ADMU Taxation Law 2006

ATENEO CENTRAL BAR OPERATIONS 2006 Taxation SUMMER REVIEWER --page 1 of 159
PART I GENERAL PRINCIPLES TAXATION power inherent in every sovereign State to impose a charge or burden upon persons, properties, or rights to raise revenues for the use and support of the government to enable it to discharge its appropriate functions Constitutional Limitations A. Direct 1) non-imprisonment for non-payment of poll tax 2) must be uniform and equitable 3) Congress shall evolve a progressive system of taxation 4) All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments 5) Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries and all lands, buildings and improvements ACTUALLY, DIRECTLY and EXCLUSIVELY USED for charitable, religious and educational purposes shall be exempt from taxation 6) delegated authority of President to impose tariff rates, import and export quotas, tonnage and wharfage dues (a) delegated by Congress (b) through a law (c) subject to Congressional limits and restrictions (d) within the framework of national development program
7) Law granting tax exemption shall be passed with concurrence of Congress - majority of all members (voting separately) 8) No use of public money or property for religious purposes except if priest is assigned to armed forces, penal institutions, government orphanage or leprosarium 9) Special purpose - special fund for said purpose, balance if any to general funds 10) Veto power of the President - revenue/tariff bill 11) Power of review of the SC 12) Power of Local Government to create their own sources and levy taxes, fees, charges 13) Just share of local government in national revenue which shall be automatically released. 14) Tax exemption of all revenues and assets of (a) non-stock, non-profit educational institutions (b) used ACTUALLY, DIRECTLY AND EXCLUSIVELY for educational purposes 15) Tax exemption of all revenues and assets of (a) proprietary or cooperative educational institutions (b) subject to limitations provided by law 16) Tax exemption of grants, endowments, donations or contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY for educational purposes B. Indirect (DEN PR PL) 1) Due process of law 2) Equal protection of laws 3) Non-impairment of contracts
Adviser: Atty. Serafin U. Salvador Jr.; Heads: Bunny Quiroz and Adan Delamide; Understudies: Julie Domino and Ivan Enriquez
ATENEO CENTRAL BAR OPERATIONS 2006 Taxation SUMMER REVIEWER -- page 2 of 163
4) Freedom of the Press 5) Religious freedom 6) Presidential power to grant reprieves, commutations
and pardons, and remit fines and forfeitures after conviction by final judgment 7) Law-making process (a) Bill only one subject expressed in the title (b) three readings on three separate days (c) printed copies in final form distributed three days before passage Classification of Taxes A. As to subject matter of object 1) personal, poll, capitation tax (a) fixed amount (b) individuals residing within specified territory (c) without regard to their property, occupation or business Ex. Community Tax (Cedula) 2) property tax (a) imposed on property, real or personal (b) in proportion to its value or other reasonable method of apportionment Ex. Real estate tax 3) excise, privilege tax - (different from the excise tax in Taxation II) (a) imposed upon performance of an act, the enjoyment of a privilege or the engaging in an occupation, profession or business
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Ex. Income tax, VAT, estate tax, donors tax B. As to who bears the burden Direct the tax is imposed on the person who also bears the burden thereof Ex. Income tax, community tax, estate tax Indirect imposed on the taxpayer who shifts the burden of the tax to another Ex. VAT, specific tax, percentage tax, customs duties C. As to determination of amount Specific tax imposed and based on a physical unit of measurement, as by head, number, weight, length or volume Ex. Tax on distilled spirits, fermented liquors, cigars Ad Valorem - tax of a fixed proportion of the value of property with respect to which the tax is assessed Ex. Real estate tax, excise tax on cars, non-essential goods D. As to purpose General, fiscal or revenue - imposed for the general purpose of supporting the government Ex. Income tax, percentage tax Special or regulatory - imposed for a special purpose, to achieve some social or economic objectives Ex. Protective tariffs or customs duties on imported goods intended to protect local industries E. As to authority imposing the tax National - imposed by the national government Ex. National internal revenue taxes, custom duties Municipal or local - imposed by the municipal corporations or local governments
Adviser: Atty. Serafin U. Salvador Jr; Heads: Bunny Quiroz and Adan Delamide; Understudies: Julie Domino and Ivan Enriquez
Ex. Real estate tax, occupation tax F. As to graduation of rate (Three systems of taxation) 1) Proportional - based on a fixed percentage of the amount of the property, income or other basis to be taxed Ex. Real estate tax, VAT, percentage tax 2) Progressive or graduated - tax rate increases as the tax base or bracket increases Ex. Income tax, estate tax, donors tax 3) Regressive - tax rate decreases as the tax base increases 4) Degressive - increase of rate is not proportionate to the increase of tax base
Transfer of property rights
Taxes paid form part of the public funds
Allows merely the restraint on the exercise of property rights
Tax distinguished from Power of Eminent Domain Purpose TAX Raise revenue EMINENT DOMAIN The taking of property for public use Just compensation is given the owner of the expropriated property Only particular property is comprehended
Situs of Taxation - the place of taxation, the country

that has the power to levy and collect the tax. Tax distinguished from Police Power Purpose Amount of exaction TAX Raise revenue no limit POLICE POWER Exercise to promote public welfare through regulation Limited to the cost of regulation, issuance of license, or surveillance This limitation does not apply
Compensation Payment of taxes accrue to the general benefit of the citizens of the taxing State Persons Applies to all affected persons, property and excises that may be subject thereto Tax distinguished from license fee Source Purpose Amount TAX Exercise of Taxing power Raise revenue no limit
Superiority Recognizes the of obligations contracts imposed by contracts
LICENSE FEE Emanate from the police power of the State Regulation only necessary to carry out regulation
distinction lies in the primary purpose, if it is to regulate and the excess of the amount collected from the cost to carry out the regulation is minimal and incidental, it is still a license fee distinction is important since limitations and exemptions apply only to one and not to the other
Tax distinguished from customs duty Coverage Object TAX More comprehensive than customs duty Persons, prop, etc CUSTOMS DUTY kind of tax goods imported or exported
Tax distinguished from special assessment TAX persons, properties, etc. regardless of public improvement Support of government Regular exaction Necessity SPECIAL ASSESSMENT Only on land Public improvement that benefits the land Contribution to cost of public improvement Exceptional as to time and locality Benefits obtained
Imposed on Why imposed Purpose When imposed Basis
Doctrine of Equitable Recoupment 1) refund of a tax illegally or erroneously collected or overpaid by a taxpayer 2) such tax refund is barred by prescription 3) tax presently being assessed against a taxpayer 4) may be recouped or set-off against the tax barred by prescription not allowed in Philippines, reason - LIFE BLOOD THEORY BIR Ruling #016-2003 The City Government of Manila, entitled by law to a proportionate percentage share from the 25% Franchise Taxes paid by the Manila Jockey Club, Inc. on its gross earnings generated from horse races. However, it has not been paid its corresponding share in such taxes for the reason that the National Treasury has failed to release said funds. For this reason, the City decided to compensate its liabilities to the said agency with its share in the franchise taxes and refused to remit taxes that it withheld.
Tax distinguished from toll TAX Demand of sovereignty support of government no limit depends on need of the government TOLL Demand of ownership Collection for the use of property Fair return of the cost of the property or improvement
Kind of demand Purpose Amount
Issue: WON the procedure adopted by the City of Manila is allowed No. There is no legal basis to authorize the City Government of Manila not to remit the withholding taxes collected by it and to fully apply the same to the extent possible to the City Governments corresponding certified revenue allotment share. Taxes can not be the subject of set-off and compensation. For the City Government to insist on its intended course of action would violate certain provisions of the Tax Code of 1997. GENERAL RULE: Taxes cannot be the subject compensation or set-off * A person cannot refuse to pay a tax on the ground that government owes him an amount equal to or greater than tax being collected. The collection of tax cannot await results of a lawsuit against the government. of the the the
3) Both claims are certain and liquidated. 4) Tax overpayment (BIRs obligation to refund or set-off arises from time tax was paid) Concept of Double Taxation Kinds of Double Taxation A. DIRECT taxing a person, property or right twice for the same purpose by the same taxing authority within the same jurisdiction or taxing district within the same taxable period and they must be of the same kind or character of tax B. INDIRECT Allowed if the taxes are of different nature or character, imposed by different taxing authority C. DOMESTIC This arises when the taxes are imposed by the local or national government (within the same state) D. INTERNATIONAL Refers to the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods No constitutional prohibition on double taxation. However, where there is direct duplicate taxation then there may be violation of the constitutional precepts of equal protection and uniformity in taxation.
Reasons: a) lifeblood theory b) taxes are not contractual obligation (absence of consent of taxpayer) c) taxpayer and government are not mutual debtors and creditors of each other Exceptions: 1) Both claims already became overdue and demandable as well as fully liquidated. 2) When government and taxpayer are in their own right reciprocal debtors and creditors of each other and both debts are due and demandable.
Tax Treaty as a Mode of Eliminating Double Taxation:
1) EXEMPTION METHOD the income or capital which is

taxable in the state of source or situs is exempted in the state of residence, although in some instances it may taken into account in determining the rate of tax applicable to the tax payers remaining income or capital 2) CREDIT METHOD the tax paid in the state of source is credited against the tax levied in the state of residence Power to Tax Involves Power to Destroy [Chief Justice Marshall, McCullough v. Maryland, 4 L.Ed. 579 (1819)] The imposition of a valid tax could not be judicially restrained merely because it would prejudice a taxpayers property. As long as the power to tax does not violate any constitutional or statutory provisions, said power can be a power to destroy. But for all its plenitude, the power to tax is not unconfined as there are restrictions. Adversely effecting as it does property rights, both the due process and equal protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the dictum that the power to tax involves the power to destroy. The web or unreality spun from Justice Marshalls famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: The power to tax is not the power to destroy while this Court sits. So it is in the Philippines. [Reyes v. Almanzor (1991), citing Sison v. Ancheta (1984); Obillos v. CIR (1985)].
Tax Avoidance a legal means used by the taxpayer to reduce taxes Tax Evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes CIR vs. The Estate of Benigno Toda, GR No. 147188, Sept. 14, 2004 Facts: This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax evasion that would justify an assessment of deficiency income tax. CIC authorized Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90M. Toda then purportedly sold the property for P100 M to Rafael Altonaga, who, in turn, sold the same property on the same day to RMI for P200M. These 2 transactions were evidenced by Deeds of Absolute Sale. For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10M. CIC filed its corporate annual ITR for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P75,728.021. Toda sold all his shares. He died 3 yrs. later. The BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79,099,999.22, representing the tax, surcharge, & interest on the P100M gain from the sale by Altonaga to RMI. Upon reconsideration, the CIR sent the deficiency
assessment to the Estate of Benigno P. Toda, Jr., which filed a protest. The Commissioner dismissed the protest, stating that a fraudulent scheme was deliberately perpetuated by the CIC by covering up the additional gain of P100M, which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%. On appeal to the CTA, the Commissioner argued that the two transactions actually constituted a single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI. The additional gain of P100 million (the difference between the second simulated sale for P200 million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC. The income tax return filed by CIC for 1989 with intent to evade payment of the tax was thus false or fraudulent. CTA decided against the Commissioner and held that it failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Issue: Is this a case of tax evasion or tax avoidance? Held: Tax evasion! Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. It is significant to note that 4 months prior to the purported sale of the Cibeles property by CIC to Altonaga, CIC received P40M from RMI, and not from Altonaga. That P40M was debited by RMI and reflected in its trial balance as "other inv. Cibeles Bldg." Also, 2 mos. later, another P40M was debited and reflected in RMIs trial balance as "other inv. Cibeles Bldg." This would show that the real buyer of the properties was RMI, and not the intermediary Altonaga. Respondent Estate, however, claims there was a "change of structure" of the proceeds of sale. It said: But isnt this precisely the definition of tax planning? Change the structure of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the Tax Code exists, allowing tax free transfers of property for stock, changing the structure of the property and the tax to be paid. As long as it is done legally, changing the structure of a transaction to achieve a lower tax is not against the law. It is absolutely allowed. Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely we cannot be faulted for wanting to reduce the tax from 35% to 5%.
The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another." Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a
transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress. To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI. Note: At the time of this case, there was not yet any capital gains tax on the sale of real property for corporations, only for individuals. Any gain on such sale was subjected to income tax for corporations. Nature of Tax Amnesty 1) general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law 2) partakes of an absolute forgiveness or waiver of the Government of its right to collect 3) to give tax evaders, who wish to relent & are willing to reform a chance to do so
Rules on Tax Amnesty 1) Tax amnesty (a) like tax exemption, never favored nor presumed (b) construed strictly against the taxpayer (must show complete compliance with the law) 2) Government not estopped from questioning the tax liability even if amnesty tax payments were already received Reason: Erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute. The government is never estopped by mistakes or errors of its agents. Basis: Lifeblood Theory 3) Defense of Tax amnesty, like insanity, is a personal defense. Reason: Relates to the circumstances of a particular accused and not the character of the acts charged in the information Taxation of Income Based on Source Resident Citizen Non resident Citizen Citizens working abroad All Aliens (resident or not) Domestic Corporations Foreign Corporations All sources Philippine Sources Philippine Sources Philippine Sources All sources Philippine Sources only only only only
less : Personal Exemption premium payments on health and/or insurance amounting to P2,400 per year equals: Taxable income
hospital
2) Taxpayer doing business, whether individual or corporation (domestic or FC doing business) Gross Revenue/Sales less: Cost of Sales equals: Gross Income less : Allowable Deductions equals: Taxable Income for individuals, an additional deduction for personal exemptions is allowed Sources of Income ITEM Interest Compensation for personal services Rent and royalty Gain from sale of real property Gain from sale of personal property Gain from sale of shares of stock of domestic corporation Dividend income SOURCE Residence of the debtor Place of performance Location of property Location of property Place of sale Philippine source (a) From a domestic corp. - Philippine source
Computation of Taxable Income 1) Taxpayer earning purely compensatory income Gross Compensation
(b) From a foreign corp. - without the Philippines if less than 50% of the paying corp.s worldwide income is derived from Phil. sources Allocation of Unallocated Deductions (partly Phil. partly foreign) GI, Philippines GI, Worldwide GI, Outside Phil GI, Worldwide x x Unallocated = Phil deductions deductions Unallocated = Foreign deductions deductions
PART II THE NATIONAL INTERNAL REVENUE CODE OF 1997 TITLE I. ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE (BIR) Powers and Duties of the BIR (ACEEGA) 1) Assessment and Collection of national internal revenue: (a) taxes (b) fees (c) charges 2) Enforcement of all (a) forfeitures (b) fines and (c) penalties connected therewith 3) Execution of all judgments decided in BIRs favor by (a) the Court of Tax Appeals (CTA) and (b) the ordinary courts 4) Give effect to and Administer the supervisory and police powers conferred to it by NIRC or by other laws. (Sec. 2) Officials of the BIR 1) one chief - Commissioner of Internal Revenue (Commissioner) 2) four assistant chiefs - Deputy Commissioners (Sec. 3) *E.O. 430 (July 28, 1997) designates each of the 4 Deputy Commissioners to head the following functional groups: (a) Operations group (b) Legal Enforcement Group
Income from sale of personal property derived from sources partly within and partly without the Phils. Gain from sale of personal property produced in whole or in part in one country and sold in another country, where one of the countries is the Philippines is income derived from sources partly within and partly outside the Philippines. Gains from the purchase of personal property within and sold without the Philippines or the purchase of personal property without and its sale within the Philippines shall be treated as derived entirely from sources within the country in which it was sold.
(c) (d)
Information Systems Group Resource Management Group
Powers of the Commissioner A. Power to interpret tax law and decide tax cases (Sec 4) 1) Interpret provisions of NIRC and other tax laws subject to review by the Secretary of Finance 2) Decide: (a) disputed assessments (b) refunds of internal revenue taxes, fees and charges (c) penalties imposed in relation thereto (d) other matters arising from NIRC or other laws or portions thereof administered by the BIR subject to the exclusive appellate jurisdiction of the CTA B. Power to obtain information, summon, examine and take testimony of persons (Sec. 5) 1) For the Commissioner to ascertain: (a) correctness of any return or in making a return where none has been made (b) liability of any person for any internal revenue tax or in correcting such liability (c) tax compliance The Commissioner is authorized: 2) to Examine any relevant Book, paper, record or other data 3) to Obtain any Information (costs, volume of production, receipts, sales, gross income, etc), on a regular basis from:
person other than the person under investigation or (b) any office or officer of the national/local government, government agencies and instrumentalities (Bangko Sentral, GOCCs) 4) To Summon (a) the person liable for tax or required to file a return or (b) any officer or employee of such person or (c) any person having in his possession/custody/ care 1. the books of accounts 2. accounting records of entries relating to the business of the person liable for tax or any other person 5) to Produce such books, papers, records and other data and to give testimony 6) to take the Testimony of the person concerned, under oath as may be relevant to the inquiry 7) To cause revenue officers and employees to make a Canvass of any revenue district or region nothing in Section 5 shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for under Sec. 6 (F) of the Code (authority to inquire into bank deposits).
(a) any
C. Power to make assessments, prescribe additional requirements for tax administration and enforcement (Sec. 6) 1) Examination of returns and determination of tax due (a) After a return has been filed the Commissioner or
his representative may authorize i. the Examination of any taxpayer; and ii. the Assessment of the correct amount of tax; (b) Failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer; Any tax or deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or his representative. Any return, statement or declaration filed in any authorized office shall not be withdrawn; but within THREE YEARS from date of filing, the same may be modified, changed or amended; provided that no notice for audit or investigation of such return, has in the meantime, been actually served upon the taxpayer. 2) Failure to submit required returns and other documents If a person (a) fails to file a required return or report at the time prescribed or (b) Willfully or otherwise files a false or fraudulent return, The Commissioner shall Make or Amend the return from (a) his own knowledge or (b) from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes
3) Inventory-taking, Surveillance, Presumptive Gross Sales (a) Commissioner may, at any time during the taxable year 1. order the Inventory taking of goods of any taxpayer; or 2. may place the business operations of any person (natural/juridical) under Observation or Surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for tax purposes. The findings may be used as basis for assessing the taxes and shall be deemed prima facie correct. (b) Commissioner may prescribe a Minimum amount of gross receipts, sales and taxable base (taking into account the sales and income of other persons engaged in similar business) : 1. When a person has failed to issue receipts as required by Sec. 113 (Invoice requirements for VAT-registered persons) and Sec. 237 (Issuance of Receipts or Commercial Invoices); or 2. When the books of accounts or records do not correctly reflect the declarations made or required to be made in a return, such minimum amount shall be prima facie correct 4) Terminate taxable period Commissioner shall declare the tax period of a
taxpayer terminated and send notice to the taxpayer of such decision with a request for immediate payment of the tax, when it has come to the knowledge of the Commissioner: (RIRHO) (a) that a taxpayer is Retiring from business subject to tax or (b) is Intending to leave the Philippines or (c) to Remove his property therefrom or (d) to Hide or conceal his property or (e) is performing any act tending to Obstruct the proceedings for the collection of tax 5) Prescribe Real Property Values The Commissioner is authorized to: (a) divide the Philippines into different zones or areas and (b) determine the fair market value of real properties located in each zone or area For tax purposes, the value of the property shall be whichever is higher of: (a) Fair market value as determined by the Commissioner; or (b) Fair market value as shown in the schedule of values of the provincial and city assessors.
(b) a taxpayer who has filed an application to

compromise payment of tax liability by reason of financial incapacity The taxpayers application for compromise shall not be considered unless he waives in writing his privilege under RA 1405 and other general or special laws. Such waiver shall authorize the Commissioner to inquire into his bank deposits. 7) Authority to Register tax agents (a) The Commissioner shall Accredit and Register, individuals and general professional partnerships and their rep. who prepare and file tax returns and other papers or who appear before the BIR (b) The Commissioner shall create national and regional accreditation boards Those who are denied accreditation may appeal the same to the Sec. of Finance who shall rule on the appeal within 60 days from receipt of such appeal. Failure of the Sec. of Finance to rule on the appeal within the said period shall be deemed as approval for accreditation. 8) Authority to Prescribe Additional RequirementsThe Commissioner may prescribe the manner of compliance with any documentary or procedural requirement for the submission or preparation of financial statements accompanying tax returns. D. Authority to delegate power (Sec. 7)
6) Authority to Inquire into Bank Deposit Notwithstanding R.A. 1405 (Bank Secrecy Law) the Commissioner is authorized to inquire into the Bank deposits of: (a) a decedent to determine his gross estate
The Commissioner may delegate the powers vested in him to subordinate officials with rank equivalent to Division Chief or higher, subject to limitations/restrictions imposed under the rules and regulations EXCEPT, (the following powers shall NOT be delegated): (RIR CoA A) 1) power to Recommend the promulgation of rules and regulations by the Sec. of Finance 2) power to Issue rulings of first impression or to Reverse, revoke, modify any existing rule of the BIR 3) power to Compromise or Abate any tax liability EXCEPT, the regional evaluation board may compromise: (a) assessments issued by regional offices involving deficiency taxes of P500,000 or less; and (b) minor criminal violations as may be determined by the rules Regional Evaluation Board is composed of: i. Regional Director as Chairman ii. Asst. Regional Director iii. Heads of the Legal, Assessment and Collection Div. iv. Revenue District Officer having jurisdiction over the taxpayer
Oceanic Wireless vs. CIR, GR No. 148380, Dec. 9, 2005 Facts: Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of the BIR National Office to decide and/or act with finality on behalf of the CIR on protests against disputed tax deficiency assessments. WON a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and subject to an appeal to the Court of Tax Appeals. Held: YES. The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the NIRC enumerated in Section 7, as amended by RA 8424. It is clear from the above provision that the act of issuance of the demand letter by the Chief of the Accounts Receivable and Billing Division does not fall under any of the exceptions that have been mentioned as non-delegable. E. Assignment of Internal Revenue Officers (Secs. 16 &17) The Commissioner may assign/ reassign internal revenue officers: 1) involved in excise tax functions as often as the exigencies of revenue service may require; provided that he shall in no case stay in his assignment for more than 2 years (Sec. 16)
4) power to Assign or reassign internal revenue

officers to establishments where articles subject to excise tax are kept
2) without change in rank and salary, to other or special

duties connected with the enforcement and administration of internal revenue laws as the exigencies of the service may require; provided that officers assigned to perform assessment or collection functions shall not remain in the same assignment for more than 3 years; assignment of officers and employees to special duties shall not exceed 1 year (Sec. 17) F. Internal Revenue Districts (Sec. 9) The Commissioner, with approval of the Sec. of Finance, shall divide the Philippines into such number of revenue districts for administrative purposes. Each district shall be under the supervision of a Revenue District Officer. Duties of the Commissioner: (PASO) 1) To Prescribe, provide and distribute to the proper officials the requisite licenses, internal revenue stamps, labels, all other forms, certificates, bonds, records, invoices, books, receipts, instruments and appliances used in administering laws falling within the jurisdiction of BIR 2) To Acknowledge payment of any tax under this Code expressing a) the amount paid and b) the particular account for which payment was made (Sec. 8) 3) To Submit reports to the appropriate committee of Congress upon its request and in aid of legislation, which information or report shall include, but not be limited to: (a) industry audits
(b) collection performance data (c) status reports in criminal actions initiated against persons (d) taxpayers returns provided, any return or information which can be associated with or identifies, directly or indirectly a particular taxpayer, shall be furnished to the appropriate committee of Congress only when sitting in Executive Session, unless the taxpayer consents in writing to such disclosure 4) Submit reports to the Oversight Committee through the Chairman of the Committee on Ways and Means of the Senate and House of Representatives, on the exercise of his powers of abatement and compromise of taxes (Sec. 204) every 6 months of each calendar year. (Sec. 20) National internal revenue taxes: (Sec. 21) (I VEE DOO) 1) Income tax 2) Estate and Donors tax 3) Value-Added tax 4) Other percentage tax 5) Excise tax 6) Documentary stamp tax 7) Such Other taxes as are or hereafter may be imposed and collected by the BIR CIR v. CA (298 SCRA 85) Facts: YMCA is a non-stock, non-profit institution, which conducts various programs and activities beneficial to the
public pursuant to its religious, educational and charitable objective. In 1980, YMCA earned an income of more than P600K from leasing out a portion of its premises to small shop owners and P47K from parking fees. Issue: Is the rental income from real property owned by the YMCA subject to income tax? Held: YES, the exemption claimed by YMCA is expressly disallowed by the last paragraph of then 27 of the NIRC. Furthermore, Art. XIV, 4 (3) of the Constitution only exempts YMCA from property taxes NOT income tax. YMCA cannot be considered as an educational institution within the purview of the above-cited article. The term educational institution under the Education Act of 1982 refers to schools. The school system is synonymous with formal education, which refers to hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through grades or more to higher levels. Nothing in the Articles of Incorporation or By-Laws of the YMCA suggests that it is an educational institution. Afisco Insurance Corp v. CA (G.R. No. 112675, Jan. 25, 1999) Petitioners are local non-life insurance corps. Which formed a pool in order to enter into a Reinsurance Treaty with a German company. BIR assessed deficiency taxes against the pool on the ground that it is considered a partnership taxable as a corp. Petitioners insist that the pool is a mere agent, not acting on its own and therefore, cannot be taxed as a corp., there being no risk undertaken by the pool, no common fund
and no control exercised by its board in the management of its fund. Issue (1) : Is the Pool Taxable as a Corp? Held (1): YES. Pursuant to 24 of the NIRC, the pool is included within the definition of domestic corps. Which comprises even unregistered partnerships and associations. In this case, the ceding cos. Entered into an association that would handle all business under the Treaty. It has a common fund and an executive board to manage its affairs. Moreover, even if the pool itself did not issue any policies on its own, its work was indispensable to the business of the ceding companies and the German Co, Issue (2): Is there double taxation? Held(2): NO. Double taxation means taxing the same person twice by the same jurisdiction for the same thing. The pool is a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is obviously different from the tax on the dividends received by the said companies. TITLE II. TAX ON INCOME Definition of Terms 1) Person an individual, a trust, estate or corp. 2) Shares of stock includes shares of stock of a corp., warrants & options to purchase shares of stock, as well as units of participation in a partnership (except gen. professional partnership), joint stock companies, joint accounts, joint ventures taxable as corp., associations & recreation or amusement clubs & mutual fund certificates 3) Taxpayer any person subject to tax
4) Taxable Year the calendar year, or the fiscal year ending

such calendar year 5) Fiscal Year an accounting period of 12 months ending on the last day of any month other than December 6) Paid or incurred (cash method) or Paid or accrued (accrual method) payment actually made or if not paid, actually liable for the expense TAXABLE INCOME General Principles of Income Taxation in RP Taxpayer Resident Citizen Nonresident Citizen Resident Alien Nonresident Alien engaged in trade or business Nonresident Alien not engaged in trade or business General Professional Partnership Tax Base Taxable Income Taxable Income Taxable Income Taxable Income Gross Income Taxable Income Taxable on income Within and without the Philippines Within the Philippines Within the Philippines Within the Philippines Within the Philippines Within or/and without the Philippines (depending on classification of individual partner)
Estate and Trust
Taxable Income
Domestic Corporation Resident Foreign Corporation Non-resident Foreign corporation Types of Taxpayers A. Individuals
Taxable Income Taxable Income Gross Income
Same basis as an individual (depending on classification of decedent, if estate, trustor, if trust) Within and Without the Philippines Within the Philippines Within the Philippines
Kinds of Individuals 1) Resident Citizen 2) Nonresident Citizen = citizen of the Philippines who: (a) Establishes the fact of his physical presence abroad with a definite intention to reside therein (b) Leaves the Philippines during the taxable year to reside abroad, as immigrant or for employment on a permanent basis (c) Works & derives income from abroad & whose employment requires him to be physically present abroad most of the time (i.e. not less than 183 days) during the taxable year (d) Previously considered as nonresident citizen & arrives in the Philippines at any time during the
taxable year to reside permanently in the Philippines 3) Resident Alien 4) Nonresident Alien a) Those engaged in trade or business in the Philippines who come and stay in the Philippines for an aggregate period of more than 180 days during any calendar year b) Those not engaged in trade or business in the Philippines, which include non-resident aliens whose stay in the Philippines is 180 days or less c) Aliens employed by regional or area headquarters and regional operating headquarters of multinational companies in the Philippines d) Aliens employed by offshore banking units e) Aliens employed by petroleum contractors and subcontractors Types of Income: 1) General a) Compensation Income b) Income from Business c) Income from Exercise of Profession 2) Special Types of Income (Passive Income) a) Interests, royalties, prizes and other winnings subject to final tax b) Capital gains from sale of real property c) Capital gains from sales of shares of stock not listed in the stock exchange d) Capital gains from sale of shares of stock listed in stock exchange (subject to percentage tax)
e) Cash & property dividends B. Estates and Trusts C. Corporation A corporation shall include partnerships, no matter how created or organized. Joint stock companies, joint accounts, associations, or insurance companies But does not include: general professional partnerships & a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with the govt. General Types: 1) Domestic Corporation is created or organized in the Philippines or under its laws 2) Foreign Corporation is organized and existing under the laws of a foreign country (a) Resident foreign corporation foreign corp. engaged in trade or business within the Philippines (b) Nonresident foreign corporation foreign corp. not engaged in trade or business within the Philippines TAX ON CORPORATIONS
I. DOMESTIC CORPORATIONS A. In general On taxable income from all sources within and without the Philippines 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards)
Effective
Jan. 1, 2000: the President (upon recommendation of the Sec of Finance) may allow corporation an option to be taxed at 15% of gross income after the ff. conditions are satisfied: Tax effort ratio Ratio of IT collection to total tax revenue VAT tax effort Ratio of Consolidated Public Sector Financial Position (CPSFP) to GNP Ratio of Cost of Sales to Gross Sales from all sources 20% of GNP 40% 4% of GNP 0.9% Does not exceed 55%
If Corp adopts fiscal year accounting period

Taxable income = computed without regard to specific date when sales, purchases & other transaction occur Income and expenses deemed to have been earned & spent equally for each month of the period How the reduced corporate income tax rates applied: # of months (covered by fiscal yr.) x taxable income 12 Example: Fiscal year - May 1997to April 1998 Taxable Income for the taxable year = P120,000 Income tax (from May to Dec 1997) = (8/12 x P120,000) x 35% = P27,999.99 Income tax (from Jan to Apr 1998) = (4/12 x P120,000) x 34% = P13,599.99 Income tax for the taxable year = P41,599.99 B. Optional Gross Income Taxation
The election of the option shall be irrevocable for 3 consecutive taxable years during which the corp. is qualified under the scheme
Gross Income =
Gross Sales ( - ) Sales returns, discounts and allowances ( - ) Cost of goods sold
Cost of Goods Sold Trading and Merchandising Concern Invoice cost plus import duties and freight in transporting goods to the place where actually sold, including insurance while in transit Manufacturing concern Cost of production of finished goods (raw materials, direct labor and manufacturing overhead,
freight cost, insurance premiums, and other costs to bring the raw materials to the factory) If taxpayer is engaged in sale of service: Gross Income = Gross receipts ( - ) Sales returns, allowances and discounts C. Special Types of Domestic Corporations Proprietary educational institutions and hospital which are nonprofit GOCC, Agencies and Intrumentalities, including PAGCOR GSIS/ SSS / PHIC / PCSO Depository Banks 10% On related trade, business or activity; 35% (2006) if total gross income from unrelated trade, business, or activity exceed 50% of total income Same tax rate upon their taxable income in a similar business, industry, or activity
profit) Proprietary educational institution any private school maintained & administered by private individuals or groups with an issued permit to operate from DECS, or CHED or TESDA Taxable at 10% on taxable income, except on certain passive income if GI from unrelated trade/business/other activity > 50% of the total GI from all sources, ENTIRE taxable income shall be subject to the REGULAR corporate tax rate (32%)
2. GOCCs General Rule: all corporations, agencies, or instrumentalities owned or controlled by the govt. are taxable. Exceptions: 1) GSIS 2) SSS 3) PHIC 4) PCSO BIR Ruling #038-02 (Nov. 5, 2002) Duty Free Phils., as the tax and duty free merchandising division of the Phil Tourism Authority to further the tourism development of the government, is now deemed subject to
32% (20002005) 35% (2006) Exempt 10%
On interest income from foreign currency transactions including interest income from foreign loans
1. Proprietary Educational Institutions & Hospitals (non-
Income Tax. D. Minimum Corporate Income Tax (MCIT) 1. MCIT Rate = 2% of gross income (GI) When to begin/apply MCIT? Beginning on the 4th taxable year immediately following the year in which such corporation commenced its business operation Example: for 2000 calendar year GI = P500,000 2% of GI = P10,000 TI = P27,000 32% of TI = P8,640 2000 IT = P10,000 2. Carry Forward of Excess Minimum Tax Excess of MCIT over the normal income tax shall be carried forward & credited against normal income tax for the 3 succeeding years Example: (from above) 2001 Income tax = P3,000 Excess = P10,000 - 8,640 P1,360 2001 IT = 3,000 - 1,360 = P1,640 3. Relief from MCIT MCIT may be suspended by the Sec of Finance when corporation suffers losses due to: (a) prolonged labor dispute (b) force majeure
(c) legitimate business reverses 4. Gross Income (for purposes of applying MCIT) Gross Income = Gross Sales ( - ) Sales returns, discounts & allowances ( - ) Cost of Goods sold If taxpayer is engaged in sale of service: Gross Income = Gross Receipts ( - ) Sales returns, discounts and allowances ( - ) Cost of Services * *means all direct costs and expenses necessarily incurred to provide the services required by the customers including: a) salaries and employee benefits of personnel, consultants and specialists directly rendering the service; b) costs of facilities directly utilized in providing the service such as depreciation or rental of equipment used and costs of supplies II. RESIDENT FOREIGN CORPORATION A. In General (the rest is the same as domestic corp.) On taxable income from all sources within the Philippines. 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards)
B. MCIT - same as domestic corp. C. Special types of resident foreign corporations: International Air 2.5% On Gross Philippine Billings carriers (see case of Air Canada vs. CIR infra) International 2.5% On Gross Philippine Billings Shipping Offshore banking 10% Any interest income derived units from foreign currency loans granted to residents other than offshore banking units or local commercial banks, including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units Offshore banking Exempt Income derived by offshore units banking units authorized by the BSP, from foreign currency transactions with nonresidents, other offshore banking units, local commercial banks, including branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units. Regional/Area Exempt Headquarters Regional 10% On taxable income
Operating Headquarters Multinational companies
of
Air Canada vs. CIR, CTA Case No. 6572, Dec. 22, 2004 It is evident that the definition of Gross Philippine Billings under Section 28(A)(3)(a) of the 1997 Tax Code covers the gross revenue derived from the carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous and uninterrupted flight irrespective of the place or sale or issue and the place of payment of the ticket or passage document. To originate would mean to cause the beginning of; to start (a person or thing) on a course or journey; to begin, start. In other words, the flights carrying the passengers must have originated or started from the Philippines. Verily, petitioner, being an off-line international carrier, as authorized to operate by the CAB and having no flights originating from the Philippines in a continuous and uninterrupted flight, cannot be taxed pursuant to Section 28(A)(3)(a) of the 1997 Tax Code, that is, based on their Gross Philippine Billings. However, although petitioner Air Canada is not liable to pay the tax as an international air carrier (2.5% on gross Phil. Billings), it is still liable to pay income tax as a resident foreign corporation. Under Section 22 of the 1997 Tax Code, the term resident foreign corporation applies to a foreign corporation engaged in trade or business within the Philippines, while the term nonresident foreign corporation applies to a foreign corporation
not engaged in trade or business within the Philippines. However, with regard to the term doing or engaged in business, there is no fixed or specific criterion as what constitutes doing or engaging in business. In the case of The Mentholatum Co., Inc., et al. vs. Mangiliman, et al., 72 PHIL 524, the Honorable Supreme Court had thoroughly and clearly explained the term in this way: There is no specific criterion as to what constitutes doing or engaging in or transacting business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. In order that a foreign corporation may be regarded as doing business, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. In other words, a foreign airline company selling tickets in the Philippines through their local agents, whether liaison offices, agencies or branches, as in the case at bar, shall be considered as resident foreign corporation engaged in trade or business in that country for such activities show continuity of commercial dealings or arrangements and performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of commercial gain or for the purpose and object of the business organization.
III. NONRESIDENT FOREIGN CORPORATION A. In General Gross Income from all sources within the Philippines (except Capital Gains on sale of domestic shares subject to final tax) 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards)
Gross Income includes interest, dividends, rents, royalties, salaries, premiums (except reinsurance prem.), annuities, emoluments or other fixed/determinable annual, periodic/casual gains, profits & income Capital Gains (not subject to FT)
Non Resident Foreign Corporation Cinematographic 25% On gross income Film owner, lessor or distributor Owner or lessors 4.5% On gross income of vessel charted by Philippine nationals Owner or lessors 7.5% On gross income of aircraft, machineries and other equipment INCOME TAX RATES
exhibit I. INDIVIDUALS A. In general On taxable income from compensation/business/profession (other than special types of income) Within and without the Philippines D. Tax rate for special types of Resident Foreign Corporation Please see exhibit IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) (Sec. 29, as implemented by Rev. Reg. 2-2001 which prescribes rules governing the imposition of IAET) A. Rule There is imposed for each taxable year, in addition to other taxes, a tax equal to 10% of the improperly accumulated taxable income of domestic and closely-held corporations formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders.
1) Resident Citizen 2) Nonresident Within the Philippines Citizen (including OCWs) 3) Resident Alien Within the Philippines Graduated rates of 5 to 32%.
B. Passive Income Please see exhibit C. Special Tax Rates for Aliens Please see exhibit II. CORPORATIONS A. In general 2006-2008 35% 2009-onwards 30% B. Passive Income and other income Please see exhibit C. Tax rate for Resident Foreign Corporation Please see
B. Rationale
If the earnings and profits were distributed, the shareholders would then be liable for income tax; if the distribution were not made to them, they would incur no tax in respect to the undistributed earnings and profits of the corporation. It is a tax in the nature of a penalty to the corporation for the improper accumulation of its earnings, and a deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them.
C. Exception The use of undistributed earnings and profits for the reasonable needs of the business would not generally make the accumulated or undistributed earnings subject to the tax. What is meant by reasonable needs of the business is determined by the Immediacy Test. Immediacy Test It states that reasonable needs of the business are the 1) immediate needs of the business; and 2) reasonably anticipated needs
3) Earnings reserved for building, plants or equipment

acquisition as approved by the Board of Directors or equivalent body; 4) Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement; 5) Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is legal prohibition against its distribution; 6) In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings intended or reserved for investments within the Philippines as can be proven by corporate records and/or relevant documentary evidence.
the
How to prove the reasonable needs of the business: The corporation should prove that there is 1) an immediate need for the accumulation of the earnings and profits; or 2) a direct correlation of anticipated needs to such accumulation of profits.
E. Covered Corporations: Only domestic and closely-held

corporations are liable for IAET. 1. Closely-held corporations are those: a) at least 50% in value of the outstanding capital stock; or b) at least 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 20 individuals. Domestic corporations not falling under the aforesaid definition are, therefore, publicly-held corporations.
D. Composition: The following constitute accumulation of

earnings for the reasonable needs of the business: (ILL ABE) 1) Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the corporation as of Balance Sheet date, inclusive of accumulations taken from other years; 2) Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditure as approved by the Board of Directors or equivalent body;
1. To determine whether the corporation is closely

held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied:
a) 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. b) Family and Partnership Ownership - 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 this paragraph, the family of an individual includes his brothers or sisters (whether by whole or half-blood), spouse, ancestors and lineal descendants. c) Option to Acquire Stocks. - If any person has an option to 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 option shall be considered as an option to acquire such stock. d) 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.
following corporations: (BIG-PEN-T) 1) Banks and other non-bank financial intermediaries; 2) Insurance companies; 3) Publicly-held corporations; 4) Taxable partnerships; 5) General professional partnerships; 6) Non- taxable joint ventures; and 7) Enterprises that are registered: (a) with the Philippine Economic Zone Authority (PEZA) under R.A. 7916; (b) pursuant to the Bases Conversion and Development Act of 1992 under R.A. 7227; and (c) under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes, national or local. G. Computation Years taxable income: Add: Income exempt from tax XX Income excluded from gross income XX Income subject to final tax XX Amount of net operating loss carry-over (NOLCO) deducted Total P Less: Income tax paid/payable for the taxable year Dividends actually or constructively paid/issued from the applicable PXX
XX XX XX
F. Exempt Corporations: The IAET shall not apply to the
years taxable income XX Amount reserved for the reasonable needs of the business emanating from the covered years taxable income XX Improperly Accumulated Taxable Income P XX Multiplied by IAET rate 10% IAET P XX
J. Period for Payment of Dividend/IAET: The dividends

must be declared and paid or issued not later than one year following the close of the taxable year, otherwise, the IAET, if any, should be paid within fifteen (15) days thereafter. K. Determination of Purpose to Avoid Income Tax 1) The fact that a corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members
H. Limitation: The profit that has been subjected to IAET

shall no longer be subjected to IAET in later years even if not declared as dividend. However, profits which have been subjected to IAET, when declared as dividends, shall be subject to tax on dividends except in those instances where the recipient is not subject thereto.
A holding or investment company is a corporation

having practically no activities except holding property, and collecting the income therefrom or investing the same; and
I. Declaration of Dividends from earnings: For purposes

of determining the source of earnings or profits declared or distributed from accumulated income, the dividends shall be deemed to have been paid out of the most recently accumulated profits or surplus and shall constitute a part of the annual income of the distributee for the year in which received pursuant to Section 73(C) of the Code. But, where the dividends or portion of the said dividends declared forms part of the accumulated earnings as of December 31, 1997, or emanates from the accumulated income of a particular year and is therefore an exemption to the proceeding statement, such fact must be supported by a duly executed Board Resolution to that effect.
2) where the earnings or profits of a corporation are

permitted to accumulate beyond the reasonable needs of the business.
L. Prima facie instances of accumulation of profits

beyond the reasonable needs of a business and indicative of purpose to avoid income tax upon shareholders
1) Investment of substantial earnings and profits of the

corporation in unrelated business or in stock or securities of unrelated business; 2) Investment in bonds and other long-term securities; and
3) Accumulation of earnings in excess of 100% of paidup capital, not otherwise intended for the reasonable needs of the business. The controlling intention of the taxpayer is that which is manifested at the time of accumulation. A speculative and indefinite purpose will not suffice. The mere recognition of a future problem or the discussion of possible and alternative solutions is not sufficient. Definiteness of plan/s coupled with action/s taken towards its consummation is essential. Cyanamid Phils. vs. CA, GR No. 108067, Jan. 20, 2000 Ideally, the working capital should equal the current liabilities and there must be 2 units of current assets for every unit of current liability, hence the so-called "2 to 1" rule. A Debt-to-Equity ratio (Current Assets over Current Liabilites) of 2:1 is indicative of the liquidity of a corporation, and further accumulation would expose it to the IAET. M. IAET shall not apply to the following: 1) on improperly accumulated income as of Dec. 31, 1997 in the case of corporations using the calendar year basis; 2) on improperly accumulated taxable income as of the end of the month comprising the twelve-month period of fiscal year 1997-1998 using the fiscal year accounting period; and 3) taxable income improperly accumulated prior to the effectivity (15 days after publication in any newspaper of general circulation and shall cover Improperly
Accumulated Taxable Income earned starting January 1, 1998) of these regulations if declared as dividend and paid/issued within one month from the effectivity hereof BIR Ruling #025-02 The ownership of a domestic corporation for purposes of determining whether it is a closely held corporation or a publicly held corporation is ultimately traced to the individual shareholders of the parent company. Where at least 50% of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote in a corporation is owned directly or indirectly by at least 21 or more individuals, the corporation is considered as publicly held corporation. I. GROSS INCOME All income derived from whatever source, including (but not limited to the following items) (GRIP CARD GPP) 1) Gross income derived from the conduct of trade or business or the exercise of a profession 2) Rent Income 3) Interest Income 4) Prizes & winnings 5) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions & similar items 6) Annuities 7) Royalties
8) Dividend Income 9) Gains derived from dealings in property 10) Pensions 11) Partners distributive share from the net income of the GPP
All income from whatever source derived Recovery of damages (compensation for injury; from tortious acts) Recovery of items previously deducted from gross income (return of capital) Forgiveness of indebtedness (if effect of entire transaction is a reduction of purchase price of property acquired in prior year) Income derived form illegal business (gain) Recovery of lost earnings Not taxable Taxable Not Taxable Taxable Taxable
binding upon the Phil govt.
3) Amount Received by Insured as Return of Premium

Under life insurance, endowment, or annuity contracts, received either during the term or at the maturity of the terms or upon surrender of the contract Life Insurance Proceeds of life insurance policies paid to the heirs/beneficiaries upon the death of the insured If such amounts are held by the insurer under an agreement to pay interest, the interest payments shall be included in the GI Compensation for Injuries or Sickness Received through Accident/Health Insurance or Workmens Compensation Act, as compensation for personal injuries/sickness + amount of damages received on account of such injuries/sickness Retirement Benefits, Pensions, Gratuities Retiring official/EE has been in the service of the same ER for at least 10 years & is not less than 50 years old at the time of retirement Benefits granted shall be availed only once Reasonable private benefit plan = a pension, gratuity, stock bonus or profit-sharing plan maintained by an ER for the benefit of some or all of his officials/employees, wherein contributions are made by such ER for the officials/employees, or both, for the purpose of distributing to such officials & employees the earnings & principal of the fund thus accumulated; & provided in the plan that no part of the income shall be used for/be diverted to any purpose other than for the exclusive benefit of the said
4)
5)
BIR Ruling #017-2003 The transfer of land made by a person to another in payment of services rendered in the form of attorneys fees shall be considered as part of the gross income of the latter valued at either the fair market value or the zonal valuation, whichever is higher, in the taxable year received. II. EXCLUSIONS FROM GROSS INCOME (GIRL CRRM)
6)
7)
1) Gifts, Bequests & devises But, income from such property shall be
included in GI
2) Income Exempt under Treaty

To the extent required by any treaty obligation
officials & employees Separation pay due to death, sickness/other physical disability/for any cause beyond the control of such officials/employee Benefits from the GSIS & SSS 8) Miscellaneous Items (a) income derived by foreign government (from investments in Philippines in loans, stocks, bonds or other domestic securities) (b) income derived by govt./its political subdivisions (from public utility or essential governmental function (c) prizes, awards in sports competition sanctioned by national sports associations whether held in Philippines or abroad (d) prizes & awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement, but only if: recipient was selected without any action on his part recipient not required to render substantial future services as a condition of receiving the prize/award Example: Nobel prize award (e) 13th month pay & other benefits (i.e. productivity incentives & Christmas bonus) Total exclusion shall not > P30,000 (f) GSIS, SSS, Medicare, Pag-ibig contributions & union dues of individuals (g) Gains form the sale of bonds, debentures or other
certificates of indebtedness with a maturity of more than 5 years (h) Gains from redemption of shares in mutual fund BIR Ruling #125-98 The phrase shall not have availed of the privilege under a retirement benefit plan of the same or another ER found in Sec. 32 (B) (6) (a) of the Tax Code means that the retiring official or EE must not have previously received retirement benefits from the same or another employer who has a qualified retirement benefit plan. BIR Ruling #143-98 The terminal leave pay of government employees whose employment is coterminous is exempt since it falls within the meaning of the phrase for any cause beyond the control of the said official or EE found in Sec. 32(B) of the CTRP. SPECIAL TREATMENT OF FRINGE BENEFIT A. Fringe Benefit Any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees) such as, but not limited to the ff: 1) housing 2) expense account 3) vehicle of any kind 4) household personnel (such as maid, driver & others) 5) interest on loan at less than market rate to the extent of the
difference between the market rate & actual rate granted 6) membership fees, dues & other expenses borne by the employer for the employee in social & athletic clubs or other similar organizations 7) expenses for foreign travel 8) holiday & vacation expenses 9) educational assistance to the employee or his dependents 10) life or health insurance & other non-life insurance premiums or similar amounts in excess of what the law allows B. Nature of FBT Final tax imposed on the grossed-up monetary value of fringe benefit furnished/granted to the EE by the ER, whether an individual or corp. (payable by the employer) Effective 1/1/98 34% 1/1/99 33% 1/1/00 32% C. Fringe Benefits not subject to FBT (a) FB authorized & exempted from tax under special laws (b) Contributions of ER for the benefit of the employee to retirement, insurance & hospitalizations benefit plan (c) Benefits given to the rank & file employees, whether granted under a CBA or not (d) De minimis benefits De Minimis benefits a) Monetized unused vacation leave credits of private
b) c) d) e) f) g)
h)
i) j)
employees not exceeding 10 days during the year and monetized value of leave credits paid to government officials and employees Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month Rice subsidy of P1,000 or 1 sack of 50 kg rice amounting to not more than P1,000 Uniform and clothing allowance not exceeding P3,000 per year Actual yearly medical benefits not exceeding P10,000 Laundry allowance of P300 per month Employee achievement awards, for length of service or safety achievement in the form of tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum Flowers, fruits, books or similar items given to employees under special circumstances on account of illness, marriage, birth of a baby, etc Daily meal allowance of overtime work not exceeding 25% of basic minimum wage
BIR Ruling #034-02 (Aug. 16, 2002) Representation and Transportation Allowance (RATA) and Personnel Economic Relief Allowance (PERA) are not subject to Income Tax and Withholding Tax.
Additional Compensation Allowance (ACA) are part of other benefits under Sec. 32 (b) (7) (e) of the Tax Code of 1997 which are excluded from gross compensation income provided the total amount of such benefits does not exceed P30,000, starting January 1, 2000. It is also not subject to withholding tax pending its formal integration into basic pay. III. DEDUCTION FROM GROSS INCOME
Taxpayers earning compensation income arising from personal services under an employer-employee relationship (personal exemptions, additional exemptions & premium payments on health and/or hospitalization are available as deductions to them) B. KINDS OF DEDUCTIONS (BELT DID CRP) 1) Bad Debts 2) Expenses 3) Losses 4) Taxes 5) Depreciation 6) Interest 7) Depletion of oil & gas wells & mines 8) Charitable & other contributions 9) Research & Development 10) Pension trusts 1. EXPENSES 1) Ordinary & necessary trade, business or professional expenses (a) All ordinary & necessary expenses (b) Directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession, including reasonable allowance for: (c) salaries, wages & other forms of compensation for personal services actually rendered (including
The basic principle governing deductions from gross

income apply to all taxpayers. Because deductions are strictly construed against the taxpayer, one seeking a deduction must point to some specific provisions of the statute in which that deduction is authorized & must be able to prove that he is entitled to the deduction which the law allows. Adequate records should be kept to support the deductions. The deduction claimed must have been subjected to withholding tax, if required. A. WHO MAY AVAIL OF THE DEDUCTIONS? 1) Individual (a) citizen (b) resident alien (c) non-resident alien doing business in the Philippines (d) member of GPP 2) Corporations (a) domestic corp. (b) resident foreign corp. (c) proprietary educational institutions & hospitals (d) GOCCs
grossed-up monetary value of FB); but the final tax should have been paid (d) travel expenses in pursuit of trade, business/ profession (e) rentals &/or other payments as lessee, user or possessor (f) entertainment, amusement & recreation expenses directly connected to the devt., mgt. & operation & conduct of trade, business/ profession The Regulations impose a limit of 0.50% of net sales (gross sales less sales returns/allowances & sales discounts) for taxpayers engaged in sale of goods or properties; or 1% of net revenue (gross revenue less discounts) for those engaged in sale of services, including exercise of profession and use or lease of properties. (RR No. 10-02) 2) Substantiation Requirements: sufficient evidence (i.e. official receipts, financial statements or other adequate records) to substantiate: (a) amt. of expense deducted (b) direct connection/relation of the expense to the development, management operation &/or conduct of the trade, business or profession of the taxpayer 3) Bribes, Kickbacks & Other Similar Payments: not deductible Expenses allowable to private educational institutions: has option to elect either:
(a) to deduct as expense those otherwise considered as capital outlays of depreciable assets for the expansion of school facilities (b) to capitalize asset & deduct allowance for depreciation 2. INTEREST
1)
Requisites for deductibility, as implemented by Rev. Reg. 13-2000 (a) there must be an indebtedness (b) there should be an interest expense paid or incurred upon such indebtedness (c) indebtedness must be that of the taxpayer (d) indebtedness must be connected with the taxpayers trade, business or exercise of profession (e) interest expense must have been paid or incurred during the taxable year (f) interest must have been stipulated in writing (g) interest must be legally due (h) interest payment arrangement must not be between related taxpayers (i) interest must not be incurred to finance petroleum operations (j) in case of interest incurred to acquire property used in trade, business or exercise of profession, the same was not treated as a capital expenditure 2) Limitation on Deduction Interest expense shall be reduced by an amt. equal to the ff. % of interest income subjected to FT:
1/1/06 1/1/09
42% 36%
Example: Year 2000 Int. exp. = P2,000 Int. income subjected to FT = P1,500 Deduct as int. exp.: P2,000 - (P1,500 x 42%) = P1,370 The objective of the limitation is to discourage tax arbitrage on back to back loans, the proceeds of which are invested in income earning interest that is subject to 20% final tax. 4) 3) Non-deductible interest (a) interest paid in advance through discount or otherwise(in case of cash basis taxpayer) allowed as deduction in the year the debt is paid if indebtedness is payable in periodic amortizations, int. is deducted in proportion of the amt. of the principal paid. (b) payments made: 1. between members of a family (include only brothers & sisters, spouse, ancestors, & lineal descendants) 2. between an individual & a corp. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) 3. between 2 corps. more than 50% in value of outstanding stock owned by same individual, if either one is a personal holding co. or a foreign holding co. during the taxable yr.
preceding the date of sale/exchange 4. between grantor & fiduciary of any trust 5. between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust 6. between Fiduciary & a beneficiary of a trust 7. indebtedness is incurred by a service contractor to finance petroleum corp. Optional Treatment of Interest Expense (a) as expense (deduction) (b) as capital expenditure
3. TAXES 1) Deductible taxes Taxes paid/incurred w/in the taxable yr. in connection w/ the taxpayers profession, trade or profession 2) Non-deductible taxes (a) Philippine income tax (but FBT can be deducted from gross income RR 8-98)) (b) income tax imposed by authority of any foreign country (except when the taxpayer signifies his desire to avail of the tax credit for taxes of foreign countries) (c) estate & donors taxes (d) taxes assessed against local benefits of a kind tending to increase the value of the property assessed
Total income from all sources Taxes, when refunded or credited, shall be included as part of GI in the yr. of receipt to the extent of income tax benefit of said deduction 3) Limitations on deductions In case of a nonresident alien individual engaged in trade/business in the Philippines, taxes to be deducted shall be allowed only if & to the extent that they are connected with income from sources w/in the Philippines
tax
Global Limitation Total amount of credit shall not exceed same proportion of tax which such credit is taken total income from outside the Phil. Total Income from all sources Example: Particulars Net Income X Phil. income tax Phil Income Tax due at 32%
4) Foreign Tax Credit: for taxes paid/incurred to any

foreign country citizen (a) Who can claim? 1. Citizen 2. Domestic Corp 3. Member of GPP 4. Beneficiary of an estate or trust (b) Who cannot claim? 1. Alien individual (except resident aliens deriving income from within & without the Phils., if there is reciprocity) 2. Foreign Corp. (c) Limitation of Credit Per Country Limitation Amount of credit to tax paid/incurred to any country shall not exceed same proportion of the tax against which such credit is taken income from outside the Phil.(per country) X Phil. income
Country A P50,000 Country B 40,000 Phil110,000 source income Total NI P200,000 all
Actual Foreign Tax Paid in Philippine Peso P18,000 P11,000
P29,000
P64,000
A. PER COUNTRY LIMITATION Country A : [(50,000/200,000 x 64,000)] = 16,000 Country B : [(40,000/200,000 x 64,000)] = 12,800 ** maximum tax credit limit B. GLOBAL LIMITATION [(90,000/200,000 x 64,000)] = P28,800 Computation of Allowable tax credit Tax Due on P200,000 P64,000
at 32% Less: Allowable Foreign Tax Credit Country A P16,000 Country B 11,000 27,000 Tax Still Due P37,000 ** Cannot exceed maximum tax credit limit NOTE: For limitation A, Country A, 16K is lower than the actual; Country B, 11K (actual) is the lower amount; get the total of all per country amounts. For limitation B, 28.8K is lower than the total of the actual amount. Comparing the total of limitation A vs. B, the former is the lower amount so that is the allowable tax credit. 4. LOSSES 1) Requisites for deductibility of ordinary loss (a) loss must be of the taxpayer (b) actually sustained during the taxable yr. (c) not compensated for by insurance or other forms of indemnity (d) incurred in trade, business or profession OR property connected w/ trade, business or profession lost through fires, storm, shipwreck, or other casualties OR from robbery, theft or embezzlement (e) evidenced by a completed transaction No loss shall be allowed as a deduction for income tax purposes if such loss has been claimed as a deduction for estate tax purposes.
2) Net Operating Loss Carry-over (NOLCO) (a) Net operating loss of a business shall be carried over as deduction from GI for the next 3 consecutive taxable yrs. immediately ff. the yr. of such loss (b) Limitations 1) any net loss in a taxable yr. w/c the taxpayer is exempt shall not be allowed as deduction 2) allowed only if no substantial change in ownership, in that: i. not < 75% in nominal value of outstanding issued shares is held by same persons ii. not < 75% of PIC of corp. is held by same persons
(c) Net Operating Loss = excess of allowable

deduction over the GI
(d) For mines other than oil & gas wells, if loss incurred
in any of the 1st 10 yrs. of operation, carry-over for the next 5 yrs. BIR Ruling #011-02 (Mar. 27, 2002) The 75% equity, ownership or interest rule shall only apply to a transfer or assignment of the taxpayers net operating losses as a result of or arising from said taxpayers merger or consolidation or business combination with another person. Since the transfer of the shares by the previous stockholders were through straight purchase and sale and
not through merger, consolidation or business combination, such transfer did not cause a substantial change in ownership. 3) Special Types of Losses (a) Capital Losses - allowed only to the extent of the gains from such sales or exchanges of capital assets(does not apply to banks and trust companies) (b) Losses from wash sales of stock or securities 30 days before and after the date of the sale, the taxpayer has acquired or has entered into a contract or option so as to acquire, substantially identical stock/securities not deductible unless claim is made by a dealer in stock/securities & made in ordinary course of business (c) Wagering Losses - allowed only to the extent of the gains from such losses (d) Abandonment Losses In case of abandoned petroleum operations, accumulated expenditures incurred prior to 1/1/79 allowed as deduction only from income derived from same contract area; notice of abandonment shall be filed with Commissioner In case of abandoned producing well, unamortized cost & undepreciated costs of equipment directly used, allowed as deduction in the yr. of abandonment
(e) Losses deductible 5. BAD DEBTS
from
Illegal
Transactions
not
Requisites for deductibility (a) valid & subsisting debt due to taxpayer (b) actually ascertained to be worthless (c) charged off w/in the taxable yr. (d) not sustained in transactions bet the ff. parties: 1. between members of a family (include only brothers & sisters, spouse, ancestors, & lineal descendants 2. between an individual & a corp. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) 3. between 2 corps. more than 50% in value of outstanding stock owned by same individual, if either one is a personal holding co. or a foreign holding co. during the taxable yr. preceding the date of sale/exchange 4. between grantor & fiduciary of any trust 5. between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust 6. between Fiduciary & a beneficiary of a trust Recovery of bad debts previously allowed as deduction in the preceding yrs. shall be included as part of GI in the yr. of recovery to the extent of the income tax benefit of such deduction (Tax Benefit
Rule) 6. DEPRECIATION A reasonable allowance for the exhaustion, wear & tear of property used in the trade or business; to cause plant elements or the plant as a whole to suffer diminution in value (a) In case of property held by one person for life w/ remainder to another person, deduction is computed as if the life tenant were the absolute owner of the prop. & allowed to life tenant (b) In case of property held in trust, deduction apportioned bet. the income beneficiaries & trustees 1) Methods of Depreciation (a) straight-line method = cost - salvage value estimated life example: cost=15,000; SV=5000; est. life=5 years 15,000 - 5,000 = 2,000 5 years (b) declining balance method = cost - accumulated depreciation x rate estimated life example: rate 200% year 1 -- 15,000 - 0 x 200% = 6,000 5 year 2 -- 15,000 - 6000 x 200% = 3,600
5 (c) sum of years digits method = nth period x (cost - salvage value) sum of the years digits example: SYD: 5+4+3+2+1 = 15 year 1 -- 5/15 x (15,000 - 5,000) = 3,333.33 year 2 - 4/15 x (15,000 - 5,000) = 2,666,67 2) Special Types of Depreciation (a) Petroleum operations i. Depreciation of all properties directly related to production of petroleum shall be allowed under straight-line or declining-balance (DB) method ii. May shift from DB method to SL method iii. Useful life:10 yrs. or shorter life as may be permitted by Commissioner iv. Useful life of prop. not used directly: 5 yrs. under straight-line method (b) Mining operations i. depreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is 10 yrs or less. ii. if expected life is > 10 yrs., depreciate over any no. of yrs. bet. 5 yrs. & the expected life
Depreciation deductible by nonresident aliens engaged in trade/business or nonresident corp. only when such prop. is located in the Philippines
7. DEPLETION OF OIL & GAS WELLS & MINES The reduction of cost or value of natural resources such as oil & gas wells, & mines as the resources are converted into inventories. No further allowance is granted if the allowance for depletion = the capital invested (1) Intangible exploration & development drilling costs: a) deduct in the yr. incurred if incurred for nonproducing wells & mines b) deduct in full OR capitalize & amortize of incurred for producing wells & mines in same contract area (2) Intangible costs in petroleum operations: no salvage value & incidental to & necessary for dwelling of wells & preparation of wells for the production of petroleum (3) Election to deduct exploration & development expenditures for mining corps. (a) deduct as cost (b) deduct as adjusted basis provided, total amt. deductible shall not exceed 25% of NI actual exploration & development expenditures net of 25% of NI shall be carried forward to succeeding yrs. until fully deducted exploration expenditures = pd/incurred for the purpose of ascertaining the
existence, location, extent, or quality of any deposit of ore/other mineral & pd/incurred before the beginning of the development stage of the mine/deposit development expenditures = paid/incurred during development stage of the mine or other natural deposits (4) Depletion of Oil and Gas wells and mines deductible by a non-resident alien or foreign corporation only in respect of oil and gas wells or mines located in the Phils. 8. CHARITABLE & OTHER CONTRIBUTIONS (a) Contributions subject to limitations i. Contributions or gifts actually paid or made w/in the taxable yr.: ii. to or for the use of the govt. or its agencies or any political subdivision, exclusively for public purpose iii. or, to accredited domestic corps./associations organized & operated exclusively for: (1)religious (2)charitable (3)scientific (4) youth & sports development (5)cultural or educational purposes (6)for the rehabilitation of veterans (7)to social welfare institutions (8)to NGOs iv. no part of NI inures to the benefit of any private stockholder or individual
for individual: not > 10% of taxable income for corporation: not > 5 % of taxable income
nonprofit domestic corp. organized for similar purpose or to the state for public purpose or to another org. to be used in same purpose as the dissolved corp. (c) VALUATION of property donated other than money: acquisition cost 9. RESEARCH AND DEVELOPMENT Paid or incurred by a taxpayer during the taxable yr. in connection w/ his trade, business or profession as ordinary & necessary expenses w/c are not chargeable to capital account; allowed as deduction during the taxable yr. when pd./incurred (a) Requisites for amortization of certain R&D expenditures (treated as deferred expenses): (1) paid/incurred by the taxpayer in connection w/ his trade/business (2) not treated as expense (3) chargeable to capital acct. but not chargeable to property of a character w/c is subject to depreciation/depletion (4) amortized over a period of not < 60 months as may be elected by the taxpayer (b) Limitations on Deductions not applicable to, (1) expenditure for the acquisition or improvement of land, or for the important of prop. to be used in connection w/ R&D of a character subject to depreciation & depletion
(b) Contributions deductible in full i. Donations to the govt. to finance, to provide for, or to be used in undertaking priority activities in education, health, youth & sports development, human settlements, science & culture & in economic development according to National Priority Plan determined by NEDA If not in accordance w/ annual priority plan, donation is subject to limitations in (1) above ii. Donations to certain foreign institutions or international organizations in pursuance or compliance with agreements, treaties, or commitments entered into by Phil. govt. & foreign institutions/international organizations iii. Donations to accredited NGOs Organized & operated exclusively for scientific, educational, character-building & youth & sports development, health, social welfare, cultural or charitable purposes or combination thereof (no part of NI inures to the benefit of any private individual) W/in 15th of the 3rd month after the close of the taxable yr., makes utilization directly for the active conduct of activities constituting the purpose/function of the org., unless pd. is extended Administrative expense should not be > 30% of total expenses Upon dissolution, assets would be distributed to another
(2) expenditure pd./ incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral, including oil or gas (exploration exp.) 10. PENSION TRUSTS (past service cost) Established or maintained by employer to provide for the payment of reasonable pensions to his employees. Normal Cost the contributions during the taxable year to cover the pension liability accruing during the taxable year. Allowed as a deduction under Sec. 34(A)(1) as expenses in general. Past Service Cost amount in excess of the above contribution (covering pension liability pertaining to old employees which accrued during the years previous to the establishment of the pension trust); allowed as deduction only if: (a) such amt. not been allowed as a deduction (b) apportioned in equal parts over 10 consecutive yrs. beg. w/ the yr. in w/c the transfer/payment is made (Sec. 34[J])
C. ADDITIONAL REQUIREMENT FOR DEDUCTIBILITY OF

CERTAIN PAYMENTS - tax required deducted/withheld has been paid to BIR D. NON-DEDUCTIBLE ITEMS 1. Personal, living or family expenses to be
2. Amt. paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate (not applicable to intangible drilling & development costs incurred in petroleum operation) 3. Amt. expended in restoring property or in making good the exhaustion thereof for w/c an allowance is or has been made 4. premiums on life insurance policy when the taxpayer is directly/indirectly a beneficiary under such policy 5. No deduction shall be allowed in Losses from Sales or Exchanges of Property directly/indirectly: a) between members of a family (include only brothers & sisters, spouse, ancestors, & lineal descendants) b) between an individual & a corp. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) c) between 2 corps. more than 50% in value of outstanding stock owned by same individual, if either one is a personal holding co. or a foreign holding co. during the taxable yr. preceding the date of sale/exchange d) between grantor & fiduciary of any trust e) between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust f) between Fiduciary & a beneficiary of a trust E. PERSONAL EXEMPTION AND OPTIONAL STANDARD DEDUCTION (OSD)
1. Personal Exemption Single Married Individual judicially declared as P20,000 legally separated Head of Family (unmarried, legally separated) 25,000 Each married individual 32,000 Each dependent (not exceeding 4) (children only) 8,000 Head of Family 1) an unmarried/legally separated man/woman with (a) One or both parent (b) One or more brothers or sister (c) One or more legitimate, recognized natural/legally adopted children A senior citizen, whether relative or not, can be classified as a dependent to make a taxpayer a head of a family. 2) living with & dependent upon him for their chief support 3) such brothers/sisters/children are: (a) Not more than 21 years old (b) Unmarried, and (c) Not gainfully employed (d) Or, where such children, brothers/sister, regardless of age, are incapable of self support because of mental or physical defect In case of married individuals, where only 1 of the spouses is deriving gross income, only such
spouse shall be allowed the personal exemption 2. Additional Exemption
a. Dependent = legitimate/illegitimate/legally adopted

child chiefly dependent upon & living with the taxpayer if such dependent is not > 21 years old, unmarried & not gainfully employed OR if such dependent regardless of age is incapable of self-support because of mental/physical defect i. For married individuals, claimed by only 1 of the spouses ii. For legally separated spouses, claimed only by the spouse who has custody of the children; may be claimed by both as long as they have custody of the children but total amount claimed by both shall not exceed the maximum allowed b. Change of Status i. The death of the taxpayer during the taxable year shall not affect the amount of personal and additional exemptions his estate can claim, as if he died at the end of such year ii. If the taxpayer got married or should have additional dependent (child born within the year) during the taxable year, he may claim the corresponding personal exemptions in full for such year iii. If the spouse should die or any of the dependents become twenty one years of age, or
become gainfully employed during the taxable year, the taxpayer may still claim the same exemptions as if he/she died, or became twenty one years old or became gainfully employed at the close of such year. 3. Premium on Health and/or Hospitalization of an Individual Taxpayer
a. Special deductions: net additions required by

law to reserve funds & the sums other than dividends paid w/in the yr. on policy & annuity contracts; released reserve treated as income for the yr. of release b. Mutual Insurance Companies Shall not report as income premium deposits returned to policyholder Report income received from all other sources + such portion of premium deposits retained by the companies for purposes other than payment of losses & expenses & reinsurance reserves c. Mutual Marine Insurance Companies Include in GI, gross premiums collected & received by them less amounts paid for reinsurance; include as deductions amounts repaid to policyholders on account of premiums previously paid by them & interest pd. upon those amounts between the ascertainment & payment thereof d. Assessment Insurance Companies Deduct from GI the actual deposit of sums w/ the officers of the Phil. govt as additions to guarantee or reserve funds G. CAPITAL GAINS & LOSSES 1. Definitions - No definition in the Code for capital assets. Only Ordinary assets are defined a. ORDINARY ASSETS:
a. Amount of premiums not to exceed P2,400 per family;

provided, said family has GI of < P250,000 for the taxable year b. In case of married taxpayers, only the spouse claiming the additional exemption for dependents shall be entitled to this deduction
4. Deduction for Estate or Trust - P20,000

5. Optional Standard Deduction (OSD) a. Applicable to any individual, except a nonresident alien b. Taxpayer may elect to pay a standard deduction in an amount not exceeding 10% of GI c. Such election should be signified in his return & shall be irrevocable for the taxable year for which the return was made d. Individual is not required to submit his financial statements F. SPECIAL RULES ON INSURANCE COMPANIES 1. Income & Deductions of Insurance Companies
(a) stock in trade of taxpayer (b) property which would properly be included in an inventory of the taxpayer, if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business
3. Limitation on Capital Loss Allowed only to the extent of the gains from such sales or exchanges, hence, the net capital loss is not deductible.
Example: Gains P 5,000 Losses 15,000 NCL P10,000 In this case, only P5,000 can be claimed as deduction (to the extent of the gain) Exception: Losses from such sale incurred by a domestic bank/trust co. substantial part of business is receipt of deposits, sell any bond, debenture, note or certificate or other evidence of indebtedness issued by any corp, w/ int. coupons or in registered form (including one issued by the government or political subdivision)
b. CAPITAL ASSETS property held by the

taxpayer (whether or not connected with his trade or business) Hence, capital assets are property of a taxpayer other than ordinary assets. c. NET CAPITAL GAIN gains > loss from sales/ exchanges of capital assets d. NET CAPITAL LOSS loss > gains from sales/ exchanges of capital assets
2. Percentage taken into account a. For computing NCG, NCL & NI (1) 100% = if cap. asset is held for not > 12 mos. (2) 50% = if cap. asset is held for > 12 mos. b. Taxpayer is not a corporation In cases of corporation, there is no holding period and capital gains and losses shall be taken into account to the extent of 100%
4. Net Capital Loss Carry-over a. Corporations cannot carry over a net capital loss b. If NCL is sustained in any taxable yr., such loss is treated in the succeeding taxable yr. as a loss from the sale/exchange of a capital asset held for not more than 12 mos. c. Such NCLC should not exceed the net income for the yr. incurred d. Example: NI in 1996 = P6,000 NCL in 1996 = 10,000 * treated as a loss in 1997(100%) = P6,000 only
since it should not exceed the net income of the taxable yr. w/c the loss was incurred
Mode of Basis for determining gain/loss from sale/disposition of property Acquisition
5. Retirement of Bonds, Debentures, Notes or Certificates or other evidences of indebtedness Tax Base: Amount received by the holder for such transaction These transactions result in capital gain or loss although there is no sale of capital assets 6. Gain or Loss from Short Sales of Property a. Considered as gains & losses from sales/exchanges of capital assets b. Gains & Losses attributable to failure to exercise privileges or options to buy or sell property = capital gains/losses
H. DETERMINATION OF AMOUNT & RECOGNITION OF GAIN OR LOSS
1. Computation of Gain or Loss a. GAIN = amt. realized > basis/adjusted basis for determining gain (in other words, selling price or proceeds > cost) b. LOSS = basis/adjusted basis for determining loss > amt. realized (cost > selling price/proceeds) c. AMOUNT REALIZED = money received + fair market value of the property (other than money, if any) received
Purchase Inheritance Gift
Acquired for less than adequate consideration if property Same as the basis of property, acquired where stock/securities exchanged G/L is not increased by: recognized dividends amt. of any gain recognized by the exchange (2) decreased by: money received fair market value of the other property received liability assumed by the transferee 2. Exchange of property a. GENERAL RULE: the entire amount of the gain or loss shall be recognized upon the sale or exchange of property b. EXCEPTION: no gain or loss is recognized (1) If in pursuance to a plan of merger or consolidation (a) a corp. exchanges property solely for
cost of property acquired on/after 3/1/13 fair market value at the time of death the cost to the donor or to the previous owner who did not acquire it by gift; BUT, if such basis > FMV at the time of the gift, the basis shall be such FMV for the purpose of determining the loss amount paid by the transferee
stocks in a corp. (both parties to merger/consolidation) (b) shareholder exchanges stock in a corp. for the stock of another corp. (both corps. are parties to the merger/consolidation) (c) security holder of a corp. exchanges his securities in such corp. solely for stock or securities in another corp. (both corps. are parties to the merger/consolidation) (2) If property is transferred to a corp. by a person in exchange for stock/unit of participation in such corp. of w/c as a result of such exchange such person, alone/together w/ others, not exceeding 4 persons, gains control of said corp. (stocks issued for services shall not be considered as issued in return for property) (3) BASIS: same as the basis of property, stock/securities exchanged (a) decreased by: money received fair market value of the other property received (b) increased by: amount treated as dividend amount of any gain recognized by the exchange property received as boot shall have the FMV as basis if part of the consideration to the transferor, the transferee of property assumes a liability of the
transferor/acquires from the latter property subject to a liability, such assumption shall be treated as money received by the transferor on the exchange if transferor receives several kinds of stock/securities, Commissioner is authorized to allocate the basis among the several classes of stocks/securities basis of the prop. transferred in the hands of the transferee: same as would be in the hands of the transferor increased by the amt. of the gain recognized to the transferor on the transfer BIR Ruling #108-98 and #031-99 There is no taxable income whenever the trustees return real property held in trust to the owner thereof. Such a transaction involves no sale, exchange or disposition of real property as otherwise contemplated by Sec. 21(e) of the CTRP. BIR Ruling #146-98 (Basis for computing gain or loss) The fair market value of the sale of shares not traded but listed in the stock exchange is the highest closing price on the day the shares were sold, transferred or exchanged. When no sale is made in the stock exchange, the FMV shall be highest selling price on the day nearest to the day of sale, transfer or exchange. For shares not listed in the exchange, the FMV shall be the book value nearest the valuation date. The above rules shall be used in computing for the net
capital gain/loss for disposition of shares. BIR Ruling #170-98 (exchange of property) Issuance of shares by the new corporation for the cessation of the policy-holders membership rights and interests in a mutual company is generally a tax-free transaction under Sec. 40 (C) (2) (b) of the CTRP. The above-policy holders who would have to surrender their membership rights and interest for shares are considered as shareholders as defined in Sec. 22(M) of the CTRP. Moreover, demutualization is a bona fide business purpose and constitutes de facto merger or acquisition under clause (ii) of Sec, 40 (C) (6) (b) of the CTRP. BIR Ruling #031-2000 Pursuant to Section 66 of the Comprehensive Agrarian Reform Law of 1988 (R.A. No. 6657), transactions involving transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes and all other fees for the conveyance thereof. All arrearages in real property taxes, without penalty and interest, shall be deductible from the compensation to which the owner may be entitled. BIR Ruling #021-02 (May 31, 2002) A deed executed by a debtor covering an assignment of property to a trustee to be held for the benefit of a creditor is not subject to tax. When, however, the trustee sells or conveys such property either to the creditor or any other
person, the deed executed by him is taxable. BIR Ruling #039-02 (Nov. 11, 2002) Liquidating gain or loss is in the nature of capital gain or loss as the case may be, and therefore treated in the same manner as stated in Sec 39 of the Tax Code. Liquidating gain, while characterized as gain from sale or exchange of shares, is subject to the ordinary income tax rates and not to the 5%/10% final tax. IV. SOURCES OF INCOME * The need to identify the situs of the income arises only when the taxable entity is merely taxed on income within. Hence, when the taxable entity is an individual resident citizen or a domestic corporation, the situs becomes irrelevant since they are taxed on worldwide income. A. GROSS INCOME FROM SOURCES WITHIN THE PHILIPPINES Income Interests Dividends Test of Source of Income Residence of Debtor a) from domestic corp. income within b) from foreign corp. income within, if : > 50% of the Gross Income of such foreign corp. for the 3-yr.
period ending w/ the close of the taxable yr. prior to the declaration of dividends (or for such part of such period as the corporation has been in existence) was derived from sources w/in the Philippines Extent: Phil Gross Income x Dividend =Income Total Gross Income within Income without, if < 50% of the Gross Income of such foreign corp. for the 3-yr. period ending w/ the close of the taxable yr. prior to the declaration of dividends was derived from sources w/in the Philippines. Therefore, nothing of such dividends forms part of income within Services (Compensation Place of performance of service for labor/personal services) Rentals Location of the property/interest in such property Royalties Place of use or location of intangibles (such as patents,
trademarks, etc.) giving rise to royalties Gain on sale of Real Location of property property Gain on sale of Personal Place of Sale Property other than shares of stock in a domestic corporation purchased in one country and sold in another Gain on sale of shares Philippines regardless of where of stock in a domestic sold corporation ROYALTIES (from property or use of property located in Philippines), includes: (a) use of/the right/privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right (b) use of/the right to use in the Philippines any industrial, commercial or scientific equipment (c) supply of scientific, technical, industrial or commercial knowledge or information (d) supply of any assistance that is ancillary & subsidiary to, & is furnished as a means of enabling the application or enjoyment of, any such property/right in (a) above, such equipment in (b) above or knowledge/info in (c) above (e) supply of services by a nonresident person/his employees in connection with the use of prop./rights
belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person (f) technical advice, assistance or services rendered in connection with technical mgt./admin. Of any scientific, industrial or commercial undertaking, venture, project or scheme (g) the use of or the right to use: i. motion picture films ii. films or video tapes for use in connection with TV iii. tapes for use in connection with radio broadcasting Taxable Income from Sources Within the Phils. 1. General Rule Gross Income [GI] (within the Philippines) ( - ) Deductions (attributable to GI within) = Taxable Income by attributable is meant that the expense can be identified as the expense that generated the income. For instance, if ABC Corp. manufactures clothes and sells it in the Phils., and sells shoes in the US. The cost of manufacturing the clothes are attributable to the income generated from selling the clothes. Since the income from the sale of clothes is income within, then the expense for manufacturing them must be deducted from gross income within. However, the cost of selling the shoes may not be deducted from income within since it is not attributable to income within. Rather, it is specifically attributable to income without.
2. Deductions: expenses, losses & other deductions properly allocated thereto & a ratable part of expenses, interests, losses & other deductions effectively connected w/ the business/trade conducted exclusively w/in the Philippines which cannot definitely be allocated to some items or class of gross income Such deductions shall be allowed only if fully substantiated by all info necessary for its calculation 3. EXCEPTION: no deduction for interest paid/incurred abroad shall be allowed unless Indebtedness was actually incurred Indebtedness must be that of the taxpayer Interest must be legally due and stipulated in writing Interest must be paid or incurred during the taxable year Indebtedness must be in connection w/ the conduct or operation of trade/business in the Philippines B. GROSS INCOME FROM SOURCES WITHOUT THE PHILIPPINES 1) Interests (other than those derived from sources within the Philippines) 2) Dividends (other than those derived from sources within the Philippines) 3) Compensation for labor or personal services performed w/o the Philippines 4) Rentals or royalties from property located w/o the
5)
Philippines or from any interest in such property including rentals/royalties for the use of or for the privilege of using w/o the Philippines, patents, copyrights, secret processes & formulas, goodwill, trademarks, trade brands, franchises & other like properties Gains, profits & income from the sale of real property located w/o the Philippines
Tip: The foregoing enumeration is merely the reverse of the enumeration of gross income from sources within the Philippines. Hence, so long as you know which income are considered as income within, all else are income without. Taxable Income from Sources Without the Philippines 1. General Rule Gross Income (without the Philippines) ( - ) Deductions (attributable to GI without) = Taxable Income 2. Deductions: expenses, losses & other deductions properly apportioned/allocated thereto & a ratable part of expenses, interests, losses & other deductions w/c cannot definitely be allocated to some items or class of gross income C. INCOME FROM SOURCES PARTLY WITHIN AND PARTLY WITHOUT THE PHILIPPINES. These are: 1. Income from services rendered partly within and partly
without;
2. Income from sale of personal property produced (in

whole or in part) within and sold without the Philippines; and 3. Income from sale of personal property produced (in whole or in part) without and sold within the Philippines. As for unallocated expenses, meaning those which are not entirely attributable to either income within or without, such expenses shall be allocated using the following formula: Income within --------------------------Worldwide Income Income without --------------------------Worldwide Income x Unallocated expense Deductions = from income within x Unallocated expense = Deductions from income without
2.
3.
4.
5.
(fiscal or calendar year) in accordance with the method of accounting employed If no method of accounting employed or method does not clearly reflect the income, computation shall be made in accordance w/ such method as the opinion of the Commissioner clearly reflects the income. taxable income is computed based on calendar year if: (a) accounting period is other than a fiscal year (b) taxpayer has no accounting period (c) taxpayer does not keep books (d) taxpayer is an individual fiscal year: accounting period of 12 months ending on the last day of any month other than December calendar year: accounting period from January 1 to December 31
B. PERIODS IN WHICH ITEMS OF GROSS INCOME INCLUDED (Sec. 44) 1. Amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, any such amounts are to be properly accounted for in a different period under methods of accounting permitted 2. In case of death of taxpayer include for the taxable year in which falls the date of his death, all amounts which accrued up to the date of his death, if not otherwise properly includible in respect of such period or a prior period
ACCOUNTING PERIOD & METHODS OF ACCOUNTING A. ACCOUNTING PERIODS
1. General Rule (Sec. 43): Taxable income is computed

upon the basis of taxpayers annual accounting period
C. PERIOD FOR WHICH DEDUCTION AND CREDITS
TAKEN (Sec. 45) 1. Deductions provided in this Title shall be taken for the taxable year in which paid or accrued or paid or incurred, dependent upon the method of accounting upon the basis of which the net income is computed, unless, in order to reflect the income, deductions should be taken as of a different period. 2. In case of death of taxpayer: deductions allowed for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise properly allowable in respect of such period or a prior period
expense when you actually pay cash for the expense)
2. ACCRUAL METHOD - method under which income,

gains and profits are included in gross income when earned whether received or not, and expenses are allowed as deductions when incurred, although not yet paid. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income Examples: (a) interest or rent income earned but not yet received (b) rent exp. accrued but not yet paid (c) wages/salaries due but remaining unpaid Illustration: A leases an office space at P1M per year and lease payments are made on a yearly basis and are due every January 5. A leased out the space to X on January 1, 2004. However, X will only pay rent for one year on January 5, 2005. For the year 2004, A should recognize income of P1M as of December 31, even if he will receive payment only on January 5 because the he is considered to have earned the P1M already for allowing X to actually use the space for the year 2004. F. ACCOUNTING FOR LONG-TERM CONTRACTS
D. CHANGE OF ACCOUNTING PERIOD (Sec. 46)

1. Kinds of changes: (a) from fiscal year to calendar year (b) from calendar year to fiscal year (c) from one fiscal year to another fiscal year 2. effect of change: net income shall, with the approval of the Commissioner, be computed on the basis of the new accounting period, subject to Sec. 47 on Final or Adjustment Returns for a Period of Less Than 12 Months (as discussed below) E. METHODS OF ACCOUNTING
1. CASH METHOD - recognition of income and expense

dependent on inflow or outflow of cash (meaning, you recognize the income when you actually receive the cash payment for the sale, and you recognize the
1. Long-term
contracts: building, installation or construction contracts covering a period in excess of 1
yr
2. Persons whose gross income is derived in whole or in

part from such contracts shall report such income upon the basis of percentage of completion 3. The return should be accompanied by a return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under the contract 4. Deductions from gross income: all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. 5. Amended return may be permitted/required by the Commissioner: if upon completion of contract, taxable income has not been clearly reflected for any year(s) This provision takes into account that certain businesses, like construction, takes more than a year for a project to be completed. As such, it is not practical (from the point of view of the government) to wait until the project is finished before the income arising therefrom is actually reported and taxed. Hence, income is spread over the years where the construction is in progress, and the allocation is made on the basis of percentage of completion.
in 5 years for a fee of P10M. For the first year of construction, ABC Corp was able to construct 30% of the condominium. It will therefore declare a gross income of P3M computed as follows: P 10 M x 30% P 3M G. INSTALLMENT BASIS 1. SALES OF DEALERS IN PERSONAL PROPERTY Under R&R prescribed by the Sec. of Finance, upon recommendation of the Commissioner: a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year, which the gross profit realized or to be realized when payment is completed, bears to the contract price. Example: Sale in 1997 Contract price(CP)(installments P100,000 Cost Gross profit (GP)
receivable) 75,000 25,000
Illustration: ABC Corp. entered into a contract with X whereby the former agreed construct a condominium for the latter to be completed
* installments payable in 2 equal annual installments GP/CP ratio = 25T/100T = 25%
Collections in 1997 = P50T Income for 1997 = P50T x 25% = P12,500 2. SALES OF REALTY AND CASUAL SALES OF PERSONALTY 1) in cases of: (a) casual sale or other casual disposition of personal property (other than inventory on hand of the taxpayer at the close of the taxable year) for a price > P1,000, or (b) sale or other disposition of real property, if in either case the initial payments do not exceed 25% of the selling price 2) how may income be returned: same as in sales of dealer in personal property above 3) initial payments: payments received in cash or property other than evidence of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made 3. SALES OF REAL PROPERTY CONSIDERED AS CAPITAL ASSET BY INDIVIDUALS 1) individual who sells of disposes of real property, considered as capital asset & is otherwise qualified to report the gain under (2) above may pay the capital gains tax in installments under R&R to be promulgated by the Sec. of Finance, upon recommendation of the Commissioner 2) capital asset: property held by the taxpayer
(whether or not connected with his trade or business) but does not include: (a) stock in trade of taxpayer (b) property which would properly included in inventory, if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business 4. CHANGE FROM ACCRUAL TO INSTALLMENT BASIS 1) taxpayer must be entitled to benefits under 1 (sales of dealers in personal property) 2) in computing income for the year of change or any subsequent year: amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded H. ALLOCATION OF INCOME AND DEDUCTIONS 1) Applicable to: cases of 2 or more organizations, trades or businesses (w/n incorporated & w/n organized in the Philippines) owned or controlled directly/indirectly by the same interest 2) Commissioner is authorized to distribute, apportion or allocate gross income or deductions between or among such organization, trade or business, if he determines that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization, trade or business RETURNS AND PAYMENT OF TAX I. INDIVIDUAL RETURN A. WHO ARE REQUIRED TO FILE AN ITR: 1) Filipino citizen residing in the Philippines 2) Filipino citizen residing outside the Philippines, on his income from sources within the Philippines 3) Alien residing in the Philippines, on income derived from sources within the Philippines 4) Nonresident alien engaged in trade or business or in the exercise of profession in the Philippines
B.
WHO ARE NOT REQUIRED TO FILE AN ITR: (but may be required to file an information return pursuant to Rules and Regulations prescribed by the Sec. of Finance, upon recommendation of the Commissioner) An individual whose gross income does not exceed his total personal and additional exemptions An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position
as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and subcontractors and offshore-banking units, non-resident aliens not engaged in trade or business) Those who are qualified under substituted filing. However, substituted filing applies only if all of the following requirements are present the employee received purely compensation income (regardless of amount) during the taxable year the employee received the income from only one employer in the Philippines during the taxable year the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer the employees spouse also complies with all 3 conditions stated above the employer files the annual information return (BIR Form No. 1604-CF) the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee. C. WHERE TO FILE Except in cases where the Commissioner otherwise permits: 1) Authorized agent bank 2) Revenue District Officer 3) Collection Agent 4) Duly authorized Treasurer of the city/municipality in w/c such person has his legal
residence/principal place of business in the Philippines, or 5) Office of Commissioner, if there be no legal residence/ place of business in the Philippines D. WHEN TO FILE: 1) for any individual (compensation, business, professional income) on or before April 15 of each year covering income for preceding taxable year example: individuals income from Jan. to Dec. 1997, shall be filed on or before April 15, 1998 2) individual subject to capital gains tax (a) sale/exchange of shares of stock not traded thru a local stock exchange: within 30 days after each transaction (b) sale/disposition of real property within 30 days following each sale or other disposition HUSBAND AND WIFE File 1 return for the taxable yr., if ff. requisites complied : 1) Married individuals (citizens, resident or nonresident aliens) 2) Do not derive income purely from compensation If impracticable to file 1 return: each spouse may file a separate return but the returns shall be consolidated by the Bureau for purposes of
verification for the taxable yr. UNMARRIED MINOR Income of unmarried minors derived from property received by the living parent shall be included in the return of the parent, except: 1) when donors tax has been pd. on such property, or 2) when transfer of such property is exempt from donors tax PERSONS UNDER DISABILITY If unable to make a return, return may be made by: 1) duly authorized agent or representative 2) guardian, or 3) other person charged w/ the care of his person/property principal & his rep. or guardian assumes responsibility of making the return & incurs penalty for erroneous, false/fraudulent returns an individuals name signed in the return is prima facie evidence for all purposes that the return was actually signed by such individual II. CORPORATION RETURNS A. WHO IS REQUIRED TO FILE AN ITR: Every corporation subject to tax, except foreign corp. not engaged in trade/business in the Philippines.
REQUIREMENTS: File in duplicate a true & accurate quarterly income tax return & final/adjustment return Taxable year: fiscal or calendar (corp. shall not change accounting period w/o prior approval by the Commissioner)
approval of the SEC of the corporations adopted authority to dissolve. C. RETURN ON CAPITAL GAINS REALIZED FROM SALE OF SHARES OF STOCK NOT TRADED IN PSE File a return within 30 days after each transaction AND, a final consolidated return of all transactions must be filed on or before 15th day of the fourth month following the close of the taxable yr. D. EXTENSION OF TIME TO FILE RETURNS Commissioner may, in meritorious cases, grant a reasonable extension of time for filing returns of income (or final & adjustment returns in case of corps.) This is exceptional and in case of calamity only based on precedents. E. RETURNS OF GENERAL PROFESSIONAL PARTNERSHIPS each GPP shall file in duplicate, a return of its income (except items under exclusions from gross income) set forth: 1) items of gross income & of deductions allowed 2) names of partners 3) TIN 4) Share of each partner F. PAYMENT OF TAX 1) IN GENERAL: Who shall pay?
B. RETURN OF CORP. CONTEMPLATING DISSOLUTION/ REORGANIZATION Which corporation? Every corporation, including a corporation w/c has been notified of possible involuntary dissolution by the SEC, or for its reorganization within 30 days after the adoption by the corp. of a resolution/plan for its dissolution or for the liquidation of the whole/any part of its capital stock: 1) render a correct return 2) verified under oath 3) set forth the terms of such resolution/plan & such other information as the Sec. of Finance, upon recommendation of the Commissioner, shall, by Rules and Regulations, prescribe prior to issuance by the SEC of Certificate of Dissolution/Reorganization: dissolving/reorganizing corporation shall secure a certificate of tax clearance from BIR to be submitted to the SEC BPI vs. CIR, GR No. 38504, April 14, 2000 It was held that the 30-day period is counted from the
(a) Total amount of tax shall be paid by the person subject thereto at the time the return is filed (b) For tramp vessels: Filed & paid before departure by: the shipping agents &/ or the husbanding agents; in their absence, captains failure to do so: Bureau of Customs is authorized to hold the vessel & prevent departure until proof of payment of tax is presented or a sufficient bond is filed to answer for the tax due
2) INSTALLMENT PAYMENT (for individuals only) If tax due > P2,000, the taxpayer, other
tax due shall immediately become due & payable + penalties If tax has been paid, and seller submits proof of intent w/in 6 mos. From the registration of the document transferring real property, he shall be entitled to a refund upon verification of his compliance with requirements for such exemption If taxpayer elects to report gain by installments, tax due shall be paid w/in 30 days from such receipt of payments No registration of document transferring real prop. Unless Commissioner/duly authorized representative certified that such transfer has been reported & tax due has been paid
than a corp., may elect to pay in 2 equal installments: (a) 1st inst. pd. at the time the return is filed (b) 2nd inst. paid on/before July 15 ff. the close of calendar yr. (c) If any inst. is not pd. on fixed date, whole amount of the tax unpaid becomes due & payable + delinquency penalties
3) PAYMENT OF CAPITAL GAINS TAX Paid on the date the return is filed No payment is required if the seller submits proof of his intention to avail of exemption provided by law In case of failure to qualify for exemption, the
4) ASSESSMENT & PAYT. OF DEFICIENCY TAX After return is filed, Commissioner shall examine & assess the correct amt. of tax Any deficiency shall be paid upon notice & demand of Commissioner Deficiency means: a. tax imposed > amount shown by the taxpayer upon his return amount shown in the return shall be increased by amount previously assessed as a deficiency & decreased by amounts previously abated, credited, returned/ otherwise repaid b. if:
2.
1. no amt. is shown upon the return as the tax, or no return is made, then: the amt. by w/c tax exceeds the amts. previously assessed as a deficiency; but such amounts previously assessed/collected w/o assessment shall first be decreased by the amts. previously abated, credited, returned or otherwise repaid in respect of such tax Withholding of Creditable Tax at Source: Sec. of Finance may require the w/holding of a tax by payorcorp., on income payable to natural/juridical persons, residing in the Philippines, at rate of not more than 1% but not more than 32%, which shall be credited against the income tax liability for the taxable year CIR v. S.C. JOHNSON (G.R. No. 127105, June 25, 1999) (Withholding tax on royalties under most favored nation clause) Facts: SC Johnson was licensed by SC Johnson & Son (USA) to use its trademarks. The agreement was registered with the Bureau of Patents. For this privilege, SC Johnson pays royalties to the US Corp. which was subject to 25% withholding tax. In 1993, SC Johnson filed for refund of overpaid withholding tax. It claims that under the MFN Clause of the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty, the royalty payments it made were subject to 10% tax only.
Issue: What is the applicable tax rate? Held: 25%. The RP-US Treaty states that the applicable rate would be the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third state. The 10% rate provided in the RP-West Germany Treaty is not applicable. This is because the RP-US Treaty does not provide for a matching tax credit of 20% for taxes paid to the Philippines on royalties expressly allowed in the RP-West Germany Treaty. The entitlement of the 10% rate by US firms despite the absence of a matching 20% credit would derogate from the design behind the MFN clause to grant equality of international treatment since the tax burden laid upon the income of the investor is not the same in the 2 countries. The similarity of payment of taxes is a condition for the enjoyment of the MFN treatment precisely to underscore the need for equality of treatment. Note: The 10% withholding tax on royalty payment to US entities was restored by RMC 46-2002 after the effectivity of the RP-China Tax Treaty. US residents may, therefore, invoke the preferential tax rate of 10% on royalties, accruing before 01/01/02, arising in the Philippines under the RP-China Tax Treaty, pursuant to the most favored nation clause of the RPUS Tax Treaty.
Most favored nation clause Royalty income paid by a domestic corporation to a non-resident foreign corporation which is a resident of a Contracting State with which the Philippines has an effective tax treaty is generally subject to 15% final withholding tax, but the rate may be reduced to 10% for certain royalty payments or
under the most-favored-nation-clause of the tax treaty, such as the Philippines-US Tax Treaty. The purpose of the clause in a tax treaty is to grant to the other Contracting State a tax treatment that is no less favorable than that which is granted to the most favored among other countries. It means each party to the treaty pledges that any tax concession given to any other treaty country will also be extended to the other party to the treaty; that is, it will not grant more favorable terms to other treaty countries without granting the same concession to the treaty partner involved. ESTATES AND TRUSTS IMPOSITION OF TAX A. Application of tax: 1) Applies to income of estates or of any kind of property held in trust, including: (a) income accumulated in trust: 1. for the benefit of unborn/ unascertained person(s) w/ contingent interests 2. held for future distribution under the terms of the will or trust (b) income: 1. to be distributed currently by the fiduciary to the beneficiaries 2. collected by a guardian of an infant to be held or distributed as the court may direct (c) income received by estates of deceased persons during the period of administration or settlement of
the estate (d) income which, in the discretion of the fiduciary, may be either distributed to beneficiaries or accumulated 2) Exception: Employees trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of all or some of his employees: (a) if contributions are made to the trust by the employer/employees, or both for the purpose of distributing to such employees the earnings + principal of the fund accumulated by the trust in accordance w/ such plan (b) if under the trust instrument, it is impossible, at any time prior to the satisfaction of all liabilities w/ respect to employees under the trust, for any part of income to be used for/diverted to, purposes other than for the exclusive benefit of his employees (any amount distributed to employees shall be taxable in the yr. so distributed) B. Consolidation of Income of 2/more trusts: 1) Requisites: (a) 2/more trusts exist (b) creator of the trust in each instance is the same person (c) beneficiary in each instance is the same 2) tax computed on such consolidated income 3) proportion of each tax be assessed & collected from each trustee
C. Taxable Income 1) Computed in same manner & on the same basis as in the case of an individual, EXCEPT: (a) deduction allowed: amount of income of the estate/trust for the taxable yr. w/c is to be distributed currently by the fiduciary to the beneficiaries & the amt. of the income collected by a guardian of an infant w/c is to be held./distributed as the court may direct 1. amt. allowed as deduction is included as TI of the beneficiaries, whether distributed or not 2. amt. allowed as deduction under this subsection will not be allowed as deduction under (b) hereof (b) additional deduction: amt. of the income of the estate/trust for its taxable yr., properly paid/credited during such yr. to any legatee, heir or beneficiary applies to cases of : 1. income received by estates of deceased person during the period of administration or settlement of the estate 2. income w/c, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated 3. amt. deducted is included in TI of the legatee, heir or beneficiary 2) for trust administered in a foreign country: deductions in a) and b) not allowed provided, the amt. of income included in the return of said trust shall not be included in computing the income of the beneficiaries
D. Exemption Allowed to Estates and Trusts: P20,000

E. Revocable Trusts 1) Requisites: the power to re-vest in the grantor title to any part of the corpus of the trust is vested(a) in the grantor either alone/ in conjunction w/ any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom (b) in any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom 2) effect: the income of such trust shall be included in computing the taxable income of the grantor F. Income for Benefit of Grantor 1) Requisites: where any part of the income of a trust is, or in the discretion of the grantor/any person not having a substantial adverse interest in the disposition of such part of the income (a) may be held/accumulated for future distribution to the grantor (b) may be distributed to the grantor (c) may be applied to the payment of premiums upon policies of insurance on the life of the grantor 2) Effect: such part of the income be included in computing the taxable income of the grantor G. Fiduciary Returns 1) Who shall make the return?
(a) Guardians (b) Trustees (c) Executors (d) Administrators (e) Receivers (f) Conservators (g) All persons/corp. 2) File, in duplicate, a return of the income of the person, trust, or estate for whom or which they act in case such person, trust, or estate has a gross income = P20,000 or over during the taxable yr. OTHER INCOME TAX REQUIREMENTS A. RETURN OF INFORMATION OF BROKERS Brokers(individual/corp./gen. pawnshop) shall render a correct return duly verified under oath, showing names of customers for whom such person, corp. or duly registered gen. co-partnership. has transacted any business, w/ such details as to the profits, losses or other info B. RETURN OF FOREIGN CORPORATIONS 1) Any attorney, accountant, fiduciary, bank, trust co., financial institution or other person, who aids, assists, counsels or advises in, or w/ respect to, the formation, organization or reorganization of any foreign corp., shall file a return w/in 30 days 2) Such return shall be in the form prescribe & set forth under oath, to the full extent of the info w/in the possession or knowledge or under the control of the person required to file the return
C. DISPOSITION OF IT RETURNS, PUBLICATION OF LISTS OF TAXPAYERS & FILERS 1) After the assessment, the returns, w/ the corrections made by the Commissioner, shall be filed in the Office of the Commissioner & shall constitute public records & be open to inspection as such upon order of the Pres. 2) Commissioner may cause, each yr., to publish the lists containing the names & addresses of such persons who have filed IT returns D. SUIT TO RECOVER BASED ON FALSE/FRAUDULENT RETURNS 1) If tax is collected under an assessment that the list, statement or return is false/fraudulently made, it cannot be recovered by any suit unless it is proved that the said list, statement or return was not false nor fraudulent & did not contain any understatement or undervaluation 2) Not applicable to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells & mines E. DISTRIBUTION OF DIVIDENDS/ASSETS BY CORPS. Dividends = any distribution made by a corp. to its SH out of its earnings or profits & payable to its SH, whether in money or in other property 1. Gain/loss sustained by SH for any liquidating dividends received is a taxable income or a deductible loss (as the case may be) 2. Stock Dividends representing the transfer of
surplus to capital account shall not be subject to tax. 3. Amt. distributed in redemption or cancellation of stock is taxable income to the extent that it represents a distribution of earnings/profits 4. Net income of a partnership after deducting the corporate income tax shall be deemed to have been actually or constructively received by the partners in the same taxable yr. & shall be taxed to them in their individual capacity, whether actually distributed or not DECLARATION OF INCOME TAX BY INDIVIDUALS A. In general: Filing of declaration of estimated income for current taxable yr.: INDIVIDUAL receiving: Income from self- On/before April employment (as sole source) or Combined 15 of same w/ salaries, wages & other fixed/ taxable yr. determinable income NONRESIDENT CITIZEN for: Income from Not required to w/in the Philippines; NONRESIDENT ALIEN file not engaged in trade/business in the Philippines. B. RETURN & PAYMENT OF ESTIMATED INCOME TAX BY INDIVIDUALS 1) Paid in 4 installments 2) 1st installment: paid at the time of declaration 3) 2nd & 3rd installment: paid on Aug. 15 & Nov. 15 of current yr.
4) 4th installment: paid on/before Apr. 15 of the ff. calendar yr. when final adjusted income tax is due to be filed
Estimated Tax means the amt. which the individual declared as income tax in his final adjusted & annual income tax return for the preceding taxable yr. minus the sum of the credits allowed against the said tax If during the current taxable yr., the taxpayer reasonably expects to pay a bigger IT, he shall file an amended declaration during any interval of installment payment dates C. DECLARATION OF QUARTERLY INCOME TAX 1) Every corp. shall file in duplicate a quarterly summary declaration of its GI and deductions on a cumulative basis for the preceding quarter(s) upon w/c the IT shall be levied, collected & paid 2) The tax shall be decreased by the amt. of tax previously pd./ assessed during the preceding quarters & shall be paid not less than 60 days from the close of each of the first 3 quarters of the taxable yr., whether calendar/fiscal yr. D. FINAL ADJUSTMENT RETURN 1) Every corp. liable to tax shall file a final adjustment return covering the total taxable income for the preceding calendar/fiscal yr. 2) If sum of the quarterly tax payments is not equal to the total tax due on the entire taxable income of that yr.,
the corp. shall either: (a)pay the balance of tax still due (b)carry-over the excess credit (c) be credited or refunded w/ the excess amt. paid, as the case may be Example: 1997 Cumulative Taxable Income Q1: P300,000; Q2: P 1,000,000; (sum of TI of Q1 & Q2); Q3:P 2,000,000 Q4: P 2,500,000 (final adjustment return) Tax @35%: 105,000 350,000 700,000 875,000 Payable (each Q) 105,000 245,000 350,000 175,000
data from w/c the return is prepared are kept 3) Time of Filing of IT Return Corp. quarterly declaration Final adjustment return W/in 60 days ff. the close of the first 3 quarters of the taxable yr. On/before the 15th day of April (calendar yr.) On/before the 15th day of the 4th mo. after the close of the taxable yr. (fiscal yr.)
4) Time of Payment of IT: Income tax is paid at the time of the filing of the declaration or return WITHHOLDING ON WAGES A. DEFINITIONS. 1) Wages means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash, (a) shall not include remuneration paid for: 1. agricultural labor paid entirely in products of the farm where the labor is performed 2. domestic service in a private home 3. casual labor not in the course of the employers trade or business 4. services by a citizen or resident of the Philippines for a foreign government or an international organization (b) if remuneration paid by an employer to an employee for services performed during or more
E. PLACE & TIME OF FILING & PAYMENT OF QUARTERLY CORPORATE INCOME TAX 1) The quarterly income tax declaration & the final adjustment return shall be filed with: (a) authorized agent banks (b) Revenue District Officer (c) Collection Agent (d) Duly authorized Treasurer 2) Where? (a) of the city/municipality having jurisdiction over the location of the principal office of the corp. filing the return (b) or place where its main books of accounts & other
of any payroll period of not more than 31 consecutive days constitutes wages, then all remuneration pd. by such employer to such employee for such period shall be deemed to be wages 2) Payroll period means a period for which payment of wages is ordinarily made to the employee by his employer; miscellaneous payroll period means a payroll period other than a daily, weekly, biweekly, semi-monthly, monthly, quarterly, semi-annual, or annual period 3) Employee refers to any individual who is the recipient of wages & includes an officer, employee or elected official of the Philippine Government; includes an officer of a corp. 4) Employer (a) the person for whom an individual performs or performed any service, of whatever nature, as the employee of such person (b) the person having control of the payment of such wages (c) person paying wages on behalf of a nonresident alien individual, foreign partnership/corp. B. LIABILITY FOR TAX 1) EMPLOYER: (a) liable for withholding & remittance of the correct amt. of tax (b) if failed to withhold & remit, employer is liable for the tax + penalties & additions to the tax
2) EMPLOYEE: (a) If fails to file withholding exemption cert. or supplies inaccurate/false info, the tax shall be collected from him + penalties or additions to the tax (b) Excess taxes w/held by the employer shall not be refunded if due to: 1. failure or refusal to file the w/holding exemption certificate 2. false & inaccurate information C. STATEMENTS & RETURNS 1) Requirements (a) employer shall furnish EE on/before Jan. 31 of the succeeding yr. or on the same day of last payment made (if employment is terminated), a written statement confirming the wages paid by the employer to employee 1. Annual Information Returns (b) employer shall submit an annual information return to the Commissioner containing: 1. a list of employees 2. total amt. of compensation income of each EE 3. total amt. of taxes w/held during the yr. 4. With copies of statement referred to in (A) above 2) Extension of Time Commissioner may grant the ER a reasonable extension of time to furnish & submit the statements & returns required TITLE III. ESTATE TAX AND DONORS TAX
CHAPTER I- ESTATE TAX An excise tax on the rights of transmitting property at the time of death and on the privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon death. ESTATE TAX FORMULA Gross Estate (Sec. 85) Less: (1) Deduction (Sec. 86) (2) Net share of the surviving spouse in the CP --------------------------------------------------------------------------Net Taxable Estate X Tax rate (Sec. 84) ---------------------------------------------------------------------------Estate Tax due Less: Tax Credit (if any) Sec. 86 [E] or 110 [B] ---------------------------------------------------------------------------Estate Tax Due, if any A. GROSS ESTATE (Sec. 85) 1) FMV at the time of his death 2) of all property, real or personal, tangible or intangible, 3) wherever situated 4) except, if nonresident decedent only that part of the entire gross estate which is situated in the Philippines Valuation 1. Real Property FMV determined by the Commissioner (zonal value) or FMV shown in schedule of values determined by
assessor, whichever is HIGHER If there is no zonal value, the taxable base is the fair market value that appears in the latest tax declaration. If there is an improvement, the value of improvement is the construction cost per building permit or the fair market value per latest tax declaration. 2. Shares of Stock Listed shares mean bet. Highest and lowest quotation at date of death; if none available, date nearest Unlisted Shares if Common shares- book value if preferred par value 3. Personal Property FMV Resident: tangible and intangible Non-resident: situated in the Philippines unless Intangibles exempted o the basis of reciprocity INTANGIBLE PERSONAL PROPERTIES WITH A SITUS IN THE PHILS. (Sec. 104) 1. Franchise which must be exercised in the Phils. 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, if such shares, obligations or bonds have acquired a business situs in the Philippines, 5. Shares, rights in any partnership business or industry established in the Phil. INTANGIBLE PERSONAL PROPERTY, WITH A SITUS IN THE PHILIPPINES OF A DECEDENT WHO IS NONRESIDENT ALIEN SHALL NOT FORM PART OF THE GROSS ESTATE IF (RECIPROCITY CLAUSE) Sec. 104: The decedent at that time of his death was a citizen and resident of a foreign country which at the time of his death 1. did not impose a transfer tax or death tax of any character 2. in respect of the intangible personal property of citizens of the Philippines not residing in that foreign country; or the law of the foreign country of which the decedent was a citizen and resident a the time of his death 1. allow a similar exemptions from transfer taxes or death taxes of every character 2. in respect of the intangible personal property owned by citizens of the Philippines not resident in that foreign country (RECIPROCITY). B. GROSS ESTATE INCLUDES: (DT RALIC) 1) Decedent's Interest 2) Transfer in Contemplation of Death 3) Revocable Transfer
4) Property
Passing Under General Appointment 5) Proceeds of Life Insurance 6) Prior Interests 7) Transfers for Insufficient Consideration
Power
of
Decedents Interest To the extent of the interest in property of the decedent at the time of his death Transfer in Contemplation of Death A transfer is in contemplation of death if the transfer is impelled by the thought of an impending death, or the motivating factor for the transfer of the property is the thought of death, without regard of the state of health of the transferor Under which he ha retained for his life or for any period which does not in fact end before his death a) the possession or enjoyment of, or the right to the income of the property; b) the right either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom EXCEPT bona fide sales for an adequate and full consideration in money or moneys worth Revocable Transfer GE includes value of property which decedent had transferred during his lifetime, where the transfer at the time of death was subject to a reserved power to alter,
amend, revoke or terminate EXCEPT bona fide sales for an adequate and full consideration in money or moneys worth Property Passing Under General Power of Appointment The general power of appointment may be exercised by the decedent a) by will b) by deed executed in contemplation of death c) by deed under which he has retained for his life or for any period which does not in fact end before his death o The possession or enjoyment of, or the right to the income from, the property or o The right, either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom EXCEPT bona fide sales for an adequate and full consideration in money or moneys worth If the donee of the power of appointment may designate any person without restriction, the power is general. A general power of appointment allows the holder of the power to distribute the designated property over which the power may be exercised to anyone. Proceeds of Life Insurance Included in GE when:
a) taken out by the decedent upon his own life when beneficiary is his estate, executor or administrator whether revocable or not if beneficiary is not estate, executor or administrator and designation is revocable Not taxable if if beneficiary is not estate, executor or administrator and designation is irrevocable from group insurance from SSS, GSIS
Transfers for Insufficient Consideration Only the excess of the FMV at time of death over the value of the consideration received is included in GE C. EXCLUDES: Capital of the surviving spouse of the decedent D. DEDUCTIONS FOR ESTATE OF A CITIZEN OR A RESIDENT (Revenue Regulations 2-2003 and Sec. 86) 1) Expenses, Losses, Indebtedness, and Taxes (a) actual funeral expenses or five percent (5%) of the gross estate whichever is lower (not exceeding P200,000) (b) judicial expenses of the testamentary or intestate proceedings (c) claims against the estate duly notarized instrument showing disposition of proceeds of loan
(d) claims against insolvent persons included in the

gross estate (e) unpaid mortgages or indebtedness upon property (f) unpaid taxes (g) losses incurred during the settlement of the estate arising from fires, storms, shipwreck or other casualties, robbery, theft, embezzlement, provided, losses are not compensated for by insurance or otherwise at the time of the filing of the return, losses have not been claimed as a deduction for income tax purposes and the losses were incurred not later than the last day for the payment of the estate tax 2) Transfers for Public Use-to the government of the Republic of the Philippines or any political subdivision thereof, exclusively for public purposes 3) Vanishing deductions 4) Family Home (a) up to P1,000,000 only (b) excess subject to estate tax 5) Standard Deduction -- P1,000,000 An additional deduction without need of substantiation 6) Medical Expenses (a) 1 year prior to his death (b) not exceeding P500,000
(c) duly substantiated 7) Amount Received by Heirs under RA 4917 8) Net Share of the surviving spouse in the Conjugal Property (1) ORDINARY DEDUCTIONS A. Funeral expenses They include: a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial; b) Expenses for the deceaseds wake, including food and drinks; c) Publication charges for death notices; d) Telecommunication expenses incurred in informing relatives of the deceased; e) 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; f) Interment and/or cremation fees and charges; and g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like are not deductible.
Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred (RR 2-2003) B. Judicial Expenses These deductible items are expenses 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. Judicial Expenses should be supported by a sworn statement of account issued and signed by the creditor. This includes (1) Fees of executor or administrator (2) Attorneys fees (3) Court fees; (4) Accountants fee; (5) Appraisers fee; (6) Clerk hire; (7) Cost of preserving and distributing the estate; (8) Brokerage fees for selling property of the estate. C. Claims against the Estate Debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments.
May arise out of : 1) Contract; 2) Tort; or 3) Operation of Law Requisites for deductibility: a) A personal obligation of the deceased existing a the time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid medical expenses which are classified under a different category of deductions, b) Contracted in good faith and for adequate and full consideration in money or money's worth, c) Must be a debt or claim which is valid in law and enforceable in court, d) Must not have been condoned by the creditors or the action must not have prescribed. e) Duly substantiated In case of Loans or other Similar Indebtedness a) notarized at the time incurred, except loans from financial institutions where notarization not part of business practice or policy b) 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 three (3) years prior to the death of the decedent D. Unpaid Mortgage Determine the recipient or beneficiary of the loan which must be verified; If merely an accommodation made by decedent, then balance of loan considered as receivable and part of GE
The decedents interest in the property mortgaged must be included as part of the GE undiminished by the mortgage If there is a legal impediment to recognize the same as receivable of the estate, the unpaid obligation shall not be allowed as a deduction from the GE E. Taxes Includes income taxes, real estate or property taxes due at the time of death which were unpaid as of the time of death EXCEPT: 1. Estate taxes 2. income tax on income received after death 3. property taxes not accrued before death F. Losses Requisites: 1. arising form fire, storm, shipwreck, or other casualty, robbery, theft or embezzlement; 2. not compensated by insurance or otherwise; 3. not claimed as deduction in the income tax return of the taxable estate; 4. occurring during the settlement of the estate; and 5. occurring before the last day for the payment of the estate tax (last day to pay 6 months after the decedents death)
2. to take effect after death 3. in favor of the government of the Philippines or any political subdivision thereof 4. exclusive for public purpose includes bequests, devices, or transfers to social welfare, cultural and charitable institutions
(3) VANISHING DEDUCTIONS (Property Previously Taxed) Purpose is to minimize the effect of double taxation within a short period of time Requisites: a) Present decedent acquired the property by inheritance or donation within 5 yrs prior to his death b) The property must have formed part of the GE of previous decedent or the taxable gift of the donor c) Estate tax on the prior estate or the donors tax must have been paid d) It must be the same property received from previous decedent or donor e) Estate of previous decedent or donor have not previously availed of vanishing deduction (4) FAMILY HOME Conditions for the allowance of FAMILY HOME as deduction from the gross estate1. The family home must be the actual residential home of the decedent and his family at the time of his death, as certified by the Barangay Captain of the locality where the family home is situated; 2. The total value of the family home must be included as part of the gross estate of the decedent; and
(2) TRANSFER FOR PUBLIC USE Requisites: 1. the disposition is in the last will and testaments
3. Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate, or the extent of the decedents interest (whether conjugal/community or exclusive property), whichever is lower, but not exceeding P1,000,000. 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. Actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad, etc. In other words, the family home is generally characterized by permanency, that is, the place to which, whenever absent for business or pleasure, one still intends to return. The family home must be part of the properties of the absolute community or of the conjugal partnership, or of the exclusive properties of either spouse depending upon the classification of the property (family home) and the property relations prevailing on the properties of the husband and wife. It may also be constituted by an unmarried head of a family on his or her own property.
For purposes of availing of a family home deduction to the extent allowable, a person may constitute only one family home.
(5) STANDARD DEDUCTIONS A deduction in the amount of One million pesos (1,000,000) shall be allowed as an additional deductions without need of substantiation Full amount shall be allowed as deduction for the benefit of the decedent (6) MEDICAL EXPENSES Medical cost incurred within the one year from the death of the decedent Up to a maximum amount of 500,000, whichever is lower In excess of 500,000 the other expenses cannot be deductible as claims against the estate It must be duly substantiated with official receipts for services rendered E. DEDUCTIONS FOR NONRESIDENT ALIENS (for property situated in the Philippines) 1) Expenses, Losses, Indebtedness and Taxes Only the proportion of the total expenses, losses indebtedness and taxes which the value of such part bears to the value of his entire GE wherever situated: Estate situated in the Phils allowable X expenses, losses =
Total estate everywhere deduction
indebtedness,taxes
2) Property Previously Taxed 3) Transfers for Public Use Net Share of the surviving spouse in the Conjugal Property-deducted from the net estate of the decedent To be allowed deductions for a non-resident alien, executor/administrator/ any heir must include in the return to be filed, the value of the gross estate not situated in the Philippines TAX CREDIT-estate taxes paid in a foreign country, credited for taxes imposed in the Philippines 1) Per country limitation- net estate within a foreign country x Phil. Estate tax = of tax credit max.
Net estate, foreign amount Net estate, world
A died leaving a fishpond; naked title to B, his son, and usufruct to C, another son, for life. C died a year later. The fishpond will be included in the gross estate of A, being the owner. Upon the death of C, the usufruct will be merged into the owner of the naked title B who shall become the absolute owner thereof. The transfer from C to B is exempt from estate tax. 3) Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary The substitution must not go beyond one degree from the heir originally instituted The fiduciary or first heir must be both living at the time of the testators death Example A dies and leaves in his will a lot to his brother B who is entrusted with the obligation to transfer the lot to C, a son of A when A reaches legal age. B is the fiduciary heir and C is the fideicommissary. The transfer from A to B is subject to estate tax. But the transmission or delivery to C upon reaching legal age shall be exempt from estate tax. 4) Transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor 5) Bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inures to the benefit of any individual: Provided not more than 30% of the transfers shall be used by such institutions for administration
2) Global Limitation Total net estate outside Phils. X Phil. Estate = max. amt. Net estate, world tax of credit F. EXEMPTION FROM ESTATE TAX (Sec. 84 and 87) 1) First P200,00.00 value of the net estate 2) Merger of usufruct in the owner of the naked title Example
purposes G. PROCEDURE: (Sec. 89, 90, 91) 1) Notice of death (a) filed by the executor, administrator or any of the legal heirs, (b) within 2 months after the decedent's death, or within a like period after qualifying as such executor or administrator (c) to the Commissioner. 2) Estate Tax Returns to be filed in all cases of : (a) transfers subject to the tax imposed herein (b) transfers though exempt from tax, where the gross value of the estate exceeds P200,000 (c) regardless of the gross value, the estate consists of registered or registrable property for which a clearance from the Bureau of Internal Revenue is required for the transfer of ownership in the name of the transferee
(b) except: when the Commissioner finds that payment

on due date would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax: 1. not to exceed 5 years, in case the estate is settled through the courts; or 2. 2 years in case the estate is settled extrajudicially In which case it shall be paid on or before expiration of the extension and running of the Statute of Limitations for assessment shall be suspended for the period of any such extension (c) no extension if: taxes are assessed by reason of 1. negligence 2. intentional disregard of rules and regulations 3. fraud on the part of the taxpayer 4. subject to payment of bond as the Commissioner may require not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary (d) estate tax shall be paid by the executor or administrator before delivery of the distributive share in the inheritance to any heir or beneficiary. Where there are two or more executors or administrators, all of them are severally liable for payment of the tax.
3) When filed: within six (6) months from the decedent's

death except: Commissioner shall has authority to grant, in meritorious cases, a reasonable extension not exceeding 30 days for filing the return 4) Payment of Tax (a) when: at the time the return is filed by the executor, administrator or the heirs.
The estate tax clearance issued by the Commissioner or the Revenue District Officer having jurisdiction over the estate will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. The executor or administrator of an estate has the primary obligation to pay the estate tax but the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. The extent of his liability, however, shall in no case exceed the value of his share in the inheritance.
property to the donee. The law in force at the time of the perfection/completion of the donation shall govern the imposition of donors tax based on the FMV of the property. A gift that is incomplete because of reserved powers, becomes complete when either: 1. the donor renounces the power; or 2. his right to exercise ceased because of the happening of some event or contingency or the fulfillment of some condition, other than the death of the donor.
CHAPTER II- DONOR'S TAX DONORS TAX A tax on the privilege of transmitting ones property or property rights to another or others without adequate and full valuable consideration. Requisites: 1. Capacity of the donor 2. Donative intent 3. delivery of the subject gift whether actual or constructive 4. acceptance by the donee LAWS GOVERNING THE IMPOSITION OF DONORS TAX the donors tax applies to a completed gift. The transfer is perfected from the moment the donors knows of the acceptance by the donee; it is completed by the delivery, either actual or constructively, of the donated
A. Gifts include: (Sec. 104) 1) real and personal property 2) whether tangible or intangible, or mixed 3) wherever situated Provided, that if donor was a nonresident alien at the time of his death, his real and personal property so transferred but which are situated outside the Philippines shall not be included Formula: on a cumulative basis over a period of one calendar year
1. On the 1st donation of the year

Gross Gift Less: deductions Net gift X tax rate Donors tax xx xx___ xx xx___ xx ===========
2. On subsequent donation during the year Gross Gift xx Less: deductions xx___ Net gift xx Add: prior net gift xx___ Aggregate net gifts xx X tax rate xx___ Donors tax on aggregate gift xx Less: prior donors tax paid xx___ Donors tax on this date xx =========== B. When the tax is imposed: (Sec. 98) 1) whether the transfer is in trust or otherwise 2) gift is direct or indirect 3) property is real or personal, tangible or intangible. C. Tax Payable by Donor if Donee is a Stranger -- 30% of the net gifts. A 'stranger' is a person who is NOT a: 1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant 2) Relative by consanguinity in the collateral line within the 4th degree of relationship A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children, and therefore, donation to him shall not be considered as donation made to stranger.
Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger.
Donation of an Immovable Must be in a public document specifying therein the property donated. The acceptance may be made In the same Deed of Donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. A gift that is incomplete because of reserved powers, becomes complete when either: the donor renounces the power; or his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition, other than because of the donors death. Renunciation by the surviving spouse Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s is subject to donors tax whereas general renunciation by an heir, including the surviving spouse, of his/her share in the hereditary estate left by the
decedent is not subject to donors tax, unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. (Sec. 11, Rev. Reg. 2-2003) See Estate of Fidel Reyes, CTA Case No. 6747, Jan. 16, 2006 where the repudiation by the heirs of an inheritance was held not to be a donation. Transfers for less than adequate consideration Where property, other than a real property that has been subjected to the final capital gains tax, is transferred for less than an adequate and full consideration in money or moneys worth, then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.. NET GIFT the net economic benefit from the transfer that accrues to the donee. Accordingly, if a mortgaged property is transferred as a gift, but imposing upon the donee the obligation to pay the mortgage liability, then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed. Donations made by Husband and Wife
Husband and wife are considered as separate and distinct taxpayers for purposes of the donors tax . However, if what was donated is a conjugal or community property and only the husband signed the deed of donation, there is only one donor for donors tax purposes, without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of the Philippines.
Donation Inter vivos vs. Donations mortis causa Donations inter vivos takes effect during the lifetime of the donor and perfected from the moment the donor knows of the acceptance of the gift by the donee. It is subject to DONORS TAX Donations mortis causa takes effect upon the death of the donor and is subject to ESTATE TAX D. Exemption from gift tax (Sec. 101) 1) Made by a Resident (a) Dowries or gifts 1. made on account of marriage 2. before its celebration or within one year thereafter 3. by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first P10,000 (b) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision
of the said Government (c) Gifts in favor of 1. an non profit educational and/or charitable, religious, cultural or social welfare corporation, institution 2. accredited non-government organization, trust or philanthropic organization or research institution or organization not more than 30% shall be used by such donee for administration purposes one incorporated as a non-stock entity paying no dividends governed by trustees who received no compensation devoting all its income to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation (d) Encumbrances on the property donated if assumed by the donee in the deed of donation (e) Donations made to entities as exempted under special laws. Gifts of not more than P100,000 per year (Sec. 99[A]) In order to be exempt from donors tax and to claim full deduction of the donation given to qualified donee institutions duly accredited by the Philippine Council for NGO Certification, Inc.(PCNC), the donor engaged in business shall give a notice of donation on every donation worth at least Fifty Thousand Pesos (P50,000) to the Revenue District
Office(RDO) which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee institutions duly issued Certificate of Donation, which shall be attached to the said Notice of Donation, stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such accredited non-stock, nonprofit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3)and (B)(2) of the Code (RR 2-2003). Abello vs. CIR, GR No. 120721, Feb. 23, 2005 Facts: During the 1987 national elections, petitioners, who are partners in the ACCRA law firm, contributed P882,661.31 each to the campaign funds of Senator Edgardo Angara, then running for the Senate. The BIR assessed each of the petitioners for their contributions. Petitioners questioned the assessment, claiming that political or electoral contributions are not considered gifts under the NIRC, and that, therefore, they are not liable for donors tax. The claim for exemption was denied by the Commissioner. On appeal, the CTA ordered the Commissioner to desist from collecting donors taxes from the petitioners. The CA reversed and set aside the CTA decision, ordering the petitioners to pay donors tax, reasoning as follows: The NIRC, as amended, provides: Sec. 91. Imposition of Tax. a) There shall be levied, assessed, collected, and paid upon the transfer by any person, resident, or non-resident, of the property by gift, a tax, computed as provided in Section 92.
b) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Pursuant to the above-quoted provisions of law, the transfer of property by gift, whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible, is subject to donors or gift tax. A gift is generally defined as a voluntary transfer of property by one to another without any consideration or compensation therefore. In the instant case, the contributions are voluntary transfers of property in the form of money from private respondents to Sen. Angara, without considerations therefor. Hence, they squarely fall under the definition of donation or gift. As correctly pointed out by the Solicitor General: The fact that the contributions were given to be used as campaign funds of Sen. Angara does not affect the character of the fund transfers as donation or gift. There was thereby no retention of control over the disposition of the contributions. There was simply an indication of the purpose for which they were to be used. For as long as the contributions were used for the purpose for which they were intended, Sen. Angara had complete and absolute power to dispose of the contributions. He was fully entitled to the economic benefits of the contributions. Issue1: What is the definition of a transfer of property by gift? Held1: The NIRC does not define transfer of property by gift. However, Article 18 of the Civil Code, states: In matters which are governed by the Code of Commerce and special
laws, their deficiency shall be supplied by the provisions of this Code. Thus, reference may be made to the definition of a donation in the Civil Code. Article 725 of said Code defines donation as: . . . an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi. The present case falls squarely within the definition of a donation. Petitioners each gave P882,661.31 to the campaign funds of Senator Angara, without any material consideration. All three elements of a donation are present. The patrimony of the four petitioners were reduced by P882,661.31 each. Senator Angaras patrimony correspondingly increased by P3,530,645.24. There was intent to do an act of liberality or animus donandi was present since each of the petitioners gave their contributions without any consideration. Issue2: Since animus donandi or the intention to do an act of liberality is an essential element of a donation, petitioners argue that it is important to look into the intention of the giver to determine if a political contribution is a gift. Held2: Untenable. First of all, donative intent is a creature of the mind. It cannot be perceived except by the material and tangible acts which manifest its presence. This being the case, donative intent is presumed present when one gives a part of ones patrimony to another without consideration. Second, donative intent is not negated when the person donating has other intentions, motives or purposes which do
not contradict donative intent. The Court was not convinced that since the purpose of the contribution was to help elect a candidate, there was no donative intent. Petitioners contribution of money without any material consideration evinces animus donandi. The fact that their purpose for donating was to aid in the election of the donee does not negate the presence of donative intent. Issue3: Petitioners maintain that the definition of an electoral contribution under the Omnibus Election Code is essential to appreciate how a political contribution differs from a taxable gift. Section 94(a) of the said Code defines electoral contribution as follows: The term contribution includes a gift, donation, subscription, loan, advance or deposit of money or anything of value, or a contract, promise or agreement to contribute, whether or not legally enforceable, made for the purpose of influencing the results of the elections but shall not include services rendered without compensation by individuals volunteering a portion or all of their time in behalf of a candidate or political party. It shall also include the use of facilities voluntarily donated by other persons, the money value of which can be assessed based on the rates prevailing in the area. Since the purpose of an electoral contribution is to influence the results of the election, petitioners again claim that donative intent is not present. Held3: Petitioners attempt to place the barrier of mutual exclusivity between donative intent and the purpose of political contributions. The Court reiterated that donative intent is not negated by the presence of other intentions, motives or purposes which do not contradict donative intent. Petitioners would distinguish a gift from a political donation
by saying that the consideration for a gift is the liberality of the donor, while the consideration for a political contribution is the desire of the giver to influence the result of an election by supporting candidates who, in the perception of the giver, would influence the shaping of government policies that would promote the general welfare and economic well-being of the electorate, including the giver himself. Petitioners attempt is strained. The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute, in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a donation. Senator Angara was under no obligation to benefit the petitioners. The proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received. In fact, as a public servant, he may even be called to enact laws that are contrary to the interests of his benefactors, for the benefit of the greater good. In fine, the purpose for which the sums of money were given, which was to fund the campaign of Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so as to negate a donation. 2) Made by a Nonresident Alien (a) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government (b) Gifts in favor of 1. an non- profit educational and/or charitable,
religious, cultural or social welfare corporation, institution 2. accredited non-government organization, trust or philanthropic organization or research institution or organization (f) not more than 30% shall be used by such donee for administration purposes DONORS TAX CREDIT only resident or citizen donors are allowed to claim donors tax credit because property in foreign country when donated by resident or citizen donor, pays a foreign donors tax and the Philippine donors tax, foreign donors tax credit offers a relief against the heavy burden of 2 taxes to pay. Formula: Limitation A: Foreign donors taxes paid xx Net gifts, foreign country x Phils. donors tax xx Net gifts, world Allowable tax credit (whichever is lower) xx === If there are 2 or more foreign countries to which donors taxes are paid, the computation for tax credit will involve the ff. formulas: Limitation A (per country): Foreign donors tax paid xx Net gifts, foreign country x Phils. donors tax xx Net gifts, world Allowable tax credit (whichever is lower) xx
Limitation B (by total): Total of foreign donors taxes paid Net gifts, foreign country x Phils. donors tax Net gifts, world Allowable tax credit (whichever is lower) TAX CREDIT TO APPLY (Limitation A or B Whichever is lower)
xx xx xx xx ====
PROCEDURE: (Sec. 103) 1) File return within 30 days after the date the gift is made, setting forth 2) Payment of Tax-- at the time of filing (pay-as-you-file system) TITLE VIII REMEDIES I. CIVIL REMEDIES FOR COLLECTION by the Government: (Sec. 205) 1. Distraint of goods, chattels or effects 2. Levy upon real property and interest therein 3. Civil or criminal action One or all of the remedies may be pursued simultaneously at the discretion of revenue authorities Distraint or levy NOT availed of where the amount of tax involved is NOT MORE than P100 Importance They enhance and support the governments tax collection They are safeguards of taxpayers rights against arbitrary
actions No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee , or charge imposed by the NIRC (Sec. 218) Justification: lifeblood theory EXCEPTION: Injunction may be issued by the CTA in aid of its appellate jurisdiction under Sec. 11 of RA 1125, as amended by RA 9282 (when in the opinion of the Court the collection may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.) Tax Remedies of the Government to Effect Collection of Taxes 1. Compromise (Sec. 204) 2. Distraint-(actual and constructive (Sec. 205-208) 3. Levy (Sec. 207b) 4. Tax lien (Sec. 219) 5. Civil Action (Sec. 221) 6. Criminal Action (Sec. 221-222) 7. Forfeiture of Property (Sec. 224-225) 8. Suspension of business operations in violations of VAT (Sec. 115) 9. Enforcement of administrative fine the remedies of disraint and levy as well as collection by civil and criminal actions may in the discretion of the Commissioner, be pursued singly or independently of
each other, or all of them simultaneously. Prescriptive Periods: 1) Assessment of Tax Liability 3 years from the following, whichever comes later (Sec. 203): 1. the last day prescribed by law for filing the return (when filed on or before such date), or 2. the day when the return was actually filed (when filed after the last day prescribed). 10 years after the discovery of the falsity, fraud or omission in case of: 1. false or fraudulent return with intent to evade tax, or 2. failure to file a return (Sec. 222 a) The following are covered by the general rule (Sec. 203): false return-filed with no intent to evade tax fraudulent return-filed with intent to evade tax
within the period agreed upon, when both the

Commissioner and the taxpayer have agreed in writing, before the expiration of the period in Sec. 203 for the assessment of tax, to an assessment after such time. Such period agreed upon may be extended by written agreement before the expiration of such agreed upon period. (Sec.222 b) Suspension of Prescriptive Periods: (Sec. 223) 1) Periods suspended:
(a) periods for assessment in Sec. 203 and 222 (b) beginning of distraint or levy (c) proceeding in court for collection 2) Grounds for suspension of prescriptive periods [ PLORP ] a) Commissioner is Prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter b) Taxpayer requests for Reinvestigation which is granted c) Taxpayer cannot be Located in the address given in the return filed, except if the taxpayer informs the Commissioner of a change in address the prescriptive period will not be suspended d) When the warrant is duly served upon the taxpayer and no Property could be located e) When the taxpayer is Out of the Phils. Compromise Definition: a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced. (Art. 2028, New Civil Code) Requisites: The taxpayer have a tax liability There must be an offer (by the taxpayer of an amount to be paid by the taxpayer) There must be an acceptance (by the Commissioner or the taxpayer as the case may be) of the offer in the settlement of the original claim When may taxes be compromised? 1. A reasonable doubt as to the Validity of the claim
against the taxpayer exists: The delinquent account or disputed assessment is one resulting from a jeopardy assessment; or The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis; or 2. The financial position of the taxpayer demonstrates a clear Inability to pay the assessed tax. (Sec. 204 A) in such case, the taxpayer should waive the confidentiality privilege on bank deposits under RA 1405 (Sec 6 (F)(2) NIRC). The corporation ceased operation or is already dissolved; The taxpayer is suffering from earning deficit resulting to an impairment in the original capital by at least 50% The taxpayer is suffering from a net worth deficit computed by deducting total liabilities form total assets, taken from the latest audited financial statements The taxpayer is a compensation earner with no other sources of income and the familys gross monthly compensation does not exceed (P 10,500/month if single; P 21,000/month if married) and that it appears that the taxpayer possesses no other leviable/distrainable assets, other than his family home; The taxpayer has been granted by the SEC or by any competent tribunals a moratorium or suspension of payments to creditors or otherwise declared bankrupt or insolvent (Sec 3, RR 7-2001).
In general, the taxpayer's criminal liability arising from his violation of the pertinent provision of the Code may be settled extrajudicially instead of the BIR instituting against the taxpayer a criminal action in Court. A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character, hence, may not be imposed on the taxpayer without his consent. Hence, the BIR may only suggest settlement of the taxpayer's liability through a compromise. (RR 012-99)
similar provision exists, vis-a-vis the Collector or Commissioner of Customs, in regard to violations of the Tariff and Customs Code. (People vs. Desiderio L-20805, November 29, 1965). If an offer of compromise is rejected by the taxpayer, the compromise penalty cannot be enforced thru an action in court or by distraint and levy. The CIR should file a criminal action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to enforce a penalty. (Commissioner vs. Abad, L-19627, June 27, 1968). Limitations for compromise of tax liability: (Sec. 204 A) 1. Minimum compromise rate: a) In case of financial incapacity, 10% of basic assessed tax b) In other cases, 40% of basic assessed tax 2. Compromise subject to approval of Evaluation Board (composed of Commissioner and 4 Deputy Commissioners): a) when basic tax involved exceeds P1,000,000 or b) where the settlement offered is less than the prescribed minimum rates Extent of the Commissioners Discretion to Compromise Criminal Violations 1. Before the complaint is filed with the prosecutors office: the CIR has full discretion to compromise except those involving fraud 2. After the complaint is filled with the prosecutors office but before the information is filed with the court: the
Exceptions: (not subject to compromise) 1. Withholding tax cases 2. Criminal tax fraud cases 3. criminal violations already filed in court 4. Delinquent accounts with duly approved schedule of installment payments 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 6. Cases which become final and executory after final judgment of a court (Sec 2 RR 7-2001). Who has power to compromise? 1. The Commissioner of Internal Revenue with respect to criminal and civil cases arising from violations of the tax code (Sec 7c and 204). The power to compromise is vested in the CIR. The NIRC allows the Commissioner of Internal Revenue to compromise the civil as well as criminal cases arising thereunder. No
CIR can still compromise provided the prosecutor must give consent 3. After information is filed with the court: the CIR is no longer permitted to compromise with or without the consent of the Prosecutor (People vs. Magdaluyo, April 20, 1961) This is more so when the court has rendered a final judgment. As a mere agent of the Government, the Commissioner is not authorized to accept anything less than what is adjucated in favor of the government by virtue of such final judgment, the government has already acquired a vested rights. Nature of a Compromise in Extrajudicial Settlement of the Taxpayers Criminal Liability for his Violation It is consensual in character, hence; may not be imposed on the taxpayer without his consent. The BIR may only suggest settlement of his tax liability through a compromise. The extra-judicial settlement and the amount of the suggested compromise penalty should conform with the schedule of compromise penalties provided under the relevant BIR regulations or orders. Remedy in Case the Taxpayer Refuses or Fails to Abide the Tax Compromise 1. Enforce the Compromise If it is a judicial compromise, it can be enforced by mere execution. A judicial compromise is one where a decision based on the compromise agreement is rendered by the court on request of the parties Any other compromise is extrajudicial and like any
other contract can only be enforced by court action 2. Regard it as rescinded and insist upon original demand (Art 2041, Civil Code) Compromise Penalty it is the amount of money which the taxpayer pays to compromise tax violations. This is paid in lieu of criminal prosecution. A taxpayer cannot be compelled to pay a compromise penalty if he does not want to pay, in which case the CIR must institute a criminal action. When may taxes be abated or cancelled? [ UJ ] 1. The tax or any portion thereof appears to be Unjustly or excessively assessed; or 2. The administration and collection costs involved do not Justify the collection of the amount due (Sec. 204 B) Abatement vs. Compromise In Abatement, theres a cancellation of the entire tax liability, while compromise involves a mere reduction of the tax. ABATEMENT The Commissioner May Abate or Cancel a Tax Liability when: 1. the tax or any portion thereof appears to be unjustly or excessively assessed (Sec 204 (b)) when the filing of the return/payment is made at the wrong venue when the taxpayers mistake in payment of his tax is due to erroneous written official advice of a revenue
officer
when the taxpayer fails to file the return and pay the
tax on time due to substantial losses from prolonged labor dispute, force majure, legitimate business reverses, provided, the abatement shall only cover the surcharges and the compromise penalty and not the interest imposed under Sec. 249 when the assessment is brought about or the result of taxpayers non-compliance with the law due to a difficult interpretation of said law when the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control, provided, the abatement shall cover only the surcharges and the compromise penalty and not the interest imposed under Sec 249 late payment of the tax under meritorious circumstances (Sec. 2, RR 13-2001) the admission and collection costs involved do not justify the collection of the amount due (Sec 204 (b) Abatement of penalties on assessment confirmed by the lower court but appealed by the taxpayer to a higher court Abatement of penalties on withholding tax assessment under meritorious circumstances Abatement of penalties on delayed installment payment under meritorious circumstances abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment such other circumstances which the Commissioner
may deem analogous to the enumerations above (Sec. 3, RR 13-2001) DISTRAINT (ONLY FOR PERSONAL PROPERTY): It is the seizure by the government of personal property, tangible or intangible to enforce the payment of taxes on the goods, chattels or effects of the taxpayer including other personal property of whatever character. The property may be offered in a public sale if taxes are not voluntarily paid. It is a summary remedy. Nature of the Warrant of Distraint or Levy the warrant is a summary procedure forcing the taxpayer to pay. The receipt of a warrant may or may not partake the character of a final decision. If it is an indication of a final decision, the taxpayer may appeal to the CTA within 30 days from service of the warrant. Types of Distraint A. Actual Distraint There is taking of possession of the personal property from the taxpayer by the government. Physical transfer of possession is not always required. This is true in case of intangible property such as stocks and credits. Resorted to only when the taxpayer becomes delinquent. There is actual seizure of the property of the delinquent taxpayer. B. Constructive Distraint
2. 3. 4. 5. 6.
7.
There may be no actual delinquency. Taxpayer is prohibited from disposing of the property and must preserve the same
The period within which to assess or collect the tax has not yet prescribed.
ACTUAL DISTRAINT CONSTRUCTIVE DISTRAINT Made only on the property made on the property of any of a delinquent taxpayer taxpayer, whether delinquent or not there is taking or the taxpayer is merely possession prohibited from disposing of his property Effected by leaving a list of Effected by requiring the distrained property or by taxpayer to sign a receipt of the service of a warrant of property or by the revenue distraint or garnishment officer preparing and leaving a list of such property an immediate step for not necessarily an immediate collection of taxes step for collection of taxes Both Are summary remedies for the collection of taxes Refer only to personal property Cannot be availed of where the amount of the tax involved is not more than P 100 Requisites for the Exercise of the Remedy of Distraint The taxpayer must be delinquent (except in constructive distraint) in the payment of taxes There must be a subsequent demand for its payment The taxpayer must have failed to pay the tax at the time required; and
Distraint of Personal Property (Actual Distraint) WHO MAY EFFECT DISTRAINT AMOUNT INVOLVED Commissioner or his duly authorized In excess of representative P1,000,000 Revenue District Officer (Sec. 207(a)) P1,000,000 or less Property Seized or Distrained a) goods, chattels, effects and other personal property b) including stocks and other securities, debts, credits, bank accounts, interests in and rights to personal property PROCEDURE FOR THE ACTUAL DISTRAINT OR GARNISHMENT 1) Report on the Distraint (Commencement of distraint proceedings) a) by the distraining officer 1. submitted within 10 days from receipt of the warrant 2. submitted to the Revenue District Officer and to the Revenue Regional Director b) by the Revenue Regional Director - a consolidated report, as may be required by the Commissioner The order of Distraint may be lifted by the Commissioner or his representative (Sec. 207 A) 2) Service of Warrant of Distraint
Procedure with respect to: (a) Goods, effects, chattels and other personal property 1. a copy of an account of the property distrained, signed by the officer, shall be left either with the owner or the person from whom the property was taken or at the dwelling or place of business of such person and with someone of suitable age and discretion 2. together with a statement of the sum demanded 3. and also a note of the time and place of sale (b) Stocks and other Securities 1. serving a copy of the warrant upon the taxpayer AND upon the president, manager, treasurer or other responsible officer of the issuing corporation, company, association (c) Debts and Credits 1. leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent the warrant shall be sufficient authority to the person served to pay to the Commissioner the amount of such debts or credits (d) Bank accounts (garnishment) 1. serve a warrant of garnishment upon the taxpayer AND upon the president, manager, treasurer or other responsible officer of the bank 2. bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient (Sec.208) 3) Posting of Notice (Sec. 209)
4)
Notice specifying the time and place of sale and the articles distrained. The posting shall be made in not less than 2 public places in the city or municipality where the distraint is made. One of the places for posting of such notice is the Office of the Mayor of such city or municipality. Sale of Property Distrained
CONSTRUCTIVE DISTRAINT 1) When may this occur? [ HORRID ] (Sec. 206) a) taxpayer is Delinquent b) taxpayer is Retiring from any business subject to tax c) taxpayer is Intending to leave the Phil. or to Remove his property therefrom d) taxpayer Hides or conceals his property e) taxpayer performs any act tending to Obstruct the proceedings for collection of any tax due 2) Procedure (a) Require the taxpayer or any person having possession/control of the property to 1. sign a receipt covering property distrained; and 2. obligate himself to preserve the same intact and unaltered; and 3. not to dispose of the property in any manner, without the express authority of the Commissioner. (b) Where taxpayer or person in possession refuses to sign:
distraining officer shall prepare a list of the property distrained in the presence of 2 witnesses leave a copy in the premises where the property is located after which the said property shall be deemed to have been placed under constructive distraint (Sec. 206)
LEVY (ONLY ON REAL PROPERTY) The seizure of real property of the taxpayer and interests or rights to such property for the satisfaction of taxes due from the delinquent taxpayer to enforce the payment thereof. The property may be offered in a public sale, if after seizure, the taxes are not voluntarily paid. When may Levy be Effected? It is effected by issuing a warrant of levy and giving a written notice to the taxpayer and the Register of Deeds, after which the real property shall be sold at a public sale to satisfy the tax obligation of the taxpayer. When exercised: before, simultaneously or after the distraint of personal property belonging to the taxpayer Procedure of Levy on Real Property Prepare Certificate of Levy (a) Internal revenue officer shall authenticated certificate showing: the name of taxpayer
prepare
duly
amounts of tax and penalty due (b) Enforceable throughout the Philippines (c) officer shall write upon the certificate a description of the property upon which levy is made written notice of levy shall be mailed or served upon 1. the delinquent taxpayer, or if he is absent from the Philippines, to his agent or manager if the business in respect to which the liability arose, or if there be no agent, to the occupant of the property. 2. the Register of Deeds where the property is located (Sec. 207[B]) Advertisement of the time and place of sale, which shall contain a) The amount of tax and penalties due b) Name of the taxpayer c) Short description of the property to be sold the advertisement shall be made within 20 days after the levy, and the same shall be for a period of at least 30 days. It shall be effected by: a) posting a notice at the main entrance of the municipal building or the city hall and in public and conspicuous place in the barrio or district where the property is located b) by publication once a week for 3 consecutive weeks in newspaper of general circulation in the municipality or city where the property is located (Sec. 213) Sale
DISTRAINT VS. LEVY DISTRAINT refers to personal property forfeiture of the property in favor of the government is not provided LEVY involves real property Forfeiture authorized if ( 215): There is no bidder or If the highest bid is insufficient to pay the taxes, penalties and costs There is a right of redemption in case of real property levied upon and sold or forfeited to the government
If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes, penalties and costs, the real property shall be forfeited to the Government (Sec. 215)
There is no right of redemption on the personal property
Further Distraint and Levy The remedy of distraint and levy may be repeated if necessary until the full amount of the tax delinquency due including all expenses is collected from the taxpayer. (Sec 217) Otherwise, a clever taxpayer who is also able to conceal most of the valuable part of his property would escape payment of his tax liability by sacrificing an insignificant portion of his holdings. TAX LIEN it is a legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes (51 AmJur 881). Generally, it attaches to the property irrespective of ownership or transfer thereof.
Both: summary remedies for collection cannot be availed of where amount involved do not exceed P100 Redemption of Property Sold Within 1 year from the date of sale, the property may be redeemed by the delinquent taxpayer or anyone from him, upon the payment of the taxes, penalties and interest thereon from the date of delinquency to the date of sale together with interest on purchase price at 15% per annum from the date of sale to the date of redemption. (Sec. 214) Forfeiture to the Government
1. Nature- a lien in favor of the Government of the Philippines

when a person liable to pay a tax neglects or refuses to do so upon demand 2. Duration- lien exists from the time assessment is made by the Commissioner until paid, with interests, penalties and costs that may accrue in addition thereto 3. Extent- upon all property and rights to property belonging to the taxpayer
4. Effectivity against third persons- only when notice of such

lien is filed by the Commissioner in the Register of Deeds in the province/city where the property is situated (Sec. 219) superior to judgment claim of private property attaches not only from the time the warrant was served BUT from the time tax was due and demandable (from the time when the assessment was made [Sec. 219]). DISTRAINT Need not be directed against the property subject to tax Property seized must be owned by the taxpayer
When an administrative protest filed by the taxpayer against the assessment is o denied, in whole and in part or o is not acted upon within 180 days from submission of the documents, and o the taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the 180 day period.
LIEN Directed against the property subject to the tax Regardless of the owner of the property
CIR vs. Lascona Land, CTA Case No. 5777, Jan. 4, 2000; reiterated in Allied Bank vs. Parayno, CTA Case No. 6565, Nov. 3, 2004 After the lapse of 180 days & within 30 days therefrom, the taxpayer is given the option either to elevate the protest to the CTA, or to await the decision of the CIR & elevate said decision within 30 days therefrom. The taxpayer may opt to wait until the commissioner finally makes a final decision on his protest, and need not lodge an appeal to the CTA after the lapse of the 180-day period provided under Section 228. On the other hand, if the taxpayer would want to, then he can already elevate his case to the CTA after the lapse of the 180-day period. Note: This is a decision which goes against the wording of Sec. 228, NIRC, which does not give the taxpayer said option but instead mandates him to elevate his protest within 30 days from either the receipt of the decision of the CIR, or from the lapse of the 180-day period there being no action by the latter. Where to File
CIVIL ACTIONS For tax remedy purposes, these are actions instituted by the government to collect internal revenue taxes. It includes filing by the government with the probate court claims against the deceased taxpayer. Resorted to when the tax liability becomes final and unappealable, or when the decision of the Commissioner becomes final or executory. When: A tax is assessed and the assessment becomes final and unappealable because the taxpayer fails to file an administrative protest with the BIR within 30 days from the receipt of the assessment.
1) Court of Tax Appeals- where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above 2) RTC, Mun. TC, Metro TC- where the principal amount of taxes and fees, exclusive of charges and penalties claimed is less than P1,000,000.00 (Sec 7[c], RA 9282) The approval of the CIR is essential in civil cases (Sec. 220). However under Sec. 7 of NIRC, the Commissioner may delegate such power to a Regional Director. Defenses which are Precluded by Final and Executory Assessment Invalidity or illegality of the assessment and Prescription of the governments right to assess CRIMINAL ACTIONS The judgment in the criminal cases shall not only impose the penalty but shall also order the payment of taxes subject of the criminal case as finally decided by the Commissioner (Sec 205) Resorted not only for the collection of the taxes but also for the enforcement of statutory penalties of all sorts. Where to file 1) Court of Tax Appealsoffenses arising from violations of the NIRC other laws administered by the BIR and the the principal amount of taxes and fees, on criminal or TCC and BOC, where exclusive of
charges and penalties claimed is P1,000,000.00 and above. 2) RTC, Mun. TC, Metro TC- on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC, where the principal amount of taxes and fess exclusive of charges and penalties claimed is less than P1,000,000.00 or where there is no specified amount claimed (Sec 7[b], RA 9282) Acquittal of the taxpayer in criminal case does not exonerate him from liability to pay Taxes Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. (Republic vs. Patanao, GRN L-22356 July 21, 1967). While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. (Ungab vs. Cusi L-41919-24, 30
May 1980, 97 SCRA 877) Effect of Subsequent Satisfaction of Civil Liability The subsequent satisfaction of civil liability by payment or prescription does not extinguish the taxpayers criminal liability. No Subsidiary Imprisonment In case of insolvency on the part of the taxpayer subsidiary imprisonment cannot be imposed as regards the tax which he is sentenced to pay. However, it may be imposed in cases of failure to pay the fine imposed. (Sec 280) Criminal Action May be Filed during the Pendency of an Administrative Protest in the BIR It is not a requirement for the filing thereof that there be a precise computation and assessment of the tax, since what is involved in the criminal action is not the collection of tax but a criminal prosecution for the violation of the NIRC. Provided, however, that there is a prima facie showing of a willful attempt to evade taxes. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. (Ungab v. Cusi, L-41919-24, 30 May 1980, 97 SCRA 877) See also CIR vs. Pascor Realty, GR No. 128315, June 29, 1999, which reached the same conclusion as in Ungab. HOWEVER, in the case of CIR vs. CA, CTA, & Fortune Tobacco (GR No. 119761, Aug. 29, 1996), the CIR held a contrary position
Civil and Criminal Actions: 1. Must be brought in the name of the Government of the Philippines 2. Conducted by legal officers of the BIR 3. In case of actions for recovery of taxes or enforcement of a fine, penalty or forfeiture, must be filed with the approval of the Commissioner (Sec. 220) FORFEITURE: (SEC. 224-225) Divestiture of property without compensation, in consequence of a default or offense. forfeited property shall not be destroyed until at least 20 days from seizure Effect of the Forfeiture of Property The effect is to transfer the title to the specific thing from the owner to the government. All the proceeds in case of a sale goes to the coffers of the government.
The provisions in the Code which entitles the taxpayer to the balance of the proceeds in excess of the tax liability is entirely inapplicable to forfeited property. It relates solely to the sale of property distrained to pay taxes of delinquents and the disposition of the proceeds thereof. (US v. Surla, 20 Phil 163). There is a great difference between a seizure under forfeiture and a seizure to enforce a tax lien. In the former all the proceeds derived from the sale of the thing forfeited are turned over to the Collector of Internal Revenue; in the latter the residue of such proceeds over and above what is required to pay the tax sought to be realized, including expenses, is returned to the owner of the property. (Bank of Phil. Island v. Trinidad, 42 Phil 220).
Defense of prescription is waivable
What Constitutes an Assessment? An assessment contains not only a computation of tax liabilities but also a demand for payment within the prescriptive period. There is no form for an assessment, it can be written anywhere as long as it is signed by the BIR. Any notice sent to the taxpayer demanding the tax liability is an assessment. The law requires that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. (Sec. 228) Prescriptive Period for the Assessment of Taxes a) General Rule: 3 years after the date the return is due or filed, whichever is later (Sec 203) b) Exceptions: failure to file return: 10 years from date of discovery of the omission to file the return (Sec 222A) False or fraudulent return with intention to evade the tax: 10 years from the date of the discovery of the falsity or fraud (Sec 222A) Nothing in Sec 222A shall be construed to authorize the examination and investigation or inquiry into any
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND COLLECTION OF TAXES Rationale The periods are designated to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are also beneficial to the government because tax officers will be obligated to act promptly. Rules on Prescription When the tax law itself is silent on prescription, the tax is imprescriptible When no return is required, tax is imprescriptible N.B. Remedy of taxpayer is to file a return
tax return filed in accordance with the provisions of any tax amnesty law or decree Fraud must be alleged and proved as a fact. It must be the product of a deliberate intent to evade taxes. It may be established by the: 1. intentional and substantial understatement of the tax liability by the taxpayer (substantial underdeclaration of income; >30% of that declared [Sec. 248]) 2. intentional and substantial overstatement of deductions of exemptions (>30% of the actual deductions [Sec. 248]) 3. recurrence of the above circumstances Falsity constitutes a deviation from the truth due to mistake, carelessness or ignorance. Agreement in writing to the extension of the period to assess between the CIR and the taxpayer before the expiration of the 3 year period. The extension period agreed upon can further be extended by a subsequent written agreement made before the expiration of the extended period previously agreed upon. (Sec. 222(b)) Written waiver or renunciation of the original 3 years limitation, signed by the taxpayer. Phil. Journalists, Inc. vs. CIR, GR 162852, Dec. 16,2004 Facts: The case arose from the Annual ITR filed by petitioner for the calendar year ended December 31, 1994. On August 10, 1995, RDO No. 33 of the BIR issued a Letter of Authority for the examination of petitioners books of account
and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994. From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty. On September 22, 1997, petitioners Comptroller, Lorenza Tolentino, executed a Waiver of the Statute of Limitation Under the NIRC. The document waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consented to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation. On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that petitioner had deficiency taxes. On October 5, 1998, the Assessment Division of the BIR issued PreAssessment Notices which informed petitioner of the results of the investigation. Thus, the BIR issued an Assessment/Demand on December 9, 1998 stating the deficiency taxes. On March 16, 1999, a Preliminary Collection Letter was sent by the Deputy Commissioner to the petitioner to pay the assessment within 10 days from receipt of the letter. On November 10, 1999, a Final Notice Before Seizure was issued by the same deputy commissioner giving the petitioner 10 days from receipt to pay. Petitioner received a copy of the final notice on November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the
tax liability was reached and requested an extension of 30 days from receipt of the clarification within which to reply. The BIR received a follow-up letter from the petitioner asserting that its records do not show receipt of the Tax Assessment/Demand. On March 28, 2000, a Warrant of Distraint and/or Levy was received by the petitioner. Petitioner filed a Petition for Review with the CTA. On May 14, 2002, the CTA rendered its decision, to wit: After carefully examining the questioned Waiver of the Statute of Limitations, this Court considers the same to be without any binding effect on the petitioner for the following reasons: The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO No. 2090, the phrase indicating the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription should be filled up Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO should likewise be indicated Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file copy be indicated in the original copy. Again, respondent failed to comply. It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers. The said RMO even provides that the procedures found therein should be strictly followed, under pain of being administratively
dealt with should non-compliance result to prescription of the right to assess/collect Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering from legal infirmities, rendering the same invalid and ineffective, the Court finds the Assessment/Demand issued on December 5, 1998 to be time-barred. Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered null and void. The CA disagreed w/ the CTA and reversed the latters decision. Issue: WON the waiver of the statute of limitations was valid. Held: NO, it was invalid. The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. As was held in Republic of the Phils. v. Ablaza: The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of taxes. A cursory reading of the Order supports
petitioners argument that the RMO must be strictly followed, thus: In the execution of said waiver, the following procedures should be followed: 1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but there should be no deviation from such form. The phrase but not after __________ 19___ should be filled up 2. Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated 3. The following revenue officials are authorized to sign the waiver. A. In the National Office 3. Commissioner - for tax cases involving more than P1M B. In the Regional Offices 1. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount 5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the
right to assess/collect shall be administratively dealt with. A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC. The waiver is also defective from the government side because it was signed only by a revenue district officer, not the
Commissioner, as mandated by the NIRC and RMO No. 2090. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer. This case involves taxes amounting to more than P1,000,000.00 and executed almost 7 months before the expiration of the 3-year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR. The other defect noted in this case is the date of acceptance which makes it difficult to fix with certainty if the waiver was actually agreed before the expiration of the threeyear prescriptive period. Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver must be executed in three copies with the second copy for the taxpayer. The Court of Appeals did not think this was important because the petitioner need not have a copy of the document it knowingly executed. The flaw in the appellate courts reasoning stems from its assumption that the waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioners comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection
of the agreement.
Notice of the assessment is released, mailed or sent to

the taxpayer also within the 3 year period. It is not required that the notice be received by the taxpayer within the prescribed period. But the sending of the notice must clearly be proven. (Basilan Estate v. CIR, 21 SCRA 17). Amendment of Return If the amended return is substantially different from the original return, the prescriptive period shall be counted from the filing of the amended return. (CIR v. Phoenix Assurance Co. 14 SCRA 52) Prescriptive Period for the Collection of Taxes 5 years from assessment or within period for collection agreed upon in writing before expiration of the 5 year period (Sec 222) 10 years after discovery in case of false or fraudulent return with intent to evade or failure to file return, without need for an assessment (Sec 222) Prescriptive Period where the Governments Action is on a Bond which the Taxpayer Executes in order to Secure the Payment of his Tax Obligation 10 years under Art. 1144(1) of the Civil Code and not 3 years under the NIRC. In this case the taxpayers failed to pay the installments due despite demand. Hence, the Government sued on the bond which is a separate
and distinct obligation of the parties thereto. The action is for the enforcement of a contractual obligation. (Republic v. Araneta, GR No. L-14142, May 30, 1961) Grounds for Suspension of the Running of the Statute of Limitation 1. when the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court, and for 60 days thereafter 2. when the taxpayer requests for a reconsideration which is granted by the CIR 3. when the taxpayer cannot be located in the address given by him in the return, unless he informs the CIR of any change in his address 4. when the warrant of distraint or levy is duly served and no property is located 5. when the taxpayer is out of the Philippines. (Sec. 223) A Tax Return is Considered Filed for Purposes of Starting the Running of the Period of Limitation the return is valid- it has complied substantially with the requirements of the law the return is appropriate- it is a return for the particular tax required by law. a defective tax return is the same as if no return was filed at all. Prescriptive Period for the Violation of Any Provision of the Tax Code (Sec. 281) should be filed 5 years from the (1) day of the commission of the violation of the law, and if the same
shall be not known, from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment (Lim v. CA 190 SCRA 616) 1. charge is failure or refusal to pay deficiency incomecommitted only after the finality of the assessment coupled with the taxpayers willful refusal to pay the taxes within the allotted period 2. charge is filing of false or fraudulent return with intent to evade the assessment- in addition to the fact of discovery, there must be a judicial proceedings for the investigation and punishment of the tax offense before the 5 year prescriptive period begins to run. II. REMEDIES OF A TAXPAYER General Remedies 1. Administrative A. Before payment of taxes a) protest of assessment Filing a petition for reconsideration or reinvestigation within 30 days from receipt of assessment. Within 60 days from filing, all relevant documents should be filed, otherwise assessment becomes FINAL and cannot be appealed (Sec 228) Submission of documents within the 60 days period is optional to the taxpayer. The relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be
necessary to support his protest and not what the Commissioner feels should be submitted, otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. (Standard Chartered Bank v. CTA, Case No. 5696, Aug. 16, 2001) A protest is a vital document which is a formal declaration of resistance of the taxpayer. It is a repository of all arguments. It can be used in court in case of administrative remedies have been exhausted. It is also the formal act of the taxpayer questioning the official actuations of the CIR. This is equivalent to a pleading. b) Entering into a compromise (Sec. 204) B. After payment of taxes a) Claim for refund or tax credit Within 2 years from the date of payment regardless of any supervening cause (Sec. 228) 2. Judicial Relief A. Civil Action a) Appeal to the CTA within 30 days from receipt of the decision on the protest or from the lapse of the 180 days inaction of the Commissioner (Sec. 228) b) Action to contest forfeiture of chattel at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net
proceeds realized at the sale (Sec 231) c) Action for damages against a revenue officer by reason of any act done in the performance of official duty (Sec 227) 3. Criminal Action a) Against erring BIR officials and employees b) Injunction when the CTA in its opinion the collection by the BIR may jeopardize the taxpayer. Court may require deposit of an amount or surety bond for not more than double the amount with the enactment of RA 9282, the CTA has now jurisdiction over criminal cases Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA filing by the BIR of a civil suit for collection of the deficiency tax (CIR v. Union Shipping Corp. 185 SCRA 547) indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial. (CIR v. Union Shipping Corp) BIR demand letter reiterating his previous demand to pay, sent to taxpayer after his protest of the assessment (Surigao Electric Co. Inc. v. CTA, 57 SCRA 523) The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on
a disputed settlement (CIR v. Union Shipping Corp) CIR vs. Isabela Cultural Corp., GR No. 135210, July 11, 2001 Facts: In an investigation conducted on the 1986 books of account of respondent, there was a preliminary finding that respondent incurred an income tax deficiency. Upon protest by respondents counsel, the said preliminary assessment was reduced. On February 23, 1990, respondent received from petitioner an assessment letter, dated February 9, 1990, demanding payment of the deficiency income tax and expanded withholding tax inclusive of surcharge and interest for the taxable period from January 1, 1986 to December 31, 1986. Respondent requested a reconsideration of the subject assessment. On February 9, 1995, respondent received from petitioner a Final Notice Before Seizure, dated December 22, 1994. In said letter, petitioner demanded payment of the subject assessment within 10 days from receipt thereof. Otherwise, failure on its part would constrain petitioner to collect the subject assessment through summary remedies. Respondent considered said final notice of seizure as petitioners final decision. Hence, a petition for review was filed with the CTA on March 9, 1995. The CTA dismissed the petition, holding that the petitioners issuance of the Final Notice Before Seizure did not constitute its decision on respondents request for reinvestigation which may be appealed to the CTA.
The CA reversed the CTA, holding that the final notice sent by petitioner as the latters decision was appealable to the CTA. The appellate court reasoned that the final Notice before seizure had effectively denied petitioners request for a reconsideration of the commissioners assessment. The CA relied on the long-settled tax jurisprudence that a demand letter reiterating payment of delinquent taxes amounted to a decision on a disputed assessment. Issue: WON the final notice before seizure was equivalent to a denial of the protest filed by respondent. Held: YES. The Final Notice Before Seizure sent by the BIR to respondent reads as follows: On Feb.9, 1990, this Office sent you a letter requesting you to settle the above-captioned assessment. To date, however, despite the lapse of a considerable length of time, we have not been honored with a reply from you. In this connection, we are giving you this LAST OPPORTUNITY to settle the adverted assessment within 10 days after receipt hereof. Should you again fail, and refuse to pay, this Office will be constrained to enforce its collection by summary remedies of Warrant of Levy of Road Property, Distraint of Personal Property or Warrant of Garnishment, and/or simultaneous court action. Please give this matter your preferential attention In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period
covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefor, and submitting such proof as may be necessary. That letter is considered as the taxpayers request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the CTA for review. Prior to the decision on a disputed assessment, there may still be exchanges between the CIR and the taxpayer. The former may ask clarificatory questions or require the latter to submit additional evidence. However, the CIRs position regarding the disputed assessment must be indicated in the final decision. It is this decision that is properly appealable to the CTA for review. Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had delinquent taxes due; and it subsequently filed its motion for reconsideration on March 23, 1990. In support of its request for reconsideration, it sent to the CIR additional documents on April 18, 1990. The next communication respondent received was already the Final Notice Before Seizure dated November 10, 1994. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the commissioners decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIRs final act
regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given this LAST OPPORTUNITY to pay; otherwise, its properties would be subjected to distraint and levy. How then could it have been made to believe that its request for reconsideration was still pending determination, despite the actual threat of seizure of its properties? Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. In this case, the second notice received by private respondent verily indicated its nature that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. Requisites of a valid assessment: 1. in writing 2. must state the facts and law upon which it is based (Sec. 228) Assessments Prima facie correct Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. (Sy Po v. CTA, GRN L-81446 August 18, 1988.) Assessment Discretionary on the part of Commissioner Since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not lie against the
Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. (Meralco Securities vs. Savellano, L-36181 and L-36748, Oct. 23, 1992). Void vs. Illegal Assessment An assessment is illegal and void when the assessor has no power to act at all. It is erroneous when the assessor has the power but errs in the exercise of that power. It is settled in our jurisdiction that where an assessment is illegal and void, the remedy of a taxpayer, who has already paid the realty tax under protest, is to sue for refund in the competent court. On the other hand, where the assessment is merely erroneous, his recourse is to file an appeal in the Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. (GR L-24213 March 13, 1968) Kinds of Assessment: 1. Post Reporting notice-Initial findings are presented and discussed with the taxpayer; informal conference can be held 2. Pre-assessment Notice Instances where a pre-assessment notice NEED NOT be given: MET DC a) when the finding for deficiency tax is a result of Mathematical error in the computation of tax appearing on the face of the return; or b) Discrepancy is determined between the tax withheld and the amount actually remitted by the withholding agent c) a taxpayer who opted to claim a refund or tax credit was
determined to have Carried over and applied the amount against succeeding tax liabilities d) Excise tax has not been paid e) an article locally purchased or imported by an exempt person has been sold, traded or Transferred to nonexempt persons Final Assessment (Revenue Regulation No. 12-85 and Sec. 228) Protest of Assessment: 1. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment request for reinvestigation a plea for re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. Involves a question of fact or law or both. request for reconsideration a plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. Involves a question of fact or law or both. (Revenue Regulation No. 12-85)
2. Within 60 days from filing of protest, all relevant supporting

documents should have been submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228)
Appeal of Protest to the CTA (Judicial Relief): (Sec. 228) 1. Grounds: a) if the protest is denied in whole or in part or b) is not acted upon within 180 days from submission of documents 2. Appellate Court: Court of Tax Appeals 3. Period to appeal: a) within 30 days from receipt of decision denying the protest or b) 30 days from the lapse of 180 day period 4. Effect of failure to appeal: the decision shall be final, executory and demandable (NOTE: See Lascona doctrine which gives the taxpayer the option either to appeal to the CTA or to await the decision of the CIR.) FILING OF CLAIM FOR TAX REFUND OR TAX CREDIT Parties Entitled to Refund GR: The person entitled to ask for a refund is the taxpayer who paid the same. Exceptions: Case Where tax has been shifted Who is entitled to ask for refund The taxpayer (even if tax has been actually shifted by the taxpayer to his customers as in Reason Because the sales tax is imposed directly on the seller as an occupation tax for selling Once recovered, the seller must hold the refunded taxes in
Where payer is not the taxpayer (e.g. theater owners who paid illegal municipal taxes billed to and collected from theater goers) Where payer is withholding agent
sales tax and even if the tax has been billed as a separate item in the invoice) (CIR vs. American Rubber) Theater goers are not entitled to claim refund of such taxes (Medina vs. City of Baguio)
trust for the individual purchasers who advanced payment thereof and whose name must appear on his records
Withholding agent (CIR vs. Procter & Gamble)
"Taxpayer" is any person subject to tax imposed by this title (income tax). The withholding agent is directly and independently liable for the correct amount of tax that should be withheld, and of deficiency assessments, surcharges and penalties
Where donor's tax was assumed by donee
Donee is the proper party to claim refund of the donor's tax (even if the tax was advanced by the donor)
When may taxes be refunded or credited? 1. Grounds for Tax refunded or credited: [EPWroSUn] a) Taxes erroneously or illegally received b) Penalties imposed without authority c) Any sum alleged to have been excessively or in any manner wrongfully collected d) Refund the value of internal revenue stamps when returned in good condition by the purchaser e) Redeem or change unused stamps rendered unfit for use and refund their value upon proof of destruction, in the discretion of the Commissioner 2. Procedure for credit/refund a) taxpayer files in writing with the Commissioner a claim for credit or refund b) filed within 2 yrs after the payment of the tax or penalty no suit or proceeding shall begun after the expiration of the said 2 yrs regardless of any supervening cause that may arise after the payment c) a return filed showing an overpayment shall be
considered a written claim for credit or refund 3. Suit or proceeding for refund a) a claim for refund or credit has been filed with the Commissioner b) the suit may be maintained whether or not such tax/penalty/sum has been paid under protest c) in any case, suit must be filed within 2 yrs. from date of payment of the tax/penalty regardless of any supervening cause that may arise after payment d) the Commissioner may, even without a written claim, refund or credit a tax, e) where on the face of the return upon which payment was made, payment appears to be erroneous. (Sec. 204 C, 229) 4. Tax Credit Certificate a) may be applied against any internal revenue tax, EXCEPT withholding taxes b) original copy is surrendered to the revenue officer c) no tax refund will be given resulting from availment of incentives granted by law where no actual payment was made (Sec. 204 C) 5. Forfeiture of cash refund/tax credit a) Forfeiture of refund in favor of the government when a refund check or warrant remains unclaimed or uncashed within 5 yrs. from date of mailing or delivery b) Forfeiture of Tax Credit-a tax credit certificate which remains unutilized after 5 yrs. from date of
issue, shall be invalid, UNLESS revalidated. (Sec. 230) Commencement of 2-year period under Sec. 204(3) and 229 Case If the tax sought to be refunded is illegally or erroneously collected If the tax is paid in installment or only in part 2-year period starts from From date tax was paid (CIR v Victorias Milling) From date of the last or final installment or payment (CIR vs. Prieto; CIR v Palanca) From conversion of the deposit to payment (Union Garment v Coll) Notes
the withholding tax system)
Corporate taxpayer There is no payment until the whole/entire tax liability is fully paid Merely making a deposit is not equivalent to payment until the amount is actually applied to the specific purpose for which it was deposited A taxpayer who contributes to the withholding tax
If the taxpayer merely made a deposit
If tax has been withheld from source (through
From date it falls due at the end of the taxable year
If tax was not erroneously or illegally paid but the taxpayer
(Gibbs vs CIR) He is deemed to have paid his tax liability when the same falls due at the end of the taxable year (Aguilar vs. CA) At the earliest, on the date of the filing of the adjusted final return (ACCPA Investment vs. CA) The 2-yr period provided in Sec 229 should be computed from the time of filing of the Adjusted Return or Annual ITR and final payment of income tax (CIR vs. TMX Sales) From the date the taxpayer becomes entitled to refund and not
system performs and extinguishes his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. It is only then that the corporation can ascertain whether it made profits or incurred losses in its business operations
Before the right to refund or credit arises, there is absolutely no basis
became entitled to refund because of supervening circumstances
from the date of payment (CIR vs. Don Pedro Central Azucarera)
to file a claim with the CIR or commence a suit in court
Payment Under Protest is NOT Necessary under NIRC A suit or proceedings for tax refund may be maintained whether or not such tax, penalty or sum has been paid under protest or duress (Sec. 229) Similarly, payment under protest is not necessary in refund for local taxes. (Sec. 196 LGC), however, under protest is necessary to claim for real property taxes (Sec. 252 LGC) custom duties (Sec 2308 TCC) Suspension of the 2 yr Prescriptive Period 1) there is a pending litigation between the govt & the taxpayer 2) CIR in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto (Panay Electric Co. v. Collector, May 28, 1858) Interest on Tax Refunds General Rule Government cannot be required to pay interest on taxes refunded to the taxpayer in the absence of a statutory provision clearly or expressly directing or authorizing such payment. (CIR v. Sweeney, 106 Phil 59)
Exception 1) When the CIR acted with patent arbitrariness. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. (CIR v. Victoria Milling, L19667, Nov. 29, 1966) 2) Under Sec. 79 (c)(2) with respect to income taxes withheld on the wages of the EEs REGLEMENTARY PERIODS IN INCOME TAX IMPOSED BY LAW UPON THE TAXPAYER (Pursuant to RR 12-99, Sec 228 and Rules of Court)
BIR makes a tax If taxpayer is not satisfied with the assessment file a protest within 30 days from the receipt thereof Submit supporting documents within 60 days from date of the If protest is denied, elevate the matter to the CIR within 30 days from the receipt of the decision of the CIRs duly authorized representative Appeal to the Division of CTA within 30 days from the receipt of the final decision of CIR or his duly authorized representative (taxpayer has the option to appeal straight to CTA upon receipt of the decision of
If the CIR or his rep fails to act on the protest within 180 days from date of submission by taxpayer, the latter may appeal within 30 days from lapse of the 180 day period Appeal to the CTA en banc from receipt of the decision of CTA division (after denial by CTA division of motion for reconsideration)
Appeal to the SC within 15 days from the receipt of the CTA en banc decision
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. GR- payment under protest is not required under the NIRC, except when partial payment of uncontroverted taxes is required under RR 12-99. The Commissioner may even without a written claim thereof, 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 In case of the CIRs final denial of the claim for refund, the 30 days period to appeal with the CTA must be within the 2 yr preemptory period for instituting a judicial action Cases: CIR vs. CA, CTA & BIR (GR 117254, Jan 21, 1999) Facts: On April 2, 1986, Paramount filed its Annual ITR. It previously paid an amount representing its quarterly income tax. The amount paid was greater than the income tax due on the return. Thus, Paramount's return showed a refundable amount. On April 14, 1988, BPI, as Paramount's Liquidator, filed a letter claiming refund. Issue: When will be the 2-yr prescriptive period for refund claims commence, from April 2, 1986 when the Annual ITR was filed or April 15, 1986, when the Adjustment Return could still be filed without incurring delay in under 70 (b) of the NIRC?
Pre-assessment Notice Not Required (Sec. 228) 1) 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; 2) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; 3) 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 qtr or qtrs of the succeeding taxable year; 4) when the excise tax due on excisable articles has not been paid 5) when an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
Held: 230 of the NIRC provides for a 2-yr prescriptive period to be counted " from the date of payment of tax" for actions for refund of corporate income tax. Thus, the 2-yr period should be reckoned from the actual filing of the Adjustment Return or Annual ITR, because at this point, it can be determined whether there has been an overpayment of tax. Thus, the claim for refund has already prescribed. PBCom vs. CIR (GR 112024, Jan 28, 1999) Facts: PBCom filed its quarterly ITR for the 1st & 2nd qtrs. of 1985. Later, it suffered losses and reported a net loss for 1985 & 1986. However, it earned rent for which taxes were previously withheld by their lessees. On Aug 1987, it requested for a tax credit representing tax overpayments in the 1st & 2nd qtrs of 1985. On July 1988, it also claimed refund of the creditable taxes withheld from the 1985 & 1986 rentals. Issue: WoN PBCom, relying on RMC #7-85 changing the prescriptive period for tax refunds from 2 to 10 yrs. is barred by prescription. Held: YES. Taxes are the lifeblood of the nation, thus the modes to enforce collection should be summary & rarely interfered with. From the same perspective, claims for refund should be exercised within the time fixed by law in order not to unduly delay the BIR in its collection functions. 229 of the NIRC provides for a 2-yr prescriptive paid. The revenue regulation on the other hand, was beyond the
provisions of the law. An erroneous interpretation of the law does not vest a taxpayer with a shield against judicial action. Thus PBCom was already barred from filing its claim. TITLE IX. COMPLIANCE REQUIREMENTS Non-Retroactivity of Rulings (Sec. 246, NIRC) Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR; (b) Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith. TITLE X. STATUTORY OFFENSES & PENALTIES CHAPTER I- ADDITIONS TO THE TAX (Sec. 247-252)
Increments to the basic tax incident due to the taxpayers non-compliance with certain legal requirements.
Additions to the tax are: 1. Civil Penalties a) 25% of the amount due b) 50% of the tax or the deficiency tax for willful neglect to file or false or fraudulent return willfully made. c) Interest - 20% per annum on any unpaid amount of tax or such higher rate as may be prescribed by the rules and regulations. 2. From the date prescribed for payment until the amount is fully paid. a) Def iciency Interest b) Del inquency Interest c) Int erest on Extended Payment 3. Date of notice and demand until it is paid. a) Failure to file certain Information Returns P 1,000 for each failure but not exceeding P 25,000 during a calendar yr. b) Failure of withholding agent to Collect and Remit tax. Pe nalty: Amt. of tax not withheld, or not accounted for and remitted plus other penalties. c) Failure of withholding agent to Refund excess
withholding tax. Pe nalty: Amount of refund which was not refunded to the employee resulting from the any excess of the amount withheld over the tax actually due on their return. General Provisions 1) The additions to the tax or deficiency tax apply to all taxes, fees and charges imposed in this Code. 2) The amount so added to the tax shall be collected at the same time, in the same manner and as part of the tax. 3) If the withholding agent is the Government or any of its agencies, political subdivisions or instrumentalities, or a government-owned or -controlled corporation, the employee responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax. 4) The term person, includes an officer or employee of a corporation who as such officer, employee or member is under a duty to perform the act in respect of which the violation occurs. 1. Civil Penalties (Sec. 248) A) Penalty: 25% of the amount due, in addition to the tax required to be paid. In case of the following: RIDT (lets get RID of Tax) a) Failure to file any Return and pay the tax on the date prescribed; or
b) Filing a return with an Internal revenue officer other

than those with whom the return is required to be filed, unless otherwise authorized by the Commissioner; or c) Failure to pay the Deficiency tax within the time prescribed for its payment in the notice of assessment; or d) Failure to pay on or before the date prescribed for its payment: 1. the full or part of the amount of Tax shown on any return required to be filed; 2. the full amount of tax due for which no return is required to be filed.
stantial under declaration of taxable sales, receipts or income - failure to report sales, receipts or income in an amount exceeding 30% of that declared per return 2. sub stantial overstatement of deductions - claim of deductions in an amount exceeding 30% of actual deductions 2. Interest (Sec. 249) A) There shall be assessed and collected an Interest at 20% per annum on any unpaid amount of tax B) OR higher rate prescribed by rules and regulations from the date prescribed for payment until the amount is fully paid. C) FROM the date prescribed for its payment until the full payment. (a) Deficiency Interest in the tax due (b) Delinquency Interest. - In case of failure to pay: 1. tax due on any return required to be filed, or 2. tax due for which no return is required, or 3. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. D) Interest shall form part of the tax. Bureau of Internal Revenue Ruling #019-2003
B) Penalty: 50% of the tax or of the deficiency tax, in case

any payment has been made on the basis of a return before the discovery of the falsity or fraud. In case of: [ FiFa ] a) Willful neglect to File the return within the period prescribed; or b) False or fraudulent return is willfully made, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to the rules and regulations promulgated by the Sec. of Finance: 1. sub
Pursuant to Section 249 of the 1997 Tax Code, the imposition of interest on delinquency is mandatory. (Jamora vs. Meer, 74 Phil. 22) The imposition of interest is but a just compensation to the state for the delay in the payment of the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands Interest on Extended Payment. 1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax, or any installment, or any part on or before the date prescribed; or 2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, 3) from the date of notice and demand until it is paid. 3. Failure to File Certain Information Returns (Sec. 250)
p any record; 4) sup ply any information E) required by this Code or by the Commissioner on the date prescribed thereof. 4. Failure of a Withholding Agent to Collect and Remit Tax (Sec. 251) A) Penalty: Amount of the tax not withheld, or not accounted for and remitted plus other penalties. B) Liable only upon conviction In case of the following: 1. An y person required to withhold, account for, and remit any tax; or 2. Wh o willfully fails to withhold such tax, or account for and remit such tax; or 3. Aid s or abets in any manner to evade any such tax or the payment thereof, 5. Failure of a Withholding Agent to Refund Excess Withholding Tax. (Sec.252) Penalty: Amount of refund which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return plus other penalties. In case: Any employer/withholding agent fails or
A) Penalty: P 1,000 for each failure B) The aggregate amount for all such failure shall not exceed
P 25,000 during a calendar year C) Upon notice and demand by the Commissioner D) Unless it is shown that such failure is due to reasonable cause and not to willful neglect. In the case of each failure to file: 1) info rmation return; 2) stat ement or list; 3) kee
refuses to refund excess withholding tax. CHAPTER II- CRIMES, OTHER OFFENSES AND FORFEITURES CRIMES: 1. Attempt to evade or defeat tax. 2. Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation. 3. Penal liability of corporation. 4. Penal liability for making false entries, records, or reports, or using falsified or fake accountable forms. 5. Unlawful pursuit of business. 6. Illegal collection of foreign payments. 7. Unlawful possession of cigarette paper in bobbins or rolls, etc. 8. Unlawful use of denatured alcohol. 9. Shipment or removal of liquor or tobacco products under false name or brand or as an imitation of any existing or otherwise known product name or brand. 10. Unlawful possession or removal of articles subject to excise tax without payment of the tax. 11. Failure or refusal to issue receipts or sales or commercial invoices, violations related to the printing of such receipts or invoices and other violations. 12. Offenses relating to stamps. 13. Failure to obey summons. 14. Declarations under penalties of perjury.
Other crimes and offenses: 1. Misdeclaration or misrepresentation of manufacturers subject to excise tax. 2. Forfeiture of property used in unlicensed business or dies used for printing false stamps, etc. 3. Forfeiture of goods illegally stored or removed. General Provisions (Sec. 253) 1. Any person convicted of a crime under this Code is liable for the payment of the tax and is subject to the penalties imposed herein. 2. Payment of the tax due after apprehension is not a valid defense in any prosecution for violation of any provision of this Code or in any action for the forfeiture of untaxed articles. 3. A person is liable in the same manner as the principal when he: a) will fully aids or abets in the commission of a crime penalized herein or b) cau ses the commission of any such offense by another. 4. If the offender is not a citizen of the Philippines: a) he shall serve the sentence; and b) De ported immediately after serving the sentence without further proceedings for deportation. 5. If he is a public officer or employee: a) the
maximum penalty prescribed for the offense shall be imposed; and b) he shall be dismissed from the public service and perpetually disqualified from holding any public office, to vote and to participate in any election. 6. If the offender is a Certified Public Accountant, his certificate as a Certified Public Accountant shall, upon conviction, be automatically revoked or cancelled. 7. In the case of associations, partnerships or corporations, the penalty shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-incharge, and employees responsible for the violation. 8. The fines to be imposed for any violation of the provisions of this Code shall: a) not be lower than the fines imposed herein or b) twi ce the amount of taxes, interests and surcharges due from the taxpayer, whichever is higher. Attempt to Evade or Defeat Tax. (Sec. 254) Penalty, upon conviction: o Fine - P30,000 or 100,000; and o Imprisonment - 2 to 4 years; o Plus other penalties Who is liable: Any person who willfully attempts in any manner to evade or defeat any tax or the payment thereof. The conviction or acquittal obtained under this Section
shall not be a bar to the filing of a civil suit for the collection of taxes. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. (Sec. 264) A. Penalty, upon conviction: o Fine - P10,000 or more; and o Imprisonment - 1 to 10 years; o Plus other penalties Person liable: Any person required: 1. to pay any tax, 2. make a return, 3. keep any record, or 4. supply correct and accurate information, Offense: willfully fails to 1. pay tax, 2. make a return, 3. keep the record, 4. supply such correct and accurate information, 5. withhold or remit taxes withheld, 6. refund taxes withheld on compensation, at the time or times required. B. Penalty, upon conviction: o Fine - P10,000 - 20,000; and o Imprisonment - 1 to 3 years; o Plus other penalties Person liable: Any person who: 1. attempts to make it appear for any reason that he or
another has in fact filed a return or statement, or 2. actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed. Penal Liability of Corporations (Sec 256) a) Penalty, upon conviction: Fine - P50,000 - 100,000 b) In addition to the penalties imposed upon the responsible corporate officers, partners, or employees. Who is liable: Any of the following liable for any of the acts or omissions penalized under this Code. 1. corporation, 2. association or 3. general co-partnerships Penal Liability for Making False Entries. Records or Reports, or Using Falsified or Fake Accountable Forms (Sec. 257) A. Penalty, upon conviction for each act or omission: Fine - P50,000 - 100,000; and Imprisonment - 2 to 6 years; 1) If Offender is a Certified Public Accountant, his certificate shall be automatically revoked or cancelled upon conviction. 2) In the case of foreigners, conviction under this Code shall result in his immediate deportation after serving sentence, without further proceedings for deportation. Who is liable:
1) Any financial officer or 2) Independent Certified Public Accountant engaged to examine and audit books of accounts of taxpayers under Sec.232 (A) 3) Any person under his direction. Offense: FVC
1)
Willfully Falsifies any report or statement bearing on any examination or audit 2) Renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been Verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices, or 3) Certifies financial statements of a business enterprise containing an essential misstatement of facts or omission in respect of the transactions, taxable income, deduction and exemption of his client; or CHAPTER IV OTHER PENAL PROVISIONS Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and the Discovery and Seizure of Smuggled Goods. (Sec. 282) A. For Violations of the National Internal Revenue Code. Reward: 10% of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or P1,000,000 per case, whichever is lower.
Where the offender has offered to compromise and his offer has been accepted: Same amount of reward shall be given to the informer. No revenue, surcharges or fees actually recovered or collected - No reward. Who may avail: Any person, except an internal revenue official or employee, or his relative within the sixth degree of consanguinity. Acts necessary: 1. voluntarily gives definite and sworn information, 2. not yet in the possession of the Bureau of Internal Revenue, 3. leading to the discovery of frauds upon the internal revenue laws and violations of any of the provisions thereof, 4. thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any fine or penalty. Information shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his deputies, agents or examiners or the Secretary of Finance or any of his deputies or agents.
The cash rewards of informers subject to income tax, collected as a final withholding tax, at the rate of 10%. Who may avail: Persons instrumental in the discovery and seizure of smuggled goods. Prohibited from claiming informer's reward: 1. all public officials, whether incumbent or retired, 2. who acquired the information in the course of the performance of their duties 3. during the incumbency Purpose: To encourage the public to extend full cooperation in eradicating smuggling.
PART III - LOCAL GOVERNMENT CODE OF 1991 (RA 7160-Effectivity: January 1, 1992)
Book II Local Taxation and Fiscal Matters Title I LOCAL GOVERNMENT TAXATION CHAPTER 1 - GENERAL PROVISIONS Sources of Revenues 1. Internal Revenue Allotment (IRA)
For Discovery and Seizure of Smuggled Goods Reward: Cash reward 10% of the fair market value of the smuggled and confiscated goods or P1,000,000 per case, whichever is lower.
National internal revenue collected and not applied as hereinabove provided or otherwise specially disposed of by law shall accrue to the National Treasury and shall be available for the general purposes of the Government, with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. 7160, otherwise known as the Local Government Code of 1991. (Sec. 283, NIRC) Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows (c) On the third year and thereafter, 40%... (Sec. 284, RA 7160) 2. 50% share in collections for the ff: (2nd par., Sec. 283, NIRC) a) VAT on sale of goods or properties under Sec. 106, NIRC b) VAT on sale of services and use or lease or properties under Sec. 108, NIRC c) Percentage taxes under Sec. 116, NIRC I. Power to Create Sources of Revenue Each local government unit has the power to: 1. create its own sources of revenue and 2. levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. (Sec. 129)
Such taxes, fees, and charges shall accrue exclusively to the local government units. (NOTE: As distinguished from internal revenue taxes which do not accrue exclusively to the national government but are shared to the local governments in the form of internal revenue allotments. See Title XI, NIRC of 1997) II. Nature of the Taxing Power of Local Government Units (LGUs) 1. not inherent 2. exercised only if delegated to them by law or Constitution 3. not absolute subject to limitations provided for by law III. Fundamental Principles The fundamental principles governing the exercise of the taxing and other revenue-raising powers of LGUs are [ U(EPuJul)LIP ]:
(a) Taxation shall be Uniform in each local government unit; (b) Taxes, fees, charges and other impositions shall
(EPuJuL): 1) be Equitable and based as far as practicable on the taxpayer's ability to pay; 2) be levied and collected only for Public purposes; 3) not be unJust, excessive, oppressive, or confiscatory; 4) not be contrary to Law, public policy, national
economic policy, or in the restraint of trade; (c) The collection of local taxes, fees, charges and other impositions shall in no case be Left to any private person; (d) The revenue collected shall Inure solely to the benefit of the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, (e) Each local government unit shall, as far as practicable, evolve a Progressive system of taxation. (Sec. 130) IV. Local Taxing Authority The power to impose a tax, fee or charge or to generate revenue is exercised by the Sanggunian of the LGU concerned through an appropriate ordinance. (Sec. 132) V. Power to Prescribe Penalties for Tax Violations and Limitations Thereon 1. The Sanggunian is authorized to prescribe fines or other penalties for violations of tax ordinances a. in no case shall fines be less than P1,000 nor more than P5,000 b. nor shall the imprisonment be less than one month nor more than six months 2. Such fine or other penalty shall be imposed at the discretion of the court. 3. The Sanggunian Barangay may prescribe a fine of not less than P100 nor more than P1000.
Power to Adjust Local Tax Rate (Sec. 191 LGC) - LGUs are authorized to adjust the tax rates as prescribed herein not oftener than once every 5 years, and in no case shall such adjustment exceed 10% of the rates fixed under the LGC. Power to Grant Local Exemptions (Sec. 192 LGC) - LGUs, may through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions, as they may deem necessary. Guidelines for the Granting of Tax Exemptions, Tax Incentives and Tax Reliefs (Art. 282 [B], Rules and Regulations Implementing the LGC) 1. On the grant of tax exemptions or tax reliefs: a. the same may be granted in cases of natural calamities, civil disturbance, general failure of crops, or adverse economic conditions such as substantial decrease in prices or agricultural or agri-based products. b. The grant shall be through an ordinance. c. Any exemption or relief granted to a type or kind of business shall apply to all business similarly situated. d. The same shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided by the ordinance. e. In the case of shared revenue, the exemption or relief shall only extend to the LGU granting such exemption or relief.
2. On the grant of tax incentives a. The same shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefore. b. The grant shall be for a definite period of not exceeding 1 calendar year. c. The grant shall be by ordinance passed prior to the 1st day of January of any year. d. Any grant to a type or kind of business shall apply to all businesses similarly situated. Levying of Local Taxes (Local Tax Ordinance) Requisites: 1. the procedure applicable to local govt ordinances in general should be observed. (Sec. 187, LGC) 2. Procedural details (Secs. 54, 55, and 59 LGC): a. necessity of quorum b. submission for approval by the local chief executive c. the matter of veto and overriding the same d. the publication and affectivity 3. Public hearings are required before any local tax ordinance is enacted (Sec. 187, LGC) Within 10 days after their approval, publication in full for 3 consecutive days in a newspaper of general circulation. In absence of such newspaper in the province, city or municipality, then the ordinance may be posted in at least two conspicuous and publicly accessible places (Sec. 189 LGC)
Residual Taxing Powers of the LGU (Sec. 186 LGC) To levy taxes, fees or charges on any base or subject NOT a. specifically enumerated in LGC b. taxed under the provisions of the NIRC, as amended c. other applicable laws. Conditions: a. That the taxes, fees or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy. b. The ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose. Limitations of the Residual Power 1. Constitutional limitations on taxing power 2. Common limitations prescribed in Sec. 133 of LGC 3. Fundamental principles governing the exercise of the taxing power of the LGUs prescribed under Sec. 130 of the LGC 4. The ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and 5. The principle of preemption. Principle of Preemption or Exclusion Where the national govt elects to tax a particular area, it impliedly withholds from the local govt the delegated power
to tax the same field. This doctrine principally rests on the intention of Congress. Excluded impositions pursuant to the doctrine of preemption) 1. Taxes which are levied under the NIRC, unless otherwise provided by LGC of 1991; 2. Taxes, fees, etc. which are imposed under the TCC; 3. Taxes, fees, etc. the imposition of which contravenes existing govtal policies or which violates the fundamental principles of taxation; 4. Taxes, fees and other charges imposed under special law. VI. Common Limitations on the Taxing Powers of LGUs LGUs cannot levy: [ IDECTA_BEV_TRELEBI ] or CADETVIBE-LIBERTE' (a) Income tax, except on banks and other financial institutions; (NOTE: Since income tax is already imposed by the National Government under NIRC, LGUs cannot impose the same even on banks and other financial institutions. The exception is referring to the percentage tax on banks specified income.) (b) Documentary stamp tax; (c) Estate Tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided; (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; (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, (f) Taxes, fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of 6 and 4 years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (i) Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided; (j) Taxes on the gross receipts of Transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in the Code; (k) Taxes on premiums paid by way of Reinsurance or retrocession; (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of Licenses or permits for the driving thereof, except tricycles; (m) Taxes, fees, or other charges on Philippine products actually Exported, except as otherwise provided; (n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under R.A. 6810 and R.A. 6938 (Cooperative Code of the Philippines); and (o) Taxes, fees or charges of any kind on the National Government, its agencies and Instrumentalities, and local government units. Classification of Common Limitations 1. Taxes which are levied under the NIRC unless otherwise provided by the LGC
*a, b, c, h, I, j 2. Taxes, fees, etc. which are imposed under the TCC *d 3. Taxes, fees and charges where the imposition of which contravenes existing govtal policies or which are violative of the fundamental principles of taxation *e, f, g, k, m, n, s 4. Taxes, fees and charges imposed under special laws. *l Provinces (see chart) Provinces (refers to Local Govt. Provisions on Tax)
SPECIFIC PROVISION ON THE TAXING AND OTHER REVENUE RAISING POWERS OF THE LGU A. PROVINCES
Type of Tax Rate Exceptions Notes
Tax on Transfer of Real Property Ownership. The province may impose a tax on the sale, donation, barter, or on any other mode of transferring ownership or title of real property. Tax on Business of Printing and Publication. The province may impose a tax on the business of persons engaged in the printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise. Tax on Sand, Gravel and Other Quarry Resources. The province may levy and collect taxes on ordinary stones, sand, gravel, earth, and other quarry resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. Professional Tax. The province may levy an annual professional tax on each person engaged in the exercise
Not more than 50% of the 1% of the total consideration or of the fair market value, whichever is higher Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year.
Sale, transfer or other disposition of real property pursuant to R.A. No. 6657 (CARL). Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment. School texts or references, prescribed by the DECS shall be exempt from the tax. Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment.
It shall be the duty of the seller, donor, transferor or administrator to pay the tax imposed within 60 days from the date of the execution of the deed or from the date of the decedent's death.
Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year, within its territorial jurisdiction. Not more than 10% of fair market value in the locality
At such amount and reasonable classification as the sangguniang
Professionals exclusively employed in the government shall be
The permit to extract resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan. Proceeds distributed as follows: Province -30% Component City or Municipality where the quarry resources are extracted - 30% Barangay where the quarry resources are extracted 40%. To be paid to the province where he/she practices his/her profession or where he/she maintains principal office
or practice of his profession requiring government examination. To be paid on or before the 31st day of January. Any person first beginning to practice a profession after the month of January must, however, pay the full tax before engaging therein. Amusement Tax. The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement
panlalawigan may determine but shall in no case exceed P300.00.
exempt from the payment of this tax.
Not more than 30% of the gross receipts from admission fees.
The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt.
in case the practice is in several places Provided, After payment he/she shall be entitled to practice his/her profession in any part of the Phils. w/out being subjected to any other national or local tax, license, or fee for the practice of the profession. Sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of fraud or failure to pay, the sangguniang panlalawigan may impose surcharges, interest and penalties. The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located.
Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. The province may levy an annual fixed tax for every truck or any vehicle used by
Amount not exceeding P500.00.
ATENEO CENTRAL BAR OPERATIONS 2006 Taxation SUMMER REVIEWER - -page 124 of 159
B. MUNICIPALITIES Tax on Business The municipality may impose taxes on the following: a. On 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. b. On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature. c. On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of the following essential commodities (where the rate prescribed is only of the regular rate [Sec. 143 par. c, LGC]) (RW CLAPS C): 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 postharvest facilities, fertilizers, pesticides and other farm inputs; 6. Poultry feeds and other animal feeds; 7. School supplies; and 8. Cement.
d. e. f. g.
On retailers On contractors and other independent contractors On banks and other financial institutions, On peddlers engaged in the sale of any merchandise or article of commerce h. On any business, which the sanggunian concerned may deem proper to tax. For businesses subject to the excise, value-added or percentage tax, the tax rate shall not exceed 2% of gross sales of the preceding calendar year. Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed for a-h. (Sec. 144) The tax is payable for every separate or distinct establishment or place where business is conducted. (Sec. 146) The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. (Sec 147) Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters. The sanggunian may: a) Grant fishery privileges to erect fish corrals, oysters, or other aquatic beds or bangus fry areas 1. Duly registered organizations and cooperatives of marginal fishermen shall have
the preferential right; 2. The sanggunian may require a public bidding pursuant to an ordinance for the grant of such privilege; 3. Absent of such orgs. and coops or their failure to exercise their preferential right, other parties may participate in the public bidding b) Grant the privilege to gather, take or catch bangus fry, prawn fry or fry of other species and fish from the municipal waters by nets or other fishing gears to marginal fishermen free of rental or fee c) Issue licenses for the operation of fishing vessels of three (3) tons or less. (Sec. 149) VII. Situs of the Tax For purposes of collection of the taxes under Section 143 (tax on business), 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 case there is no branch or sales outlet in the city or municipality where the sale is made, the sale shall be recorded in the principal office and the taxes due shall accrue and be paid to such city or municipality.
The following sales allocation for sales recorded in the principal office of businesses with factories, project offices, plants, and plantations:
30% of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and
70% of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located. Where the plantation located at a place other than the place where the factory is located, the above mentioned 70% shall be divided as follows: 60% to the city or municipality where the factory is located; and 40% to the city or municipality where the plantation is located. Where there are 2 or more factories, project offices, plants, or plantations located in different localities, the above mentioned 70% 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. (Sec. 150)
C. CITIES
The city may levy the taxes, fees, and charges which the province or municipality may impose. The tax rates that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of professional and amusement taxes. (Sec. 151)
fees; and
3. On Billboards, signboards, neon signs, and outdoor

ads. (Sec. 152) VIII. Common Revenue-Raising Powers of LGUs (Secs. 153-155) [ SPT ]
D. BARANGAYS Scope of Taxing Powers. - The barangays may levy the following taxes and charges, which shall exclusively accrue to them: [ TOBS ]
a. Service Fees and Charges for services rendered b. Pubic Utility Charges for the operation of public utilities
owned, operated and maintained by LGUs within their jurisdiction. c. 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 LGU concerned. Exceptions: 1. officers and enlisted men of the AFP and PNP on mission, 2. post office personnel delivering mail, 3. physically-handicapped, and disabled citizens who are sixty-five (65) years or older. IX. Community Tax Cities or municipalities may levy a community tax (Sec. 156)
(a) Taxes - On stores or retailers with fixed business

establishments with gross sales of receipts of the preceding calendar year of P50,000.00 or less for cities and P30,000.00 or less, in the case of municipalities, rate = not exceeding 1% on gross sales or receipts. (b) Service Fees or Charges for services rendered in connection with the regulations or the use of barangayowned properties or service facilities such as palay, copra, or tobacco dryers. (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. (d) Other fees and Charges. - The barangay may levy reasonable fees and charges: (CRB) 1. On commercial breeding of fighting Cocks and cockpits; 2. On places of Recreation which charge admission
A. Individuals Liable to Community Tax - [ IER ] a. Inhabitant of the Philippines b. Eighteen years of age or over c. Regularly employed on a wage or salary basis for at least 30 consecutive working days during any calendar year,
or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of P1,000.00 or more, or who is required by law to file an income tax return Rate = P5.00 and an annual additional tax of P1.00 for every P1,000.00 of income regardless of whether from business, exercise of profession or from property which in no case shall exceed P5,000.00.
2. Transient visitors when their stay does not exceed 3 months. D. Place and time of Payment Place of Payment - place of residence of the individual, or in the place where the principal office of the juridical entity is located. (Sec. 160) Time for Payment - accrues on the 1st day of Jan. of each year which shall be paid not later than the last day of Feb. of each year
In the case of husband and wife, the tax imposed shall be

based upon the total property owned by them and the total gross receipts or earnings derived by them. (Sec. 157) B. Juridical Personalities (Sec. 158) Corporations, no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines are also liable to pay an annual community tax. Rate = P500.00 and an annual additional tax, which shall not exceed P10,000.00 in accordance with the following schedule: a. For every P5,000.00 worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax P2.00; and b. For every P5,000.00 of gross receipts derived by it from its business in the Philippines during the preceding year P2.00. C. Those exempt from the community tax are: 1. Diplomatic and consular representatives; and
Penalties for Delinquency. - An interest of 24% per annum from the due date until it is paid shall be added on the amount due. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of P1.00. (Sec. 162) PROVINCE OF BULACAN vs. CA (299 SCRA 442) Facts: The Province passed an Ordinance imposing a 10% tax on the value of stones, sand and other quarry resources from public lands. The Provincial Treasurer levied upon Republic Cement P2.5M for its extraction of resources from private land. Issue: Does the province have authority to levy the tax? Held: NO. Although 186 of the LGC authorizes municipal corps. to levy taxes other than those specifically
enumerated therein, the subject ordinance was quite specific about the fact that the taxable articles must come from public land. Moreover, a province may not levy excise taxes on articles already taxed by the NIRC. The current Tax Code already imposes a tax on ALL quarry resources, regardless of origin, hence, the Province may no longer impose any additional amounts from Republic Cement. CHAPTER 3 - COLLECTION OF TAXES Taxable Period The tax period of ALL local taxes, fees and charges shall be the calendar year, unless otherwise provided in the Code. Accrual of Tax ALL local taxes, fees, and charges accrue on first day of January of each hear, unless otherwise provided in the Code. Time of 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, unless otherwise provided in the Code. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges The sanggunian may impose a surcharge not exceeding twenty five percent (25%) per month of the unpaid 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. Interest on other unpaid revenues On any other source of revenue, LGUs are authorized to imposed an interest of a maximum of 2% per month, maximum of 36 months, on the amount unpaid. PART IV - REAL PROPERTY TAXATION (LGC of 1991)
I. CHARACTERISTIC OF REAL PROPERTY TAX: [LIPAD] 1. Direct tax on the ownership of real property 2. Ad Valorem tax. The value is based on the tax base 3. Proportion - the tax is calculated on the basis of a certain percentage of the value assessed 4. Indivisible single obligation 5. Local Tax II. PROPERTIES LIABLE UNDER REAL PROPERTY TAX According to the Local Government Code, Real Property liable for Real Prop tax are: 1. Land, 2. Buildings 3. Machinery and 4. Other improvements not otherwise exempted under said code (Sec 232, LGC) Note: Although the term real property has not been expressly
defined in the LGC, early decisions of the Supreme Court in Mindanao Bus Co. v City Assessor of Cagayan de Oro, 6 SCRA `97; Board of Assessment Appeals v Meralco, 119 PHIL 328; Manila Electric Co. v Board of Assessment Appeals, 10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling. Real property includes machinery as defined by the LGC. 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. (Sec. 199 [o], LGC) Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), microcomputers, facsimile machines, telex machine, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be
considered within the definition of machinery. (Sec. 290 [o], IRR of RA 7160) III. CLASSIFICATION OF LAND for purposes of assessment Sec 218 (a) [CARMITS] 1. Commercial 2. Agricultural 3. Residential 4. Mineral 5. Industrial 6. Timberland 7. Special IV. SPECIAL CLASSES OF REAL PROPERTY (sec 216, LGC) [HCS LG] 1. HOSPITALS 2. CULTURAL and SCIENTIFIC purposes 3. owned and used by LOCAL WATER DISTRICTS 4. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. V. PROPERTIES EXEMPT from real property tax (Sec. 234) [CWERC] 1. owned by the REPUBLIC of the PHILS or its political subdivisions except: when beneficial use has been granted to a taxable person 2. Charitable institutions, churches, parsonages, convents thereto, mosques, non-profit or religious cemeteries,
buildings and improvements actually directly and exclusively used for religious, charitable or educational purposes. 3. Machinery and Equipment actually, directly, and exclusively used by local Water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power 4. Real property owned by duly registered Cooperatives under RA 6938 5. Machinery & equipment for pollution control and Environment protection Exemptions previously granted, (not falling within the above enumeration) are withdrawn. VI. FUNDAMENTAL PRINCIPLES IN Assessment of REAL PROPERTY TAXES (Sec. 198) [CUANE] 1. CURRENT and fair market value is the basis of appraisal 2. UNIFORMITY in classification in each local govt unit should be observed 3. ACTUAL USE of the property should be the basis of classification 4. appraisal, assessment, levy and collection should NOT BE LET to any private person. 5. EQUITABLE appraisal and assessment WHO ADMINISTER REAL PROPERTY TAX 1. Provinces 2. Cities 3. Municipalities within Metropolitan Manila STEP 1 - DECLARATION OF REAL PROPERTY
1. Declared by Owner or Administrator (Sec 202-203) IF newly acquired property a. files with assessor within 60 DAYS from date of transfer a b. SWORN statement containing FMV and description of property IF improvement on real property a. file w/in 60 DAYS upon completion or occupation (whichever is earlier) b. SWORN statement containing FMV and description of property 2. Declared by Provincial / City / Municipal Assessor (Sec 204) WHEN only when the person under Sec 202 refuses or fails to make the Declaration within the prescribed time No oath is required NOTE: IF FILING FOR EXEMPTION (Sec 206) WHAT person claiming exemptions must file with assessor sufficient documentary evidence to support claim WHEN within 30 days from the date of DECLARATION of property
IF required evidence is not submitted within 30 days, the property will be listed as taxable in the roll IF proven to be tax-exempt, property will be dropped from the roll NOTE: IF PROPERTY DECLARED FOR THE FIRST TIME (Sec. 222)
If declared for 1st time, real property shall be assessed for back taxes a) for not more than 10 yrs prior to the date of initial assessment b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENTROLLS (Sec 205, 207) STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY (Sec 212-214, 224-225) How to determine Fair Market Value: FOR LAND 1. Assessor of the prov/ city /mun gives summons to owners of affected properties 2. Assessor prepares a schedule of FMV for different classes of properties 3. Sanggunian enacts an ordinance 4. the schedule of FMV is published or posted FOR MACHINERY 1. For Brand New machinery : FMV is acquisition cost 2. In all other cases: FMV = Remaining eco. life Replacement cost Estimated eco. life
STEP 4: DETERMINE ASSESSED VALUE (Sec 218) Procedure 1. take the schedule of FMV 2. Assessed value = FMV X Assessment level 3. Tax = Assessed value X Tax rate STEP 5: PAYMENT AND COLLECTION OF TAX WHEN January 1 of every year (Sec 246) tax shall constitute as superior lien (Sec 246) HOW a. basic real prop tax in 4 equal installments (Mar 31,Jun 30,Sep 30, Dec 31) b. special levy - governed by ordinance NOTE: INTEREST for LATE PAYMENT - two percent (2%) each month on unpaid amt. until the delinquent amt is paid. - provided in no case shall the total interest exceed thirtysix (36) months NOTE: FOR ADVANCE and PROMPT PAYMENT a) advance payment - discount not exceeding 20% of annual tax (Sec 251, LGC) b) prompt payment - discount not exceeding 10% of annual tax due(Art 342 IRR) WHO COLLECTS The provincial, city, municipal or barangay treasurer PERIOD WITHIN WHICH TO COLLECT (Sec 270). within five (5) yrs from the date they become due
within ten (10) yrs. from discovery of fraud, in case there is fraud or intent to evade Period of prescription shall be SUSPENDED when : (Sec 270, LGC) 1. local treasurer is legally prevented to collect tax 2. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect 3. the owner of the prop is out of the country or cannot be located REMEDIES IN REAL PROPERTY TAXATION A. REMEDIES OF TAXPAYER 1. PAYMENT UNDER PROTEST (Sec 252) - file protest with prov, city, or mun. treasurer concerned - indicate amount contested - annotate on tax receipt paid under protest - Within 30 days, confirm protest in writing stating grounds therefore - treasurer shall decide protest within 60 days DONT FORGET! No protest shall be entertained unless THE TAX IS FIRST PAID!!!! IF PROTEST DECIDED IN FAVOR of taxpayer, amount may either be a. refunded or b. applied as tax credit IF DENIED or NOT DECIDED WITHIN 60 DAYS BY TREASURER,
a. taxpayer may appeal to board of assessment appeal or b. avail of remedies under Ch 3 title 2 Book II (Local Board of Assessment Appeals and Central Board of Assessment Appeals) 2. REFUND IN CASE OF EXCESSIVE COLLECTION (Sec 253) File a written claim for refund within two (2) years from date taxpayer is entitled thereto B. REMEDIES OF GOVERNMENT Remedies may be enforced either through administrative or judicial action or both, alternative or simultaneously. Use or non-use of one remedy shall not be a bar against the other (Sec 258) 1. ADMINISTRATIVE A. Levy on Real property (Sec 258 and 259) B. Sale of Real Property (Sec 260) C. Local Governments Lien (Sec 256) D. Further Distraint or Levy (Sec 265) 2. JUDICIAL (Sec 266)-civil action filed by the local treasurer within 5 yrs. from due date C. CONDONATION and REMISSION The PRESIDENT may remit or reduce real prop tax in any prov/ city/ mun if he deems that PUBLIC INTEREST so requires (Sec 277) THE SANGGUNIAN concerned may CONDONE or REDUCE the tax in cases where a. there is a general failure of crops b. substantial decrease in the price of products
c. calamity (Sec 276) by an ordinance - passed before Jan 1 of any year and upon recommendation of the Local Disaster Coordinating Council APPEALS IN REAL PROPERTY TAXATION OWNER OR PERSON WITH LEGAL INTEREST
Shall be of the same level as the CA, possessing all the inherent powers of the Court of Justice Composition - consists of a Presiding Justice and five Associate Justices - May sit en banc or in two divisions each divisions consisting of three Justices. The Presiding Justice and the most Senior Associate Justice shall serve as Chairmen of the two divisions Powers 1. to administer oaths; 2. to receive evidence; 3. to summon witnesses by subpoena; 4. to require production of papers or documents by subpoena duces tecum; 5. to punish contempt; 6. to promulgate rules and regulations for the conduct of its business; 7. to asses damage against the appellant if appeal to CTA is found to be frivolous or dilatory; 8. to suspend the collection of the tax pending appeal; and 9. to render decisions on cases brought before it; 10. to issue order authorizing distraint of personal property and levy of real property Distraint of Personal Property and Levy of Real Property Upon the issuance of any ruling, order or decision by the CTA favorable to the govt, the CTA shall issue an order authorizing the BIR, through the Comm.
Files within 60 days Written Petition under Oath With Supporting Documents Within 60 days LOCAL BOARD OF ASSESSMENT APPEALS (LBAA Should decide win 120 DAYS from receipt of petition) Within 30 days CENTRAL BOARD OF ASSESSMENT APPEALS Within 15 days SUPREME COURT
PART V - COURT OF TAX APPEALS RA 1125 as amended by RA 9282 Nature and Powers Elevation of Rank
1. to seize and distraint any goods, chattels or effects and the personal property, including stocks and other securities, debts, credits, bank accounts and interests in and rights to personal property and/or 2. levy the real property of such persons in sufficient quantity to satisfy the tax or charge together with any increment thereto incident to delinquency. This remedy shall not be exclusive and shall not preclude the Court from availing of other means under the Rules of Court. Jurisdiction I. Exclusive appellate jurisdiction to review by appeal A. Decisions of the Commissioner of Internal Revenue 1. in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges/penalties in relation thereto; 2. or other matters arising under the NIRC or any law administered by the BIR B. Inaction by the Comm. Of Internal Revenue 1. in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto; 2. or other matters arising under the NIRC or other laws administered by the BIR, where the NIRC provides a specific period for action, in which case the inaction shall be deemed a denial; C. Decisions, orders or resolutions of the RTC - in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; D. Decisions of the Commissioner of Customs
1. in cases involving liability for customs duties, fees or other money charges; seizure, detention of release of property affected; fines, forfeitures or other penalties imposed in relation thereto; 2. or other matters arising under the Customs Law or other law administered by the Bureau of Customs E. 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; F. Decisions of the Sec. Of Finance - on customs cases elevated to him automatically for review from decisions of the Comm. Of Customs which are adverse to the govt under Sec. 2315 TCC. G. Decisions of Sec. of Trade and Industry in case of nonagricultural product commodity or article, and the Sec. of Agriculture in the case of agricultural product, commodity or article, - involving dumping and countervailing duties under Secs. 301 & 302, respectively of TCC and safeguard measures under RA 8800, where either party may appeal the decision to impose or not to impose said duties. II. Jurisdiction over cases involving criminal cases a. Exclusive original jurisdiction over all criminal cases arising from violations of the NIRC or TCC and other laws administered by the BIR or Bureau of Customs 1. 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 -
the offenses or penalties shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. 2. Any provisions of law or the Rules of Court to the contrary notwithstanding the criminal action and 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 filing of such civil action separately from the criminal action will be recognized. b. Exclusive appellate jurisdiction in criminal offenses 1. Over appeals from judgments, resolutions or orders of the RTC in tax cases originally decided by them in their respective territorial jurisdiction; 2. Over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan TCs, Municipal TCs, and MCTC in their respective jurisdiction. III. Jurisdiction over tax collection cases a. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties. 1. In collection cases where the principal amount of taxes and fees, exclusive of taxes and penalties, claimed is less than one million pesos shall be tried by the Metropolitan Trial Courts, Municipal Trial Courts and RTCs. b. Exclusive appellate jurisdiction in tax collection cases
1. Over appeals from judgments, resolutions or orders of the RTC in tax cases originally decided by them in their respective territorial jurisdiction; 2. Over petitions for review of the judgments, resolutions or orders of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan TCs, Municipal TCs, and MCTC in their respective jurisdiction. - in criminal and collection cases, the Govt may file the said cases with the CTA covering amounts within its exclusive and original jurisdiction. Other Matters Those controversies which can be considered within the scope of the function of the BIR/BOC under ejusdem generic rule (e.g. actions for the nullity of distraint and levy questioning the property of the assessment collection of compromise penalties) APPEAL When: - within 30 days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action Modes of Appeal: 1. By filing a petition for review under a procedure analogous to that provided for under Rule 42 of 1997 Rules on Civil Procedure
- decision, ruling or inaction of the Comm. Of Internal Revenue/Customs, the Sec. of Finance/Trade and Industry/Agriculture or the RTCs. - this appeal shall be heard by a division of the CTA. 2. By filing a petition for review under a procedure analogous to that provided for under Rule 43 of 1997 Rules on Civil Procedure - decisions or rulings of the Central Board of Assessments Appeals and the RTCs in the exercise of its appellate jurisdiction. - this appeal shall be heard by the CTA en banc. Procedure: 1. any party adversely affected by a ruling, order or decision of a division of the CTA may file a motion for recon or new trial before the same division within 15 days from notice. 2. any party adversely affected by a resolution of a division of the CTA on a motion for recon or new trial may file a petition for review with the CTA en banc. 3. any party adversely affected by a decision or ruling of the CTA en banc may file with the SC a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules on Civil Procedure. Thirty-day Prescriptive Period for Appeal Starts to run from the date the taxpayer receives the appealable decision. If the taxpayer requests for recon (i.e. the protest is denied or the original assessment is maintained, the appealable decision is the decision denying the request for recon).
The said period is jurisdictional and non-extendible. Requests or motions for recon, however, operate to suspend the running of the period to appeal. A pro forma request for recon or one which is directed to the Sec. of Finance does not suspend the running of the 30-day reglementary period. Only a Final Decision is Appealable to the Court of Tax Appeals 1. Preliminary collection letters, post reporting notices and pre-assessment notices are not appealable, because they are not the final decision of the Commissioner. 2. An assessment can be appealed if taxpayer does not seek a recon. 3. At times there is an exchange of communications between taxpayer and Commissioner states that his action is final, then, period of appeal begins to run. 4. Commissioner must state that his decision is final for the period of appeal to run. 5. Final decision cannot be implied from issuance of warrant of distraint and levy, unless it is issued after a request for reconsideration. General Rule: New issues cannot be raised for the first time on appeal. Exceptions: 1. Defense of prescription REASON: This is a statutory right \9\visayan Land transportation v. Collector) 2. Errors of Administrative officials
REASON: State can never be in estoppel and lifeblood theory. (CIR v. Proctor and Gamble Phils Mfg. Corp., GR 66838, April 15, 1988) Note: However, this was reversed in SCs subsequent resolution wherein it was held that in the absence of explicit statutory provisions to the contrary, the Govt must follow the same rules of procedure which bind private parties. ((CIR v. Proctor and Gamble Phils Mfg. Corp., GR 66838, Dec. 2, 1991 Resolution) Tax Collection Not Suspended During Appeal General Rule: No appeal taken to the CTA shall suspend the payment, levy or distraint and/or sale of any property of the taxpayer Exception: The CTA is empowered to suspend the collection of internal revenue taxes and customs duties only when there was a 1. showing that the collection of the tax may jeopardize the interest of the govy and/or taxpayer. 2. deposit of the amount claimed or file a surety bond for not more than double the amount of tax with the Court when required; and 3. showing by taxpayer that appeal is not frivolous nor dilatory. Can the CTA Enjoin the Collection of Taxes? 1. Sec. 11 of RA 1125 as amended by Sec. 9 of RA 9282 grants CTA power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or govt.
2. However, Sec. 218 of the Tax Code provides no court may grant injunction to restrain collection of any tax, fee or charge imposed by Tax Code. 3. The provision in Tax Code refers to courts other than the CTA. (blaquera v. Rodriguez, 103 Phil. 267.) 4. CTA can suspend collection of tax. 5. Appeal to CTA does not automatically suspend collection unless CTA issues suspension order at any stage of proceedings. Simultaneous Filing of an Application for Refund or Credit and Institution of a Case Before the CTA Allowed The law fixes the same period of two years for filing a claim for refund with the Commissioner and for filing a case with the CTA. The two-year period for both starts from the date after the payment of the tax or penalty, or from the approval of the application for credit. Observation: If we are not going to allow the taxpayer to file a refund before the CTA and let him wait for the CIRs decision, and the latter failed to render a decision within the two-year period, the said taxpayer can no longer file a refund before the CTA because his right to appeal has prescribed. Weight of Decision of CTA 1. Decisions of Tax Court have persuasive effect and may serve as judicial guides. They have more persuasive value than BIR Rulings. 2. CTA findings of fact are entitled to the highest resect. (Raymundo v. de Joya, 101 SCRA 4954, 1980)
3. The SC will not set aside conclusions reached by the Tax Court which by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has developed an expertise on the subject, unless there has been an abuse or an improvident exercise of authority on its part. (CIR v. CA & Atlas Consolidated, 271 SCRA 605)
PART VI - TARIFF AND CUSTOMS CODE Definitions 1. Tarrif: Custom duties, toll or tribute payable upon merchandise to govt. 2. Custom Duties: Tax assessed upon merchandise from or exported to a foreign country (Garcia v. Executive Sec., 211 SCRA 227 [1992]) 3. Flexible Tariff: Import duties which are modified by the President upon investigation by the Tariff Commission and recommendation of the NEDA in the interest of national economy, general welfare and national security. Dumping Duty Imposing Authority Special Committee on AntiDumping (composed Countervailing Marking Duty Duty Sec. of Commissioner finance of Customs Discriminatory Duty President of the Philippines
of Sec. of Finance as Chairman; Members: the Sec. of DTI and either the Sec. of Agriculture if article in question is agri. Product or the Sec. of Labor if non-agri.) Flexible Tariff Clause The President may fix tariff rates import and export quotas, etc. under TCC (See Sec. 28, Art. VI, Constitution and Sec 401, TCC) a. to 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 on one or several stages but in no case shall the increased rate of import duty be higher than a maximum of 100% ad valorem. b. to establish import quota or to ban imports of any commodity, as may be necessary and c. to impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary.
Limitations imposed regarding the Flexible Tariff Clause i. Conduct by the Tariff Commission of an investigation in public hearing. The Commission shall also hear the views and recommendations of any govt office agency or instrumentality concerned. The NEDA thereafter submits its recommendation to the President. ii. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. In such a case, the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases (Sec. 401, TCC) TARIFF Custom duties, toll or tribute payable upon merchandise to the government. CUSTOM DUTIES Tax assessed upon merchandise from or exported, to a foreign country. (Garcia v. Exec. Sec. 211 SCRA 277(1992) Customs and duties are synonymous with one another. They both refer to the taxes imposed on imported or exported wares, articles or merchandize. Other types of Fees charged by the BOC 1) Arrastre charge
2) Wharfage due- counterpart of license, charged not for the use of any wharf but for a special fund- Port Works Fund 3) Berthing fee 4) Harbor fee 5) Tonnage due Meaning and Scope of the Tariff and Customs Laws includes not only the provisions of the Tariff and Customs Code (TCC) and regulations pursuant thereto, but all other laws and regulations which are subject to the Bureau of Customs (BOC) or otherwise within its jurisdiction. as to its scope: tariff and custom laws extend not only to the provisions of the TCC but to all other laws as well, the enforcement of which is entrusted to BOC. BUREAU OF CUSTOMS FUNCTIONS: 1. 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. 2. Prevention and suppression of smuggling and other frauds upon the customs. 3. Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce. 4. Enforcement of tariff and customs laws, rules and regulations relating to the tariff
and customs administration. 5. Supervision and control over the handling of foreign mails arriving in the Phils. For the purpose of the collection of the lawful duty on dutiable articles thus imported and prevention of smuggling through the medium of such mails 6. Supervision and control all import and export cargoes, landed or stored in piers, airports, terminal facilities including container yards and freight stations for the protection of government revenue. 7. Exercise exclusive jurisdiction over seizure and forfeiture cases under the tariff and customs laws. (Sec. 602) JURISDICTION OF COLLECTOR OF CUSTOMS OVER IMPORTATION OF ARTICLES 1. cause all articles for importation to be entered in the customhouse 2. cause all such articles to be appraised and classified 3. assess and collect the duties, taxes and other charges thereon 4. hold possession of all imported articles until the duties, taxes and other charges are paid thereon (Sec 1206) TERRITORIAL JURISIDICTION OF THE BOC 1. All the seas within the jurisdiction of the Phils. 2. All coasts, ports, airports, harbors, bays, rivers and inland waters whether navigable or not from the sea (1st par., Sec. 603) TARIFF customs duties, toll or tribute payable upon
merchandise to the government CUSTOMS DUTIES tax assesses upon merchandise from or exported to a foreign country APPLICATION OF THE TCC Only after importation has begun but before importation is terminated DURATION OF IMPORTATION: a) BEGINNING Wh en the conveying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein a) TERMINATION Upon payment of the duties, taxes, and other charges due upon the articles, or secured to be paid at the port of entry and legal permit for withdrawal shall have been granted In case the articles are free of duties, taxes and other charges until they have legally left the jurisdiction of customs (Sec. 1202) Intention to Unload Even if not yet unloaded, and there is unmanifested cargo forfeiture may take place because importation has already begun. KINDS OF GOODS UNDER THE TCC A. Subject to duty a. Live animals and animal products
b. Vegetable products c.Animal or vegetable fats, oil and their cleavage products; prepared edible fats; animal or vegetable waxes; d. Prepared foodstuffs; beverages, sprits and vinegar; tobacco and manufactured tobacco substitute; e. Mineral products; f. Products of chemical or allied industries; g. Plastic and articles thereof; rubber and article thereof; h. Raw hides and skins; leather, etc; i. Wood and articles of wood, etc; j. Pulp of wood, etc; k.Textile and textile articles; l. Articles of stone, plaster, cement, etc; m. Footwear, headgear, etc; n. Natural or cultured pearls, precious or semiprecious stones; o. Base metals and articles of base metals; p. Machinery and mechanical appliances; electric equipment; sound recorders, etc; q. Vehicles, aircrafts, vessels and associated transport equipment; r. Optical, photographic, medical, surgical instruments, etc; s.Arms, ammunitions, parts and accessories; t. Miscellaneous manufactured articles; and u. Works of art, collectors pieces and antiques (Sec 104, TCC) B. Prohibited from being imported 1) Absolutely prohibited Weapons of war
Immoral/obscene or insidious articles Articles for treason Prohibited drugs/narcotics Gambling paraphernalia/devices Those prohibited under Special Laws (Sec 102 TCC) 2) Qualifiedly prohibited o Where such conditions as to warrants a lawful importation do not exist, the legal effects of the importation of qualifiedly prohibited articles are the same as those absolutely prohibited articles. (Auyong Hian v. CTA, 59 SCRA 110) C. Conditionally-free from customs duties a. Books b. Coffins/urns with human remains c. Tools of the trade d. Personal effects e. Medals/ prizes bestowed tariff and
a.
D. Free from tariff and customs duties Imported goods must be entered in the customhouse at their port of entry otherwise they shall be considered as contraband and the importer shall be liable for smuggling (sec 1201) Port of entry means a domestic port open to both foreign and coastwise trade including airport of entry. (Sec. 3514) All articles when imported from any country into the Philippines shall be subject to duty upon each
importation, even though previously exported from the Phils. except as otherwise specifically provided for in the TCC or other laws. (sec 1201) LIABILITY FOR CUSTOMS DUTIES General Rule: No exemptions from customs duties Th e provisions of general and special laws, including those granting franchises, to the contrary notwithstanding, there shall be no exemptions whatsoever from the payment of customs duties (Sec. 105, last par.) Exceptions: a. if provided under the TCC (e.g. conditionallyfree importation) b. exemptions granted to GOCCs with existing contracts, commitments, agreements or obligations with foreign countries c.exemptions of international institutions, associations or organizations pursuant to agreements and special laws d. exemptions granted by the President of the Phils. Upon recommendation of NEDA in the interest of national economic development. (Sec. 1205) LIABILITY OF IMPORTER FOR CUSTOMS DUTIES a. a personal debt due from the importer which can be discharged only by payment in full of all duties and taxes b. a lien upon imported articles which may be enforced while they are in custody or subject to the control of the government (sec 1204)
EXTENT OF IMPORTERS LIABILITY limited to the value of the imported merchandise. In case of forfeiture of the seized materials, the maximum civil penalty is the forfeiture itself. (Mendoza v. David, 1 SCRA 791) PREFERENCE ON THE OWNER OF IMPORTED ARTICLES FOR CUSTOMS PURPOSES All articles imported into the Philippines shall be held to be the property of: a. the person to whom the property is consigned b. the holder of the bill of lading duly endorsed by the consignee therein named c. the consignee if consigned to order by the consignor d. the underwriters of the abandoned articles saved from a wreck at sea, along the coast or in any area in the Phils. DUTIABLE IMPORTATION Articles although previously exported from the Philippines, become dutiable from the entry of the vessel or aircraft into the Philippine jurisdiction until the payment of duties, taxes, and other charges and the issuance of the permit for the withdrawal of said goods from the custom houses. BASIS OF DUTIABLE VALUE (Sec. 201 TCC, as amended by RA 9135)
(A) Method One. Transaction Value. - The dutiable value of an imported article subject to an ad valorem rate of duty 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 adding: (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. No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Section: Provided, That Method One shall not be used in determining the dutiable value of imported goods if: (a) There are restrictions as to the disposition or use of the goods by the buyer other than restrictions which: (i) Are imposed or required by law or by Philippine authorities; (ii) Limit the geographical area in which the goods may be resold; or (iii) Do not substantially affect the value of the goods. (b) The sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued; (c) Part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly
or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions hereof; or (d) The buyer and the seller are related to one another, and such relationship influenced the price of the goods. Such persons shall be deemed related if: (i) They are officers or directors of one anothers businesses; (ii) They are legally recognized partners in business; (iii) There exists an employer-employee relationship between them; (iv) Any person directly or indirectly owns, controls or holds five percent (5%) or more of the outstanding voting stock or shares of both seller and buyer; (v) One of them directly or indirectly controls the other; (vi) Both of them are directly or indirectly controlled by a third person; (vii) Together they directly or indirectly control a third person; or (viii) They are members of the same family, including those related by affinity or consanguinity up to the fourth civil degree. Persons who are associated in business with one another in that one is the sole agent, sole distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purposes of this Act if they fall within any of the eight (8) cases above. (B) Method Two. 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" shall mean 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. (C) Method Three. 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" shall mean 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. If the dutiable value still cannot be determined through the successive application of the two immediately preceding methods, the dutiable value shall be determined under method four or, when the dutiable value still cannot be determined under that method, under method five, except that, at the request of the importer, the order of application of methods four and five shall be reversed: Provided, however, That if the Commissioner of Customs deems that he will experience real difficulties in determining the dutiable value using method five, the Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under method four, if it can be so determined. xxx
DRAWBACK It is a device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it had not been taxed at all. (Uy Chiaco Sons vs. Collector of Customs, 24 Phil 562) IMPORT ENTRY It is a declaration to the BOC showing particulars of the imported article that will enable the customs authorities to determine the correct duties. An importer is required to file an import entry. It must be accomplished at the moment the last cargo is disembarked from the vessel. TRANSACTION VALUE UNDER RA 8181 It is the invoice value of the goods plus freight, insurance, costs, expenses. Thi s replaces the Home Consumption Value as basis of valuation of goods. CLASSIFICATION OF CUSTOMS DUTIES A. Regular duties those which are imposed ordinarily as a matter of course without order from the higher authorities and collected merely as a source of revenue a. Ad Valorem Duty this is a duty based on the value of the imported article b. Specific Duty- this is duty based on the dutiable weight of goods (either the gross weight, legal weight or the net weight)
B.
Special duties- those which are imposed and collected in addition to ordinary duties usually to protect local industries against foreign competition: a. Dumping Duty b. Countervailing duty c. Marking duty d. Discriminatory duty NATURE AND PURPOSE OF SPECIAL CUSTOMS DUTIES 1. These are additional import duties imposed on specific kinds of imported articles under certain conditions 2. These are imposed for the protection of consumers and manufacturers as well as Phil. Products from undue competition posed by foreign made products. These cannot be imposed without regular duties because the law says that it is to be in addition to such. SPECIAL DUTIES are: DUTIES Dumping Duty NATURE imposed on foreign articles: a. Being imported into, sold or is likely to be sold in AMOUNT /RATE Difference between the actual price and the normal value of the article IMPOSING Authority Special Committee on Antidumping (Sec. of Financechairman;
Countervaili ng Duty
Marking Duty
the Phils. b. At a price less than its normal value The importation or sale of which might injure an industry producing like goods in the Phils. Imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated Imposed upon those not properly marked as to the place of origin of the
(extent of the underpricin g)
members: Sec of DTI, Sec. of Agriculture/ Sec of Labor)
Discriminato ry Duty
goods Imposed upon goods coming from countries that discriminate against Philippine products
Pres. Of the Phil.
Equivalent to the bounty, subsidy or subvention
Sec of Finance
FLEXIBLE TARIFF CLAUSE The President may fix tariff rates, import and export quotas, etc. under TCC (Sec 28, Art VI 1987 Constitution and Sec 401, TCC) 1) To 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 on one or several stages but in no case shall be higher than a maximum of 100% as valorem 2) To establish import quota or to ban imports of any commodity, as may be necessary 3) To impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary Limitation Imposed Regarding the Flexible Tariff Clause 1) Conduct by the Tariff Commission of an investigation in a public hearing The Commissioner shall also hear the views and recommendations of any government office, agency or instrumentality concerned
5% ad valorem of articles
Comm of Custom
The NEDA thereafter shall submits its recommendation to the President 2) The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. In such a case the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing country for the most recent representative period shall be used as bases. (Sec 401 TCC)
REQUIREMENT TO KEEP RECORDS (Sec. 3514 TCC, as amended by RA 9135) All importers are required to keep at their principal place of business, in the manner prescribed by regulations to be issued by the Commissioner of Customs and for a period three (3) years from the date of importation, all the records of their importations and/or books of accounts, business and computer systems and all customs commercial data including payment records relevant for the verification of the accuracy of the transaction value declared by the importers/customs brokers on the import entry. All brokers are required to keep at their principal place of business, in the manner prescribed by regulations to be issued by the Commissioner of Customs and for a period of three (3) years from the date of importation copies of the above mentioned records covering transactions that they handle. THE TARIFF COMMISSION
Functions of the Tariff Commission: I. Investigative Powers 1. the administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted. 2. the relations between the rates of duty on raw materials and the finished or partly finished products. 3. the effects of ad valorem and specific duties and of compound specific and ad valorem duties. 4. all questions relative to the arrangement of schedules and classification of articles in the several schedules in the tariff law. 5. the tariff relations between the Philippines and other foreign countries commercial treaties, preferential provisions, economic alliances, the effect of export bounties and preferential transportation rates. 6. the volume of importations compared with domestic production and consumption; and 7. in general, to investigate the operation of customs and tariff laws, including their relation to the national revenues, their effect upon the industries and labor of the country and to submit reports of its investigation as provided. (Sec. 506, TCC) II. Administrative Assistance to the President and Congress (Sec. 506, TCC) Tax Remedies Under the Tariff and Customs Code (TCC) Remedies of the Government to Effect Collection of Taxes I. Administrative/Extrajudicial
A. Tax Lien (Sec. 1508, TCC) Attaches on the goods, regardless of ownership, while still in the custody or control of the Govt. Availed of when the importation is neither prohibited nor improperly made. B. Administrative Fines and Forfeitures Applied when the importation in unlawful; And it may be exercised even where the articles are not or no longer in Customs custody - unless the importation is merely attempted in which case it may be effected only while the goods are still within the Customs jurisdiction or in the hands of a person who is aware thereof (Sec. 2531 & 2530 TCC) Under Sec. 2530 (a) of the TCC, in order to warrant forfeiture, it is not necessary that the vessel or aircraft must itself carry the contraband. The complementary if collateral use of the Cessna plane for smuggling operations is sufficient for it to be deemed to have been used in smuggling (Llamado v. Comm. Of Customs, 122 SCRA 118) C. Reduction of customs duties/compromise: - Subject to approval of Sec. of finance (Sec. 709, 2316 TCC) D. Seizure, Search, Arrest (Sec. 2205, 2210, 2211 TCC)
B. Criminal action REMEDIES OF THE TAXPAYER I. Administrative A. Protest 1. Any importer or interested party dissatisfied with published value within 15 days from date of publication, or within 5 days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. 2. Taxpayer - within 15 days from assessment. Payment under protest is necessary (Sec. 2308, 2210 TCC) B. Refund 1. A written claim for refund may be submitted by the importer in abatement cases on missing packages, deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines, articles lost or destroyed after such arrival, dead or injured animals, and for manifest clerical errors and 2. Drawback cases where the goods are re-exported. (Sec. 1701-1708 TCC) C. Settlement of any seizure by payment of fine or redemption - BUT this shall not be allowed in any case where importation is absolutely prohibited or the release would be contrary to law or when there is an actual and intentional fraud (Sec. 2307 TCC) D. Appeal - within 15 days to Commissioner after notification by collector of his decision (Sec. 2313 TCC) II. Judicial
II. Judicial - this remedy is normally availed of when the tax lien is lost by the release of the goods A. Civil action (Sec. 1204 TCC)
A. Appeal - within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA (Sec. 2403 TCC, Sec. 7 RA 1125, as amended by Sec. 9 RA 9282) Since Sec. 11 of RA 1125, as amended by Sec. 9 RA 9282 empowers the tax court to issue injunctions, it would appear than an importer may appeal without first paying the duties, such as in seizure but not in protest cases. B. Action to question the legality of seizure C. Abandonment (Sec. 1801 TCC) 1. expressly (Sec. 1801 TCC) 2. impliedly (a) failure to file an import entry within 30 days from the discharge of goods or (b) having filed an entry, fails to claim within 15 days but it shall not be so effective until so declared by the collector. (Sec. 1801, as amended by RA 7651) Two Kinds of Proceedings in the Bureau of Customs (BOC) 1. Customs protest cases 2. Customs seizure and forfeiture cases A. Customs Protest Cases Definition: These are cases which are solely with liability for customs duties, fees, and other charges. NOTE: Before filing a protest there must first be a payment under protest. When Customs Protest Applicable
The customs protest is required to be filed only in case the liability of the taxpayer for duties, taxes, fees and other charges is determined and the taxpayer disputes said liability. When Customs Protest NOT Required When there is no dispute, but the claim for refund arises by reason of the happening of supervening events such as when the raw material imported is utilized in the production of finished products subsequently reported and a duty drawback is claimed. Requirements for Making a Protest a. must be in writing b. must point out the particular decision or ruling of the Collector of Customs to which to which exception is taken or objection made; c. must state the grounds relied upon for relief; d. must be limited to the subject matter of a single adjustment; e. must be filed when the amount claimed is paid or within 15 days after the payment; f. protestant must furnish samples of goods under protest when required. PROCEDURE ON CUSTOMS PROTEST CASES 1. The Collector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse. 2. The Collector shall assess, liquidate, and collect the duties thereon, or detain the said goods if the party liable does not pay the same.
3. The party adversely affected may file a written protest on his foregoing liability with the Collector within 15 days after the liquidated amount (the payment under protest rule applies) 4. Hearing within 15 days from receipt of the duly presented protest. Upon termination of the hearing, the Collector shall decide on the same within 30 days IF DECISION IS ADVERSE TO THE PROTESTANT Appeal with the Commissioner within 15 days from notice Appeal with CTA division within 30 days from notice Appeal with the CTA en banc IF DECISION IS ADVERSE TO THE GOVERNMENT Automatic review by Commissioner Automatic review by Sec. of Finance If decision of Commissioner or Sec. is adverse to the protestant, he may appeal to the CTA and SC under the same procedure on the left.
Definition: These refer to matters involving smuggling. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. These actions are in rem. Thus, it is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. The absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. (Comm. Of Customs v. Manila Starr Ferry, Inc., 227 SCRA 317) Smuggling A. An act of any person who shall: 1. Fraudulently import any article contrary to law, or 2. Assist in so doing, or 3. Receive, conceal, buy, sell, facilitate or transport such article knowing its illegal importation (sec. 3601 TCC) 4. Export contrary to law (Sec. 3514 TCC) B. The Philippines is divided into various ports of entry entry other than port of entry will be SMUGGLING. -
Appeal by certiorari to the SC within 15 days from notice Reasons for Automatic Review of Decisions Adverse to Government 1. to protect the interest of the Govt. 2. a favorable decision will not be appealed by the taxpayer and certainly a collector will no appeal his own decision. 3. Lifeblood theory B. Seizure and Forfeiture Cases
Port of Entry: A domestic ort open to both foreign and coastwise trade including airport of entry. (Sec. 3514 TCC) ALL articles imported into the Philippines whether subject to duty or not shall be entered through a customs house at a port of entry. ENTRY in Customs law means 1. the documents filed at the Customs house 2. the submission and acceptance of the documents
3. the procedure of passing goods through the customs house (Rodriguez v. CA, Set. 18, 1995) Contraband: Articles of exportations. (Sec. 3514 TCC) prohibited importations or
Evidence for Conviction in Smuggling Cases More possession of the article in question - UNLESS the defendant could explain that his possession is lawful to the satisfaction of the court (Sec. 3601 TCC). Payment of the tax due after apprehension is not a valid defense (Rodriguez v. CA, 248 SCRA 288) Things Subject to Confiscation in Smuggling Cases Anything that was used for smuggling is subject to confiscation, like the vessel, plane, etc. (Llamado v. Comm. of Customs, 1983). Exception. Common carriers that are not privately chartered cannot be confiscated. Right of Customs Officers to Effect Seizure & Arrest a. May seize any vessel. Aircraft, cargo, article, animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under tariff and customs laws, rules and regulations. b. May exercise such powers only in conformity with the laws and provisions of the TCC (Sec. 2205) Common Carriers, Forfeiture
Common carriers are generally not subject to forfeiture although if the owner has knowledge of its use in smuggling and was a consenting party, it may also be forfeited. If a motor vehicle is hired to carry smuggled goods but it has no Certificate of Public Convenience (CPC), It is not a common carrier. It is thus subject to forfeiture and lack of personal knowledge of the owner or carrier is not a defense to forfeiture. 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 facie presumption shall exist against the vessel, vehicle or aircraft under any of the following circumstances: a. If the conveyance has been used for smuggling at least twice before; b. If the owner is not in the business for which the conveyance is generally used; and c. If the owner is financially not in the position to own such conveyance. Doctrine of Hot Pursuit Requisites 1. Over Vessels a. An act is done in Phil. Waters which constitutes a violation of the tariff and custom laws.
b. A pursuit of such vessel began within the jurisdictional waters which i. may continue beyond the maritime zone, and ii. the vessel may be seized on the high seas. 2. Over Imported Articles a. There is a violation of the tariff and customs laws. b. As a consequence, they may be pursued in the Phils. c. With jurisdiction over them at any place therein for the enforcement of the law. (2nd par. Sec. 603 TCC) RTC v. BOC The RTCs do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC and to interfere with these proceedings. The Collector of Customs has exclusive jurisdiction over all questions touching on the seizure and forfeiture of dutiable goods. No petitions for certiorari, prohibition or mandamus filed with the RTC will lie because these are in reality attempt to review the Commissioners actuations. Neither replevin filed with the RTC will issue. Rationale: Doctrine of Primary Jurisdiction Even if a Customs seizure is illegal, exclusive jurisdiction (to the exclusion of regular courts) still belongs to the Bureau of Customs. (Jao v. CA, Oct. 6, 1995) Goods in Customs Custody Beyond Reach of Attachment Goods in the customs custody pending payments of customs duties are beyond the reach of attachment. As long as the importation has not been terminated, the imported goods remain under the jurisdiction of the Bureau of Customs. (Viduya v. Berdiago, 73 SCRA 553)
Persons Having Police Authority To Enforce The Tariff and Customs Laws and Effect Searches, Seizures and Arrests a. officials of the BOC, district collectors, police officers, agents, inspectors and guests of the BOC; b. officers of the Phil. Navy and other members of the AFP and national law enforcement agencies when authorized by the Comm. Of Customs; c. officials of the BIR on all cases falling within the regular performances of their duties, when the payment of internal taxes are involved; d. officers generally empowered by law to effect arrests and execute processes of courts, when acting under the direction of the Collector. (Sec. 2203 TCC) Administrative and Judicial Procedures Relative to Customs Seizures and Forfeitures 1. Determination of probable cause and issuance of warrant. 2. Actual seizure of the articles. 3. Listing of description, appraisal and classification of seized property. 4. Report of seizure to Comm. Of Customs and the Chairman, Comm. On Audit. 5. Issuance by the Collector of warrant of detention. 6. Notification to owner or importer. 7. Formal hearing. 8. District collector renders his decisions. If decision is not favorable to If decision is not favorable to the aggrieved owner or the govt
importer Appeal by aggrieved owner or Automatic review by Comm. importer Requirements for Customs Forfeiture 1. The wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same persons of any invoice, letter or paper - all touching on the importation or exportation of merchandise; and 2. That such declaration, affidavit, invoice, letter or paper is false. (Farolan, Jr. v. CTA, 217 SCRA 298) Places Where Searches and Seizures May Be Conducted a. enclosures b. dwelling house (there must be search warrant issued by a judge) c. vessels or aircrafts and persons or articles conveyed therein d. vehicles, beasts or persons e. persons arriving from foreign countries Burden of Proof in Seizure or Forfeiture - claimant (Sec. 2535 TCC) Requirements for Manifest A manifest in coastwise trade for cargo and passengers transported from one place or port in the Phils. to another is required when one or both of such places is a port of entry. (Sec. 906 TCC) Manifests are also required of vessels from a foreign port. (Sec. 1005 TCC)
Query: Is Manifest Required Only for Imported Goods? No. Articles subject to seizure do not have to be imported goods. Manifests are also required of articles found on vessels or aircrafts engaged in coastwise trade (Rigor v. Robles, 117 SCRA 780) Unmanifested Cargo is Subject to Forfeiture whether the act of smuggling is established or not under the principle of res ipsa loquitur. It is enough that the cargo is unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. Settlement of Forfeiture Cases General Rule: Settlement of cases by payment of fine or redemption of forfeited property is allowed. Exceptions: 1. the importation is absolutely prohibited or 2. the surrender of the property to the person offering to redeem would be contrary to law, or 3. where there is fraud (Sec. 2307 TCC) Acquittal in Criminal Charge Not Res Judicata in Seizure or Forfeiture Proceedings Reasons: 1. Criminal proceedings are actions in personam while seizure or forfeiture proceedings are actions in rem. 2. Customs compromise does not extinguish criminal liability (Pp. v. Desiderio, Nov. 26, 1965)
At any time prior to the sale, the delinquent importer may settle his obligations with the Bureau of Customs in which case the aforementioned articles may be delivered upon payment of the corresponding duties and taxes and compliance with all other legal requirements. (Sec. 1508 TCC) Abatement The reduction or non-imposition of customs duties on certain imported materials as a result of; 1. Damage incurred during voyage; 2. Deficiency in contents package; 3. Loss or destruction of articles after arrival; 4. Death or injury of animals. Fraudulent Practices Considered As Criminal Offences Against Customs Revenue Laws
a. Unlawful importation; b. Entry of imported or exported article by means of any false or fraudulent practices, invoice, declaration, affidavit or other documents; c. Entry of goods at less than their true weights or measures or upon a classification as to quality or value; d. Payment of less than the amount due;
PROCEDURE TO PROTEST CUSTOM COLLECTORS ASSESSMENT
Articles enter customs house Articles appraised, classified and assessed
Taxpayer agrees with assessment
Taxpayer disagrees with assessment
Pays duties, taxes, etc.
Files written protest with ruling of Collector (Sec. 2303, TCC) Within 15 days from receipt of assessment No protest considered unless amount due is paid Collector schedules hearing of protest w/in 15 days from receipt of protest
Goods released
Collector renders decision w/in 30 days from termination of hearing
Protest Granted
Protest Denied
Automatic appeal to Customs Commissioner (Sec. 2313, TCC)
Appeal to Customs Commissioner w/in 15 days from notice (Sec. 2313, TCC)
Commissioner of Customs fails to render decision w/in 30 days
Protest Affirmed
Protest Denied Protest Affirmed
Protest Denied
Automatic appeal to Sec. of Finance reports elevated w/in 5 days from promulgation or after lapse of 30 days if no decision
Assessment final
Automatic appeal to Sec. of Finance Assessment final
Assessment final
If unfavorable, appeal to CTA w/in 30 days from receipt of decision (Sec. 7, RA 1125)
CTA decides w/in 30 days
Appeal to SC w/in 15 days from notice (Rule 43, ROC)
No appeal assessment final
EXHIBITS TAX ON INDIVIDUALS Type of Income
Tax Rate For Resident Citizen
Interest from any currency bank 20% Final Tax deposit & yield or any other monetary benefit from deposit substitutes & from trust funds & similar arrangements Royalties (except on books & other literary works & musical compositions) Prizes > P10,000 Other winnings except PCSO & Lotto Royalties on books & other Final Tax of 10% literary works & musical compositions Prizes < P10,000 Schedular rate Winnings from PCSO & Lotto exempt Interest Income received by an 7.5% Final Tax individual (except a nonresident individual) from a depositary bank under the expanded foreign currency deposit system Interest income from long term Exempt from tax
Rate For NonResident Citizen (Incl. OCW) 20% Final Tax
Tax Rate For Resident Alien 20% Final Tax
Non-Resident Non-Resident Alien engaged in Alien NOT trade / business engaged in trade / business 20% Final Tax 25% Final tax
Final 10%
Tax
of Final Tax of 10% Schedular rate exempt 7.5% Final Tax
Final Tax of 10% Schedular rate Exempt Exempt
25% Final tax 25% Final tax 25% Final tax Exempt
Schedular rate exempt exempt
Exempt
from Exempt from tax
Exempt from tax
25% Final tax
Type of Income
deposit or investment in the form of savings, common or individual trust fund, deposit substitutes, investment management accounts & other investments evidenced by certification in such form prescribed by the BSP Pre-termination of such certificate before the 5th year (i.e. 4 years to less than 5 years) 3 years to less than 4 years less than 3 years Cash and/or Property Dividends from a domestic corp. or from a joint stock co., insurance or mutual fund companies & regional operating headquarters of multinational companies; Share of an individual in the distributable net income after tax of a partnership (except GPP); Share of an individual in the net income after tax of an assn., a joint account or a joint venture or consortium taxable as a corp. of w/c he is a member/co-venturer
Rate For NonResident Citizen (Incl. OCW) tax
Tax Rate For Resident Alien
Non-Resident Non-Resident Alien engaged in Alien NOT trade / business engaged in trade / business
5% Final tax on the entire income 12% 20% 10% Final Tax
5% Final tax on N/A the entire income 12% 20% 20% Final Tax N/A N/A 25% Final tax
Type of Income
Tax Rate For Resident Citizen 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
Capital gains from sale, barter, exchange or other disposition of shares of stock (of domestic corp.) not traded in the stock exchange For the first P100,000 On any amount in excess of P100,000 Capital gains from sale, exchange or other disposition of real property located in Philippines, classified as capital assets, including pacto de retro sales & other forms of conditional sales
Rate For NonResident Citizen (Incl. OCW) 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
Tax Rate For Resident Alien 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
Non-Resident Non-Resident Alien engaged in Alien NOT trade / business engaged in trade / business 5% Final tax on 5% Final tax on net capital gains net capital gains realized during realized during the the taxable yr: taxable yr:
10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
CG from sale/disposition of principal residence by natural persons, the proceeds of which is Exempt from CG Exempt fully utilized in tax CG tax acquiring/constructing a new principal residence w/in 18 mos. from date of sale, provided historical cost/adjusted basis of
from Exempt from CG Exempt from CG Exempt from CG tax tax tax
Type of Income
Rate For NonResident Citizen (Incl. OCW)
Tax Rate For Resident Alien
Non-Resident Non-Resident Alien engaged in Alien NOT trade / business engaged in trade / business
sold prop be carried to the new principal residence built/acquired Commissioner. Duly notified w/in 30 days from sale Tax exemption can only be availed once every 10 years If no full utilization of proceeds of sale, such portion shall be subject to CG tax **a nonresident alien engaged in trade or business is an individual who shall come to the Philippines & stay therein for an aggregate period of more than 180 days during any calendar year TAX ON CORPORATIONS Type of Income Interest on currency bank deposits & yield or any other monetary benefit form deposit substitutes & from trust funds & similar arrangement Royalties (similar within the Philippines) Interest income from a depositary bank under the expanded foreign currency deposit system (EFCDS) CG from sale, barter, exchange or other disposition of shares of stock (of domestic corp.) not traded in the stock exchange For the first P100,000 On any amount in excess of P100,000 Domestic Corp 20% Final Tax Resident Foreign Corp 20% Final Tax Non-Resident Foreign 32%/35% Income Tax
7.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10%
7.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10%
Exempt from tax 5% Final tax on net cap.l gains realized during the taxable yr: 10%
Income derived by depositary bank under the EFCDS from foreign currency transactions with non-residents, offshore banking unites in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the BSP to transact business with FCDS units & other depositary banks under the EFCDS Interest income form foreign currency loans granted by such depository banks under said EFCDS to RESIDENTS Inter-corporate dividends (from a domestic corp.)
Exempt from Final tax Part of gross income subject to 32/%35% corp. income tax (RA 9294) 10% Final Tax Exempt form tax
Exempt from Final tax N/A Part of gross income subject to 32%/35% corp. income tax (RA 9294) 10% Final Tax Exempt form tax N/A 15% Final Tax * subject to the rule on tax credit for tax actually paid and tax deemed paid. Otherwise, subject to regular income tax rate of 32%/35% 32%/35% income tax
CG from sale, exchange or other disposition of lands 6% Final tax on gross 32%/35% income tax and/or buildings which are not used in the business of a selling price or FMV corp. & are treated as capital assets or zonal value, whichever is higher Type of Corporate Taxpayer International Air Carrier Gross Phil. Billings = amount of gross revenue derived from carriage of persons, excess baggage, cargo & mail originating form the Philippines in a continuous & uninterrupted flight, irrespective of the place of sale/issue & the place of payment of the ticket or passage document; Includes tickets revalidated, exchanges &/or indorsed to another intl airline if the passenger boards a plane in a port/point in the Philippines. For a flight which originates from
Tax Rate 2 % on Gross Phil Billings
the Philippines but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the GPB International Shipping Gross Phil Billings = gross revenue whether for passenger, cargo or mail originating from the Philippines. up to final destination, regardless of the place of sale/ payments of passage of freight documents Offshore Banking Units Branch Profits remitted (connected with the conduct of its trade/business in the Philippines.) = based on the total profits applied/earmarked for remittance without any deduction for the tax component thereof (except those registered with the PEZA) Regional/Area Headquarters of Multinational Cos. = do not earn/derive income from the Philippines. & w/c act as supervisory, communication & coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific Region & other foreign markets Regional Operating Headquarters of Multinational Companies = engaged in any of the following services: a. General Administration & planning b. Business planning & coordination c. Sourcing & procurement of raw materials & components d. Corporate finance advisory services e. Marketing control & sales promotion f. Training & personnel mgt. g. Logistic services h. Research & development i. Services & product development j. Technical support & maintenance k. Data processing & communication
Final Tax of 10% on gross income from transactions with residents 15% on branch profits remittance
Exempt from tax
10% of taxable income
l.
Business development Tax Rate 25% of gross income 4.5% of gross rentals, lease or charter fees 7.5% of gross rentals or fees
Type of Taxpayer Nonresident cinematographic film owner, lessor or distributor (NOTE: Even to individuals) Nonresident owner or lessor of vessels chartered by the Phil. Nationals Nonresident owner or lessor of aircraft, machineries & other equipment Type of Income
Gross Income = Salaries, Wages, Annuities, 15% of gross income Compensation, Remuneration, Other Emoluments (i.e. honoraria & allowances) received from such cos. Provided, same tax treatment shall apply to Filipinos abroad employed & occupying same positions in these companies ** Multinational company = a foreign firm/entity engaged in international trade with affiliates/subsidiaries/branch offices in the Asia Pacific Region & other foreign markets
Tax Rate For Alien Individual Employed By Regional Or Area Offshore Banking Units Headquarters & Regional Operating Headquarters of Multinational Cos. 15% of gross income 15% of gross income
Petroleum Contractor Subcontractor
Service &

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ADMU Taxation Law 2006

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ATENEO CENTRAL BAR OPERATIONS 2006 Taxation SUMMER REVIEWER --page 1 of 159

Transfer of property rights

Taxes paid form part of the public funds

Allows merely the restraint on the exercise of property rights

Situs of Taxation - the place of taxation, the country

Superiority Recognizes the of obligations contracts imposed by contracts

Imposed on Why imposed Purpose When imposed Basis

Kind of demand Purpose Amount

Tax Treaty as a Mode of Eliminating Double Taxation:

1) EXEMPTION METHOD the income or capital which is

Information Systems Group Resource Management Group

(b) a taxpayer who has filed an application to

4) power to Assign or reassign internal revenue

2) without change in rank and salary, to other or special

4) Taxable Year the calendar year, or the fiscal year ending

Estate and Trust

Taxable Income Taxable Income Gross Income

If Corp adopts fiscal year accounting period

32% (20002005) 35% (2006) Exempt 10%

1. Proprietary Educational Institutions & Hospitals (non-

Operating Headquarters Multinational companies

3) Earnings reserved for building, plants or equipment

E. Covered Corporations: Only domestic and closely-held

D. Composition: The following constitute accumulation of

1. To determine whether the corporation is closely

a) Stock Not Owned by Individuals. - Stock owned

F. Exempt Corporations: The IAET shall not apply to the

J. Period for Payment of Dividend/IAET: The dividends

H. Limitation: The profit that has been subjected to IAET

A holding or investment company is a corporation

I. Declaration of Dividends from earnings: For purposes

2) where the earnings or profits of a corporation are

L. Prima facie instances of accumulation of profits

1) Investment of substantial earnings and profits of the

binding upon the Phil govt.

3) Amount Received by Insured as Return of Premium

2) Income Exempt under Treaty

The basic principle governing deductions from gross

4) Foreign Tax Credit: for taxes paid/incurred to any

Actual Foreign Tax Paid in Philippine Peso P18,000 P11,000

(c) Net Operating Loss = excess of allowable

(e) Losses deductible 5. BAD DEBTS

C. ADDITIONAL REQUIREMENT FOR DEDUCTIBILITY OF

spouse shall be allowed the personal exemption 2. Additional Exemption

a. Dependent = legitimate/illegitimate/legally adopted

a. Special deductions: net additions required by

a. Amount of premiums not to exceed P2,400 per family;

4. Deduction for Estate or Trust - P20,000

b. CAPITAL ASSETS property held by the

Mode of Basis for determining gain/loss from sale/disposition of property Acquisition

Purchase Inheritance Gift

2. Income from sale of personal property produced (in

ACCOUNTING PERIOD & METHODS OF ACCOUNTING A. ACCOUNTING PERIODS

1. General Rule (Sec. 43): Taxable income is computed

C. PERIOD FOR WHICH DEDUCTION AND CREDITS

expense when you actually pay cash for the expense)

2. ACCRUAL METHOD - method under which income,

D. CHANGE OF ACCOUNTING PERIOD (Sec. 46)

1. CASH METHOD - recognition of income and expense

contracts: building, installation or construction contracts covering a period in excess of 1

2. Persons whose gross income is derived in whole or in

receivable) 75,000 25,000

* installments payable in 2 equal annual installments GP/CP ratio = 25T/100T = 25%