousand pesos (P=5,000.00) worth of real property in the Philippines
owned by it during the preceding year based on the valuation additional Two pesos
(P=2.00);
For every Five thousand pesos (P=5,000.00) of gross receipts or earnings derived by it
from its business in the Philippines during the preceding year - Two pesos (P=2.00).
o EX. a corp. has:
an income of 1M during the year,
it received dividend income from another corp of 1M,
total real property of 3M pesos; how much is the CT due?
5M total value of the corp divided by 5000 times 2 2,000 Plus the basic
community tax of 500 TOTAL OF 2,500
EXEMPT FROM COMMUNITY TAX:

SEC. 159. Exemptions. - The following are exempt from the community tax:
o (1) Diplomatic and consular representatives; ABSOLUTE EXEMPTION
o (2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
RELATIVE EXEMPTION
note: those below 18 are not exempted from CTC but are EXCLUDED from CTC.
WHERE TO PAY CTC:

Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in the
place where the principal office of the juridical entity is located
WHEN DUE:
INDIVIDUALS:
o GR: The community tax shall accrue on the first (1st) day of January of each year which shall be
paid not later than the last day of February of each year.
o EXC: If a person reaches the age of eighteen (18) years or otherwise loses the benefit of
exemption on or before the last day of June, he shall be liable for the community tax on the day
he reaches such age or upon the day the exemption ends.
o However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption
on or before the last day of March, he shall have twenty (20) days to pay the community tax
without becoming delinquent.
o Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after
the first (1st) day of July of any year, or who cease to belong to an exempt class on or after the
same date, shall not be subject to the community tax for that year
Ex. you qualify to be subject on Jan. 15 2015 deadline is February 28, 2015
Another Ex: Bday is Feb 9 Deadline is March 1, 2015
So take note that as a rule it is always 20 days after you qualify BUT in the 1 st
example if you follow the rule, 20 days after jan 15 is Feb. 5 which is supposed
to be your deadline but again the deadline by law is Feb. 28 so you would be
prejudiced. That is why you make a distinction on the day when you qualify to
be subject to CTC.
RULE:
Qualify on Jan 1 to Feb. 8/9if leap year Deadline is Feb. 28 if leap year Feb. 29
because the law states last day of Feb.
Qualify after Feb 8/9 to March 31 20 days after he/she qualifies
Qualify after March 31 to June 30 upon the day the exemption ends
Qualify on July 1 to Dec. 31 shall not be subject to community tax for the year
FOR CORPORATION Same period applies
CONSEQUENCE FOR FAILURE TO PAY ON DUE DATE:

If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an
interest of twenty-four percent (24%) per annum from the due date until it is paid.
PERSON NOT SUBJECT TO COMMUNITY TAX MAY STILL GET A CTC:

A community tax certificate shall be issued to every person or corporation upon payment of the
community tax. A community tax certificate may also be issued to any person or corporation not subject
to the community tax upon payment of One peso (P=1.00).
WHY PRESENT CTC FOR NOTARIAL PURPOSES:

SEC. 163. Presentation of Community Tax Certificate On Certain Occasions. - When an individual subject
to the community tax acknowledges any document before a notary public, takes the oath of office
upon election or appointment to any position in the government service; receives any license,
certificate, or permit from any public authority; pays any tax or fee; receives any money from any
public fund; transacts other official business; or receives any salary or wage from any person or
corporation,
o it shall be the duty of any person, officer, or corporation with whom such transaction is made or
business done or from whom any salary or wage is received to require such individual to exhibit
the community tax certificate.
o The presentation of community tax certificate shall not be required in connection with the
registration of a voter
It is NOT A COMPETENT EVIDENCE OF IDENTITY based on the Notarial Rules but YOU ARE STILL REQ. to
present one based on the sec. 163 of the LGC
OTHER INSTANCE WHERE CTC NEEDS TO BE PRESENTED:

When, through its authorized officers, any corporation subject to the community tax
o receives any license, certificate, or permit from any public authority, pays any tax or fee,
receives money from public funds, or transacts other official business, it shall be the duty of the
public official with whom such transaction is made or business done, to require such
corporation to exhibit the community tax certificate
The presentation of community tax certificate shall not be required in connection with the registration
of a voter
WHO PRINTS THE CTC:

BIR
HOW DO YOU DISTRIBUTE THE INCOME DERIVED FORM THE CTC:

shall accrue entirely to the general fund of the city or municipality concerned.
However, proceeds of the community tax collected through the barangay treasurers shall be
apportioned as follows:
o (1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned;
and
o (2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.
WHO COLLECTS THE CTC:

The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in
their respective jurisdictions:
o Provided, however, That said barangay treasurer shall be bonded in accordance with existing
laws
COLLECTION OF TAXES FOR LOCAL TAXATION:
WHEN DOES LOCAL TAX ACCRUE:

GR: all local taxes, fees, and charges shall accrue on the first (1st) day of January of each year.
EXC: However, new taxes, fees or charges, or changes in the rates thereof, shall accrue on the first (1st)
day of the quarter next following the effectivity of the ordinance imposing such new levies or rates.
DEADLINE FOR PAYMENT:

all local taxes, fees, and charges shall be paid within the first twenty (20) days of January or of each
subsequent quarter, as the case may be.
The sanggunian concerned may, for a justifiable reason or cause, extend the time for payment of
such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six (6)
months
WHAT ACCOUNTING PERIOD IS FOLLOWED FOR PURPOSE OF LOCAL TAXATION:

Calendar year
SEC. 165. Tax Period and Manner of Payment. - Unless otherwise provided in this Code, the tax period of
all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in
quarterly installments.
SURCHARGES & INTEREST FOR LATE PAYMENT:

The sanggunian may impose a surcharge not exceeding twenty-five percent (25%) of the amount of
taxes, fees or charges not paid on time and
an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges
including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid
amount or portion thereof exceed thirty-six (36) months.
MAXIMUM 72% interest chargeable
WHO ARE AUTHORIZE TO COLLECT LOCAL TAXES:

All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay
treasurer, or their duly authorized deputies.
duly authorized deputies can it be the bank? NO. because it basic fundamental that collection
shall not be left to private individuals
o this duly authorized is The provincial, city or municipal treasurer may designate the
barangay treasurer as his deputy to collect local taxes, fees, or charges.
When the brgy treasurer is deputized a bond is set up which is paid by the provincial,
city or municipality.
In case a bond is required for the purpose, the provincial, city or municipal government
shall pay the premiums thereon in addition to the premiums of bond that may be
required under this Code
CAN LOCAL TREASURER LOOK AT THE BOOKS OF THE TAXPAYER:

The provincial, city, municipal or barangay treasurer may, by himself or through any of his deputies
duly authorized in writing, examine the books, accounts, and other pertinent records of any person,
partnership, corporation, or association subject to local taxes, fees and charges in order to ascertain,
assess, and collect the correct amount of the tax, fee, or charge.
Such examination shall be made during regular business hours, only once for every tax period, and
shall be certified to by the examining official.
CIVIL REMEDIES FOR COLLECTION OF REVENUES:
LOCAL GOVERNMENT LIEN

Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a lien, superior to all
liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative or
judicial action, not only upon any property or rights therein which may be subject to the lien but also
upon property used in business, occupation, practice of profession or calling, or exercise of privilege
with respect to which the lien is imposed.
o Even if the property is not owned by the taxpayer like it is only leased, same is subject to local
governments lien. So long it is used in business or occupation or profession the lien attaches.
o AS DISTINGUISHED:
NIRC LIEN Only Properties of the tax payer
LGT LIEN extend to All Properties used in the business, occupation or profession of
the tax payer
The lien may only be extinguished upon full payment of the elinquent local taxes fees and charges
including related surcharges and interest
CIVIL REMEDIES FOR COLLECTION OF LGT:

By administrative action:
o thru distraint of goods, chattels, or effects, and other personal property of whatever character,
including stocks and other securities, debts, credits, bank accounts, and interest in and rights to
personal property, and
o by levy upon real property and interest in or rights to real property; and
(b) By judicial action.
Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the
local government unit concerned
ADMINISTRATIVE:
LOCAL GOVERNMENT DISTRAINT VS LEVY

DISTRAINT LEVY
PUBLICATION CONTAINS: specifying the time and place CONTAINS: The advertisement shall contain
of sale, and the articles distrained the amount of taxes, fees or charges, and
penalties due thereon, and the time and place
TIME: The time of sale shall not be less of sale, the name of the taxpayer against
than twenty (20) days after notice to the whom the taxes, fees, or charges are levied,
owner or possessor of the property as and a short description of the property to be
above specified and the publication or sold.
posting of the notice.
POSTION: posting a notice at the main
POSTING: The officer shall forthwith cause entrance of the municipal building or city hall,
a NOTIFICATION to be exhibited in not and in a public and conspicuous place in the

less than three (3) public and barangay where the real property is located,
conspicuous places in the territory of the and by publication once a week for three (3)
local government unit where the distraint weeks in a newspaper of general circulation in
is made,. the province, city or municipality where the
One place for the posting of the notice property is located.
shall be at the office of the chief
executive of the local government unit in
which the property is distrained.
WHAT HAPPENS Not Automatic sold to the government. Automatic Sold to the government
IF THERE IS NO
BIDDER Should the property distrained be not In case there is no bidder for the real property
disposed of within one hundred and advertised for sale as provided herein, or if the
twenty (120) days from the date of highest bid is for an amount insufficient to
distraint, the same shall be considered as pay the taxes, fees, or charges, related
sold to the local government unit surcharges, interests, penalties and costs:
concerned for the amount of the
assessment made thereon by the the local treasurer conducting the sale shall
Committee on Appraisal and to the extent purchase the property in behalf of the local
of the same amount, the tax government unit concerned to satisfy the
delinquencies shall be cancelled. claim and within two (2) days thereafter shall
make a report of his proceedings which shall
be reflected upon the records of his office.
It shall be the duty of the Registrar of Deeds

concerned upon registration with his office of
any such declaration of forfeiture to transfer
the title of the forfeited property to the local
government unit concerned without the
necessity of an order from a competent court.
EXCESS SALE The balance over and above what is
required to pay the entire claim shall be
returned to the owner of the property
sold
REDEMPTION NONE Within one (1) year from the date of such
PERIOD forfeiture, the taxpayer or any of his
representative, may redeem the property by
paying to the local treasurer the full amount
of the taxes, fees, charges, and related
surcharges, interests, or penalties, and the
costs of sale.
If the property is not redeemed as provided

herein, the ownership thereof shall be fully
vested on the local government unit concerned
PROPERTIES THAT CANNOT BE LEVIED OR DISTRAINT:

Tools and the implements necessarily used by the delinquent taxpayer in his trade or employment;
One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and
necessarily used by him in his ordinary occupation;
His necessary clothing, and that of all his family;
Household furniture and utensils necessary for housekeeping and used for that purpose by the
delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P=10,000.00);
Provisions, including crops, actually provided for individual or family use sufficient for four (4) months;
The professional libraries of doctors, engineers, lawyers and judges;
One fishing boat and net, not exceeding the total value of Ten thousand pesos (P=10,000.00), by the
lawful use of which a fisherman earns his livelihood; and
Any material or article forming part of a house or improvement of any real property.
JUDICIAL REMEDIES
Through civil action within:
o w/o ASSESSMENT: Local taxes, fees, or charges shall be assessed within five (5) years from the
date they became due. (BECAME DUE)
o w/ ASSESSMENT: Local taxes, fees, or charges may be collected within five (5) years from the
date of assessment by administrative or judicial action. (date of assessment)
o In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be
assessed within ten (10) years from discovery of the fraud or intent to evade payment.
(DISCOVERY)
CAN LOCAL GOVERNMENT UNITS ISSUE TAXES WHICH ARE NOT PROVIDED UNDER THE LGC:
o They can. Under this catch all provision:
o SEC. 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power
to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or
taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable
laws:
o Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or
contrary to declared national policy:
o Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without
any prior public hearing conducted for the purpose.
o How long is the Public Hearing: non-provided by the law. But you can question the legality of
such ordinance within 30 days from the effectivity of such ordinance.
QUESTIONING THE TAX ORDINANCE:

o question the legality or constitutionality of such ordinance within 30 days from the effectivity of
such ordinance. PETITION with the Sec. of Justice. This is only a precursor to an action in
court;
o SOJ then is given a period to decide of 60 days.
o If denied: file a PETITION FOR DECLARATORY RELIEF with the RTC within 30 days from denial.
Because you are questioning the constitutionality of a local tax ordinance.
o If inaction of the SOJ: file a PETITION FOR DECLARATORY RELIEF with the RTC within 30 days
after the lapse of 60 days for the SOJ to decide.
QUESTIONING THE CONSTITUTIONALITY OR LEGALITY OF THE ORDINANCE
Go to the Secretary of Justice 30 days from the period of effectivity, Sec. of Justice has 60 days to decide.
Appeal to the RTC 30 days from the denial or 30 days after the lapse of the period of 60 days.
PUBLICATION FOR TAX ORDINANCE
Section 188. Publication of Tax Ordinances and Revenue Measures. - Within ten (10) days after their approval,
certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in
full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities
and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2)
conspicuous and publicly accessible places.
AUTHORITY TO GRANT TAX EXEMPTION
Section 192. Authority to Grant Tax Exemption Privileges. - Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem
necessary.
QUESTIONING THE ASSESSMENT

-protest the assessment
Section 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that
correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the
tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from
the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting
the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the
protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or
partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local
treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with
notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or
from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent
jurisdiction otherwise the assessment becomes conclusive and unappealable.
Local Treasurer
- notice of assessment; 60 days to file the protest

- 60 days to decide the protest
30 days from denial or lapse of 60 days period, appeal to
RTC / MTC
CTA Division / CTA En Banc
If you already made payments, ask for TAX REFUND OR TAX CREDIT
File within 2 years from payment of the tax liability a TAX CREDIT to the LOCAL TREASURER. (administrative
claim first)
Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any court for the
recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has
been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of
two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled
to a refund or credit.
- Not the same as the NIRC because it accounts for a supervening event or from the date the taxpayer
is entitled to a refund or credit.. so that if within the 2-year period, the taxpayer is precluded from
asking for a tax credit or tax refund such as:
When there is a case filed regarding the constitutionality or legality of a tax measure. Because in this
case, in questioning the ordinance, it will not stay the effectivity of the ordinance as well as the accrual
and payment of the taxes. Therefore, the local treasurer can continue to make assessment and collect
taxes under such tax ordinance. That being the case, you still have to pay the taxes. So if you question
the tax ordinance in 2015 and the case takes more than two years before it was decided, you can still
ask for a refund or credit because this is a supervening event. Once it is already declared as illegal, that
is the time that you are already entitled for the refund or credit last phrase or from the date the
taxpayer is entitled to a refund or credit.
Illustration:
Mr. X paid his Community tax on Feb 28, 2015
Deadline for refund: Feb 28, 2017
If there is no assessment, 5 years from the date the tax is due. So memorize the deadline for payments!
REAL PROPERTY TAX

Who gets to impose real property tax?
- Local Government
Fundamental Principles (Sec. 198)
SECTION 198.Fundamental Principles. The appraisal, assessment, levy and collection of real property tax shall
be guided by the following fundamental principles:
(a) Real property shall be appraised at its current and fair market value;
- Primarily, it is the assessor who determines the current and fair market value of the real property. But it
is dependent on the zoning ordinance to be issued by your sangguniang bayan because the zoning the
classification of a real property affects its value. (i.e. properties located in the commercial zone or
industrial zone are more expensive than those located in the residential zone)
(b) Real property shall be classified for assessment purposes on the basis of its actual use;
- You should memorize or internalize by heart that the basis for the assessment is ALWAYS its ACTUAL
USE.
- So you dont account who is the owner of the property.
- What you account is who gets to use the said property.
(c) Real property shall be assessed on the basis of a uniform classification within each local government unit;
- As mentioned, youre LGU, the sangguniang bayan, determines the zoning classification of the
properties. This zoning classification only extends to the jurisdiction of such LGU. So you dont expect to
have the same classification of properties of all LGU because each LGU has its own unique classification
of said properties. So you dont apply the zoning classification of City A to City B.
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and
- This is the same as your local taxes. So banks cannot accept payments for your real property taxes.
(e) The appraisal and assessment of real property shall be equitable.

- Equitable is understood to be that its based on the taxpayers capacity to pay. But when you make the
appraisal for the real property, you dont actually look whos the owner so you cannot completely say
its equitable. However, because the property is appraised first then later it will be subject to real
property tax and the real property tax code provides for a schedule of rate so it will end up that those
who owns lesser real properties are taxed less than those who owns bigger lands. So in a way, that is still
equitable.
Definition of Terms (Sec. 199)

Atty. A: these are the important terms (in bold letters).
(a) "Acquisition Cost" for newly-acquired machinery not yet depreciated and appraised within the year of its
purchase, refers to the actual cost of the machinery to its present owner, plus the cost of transportation,
handling, and installation at the present site;
(b) "Actual Use" refers to the purpose for which the property is principally or predominantly utilized by the
person in possession thereof;
(c) "Ad Valorem Tax" is a levy on real property determined on the basis of a fixed proportion of the value of the
property;
(d) "Agricultural Land" is land devoted principally to the planting of trees, raising of crops, livestock and
poultry, dairying, salt making, inland fishing and similar aquacultural activities, and other agricultural
activities, and is not classified as mineral, timber, residential, commercial or industrial land;
(e) "Appraisal" is the act or process of determining the value of property as of a specified date for a specific
purpose;
(f) "Assessment" is the act or process of determining the value of a property, or proportion thereof subject to
tax, including the discovery, listing, classification, and appraisal of properties;
(g) "Assessment Level" is the percentage applied to the fair market value to determine the taxable value of the
property;
(h) "Assessed Value" is the fair market value of the real property multiplied by the assessment level. It is
synonymous to taxable value;
(i) "Commercial Land" is land devoted principally for the object of profit and is not classified as agricultural,
industrial, mineral, timber, or residential land;
(j) "Depreciated Value" is the value remaining after deducting depreciation from the acquisition cost;
(k) "Economic Life" is the estimated period over which it is anticipated that a machinery or equipment may
be profitably utilized;
(l) "Fair Market Value" is the price at which a property may be sold by a seller who is not compelled to sell
and bought by a buyer who is not compelled to buy;
(m) "Improvement" is a valuable addition made to a property or an amelioration in its condition, amounting
to more than a mere repair or replacement of parts involving capital expenditures and labor, which is
intended to enhance its value, beauty or utility or to adapt it for new or further purposes;
(n) "Industrial Land" is land devoted principally to industrial activity as capital investment and is not classified
as agricultural, commercial, timber, mineral or residential land;
(o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or

apparatus which may or may not be attached, permanently or temporarily, to the real property. It
includes the physical facilities for production, the installations and appurtenant service facilities, those
which are mobile, self-powered or self-propelled, and those not permanently attached to the real
property which are actually, directly, and exclusively used to meet the needs of the particular industry,
business or activity and which by their very nature and purpose are designed for, or necessary to its
manufacturing, mining, logging, commercial, industrial or agricultural purposes;
(p) "Mineral Lands" are lands in which minerals, metallic or non-metallic, exist in sufficient quantity or grade
to justify the necessary expenditures to extract and utilize such materials;
(q) "Reassessment" is the assigning of new assessed values to property, particularly real estate, as the result of
a general, partial, or individual reappraisal of the property;
(r) "Remaining Economic Life" is the period of time expressed in years from the date of appraisal to the date
when the machinery becomes valueless;
(s) "Remaining Value" is the value corresponding to the remaining useful life of the machinery;
(t) "Replacement or Reproduction Cost" is the cost that would be incurred on the basis of current prices, in
acquiring an equally desirable substitute property, or the cost of reproducing a new replica of the property
on the basis of current prices with the same or closely similar material; and
(u) "Residential Land" is land principally devoted to habitation
Administration of RPT (Sec. 4)
SECTION 200. Administration of the Real Property Tax. The provinces and cities, including the municipalities
within the Metropolitan Manila Area, shall be primarily responsible for the proper, efficient and effective
administration of the real property tax.
Who gets to administer RPT?

- Provinces, Cities or Municipalities. However, municipalities are only limited to those located in Metro
Manila. That means, as a general rule, municipalities outside Metro Manila cannot impose RPT. (2013
Bar Exam Question)
- But an exception is when there is a special levy is not limited to municipalities within Metro Manila.
Special levy, as a general imposition, can be imposed by municipalities outside Metro Manila.
Appraisal and Asssesment of Real Property
SECTION 201.Appraisal of Real Property. All real property, whether taxable or exempt, shall be appraised at
the current and fair market value prevailing in the locality where the property is situated. The Department of
Finance shall promulgate the necessary rules and regulations for the classification, appraisal, and assessment of
real property pursuant to the provisions of this Code.
- This means that that the LGU can actually make their own determination of the classification.
SECTION 202.Declaration of Real Property by the Owner or Administrator. It shall be the duty of all persons,
natural or juridical, owning or administering real property, including the improvements therein, within a city or
municipality, or their duly authorized representative, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring the true value of their property, whether
previously declared or undeclared, taxable or exempt, which shall be the current and fair market value of the
property, as determined by the declarant. Such declaration shall contain a description of the property sufficient
in detail to enable the assessor or his deputy to identify the same for assessment purposes. The sworn
declaration of real property herein referred to shall be filed with the assessor concerned once every three (3)
years during the period from January first (1st) to June thirtieth (30th) commencing with the calendar year
1992.
- It is the duty of the owner or administrator to declare the real property
- What you declare is the real property as well as the improvements
- Take note that a building has a separate declaration from the land
- When to file: once every 3 years during January 1 to June 30.

- But look at Section 203, you have to file the declaration within 60 days from the acquisition, completion
or occupancy of the improvement, whichever comes first.
SECTION 203.Duty of Person Acquiring Real Property or Making Improvement Thereon. It shall also be the
duty of any person, or his authorized representative, acquiring at any time real property in any municipality or
city or making any improvement on real property, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring the true value of subject property, within
sixty (60) days after the acquisition of such property or upon completion or occupancy of the improvement,
whichever comes earlier.
SECTION 204.Declaration of Real Property by the Assessor. When any person, natural or juridical, by whom
real property is required to be declared under Section 202 hereof, refuses or fails for any reason to make such
declaration within the time prescribed, the provincial, city or municipal assessor shall himself declare the
property in the name of the defaulting owner, if known, or against an unknown owner, as the case may be, and
shall assess the property for taxation in accordance with the provision of this Title. No oath shall be required of a
declaration thus made by the provincial, city or municipal assessor.
- The assessor can make his/her own declaration when the person who is required to declare refuses or
fails to make such declaration
SECTION 205.Listing of Real Property in the Assessment Rolls.
(a) In every province and city, including the municipalities within the Metropolitan Manila Area, there shall be
prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be
listed all real property, whether taxable or exempt, located within the territorial jurisdiction of the local
government unit concerned. Real property shall be listed, valued and assessed in the name of the owner or
administrator, or anyone having legal interest in the property.
(b) The undivided real property of a deceased person may be listed, valued and assessed in the name of the
estate or of the heirs and devisees without designating them individually; and undivided real property other
than that owned by a deceased may be listed, valued and assessed in the name of one or more co-owners:
Provided, however, That such heir, devisee, or co-owner shall be liable severally and proportionately for all
obligations imposed by this Title and the payment of the real property tax with respect to the undivided
property.
- So you can have a tax declaration under the name of the heirs of deceased.
(c) The real property of a corporation, partnership, or association shall be listed, valued and assessed in the
same manner as that of an individual.
(d) Real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions, the
beneficial use of which has been granted, for consideration or otherwise, to a taxable person, shall be listed,
valued and assessed in the name of the possessor, grantee or of the public entity if such property has
been acquired or held for resale or lease.
- This provision applies when the real property owned by the government is used by the private entity.
The beneficial use is with private entity.
- It has to be listed or recorded in the name of the said private person using such property because for
taxation purposes and because the beneficial use is vested to the private entity, even if the real owner is
the government, it is taxable and the one liable is the private entity.
SECTION 206.Proof of Exemption of Real Property from Taxation. Every person by or for whom real property is
declared, who shall claim tax exemption for such property under this Title shall file with the provincial, city or
municipal assessor within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim including corporate charters, title of ownership, articles of
incorporation, by-laws, contracts, affidavits, certifications and mortgage deeds, and similar documents.
If the required evidence is not submitted within the period herein prescribed, the property shall be listed as
taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be
dropped from the assessment roll.
- What do you have to present as proof of exemption? (documents for exemption)
o Articles of incorporation for non-stock, non profit educational institution, or religious
corporation, or charitable institutions, so long as the property is actually directly and exclusively
used for educational, or religious, or charitable purpose, because they are exempt from real
property taxes.
- You will know that it is exempted because there is a stamp in the Tax Declaration that it is exempted.
- Reglementary period for filing of proof of exemption: within 30 days from the issuance of the tax
declaration.
SECTION 207.Real Property Identification System. All declarations of real property made under the provisions
of this Title shall be kept and filed under a uniform classification system to be established by the provincial, city
or municipal assessor.
- So theres a tax declaration number for every property. Just remember that there is this system.
SECTION 208.Notification of Transfer of Real Property Ownership. Any person who shall transfer real property
ownership to another shall notify the provincial, city or municipal assessor concerned within sixty (60) days
from the date of such transfer. The notification shall include the mode of transfer, the description of the
property alienated, the name and address of the transferee.
- Purpose: so that there would be another declaration issued in such transferee.
SECTION 209.Duty of Registrar of Deeds to Apprise Assessor of Real Property Listed in Registry.
(a) To ascertain whether or not any real property entered in the Registry of Property has escaped discovery and
listing for the purpose of taxation, the Registrar of Deeds shall prepare and submit to the provincial, city or
municipal assessor, within six (6) months from the date of effectivity of this Code and every year thereafter,
an abstract of his registry, which shall include brief but sufficient description of the real properties entered
therein, their present owners, and the dates of their most recent transfer or alienation accompanied by
copies of corresponding deeds of sale, donation, or partition or other forms of alienation.
(b) It shall also be the duty of the Registrar of Deeds to require every person who shall present for registration a
document of transfer, alienation, or encumbrance of real property to accompany the same with a certificate
to the effect that the real property subject of the transfer, alienation, or encumbrance, as the case may be,
has been fully paid of all real property taxes due thereon. Failure to provide such certificate shall be a valid
cause for the Registrar of Deeds to refuse the registration of the document.
- As you can see, the Local Board of Assessment Appeal, which where you usually lodge your protest in
case your petition is denied by the Local Treasurer, is headed by the Registrar of Deeds of that locality.
Because the RD must always be knowledgeable of the properties that gets to transferred within his
locality, in his area.
SECTION 210.Duty of Official Issuing Building Permit or Certificate of Registration of Machinery to Transmit Copy
to Assessor. Any public official or employee who may now or hereafter be required by law or regulation to
issue to any person a permit for the construction, addition, repair, or renovation of a building, or permanent
improvement on land, or a certificate of registration for any machinery, including machines, mechanical
contrivances, and apparatus attached or affixed on land or to another real property, shall transmit a copy of
such permit or certificate within thirty (30) days of its issuance, to the assessor of the province, city or
municipality where the property is situated.
- Even the public official who issues building permit etc. helps in the administration of the real property
tax by transmitting a copy of such permit or certificate from 30 days of the issuance thereof to the
assessor where the property is situated.
SECTION 211.Duty of Geodetic Engineers to Furnish Copy of Plans to Assessor. It shall be the duty of all
geodetic engineers, public or private, to furnish free of charge to the assessor of the province, city or
municipality where the land is located with a white or blue print copy of each of all approved original or
subdivision plans or maps of surveys executed by them within thirty (30) days from receipt of such plans from
the Lands Management Bureau, the Land Registration Authority, or the Housing and Land Use Regulatory Board,
as the case may be.
SECTION 212.Preparation of Schedule of Fair Market Values. Before any general revision of property
assessment is made pursuant to the provisions of this Title, there shall be prepared a schedule of fair market
values by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila Area
for the different classes of real property situated in their respective local government units for enactment by
ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of
general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted
in the provincial capitol, city or municipal hall and in two (2) other conspicuous public places therein.
- It is the provincial, city or municipal assessor who will prepare the schedule of FMV. But because there
will be an ordinance to be enacted by the sanggunian concerned, the schedule made by the assessor will
be dependent on such ordinance made by the sanggunian as well as the zoning ordinance.
- Take note where it will be posted: (1) posted in the seat of powercapitol or city hall or brgy. Hall; (2) 2
conspicuous public places.
SECTION 213.Authority of Assessor to Take Evidence. For the purpose of obtaining information on which to
base the market value of any real property, the assessor of the province, city or municipality or his deputy may
summon the owners of the properties to be affected or persons having legal interest therein and witnesses,
administer oaths, and take deposition concerning the property, its ownership, amount, nature, and value.
SECTION 214.Amendment of Schedule of Fair Market Values. The provincial, city or municipal assessor may
recommend to the sanggunian concerned amendments to correct errors in valuation in the schedule of fair
market values. The sanggunian concerned shall, by ordinance, act upon the recommendation within ninety (90)
days from receipt thereof.
- When can there be amendment of the schedule? Upon the recommendation of the assessor to the
sanggunian in cases when there is a need to correct some errors and such should be acted by the
sanggunian within 90 days from receipt.
SECTION 215.Classes of Real Property for Assessment Purposes. For purposes of assessment, real property
shall be classified as residential, agricultural, commercial, industrial, mineral, timberland or special.
The city or municipality within the Metropolitan Manila Area, through their respective sanggunian, shall have
the power to classify lands as residential, agricultural, commercial, industrial, mineral, timberland, or special in
accordance with their zoning ordinances.
- Classes of property for purposes of assessment: CARMITS (please memorize)

o Commercial - land devoted principally for the object of profit and is not classified as agricultural,
industrial, mineral, timber, or residential land
o Agricultural - land devoted principally to the planting of trees, raising of crops, livestock and
poultry, dairying, salt making, inland fishing and similar aquacultural activities, and other
agricultural activities, and is not classified as mineral, timber, residential, commercial or
industrial land
o Residential - land principally devoted to habitation
o Mineral - lands in which minerals, metallic or non-metallic, exist in sufficient quantity or grade
to justify the necessary expenditures to extract and utilize such materials
o Industrial - land devoted principally to industrial activity as capital investment and is not
classified as agricultural, commercial, timber, mineral or residential land
o Timberland
o Special
SECTION 216.Special Classes of Real Property. All lands, buildings, and other improvements thereon actually,
directly and exclusively used for hospitals, cultural, or scientific purposes, and those owned and used by local
water districts, and government-owned or -controlled corporations rendering essential public services in the
supply and distribution of water and/or generation and transmission of electric power shall be classified as
special.
- Special classes of real property applies only to:
1) land, buildings and improvements that are actually, directly and exclusively (ADE) used for
hospitals, cultural or scientific purposes
2) lands, buildings and improvements owned and used by local water districts
3) lands, buildings and improvements owned and used by GOCC rendering essential public
service in the supply and distribution of water
4) lands, buildings and improvements owned and used by GOCC rendering essential public
service in the generation and transmission of electric power
- Why are they called special? Because they are subjected to a special rate of taxes in terms of
assessment levels
SECTION 217.Actual Use of Real Property as Basis for Assessment. Real property shall be classified, valued and
assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.
- This provision reminds us that the assessment is always base on its ACTUAL USE
SECTION 218.Assessment Levels. The assessment levels to be applied to the fair market value of real property
to determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang
panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area, at the rates not
exceeding the following:
(a) On Lands:
ASSESSMENT
CLASS
LEVELS
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
(b) On Buildings and Other Structures:
(1) Residential
Fair Market
Value
Assessment
Over Not Over
Levels
P0 P175,000.00 0%
P175,000.00 300,000.00 10%
300,000.00 500,000.00 20%
500,000.00 750,000.00 25%
750,000.00 1,000,000.00 30%
1,000,000.00 2,000,000.00 35%
2,000,000.00 5,000,000.00 40%
10,000,000.0
5,000,000.00 50%
0
10,000,000.00 60%
(2)Agricultural
Fair Market
Value
Assessment
Over Not Over
Levels
P0 P300,000.00 25%
P300,000.00 500,000.00 30%
500,000.00 750,000.00 35%
750,000.00 1,000,000.00 40%
1,000,000.00 2,000,000.00 45%
2,000,000.00 50%
(3) Commercial/Industrial
Fair Market
Value
Assessment
Over Not Over
Levels
P0 P300,000.00 30%
P300,000.00 500,000.00 35%
500,000.00 750,000.00 40%
750,000.00 1,000,000.00 50%
1,000,000.00 2,000,000.00 60%
2,000,000.00 5,000,000.00 70%
10,000,000.0
5,000,000.00 75%
0
10,000,000.00 80%
(4) Timberland
Fair Market
Value
Assessment
Over Not Over
Levels
P300,000.00 45%
P300,000.00 500,000.00 50%
500,000.00 750,000.00 55%
750,000.00 1,000,000.00 60%
1,000,000.00 2,000,000.00 65%
2,000,000.00 70%
(c) On Machineries
Assessment
Class
Levels
Agricultura
40%
l
Residential 50%
Commercia
80%
l
Industrial 80%
(d) On Special Classes: The assessment levels for all lands, buildings and other improvements;
Actual Use Assessment Level

Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned or -controlled corporations engaged

in the supply and distribution of water and/or generation 10%
and transmission of electric power
- Dont have to memorize these rates, just familiarize lang. Just be mindful of this so-called zero
assessment level which only applies to a residential land when the value does not exceed P175,000.
(came out in the bar exam)
- Will the tank of water owned and used by the local water district be subject to real property tax? YES
because it is used in the supply and distribution of water.
- Will it (the tank of water) under the special classification? The tank is not a land and definitely not a
building. So you look at the definition of improvement and the definition of machinery.
o Improvement is a valuable addition made to a property or an amelioration in its condition,
amounting to more than a mere repair or replacement of parts involving capital expenditures
and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or
further purposes
o Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached, permanently or temporarily, to the real
property. It includes the physical facilities for production, the installations and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, and those not
permanently attached to the real property which are actually, directly, and exclusively used to
meet the needs of the particular industry, business or activity and which by their very nature
and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial,
industrial or agricultural purposes;
- So where do you think the tank of water belong? It falls under the definition of machinery. This must be
emphasized because this is usually the trick question in the exam. So then, if youre talking about special
classification of real property, you should not include machinery. So it follows that yes it is subject to
real property tax but not subject to the special rate.
SECTION 219.General Revision of Assessments and Property Classification. The provincial, city or municipal
assessor shall undertake a general revision of real property assessments within two (2) years after the effectivity
of this Code and every three (3) years thereafter.
- The declaration of assessment of real property is once every 3 years during January to June 30. This
refers to the part of the owner declaring such real property.
- But on the part of the government, which makes the assessment and collection of RPT, they can
generally amend or revise the assessment levels and the classifications of property. But this can only be
done once every 3 years.
SECTION 220.Valuation of Real Property. In cases where (a) real property is declared and listed for taxation
purposes for the first time; (b) there is an ongoing general revision of property classification and assessment; or
(c) a request is made by the person in whose name the property is declared, the provincial, city or municipal
assessor or his duly authorized deputy shall, in accordance with the provisions of this Chapter, make a
classification, appraisal and assessment of the real property listed and described in the declaration irrespective
of any previous assessment or taxpayer's valuation thereon: Provided, however, That the assessment of real
property shall not be increased oftener than once every three (3) years except in case of new improvements
substantially increasing the value of said property or of any change in its actual use.
- Instances where the assessor can make a VALUATION of the real property described in the declaration:
a) When real property is declared and listed for the first time
b) When there is an ongoing general revision of the classification and assessment of the property
Reason: there might be an increase or decrease in the value of the property (e.g. from
residential to commercial)
c) When a request is made by the person (owner or administrator) whose name the property is
declared
SECTION 221.Date of Effectivity of Assessment or Reassessment. All assessments or reassessments made after
the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year:
Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major
change in its actual use, or to any great and sudden inflation or deflation of real property values, or to the gross
illegality of the assessment when made or to any other abnormal cause, shall be made within ninety (90) days
from the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next
following the reassessment.
- Effectivity date of your assessment or reassessment:
o If its made after January 1 it shall take effect January 1 of the next year.
o If there is a reassessment because of (1) total or partial destruction, or (2) major change in its
actual use, or (3) great or sudden inflation or deflation of the value, or (4) gross illegality of the
assessment, or (5) any abnormal causes the reassessment shall take effect at the beginning of
the quarter following the reassessment, provided, that it shall be made within 90 days from the
date of such cause.
SECTION 222.Assessment of Property Subject to Back Taxes. Real property declared for the first time shall be
assessed for taxes for the period during which it would have been liable but in no case for more than ten (10)
years prior to the date of initial assessment: Provided, however, That such taxes shall be computed on the basis
of the applicable schedule of values in force during the corresponding period.
- How long can the assessor assess your property?
o If you declare it for the 1st time: it can be assessed back taxes up to 10 years.
Example: 2015, you bought a real property but you havent declared it. Then 20 years
after, you still did not declare, however, you want to transfer it. So you made a
declaration for the 1st time, but the city assessor will impose RPT on you because there
were no taxes paid from 2015 to 2035. But because its your 1st time to declare, the city
assessor can only impose RPT on you from year 2025 to 2035, in accordance with Sec.
222. You will not be liable for the RPT from year 2015 to 2024.
If such taxes are paid on or before the end of the quarter following the date the notice of assessment was
received by the owner or his representative, no interest for delinquency shall be imposed thereon; otherwise,
such taxes shall be subject to an interest at the rate of two percent (2%) per month or a fraction thereof from
the date of the receipt of the assessment until such taxes are fully paid.
- This means that although you will be assessed for back taxes good for 10 years, you will be subject to
penalty interest provided that you will make the payment on or before the end of the quarter of the
date you made the declaration.
- If you pay after the quarter of the date you made the declaration, you are subject to 2% interest.
SECTION 223.Notification of New or Revised Assessment. When real property is assessed for the first time or
when an existing assessment is increased or decreased, the provincial, city or municipal assessor shall within
thirty (30) days give written notice of such new or revised assessment to the person in whose name the
property is declared. The notice may be delivered personally or by registered mail or through the assistance of
the punong barangay to the last known address of the person to be served.
SECTION 224.Appraisal and Assessment of Machinery.

(a) The fair market value of a brand-new machinery shall be the acquisition cost. In all other cases, the fair
market value shall be determined by dividing the remaining economic life of the machinery by its estimated
economic life and multiplied by the replacement or reproduction cost.
- Formula:
Remaining Economic
Replacement
Life X
Cost
Estimated Useful Life Example: a machinery worth 2,000,000 has an
estimated economic life is 10 years then on the 2nd year, theres a better technology that can improve
your production, so you will replace the said machinery with the new improved one. The value of the
machinery now is 1,500,000. So when you sell the old machinery, the assessor will not record it at the
same value 2 years ago when it was brand new. So the assessor will use the formula to record the value.
8 1,500,00 1,200,00
X =
10 0 0
The replacement cost refers to the cost that would be incurred on the basis of current prices, in
acquiring an equally desirable substitute property, or the cost of reproducing a new replica of the
property on the basis of current prices with the same or closely similar material.
(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges,
brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation, handling, and
installation charges at the present site. The cost in foreign currency of imported machinery shall be
converted to peso cost on the basis of foreign currency exchange rates as fixed by the Central Bank.
SECTION 225.Depreciation Allowance for Machinery. For purposes of assessment, a depreciation allowance
shall be made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or
reproduction cost, as the case may be, for each year of use: Provided, however, That the remaining value for all
kinds of machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or
reproduction cost for so long as the machinery is useful and in operation.
- The phrase fixed at not less than twenty percent (20%) of such original, replacement, or reproduction
cost for so long as the machinery is useful and in operation refers to the salvage value.
- Salvage value means that although the property has already been fully depreciated, it can be sold at that
value, which shall not be less than 20% of such original, replacement or reproduction cost. --- 20%
Salvage Value
- Example: (same facts of the previous example) diba the replacement cost is 1,200,000, you can
depreciate it up to 5% every year. And lets assume that the useful life is 20 years.
o so, 1,200,000 x 5% = 60,000. And 60,000 x 20 years = 1,200,000. So technically, at the end of the
20th year, the useful life will now be 0. But the law tells us that although the value after the 20 th
year is 0, you can sell it at its salvage value which should not be less than 20% of its cost. Here,
the salvage value is 240,000. (1,200,000 x 20%)
o when can you know that you will no longer recognize its depreciation?
Formula (Straight Line Method):
Depreciable Value Salvage

Value
Economic Life
To compute:
1,200,000
48,00
240,000 =
0
20 years
So 48,000 should be depreciation expense that you should recognize. But so long as you
comply with 5% requirement, that would still be considered as reasonable.
ASSESSMENT OF RPT:
HOW TO MAKE ASSESSMENT OF RPT:
o Owner or any person who has in possession of the property has to make a declaration which
includes a statement of the value of his or her property TO THE ASSESSOR provincial, city or
municipal
o The assessor then will have to verify such value, he has to make the valuation himself. He can
base it either on the schedule of FMV if it applies or rely on the statement of the owner. There
must always be a valuation of the Current or Fair Market Value of the Property EXISTING &
PREVAILING in the locality were the property is located.
o CLASSIFICATION OF PROPERTIES by the assessor:
Commercial, Agricultural, Residential, Mineral, Industrial, Timberland and Special
(CARMITS)
o Then upon classification and assessment you apply the assessment level
Take Note: the steps mentioned are in total the ASSESSMENT LEVEL. This is important because there is a
difference as to the remedy if what you question is the assessment or the tax imposed. When we mean
assessment this is the act of the assessor valuing the property and setting the assessment level.
REMEDY AS TO ASSESSMENT:
STEP:
1. City or provincial or municipal assessor assess you.
2. Not satisfied. Then go to the Local Board of Assessment Appeals within 60 days from the written notice
of the assessment which is the tax declaration itself
a. SEC. 226. Any owner or person having legal interest in the property who is not satisfied with the
action of the provincial, city or municipal assessor in the assessment of his property may, within
sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board
of Assessment appeals of the province or city by filing a petition under oath in the form
prescribed for the purpose, together with copies of the tax declarations and such affidavits or
documents submitted in support of the appeal.
b. This does not preclude you from first talking with the assessor but if you are never happy make
sure that the 60 period has not elapsed.
3. The LBAA has 120 days to decide the appeal.
a. SEC. 229. Action by the Local Board of Assessment appeals. - (a) The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial evidence or such relevant evidence
on record as a reasonable mind might accept as adequate to support the conclusion.
b. This is mandatory. They should decide within the 120 days. If not they will be held
administratively liable.
4. Not satisfied. Within thirty (30) days after receipt of the decision of said Board, appeal to the Central
Board of Assessment appeals CBAA
a. The owner of the property or the person having legal interest therein or the assessor who is not
satisfied with the decision of the Board, may, within thirty (30) days after receipt of the decision
of said Board, appeal to the Central Board of Assessment appeals, as herein provided. The
decision of the Central Board shall be final and executory.
5. Not satisfied. Appeal with the CTA En Banc within 30 days from receipt of decision
6. Appeal with the SC within 15 days.
LBAA is headed by the REGISTER OF DEEDS.
NOTE: what we are questioning here is simply the assessment and not the reasonableness or excessive
assessment of real property taxes. Therefore in this part there is no need for payment under protest.
SEC. 231. Effect of appeal on the Payment of Real Property Tax. - appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
THE REAL PROPERTY TAX ITSELF:
BASIC REAL PROPERTY TAX:
How much is the RPT:

Basic RPT of:
o Province at the rate not exceeding one percent (1%) of the assessed value of real
property
o city or a municipality within the Metropolitan Manila Area at the rate not exceeding
two percent (2%) of the assessed value of real property

Tax Base: Assessed Value. this is what is question at the assessment process not the tax.
o "Assessed Value" is the fair market value of the property prevailing within the locality
where the property is located times the assessment level
EXEMPT REAL PROPERTIES:
1) GR: Real property owned by the Republic of the Philippines or any of its political subdivisions
Except: when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person;
This is an exception to the usual basis of rpt. Here the GR is you look at the ownership the
exception is the USE.
BAR EXAM: the municipality of balamban (MB) owns a parcel of land, which it leased out to
private entity X corp to be used as a warehouse. After sometime, MB assessed X for real
property tax. Does the municipality of balamban have the authority to impose rpt or does it
have legal basis?
o ANS: NO. it may have the legal basis to impose because the use was for a taxable person
BUT such municipality is OUTSIDE of METRO MANILA therefore it does NOT have the
authority to impose such rpt.
o (REMEMBER THIS. You will come across this question again maybe in the finals, moot
court, mock bar or the bar. So be mindful of this exception and the exception to the
exception)
2) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
here you look at the USE and not ownership.
Take note it is ONLY LANDS, BUILDINGS & IMPROVEMENTS (LIB). Does not apply to
machineries.
3) All machineries and equipment that are actually, directly and exclusively used by local water districts
and government-owned or -controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power;
Therefore when it is:
o Land, Buildings & Improvements of Local Water Districts/GOCCs in supply & distri. Of
water/transmission of electric power considered as a special class and subject to a
special assessment
o Machineries & equipment of Local Water Districts/GOCCs in supply & distri. Of
water/transmission of electric power exempt
4) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938;
5) Machinery and equipment used for pollution control and environmental protection. Except as
provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code.
SPECIAL LEVY ON REAL PROPERTY TAX:
Additional Levy on Real Property for the Special Education Fund (SEF).
o A province or city, or a municipality within the Metropolitan Manila Area, may levy and
collect an annual tax of one percent (1%) on the assessed value of real property
which shall be in addition to the basic real property tax.
o The proceeds thereof shall exclusively accrue to the Special Education Fund (SEF) of the
LGU having jurisdiction for its public schools.
o SUMMARY OF ACTUAL RPT:
Province: Basic 1% + SEF 1% = 2%
Cities and municipalities: Basic 2% + SEF 1% = 3%
Additional Ad Valorem Tax on Idle Lands.

o A province or city, or a municipality within the Metropolitan Manila Area, may levy an
annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed
value of the property which shall be in addition to the basic real property tax.
o Is imposed to discourage owning properties which is not utilized for productive
purposes.
o CONDITIONS TO BE SUBJECT: (TAKE NOTE OF THE AREAS DURING EXAM)
Agricultural lands:
1) more than one (1) hectare in area,
2) suitable for cultivation, dairying, inland fishery, and other agricultural
uses,
3) one-half (1/2) of which remain uncultivated or unimproved by the
owner of the property or person having legal interest therein."
a. EXECPTION: Agricultural lands planted with:
i. permanent or perennial crops with at least fifty (50)
trees to a hectare shall not be considered idle lands.
(fruit bearing trees)
ii. Lands actually used for grazing purposes shall likewise
not be considered idle lands.
Lands, other than agricultural, located in a city or municipality:
o more than one thousand (1,000) square meters in area
o one-half (1/2) of which remain unutilized or unimproved by the owner
of the property or person having legal interest therein.
Residential lots in subdivisions duly approved by proper authorities:
o Regardless of land area
o likewise apply, the ownership of which has been transferred to
individual owners, who shall be liable for the additional tax:
o Provided, however, That individual lots of such subdivisions, the
ownership of which has not been transferred to the buyer shall be
considered as part of the subdivision, and shall be subject to the
additional tax payable by subdivision owner or operator.
o Remember this. REGARDLESS OF AREA. (sa exam libogon nko mo. Land
in maria luisa village LESS than 1000 hectare unused. Subject gihapon
because this is a residential lot)
o The basis of this should be on a per declaration basis.
SUMMARY OF ACTUAL RPT if subject to IDLE LAND TAX:

Province: Basic 1% + SEF 1% = 2% + 5% = 7%
Cities and municipalities: Basic 2% + SEF 1% = 3% + 5% = 8%
o Idle Lands Exempt from Tax. - by reason of force majeure, civil disturbance, natural
calamity or any cause or 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 Local Government Units.

o A province, city or municipality may impose a special levy on the lands comprised within its
territorial jurisdiction specially benefited by public works projects or improvements funded
by the local government unit concerned
o GR: Only PROVINCES, CITIES & MUNICIPALITIES within the METRO MANILA AREA shall be
primarily responsible for the proper and efficient and effective administration of RPT
EX: Special Levy by LGUs A province, city or municipality may impose a special levy
on the lands
o BASED: on project or improvement which raises the value of the land
o RATE: That the special levy shall not exceed sixty percent (60%) of the actual cost of such
projects and improvements, including the costs of acquiring land and such other real
property
o EXEMPTION: That the special levy shall not apply:
to lands exempt from basic real property tax and
remainder of the land portions of which have been donated to the local
government unit concerned for the construction of such projects or improvements
o May be paid in installments BUT number of annual installments for the payment of the
special levy which in no case shall be less than five (5) nor more than ten (10) years.
o GR for RPT no need for public hearing EXECPTION Special Levy because it will require public
hearing.
SEC. 242. Publication of Proposed Ordinance Imposing a Special Levy. - Before the
enactment of an ordinance imposing a special levy, the sanggunian concerned shall
conduct a public hearing thereon; notify in writing the owners of the real property to
be affected or the persons having legal interest therein as to the date and place
thereof and afford the latter the opportunity to express their positions or objections
relative to the proposed ordinance.
REMEDY FOR SPECIAL LEVY
o To the LBAA. Same as Assessement.

o BUT you Can only question the Legality or the correctness of why you are subjected to RPT. You
do not question the amount of tax imposed on you. Because if you question the amount it will
require payment under protest.
ACCRUAL OF SPECIAL LEVY:

o The special levy shall accrue on the first day of the quarter next following the effectivity of the
ordinance imposing such levy.
o If imposed on February then you should pay it on the first day of APRIL. Or if JUNE then JULY.
COLLECTION OF REAL PROPERTY TAX
ACCRUAL OF RPT:
o accrue on the first day of January and from that date it shall constitute a lien on the property which
shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be
extinguished only upon the payment of the delinquent tax.
o DEADLINE OF PAYMENT: depends on ordinance but there is required quarterly payments which are
31st day of March, June, September and December
COLLECTION OF TAXES:
o shall be the responsibility of the city or municipal treasurer
o The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on real property
located in the barangay: Provided, That the barangay treasurer is properly bonded for the purpose:
Provided, further, That the premium on the bond shall be paid by the city or municipal government
concerned.
o BUT his collection will be based on the assessment by the assessor.
NOTICE OF COLLECTION OF TAX:

o Made by The city or municipal treasurer
o on or before the thirty-first (31st) day of January each year, in the case of the basic real property tax
and the additional tax for the Special Education Fund (SEF),
o post the notice of the dates when the tax may be paid without interest at a conspicuous and publicly
accessible place at the city or municipal hall.
o Said notice shall likewise be published in a newspaper of general circulation in the locality once a week
for two (2) consecutive weeks.
TAX DISCOUNT FOR ADVANCE PAYMENT:

o If the basic real property tax and the additional tax accruing to the Special Education Fund (SEF) are paid
in advance in accordance with the prescribed schedule of payment which is:
o ANNUAL on or before the 31st day on January discount of not exceeding twenty percent (20%) of the
annual tax due.
o INSTALLMENT on or before the last day of the end of each quarter discount of 10% prompt payment
REMEDY OF COLLECTION
o Here you are not happy with the assessment made by the TREASURER.
o Here you are questioning the reasonableness and excessive assessment of the real property tax the
AMOUNT.
Payment Under Protest.

No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on
the tax receipts the words "paid under protest".
The protest in writing must be filed within thirty (30) days from payment of the tax to the
provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan
Manila Area, who
shall decide the protest within sixty (60) days from receipt.
o This gives a notion that this remedy will not prescribed because it will be reckoned upon
payment of the tax. Therefore, if I will not pay the tax the 30 days will not begin to run.
In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of
the tax protested shall be refunded to the protestant, or applied as tax credit against his existing
or future tax liability.
In the event that the protest is denied or upon the lapse of the sixty day period prescribed:
o Go to the LBAA within 60 days from the receipt of the decision of the local treasurer
to the SC. Same as remedy of assessment.
Repayment of Excessive Collections.

When an assessment of basic real property tax, or any other tax levied under this Title, is found
to be illegal or erroneous and the tax is accordingly reduced or adjusted,
the taxpayer may file a written claim for refund or credit for taxes and interests with the
provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such
reduction or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60)
days from receipt thereof.
In case the claim for tax refund or credit is denied: go to LBAA SC same as assessment
remedy.
REMEDY OF THE GOVERNMENT:
ADMINISTRATIVE:
1. Distraint
a. SEC. 254. Notice of Delinquency in the Payment of the Real Property Tax.
i. When the real property tax or any other tax imposed under this Title becomes
delinquent,
ii. the provincial, city or municipal treasurer shall immediately cause a notice of the
delinquency to be posted at the main entrance of the provincial capitol, or city or
municipal hall and in a publicly accessible and conspicuous place in each barangay of
the local government unit concerned.
iii. The notice of delinquency shall also be published once a week for two (2) consecutive
weeks, in a newspaper of general circulation in the province, city, or municipality.
iv. Such notice shall specify the date upon which the tax became delinquent and shall state
that personal property may be distrained to effect payment.
v. HOW IS THIS EFFECTED: same as in LGT, a certificate is issued by the treasurer which
serves as a warrant to distraint such property. The person who has the personal
property distraint undertakes to surrender possession of the property.
vi. CAN HE REDEEM: Yes. right of the delinquent owner of the property or any person
having legal interest therein to redeem the property within one (1) year from the date
of sale.
vii. INTEREST ON SUCH PROPERTY: payment of interest at the rate of two percent (2%) per
month on the unpaid amount or a fraction thereof, until the delinquent tax shall have
been fully paid: That in no case shall the total interest on the unpaid tax or portion
thereof exceed thirty-six (36) months. 72 % total interest.
2. LEVY
a. The basic real property tax and any other tax levied under this Title constitutes a lien on the
property subject to tax, superior to all liens, charges or encumbrances in favor of any person,
the MOMENT THE RPT ACCURES
b. real property subject to such tax may be levied upon through the issuance of a warrant on or
before, or simultaneously with, the institution of the civil action for the collection of the
delinquent tax.
c. The provincial or city treasurer, or a treasurer of a municipality within the Metropolitan Manila
Area, as the case may be, when issuing a warrant of levy shall prepare a duly authenticated
certificate showing the name of the delinquent owner of the property or person having legal
interest therein, the description of the property, the amount of the tax due and the interest
thereon.
d. The warrant shall operate with the force of a legal execution throughout the province, city or a
municipality within the Metropolitan Manila Area.
e. The warrant shall be mailed to or served upon the delinquent owner of the real property or
person having legal interest therein, or in case he is out of the country or cannot be located, to
the administrator or occupant of the property.
f. At the same time, written notice of the levy with the attached warrant shall be mailed to or
served upon the assessor and the Registrar of Deeds of the province, city or a municipality
within the Metropolitan Manila Area where the property is located, who shall annotate the
levy on the tax declaration and certificate of title of the property, respectively.
g. Penalty for Failure to Issue and Execute Warrant. - Without prejudice to criminal prosecution
under the Revised Penal Code and other applicable laws, any local treasurer or his deputy who
fails to issue or execute the warrant of levy within one (1) year from the time the tax becomes
delinquent or within thirty (30) days from the date of the issuance thereof, or who is found
guilty of abusing the exercise thereof in an administrative or judicial proceeding shall be
dismissed from the service.
h. Redemption of Property Sold. - Within one (1) year from the date of sale, the owner of the
delinquent real property or person having legal interest therein, or his representative, shall
have the right to redeem the property upon payment to the local treasurer of the amount of
the delinquent tax, including the interest due thereon, and the expenses of sale from the date of
delinquency to the date of sale, plus interest of not more than two percent (2%) per month on
the purchase price from the date of sale to the date of redemption. Such payment shall
invalidate the certificate of sale issued to the purchaser and the owner of the delinquent real
property or person having legal interest therein shall be entitled to a certificate of redemption
which shall be issued by the local treasurer or his deputy. From the date of sale until the
expiration of the period of redemption, the delinquent real property shall remain in the
possession of the owner or person having legal interest therein who shall be entitled to the
income and other fruits thereof. The local treasurer or his deputy, upon receipt from the
purchaser of the certificate of sale, shall forthwith return to the latter the entire amount paid by
him plus interest of not more than two percent (2%) per month. Thereafter, the property shall
be free from the lien of such delinquent tax, interest due thereon and expenses of sale.cralaw
i. If no bidder Purchase of Property By the Local Government Units for Want of Bidder. - In
case there is no bidder for the real property advertised for sale as provided herein, or if the
highest bid is for an amount insufficient to pay the real property tax and the related interest
and costs of sale the local treasurer conducting the sale shall purchase the property in behalf
of the local government unit concerned to satisfy the claim and within two (2) days thereafter
shall make a report of his proceedings which shall be reflected upon the records of his office. It
shall be the duty of the Registrar of Deeds concerned upon registration with his office of any
such declaration of forfeiture to transfer the title of the forfeited property to the local
government unit concerned without the necessity of an order from a competent court. Within
one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may
redeem the property by paying to the local treasurer the full amount of the real property tax
and the related interest and the costs of sale. If the property is not redeemed as provided
herein, the ownership thereof shall be fully vested on the local government unit
concerned.cralaw
j. Resale of Real Estate Taken for Taxes, Fees, or Charges. - The sanggunian concerned may, by
ordinance duly approved, and upon notice of not less than twenty (20) days, sell and dispose
of the real property acquired under the preceding section at public auction. The proceeds of
the sale shall accrue to the general fund of the local government unit concerned.cralaw
k. Levy may be repeated if necessary until the full amount due, including all expenses, is
collected.cralaw
JUDICIAL:
Collection of Real Property Tax Through the Courts. - The local government unit concerned may enforce the
collection of the basic real property tax or any other tax levied under this Title by civil action in any court of
competent jurisdiction.
The civil action shall be filed by the local treasurer within the period of 5 years for ordinary cases or 10
years if there is fraud.
JURISDICTION:
o If the amount is 300K/400K or less MTC appeal to RTC within 15 days appeal to CTA
ENBANC within 30 days to SC within 15 days
o If more than 300K/400K or less RTC CTA in division within 30 days CTA en banc within
15 days to SC within 15 days.
Action Assailing Validity of Tax Sale.

Can you question? Yes. But there is a condition that you tender the payment of the taxes to the
court.
No court shall entertain any action assailing the validity of any sale at public auction of real
property or rights therein under this Title until the taxpayer shall have deposited with the court
the amount for which the real property was sold, together with interest of two percent (2%) per
month from the date of sale to the time of the institution of the action.
Periods Within Which To Collect Real Property Taxes.

shall be collected within five (5) years from the date they become due. No action for the collection of
the tax, whether administrative or judicial, shall be instituted after the expiration of such period.
In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection
of the same within ten (10) years from the discovery of such fraud or intent to evade payment.
The period of prescription within which to collect shall be suspended for the time during which:
o (1) The local treasurer is legally prevented from collecting the tax;
o (2) The owner of the property or the person having legal interest therein requests for
reinvestigation and executes a waiver in writing before the expiration of the period within
which to collect; and
o (3) The owner of the property or the person having legal interest therein is out of the country or
otherwise cannot be located.
SPECIAL PROVISIONS
Condonation or Reduction of Real Property Tax and Interest.

In case of a general failure of crops or substantial decrease in the price of agricultural or agribased
products, or
calamity in any province, city, or municipality, the sanggunian concerned, by ordinance passed prior
to the first (1st) day of January of any year and upon recommendation of the Local Disaster
Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon for the
succeeding year or years in the city or municipality affected by the calamity.
o If the calamity happened during the year. When will the condonation or reduction apply? Next
Year if an ordinance was passed during the year.
Condonation or Reduction of Tax by the President of the Philippines.

The President of the Philippines may, when public interest so requires, condone or reduce the real
property tax and interest for any year in any province or city or a municipality within the Metropolitan
Manila Area.cralaw
Duty of Registrar of Deeds and Notaries Public to Assist the Provincial, City or Municipal Assessor.
It shall be the duty of the Registrar of Deeds and notaries public to furnish the provincial, city or
municipal assessor with copies of all contracts selling, transferring, or otherwise conveying, leasing, or
mortgaging real property received by, or acknowledged before them.
Insurance Companies to Furnish Information.

Insurance companies are hereby required to furnish the provincial, city or municipal assessor copies of
any contract or policy insurance on buildings, structures, and improvements insured by them or such
other documents which may be necessary for the proper assessment thereof.
Fees in Court Actions. - All court actions, criminal or civil, instituted at the instance of the provincial, city or
municipal treasurer or assessor under the provisions of this Code, shall be exempt from the payment of court
and sheriff's fees.
Fees in Registration of Papers or Documents on Sale of Delinquent Real Property to province, City or
municipality. - All certificates, documents, and papers covering the sale of delinquent property to the province,
city or municipality, if registered in the Registry of Property, shall be exempt from the documentary stamp tax
and registration fees.
Real Property Assessment Notices or Owner's Copies of Tax Declarations to be Exempt from Postal Charges or
Fees. - All real property assessment notices or owner's copies of tax declaration sent through the mails by the
assessor shall be exempt from the payment of postal charges or fees.
TARRIFF and CUSTOMS

deals with the imposition of taxes on the importation and exportation of goods. The tax on exportation except
for logs has already been suspended. Tax on exportation of logs is more of a prohibition rather than imposition.
The primary legal basis for TARRIFF and CUSTOMS duties would be the Constitution. For any other tax, its always
the constitution and followed by the special laws.
Section 28. (1) (Art. 6). The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues,
and other duties or imposts within the framework of the national development program of the Government.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members
of the Congress.
Section 24 (Art. 6). All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
Section 27(2) (Art. 6). The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object.
Customs and duties is more of an indirect tax.
BASIS FOR THE IMPOSITION OF THE TARRIFFS and CUSTOMS

PD 1464 as amended.
TARRIFF AND CUSTOMS CODE

The body of law which codifies all customs law including tariff decreed by the President of the Philippines.
BASIS- BRUSSELS TARIFF NOMENCLATURE

A list of classification of commodities for Customs purposes which is also used as a basis for their freight tariff by
many shipping lines. Each commodity has a unique code known as a BTN number.
TARRIFF
The small Spanish town of Tarifa is sometimes credited with being the origin of the word "tariff", since it was the
first port in history to charge merchants for the use of its docks. The name "Tarifa" itself is derived from aFeudal
Lord named Tarifibn Malik. However, other sources assume that the origin of tariff is the Italian word tariffa
translated as "list of prices, book of rates," which is derived from the Arabic ta'rif meaning "making known" or
"to define".
As it is, it should be understood as an official list or schedule setting forth the several customs duties to be
imposed on imports and exports.
CUSTOMS
Refers to the habitual practice that we know of. Part of this habitual practice is that there is imposition of this
customary tax whenever there is passage of goods from one territory to another.
BUREAU OF CUSTOMS
The administrative agency tasked to assess and collect customs duties.
COMMISSIONER
1 Commissioner and 5 Deputy Commissioners.
PRIMARY FUNCTION OF THE BUREAU OF CUSTOMS

1. ADMINISTRATIVE FUNCTION - The assessment and collection of the lawful revenues from imported articles
and all other dues, fees, charges, fines and penalties accruing under the tariff and customs laws.
Lawful revenues any kind of income or money that the BOC collect and receives. It may not come
from tax. It may come from any activity they are engaged in like arrastre services.
2. The prevention and suppression of smuggling and other frauds upon the customs.
Smuggling an act of any person who shall fraudulently import or bring into the Philippines, or
assist in so doing, any article contrary to law, or shall receive, conceal, buy, sell or in any manner
facilitate the transportation, concealment, or sale of such article after importation, knowing the
same to be imported contrary to law. It includes the exportation of articles in a manner contrary to
law.
i. If you dont follow regulations on exports, you can be considered as engaged in smuggling.
Requisites for smuggling:
i. The merchandise must have fraudulently or knowingly imported contrary to law.
ii. The defendant, if he is not the importer himself, must have received, concealed, bought,
sold or in any manner facilitated transportation, concealment, or sale of the merchandise.
iii. The defendant must be shown to have knowledge that the merchandise had been illegally
imported.
Mala in se requires intent.
Large-scale smuggling if the determinable value of the goods or contraband is at least P5M.
Smale-scale smuggling if less than P5M.
Smuggling by syndicate carried out by a group of 3 more persons conspiring or confederating with
one another in carrying out the unlawful act of smuggling.
3. ANCILLARY FUNCTION The enforcement of the tariff and customs laws and all other laws, rules and
regulations relating to the tariff and customs administration. Read the rest of Sec. 602
CUSTOMS TERRITORY
The national territory of the Philippines outside of the proclaimed boundaries of the ECOZONES except those
areas specifically declared by other laws and/or presidential proclamations to have the status of special
economic zones and/or free ports.
TERRITORIAL JURISDICTION
For the due and effective exercise of the powers conferred by law and to the extent requisite therefor, said
bureau shall have the right of supervision and police authority over all seas within the jurisdiction of the
Philippines and over all coasts, ports, airports, harbors, bays, rivers and inland waters navigable from the sea.
DOCTRINE OF FRESH PURSUIT

When a vessel becomes subject to seizure by reason of an act done in Philippine waters in violation of the tariff
and customs laws, a pursuit of such vessel begun within the jurisdictional waters may continue beyond the
maritime zone, and the vessel may be seized on the high sea. Imported articles which may be subject to seizure
for violation of the tariff and customs laws may be pursued in their transportation in the Philippines by land,
water or air and such jurisdiction exerted over it at any place therein as may be necessary for the due
enforcement of the law.
JURISDICTION OVER PREMISES USED FOR CUSTOMS PURPOSES

The Bureau of Customs shall, for customs purposes, have exclusive control, direction and management of
custom-houses, warehouses, offices, wharves, and other premises in the respective ports of entry, in all cases
without prejudice to the general police powers of the city or municipality wherein such premises are situated.
CUSTOM HOUSES
The house or office where commodities are entered for importation or exportation where the duties,
drawbacks, payables and receivables upon such importation or exportation are paid or received, and where
ships are cleared out.
POWER OF THE PRESIDENT TO SUBJECT PREMISES TO JURISDICTION OF BUREAU OF CUSTOMS

The President of the Philippines may, by executive order, declare such premises to be under the jurisdiction of
the Bureau of Customs, and thereafter the authority of such Bureau in respect thereto shall be fully effective.
WHEN IS A PARTICULAR ACTIVITY BE SUBJECT TO THE JURISDICTION OF BUREAU OF CUSTOMS

When it reaches the port of entry.
COMMISSIONER TO MAKE RULES AND REGULATIONS

The Commissioner shall, subject to the approval of the department head (Secretary of Finance), make all rules
and regulations necessary to enforce the provisions of this Code.
CUSTOMS ADMINISTRATIVE ORDER

Includes rules, regulations and instructions for information and guidance on all officials and employees,
including the public in general, in the connection with the proper administration and operation of the BOC.
Customs Administrative Order are subject to approval by the Secretary of Finance.
CUSTOMS MEMORANDUM ORDER

Contains directives or instructions affecting the officials and employees of the BOC involving a more limited
scope and requiring a definite compliance. This is equivalent to the RMO of the BIR.
CUSTOMS MEMORANDUM CIRCULAR

Contains dissemination of instruction and other information for the guidance of all officials, employees and the
public in general which circulates the following:
1. Laws or regulations of general interest.
2. Precedents, rulings or opinions of the DOJ.
3. Resolutions and decisions of courts.
4. Decisions or resolutions of the Civil Service Commission which affects the functions and duties of the
BOC personnel.
5. Rules and regulations issued by the different government agency which may affect, one way or another,
the functions of the BOC.
CMC or CMO are not subject to the approval of the Secretary of Finance because it is more an internal directive.
CMC will not include matters affecting valuation, appraisal, classification and liquidation of imported articles.
This means these matters should be covered under CAO.
PORT
Any place at which merchandise can be imported, or any place designated by the executive order of the
President at which the Custom officer is authorized to accept the merchandise, and to collect duties and to
enforce the various provisions of the Customs and Navigation laws.
Port of Entry (POE) a domestic port, open to both foreign and coast-wise trade
Principal POE is the chief port of entry of the of the collection district, wherein it is situated as a permanent
station of the collector of customs of such port.
Sub POE - All other ports, if it is allowed coast-wise trading;
coast-wise trading not same as coast-wise shipping; it means that there is a coast to coast trading.
FREE Port area set aside for handling foreign goods without having to enter the customs house; meaning it is
free of taxes
Collector of Customs executive officer who is the boss in a customs district/collection district and is the
extension of personality of the commissioner of customs on matters affecting his/her district.
- To whom to pay your taxes; to whom you lodge your protests/complaints
Sec. 703. Collector of Customs at Port of Entry At each principal port of entry, there shall be a Collector of
Customs (hereinafter known as the Collector) who shall be responsible to the Commissioner, and who shall be
the official head of the customs service in his port and district. The Collector shall have jurisdiction over all
matters arising from the enforcement of tariff and customs laws within his collection district: Provided,
however, That the Commissioner shall have authority to review any such action upon appeal as provided in
section two thousand three hundred and thirteen of this Code. No appointment to any position under the
collector shall be made without the recommendation of the collector concerned.
Does the collector has the power to remit (condoning/remission of taxes) duties? Yes.
Sec. 709. Authority of Collector to Remit Duties A Collector shall have discretionary authority to remit the
assessment and collection of customs duties, taxes and other charges when the aggregate amount of such
duties, taxes and other charges is less than ten pesos, and he may dispense with the seizure of articles of less
than ten pesos in value except in cases of prohibited importations or the habitual or intentional violation of the
tariff and customs laws.
Does the Commissioner of BOC have the power to remit customs duties?
NO. Only the collector of customs can remit, however, the commissioner does compromise.
PRINCIPLES
Life Blood Doctrine

Taxes are the life blood of the nation. The primary purpose is to generate funds for the state to finance the
needs of the citizenry and to advance the common ____.
Therefore, you cannot NOT pay your taxes, because the state will die of anemia :D
Doctrine of Primary Jurisdiction

The courts cannot and will not determine a controversy involving a question which is within the jurisdiction of
the administrative tribunal (in this case, the BOC) or one which is lodge in an administrative body because of its
special competency.
-the courts will not entertain/address a controversy without passing through the administrative body
Doctrine of Exhaustion of Administrative Remedies

If a particular controversy has to pass through the administrative agency before it goes to court, all
administrative processes within this administrative line should be exhausted first.
Follow all administrative processes first before going to judicial action.

If not followed, it will be dismissed for lack of cause of action.
Doctrine of Fresh Pursuit (hot pursuit)

Sec. 603, A. Of a Vessel
When a vessel becomes subject to seizure by reason of an act done in the Philippine waters in violation of the
tariff and customs laws, a pursuit of such vessel begun within the jurisdictional waters may continue beyond the
maritime zone, and the vessel may be seized on the high sea.
- If there is a violation of the customs laws within the customs territory, the vessel may be
pursued even beyond the maritime zone. BUT when the vessel enters the territory of
another state, the pursuit may no longer be continued. The pursuit is only up to the high
seas. ->exam!
(Hermes bag for mommy dionisia illustration)

so:
1. There is a violation of the customs laws
2. Done within the Philippine waters
The pursuit of the vessel shall began within the jurisdictional waters and may continue beyond the
maritime waters up to the high seas.
Sec. 603, B. Of all other imported articles
Imported articles which may be subject to seizure for violation of the tariff and customs laws may be pursued in
their transportation in the Philippines by land, water or air and such jurisdiction exerted over it at any pace
therein as may be necessary for the due enforcement of the law.
- Because there is a violation of the customs code, it will not matter whether it is within the
territorial jurisdiction.
- If the items were already taken out of the customs territory, they may still be seized
anywhere if they are imported contrary to law.
Warrant? No, it will be warrantless. Reason: practicality and expedite seizure and forfeiture.
Exception: dwelling place, warrant is required.
Warehouse- not a dwelling place, thus no warrant required.
Situation: for Chinese business people, usually their house is also where their business is (1st floor- warehouse;
2nd floor- home). As long as you will not go to the area used as their dwelling place, warrant is not required.
(ayawugsakasataas! :D)
IMPOSITION OF TAX
Customs Duties duties charged upon the commodities upon their being imported to or exported from a
country
Importation, meaning
SECTION 1202. When Importation Begins and Deemed Terminated. Importation begins when the carrying
vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is
deemed terminated upon payment of duties, taxes and other charges due upon the articles, or secured to be
paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are
free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs. ->memorize!
verbatim!
a. Importation BEGINS when the carrying vessel or aircraft:
1. Enters the jurisdiction of the Philippines
2. With intention to unlade therein
b. Importation is deemed TERMINATED upon:
1. If subject to taxes or duties:
a. payment of duties, taxes and other charges due upon the articles, or secured to be paid, at a
port of entry; and
b. the legal permit for withdrawal shall have been granted,
2. OR in case said articles are free of duties, taxes and other charges, until they have legally left the
jurisdiction of the customs.
- Legally left if you are issued a permit of withdrawal, meaning you have already complied
with the terms and conditions.
SECTION 1201. Article to be Imported Only Through Customhouse. All articles imported into the Philippines
whether subject to duty or not shall be entered through a customhouse at a port of entry.
CLASSES OF IMPORTATION
1. Dutiable importation
SECTION 100. Imported Articles Subject to Duty.

All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each
importation, even though previously exported from the Philippines, except as otherwise specifically provided for
in this Code or in other laws.
TN: even if previously exported from the Philippines.
Exceptions:
a. When provided under the tariff and customs code;
b. When granted under Special laws;
c. When granted to Government agencies, instrumentalities, GOCCs with existing contracts,
agreements, obligations or commitments with foreign countries;
d. Those that may be granted by the president upon prior recommendation from NEDA in the
interest of the national economy; and
e. Those granted to international organizations or associations and institutions pursuant to
agreements or special laws.
WHO IS LIABLE? Owner of the imported article.
2. Prohibited Importation
Sec. 101.Prohibited Importations. The importation into the Philippines of the following articles is
prohibited:
Summary
a. Weapons of war
b. Gambling devices
c. Narcotics or prohibited drugs
d. Immoral, obscene or insidious articles
e. Those prohibited under special laws
3. Conditionally-free importation
Sec. 105.Conditionally-Free Importations.
SUMMARY
1. Animals and plants for scientific, experimental, propagation, botanical, breeding, zoological and national
defense purposes;
2. Aquatic products including preparations or manufacturers, thereof, caught or gathered by vessels of
Philippine registry;
- TN: gathered by fishing vessel of Philippine registry, they are imported in such vessels or in
crafts attached thereto, they have not been landed in any foreign territory or, if so landed,
they have been landed solely for transshipment without having been advanced in condition
3. Samples in such quantity and of such dimensions or construction as to render them unsaleable or of no
appreciable commercial value, models not adapted for practical use, and samples not for sale;
4. Articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon
completion of the repair, processing or reconditioning;
5. Personal and household effects belonging to residents of the Philippines returning from abroad (please
refer to pg 363 of vitug)
6. Wearing apparel, articles of personal adornment, toilet articles, portable tools and instruments,
theatrical costumes, and similar personal effects accompanying travelers or tourist in their baggage or
arriving within a reasonable time, in the discretion of the Collector of Customs, before or after the
owner, in use of and necessary and appropriate for the wear or use of such persons according to their
profession or position for the immediate purposes of their journey and their present comfort and
convenience.
WWW Added points:

GR: importation or exportation merely passes a jurisdiction without an intention to unload it is not subject
to customs duties.
o HOWEVER: there is a prima facie determination of intention to unload when it involves
UNMANIFESTED CARGOES.
In these PROHIBITED IMPORTATION as a rule it is prohibited BUT there are some already allowed subject to
government approval
o Gambling paraphernalia sanctioned by the PAGCOR

o For personal use even if immoral obscene things like sex toys as long as it is for personal use and
not in commercial quantities.
WHO HAS JURISDICTION over articles that are Prohibited Importation & conditionally-free: COLLECTOR
OF CUSTOMS
o Sec. 1207. Jurisdiction of Collector Over Articles of Prohibited Importation. Where articles are of
prohibited importation or subject to importation only upon conditions prescribed by law, it shall be
the duty of the Collector to exercise such jurisdiction in respect thereto as will prevent importation
or otherwise secure compliance with all legal requirements.
CONDITIONALLY- FREE IMPORTATION

take note most of these items require EXPORTATION within a period of 6 months. While you can bring them
in the Philippines, because they are conditionally free, it is conditioned upon the importers undertaking to
export it outside the country within 6 months.
ITEMS BROUGHT INTO THE PHILIPPINES FOR REPAIR

o Articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon
completion of the repair, processing or reconditioning. Provided,
o CONDITIONS:
1. That the Collector of Customs shall require the giving of a bond in an amount equal to one and
one-half times the ascertained duties, taxes and other charges thereon,
2. conditioned for the exportation thereof or payment of the corresponding duties, taxes and
other charges within six (6) months from the date of acceptance of the import entry;
o Note: you have an option here.
DONT RE-EXPORT IT you pay the taxes. It is no longer a free importation
FOLLOW the conditions it becomes a free importation
o Moreover, the provision states RE-EXPORTED this means that the item has been ORIGINALLY
EXPORTED from the Philippines but because of certain defects it is IMPORTED BACK here in the
Philippines for some repairs, processing or reconditioning.
o
PERSONAL BELONGINGS, HOUSEHOLD EFFECTS OF RESIDENTS OF THE PHILIPPINES RETURNING FROM
ABROAD
o Personal and household effects belonging to residents of the Philippines returning from abroad
including jewelry, precious stones and other articles of luxury which are:
o CONDITIONS:
1. DECLARE: formally declared and listed before departure and identified under oath before the
Collector of Customs when exported from the Philippines by such returning residents upon their
departure therefrom and during their stay abroad;
2. ITEM: refers to personal and household effects including wearing apparel, articles of personal
adornment (except luxury items), toilet articles, portable appliances and instruments and similar
personal effects, excluding vehicles, watercrafts, aircrafts, and animals purchased in foreign
countries by residents of the Philippines which were necessary, appropriate and normally used for
the comfort and convenience in their journey and during their stay abroad
3. WHO: Belonging to RESIDENTS OF THE PHILIPPINES returning from abroad who must have stayed
abroad for more than six (6) months and
4. PERIOD: accompanying them on their return, or arriving within a reasonable time which, barring
unforeseen circumstances, in no case shall exceed sixty (60) days before or after the owners'
return:
5. LIMIT: That the personal and household effects shall neither be in commercial quantities nor
intended for barter, sale or hire and that the total dutiable value of which shall not exceed ten
thousand pesos (P10,000.00):
6. AVAILED: That the returning residents have not previously received the benefit under this section
within one year from and after the last exemption granted:
7. ADD ON:
That a fifty (50) per cent ad valorem duty across the board shall be levied and collected on
the personal and household effects (except luxury items) in excess of ten thousand pesos
(P10,000.00)
That the personal and household effects (except luxury items) of a returning resident who
has not stayed abroad for six (6) months shall be subject to fifty (50)per cent ad valorem
duty across the board, the total dutiable value of which does not exceed ten thousand
pesos (P10,000.00); any excess shall be subject to the corresponding duty provided in this
Code;
PERSONAL BELONGINGS, HOUSEHOLD EFFECTS OF TRAVELLERS & TOURISTS
o Wearing apparel, articles of personal adornment, toilet articles, portable tools and instruments, theatrical
costumes and similar effects accompanying:
o CONDITIONS:
WHO: travelers, or tourists.
PERIOD: arriving within a reasonable time before and after their arrival in the Philippines, (same as
resident returning: accompanying them on their return, or arriving within a reasonable time
which, barring unforeseen circumstances, in no case shall exceed sixty (60) days before or after
the owners' return)
ITEMS: which are necessary and appropriate for the wear and use of such persons according to the
nature of the journey, their comfort and convenience: That this exemption shall not apply to articles
intended for other persons or for barter, sale or hire
NO AMOUNT LIMIT
o That the Collector of Customs may, in his discretion, require either a written commitment or a bond in
an amount equal to one and one-half times the ascertained duties, taxes and other charges conditioned
for the exportation thereof or payment of the corresponding duties, taxes and other charges within
three (3) months from the date of acceptance of the import entry: And Provided finally, That the
Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges
for a term not exceeding three (3) months from the expiration of the original period;
PERSONAL BELONGINGS, HOUSEHOLD EFFECTS OF FOREIGN CONSULTANTS AND EXPERTS HIRED BY,
AND/OR RENDERING SERVICE TO, THE GOVERNMENT
O CONDITIONS:
WHO: Personal and household effects and vehicles belonging to foreign consultants and experts
hired by, and/or rendering service to, the government, and their staff or personnel and families,
accompanying them or arriving within a reasonable time before or after their arrival in the
Philippines,
PERIOD: arriving within a reasonable time before and after their arrival in the Philippines, (same as
resident returning: accompanying them on their return, or arriving within a reasonable time
which, barring unforeseen circumstances, in no case shall exceed sixty (60) days before or after
the owners' return)
ITEMS: in quantities and of the kind necessary and suitable to the profession, rank or position of the
person importing them, for their own use and not for barter, sale or hire provided that,
O the Collector of Customs may in his discretion require either a written commitment or a bond in an
amount equal to one and one-half times the ascertained duties, taxes and other charges upon the
articles classified under this subsection; conditioned for the exportation thereof or payment of the
corresponding duties, taxes and other charges within six (6) months after the expiration of their term or
contract; And Provided, finally, That the Collector of Customs may extend the time for exportation or
payment of duties, taxes and other charges for term not exceeding six (6) months from the expiration of
the original period;
COFFINS OR URNS CONTAINING HUMAN REMAINS, BONES OR ASHES

o CONDITIONS:
CONTAINING HUMAN REMAINS, BONES OR ASHES
used personal and household effects (not merchandise) of the deceased person, except
vehicles, t
the value of which does not exceed ten thousand pesos (P10,000.00),
There must be human remains inside the coffin or urns. Otherwise, all coffins or urns may be brought to the
Philippines tax free.
k. Importations for the official use of foreign embassies, legations, and other agencies of foreign governments:
Provided, That those foreign countries accord like privileges to corresponding agencies of the Philippines;
Articles imported for the personal or family use of the members and attaches of foreign embassies, legations,
consular officers and other representatives of foreign governments: Provided, That such privilege shall be
accorded under special agreements between the Philippines and the countries which they represent: And
Provided, further, That the privilege may be granted only upon specific instructions of the Secretary of Finance in
each instance which will be issued only upon request of the Department of Foreign Affairs;
l. Imported articles donated to, or for the account of, any duly registered relief organization, not operated for
profit, for free distribution among the needy, upon certification by the Department of Social Services and
Development or the Department of Education, Culture and Sports, as the case may be;
Please read the other items
RATES OF DUTIES
As a general rule, the rate imposable must not exceed 100% ad valorem.
ADDITIONAL DUTY IMPOSED ON PRODUCTS OF FOREIGN COUNTRIES

When a foreign country discriminates against the Philippine commerce or against goods coming from the
Philippines and shipped to such foreign country, a special duty, in an amount not exceeding 100% ad valorem,
impose by the President of the Philippines
METHODS TO DETERMINE THE BASIS OF DUTIES

1. Transaction value the dutiable value of an imported article subject to an ad valorem rate of duty which
shall be the transaction value which shall be the price actually paid or payable for the goods when sold for
export to the Philippines, adjusted by:
1) The following to the extent that they are incurred by the buyer but are not included in the price actually
paid or payable for the imported goods:
(a) Commissions and brokerage fees (except buying commissions);
(b) Cost of containers;
(c) The cost of packing, whether for labour or materials;
(d) The value, apportioned as appropriate, of the following goods and services: materials, components,
parts and similar items incorporated in the imported goods; tools; dies; moulds and similar items used in
the production of imported goods; materials consumed in the production of the imported goods; and
engineering, development, artwork, design work and plans and sketches undertaken elsewhere than in
the Philippines and necessary for the production of imported goods, where such goods and services are
supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with
the production and sale for export of the imported goods;
(e) The amount of royalties and license fees related to the goods being valued that the buyer must pay,
either directly or indirectly, as a condition of sale of the goods to the buyer;
(2) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods
that accrues directly or indirectly to the seller;
(3) The cost of transport of the imported goods from the port of exportation to the port of entry in the
Philippines;
(4) Loading, unloading and handling charges associated with the transport of the imported goods from the
country of exportation to the port of entry in the Philippines; and
(5) The cost of insurance.
All additions to the price actually paid or payable shall be made only on the basis of objective and
quantifiable data.
Transaction value does not simply refer to the value of the article itself. It includes all other cost
necessary to bring such article to the Philippines or to its final destination.
This the value you can see in the Import Entry Declaration.
TN: That it is the importer who makes the declaration as to the value of these articles, all the Customs
has to do is verify the amount. If it cannot make any verification on the goods itself because of lack of
history, then it will resort to the other methods hereinafter.
2. Transaction Value of Identical Goods Where the dutiable value cannot be determined under method one,
the dutiable value shall be the transaction value of identical goods sold for export to the Philippines and
exported at or about the same time as the goods being valued.
Identical goods - goods which are the same in all respects, including physical characteristics, quality
and reputation. Minor differences in appearances shall not preclude goods otherwise conforming to
the definition from being regarded as identical.
Example: Blue-black dress and a white-gold dress. Black and blue car from the same maker.
3. Transaction Value of Similar Goods - Where the dutiable value cannot be determined under the preceding
method, the dutiable value shall be the transaction value of similar goods sold for export to the Philippines
and exported at or about the same time as the goods being valued.
Similar goods - goods which, although not alike in all respects, have like characteristics and like
component materials which enable them to perform the same functions and to be commercially
interchangeable. The quality of the goods, their reputation and the existence of a trademark shall be
among the factors to be considered in determining whether goods are similar.
Example: Flat screen TVs of different brands.
4. Deductive Value - The dutiable value of the imported goods under this method shall be the deductive value
which shall be based on the unit price at which the imported goods or identical or similar imported goods
are sold in the Philippines, in the same condition as when imported, in the greatest aggregate quantity, at or
about the time of the importation of the goods being valued, to persons not related to the persons from
whom they buy such goods, subject to deductions.
5. Computed Value - The dutiable value under this method shall be the computed value which shall be the sum
of:
(1) The cost or the value of materials and fabrication or other processing employed in producing the
imported goods;
(2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the
same class or kind as the goods being valued which are made by producers in the country of exportation
for export to the Philippines;
(3) The freight, insurance fees and other transportation expenses for the importation of the goods;
(4) Any assist, if its value is not included under paragraph (1) hereof; and
(5) The cost of containers and packing, if their values are not included under paragraph (1) hereof.
TN: Deductive Value and Computed Value may be interchanged in terms of the order of priority.
6. Fallback Value - If the dutiable value cannot be determined under the preceding methods described above,
it shall be determined by using other reasonable means and on the basis of data available in the Philippines.
If the importer so requests, the importer shall be informed in writing of the dutiable value determined
under Method Six and the method used to determine such value.
No dutiable value shall be determined under Method Six on the basis of:
(1) The selling price in the Philippines of goods produced in the Philippines;
(2) A system that provides for the acceptance for customs purposes of the higher of two alternative
values;cralaw
(3) The price of goods in the domestic market of the country of exportation;
(4) The cost of production, other than computed values, that have been determined for identical or
similar goods in accordance with Method Five hereof;
(5) The price of goods for export to a country other than the Philippines;
(6) Minimum customs values; or
(7) Arbitrary or fictitious values.
BASES OF DUTIABLE WEIGHT

1. When articles are dutiable by the gross weight, the dutiable weight thereof shall be the weight of same,
together with the weight of all containers, packages, holders and packing, of any kind, in which said articles
are contained, held or packed at the time of importation.
2. When articles are dutiable by the legal weight thereof shall be the weight of same, together with the weight
of the immediate containers, holders and/or packing in which such articles are usually contained, held or
packed at the time of importation and/or, when imported in retail packages, at the time of their sale to the
public in usual retail quantities: Provided, That when articles are packed in single container, the weight of
the latter shall be included in the legal weight.
3. When articles are dutiable by the net weight, the dutiable weight thereof shall be only the actual weight of
the articles at the time of importation, excluding the weight of the immediate and all other containers,
holders or packing in which such articles are contained, held or packed.
Example: iPhone placed inside a box. When that phone is shipped to the Philippines, it would be
placed in a crate. That crate is included in determining the specific duty if the article is dutiable by
the gross weight. If its legal weight, you only include the iPhone box. It the article is dutiable by the
net weight, you only include the iPhone.
4. Articles affixed to cardboard, cards, paper, wood or similar common material shall be dutiable together with
the weight of such holders.
5. When a single package contains imported articles dutiable according to different weights, or to weight and
value, the common exterior receptacles shall be prorated and the different proportions thereof treated in
accordance with the provisions of this Code as to the dutiability or non-dutiability of such packing.
EFFECTIVE DATE OF RATES OF IMPORT DUTY

Imported articles shall be subject to the rate or rates of import duty existing at the time of entry, or withdrawal
from warehouse, in the Philippines, for consumption.
CONTENTS OF COMMERCIAL INVOICE.

1. The place where, the date when, and the person by whom and the person to whom the articles sold or
agreed to be sold, or if to be imported otherwise than in pursuance of a purchase, the place from which
shipped, the date when the person to whom and the person by whom they are shipped;
2. The port of entry to which the articles are destined;
3. A detailed description of the articles according to the terms of the heading or subheadings, if specifically
mentioned in this code, otherwise the description must be in sufficient detail to enable the articles to be
identified both for tariff classification and statistical purposes, indicating their correct commodity
description, in customary terms or commercial designation, including the grade or quality, numbers, marks
or symbols under which they are sold by the seller or manufacturer, together with the marks and number of
the packages in which the articles are packed;
4. The quantities in the weights and measures of the country or place form which the articles are shipped, and
in the weights and measures used in this Code;
5. The purchase price of each article in the currency of the purchase and in the unit of the quantity which the
articles were bought and sold in the place of country of exportation, if the articles are shipped in pursuance
of a purchase or an agreement to purchase;
6. If the articles are shipped otherwise than in pursuance of the purchase or an agreement to purchase, the
value of each article in the unit of quantity in which the articles are usually bought and sold, and in the
currency in which the transactions are usually made, or, in the absence of such value, the price in such
currency which the manufacturer, seller, shipper or owner would have received, or was willing to receive,
for such articles if sold in the ordinary course of trade and the usual wholesale quantities in the country of
exportation;
The article here is simply imported for possible sale or distribution at a later date. There is no buyer
yet when the article has entered the warehouse, or it will be delivered to the distributor.
7. All charges upon the articles itemized by name and amount when known to the seller or shipper; or all
charges by name (e.g., commission, insurance, freight, cases, containers, coverings and cost of packing)
included in invoice prices when the amount for such charges are unknown to the seller or shipper;
8. All discounts, rebates, drawbacks and bounties separately itemized allowed upon the exportation of the
articles, all internal and excise taxes applicable to the home market;
9. The current transaction value or price of which same, like or similar article is offered or for sale for
exportation to the Philippines, on the date the invoice is prepared or the date of exportation
CERTIFICATION OF INVOICE
Invoice required shall, at or before the shipment of the articles or as soon thereafter as conditions will permit,
be produced for certification to the consular officer of the Philippines of the consular district in which the
articles were manufactured or purchased, or from which they are shipped, as the case may be.
DECLARATION
Every invoice prescribed above shall contain a declaration signed by the purchaser, manufacturer, seller, owner
or agent setting forth that the invoice is in all respects correct and true and was made at the place whence the
articles are exported to the Philippines;
1. that it contains, if the articles were obtained by purchase or an agreement to purchase, a true and full
statement of the date when, the place where, the person from whom the same were purchased and the
purchase price and unit of quantity thereof, and of all charges thereon;
2. that no discounts, bounties or drawbacks are contained in the invoice except such as have been allowed
thereon;
3. when obtained in any other manner than by purchase or an agreement to purchase, the market value on
wholesale price thereof at the time of exportation to the Philippines in the principal market of the country
from which exported;
4. that such market value is the price in the unit of quantity at which the articles described in the invoice are
freely offered for sale to all purchasers in said market for exportation to the Philippines, and that it is the
price which the manufacturer, seller, owner or agent making the declaration would have received and was
willing to receive for such articles when sold in the ordinary course of trade in the usual wholesale
quantities, and that it included all charges thereon;
5. that the number, weight, measurement or quantity stated is correct, and that no invoice of the articles
described different from the invoice so produced has been or will be furnished to anyone.
WHEN ARE YOU SUPPOSE TO FILE YOUR IMPORT ENTRY DECLARATION?

Imported articles must be entered in the customhouse at the port of entry within thirty (30) days, which shall
not be extendible from date of discharge of the last package from the vessel or aircraft either (a) by the
importer, being holder of the bill of lading, (b) by a duly licensed customs broker acting under authority from a
holder of the bill or (c) by a person duly empowered to act as agent or attorney-in-fact for each holder:
Provided, That where the entry is filed by a party other than the importer, said importer shall himself be
required to declare under oath and under the penalties of falsification or perjury that the declarations and
statements contained in the entry are true and correct: Provided, further, That such statements under oath shall
constitute prima facie evidence of knowledge and consent of the importer of violation against applicable
provisions of this Code when the importation is found to be unlawful. (Section 1301)
This means that if you fail to file an IED within 30 days, that would constitute implied abandonment.
TN: While invoice shall accompany every importation over P500 in Export Value, Import Entry Declaration shall
be required for every importation.
SPECIAL TYPES OF DUTIES

1. Dumping Duty Special duties imposed by the Secretary of Trade and Industry, or the Secretary of
Agriculture whenever the Secretary of Finance (hereinafter called the "Secretary") has reason to believe,
that a specific kind or class of foreign article, is being imported into, or sold or is likely to be sold in the
Philippines, at a price less than its fair value, the importation and sale of which might injure, or retard the
establishment of, or is likely to injure, an industry producing like goods in the Philippines.
In computing for the dumping duty, you will look at the difference between the price as they are
sold here in the Philippines and the FMV of such article when sold in other countries.
Purpose: to protect a particular local industry.
2. Countervailing Duty - Special duties imposed by the Secretary of Trade and Industry, or the Secretary of
Agriculture, whether the article imported is agricultural or not upon prior investigation and report of the
Tariff Commission to offset any bounty, subsidy or subvention upon articles of the same class manufactured
at home or subsidies to foreign producers by their respective governments.
The countervailing duty is equal to the bounty, subsidy or subvention.
Purpose: to prevent injury to our local industry producing like goods in the Philippines.
Who will impose: the Secretary of Trade and Industry, or the Secretary of Agriculture
3. Marking Duty Special duty of five (5%) percent ad valorem imposed on articles not properly marked,
collected by the Commissioner except when such article is exported or destroyed under customs supervision
and prior to the final liquidation of the corresponding entry.
It shall be marked in any official language of the Philippines and in a conspicuous place as legibly,
indelibly and permanently as the nature of the article (or container) will permit in such manner as to
indicate to an ultimate purchaser in the Philippines the name of the country of origin of the article.
The failure or refusal of the owner or importer to mark the articles as herein required within a
period of thirty days after due notice shall constitute as an act of abandonment of said articles and
their disposition shall be governed by the provisions of this Code relative to abandonment of
imported articles.
Purpose: prevent possible deception of the consumers.
Rate: 5% percent ad valorem
Who will impose: The Commissioner of Customs
4. Discriminatory Duty Special duty, in an amount not exceeding 100% ad valorem, impose by the President
of the Philippines against goods of a foreign country which discriminates against the Philippine commerce or
against goods coming from the Philippines and shipped to such foreign country.
If the foreign country persists in its discrimination, its products may be excluded from importation.
Rate: not exceeding 100% ad valorem.
OTHER CHARGES, FEES, OR DUES PAYABLE BY CERTAIN ENTITES IN RELATION TO THEIR DEALINGS
WITH THE CUSTOMS
1. Harbor fees - the amount which the owner, agent, operator or master of a vessel has to pay for each
entrance into or departure from a port of entry in the Philippines.
2. Wharfage fees - the amount assessed against the cargo of a vessel engaged in the foreign trade, based on
the quantity, weight or measure received and/or discharged by such vessel. The owner, consignee, or agent
of either, of the article is the person liable for such charge.
3. Berthing fees - the amount assessed against a vessel for mooring or berthing at a pier, wharf, bulkhead-
wharf, river or channel marginal wharf at any port in the Philippines; or for mooring or making fast to a
vessel so berthed; or for berthing or mooring within any slip, channel, basin river or canal under the
jurisdiction of any port of the Philippines. The owner, agent, operator or master of the vessel is liable for this
charge.
4. Storage fees - the amount assessed on articles for storage in customs premises, cargo shed and warehouses
of the government. The owner, consignee or agent of either, of the articles, is liable for this charge.
5. Arrastre charges - the amount which the owner, consignee, or agent of either, of article or baggage has to
pay for the handling, receiving and custody of the imported or exported article or the baggage of the
passengers.
6. Tonnage dues - the amount paid by the owner, agent, operator or master of a vessel engaged in foreign
trade coming to the Philippines from a foreign port or going to a foreign port from the Philippines based on
the net tonnage of the vessel or weight of the articles discharged or laden.
7. Anchorage fees imposed on a vessel engaged in foreign trade which drops anchor in Philippine waters.
8. Usage fees imposed on a vessel engaged in domestic trade which drops anchor in Philippine waters.
9. Lay-up fees imposed for temporary layup of vessels engaged in domestic trade.
FLEXIBLE TARIFF
Import duties which are modified by the President upon investigation of the Tariff Commission and
recommendation of NEDA in the interest of national economy, general welfare and national security.
POWERS OF THE PRESIDENT UNDER 401(A)

1. Increase, reduce or remove existing protective rates of import duty (including any necessary change in
classification). The existing rates may be increased or decreased to any level, in one or several stages but in
no case shall the increased rate of import duty be higher than a maximum of one hundred (100) per cent ad
valorem;
To protect our economy.
2. Establish import quota or to ban imports of any commodity, as may be necessary; and
3. Impose an additional duty on all imports not exceeding ten (10%) per cent ad valorem whenever necessary.
TN: For the 1st 2 powers, it will be effective 30 days after promulgation whereas the 3rd power will be effective at
the discretion of the President.
IMPOSITION OF DUTIES
PERSONS LIABLE
1. Consignee - persons to whom the goods are consigned.
2. Consignor if the goods are consigned to order.
3. Holder of a bill of lading - duly indorsed by the consignee.
4. Underwriters of abandoned articles.
5. Salvors of articles saved from a wreck at sea, along a coast or in any area of the Philippine
LIABILITY OF THE IMPORTER FOR THE DUTY

The liability for duties, taxes, fees and other charges attaching on importation constitutes a personal debt due
from the importer to the government which can be discharged only by payment in full of all duties, taxes, fees
and other charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced
while such articles are in custody or subject to the control of the government.
Its a lien which is imposable while the imported goods are in the Customs territory prior to its
liquidation.
So long as there is no tax paid, the lien will exist.
IMPORTATIONS BY THE GOVERNMENT

All importations by the Government for its own use or that of its subordinate branches or instrumentalities, or
corporations, agencies or instrumentalities owned or controlled by the government, shall be subject to the
duties, taxes, fees and other charges provided for in this code, except those provided for in Section One
Hundred and Five of this Code.
TO BE CLARIFIED: However, upon the certification of the Head of the Department or the Political
Subdivision concerned, with the approval of the Auditor General, that the imported article is actually
being used by the Government or any of its political subdivision concerned, the amount of duties or taxes
paid can be refunded to the political subdivision who paid it.
DECLARATION
Must be made within thirty (30) days. Otherwise, it will be considered an implied abandonment.
IMPORT ENTRIES
TWO FORMS OF ENTRIES

1. Formal entry -
2. Informal entry articles of a commercial nature intended for sale, barter or hire, the dutiable value of
which is Two thousand pesos (P2,000.00) or less, land personal and household effects or articles, not in
commercial quantity, imported in passenger's baggage, mail or otherwise, for personal use, shall be
cleared on an informal entry whenever duty, tax or other charges are collectible.
BY WHOM TO BE SIGNED
The declaration shall be signed by the importer, consignee or holder of the bill, by or for whom the entry is
effected, if such person is an individual, or in case of a corporation, firm or association, by its manager, or by a
licensed customs broker duly authorized to act for either of them.
EXAMINATION, APPRAISAL AND CLASSIFICATION

There will be an appraiser who will ascertain, estimate and determine the value or price of the articles as
required by law. Appraisers shall describe all articles on the face of the entry in tariff and such terms as will
enable the Collector to pass upon the appraisal and classification of the same, which appraisal and classification
shall be subject to his approval or modification, and shall note thereon the measurements and quantities, and
any disagreement with the declaration.
The appraisal will be based on the declaration made. From such declaration, the appraiser will make his
own appraisal and he could copy everything stated in the declaration. However, if he does not agree
with the declaration, he may make a disagreement noted on the declaration made.
READJUSTMENT OF APPRAISAL, CLASSIFICATION OR RETURN

Such appraisal, classification or return as finally passed upon and approved or modified by the Collector shall not
be altered or modified in any manner, except:
1. Within one year after payment of the duties, upon statement of error in conformity with section
seventeen hundred and seven hereof, approved by the Collector.
2. Within fifteen days after such payment, upon request for reappraisal and/or reclassification addressed
to the Commissioner by the Collector, if the appraisal and/or classification is deemed to be low.
3. Upon request for reappraisal and/or reclassification, in the form of a timely protest addressed to the
Collector by the interested party if the latter should be dissatisfied with the appraisal or return.
LIQUIDATION
LIQUIDATION process where the government is making an assessment of import duties.
Every import entry declaration, after it had been affirmed by the collector of customs, will be subject to
liquidation by the COC. In the process of liquidation, the collector will determine how much is the taxes to be
paid. Thereafter, payment will be made. This will terminate the importation where the permit to withdraw will
be received.
It can either be:

1. Tentative Liquidation require some future action.
How long shall future action be made? Within 6 months from the time the tentative liquidation was made.
This can be question within 3 years from finality of the liquidation.
2. Final Liquidation may be question within the period of 3 years from the date of payment.
Exception:
a. Fraud 10 years from the discovery thereof
b. Protest or compliance audit this will suspend the running of the prescriptive period of 3 years.
REMEDIES OF THE GOVERNMENT
1. Extra-judicial
a. Tax lien
It will simply hold the release of the goods from the customs territory until taxes are paid.
If after a considerable period of time, there is still no payment of taxes, then the government may proceed to
seizure of the goods in which case, notice of seizure may be given to the taxpayer and thereafter, it may be sold
in a public auction.
Governments lien attaches the moment the importation begins.
Exception: those importations exempt of import taxes
b. Seizure and Forfeiture Proceeding

Who can conduct seizure and forfeiture:
(See sec. 2203) officials of the bureau, including collectors, assistant collectors, port patrol
officers and guards and all other officials connected with the bureau of customs; any person
especially authorized in writing by the commissioner, you can enforce seizure and even arrest.
Where can seizure power be exercise:

For ALL importations, only within the customs territory, including vessels and aircrafts.
Exception: goods which did not lawfully pass through customs territory, in which case it
can seize the goods even beyond the customs territory.
Is Warrant needed:
GR: it can exercise the power to enter any enclosure at any time without any search warrant
Exception: dwelling house warrant is necessary.
2. Judicial
(remedies of the government will be further discussed later)
(CHEVRON CASE, Q&A with Nathan. 38mins to 40.35mins)

Import entry declaration
vs.
Import Entry Revenue declaration requirement of the BIR
Under Chevron case, it was held as the true import entry declaration; it includes the VAT, etc.
REMEDIES OF THE TAXPAYER
A. REFUND
(Atty. A just mentioned the Sections and then went directly to Protest)
Grounds for refund: (Sec. 1702 to Sec. 1705, Sec. 1707)
SECTION 1702. Abatement or Refund of Duty on Missing Package. When any package or packages appearing
on the manifest or bill of lading are missing, an abatement or refund of the duty thereon and shall be made if it
is certified, under penalties of falsification or perjury, by the importer or consignee, and upon production of
proof satisfactory to the Collector that the package or packages in question have not been imported in to the
Philippines contrary to law.
SECTION 1703. Abatement or Refund for Deficiency in Contents of Packages. If, upon opening any package, a
deficiency or absence of any article or of part of the contents thereof as called for by the invoice shall be found
to exist, such deficiency shall be certified, under penalties of falsification or perjury, to the Collector by the
examiner and appraiser; and upon the production of proof satisfactory to the Collector showing that the
shortage occurred before the arrival of the article in the Philippines, the proper rebatement or refund of the
duty shall be made.
SECTION 1704. Abatement or Refund of Duties on Articles Lost or Destroyed After Arrival. A Collector may
abate or refund the amount of duties accruing or paid, and may likewise make a corresponding allowance on the
irrevocable domestic letter of credit, bank guarantee, or the entry bond or other document, upon satisfactory
proof of injury, destruction, or loss by theft, fire or other causes of any article as follows:
a. While within the limits of any port of entry prior to unlading under customs supervisions;
b. While remaining in customs custody after unlading;
c. While in transit under irrevocable domestic letter of credit, bank guarantee or bond with formal entry in
accordance with section one thousand three hundred two from the port of entry to any port in the
Philippines;
d. While released under irrevocable domestic letter of credit, bank guarantee or bond for export except in
case of loss by theft.
SECTION 1705. Abatement of Duty on Dead or Injured Animals. Where it is certified, under penalties of
falsification or perjury, and upon production of proof satisfactory to the Collector that an animal which is the
subject of importation dies or suffers injury before arrival, or while in customs custody, the duty shall be
correspondingly abated by him, provide the carcass of any dead animal remaining on board or in customs
custody be removed in the manner required by the Collector and at the expense of the importer.
SECTION 1707. Correction of Errors. Refund of Excess Payments. Manifest clerical errors made in an invoice
or entry, errors in return of weight, measure and gauge, when duly certified to, under penalties of falsification or
perjury, by the surveyor or examining official (when there are such officials at the port), and errors in the
distribution of charges on invoices not involving any question of law and certified to, under penalties of
falsification or perjury, by the examining official, may be corrected in the computation of duties, if such errors be
discovered before the payments of duties, or if discovered within one year after the final liquidation, upon
written request and notice of error from the importer, or upon statement of error certified by the Collector.
For the purpose of correcting errors specified in the next preceding paragraph the Collector is authorized to
reliquidate entries and collect additional charges, or to make refunds on statement of errors within the statutory
time limit.
SECTION 1708. Claim for Refund of Duties and Taxes and Mode of Payment. All claims for refund of duties
shall be made in writing and forwarded to the Collector to whom such duties are paid, who upon receipt of such
claim, shall verify the same by the records of his Office, and if found to be correct and in accordance with law,
shall certify the same to the Commissioner with his recommendation together with all necessary papers and
documents. Upon receipt by the Commissioner of such certified claim he shall cause the same to be paid if
found correct.
If as a result of the refund of customs duties there would necessarily result a corresponding refund of internal
revenue taxes on the same importation, the Collector shall likewise certify the same to the Commissioner who
shall cause the said taxes to be paid, refunded, or tax credited in favor of the importer, with advice to the
Commissioner of Internal Revenue.
Sec. 1708 requires that there should be a claim for refund in writing to the collector of customs.
Grounds for refund: (sec. 1701 1705 & 1707)

a. Sec 1708 manifest clerical error if discovered before payment, or, if discovered after payment within 3
years after final liquidation.
b. Sec. 1701 abatement for damage
c. Sec. 1702 missing package
d. Sec. 1703 whenever there is shortage
e. Sec. 1704 articles lost or destroyed for reason of theft, fire or other causes, provided that such loss or
injury was incurred while the article are within the limits of any port o entry prior to unloading under
customs supervision, or while remaining under customs custody after unloading, and while in transit
under bond from the port of entry to ay port of the Philippines, and while released under bond (____? )
f. When it is satisfactorily shown that an animal dies or suffers injury before arrival or even after arrival if
still within the customs custody.
- The grounds for refund are also the grounds for abatement.
ABATEMENT (under TCC) refers to the reduction or non-imposition of import duties; no
tax was imposed.
ABATEMENT (under NIRC) just foregoing with the collection of taxes; the tax was
imposed, its just that the liability was not pursued by the government.
B. PROTEST
SECTION 2308. Protest and Payment Upon Protest in Civil Matters. When a ruling or decision of the Collector
is made whereby liability for duties, taxes, fees or other charges are determined, except the fixing of fines in
seizure cases, the partly adversely affected may protest such ruling or decision by presenting to the Collector at
the time when payment of the amount claimed to be due the government is made, or within fifteen (15) days
thereafter, a written protest setting forth his objection to the ruling or decision in question, together with the
reasons therefore. No protest shall be considered unless payment of the amount due after final liquidation has
first been made and the corresponding docket fee, as provided for in Section 3301.
SECTION 2309. Protest Exclusive Remedy in Protestable Case. In all cases subject to protest, the interested
party who desires to have the action of the Collector reviewed, shall make a protest, otherwise, the action of the
Collector shall be final and conclusive against him, except as to matters collectible for manifest error in the
manner prescribed in section one thousand seven hundred and seven hereof.
SECTION 2310. Form and Scope of Protest. Every protest shall be filed in accordance with the prescribed rules
and regulations promulgated under this section and shall point out the particular decision or ruling, of the
Collector to which exception is taken or objection made, and shall indicate with reasonable precision the
particular ground or grounds upon which the protesting party bases his claim for relief.
The scope of a protest shall be limited to the subject matter of a single adjustment or other independent
transaction, but any number of issue may be raised in a protest with reference to the particular item or items
constituting the subject matter of the protest.
SECTION 2311. Samples to be Furnished by Protesting Parties. If the nature of the articles permit, importers
filing protests involving questions of fact must, upon demand, supply the Collector with samples of the articles
which are the subject matter of the protest. Such samples shall be verified by the customs official who made the
classification against which the protest are filed.
SECTION 2312. Decision or Action of Collector in Protest and Seizure Cases. When a protest in proper form is
presented in a case where protest is required, the Collector shall issue an order for hearing within fifteen (15)
days from receipt of the protest and hear the matter thus presented. Upon the termination of the hearing, the
Collector shall render a decision within thirty (30) days, and if the protest is sustained, in whole or in part, he
shall make the appropriate order, the entry reliquidated necessary.
In seizure cases, the Collector, after a hearing shall in writing make a declaration of forfeiture or fix the amount
of the fine or take such other action as may be proper.
STEPS:
1) So first, the Collector of customs determines the duties, taxes, fees and other charges that may be imposed
on the taxpayer. Next, there would be payment for which there could be a final determination.
2) The taxpayer may protest, in writing, the said determination with the Collector of Customs:
o at the time of payment; or
o within 15 days thereafter
3) In TCC, there is a requirement of payment under protest.
Atty A: So by now, you will already know that there are 2 instances under Philippine Taxation where
there could be payment under protest:
1. Tariff and Customs Code --- Section 2308
2. Real Property Tax --- when you are questioning the excessiveness or reasonableness of the
amount assessed by the local treasurer.
4) The collector will schedule a hearing 15 days from the receipt of the protest and will render a decision
within 30 days after such hearing.
5) If there is denial of the protest from the Collector, meaning the decision is adverse to the person protesting,
the form of denial must be in writing declaring a forfeiture or fixing the amount of the fine or take other
action as may be proper like filing a case.
SECTION 2313. Review by Commissioner. The person aggrieved by the decision or action of the Collector in
any matter presented upon protest or by his action in any case of seizure may, within fifteen (15) days after
notification in writing by the Collector of his action or decision, file a written notice to the Collector with a copy
furnished to the Commissioner of his intention to appeal the action or decision of the Collector to the
Commissioner. Thereupon the Collector shall forthwith transmit all the records of the proceedings to the
Commissioner, who shall approve, modify or reverse the action or decision of the Collector and take such steps
and make such orders as may be necessary to give effect to his decision: Provided, That when an appeal is filed
beyond the period herein prescribed, the same shall be deemed dismissed.
If in any seizure proceedings, the Collector renders a decision adverse to the Government, such decision shall be
automatically reviewed by the Commissioner and the records of the case elevated within five (5) days from the
promulgation of the decision of the Collector. The Commissioner shall render a decision of the automatic appeal
within thirty (30) days from receipt of the records of the case. If the Collector's decision is reversed by the
Commissioner, the decision of the Commissioner shall be final and executory. However, if the Collector's
decision is affirmed, or if within thirty (30) days from receipt of the records of the case by the Commissioner no
decision is rendered or the decision involves imported articles whose published value is Five million pesos
(P5,000,000) or more, such decision shall be deemed automatically appealed to the Secretary of Finance and the
records of the proceedings shall be elevated within five (5) days from the promulgation of the decision of the
Commissioner or of the Collector under appeal, as the case may be: Provided, further, That if the decision of the
Commissioner or of the Collector under appeal, as the case may be, is affirmed by the Secretary of Finance, or if
within thirty (30) days from receipt of the records of the proceedings by the Secretary of Finance, no decision is
rendered, the decision of the Secretary of Finance, or of the Commissioner, or of the Collector under appeal, as
the case may be, shall become final and executory.
In any seizure proceeding, the release of imported articles shall not be allowed unless and until a decision of the
Collector has been confirmed in writing by the Commissioner of Customs (as amended by R.A. 7651, June 04,
1993).
SECTION 2314. Notice of Decision of Commissioner. Notice of the decision of the Commissioner shall be given
to the party by whom the case was brought before him for review, and in seizure cases such notice shall be
effected by personal service if practicable.
6) After denial, the taxpayer may file a notice/notification with the Collector of Customs stating his intention to
appeal to the Commissioner such denial
7) Upon receipt of the Collector of such notice, the Collector shall transfer the records to the Commissioner.
- The period of appeal to the Commissioner of the Bureau of Customs should be within 15 days reckoned
from the date of the notification
8) If there is still a denial from the Commissioner, you file an appeal to the Court of Tax Appeals (in division)
within 30 days from the receipt of the decision of the Commissioner.
9) If still there is denial, you go to the CTA En Banc within 15 days.
10) If still the CTA will render an adverse decision against the taxpayer, you file with the Supreme Court within
15 days.
Atty. A: So we just completed the process if everything is denied from the Collector up to the CTA. (referring
to steps 1 to 10)
SECTION 2315. Supervisory Authority of Commissioner and Secretary of Finance in Certain Cases. If any case
involving the assessment of duties, the Collector renders a decision adverse to the Government, such decision
shall be automatically elevated to, and reviewed by, the Commissioner; and if the Collector's decision would be
affirmed by the Commissioner, such decision shall be automatically elevated to, and be finally reviewed by, the
Secretary of Finance: Provided, however, That if within thirty (30) days from receipt of the record of the case by
the Commissioner or by the Secretary of Finance, as the case may be, no decision is rendered by either of them,
the decision under review shall be final and executory: Provided, further, That any party aggrieved by either the
decision of the Commission or of the Secretary of Finance may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of a copy of such decision. For this purpose, Republic Act numbered eleven hundred and
twenty-five is hereby amended accordingly (Amended by Section 7, paragraph a (4) of Republic Act No. 9282,
(New Court of Tax Appeals Law, March 30, 2004).
Except as provided in the preceding paragraph, the supervisory authority of the Secretary of Finance over the
Bureau of Customs shall not extend to the administrative review of the ruling or decision of the Commissioner in
matters appealed to the Court of Tax Appeals.
What if the Collector of Customs favors the taxpayer?

- If the Collector makes a decision adverse to the Government, meaning it favors the taxpayer, it will be
automatically reviewed by the Commissioner of Customs and such records must be elevated to the
latter within 5 days from the date the decision of the Collector was made.
- Within 30 days from receipt of records, the Commissioner shall render a decision.
- If theres no decision made by the Commissioner within 30 days from the receipt of the records, the
decision shall becomes final and executory (Sec. 2315). Meaning, the decision is favorable to the
taxpayer.
- If there is an affirmation of the decision of the Collector of Customs by the Commissioner, there would
be an automatic review by the Secretary of Finance within 30 days from receipt of the records
- If there is no decision from the SOF within 30 days, the decision is deemed final and executory. Meaning,
the decision is an affirmation of the Collectors decision.
What if in the automatic review of the Commissioner of Customs, there is a reverse decision made by the
Commissioner? (collectors decision was reversed)
- The taxpayer will appeal to the CTA.
- If CTA denies the appeal, you go to the SC.
Lets go back, what if there was affirmation by the Commissioner of the Collectors decision, which was
adverse to the government? And the SOF reverses the decision of the Commissioner? Meaning, the decision
now is adverse to the TP.
- The TP will go to the CTA
- If CTA denies the appeal, you go to the SC.
TAKE NOTE:
From the Secretary of Finance, you go ALWAYS to the CTA in division.
If its adverse to the TP, you go to CTA.
Difference between protest and refund:
o In the filing of the protest, there is a period---30 days.
o Under refund cases, there is no statutory limitation provided that it is on the ground of
manifest clerical error.
EL GRECO vs COC DOCTRINE:

o If the COC does not render a decision within 30 days or if renders a decision adverse to the
government there is an automatic appeal to the Secretary of Finance.
REMEDIES OF TAXPAYER:
1. Refund
2. Protest
3. Abandonment
C. ABANDONMENT
Two Types of abandonment:

1. Express
a. When there is a letter or any memorandum given to the collector stating the abandonment of
the articles.
b. The effect of abandonment is that all custom duties are discharged.
c. BUT DOES NOT discharge criminal liability because the liability attaches to the person not the
goods. But this applies only when what is involved are prohibited goods or smuggled goods.
2. Implied
a. Instances of Implied Abandonment:
i. When the owner, importer, consignee or interested party after due notice, fails to file
an entry within thirty (30) days, which shall not be extendible, from the date of
discharge of the last package from the vessel or aircraft, or
ii. having filed such entry, fails to claim his importation within fifteen (15) days which
shall not likewise be extendible, from the date of posting of the notice to claim such
importation posted in the corridors of the office of the bureau of customs per
district.
iii. Failure to mark the articles within 30 days from notice
CHEVRON CASE DOCTRINE:

Relevant FACTS:
- there was a filing of an import entry declaration (IED). From the lapse of 30 days from the discharge
of the last cargo. They filed this Import Entry Revenue Declaration (IEIRD) to avail of the tax
reduction. The COC deemed this as abandonment. That is why it refused to release the goods. But
what happened is that chevron was able to get the release of the products. COC seeing this as
anomaly tried to get the goods with the proper assessment and the fines. Chevron fought of with
COC.
The SC then discussed the ff:
ENTRY:
- What is an Entry: term "entry" in customs law has a triple meaning. It means
o (1) the documents filed at the customs house;
o (2) the submission and acceptance of the documents and
o (3) the procedure of passing goods through the customs house.
- The court then interpreted what is considered as entry interpreted which was filed in the customs
house:
o The IED serves as basis for the payment of advance duties on importations whereas the
IEIRD evidences the final payment of duties and taxes.
o Clearly, the operative act that constitutes "entry" of the imported articles at the port of
entry is the filing and acceptance of the "specified entry form" together with the other
documents required by law and regulations.
o There is no dispute that the "specified entry form" refers to the IEIRD.
IMPLIED ABANDONMENT:
o Both must be filed not only the IED but also the IEIRD which is considered as entry for purposes
of tariff and customs.
- So failure to file the IEIRD within the proper period the properties are impliedly abandoned.
- As a consequence, the government now owns the goods.
- Chevron was asked to reimburse the government for the sold products, which were considered
already properties of the government.
NOTICE WAS NOT NECESSARY UNDER THE CIRCUMSTANCES OF THIS CASE

o Normally as a general rule, there is a need of notice as to arrival of the goods
o BUT here because of the usual dealings of chevron with the bureau of customs, the SC took
judicial notice of its knowledge of its procedure.
o Therefore it cannot claim that it was not duly notified for after all it knew when the vessel
arrived.
REMEDIES OF THE GOVERNMENT
1. EXTRAJUDICIAL
2. JUDICIAL
3. COMPROMISE
COMPROMISE
Who can compromise:

SECTION 2316. Authority of Commissioner to Make Compromise. Subject to the approval of the
Secretary of Finance, the Commissioner of Customs may compromise any case arising under
this Code or other laws or part of laws enforced by the Bureau of Customs involving the imposition of
fines, surcharges and forfeitures unless otherwise specified by law
What can be compromised:

Only the the imposition of fines, surcharges and forfeitures unless otherwise specified by law
Requires approval from the Secretary of Finance
Compromise of NIRC vs TCC:

Approval:
o NIRC National Evaluation Board
o TCC Secretary of Finance
Subject:
o NIRC on the tax itself
o TCC Only the the imposition of fines, surcharges and forfeitures
VALER vs OFFICE OF OMBUDSMAN:

Issue: is it necessary that the commissioner approve or its approval be secured on compromise of fines
and penalties on cases pending before the court?
Under the TCC, SECTION 2401. Supervision and Control Over Criminal and Civil Proceedings. Civil and
criminal actions and proceedings instituted in behalf of the government under the authority of
this Code or other law enforced by the Bureau shall be brought in the name of the government of the
Philippines and shall be conducted by customs officers but no civil or criminal action for the recovery of
duties or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court
without the approval of the Commissioner (as amended by R.A. 9135, April 27, 2001).
In this case, the customs officers tried to secure the compromise, which they were able to do so. But
what they were not able to secure was approval from the commissioner of customs. So this was
questioned.
Officers contention, that under 2401 they are allowed to manage the case it is only the filing, which
requires approval.
SC said that: yes TCC you can manage the case after it has been filed. But take note, when it comes to
compromise. Sec. 2316 of the TCC is governing. And when it says of compromise it ALWAYS NEEDS THE
APPROVAL OF the COC.
The SC reasoned that if we do not follow this, it would be absurd that when a COC compromises it needs
approval from SOF while when an officer compromise no approval is required.
When compromise is NOT allowed:

1. When the case has already become final and executory at the point of the collector, commissioner or
SOF or CTA or SC
2. When the goods has already been awarded to the highest bidder in sale of public auction conducted by
the BOC.
SETTLEMENT IN SEIZURE/FORFEITURE CASES:
Can you offer settlement with the BOC on seizure/forfeiture cases? YES
SECTION 2307. Settlement of Case by Payment of Fine or Redemption of Forfeited Property:

Subject to approval of the Commissioner, the district collector may, while the case is still pending,
except when there is fraud, accept the settlement of any seizure case provided that the owner,
importer, exporter, or consignee or his agent shall:
o Seizure offer to pay to the collector a fine imposed by him upon the property, or
o Forfeiture offer to pay for the domestic market value of the seized article.
The Commissioner may accept the settlement of any seizure case on appeal in the same manner. HEIcDT
AMOUNT: Upon payment of the fine as determined by the district collector which shall be in amount
not less than twenty percentum (20%) nor more than eighty percentum (80%) of the landed cost of
the seized imported article or the F.O.B. value of the seized article for export, or payment of the
domestic market value,
EFFECT: the property shall be forthwith released and all liabilities which may or might attach to the
property by virtue of the offence which was the occasion of the seizure and all liability which might have
been incurred under any cash deposit or bond given by the owner or agent in respect to such property
shall thereupon be deemed to be discharged.
NOT ALLOWED:
1. There is fraud
2. Settlement of any seizure case by payment of the fine or redemption of forfeited property shall
not be allowed in any case where the importation is absolutely prohibited or
3. where the release of the property would be contrary to law (qualified prohibited)
SEIZURE/FORFEITURE CASES:
Proof required in seizure & forfeiture Substantial Evidence
Instances when forfeiture may be had:
1. PROPERTIES NOT PROPERLY DECLARED in a travellers baggage

a. Whenever any dutiable article is found in the baggage of any person arriving in the Philippines
which is not included in the baggage declaration,
b. such article shall be seized
c. the person in whose baggage it is found may obtain release of such article by:
i. not imported contrary to any law
ii. upon payment of treble and appraised value of such article plus all duties, taxes and
other charges due
iii. failure to mention or declare such dutiable article was without fraud.
2. PROVIDED under 2530 (usually discussed):

a. GR: Any vehicle, vessel or aircraft, including cargo, which shall be:
i. used unlawfully in the importation or exportation of articles or
ii. in conveying and/or transporting contraband or smuggled articles in commercial
quantities
into or from any Philippine port or place
iii. That the vessel, or aircraft or any other craft is not used as duly authorized common
carrier and as such a carrier it is not chartered or leased. Therefore it cannot be
forfeited if it is a common carrier.
EXCEPTION: BOC can seize this goods, it must establish that even if you are
common carrier you are chartered or leased by way of DEMISE or
BAREBOAT OR
Common carrier, which has knowledge or participation in the unlawful
exportation.
PRIMA FACIE KNOWLEDGE OF UNLAWFUL IMPORTATION:
o Even if you have no knowledge or participation in such unlawful exportation, there is a presumption of
knowledge if:
o SECTION 2531. Properties Not Subject to Forfeiture in the Absence of Prima Facie Evidence. The
forfeiture of the vehicle, vessel, or aircraft shall not be effected if it is established that the owner thereof
or his agent in charge of the means of conveyance used as aforesaid has no knowledge of or
participation in the unlawful act: Provided, however, That a prima faciepresumption shall exist against
the vessel, vehicle or aircraft under any of the following circumstances:
1) If the conveyance has been used for smuggling at least twice before;
Take note that it is at least twice before, therefore th moment you are apprehended it is
your third commission of such act
2) If the owner is not in the business for which the conveyance is generally used; and
3) If the owner is not financially in a position to own such conveyance.
A VESSEL OR AIRCRAFT MAYBE FORFEITED OR SEIZED EVEN IF NOT ACTUAL VESSEL USED FOR IMPORTATION
OR EXPORTATION:
o it can be seized when it was used to FACILITATE the importation

o IN A CASE, there was a plane, which merely carried the lights necessary for the landing of the plane,
which carried the unlawful imported goods. Here the plane was forfeited because it facilitated the
importation.
o Therefore even if not USED as the carrier but FACILITATED the unlawful importation or exportation it
may still be seized.
IT IS NOT NECESSARY THAT THE AIRCRAFT CAME FROM A FOREIGN COUNTRY AS LONG AS IT IS CARRYING
UNLAWFUL or PROHIBITED GOODS or engage in unlawful importation or exportation.
WHEN CAN FORFEITURE BE ESTABLISHED:
o the forfeiture shall be effected only when and while:

1) the article is in the custody or within the jurisdiction of the customs authorities or in the hands
or subject to the control of the importer, exporter, original owner, consignee, agent of other
person effecting the importation, entry or
2) exportation in question, or in the hands or subject to the control of some persons who shall
receive, conceal, buy, sell or transport the same or aid in any such acts, with knowledge that
the article was imported, or was the subject of an attempt at importation or exportation,
contrary to law.
WHO HAS JURISDICTION OVER FORFEITURE & SEIZURE PROCEEDINGS:

o Collector of Customs
TRIAL COURT HAS NOT JURISDICTION OVER SEIZURE or FORFEITURE PROCEDURE:

o No.
o JAO vs CA DOCTRINE:
o There is no question that Regional Trial Courts are devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of
Customs and to enjoin or otherwise interfere with these proceedings.
o The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive
jurisdiction to hear and determine all questions touching on the seizure and forfeiture of
dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such
matters even through petitions of certiorari, prohibition or mandamus.
o THE REASON FOR THIS IS: The rule that Regional Trial Courts have no review powers over such
proceedings is anchored upon the policy of placing no unnecessary hindrance on the
government's drive, not only to prevent smuggling and other frauds upon Customs, but more
importantly, to render effective and efficient the collection of import and export duties due
the State, which enables the government to carry out the functions it has been instituted to
perform.
o As a GR: No case can be filed in the trial court for seeking recovery of good seized or forfeited even a
case for replevin.
o EXCEPTION: TENORIO VS CA DOCTRINE: the trial court may take cognizance when the articles
seized was on the BASIS of a SEARCH WARRANT issued by a TRIAL COURT.
o However, the exclusive original jurisdiction of the Collector on the said goods pertains only to
the goods seized pursuant to the authority under the Tariff and Customs Code. Goods seized on
the basis of a search warrant issued by the court are in custodia legis, subject to the control and
disposition of the court that issued the search warrant.
o A judge who has taken cognizance over seizure and forfeiture proceedings on dutiable articles
who may be found guilty of grave misconduct will merit dismissal form service. Therefore a
judge must not be dumb to take cognizance of seizure and forfeiture cases.
NOTIC OF SEIZURE/FORFEITURE:
o This is required.
o How given:
o Known written notice should be given to the owner or his agent with the opportunity to be
heard in reference to such delinquency.
o Unknown posted for 15 days in the public corridor of the customs house.
REMEDY FOR SEIZURE/FORFEITURE:
o The same as procedure in Protest Cases.
REFUND CASES PRESCRIPTIVE PERIOD:

o No prescriptive period for filing a judicial claim for refund or tax credit.
o Upon filing a written claim there is also no period for the collector to answer such claim. And mere
failure to file a respond will not warrant filling a case in the courts.
o NESTLE CASE vs CA DOCTRINE:
o Caution of the use of this case. This case is unique in itself. SC was very generous in this case
maybe because it involved milk. The court ruled in favor of Nestle. Because regardless of the
doctrine of imprescriptible of action, the court by reason of solutio indebti ruled in favor of
nestle.
o The court here in a way cautioned the collector of customs and remind them that it is not upon
them whether to wait for a long time to decide a refund case because it is still responsibility of
the government to pay to the taxpayer what is due to them in the same way as they are so
aggressive in collecting taxes.
o OPINION BY THE BOOK OF REKALDE states that the solutio indebiti argument should be raised
only in non protest able cases meaning you do not question an assessment of the government
like when custom duties are passed to taxpayer from exempt taxpayers like PEZA.
o BUT we should stick to Nestle case.
EFFECT OF LOSS ARTICLES DURING THE PENDENCY OF THE CASE:

o RP vs UMINEX DOCTRINE:
o Here the SC, the loss of such good makes the commissioner of customs liable. CA held that the
BOC Commissioner was liable for the value of the subject shipment as the same was lost while in
its custody.
o Here in this case BOC argued that there is still a need for appropriation before there can be
payment of the loss goods. The SC answered this by saying that it warrants the exclusion of their
state immunity because of their gross negligence in the safe keeping of the said articles.
o The action was changed from a specific performance into a monetary judgment, which affirmed,
by the SC.
o AGFA vs CTA CASE:

o The payment shall be taken from the sale or sales of the goods or properties which were
seized or forfeited by the Bureau of Customs in other cases.
PRINCILPLES OF RULES OF CRIMINAL PROCEDURE WITH REGARD TO SMUGGLING:

o Payment of the tax due after the apprehension is NOT a valid defense
o it is not necessary to present the seized goods to prove the corpus delicti of the crime
o it is enough that a single witness uncorroborated testimony if it is credible is suffice to convict a
smuggler.
ASAALI vs COC DOCTRINE:

o An exemption to the hot pursuit case.
o The 5 sailing vessels were seized or intercepted while on the high seas heading towards tawi2x.
o All are of Philippine registry owned and manned by citizens of Sulu which did not have permit to import
goods.
o Questioned the jurisdiction because the vessel were at the high seas.
o TCC: The SC here used the DOCTRINE OF PRE-EMPTION; being that the vessels were of Philippine
registry they believed that the vessels were heading to the PHILIPPINES. This further supported by the
fact that they were from borneo and when intercepted was heading to tawi2x. so there was really
intention to got to the Philippines and unload it there.
o It has been established that the five vessels came from Sandakan, British North Borneo, a
foreign port, and when intercepted, all of them were heading towards Tawi- tawi, a domestic
port within the Sulu sea.
o Laden with foreign manufactured cigarettes, they did not possess the import license required by
the Republic Act No. 426, nor did they carry a permit from the Commissioner of Customs to
engage in importation into any port in the Sulu sea.
o Their course announced loudly their intention not merely to skirt along the territorial boundary
of the Philippines but to come within our limits and land somewhere in Tawi-tawi towards which
their prows were pointed.
o As a matter of fact, they were about to cross our aquatic boundary but for the intervention of a
customs patrol which, from all appearances, was more than eager to accomplish its mission."
o Thus: "To entertain even for a moment the thought that these vessels were probably not bound
for a Philippine port would be too much a concession even for a simpleton or a perennial
optimist. It is quite irrational for Filipino sailors manning five Philippines vessels to sneak out of
the Philippines and go to British North Borneo, and come a long way back laden with highly
taxable goods only to turn about upon reaching the brink of our territorial waters and head for
another foreign port."
o CRIMINAL LAW:
o It is unquestioned that all vessels seized are of Philippine registry.
o The Revised Penal Code leaves no doubt as to its applicability and enforceability not only within
the Philippines, its interior waters and maritime zone, but also outside of its jurisdiction against
those committing offense while on a Philippine ship
o The principle of law that sustains the validity of such a provision equally supplies a firm
foundation for the seizure of the five sailing vessels found thereafter to have violated the
applicable provisions of the Revised Administrative Code.
-end-
SOCIETAS SPECTRA LEGIS AND FRIENDS

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Taxation Law 2

Updated as of: AY: 2014 - 2015

Societas Spectra Legis

ACQUISITIONS AND TRANSMISSIONS NOT SUBJECT TO ESTATE TAX .................................................................................................................................. 15

FORMULA ESTATE TAX ............................................................................................................................................................................................................. 17

FILING OF THE ESTATE TAX RETURN ....................................................................................................................................................................................... 26

DONORS TAX ............................................................................................................................................................... 32

FORMULA OF DONORS TAX .................................................................................................................................................................................................... 32

ELEMENTS FOR THERE TO BE A TAXABLE DONATION: (AFRAID-C) ...................................................................................................................................... 34

VALUE ADDED TAX ...................................................................................................................................................... 37

ZERO RATED TRANSACTIONS OF SALE OF GOODS: ................................................................................................................................................................ 40

TRANSACTIONS DEEMED SALE ................................................................................................................................................................................................ 46

OUTPUT & INPUT TAX: ............................................................................................................................................................................................................. 63

RULE ON REFUND OR CREDIT OF EXCESS INPUT VAT ............................................................................................................................................................ 66

DOCUMENTARY STAMP TAX ....................................................................................................................................... 84

THE BUREAU OF INTERNAL REVENUE .......................................................................................................................... 95

LEVY ......................................................................................................................................................................................................................................... 106

STATUTE OF LIMITATIONS FOR TAX REMEDIES ................................................................................................................................................................... 111

ADDITIONS TO THE TAX DUE (SEC. 247-252, NIRC) ............................................................................................................................................................. 113

COURT OF TAX APPEALS .............................................................................................................................................116

JURISDICTION OF THE CTA ..................................................................................................................................................................................................... 116

NO INJUNCTION RULE IN TAX COLLECTION.......................................................................................................................................................................... 120

QUORUM ................................................................................................................................................................................................................................ 122

LOCAL TAX ..................................................................................................................................................................123

LOCAL GOVERNMENT TAXATION................................................................................................................................127

COMMUNITY TAX CERTIFICATE: .................................................................................................................................136

EXEMPT FROM COMMUNITY TAX:........................................................................................................................................................................................ 137

CIVIL REMEDIES FOR COLLECTION OF REVENUES:............................................................................................................................................................... 140

CIVIL REMEDIES FOR COLLECTION OF LGT: .......................................................................................................................................................................... 140

QUESTIONING THE TAX ORDINANCE: ................................................................................................................................................................................... 142

REAL PROPERTY TAX ...................................................................................................................................................145

COLLECTION OF REAL PROPERTY TAX ................................................................................................................................................................................... 161

REMEDY OF COLLECTION ....................................................................................................................................................................................................... 162

REMEDY OF THE GOVERNMENT: .......................................................................................................................................................................................... 163

SPECIAL PROVISIONS .............................................................................................................................................................................................................. 165

TARRIFF AND CUSTOMS .............................................................................................................................................167

IMPOSITION OF TAX ............................................................................................................................................................................................................... 172

SPECIAL TYPES OF DUTIES ...................................................................................................................................................................................................... 181

REMEDIES OF THE GOVERNMENT......................................................................................................................................................................................... 191

SETTLEMENT IN SEIZURE/FORFEITURE CASES: .................................................................................................................................................................... 192

RATE OF ESTATE TAX: Exempt to 20%

PURPOSES OF ESTATE TAX

THEORIES WHICH SUPPORTS THE ESTATE TAX

CLASSIFICATIONS OF A TAXPAYER FOR PURPOSES OF ESTATE TAX

WHEN DO YOU DETERMINE THAT AN INDIVIDUAL IS A RESIDENT CITIZEN

1) You have to qualify as a Filipino citizen under the Constitution:

HOW DO YOU BECOME A NON-RESIDENT CITIZEN

RECIPROCITY RULE AS TO INTANGIBLE PERSONAL PROPERTY OF NON-RESIDENT ALIEN

INTANGIBLE PERSONAL PROPERTIES THAT HAVE SITUS IN THE PHILIPPINES:

1. Franchises, patents, copyrights and royalties exercised in the Philippines.

PROPERTIES COVERED BY GROSS ESTATE, IN GENERAL

COMPOSITION OF THE GROSS ESTATE

2. TRANSFERS IN CONTEMPLATION OF DEATH

CIRCUMSTANCES TAKEN INTO ACCOUNT INCLUDE:

TRANSFERS WITH RETENTION

4. PROPERTY PASSING UNDER GENERAL POWER OF APPOINTMENT

5. PROCEEDS OF LIFE INSURANCE

7. TRANSFERS FOR INSUFFICIENT CONSIDERATION

8. CAPITAL OF THE SURVIVING SPOUSE

9. REPUBLIC ACT No. 4917

ACQUISITIONS AND TRANSMISSIONS NOT SUBJECT TO ESTATE TAX

1. MERGER OR USUFRUCT IN THE OWNER OF THE NAKED TITLE

2. TRANSMISSION BY THE FIDUCIARY HEIR OR LEGATEES TO THE FIDEICOMISSARY