Professional Documents
Culture Documents
TAXATION LAW 1
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TAXATION LAW 2
VAT ...................................................143
CONCEPT .................................................. 143
CHARACTERISTICS/ELEMENTS OF A VATTAXABLE TRANSACTION ...................... 143
IMPACT OF TAX ........................................ 144
INCIDENCE OF TAX .................................. 144
TAX CREDIT METHOD .............................. 144
DESTINATION PRINCIPLE ......................... 171
PERSONS LIABLE ..................................... 145
VAT ON SALE OF GOODS OR PROPERTIES..............................................
................. 146
ZERO-RATED SALES OF GOODS OR
PROPERTIES, AND EFFECTIVELY ZERORATED SALES OF GOODS OR PROPERTIES..............................................
................. 148
TRANSACTIONS DEEMED SALE ............... 150
CHANGE OR CESSATION OF STATUS AS
VAT-REGISTERED PERSON .................. 150
VAT ON IMPORTATION OF GOODS ........... 151
VAT ON SALE OF SERVICE AND USE OR
LEASE OF PROPERTIES ......................... 152
ZERO-RATED SALE OF SERVICES ............ 154
VAT EXEMPT TRANSACTIONS ................. 155
INPUT TAX AND OUTPUT TAX, DEFINED 158
SOURCES OF INPUT TAX .......................... 158
PERSONS WHO CAN AVAIL OF INPUT TAX
CREDIT .................................................. 159
DETERMINATION OF OUTPUT/INPUT TAX;
VAT PAYABLE; EXCESS INPUT TAX
CREDITS ................................................ 160
SUBSTANTIATION OF INPUT TAX CREDITS.............................................
.................. 162
General Principles of
Taxation
TAXATION (4)
(a) is a mode by which governments make
exactions for revenue in order to support
their existence and carry out their legitimate
objectives.
(b) a mode of raising revenue for public
purpose; the exercise of sovereign power to
raise revenue for the expense of the
government;
(c) the process or means by which the sovereign,
through its law-making body, raises income
to defray the necessary expenses of
government; a method of apportioning the
cost of government among those who in
some measure are privileged to enjoy its
benefits and must, therefore, bear its
burdens, (see 51 Am. Jur. 341; 1 Cooley 72-93.)
(d) as a power, it refers to the inherent power of
the state to demand enforced contributions
for public purpose or purposes.
TAXES
(a) are enforced proportional contributions from
persons and property levied by the lawmaking body of the State by virtue of its
sovereignty for the support of the
government and all public needs.
(b) The enforced proportional and pecuniary
contributions from persons and property
levied by the law-making body of the state
having jurisdiction over the subject of the
burden for the support of the government
and public needs.
provided by law.
SCOPE OF TAXATION
Subject to constitutional and inherent
restrictions, the power of taxation is regarded as
supreme, unlimited and comprehensive. The
principal check on its abuse rests only on the
responsibility of the members of the legislature
to their constituents.
Taxation
Police Power
Eminent Domain
1. As to concept
Power to enforce
contribution to raise
government funds
Power to make and
implement laws for the
general welfare
Power to take private
property for public use with
just compensation
2. As to scope
Plenary, comprehensive and
supreme
Broader in application.
General power to make and
implement laws.
Merely a power to take
private property for public
use
3. As to authority
Exercised only by
government or its political
subdivisions
Exercised only by
government or its political
subdivisions
May be granted to public
service or public utility
companies
4. As to purpose
Money is taken to support
the government
Property is taken or
destroyed to promote
general welfare
Private property is taken for
public use
5. As to necessity of
delegation
The power to make tax laws
cannot be delegated
Can be expressly delegated
to the local government
units by the law making
body
Can be expressly delegated
to the local government
units by the law making
body
6. As to person
affected
Operates on a community or
a class of individual
Operates on a community or
a class of individual
Operates on the particular
private property of an
individual
7. As to benefits
Continuous protection and
organized society
Healthy economic standard
of society
Market value of the property
expropriated
8. As to amount of
imposition
Generally no limit
Cost of regulation, license
and other necessary
expenses
No imposition
9. As to importance
[Valencia and Roxas, Income Taxation 6th Edition (2013-2014), Valencia Education
al Supply, pp. 9-10]
PURPOSE OF TAXATION
Revenue Raising
Primary purpose of taxation is to provide funds
or property with which to promote the general
welfare and protection it its citizens.
Non-Revenue/Special or Regulatory
Taxation is often employed as a device for
regulation by means of which certain effects or
conditions envisioned by governments may be
achieved. These regulatory purposes are also
known as Sumptuary. Thus, taxation can:
(1) Strengthen anemic enterprises or provide
incentive to greater production through grant
of tax exemptions or the creation of
conditions conducive to their growth.
(2) Protect local industries against foreign
competition by imposing additional taxes
on imported goods, or encourage foreign
trade by providing tax incentives on
imported goods.
(3) Be a bargaining tool by setting tariff rates
first at a relatively high level before trade
negotiations are entered into with another
country.
(4) Halt inflation in periods of prosperity to curb
spending power; ward off depression in
periods of slump to expand business.
(5) Reduce inequalities in wealth and incomes, as
for instance, the estate, donor's and income
taxes, their payers being the recipients of
unearned wealth or mostly in the higher
income brackets.
(6) Taxes may be levied to promote science and
invention [see RA. No. 5448] or to finance
educational activities [see RA. No. 5447) or
Fiscal adequacy
The sources of tax revenue should coincide with,
and approximate the needs of, government
expenditures. The revenue should be elastic or
capable of expanding or contracting annually in
response to variations in public expenditures.
Administrative feasibility
Tax laws should be capable of convenient, just
and effective administration. Each tax should be
capable of uniform enforcement by government
officials, convenient as to the time, place, and
manner of payment, and not unduly
burdensome upon, or discouraging to business
activity.
Lifeblood theory
Taxes are the lifeblood of the government and
their prompt and certain availability is an
imperious need. [CIR v. Pineda]
Necessity theory
The power of taxation proceeds upon theory
that the existence of government is a necessity;
that is cannot continue without means to pay its
expenses; and that for those means it has the
right to compel all citizens and property within
its limits to contribute.
DOCTRINES IN TAXATION
Exceptions:
(1) Where the taxpayer deliberately misstates or
omits material facts from his return or any
document required of him by BIR;
(2) Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; OR
(3) Where the taxpayer acted in bad faith. (Sec.
246, NIRC)
Imprescriptibility
Unless otherwise provided by the tax itself,
taxes are imprescriptible. [CIR v. Ayala Securities
Corporation]
DOUBLE TAXATON
Means taxing twice the same taxpayer for the
same tax period upon the same thing or activity,
when it should be taxed but once, for the same
purpose and with the same kind of character of
tax.
Transformation
TRANSFORMATION
method of escape in
taxation whereby the manufacturer or producer
upon whom the tax has been imposed pays the
tax and endeavors to recoup himself by
improving his process of production thereby
turning out his units of products at a lower cost.
The taxpayer escapes by a transformation of the
tax into a gain through the medium of
production.
Reasons:
(1) This would adversely affect the government
revenue system (Philex Mining v. CA G.R.
No. 125704. August 28, 1998).
(2) Government and the taxpayer are not
creditors and debtors of each other. The
payment of taxes is not a contractual
obligation but arises out of a duty to pay.
[Republic v. Mambulao Lumber (1962)]
COMPROMISE
. A contract whereby the parties, by making
reciprocal concessions avoid litigation or put
an end to one already commenced. (Art.
2028, Civil Code). It involves a reduction of
the taxpayer s liability.
. Requisites of a tax compromise:
(a) The taxpayer must have a tax liability.
(b) There must be an offer (by the taxpayer
or Commissioner) of an amount to be
paid by the taxpayer.
(c) There must be acceptance (by the
Commissioner or the taxpayer, as the
case may be) of the offer in settlement
of the original claim.
. Generally, compromises are allowed and
enforceable when the subject matter thereof
is not prohibited from being compromised
TAX AMNESTY
. A tax amnesty partakes of an absolute
forgiveness or waiver by the Government of its
right to collect what otherwise would be due
it, and in this sense, prejudicial thereto,
particularly to give tax evaders, who wish to
relent and are willing to reform a chance to do
so and become a part of the new society with
a clean slate.[Republic v. IAC (1991)]
. A tax amnesty, much like a tax exemption, is
never favored nor presumed in law. If granted,
the terms of the amnesty, like that of a tax
exemption, must be construed strictly against
the taxpayer and liberally in favor of the
taxing authority. For the right of taxation is
inherent in government. The State cannot
strip itself of the most essential power of
taxation by doubtful words. He who claims an
exemption (or an amnesty) from the common
burden must justify his claim by the clearest
grant of organic or state law. It cannot be
allowed to exist upon a vague implication. If a
doubt arises as to the intent of the legislature,
that doubt must be resolved in favor of the
state. [CIR v. Marubeni Corp.,372 SCRA 576,
2001]
Tax laws
General Rule:Tax laws are construed strictly
against the government and liberally in favor of
the taxpayer. [Manila Railroad Co. v. Coll. of
Customs, 52 Phil. 950, 1929]
Exceptions:
(1) The rule of strict construction as against the
government is not applicable where the
language of the statute is plain and there is
no doubt as to the legislative intent. (see 51
Exceptions:
(1) When the law itself expressly provides for a
liberal construction, that is, in case of doubt,
it shall be resolved in favor of exemption;
and
(2) When the exemption is in favor of the
government itself or its agencies, or of
religious, charitable, and educational
institutions because the general rule is that
they are exempt from tax.
INHERENT LIMITATIONS
PUBLIC PURPOSE
. The proceeds of the tax must be used (a) for
the support of the State or (b) for some
recognized objects of government or directly
to promote the welfare of the community.
. Test: whether the statute is designed to
promote the public interest, as opposed to the
furtherance of the advantage of individuals,
although each advantage to individuals might
incidentally serve the public. [Pascual v.
Secretary of Public Works (1960)]
. The protection and promotion of the sugar
industry is a matter of public concern; the
legislature may determine within reasonable
bounds what is necessary for its protection
and expedient for its promotion. [Lutz v
Araneta (1955)]
. The public purpose of a tax may legally exist
even if the motive which impelled the
legislature to impose the tax was to favor one
industry over another. [Tio v. Videogram
(1987)]
INHERENTLY LEGISLATIVE
Stated in another way, taxation may
exceptionally be delegated, subject to such
well-settled limitations as
(1) The delegation shall not contravene any
constitutional provision or the inherent
limitations of taxation;
(2) The delegation is effected either by the
Constitution or by validly enacted legislative
measures or statute; and
(3) The delegated levy power, except when the
delegation is by an express provision of the
Constitution itself, should only be in favor of
the local legislative body of the local or
municipal government concerned. [Vitug and
Acosta]
Exceptions
TERRITORIAL
Rule: A state may not tax property lying outside
its borders or lay an excise or privilege tax upon
the exercise or enjoyment of a right or privilege
derived from the laws of another state and
therein exercise and enjoyed. (51 Am.Jur. 87-88).
Reasons:
(1) Tax laws (and this is true of all laws) do not
operate beyond a country s territorial limits.
(2) Property which is wholly and exclusively
within the jurisdiction of another state
receives none of the protection for which a
tax is supposed to be a compensation.
SITUS OF TAXATION
Situs of taxation literally means the place of
taxation. The basic rule is that the state where
the subject to be taxed has a situs may rightfully
levy and collect the tax; and the situs is
necessarily in the state which has jurisdiction or
which exercises dominion over the subject in
question. Within the territorial jurisdiction, the
taxing authority may determine the situs.
INCOME TAX
Who is being taxed
Source or Location
Citizenship
Residency
Within the PH
Outside the
PH
Partly Within and
Partly Outside
Filipino
Resident
Taxable
Taxable
Taxable
Filipino
Nonresident
Taxable
Not
Taxable
Only income from
within is Taxable
Alien
Resident
Taxable
Not
Taxable
Only income
from within is
Taxable
Alien
Nonresident
Not Taxable
Not
Taxable
Only income
from within is
Taxable
PROPERTY TAX
Kind of Property
Situs
Real property
Where it is located (lex
rei sitae)
Tangible Personal
property
Where property is
physically located
although the owner
resides in another
jurisdiction.
Intangible personal
property (e.g., credits,
bills receivables, bank
deposits, bonds,
promissory notes,
mortgage loans,
judgments and
corporate stocks)
Gen Rule: Domicile of
the owner. Mobilia
sequuntur personam
(movables follow the
person)
Exceptions:
(1) When property has
acquired a
business situs in
another
jurisdiction; or
(2) When the law
provides for the
situs of the subject
of tax (e.g., Sec 104,
NIRC)
EXCISE TAX
BUSINESS TAX
Kind of Business Tax
Situs
VAT
Where transaction is
made
Sale of Real Property
Where the real
property is located
Sale of Personal
Property
Where the personal
property was sold
International Comity
Comity - respect accorded by nations to each
other because they are sovereign equals. Thus,
the property or income of a foreign state or
government may not be the subject of taxation
by another state.
Reasons:
(1) In par in parem non habet imperium. As
between equals there is no sovereign
(Doctrine of Sovereign Equality among
states under international law). One state
cannot exercise its sovereign powers over
another.)
(2) In international law, a foreign government
may not be sued without its consent.
useless to impose a tax which could not be
collected.
(3) Usage among states that when a foreign
sovereign enters the territorial jurisdiction of
another, there is an implied understanding
that the former does not intend to degrade
its dignity by placing itself under the
jurisdiction of the other.
(4) Rule in international law that a foreign
government may not be sued without its
consent so that it is useless to assess the
tax anyway since it cannot be collected.
CONSTITUTIONAL LIMITATIONS
Test of
Exemption
Use of the property, and not
the ownership
Nature of Use
Actual, direct and exclusive
use for religious, charitable or
educational purposes.
Scope of
Exemption
Real property taxes on facilities
which are
(1) actual,
(2) incidental to, or
(3) reasonably necessary for
Charitable
Due process
Art III, Sec 1, 1987 Constitution
No person shall
be deprived of life, liberty, or property without due
process of law, nor shall any person be denied
the equal protection of the laws.
Equal protection
Art III, Sec 1, 1987 Constitution - No person shall
be deprived of life, liberty, or property without
due process of law, nor shall any person be
denied the equal protection of the laws.
Religious freedom
Art III, Sec 5, 1987 Constitution
No law shall be
made respecting an establishment of religion,
or prohibiting the free exercise thereof. (nonestablishment clause)
Tarrif
Taxes
Tariff
All embracing term to
include various kinds
of enforced
contributions upon
persons for the
attainment of public
purposes
A kind of tax imposed
on articles which are
traded internationally
Toll
Taxes
Toll
Paid for the support of
the government
Paid for the use of
another s property.
Demand of
sovereignty
Demand of
proprietorship
Generally, no limit on
the amount collected
as long as it is not
excessive,
unreasonable or
confiscatory
Amount paid depends
upon the cost of
construction or
maintenance of the
public improvement
used.
Imposed only by the
government
Imposed by the
government or by
private individuals or
entities.
License Fee
Taxes
License and
Regulatory Fee
Imposed under the
taxing power of the
state for purposes of
revenue.
Levied under the
police power of the
state.
Forced contributions
for the purpose of
maintaining
government
functions.
Exacted primarily to
regulate certain
businesses or
occupations.
Generally, unlimited
as to amount
Should not
unreasonably exceed
the expenses of
issuing the license
and of supervision.
Imposed on persons,
property and to
exercise a privilege.
Imposed only on the
right to exercise a
privilege
Failure to pay does
not necessarily make
the act or business
illegal.
Special Assessment
Taxes
Special Assessment
Levied not only on
land.
Levied only on land.
Imposed regardless of
public improvements
Imposed because of
an increase in value of
land benefited by
public improvement.
Contribution of a
taxpayer for the
support of the
government.
Contribution of a
person for the
construction of a
public improvement
It has general
application both as to
time and place.
Exceptional both as to
time and locality.
Debt
Taxes
Debt
Based on laws
Generally based on
contract, express or
implied.
Generally cannot be
assigned
Assignable
Generally paid in
money
May be paid in kind.
Cannot be a subject of
set off or
compensation
Can be a subject of
set off or
compensation (see
Art. 1279, Civil Code)
Taxes
Debt
A person cannot be
imprisoned for nonpayment of debt
(except when it arises
from a crime),
Imprisonment is a
sanction for nonpayment of tax,
except poll tax.
Governed by the
special prescriptive
Penalty
Taxes
Penalty
Violation of tax laws
may give rise to
imposition of penalty.
Any sanction imposed
as a punishment for
violation of law or acts
deemed injurious
Generally intended to
raise revenue
Designed to regulate
conduct
May be imposed only
by the government
May be imposed by
the government or
private individuals or
entities
Cannot be a subject of
set off or
compensation
Can be a subject of
set off or
compensation (see
Art. 1279, Civil Code)
KINDS OF TAXES
AS TO OBJECT
(1) Personal, Poll or Capitation Tax
tax of a
fixed amount imposed on persons residing
within a specified territory, whether citizens
or not, without regard to their property or
the occupation or business in which they
may be engaged (e.g. community (formerly
residence) tax). Taxes of a specified amount
imposed upon each person performing a
certain act or engaging in a certain business
or profession are not, however, poll taxes.
[71 Am.Jur.2d 357].
AS TO BURDEN OR INCIDENCE
(1) Direct Taxes
taxes which are demanded
from persons who also shoulder them; taxes
for which the taxpayer is directly or primarily
liable, or which he cannot shift to another
(eg. Income tax, estate tax, donor s tax,
community tax)
(2) Indirect Taxes taxes which are demanded
from one person in the expectation and
intention that he shall indemnify himself at
the expense of another, falling finally upon
the ultimate purchaser or consumer; taxes
levied upon transactions or activities before
the articles subject matter thereof, reach
the consumers who ultimately pay for them
not as taxes but as part of the purchase
price. Thus, the person who absorbs or
bears the burden of the tax is other than the
one on whom it is imposed and required by
law to pay the tax. Practically all business
taxes are indirect (e.g., VAT, percentage tax;
excise taxes on specified goods; customs
duties).
AS TO TAX RATES
(1) Specific Tax a tax of a fixed amount
imposed by the head or number or by some
AS TO PURPOSES
(1) General or Fiscal Tax levied for the general
or ordinary purposes of the Government,
i.e., to raise revenue for governmental needs
(e.g. income tax, value added tax, and
almost all taxes).
(2) Special/Regulatory/ Sumptuary Tax levied
for special purposes i.e., to achieve some
social or economic ends irrespective of
whether revenue is actually raised or not
(e.g. protective tariffs or customs duties on
imported goods to enable similar products
manufactured locally to compete with such
imports in the domestic market).
AS TO GRADUATION
(1) Proportionate
The rate of tax is based on a
fixed percentage of the amount of the
property, receipts or other basis to be taxed.
Example: real estate tax, value added tax,
and other percentage taxes.
(2) Progressive The rate of tax increases as the
tax base or bracket increases. Example:
income tax, estate tax, donor s tax.
(3) Digressive A fixed rate is imposed on a
certain amount and diminishes gradually on
sums below it. The tax rate in this case is
arbitrary because the increase in tax rate is
not proportionate to the increase of tax
base.
(4) Regressive The rate of tax decreases as the
tax base or bracket increases. There is no
regressive tax in the Philippines.
INCOME TAXATION
DIRECT TAX
The tax burden is borne by the income recipient
upon whom the tax is imposed.
PROGRESSIVE
The tax rate increases as the tax base increases.
It is founded on the ability to pay principle and is
consistent with Sec. 28, Art. VI, 1987
Constitution.
COMPREHENSIVE
The Philippines has adopted the most
comprehensive system of imposing income tax
by adopting the citizenship principle, the
residence principle, and the source principle.
Any of the three principles is enough to justify
the imposition of income tax on the income of a
resident citizen and a domestic corporation that
are taxed on a worldwide income.
NATIONAL TAX
It is imposed and collected by the National
Government throughout the country.
EXCISE TAX
It is imposed on the right or privilege of a person
to receive or earn income. It is not a personal tax
or a property tax.
Residence Principle
A resident alien is liable to pay Philippine
income tax on his income from sources within
the Philippines but is exempt from tax on his
income from sources outside the Philippines.
corporations
TAXABLE PERIOD
The accounting periods used in determining the
taxable income of taxpayers are:
(1) Calendar Year - Accounting period of 12
months ending on the last day of
December
(2) Fiscal Year - Accounting period of 12 months
ending on the last day of any month other
than December [Sec. 22(Q), NIRC].
(3) Short Period- Accounting period which starts
after the first month of the tax year or ends
before the last month of the tax year (less
than 12 months).
KINDS OF TAXPAYERS
Primary
Classification
Sub-Classification(s)
Individuals
Citizens of
the
Philippines
Residents citizens
Non-resident citizens
Aliens
Residents
Nonresidents
Engaged in
Trade or
Business in
the
Philippines
Not
Engaged in
Trade or
Business in
the
Philippines
Special
Classes of
Individuals
Minimum Wage Earner
Corporations
Domestic Corporations
Foreign Corporations
Resident
Corporations
Non-resident
Corporations
Estates and
Trusts
Partnerships
INDIVIDUAL TAXPAYERS
Citizens
(1) Resident Citizens (RC)
(2) Non-resident Citizens (NRC)
(a) Citizen of the Philippines who
establishes to the satisfaction of the
Commissioner the fact of his physical
presence abroad with a definite intention
to reside therein.
(b) Citizen who leaves the Philippines during
the taxable year to reside abroad, either
as an immigrant or for employment on a
permanent basis.
(c) Citizen of the Philippines who works and
derives income from abroad and whose
employment thereat requires him to be
physically present abroad most of the
time during the taxable year.
(d) Citizen previously considered as nonresident citizen and who arrives in the
Philippines at any time during the
taxable year to reside permanently in the
Philippines . Treated as NRC with
respect to his income derived from
sources abroad until the date of his
arrival in the Philippines
Aliens
(1) Resident Alien
Corporations
. Includes all types of corporations,
partnerships (no matter how created or
organized), joint stock companies, joint
accounts, associations, or insurance
companies, whether or not registered with
the SEC.
. Excludes general professional partnerships
(GPP), joint venture or consortium formed
for the purpose of undertaking construction
projects, joint venture or consortium
engaging in petroleum, coal, geothermal
and other energy operations pursuant to an
operating or consortium agreement under a
service contract with the government.
A corporation which
Foreign
Partnership
The Tax Code mandates that every other type of
business partnership is subject to income tax in
the same manner and at the same rate as an
ordinary corporation.
capacities.
Co-ownership
For income tax purposes, the co-owners in a coownership report their share of the income from
the property owned in common by them in their
individual tax returns for the year and the coownership is not considered as a separate
taxable entity or a corporation.
INCOME TAXATION
DEFINITION
Income Tax is defined as a tax on all yearly
profits arising from property, professions,
trades, or offices, or as a tax on the person s
income, emoluments, profits and the like [Fisher
v. Trinidad].
NATURE
Income tax is generally classified as an excise
tax. It is not levied upon persons, property, funds
or profits but upon the right of a person to
receive income or profits.
GENERAL PRINCIPLES
. A resident citizen of the Philippines is
taxable on all income derived from sources
within and without the Philippines;
. A nonresident citizen is taxable only on
income derived from sources within the
Philippines;
. An individual citizen of the Philippines who
is working and deriving income from abroad
as an overseas contract worker is taxable
only on income derived from sources within
the Philippines:
Provided, That a seaman shall be treated as
an overseas contract worker if he is
(a) citizen of the Philippines; and
(b) receives compensation for services
rendered abroad as a member of the
complement of a vessel engaged
exclusively in international trade
. An alien individual, whether a resident or
not of the Philippines, is taxable only on
income derived from sources within the
Philippines;
. A domestic corporation is taxable on all
income derived from sources within and
without the Philippines; and
. A foreign corporation, whether engaged or
not in trade or business in the Philippines, is
taxable only on income derived from
sources within the Philippines. [Sec. 23]
Taxpayer
Within
Without
Resident Citizen
.
.
Non-resident Citizen and
OCW
.
X
Resident and Non-resident
Alien
.
X
Domestic Corporation
.
.
Foreign Corporation
.
X
INCOME
DEFINITION
(a) income means all wealth which flows to the
taxpayer other than a mere return of
capital. It includes gain derived from the
sale or other disposition of capital assets.
Income is a gain derived from labor or
capital, or both labor and capital; and
includes the gain derived from the sale or
exchange of capital assets.
(b) It is an amount of money coming to a person
NATURE
Income includes earnings, lawfully or unlawfully
acquired, without consensual recognition, express
or implied, of an obligation to repay and without
restriction as their disposition. [James v. US, 366
US 213]
REALIZATION OF INCOME
Tests of Realization
Actual vis--vis Constructive receipt
(1) Actual receipt
Income is actually reduced to
possession. The realization of gain may take
the form of actual receipt of cash.
RECOGNITION OF INCOME
Examples:
(1) interest or rent income earned but not yet
received
(2) rent expense accrued but not yet paid
(3) wages due to workers but remaining unpaid
Deferred Payment
(a) If the initial payments exceed 25% of the
selling price, the gain realized may be
reported on a deferred payment method.
(b) The taxable gain or income returnable
during the year of sale is the difference
between the selling or contract price and
the cost of the property, even though the
entire purchase price has not been actually
received in the year of sale.
(c) The obligations of the purchaser received by
the vendor are to be considered as
equivalent of cash.
Personal Property
Real Property
Dealer
Dealer in personal
property who
regularly sells in
installment plan:
Installment method
*held as ordinary
asset regardless of
amount of percentage
of initial payments
Installment method;
Provided, initial
payments do not
exceed 25% of selling
price
*held as inventory
Casual Sale
Installment method;
Provided:
If either of 2 or both
conditions not met
Deferred payment
method
*personal property
not considered
inventory
Sale by Individuals
Installment method;
Provided, initial
payments do not
exceed 25% of selling
price
requires
requires:
GROSS INCOME
DEFINITION
Gross Income means the pertinent items of
income referred to in Section 32(A) of the Tax
Code. It includes all income derived from
whatever source (unless exempt from tax by
law), including, but not limited to, the following
items:
(1) Gross income derived from the conduct of
Trade or business or the exercise of a
profession
(2) Rents
(3) Interests
(4) Prizes and winnings
(5) Compensation for services in whatever form
paid, including, but not limited to fees,
salaries, wages, commissions, and similar
items
(6) Annuities
(7) Royalties
(8) Dividends
(9) Gains derived from dealings in property
(10) Pensions
(11) Partner s distributive share from the net
income of the general professional
partnership (GPP) [Sec 32A, NIRC]
CLASSIFICATION OF INCOME AS TO
SOURCE
Source is ascribed to the place wherein the
income is earned. It is governed by the situs of
taxation. This classification of income is
necessary to determine whether such income is
subject to tax or not. Income may be:
(1) Derived entirely from sources within the
Philippines [Se. 42A, NIRC]. Examples:
compensation for labor or service derived from
Philippine sources; interest on bonds, notes,
deposits and the like earned in the Philippines;
Compensation Income
Income arising from an employer-employee
(ER-EE) relationship. It means all remuneration
for services performed by an EE for his ER,
including the cash value of all remuneration
paid in any medium other than cash [Sec. 78(A)],
unless specifically excluded by the Tax Code.
Fees
received by an employee for the services
rendered to the employer including a director s
fee of the company, fees paid to the public
officials such as clerks of court or sheriffs for
services rendered in the performance of their
official duty over and above their regular
salaries.
Tips and Gratuities
those paid directly to the
employee (usually by a customer of the
employer) which are not accounted for by the
employee to the employer. (taxable income but
not subject to withholding tax) [RR NO. 2-98,
Sec. 2.78.1]
Separation pay
taxable if voluntarily availed of.
It shall not be taxable if involuntary i.e. death,
sickness, disability, reorganization/merger of
company and company at the brink of
bankruptcy or for any cause beyond the control
of the said official or employee.
Pension
a stated allowance paid regularly to a
person on his retirement or to his dependents
on his death, in consideration of past services,
meritorious work, age, loss, or injury. Pension is
taxable unless the law states otherwise, OR
unless the BIR approves the pension plan of a
private company.
FRINGE BENEFITS
Definition
Fringe benefit means any good, service, or other
benefit furnished or granted by an employer, in
cash or in kind, in addition to basic salaries, to
an individual employee (except rank and file
employees) such as, but not limited to the
following:
(1) Housing
(2) Expense Account
(3) Vehicle of any kind
(4) Household personnel, such as maid, driver
and others
(5) Interest on loan at less than market rate to
the extent of the difference between the
market rate and actual rate granted.
(6) Membership fees, dues and other expenses
borne by the employer for the employee in
social and athletic clubs and similar
organizations
(7) Expenses for foreign travel
(8) Holiday and vacation expenses
(9) Educational assistance to the employee or
his dependents; and
(10) Life or health insurance and other non-life
insurance premiums or similar amounts on
excess of what the law allows.[Sec. 33(B)]
Special Cases:
(1) For fringe benefits received by non-resident
alien not engaged in trade of business in
the Philippines (NRANETB), the tax rate is
25% of the GMV. The GMV is determined by
dividing the actual monetary value of the
fringe benefit by 75% [100% - 25%].
(2) For fringe benefits received by alien
individuals and Filipino citizens employed
by regional or area headquarters, regional
operating headquarters, offshore banking
units (OBUs), or foreign service contractor or
by a foreign subcontractor engaged in
petroleum operations in the Philippines, or
by any of their Filipino individual employees
who are employed and occupying the same
positions as those occupied by the alien
employees, the tax rate is 15% of the GMV.
The GMV is determined by dividing the
actual monetary value of the fringe benefit
by 85% [100% - 15%].
(3) What is the tax implication if the employer
gives fringe benefits to rank-and-file
employees? Fringe benefits given to a rankand-file employee are treated as part of his
compensation income subject to normal tax
rate and withholding tax on compensation
income, except de minimis benefits and
benefits provided for the convenience of the
employer.
Housing
Housing Privilege
Fringe Benefit Tax Base
(Monetary Value)
(1) LEASE of residential
property for the
residential use of
employees
MV= 50% of lease
payments
where MV = monetary
value of the FB
(2) Assignment of
residential property
owned by employer
for use of employees
MV= [5% (FMV or ZV,
whichever is higher) x
50%]
(3) Purchase of
residential property
in installment basis
for the use of the
employee
MV= 5% x acquisition
cost exclusive of
interest x 50%
(4) Purchase of
residential property
and ownership is
transferred in the
name of the
employee
MV= FMV or ZV,
whichever is higher
Motor Vehicle
Motor Vehicle
Fringe Benefit Tax
Base
Professional Income
Refers to fees received by a professional from
Taxable
Net
Income
=
Ordinary
Net
Income
+
Net Capital
Gains (other
than those
subject to final
CGT)
Ordinary Asset
Capital Asset
Gain from sale, exchange or other disposition
Ordinary Gain (part of
Gross Income)
Capital Gain
Loss from sale, exchange, or other disposition
Types of Properties
Capital v. Ordinary Asset
Ordinary Assets
Capital Assets
(1)Stock in trade of the
taxpayer or other
property of a kind
which would
properly be included
in the inventory of
the taxpayer if on
hand at the close of
the taxable year.
Property held by the
taxpayer, whether or
not connected with
his trade or business
which is not an
ordinary asset.
Generally, they
include:
Ordinary Assets
Capital Assets
Notes:
(a) The property received as
as basis its FMV
boot
shall have
Amount of Capital
Gain
Tax Rate
Not over P 100,000
- 5%
On any amount in
excess of P 100,000
- 10%
imposed upon
and resident
passive if the
be realized.
dividends.
Div
NonResident
Corporation
NonResident
Alien
Vessel
4.5%
25%
Aircraft,
machineries and
other Equipment
7.5%
25%
Other assets
30%
25%
Non-resident alien
engaged in trade or
business in the
Philippines
Net taxable income
shall be subject to the
graduated income tax
rates
Non-resident alien
not engaged in trade
or business in the
Philippines
Rental income from
real property located
in the Philippines
shall be subject to
25% final withholding
tax unless a lower rate
is imposed pursuant
to an effective tax
treaty
Lessor
Tax Rate
Domestic Corporation
Resident Foreign
Corporation
Net taxable income
shall be subject to
30% corporate
income tax or its gross
income will be subject
to 2% MCIT
Non-resident Foreign
Corporation
Gross rental income
from real property
located in the
Philippines shall be
subject to 30%
corporate income tax,
such tax to be
withheld and remitted
by the lessee in the
Philippines
Forgiveness of indebtedness
The cancellation
or forgiveness of indebtedness may have any of
three possible consequences:
(a) It may amount to payment of income. If, for
Illustration:
Case A
Case B
Case C
Year 1
Gross Income
500,000
400,000
500,000
Less: Allowable
Deductions
(before write-off
of Uncollectible
Accounts/Debts)
(200,000)
(480,000)
(495,000)
Taxable Income
(Net Loss)
before write-off
300,000
(60,000)
5,000
Deduction for
Accounts
Receivable
written off
(2,000)
(2,000)
(6,000)
Taxable Income
(Net Loss) after
write-off
298,000
(62,000)
(1,000)
Year 2
Recovery of
Amounts
Written Off
2,000
2,000
6,000
Taxable Income
on the Recovery
2,000
5,000
gross income:
(1) Philippine income tax, except the fringe
benefit tax
(2) Income tax imposed by authority of any
foreign country, if the taxpayer claimed a
credit for such tax in the year it was paid or
incurred.
(3) Estate and donor s taxes
(4) Taxes assessed against local benefits of a
kind tending to increase the value of the
property assessed (Special assessments)
(5) Value Added Tax
(6) Fines and penalties due to late payment of
tax
(7) Final taxes
(8) Capital Gains Tax
Interests
Derived from sources within the Philippines, and
interests on bonds, notes or other interestbearing obligation of residents.
Dividends
Dividends received:
(1) from a domestic corporation; and
(2) from a foreign corporation, UNLESS less than
50% of its gross income for the previous 3year period was derived from sources within
the Philippines [in which case it will be
treated as income partly from within and
partly from without].
Services
Compensation for labor or personal services
performed in the Philippines: As a rule, the situs
of compensation is the place of performance of
the services.
Place of
PURCHASE
Place of
SALE
Treatment**
Philippines
Abroad
Income from
Without
Abroad
Philippines
Income from
Within
Exceptions:
(1) Gain from the sale of shares of stock in a
domestic corporation
Treated as derived entirely from sources
within the Philippines regardless of where the
said shares are sold.
(2) Gains from the sale of (manufactured)
personal property:
(a) produced (in whole or in part) by the
taxpayer within and sold without the
Philippines, or
(b) produced (in whole or in part) by the
taxpayer without and sold within the
Philippines
Place of
PRODUCTION
Place of
SALE
Treatment
Philippines
Abroad
Partly within,
partly
without
Abroad
Philippines
Partly within,
partly
without
Income
Situs
(b) Intangible
Exclusion
Taxpayer
Return of capital
All taxpayers since
there is no income.
Already subject to
internal revenue tax
All taxpayers unless
provided that income
is to be included.
Express exclusion
As expressly provided.
recoveries are:
Nontaxable
compensation for
damages on account of
Taxable
compensation for
damages on account
of
(1) Personal (physical)
injuries or sickness
(1) Actual damages
for loss of
anticipated profits
(2) Any other damages
recovered on
account of personal
injuries or sickness
(2) .Moral and
exemplary
damages awarded
as a result of break
of contract
(3) Exemplary and
moral damages for
out-of-court
settlement,
including attorney s
fees
(3) Interest for nontaxable damages
above
(4) Alienation of
affection, or breach
of promise to marry
(4) Any damages as
compensation for
unrealized income
(5) Any amount
received as a return
of capital or
reimbursement of
expenses
RA 7641
RPBP
Retiring employee
must be in the service
of same employer
CONTINUOUSLY for
at least five (5) years
Retiring official or
employee must have
been in the service of
the same employer
forat least ten (10)
years.
Retiring employee
must be at least sixty
(60) years oldbut not
more than 65 years of
age at the time of
retirement
Retiring official or
employee must be at
least fifty (50) years old
at the time of
retirement
Availed of only once,
and only when there is
no RPBP
Retiring employee
shall not have
previously availed of
the privilege under a
retirement benefit
plan of the same or
another employer
Plan must be
reasonable. Its
implementation must
be fair and equitable
for the benefit of all
employees (e.g. from
president to laborer)
Plan must be
approved by BIR
Notes:
. Sickness must be life-threatening or one
which renders the employee incapable of
working
. Retrenchment of the employee due to
unfavorable business conditions or financial
reverses is considered as involuntary.
However, resignation or availment of an
optional early retirement plan is voluntary
and bars a claim under this provision.
. BIR Ruling 143-98: The terminal leave pay
Types of deductions
There are three (3) types of deductions from
gross income:
(a) itemized deductions in Section 34(A) to (J)
and (M) available to all kinds of taxpayers
engaged in trade or business or practice of
profession in the Philippines;
(b) optional standard deduction in Section 34(L)
available only to individual taxpayers
deriving business, professional, capital
gains and passive income not subject to
final tax, or other income; and
(c) the special deductions in Sections 37 and 38
of the NIRC, and in special laws like the BOI
law [E.O. 226].
General rules
(a) Deductions must be paid or incurred in
connection with the taxpayer s trade,
business or profession
(b) Deductions must be supported by adequate
receipts or invoices (except standard
deduction)
(c) Additional requirement relating to
withholding
Itemized Deductions
These are enumerated in Section 34 of the
NIRC. Additional deductions are granted to
insurance companies in Section 37, while losses
from wash sales of stock or securities by a
dealer in securities are provided for in Section
38 of the NIRC. Other itemized deductions
could be granted under general or special laws,
e.g. additional training expenses are allowed to
enterprises registered with PEZA, BOI, and
SBMA.
EXPENSES
Business expenses deductible from gross income
include the ordinary and necessary expenditures
directly connected with or pertaining to the
taxpayer s trade or business. The cost of goods
purchased for resale, with proper adjustment for
opening and closing inventories, is deducted
from gross sales in computing gross income.
Includes:
(a) Salaries, wages, and other forms of
compensation for personal services actually
rendered, including the grossed-up
monetary value of fringe benefits furnished
or granted by the employer to the employee
(b) Travel expenses
(c) Rentals
(d) Entertainment, recreation and amusement
expenses
Substantiation requirement
Sec. 34(A)(1)(b),
NIRC: No deduction from gross income shall be
allowed unless the taxpayer shall substantiate
with sufficient evidence, such as official receipts
or other adequate records: (1) the AMOUNT of
the expense being deducted, and (2) the
DIRECT CONNECTION or relation of the
expense being deducted to the development,
management, operation and/or conduct of the
trade, business or profession of the taxpayer.
Traveling expenses
This include transportation expenses and meals
and lodging [Sections 65 and 66, Rev. Reg. No.
2]
(1) Expenses must be reasonable and necessary.
(2) Must be incurred or paid
home
Cost of materials
Deductible only to the amount that they are
actually consumed and used in operation during
the year for which the return is made, provided
that their cost has not been deducted in
determining the net income for any previous
year.
All maintenance expenses on account of nondepreciable vehicles for taxation purposes are
disallowed in its entirely. [RR No. 12-2012]
requires:
Entertainment/Representation expenses
These are entertainment, amusement and
recreation (EAR) expenses incurred or paid
during the year that are directly connected to
the development, management and operation
of the trade, business or profession of the
taxpayer.
the development,
of the trade,
the taxpayer, or
to or in furtherance
Training expenses
Under Section 30 of the Tax Code, as
implemented by Sec. 20 of the Revenue
Regulations No. 2, organization and preoperating expenses of a corporation (including
training expenses) are considered as capital
expenditures and are therefore, not deductible
in the year they are paid or incurred. But
taxpayers who incur these expenses and
subsequently enter the trade or business to
which the expenditures relate can elect to
amortize these expenditures over a period not
less than sixty (60) months. [BIR Ruling 102-97
(Sept. 29, 1997)]
Others
(a) Expenses Allowable to Private Educational
Institutions:
(b) In addition to the expenses allowable as
deductions under the NIRC, a private
proprietary educational institution may at
its OPTION, elect either:
(1) To deduct expenditures otherwise
considered as capital outlays or
depreciable assets incurred during the
taxable year for the expansion of school
facilities, OR
(2) To deduct allowances for depreciation
thereof.
Advertising Expenses
The media advertising expenses which were
found to be inordinately large and thus, not
ordinary, and which were incurred in order to
Related Taxpayers
(a) Between members of the family, i.e. brothers
and sisters (whether by the whole or halfblood), spouse, ancestor, and lineal
descendants; or
TAXES
Taxes Proper: Refers to national and local taxes;
Non-deductible taxes.
General Rule: All taxes, national or local, paid or
incurred during the taxable year in connection
with the taxpayer's profession, trade or
business, are deductible from gross income
Exceptions:
(1) Philippine income tax, except Fringe Benefit
Taxes;
(2) Income tax imposed by authority of any
foreign country, if taxpayer avails of the
Foreign Tax Credit (FTC)
(a) Exception to exception: When the taxpayer
does NOT signify his desire to avail of the
tax credit for taxes of foreign countries,
the amount may be allowed as a deduction
Tax Credit
Tax Deduction
Taxes are deductible
from the Phil. Income
tax itself
Taxes are deductible
from gross income in
computing the taxable
income
Effect: Reduces
Philippine income tax
liability
Effect: Reduces
taxable income upon
which the tax liability
is calculated
Sources: Only foreign
income taxes may be
claimed as credits
against Philippine
income tax.
Sources: Deductible
taxes (e.g. business
tax, excise tax)
Formula:
Limit #1
Taxable
Income Per
Foreign
Country
x
Phil.
Income Tax
=
Limit on
amount of
tax credit
(Per
Country
Limit)
Worldwide
Taxable
Income
Limit #2
Taxable
Income For
all Foreign
Countries
x
Phil.
Income Tax
=
Limit on
amount of
tax credit
(World
Wide
Limit)
Worldwide
Taxable
Income
FTC Limitations
lowest of the 3:
LOSSES
Requisites for deductibility.
(a) Loss must be that of the taxpayer (e.g.,
losses of the parent corp. cannot be
deducted by its subsidiary);
(b) Actually sustained and charged off within
the taxable year;
(c) Incurred in trade, business or profession;
(d) Of property connected with the trade,
business, or profession, if the loss arises
from fires, storms, shipwreck or other
casualties, or from robbery, theft, or
embezzlement;
(e) Sustained in a closed and completed
transaction;
(f) Not compensated for by insurance or other
form of indemnity;
(g) Not claimed as a deduction for estate tax
purposes;
(h) In case of casualty loss, filing of notice of loss
with the BIR within 45 days from the date of
the event that gave rise to the casualty; and
(i) The taxpayer must prove the elements of the
loss claimed, such as the actual nature and
occurrence of the event and amount of the
loss.
Wagering losses
Losses from wagering (gambling) are
deductible only to the extent of gains from such
transactions. A wager is made when the
outcome depends upon CHANCE.
companies)
Other Losses:
(1) Abandonment losses in petroleum operation
and producing well.
(2) Losses due to voluntary removal of building
incident to renewal or replacements are
deductible from gross income.
(3) Loss of useful value of capital assets due to
charges in business conditions is deductible
only to the extent of actual loss sustained
(after adjustment for improvement,
depreciation and salvage value)
(4) Losses from sales or exchanges of property
between related taxpayers are not
recognized, but the gains are taxable.
BAD DEBTS
Debts resulting from the worthlessness or
uncollectibility, in whole or in part, of amounts
due the taxpayer actually ascertained to be
worthless and the corresponding receivable
should have been written off or charged off
within the taxable year
Exceptions:
(1) Banks as creditors
BSP Monetary Board
shall ascertain the worthlessness and
uncollectibility of the debt and shall approve
the writing off
(2) Receivables from an insurance or surety
company (as debtor) may be written off as
bad debts only when such company is
declared closed due to insolvency or similar
reason
DEPRECIATION
An annual reasonable allowance to reduce the
wasteful value of the tangible fixed assets
resulting from wear and tear and normal
obsolescence
Kinds of Contributions:
(1) Contributions deductible in full;
(2) Contributions subject to the statutory limit.
Education
Health
Youth and sports development
Human settlements
Statutory Limit:
(a) 10% in the case of an individual (individual
donor), and
of services.
(3) Amount: 40% of gross sales or gross
receipts(under RA 9504, effective July 6,
2008)
Requisites:
(a) Taxpayer is a citizen or resident alien;
(b) Taxpayer s income is not entirely from
compensation;
(c) Taxpayer signifies in his return his intention to
elect this deduction; otherwise he is
considered as having availed of the itemized
deductions.
(d) Election is irrevocable for the year in which
made; however, he can change to itemized
deductions in succeeding years.
Partnerships
(1) General Co-Partnership
For purposes of taxation, the Code
considers general co-partnerships as
corporations. Hence, rules on OSD for
corporations are applicable to general co-
partnerships.
Note:
Only children (not parents) may be
considered dependent for purposes of
additional exemptions.
Status-at-the-end-of-the-year rule
Change of Status[Sec 35(C), NIRC]
(1) If taxpayer marries during taxable year,
taxpayer may claim the corresponding BPE
in full for such year (i.e., no need to pro-rate
the exemption).
(2) If taxpayer should have additional
dependent(s) during taxable year, taxpayer
may claim corresponding AE in full for such
year.
(3) If taxpayer dies during taxable year, his
estate may claim BPE and AE as if he died at
the close of such year.
(4) If during the taxable year
(a) spouse dies or
(b) any of the dependents dies or marries,
turns 21 years old or becomes gainfully
employed, taxpayer may still claim
same exemptions as if the spouse or
any of the dependents died, or married,
turned 21 years old or became gainfully
employed at the close of such year.
EXEMPT CORPORATIONS
These are:
(1) Proprietary Educational Institutions and
hospitals
(2) Government owned and controlled
corporations
(3) Others
Others
The following organizations shall not be taxed in
respect to income received by them as such:
(1) Labor,agricultural or horticultural
organization not organized principally for
profit
(2) Mutual savings bank not having a capital
stock represented by shares, and
cooperative bank without capital stock
organized and operated for mutual
purposes and without profit
(3) A Beneficiary society, order or association,
operating for the exclusive benefit of the
members such as a fraternal organization
operating under the lodge system, or
mutual aid association or a non-stock
corporation organized by employees
providing for the payment of life, sickness,
accident, or other benefits exclusively to the
members of such society, order, or
association, or non-stock corporation or
their dependents
(4) CEMETERY company owned and operated
exclusively for the benefit of its members
(5) Non-stock corporation or association
organized and operated exclusively for
Religious, charitable, scientific, athletic, or
cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset
shall belong to or inure to the benefit of any
member, organizer, officer or any specific
person
(5) Business league chamber of commerce, or
board of trade, not organized for profit and
no part of the net income of which inures to
the benefit of any private stock-holder, or
individual
(6) Civic league or organization not organized for
profit but operated exclusively for the
promotion of social welfare
(7) A non-stock and non-profit Educational
institution
(8) Government Educational institution
(9) Farmers' or other mutual typhoon or fire
insurance company, mutual ditch or
irrigation company, mutual or cooperative
telephone company, or like organization of a
purely local character, the income of which
Classification
Taxable Income
Basic Personal
Exemption
Additional
Personal
Exemption
Tax Rates
Resident
Citizen
Income from
sources within and
outside the
Philippines
Allowed
Allowed
5%-32%
Non-Resident
Citizen
Income from
sources within the
Philippines
Allowed
Allowed
5%-32%
Resident Alien
Income from
sources within the
Philippines
Allowed
Allowed
5%-32%
Non-resident
Alien Engaged
in Trade or
Business
Income from
sources within the
Philippines
Lower amount
between PE allowed
to Filipinos in the
foreign country
where he resides vs.
PE in the Philippines
No specific
provision
5%-32%
Non-resident
Alien Not
Engaged in
Trade or
Business
Income from
sources within the
Philippines
Not allowed
Not allowed
25%
Philippines:
. Up to 180 days
NRANETB
. More than 180 days up to 2 years
NRAETB
. Greater than 2 years Resident alien
Inclusions
(1) Monetary compensation If compensation is
paid in cash, the full amount received is the
measure of the income subject to tax.
(a) Regular salary/wage
(1) Salary earnings received
periodically for a regular work other
than manual labor, such as monthly
salary of an employee
(2) Wages
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. [Sec. 78A, NIRC]
(b) Separation pay/retirement benefit not
otherwise exempt
(1) Retirement Pay a lump sum
payment received by an employee
who has served a company for a
considerable period of time and has
decided to withdraw from work into
privacy. [RR 6-82, Sec. 2b]
General rule: retirement pay is
taxable
Exceptions:
(a) SSS or GSIS retirement pays.
(b) Retirement pay (R.A. 7641) due
to old age provided the
following requirements are met:
(i) The retirement program is
approved by the BIR
Commissioner;
Exclusions
(1) Fringe benefit subject to tax
(See Chapter on Gross Income for the
discussion of Taxable and Non-taxable fringe
benefits)
Deductions
(1) Personal exemptions and additional
exemptions (See the Chapter on Deductions
for the full discussion of Personal and
additional exemptions)
(a) Basic Personal Exemptions
According to RA 9504 (effective July 6,
2008) basic personal exemption is Fifty
thousand pesos (P50,000) for each
individual taxpayer, regardless whether
single, married or head of the family.
(b) Additional Exemptions (AE)- depends on
the number of qualified dependent
children
Amount allowed as a deduction
.P25,000 per dependent child, but
not to exceed four children (RA 9504)
(2) Health and hospitalization insurance
(a) Premium Paid on Health or
Hospitalization Insurance [Sec.34 (M)]
(b) Amount of premium paid on health
and/or hospitalization by an individual
taxpayer (head of family or married), for
himself and members of his family
during the taxable year.
TAXATION
All income obtained from doing business
and/or engaging in the practice of a profession
shall be included in the computation of taxable
income.
Interest income
(a) on any currency bank deposit, yield or any
other monetary benefit from deposit
substitutes, trust funds and similar
arrangements - 20% final tax
(b) under the expanded foreign currency deposit
system (EFCDS) - 7.5% final tax for
residents, exempt if non-residents
(c) Treatment of income from long-term deposits
Royalties
(See summary table)
20%
10%
10%
25%
(f) Prizes exceeding P10,000
20%
20%
25%
(g) Other winnings (other than Philippine Charity Sweepstakes
and Lotto winnings)
20%
20%
25%
(h) Interest incomes received from a depositary bank under
expanded foreign currency deposit system
7 1/2%
Note: NRC
Exempt
(RR 12011)
Exempt
Exempt
(i) Interest income from long-term deposit or investment
evidenced by certificates prescribed by BSP. If
preterminatedbefore fifth year, a final tax shall be imposed
based on remaining maturity:
(a) 4 years to less than 5 years
(b) 3 years to less than 4 years
(c) Less than 3 years
Exempt
5%
12%
20%
Exempt
5%
12%
20%
25%
25%
25%
25%
(2) CASH AND/OR PROPERTY DIVIDENDS
Citizens,
Residents
NRAETB
NRANETB
(a) Cash and/or property dividends actually or constructively
received from a domestic corp. or from a joint stock co.,
insurance or mutual fund companies and regional operating
headquarters of multinational companies (beginning
January 1, 2000)
10%
20%
25%
(b) Share of an individual in the distributable net income after
tax of a PARTNERSHIP (other than a general professional
partnership) (beginning January 1, 2000)
10%
20%
25%
10%
20%
25%
Key Definitions
(a) Net capital gain: selling price less cost
(b) Selling price: consideration on the sale OR
fair market value of the shares of stock at
the time of the sale, whichever is higher
(c) Cost: original purchase price
Tax rate
General rule: 6% of whichever is higher
(a) Gross selling price, or
(b) Fair market value (determined in accordance
with Sec. 6(E)).
Except
(1) In case of sales made to the government, any
of its political subdivisions or agencies, or to
GOCCs, it can be taxed either:
(a) Under Sec. 24(C)(1)
6% CGT, or
(a) Requirements:
(i) Sale or disposition by a natural person of
his principal residence,
(ii) The proceeds of which is fully utilized in
acquiring/constructing a new principal
residence
(iii) Such acquisition/construction taking
place within 18 calendar months from
the date of sale or disposition
(iv) The taxpayer notifies the Commissioner
within 30 days from the sale/disposition
through a prescribed return of his
intention to avail of the exemption,
(3) The tax exemption can only be availed of
once every 10 years.
(a) Tax treatment: Exempt from capital
gains tax (CGT). If there is no full
utilization of the proceeds of sale or
disposition, the portion of the gain
presumed to have been realized from
the sale or disposition shall be subject
to CGT.
(b) How taxable portion and tax determined:
XXX
Add: Additional cost to acquire
new principal residence*
XXX
XXX
XXX
Less: Gross selling price of old
principal residence
(XXX)
Additional cost to acquire new
principal residence
XXX
RES/CIT
NRAETB
NRANETB
Tax base:
Net Capital
Gain
Tax rate:
Not over
P100,000
Amount in
excess of
P100,000
5%
10%
5%
10%
5%
10%
RES/CIT
NRAETB
NRANETB
Tax base:
Gross selling
price or
current fair
market
value,
whichever is
higher
Tax rate:
6%
6%
6%
Category of Income
Resident
Non-Resident
CITIZEN
ALIEN
CITIZEN
NRAETB
NRANETB
All
sources
Within the
Philippines
Within the
Philippines
Within the
Philippines
Within the
Philippines
(1) Compensation / Business /
Profession
25%
Not
Applicable
20%
GIW
EXEMPT; However:
In case of pre-termination, with remaining maturity
of:
4 years to less than 5 years
5% on entire income
GIW
GIW
20%
7.5% Final
Withholding Tax
EXEMPT
(8) Winnings on Philippine
Sweepstakes / Lotto
EXEMPT
(9) Capital Gains on Sale of Shares of
Domestic Corp. (not traded in a
domestic stock exchange)
5% Final Tax
Computations
Pure Compensation Income
xx
Taxable Income
xx
x
Rate
Income Tax
xx
Less:
Creditable Withholding Tax on
Compensation Income
xx
Tax Payable
xx
Xx
Xx
Less:
Allowable Deduction (itemized
or optional deduction)
Xx
Taxable Income
Xx
x
Rate
Income Tax
Xx
Less:
Creditable Withholding Tax on
Compensation Income/Other
Allowable Tax Credit
Xx
Tax Payable
Xx
Xx
Less:
and hospitalization/health
insurance premium
xx
xx
Income Tax
Xx
Less:
Creditable Withholding Tax on
Compensation Income/Other
Allowable Tax Credit
Xx
Tax Payable
Xx
TAXATION OF NON-RESIDENT
ALIENS ENGAGED IN TRADE OR
BUSINESS
(See above summary tables)
GENERAL RULES
(a) Subject to an income tax in the same
manner as an individual citizen and a
resident alien individual on taxable income
from all sources within the Philippines
(b) Nonresident alien doing business in the
Philippines: a non-resident alien individual
who shall come to the Philippines and stay
therein for an aggregate period of more
than 180 days during any calendar year
Except:
(1) The following Royalties shall be subject to a
final tax of ten percent (10%) on the total
amount thereof:
(a) On books as well as other literary works;
and
(b) On musical compositions
(2) Cinematographic films and similar works
shall be subject to twenty-five percent
(25%) of the gross income
(3) Interest income from long-term deposit or
investment in the form of savings, common
or individual trust funds, deposit
substitutes, investment management
accounts and other investments evidenced
by certificates in such form prescribed by
the Bangko Sentral ng Pilipinas (BSP) shall
be exempt from the tax
But should the holder of the certificate preterminate the deposit or investment before the
fifth (5th) year, a final tax shall be imposed on
the entire income and shall be deducted and
withheld by the depository bank from the
proceeds of the long-term deposit or
investment certificate based on the remaining
maturity thereof:
(a) Four (4) years to less than five (5) years - 5%;
(b) Three (3) years to less than four (4) years 12%; and
(c) Less than three (3) years - 20%.
CAPITAL GAINS
Capital gains realized from sale, barter or
exchange of shares of stock in domestic
corporations not traded through the local stock
exchange, and real properties shall be subject
to the similar tax prescribed on citizens and
resident aliens.
(a) Sale, barter or exchange of Shares of stock in
domestic corporation not traded
(1) Net over P100,000
gains realized
5% of net capital
INDIVIDUAL TAXPAYERS
EXEMPT FROM INCOME TAX
Individual Taxpayers exempt from income tax
are:
(1) Senior Citizens
(2) Minimum wage earners
(3) Exemptions granted under international
agreements
SENIOR CITIZENS
Who covered: any resident citizen
(a) At least 60 years old, and
(b) Who are considered minimum wage earners
under RA 9504. (Sec. 4 (b) RA 7432, as
amended by RA 9994) and/or the
aggregate amount of gross income earned
by the senior citizen during the taxable year
does not exceed the amount of his personal
exemptions (BPE and APE).
in
TAXATION OF DOMESTIC
CORPORATIONS
TAX PAYABLE
Taxes payable are:
(1) Regular tax
(2) Minimum Corporate Income Tax
REGULAR TAX
Normal Corporate Income Tax Rate: 30%of
Taxable Income (effective January 1, 2009)
Gross Income
XXX
Less: Allowable Deductions
XXX
Taxable Income
XXX
IMPOSITION OF MCIT
Gross Sales
XXX
Less: Sales Returns
Sales Discounts &
Allowances
Cost of Goods Sold
XXX
XXX
XXX
XXX
MCIT GI
XXX
Pointers.
MCIT is in the nature of a tax credit, not an
allowable deduction. Its purpose is to prevent
corporations from escaping being taxed by
including frivolous expenses in their statement
of income.
Illustration.
E Co., a domestic trading corporation, in its
fourth year of operations had a gross profit from
sales of P300,000 and net taxable income of
P100,000. How much was the income tax paid
by the corporation for the year?
P30,000
Income Tax to be paid for the year
(whichever is higher)
P30,000
Illustration.
A domestic corporation had the following data on computations of the normal tax
(NT) and the
minimum corporate income tax (MCIT) for five years.
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
MCIT
80K
50K
30K
40K
35K
NT
20K
30K
40K
20K
70K
Year 4
Year 5
Year 6
Year 7
Year 8
MCIT
80,000
50,000
30,000
40,000
35,000
NT
20,000
30,000
40,000
20,000
70,000
.
NT is higher
n/a
n/a
40,000
n/a
70,000
Less: MCIT
carry-fwd
(40,000)*
(20,000)
(20,000)
From Year 4
From Year 5
From Year 7
Tax Due
80,000
50,000
40,000
30,000
>
>
>
Arrow pointing downward means that the normal tax is higher so that there can be
an excess MCIT
carry-forward against it.
*Cannot carry forward an amount higher than the NT, hence the excess of 60K from
Year 4 was reduced
to 40K. The unused P20,000 cannot be used in Year 8 because Year 8 was beyond th
ree years from Year
4.
Gross Sales
XXX
Less: Sales Returns
SalesDiscounts&
Allowances
Cost of Goods Sold
XXX
XXX
XXX
XXX
GI
XXX
ALLOWABLE DEDUCTIONS
Itemized deductions
(1) Bad debts
(2) Expenses
(3) Losses
(4) Taxes
(5) Depreciation
(6) Interest
(7) Depletion of oil and gas wells and mines
(8) Charitable and other contributions
(9) Research and development
(10 Pension trusts
Inter-corporate dividends
Dividends received from another domestic
corporation - exempt
activity- any
the conduct of
to the exercise
institution
or function.
TAX ON GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS,
AGENCIES OR INSTRUMENTALITIES
FOR GOCCS:
TAXATION OF RESIDENT
FOREIGN CORPORATIONS
GENERAL RULE
A resident foreign corporation is a corporation
organized under the laws of a foreign country,
which is engaged in trade or business in the
Philippines.
(a) A Philippine branch of a foreign corporation
duly licensed by the SEC is considered a
resident foreign corporation. Thus, only the
income of the Philippine branch from sources
within the Philippines is subject to Philippine
income tax.
(b) Marubeni v. Commissioner: As general rule,
the head office of a foreign corporation is
the same juridical entity as its branch in the
Philippines following the single entity
concept. Thus, the income from sources
within the Phils. of the foreign head office
shall thus be taxable to the Philippine
branch.
Intercorporate dividends
Dividends received from a domestic corporation
liable to tax under the NIRC- exempt
Exclude:
(1) International carrier
(2) Offshore banking units
(3) Branch profits remittances
(4) Regional or area headquarters and regional
operating headquarters of multination
companies
International carrier
Tax Rate and Base
Billings (GPB)
What is GPB.
In the case of International Air Carriers, GPB
refers to the amount of:
(a) gross revenue derived from carriage of
persons, excess baggage, cargo and mail
originating from the Philippines in a
continuous and uninterrupted flight,
irrespective of the place of sale or issue and
the place of payment of the ticket or
passage document
(b) gross revenue from tickets revalidated,
exchanged and/or indorsed to another
international airline if the passenger boards
a plane in a port or point in the Philippines
(c) for flights which originate from the
Philippines, but transshipment of passenger
Tax Rate.
Exempt from all taxes, except net income from
such transactions as may be specified by the
Secretary of Finance, upon recommendation by
the Monetary Board to be subject to the regular
income tax payable by banks
Notes:
(a) imposed whether the head office of the
foreign corporation is located in a tax treaty
country, in a tax haven or other non-treaty
country.
(b) imposed only on the profits remitted by a
Philippine branch to the head office of a
foreign corporation.
TAXATION OF NON-RESIDENT
FOREIGN CORPORATIONS
GENERAL RULE
Except as otherwise provided, the tax is 30% of
the gross income (except certain passive
income)received during each taxable year from
all sources within the Philippines, such as
interests (except interests on foreign loans,
dividends, rents, royalties, salaries, premiums
(except reinsurance premiums), annuities,
emoluments or other fixed or determinable
annual, periodic or casual gains, profits and
income, and capital gains EXCEPT capital gains
on the sale of shares of stock (not listed and
traded through a local stock exchange), of a
domestic corporation which are subject to the tax
rates prescribed for individuals and resident
foreign corporations.
Intercorporate dividends
(a) (Intercorporate Dividend)
15%, as long as
the country in which the nonresident foreign
corporation is domiciled allows a tax credit
for taxes deemed paid in the Philippines
equivalent to at least15%
(b) 15% represents the difference between the
regular income tax of 30% on corporations
and the 15% tax on dividends ( tax sparing
credit )
(c) If the country within which the NRFC is
domiciled does NOT allow a tax credit, a
final withholding tax at the rate of30% is
imposed on the dividends received from a
domestic corporation.
Exclude:
(1) Film rentals and other payments to nonresident cinematographic film owner, lessor
or distributor
Final tax of 25% of gross income from all
sources within the Philippines
Type of Corporation
Tax Base
Tax
Rate
Domestic Corporations
International Carriers
Gross Philippine Billings
2.5%
10%
IMPROPERLY ACCUMULATED
EARNINGS OF CORPORATIONS
Immediacy Test
It states that the reasonable needs of the
business are the
(1) immediate needs of the business; and
(2) reasonably anticipated needs.
Composition
The following constitute accumulation of
earnings for the reasonable needs of the
business:
(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,
(2) inclusive of accumulations taken from other
years;
(3) Earnings reserved for definite corporate
Expansion projects or programs requiring
considerable capital expenditure as
approved by the Board of Directors or
equivalent body;
(4) Earnings reserved for Building, Plant or
Equipment Acquisition as approved by the
Board of Directors or equivalent body;
(5) Earnings reserved for compliance with any
Loan Covenant or pre-existing obligation
established under a legitimate business
agreement;
(6) 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;
(7) 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.
Covered Corporations
Only domestic corporations classified as closelyheld corporations are liable for IAET.
TAXATION OF PARTNERSHIPS
Co-ownership
There is co-ownership
(1) When two or more heirs inherit and undivided
property from a decedent.
(2) When a donor makes a gift of an undivided
property in favor of two or more donees.
TAXATION OF GENERAL
PROFESSIONAL
PARTNERSHIPS
RULES
(1) A GPP is a partnership formed by persons for
the purpose of exercising their common
profession, no part of the income of which is
derived from engaging in trade or business.
A GPP as such shall not be subject to the
income tax. It is not a taxable entity for
income tax purposes.
(2) The partners shall only be liable for income tax
only in their separate and individual
capacities.
(3) For purposes of computing the distributive
share of the partners, the net income of the
WITHHOLDING TAX
CONCEPT
Withholding tax is a method of collecting
income tax in advance from the taxable income
of the recipient of income. It is a systematic way
of collecting taxes at source, an indispensable
method of collecting taxes to ensure adequate
revenue for the government.
Withholding Agent
Any person or entity who is required to deduct
and remit the taxes withheld to the
government.
(a) In general, any juridical person, whether or
not engaged in trade or business;
(b) An individual, with respect to payments
made in connection with his trade or
business. However, insofar as taxable sale,
exchange or transfer of real property is
concerned, individual buyers who are not
engaged in trade or business are also
constituted as withholding agents. In any
case, no Certificate Authorizing Registration
(CAR)/Tax Clearance Certificate (TCL) shall
No. 14-2013]
(h) In cases covered by substituted filing, to
furnish each employee with the original
copy of Certificate of Compensation/Tax
Withheld (BIR Form No. 2316) and submit
to the BIR the duplicate copy not later than
February 28 following the close of the
calendar year.
KINDS
Withholding of final tax of certain incomes
Subject to rules and regulations the Secretary of
Finance may promulgate, upon the
recommendation of the Commissioner,
requiring the filing of income tax return by
certain income payees, the tax imposed or
prescribed by specific section of the NIRC on
specified items of income shall be withheld by
payor-corporation and/or person and paid in
the same manner and subject to the same
conditions as provided in Section 58 of the
NIRC.
WITHHOLDING OF VAT
(1) On gross payments for the purchase of goods
(2) On gross payments for the purchase of
services
(3) Payments made to government public works
contractors
(4) Payments for lease or use of property or
property rights to non-resident owners
TIMING OF WITHHOLDING
The obligation of the payor to deduct and
withhold the tax arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense
or asset, whichever is applicable, in the payor s
books, whichever comes first. The term
payable refers to the date the obligation
becomes due, demandable or legally
enforceable.
Estate Tax
DEFINITION
(a) A graduated tax imposed upon the privilege
of the decedent to transmit property at death
and is based on the net estate, considered as
a unit, and it is determined by subtracting
from the gross estate the allowable
deductions.
(b) Tax on the right to transmit property at
death and on certain transfers which are
made by the statute the equivalent of
testamentary dispositions and is measured
by the value of property at time of death.
200,000
Exempt
200,000
500,000
0
5%
200,000
500,000
2 million
15,000
8%
500,000
2 million
5 million
135,000
11%
2 million
5 million
10 million
465,000
15%
5 million
10 million
and over
1,215,000
20%
10 million
NATURE
Lorenzo v Posadas (1937): It is in reality an excise
or privilege tax imposed on the right to succeed
to, receive, or take property by or under a will or
the intestacy law, or deed, grant, or gift to
become operative at or after death.
PURPOSE OR OBJECT
TAXABLE TRANSFERS
(1) Transfers Mortis Causa
Gratuitous transfers
that take effect after death, either testate or
intestate.
(2) Transfers Inter Vivos
Generally attract
donor s tax. However, certain transfers inter
vivos are treated by law as substitutes for
testamentary dispositions (i.e., transfers
which are inter vivos in form but mortis causa
in substance) where certain circumstances
provided by law are present, and are
accordingly included in the computation of
the gross estate in order to arrive at the
proper estate tax liability. These are:
CLASSIFICATION OF
DECEDENT
The decedent may be classified into:
(1) Citizen,
(2) Resident alien; or
(3) Non-resident alien.
DEFINITION OF RESIDENCE
Corre v Tan Corre (1956): It refers to the
permanent home, the place to which whenever
absent, for business or pleasure, one intends to
return, and depends on facts and
circumstances, in the sense that they disclose
intent.
GROSS ESTATE
Sec. 104, NIRC. DEFINITIONS. For purposes of
this Title, the terms gross estate and gifts
include real and personal property, whether
tangible or intangible, or mixed, wherever
situated x x x
RECIPROCITY RULE
There is reciprocity if the foreign country of
which the decedent was a citizen and resident
at the time of his death:
(a) Did not impose a transfer tax of any
NET ESTATE
Value of the estate after all deductions have
been made against the gross estate; subject to
DETERMINATION OF GROSS
ESTATE AND NET ESTATE
Decedent s Interest
Decedent s interest refers to the extent of equity
or ownership participation of the decedent on
any property physically existing and present in
the gross estate, whether or not in his
possession, control or dominion; also refers to
the value of any interest in property owned or
possessed by the decedent at the time of his
death (interest having value or capable of being
value or transferred. [cf. Sec. 85(A), NIRC]
Illustration:
X transfers his property to Y in naked ownership
and to Z in usufruct throughout Z s lifetime
subject to the condition that if Z predeceases X,
the property shall return to X. If X dies during
Z s life, the value of the reversionary interest of
X at death is includible in his gross estate (see
Articles 756-757 of the Civil Code). The transfer
is taxable as intended to take effect at or after
death because the possibility of reversion to X
makes Z s interest conditional as long as X lives.
Revocable Transfers
Decedent s transfer of any interest by trust or
otherwise, where the enjoyment thereof was
subject at the date of his death to any change
through the exercise of power by the decedent
ALONE or by the decedent IN CONJUNCTION
WITH ANY OTHER person, to alter, amend,
revoke, or terminate such transfer, OR where
such power which would bring the property in
the taxable estate is relinquished in
contemplation of the decedent s death [Sec.
85(C )(1), NIRC].
When general.
The power of appointment is
general when the power of appointment
authorizes the donee of the power to appoint
any person he pleases. The power may be
exercised in favor of anybody including the
done-decedent. The donee of a general power
of appointment holds the appointed property
with all the attributes of ownership, and, thus,
the appointed property shall form part of the
gross estate of the donee of the power upon his
death.
Over
Case A
Case
B
Case
C
FMV, transfer
2,000
1,500
2,500
FMV, death
2,500
2,000
2,000
Consideration received
2,000
800
0
Value included in the
Gross Estate
0
1,200
2,000
as amended]; and
(6) Proceeds of life insurance payable to heirs of
deceased members of military personnel [RA
360].
Deductions
Ordinary deductions
(1) Expenses, losses,
indebtedness, taxes.
(a) Funeral expenses
(b) Judicial expenses
(c) Claims against
the estate
(d) Claims against
insolvent persons
(e) Unpaid mortgage
and debt
(f) Taxes
(g) Losses
(2) Vanishing
deductions
(3) Transfers for public
use
(4) Amounts received
under R.A. 4917
Ordinary deductions
(1) Proportionate
deductions for
expenses, losses,
indebtedness, taxes.
(a) Funeral expenses
(b) Judicial expenses
Special deductions
(a) Family home
(b) Standard deduction
(c) Medical expenses
Share in conjugal
property
Share in conjugal
property
ORDINARY DEDUCTIONS
Funeral Expenses
Allowable deduction is not to exceed P200,000
and whichever is lower of:
(a) The actual funeral expenses (whether or not
paid) up to the time of interment, or
(b) An amount equal to 5% of the gross estate
[Sec. 86 (A)(1), NIRC].
Illustrations
(1) If five percent (5%) of the gross estate is
P220,000 and the amount actually incurred
is P215,000, the maximum amount that may
be deducted is only P200,000;
(2) If five percent (5%) of the gross estate is P
100,000 and the total amount incurred is
P150,000 where P20,000 thereof is still
unpaid, the only amount that can be claimed
as deduction for funeral expenses is
P100,000. The entire P50,000 excess
amount consisting of P30,000 paid amount
and P20,000 unpaid amount can no longer
be claimed as FUNERAL EXPENSES. Neither
can the P20,000 unpaid portion be
deducted from the gross estate as CLAIMS
AGAINST THE ESTATE.
Substantiation Requirements
Simple Loans
(1) Duly notarized debt instrument at the time
the indebtedness was incurred, except for
loans granted by financial institutions where
notarization is not part of the business
practice/policy of the financial institutionlender.
(2) Duly notarized Certification from the
creditor as to the unpaid balance of the
debt, including interest as of the time of
death.
(3) Proof of financial capacity of the creditor to
lend the amount at the time the loan was
granted. In case the creditor is an individual
who is no longer required to file income tax
returns with the Bureau or a non-resident, a
duly notarized Declaration by the creditor of
his capacity to lend at the time when the
loan was granted. For non-resident
creditors, the declaration must be
authenticated or certified by the tax
authority of the country where he is a
resident.
(4) A Statement under oath executed by the
administrator or executor of the estate
reflecting the disposition of the proceeds of
the loan, if the loan was contracted within
three (3) years prior to the death of the
decedent.
Unpaid Mortgages
These are deductible from the gross estate,
provided:
(a) That the gross estate must include the fair
market of the property encumbered by such
mortgage or indebtedness;
(b) That the deduction shall be limited to the
extent that they were contracted bona fide
and for an adequate and full consideration in
money or money s worth, if such unpaid
mortgages or indebtedness were founded
upon a promise or an agreement. [Sec. 6A5(a), RR 2-2003]
Taxes
These are deductible from the gross estate if:
(a) They have accrued as of the death of the
decedent, and
(b) They were unpaid as of the time of death.
Losses
These are deductible from the gross estate if
ALL of the following conditions are satisfied:
(a) The losses were INCURRED DURING the
SETTLEMENT of the estate
(b) The losses arose from acts of God, such as
FIRES, STORMS, SHIPWRECK or OTHER
CASUALTIES, or from acts of man, such as
ROBBERY, THEFT or EMBEZZLEMENT
(c) The losses are NOT COMPENSATED BY
INSURANCE or otherwise
(d) The losses are not claimed as a deduction for
income tax purposes in an income tax return
of the estate subject to income tax
Rationale
As a previous transfer tax had already been
imposed on the property, either the estate tax (if
property inherited) or the donor s tax (if property
donated), the law allows a deduction to be
claimed on the said property to minimize the
effects of a double tax on the same property
within a short period of time, i.e. five (5) years.
Vanishing
Deduction
Rate
If received by inheritance or gift
100%
Within one (1) year prior to the
death of the present decedent
80%
More than one year but not more
than two years prior to the death
of the decedent
60%
More than two years but not
more than three years prior to
the death of the decedent
40%
More than three years but not
more than four years prior to the
death of the decedent
20%
More than four years but not
more than five years prior to the
death of the decedent
Formula
(1) VALUE TAKEN FOR PPT (always the lower
values)
LESS: MORTGAGE (OR LIEN) PAID IF ANY(1ST
deduction)
(2) INITIAL BASIS (IB)
LESS: 2ND deduction = (IB/GE) x (ELIT + transfer
for public use)
(3) FINAL BASIS
X RATES IN Sec 86A-2
VANISHING DEDUCTION in an Estate Tax Return,
this is deducted from the Exclusive Properties of
the decedent that form part of the gross estate.
Medical Expenses
All medical expenses (cost of medicine, hospital
TAX CREDIT
It is a remedy against international double
taxation. To minimize the onerous effect of
taxing the same property twice, tax credit
against Philippine estate tax is allowed for
estate taxes paid to foreign countries.
General Rule:
The estate tax imposed by the Philippines shall
be credited with the amounts of any estate tax
imposed by the authority of a foreign country.
Limitations
(a) The amount of the credit in respect to the tax
paid to any country shall not exceed the
same proportion of the tax against which
15,000
5,000
1,400
Net Estate Philippines (reduced
by all allowable deductions,
except standard deduction)
P1,050,000
P15,000
Solution
Limitation A
Amount
Allowed
(whichever
is lower)
Country G
(300/1500 x 15,000)
3,000
3,000
Actually paid to Country G
5,000
Country H
(150/1500 x 15,000)
1,500
1,400
Solution
Limitation B:
Amount
Allowed
(Lower)
450/1500 x 15,000
4,500
in Limitation A.
EXEMPTION OF CERTAIN
ACQUISITIONS AND
TRANSMISSIONS
(1) Merger of usufruct in the owner of the naked
title
(2) Transmission or delivery of the inheritance or
legacy by the fiduciary heir (1st heir) to the
fideicomissary (2ndheir). Pending
transmission of the property, the fiduciary is
entitled to all the rights of a usufructuary,
although the fideicomissary is entitled to all
the rights of a naked owner.
(3) Transmission from the first heir, legatee or
done in favour of another beneficiary, in
accordance with the desire of the
predecessor.
(4) All 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, however, that not more than 30%
of said bequest, devises, legacies or transfers
shall be used by such institutions for
administration purposes.
CONTENTS
[Sec. 90(A), NIRC]
The executor, or the administrator, or any of the
legal heirs, as the case may be, shall file a
return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent
at the time of his death, or in case of a
nonresident, not a citizen of the Philippines,
of that part of his gross estate situated in the
Philippines;
(2) The deductions allowed from gross estate in
determining the net taxable estate; and
(3) Such part of such information as may at the
time be ascertainable and such
supplemental data as may be necessary to
establish the correct taxes.
(4) For estate tax returns showing a gross value
exceeding Two million pesos (P2,000,000) there must be a statement duly certified to by
a Certified Public Accountant containing the
following:
(a) Itemized assets of the decedent with their
corresponding gross value at the time of
his death, or in the case of a nonresident,
not a citizen of the Philippines, of that
part of his gross estate situated in the
Philippines;
(b) Itemized deductions from gross estate
allowed in Section 86; and
(c) The amount of tax due whether paid or
still due and outstanding.
WHEN FILED
General Rule: Filed within six (6) months from
the decedent's death. [Sec. 90(B), NIRC]
WHERE FILED
The administrator or executor shall register the
estate of the decedent and secure a new TIN
therefor from the Revenue District Office where
the decedent was domiciled at the time of his
death, in cases of a resident.
Donor s Tax
BASIC PRINCIPLES
The donor s tax is imposed on donations inter
vivos or those made between living persons to
take effect during the lifetime of the donor. It
supplements the estate tax by preventing the
avoidance of the latter through the device of
donating the property during the lifetime of the
deceased.
DEFINITION
A donor s tax is levied, assessed, collected and
paid upon the transfer by any person, resident
or nonresident, of the property by gift. [Sec.
98(A), NIRC]. It shall apply 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 [Sec. 98(B),
NIRC].
NATURE
Donor s tax is not a property tax but a tax
imposed on the transfer of property by way of
gift inter vivos. [Sec 11, RR 2-2003 citing Lladoc v.
CIR (1965)]
PURPOSE OR OBJECT
(1) To supplement estate tax;
(2) To prevent avoidance of income tax through
the device of splitting income among
numerous donees, who are usually members
of a family or into many trusts, with the
REQUISITES OF VALID
DONATION
(1) A donation is an act of liberality whereby a
person (donor) disposes gratuitously of a
thing or right in favor of another (donee) who
accepts it. [Art. 725, NCC]
(2) In order that the donation of an immovable
may be valid, it must be made 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. [Sec.
11, RR 2-2003]
SALE/EXCHANGE/TRANSFER OF
PROPERTY FOR INSUFFICIENT
CONSIDERATION
Where property is transferred for less than an
adequate and full consideration in money or
money s worth, then the amount by which the
FMV of the property at the time of the execution
of the Contract to Sell or execution of the Deed
of Sale which is not preceded by a Contract to
Sell exceeded the value of the agreed or actual
consideration or selling price shall be deemed a
gift, and shall be included in computing the
amount of gifts made during the calendar year.
[Sec. 11, RR 2-2003]
CONDONATION/REMISSION OF
DEBT
Dizon v CTA (2008): Condonation or remission
of debt is defined as an act of liberality, by virtue
CLASSIFICATION OF DONORS
[Sec. 98(A), NIRC]
DETERMINATION OF GROSS
GIFT
[Sec. 98, NIRC]
(1) Gifts of real property and personal property
wherever situated belonging to the donor
who is either a resident or citizen at the time
of the donation; and
(2) Gifts of real and tangible personal property
situated in the Philippines, and intangible
personal property with a situs in the
Philippines unless exempted on the basis of
reciprocity, belonging to the donor who is a
non-resident alien at the time of the
donation
Resident or Citizen
Non resident Alien
Real property in the
Philippines
Real Property in the
Philippines
Tangible or Intangible
Personal Properties
(Within or without the
Philippines)
Tangible or Intangible
Personal Properties
(Within the Philippines)
Except: Reciprocity
[Sec. 104]
PERSONS LIABLE
TAX BASIS
The tax for each calendar year shall be
computed on the basis of the total net gifts
made during the calendar. (Sec. 99, NIRC)
NET GIFTS
(a) The net economic benefit from the transfer
that accrues to the donee.
(b) Accordingly, if a mortgaged property is
transferred as a gift, but imposing upon the
donee the obligation to pay the mortgage
liability, then the net gift is measured by
deducting from the fair market value of the
property the amount of the mortgage
assumed. (Sec. 11, RR 2-2003)
Illustration
(1) P100,000 donation to son by parents on
account of marriage:
(a) Husband
(i) Net Taxable Gift:
P50,000
10,000 = P40,000
same as above
10,000 = P15,000
P 2,000,000
P 1,000,000
P 500,000
After the
first
donation
After the
second
donation
After the third
donation
Net Taxable Gift
2,000,000
January
Donation P2,000,000
January
Donation P2,000,000
March
Donation 1,000,000
March
Donation 1,000,000
Total
P3,000,000
August
Donation 500,000
Total
P3,500,000
Corresponding Donor s Tax (refer to schedule)
124,000
P 204,000
P254,000
Tax Due / Payable
124,000
Donor s Tax
P 204,000
Donor s Tax
P 254,000
Less: Tax
Previously
Paid
124,000
Less: Tax
Previously paid
(124k+80k)
204,000
Tax Due
P80,000
Tax Due
P50,000
Over
But not
Over
Tax Is
Plus
Of the
Excess
Over
0
100,000
Exempt
100,000
200,000
0
2%
100,000
200,000
500,000
2,000
4%
200,000
500,000
1M
14,000
6%
500,000
1M
3M
44,000
8%
1M
3M
5M
204,000
10%
3M
5M
10M
404,000
12%
5M
10M
1,004,000
15%
10M
VAT
CONCEPT
CHARACTERISTICS/ ELEMENTS
OF A VAT-TAXABLE
TRANSACTION
(1) It is a tax on consumption levied on the sale,
barter, exchange or lease of goods or
CONSTITUTIONALITY OF VAT
IMPACT OF TAX
(1) The impact of taxation is on the statutory
taxpayer, the one from whom the
government collects.
(2) The impact of VAT is on the seller or importer
upon whom the tax has been imposed. [Sec.
105, NIRC]
INCIDENCE OF TAX
(1) The incidence of tax is on the one who bears
APPLICABILITY OF ECOZONES
(1) CIR v. Seagate Technology (2005): The
ECOZONES shall be managed and
operated by the PEZA as separate customs
territory. (Sec. 8, RA 7916 Special Economic
Zone Act of 1995 ) This means that in such
zone is created the legal fiction of foreign
territory. (Deoferio Jr. and Mamalateo, p.
227)
(2) CIR v. Seagate Technology (2005):
Consequently, sales made by a person in
the customs territory to a PEZA-registered
entity are considered exports to a foreign
country and thus, zero-rated. Conversely,
sales by a PEZA-registered entity to a
person in the customs territory are deemed
imports from a foreign country.
[RMC 74-99]
(1) Any sale of goods, property or services made
by a VAT registered supplier from the
Customs Territory* to any registered
enterprise operating in the ecozone,
REGARDLESS of the class or type of the
latter s PEZA registration, is actually
qualified and thus LEGALLY ENTITLED TO
THE 0% VAT.
Sale of goods, property and services by VATExempt supplier from the Customs Territory
to a PEZA registered enterprise shall be
treated EXEMPT FROM VAT, regardless of
whether or not the PEZA registered buyer is
subject to taxes under the NIRC or enjoying
the 5% special tax regime.
(3) By a PEZA Registered Enterprise
PERSONS LIABLE
Value-added Tax (VAT) is a percentage tax
imposed upon:
(1) Any person who, in the course of trade or
business, sells, barters, exchanges, leases
goods or properties, or renders services.
RULE OF REGULARITY
Also, the sale, barter, exchange, lease, or
rendering of service must be in the course of
trade or business. The term in the course of
trade or business embraces the regular
conduct or pursuit of a commercial or economic
activity. It also includes transactions that are
incidental to the regular conduct or pursuit of
the activity.
GOODS OR PROPERTIES
All tangible
and intangible objects which are capable of
pecuniary estimation, including:
(1) Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
(2) The right or the privilege to use patent,
copyright, design, or model, plan, secret
formula or process, goodwill, trademark,
trade brand or other like property or right;
(3) The right or the privilege to use in the
Philippines of any industrial, commercial or
scientific equipment;
(4) The right or the privilege to use motion
picture films, films tapes and discs;
(5) Radio, television, satellite transmission and
cable television time. [Sec. 106, NIRC]
TAXABLE:
(1) On installment plan
(2) Pre-selling by real estate dealers
(3) Sale of residential lot >P1,919,500 ; or house
and lot/other residential
dwelling>P3,199,200 (RR 16-2011)
(4) Lease of residential units (rental per unit
>12,800/month OR total rental from ALL
units>P1,919,500/year)
NOT TAXABLE:
(1) Not primarily held for sale
(2) Low cost or socialized housing
(3) Residential lot < P1,919,500
(4) House and lot/ other residential dwelling<
P3,199,200
(5) Lease (rental per unit < 12,800/month and
total rental from all units < P1,919,500/ year)
(6) Transmission to a trustee (Except when the
transmission is deemed a sale transaction)
ON INSTALLMENT PLAN
[RR 16-2005]
Scope [Sec. 4.106
3]
Installment Plan
Deferred Payment
Initial payments in the
year of sale do not
exceed 25% of the
gross selling price
Initial payment in the
year of sale exceeds
25% of the gross
selling price
Taxable only on the
payment actually or
constructively received
Treated as cash sale
and the entire selling
price is taxable on the
month of sale
INITIAL PAYMENTS
payment/payments
which the seller receives before or upon
execution of the instrument of sale and
payments which he expects or is scheduled to
receive in cash or property during the year when
the sale or disposition of the real property was
made.
(a) It includes down payment and all payments
actually or constructively received during the
year of sale.
(b) It does not include the amount of mortgage
on the real property sold (except as to the
excess when such mortgage exceeds the cost
or other basis of the property to the seller)
and notes or other evidence of indebtedness
issued by the purchaser to the seller at the
time of the sale.
EXPORT SALES
[Sec. 106(A)(2)(a), NIRC]
(1) The sale and actual shipment of goods from
the Philippines to a Foreign country AND paid
for in acceptable foreign currency or its
equivalent in goods or services, AND
accounted for in accordance with the rules
and regulations of the BSP
FOREIGN CURRENCY
DENOMINATED SALE (FCDS)
(1) Sale to a nonresident of goods, except those
mentioned in Sections 149 and 150
(automobiles and non-essential goods like
jewelry, perfume, and yachts), assembled or
manufactured in the Philippines for delivery
to a resident in thePhilippines paid for in
acceptable foreign currency AND accounted
for in accordance with the rules and
regulations of the BSP. [Sec. 106(A)(2)(b),
NIRC]
(2) Sales of locally manufactured or assembled
goods for household and personal use to
Filipinos abroad and other non-residents of
the Philippines as well as returning Overseas
Filipinos under the Internal Export Program
of the government paid for in convertible
foreign currency AND accounted for in
Examples:
(1) Sales to enterprises duly registered &
accredited with the
(a) Subic Bay Metropolitan Authority,
(b) Philippine Economic Zone Authority
(PEZA),
(2) International agreements to which the Phil.
is signatory, such as
(a) Asian Development Bank (ADB),
(b) International Rice Research Institute
(IRRI)
DISTRIBUTION OR TRANSFER TO
SHAREHOLDERS, INVESTORS OR
CREDITORS
(1) Shareholders or investors as share in the
profits of the VAT-registered persons; or
(2) Creditors in payment of debt;
CONSIGNMENT OF GOODS IF
ACTUAL SALE IS NOT MADE WITHIN
60 DAYS FOLLOWING THE DATE
SUCH GOODS WERE CONSIGNED
Consigned goods returned by the consignee
within the 60-day period are not deemed sold.
[RR 16-2005]
CHANGE OR CESSATION OF
STATUS AS VAT-REGISTERED
PERSON
[Sec.106(C), NIRC]
Rate: 12%
Basis: the acquisition cost or the current market
price of the goods or properties, whichever is
LOWER.
VAT ON IMPORTATION OF
GOODS
Rate: 12%
Basis: total value used by the Bureau of
Customs in determining tariff and customs
duties, plus customs duties, excise taxes, if any,
and other charges (such as postage,
commission).
the money
placed at the
the service
Examples:
LEASE OF PROPERTIES:
Subject to the tax imposed irrespective of the
place where the contract of lease or licensing
agreement was executed if the property is leased
or used in the Philippines.
MEANING OF SALE/EXCHANGE OF
SERVICES - the performance of all kind of
services in the Philippines for others for a fee,
remuneration or consideration, whether in kind
or in cash, including those performed or
rendered by the following: (unless otherwise
indicated, from RR 16-2005)
(1) Construction and service contractors
(2) Stock, real estate, commercial, customs and
immigration brokers
(3) Lessors of property, whether personal or real
Common
carrier
Transporting
Kind of
carrier
Tax Liability
By land
Persons
Domestic
3% percentage
tax (Sec. 117,
NIRC)
Goods/ cargo
Domestic
12% VAT (Sec.
108, NIRC)
By sea/air
Whether
transporting
persons or
goods/ cargo
Domestic
Domestic trip 12% VAT
International trip
zero-rated VAT
International
Doing business
in the
Philippines - 3%
percentage tax
(Sec. 118, NIRC)
International trip
- zero-rated VAT
(Sec. 108 (B)(6),
NIRC)
its licensees/franchisees)
ZERO-RATED SALE OF
SERVICES
[Sec. 108 (B), NIRC]
A zero-rated sale by a VAT-registered person is
a taxable transaction for VAT purposes, but
shall not result in any output tax.
IN GENERAL
(1) Sale of goods or properties and/or services
and the use or lease of properties that is NOT
subject to VAT (output tax) and the seller is
not allowed any tax credit of VAT (input tax)
on purchases.
(2) The person making the exempt sale of
goods, properties or services shall not bill
any output tax to his customers. [RR 162005]
(3) But, the VAT-registered person may elect
that the exemption not apply to its sale of
goods or properties or services; provided that
the election made shall be irrevocable for a
period of three (3) years from the quarter the
election was made [Sec. 109(2), NIRC].
EXEMPT TRANSACTION,
ENUMERATED
(1) Sale/import of agricultural, marine food
products in original state; of livestock and
poultry
(a) Original state even if they have undergone
the simple processes of preparation or
preservation for the market, such as
freezing, drying, salting, broiling, roasting,
smoking or stripping.
(b) Polished and/or husked rice, corn grits,
raw cane sugar and molasses, ordinary
salt, AND COPRA shall be considered in
their original state
Livestock or poultry does not include fighting
cocks, race horses, zoo animals and other
animals generally considered as pets. [RR 162005]
Original state
including preservation using
advanced technological means of packaging,
such as shrink wrapping in plastics, vacuum
packing, tetra-pack, and other similar
of 1949]
INPUT TAX
the VAT due on or paid by a
VAT-registered person on importation of goods
or local purchases of goods, properties, or
services, including lease or use of properties, in
the course of his trade or business.
(1) It includes the transitional input tax and the
presumptive input tax as determined in
accordance with Section 111 of the Code.
(2) It includes input taxes which can be directly
attributed to transactions subject to the VAT
plus a ratable portion of any input tax which
cannot be directly attributed to either the
taxable or exempt activity.
(3) Input tax must be evidenced by a VAT invoice
or official receipt issued by a VAT-registered
person in accordance with Secs. 113 and 237
of the Code. [RR 16-2005]
or
or services
to register
110 (A),
PURCHASE OR IMPORTATION OF
GOODS
(1) For sale; or
(2) For conversion into or intended to form part
of a finished product for sale including
packaging materials; or
(3) For use as supplies in the course of business;
or
(4) For use as materials supplied in the sale of
service; or
(5) For use in trade or business for which
deduction for depreciation or amortization is
allowed under the Code.
TRANSITIONAL TAX
[Sec. 111(A), NIRC]
Any person liable for VAT or who elects to be a
VAT-registered person shall be allowed INPUT
TAX in his beginning inventory of goods,
DETERMINATION OF
OUTPUT/INPUT TAX; VAT
PAYABLE; EXCESS INPUT TAX
CREDITS
20,000.00
Step 3: The input tax attributable to VATexempt sales for the month shall be computed
as follows:
Input tax on VAT-exempt sales P2,000.00
In a Sale of Goods/Properties
SUBSTANTIATION OF INPUT
TAX CREDITS
[RR 16-2005]
(1) INPUT TAXES must be substantiated and
supported by the following documents, and
must be reported in the information returns
required to be submitted to the Bureau:
(a) For the importation of goods = Import
entry or other equivalent document
showing actual payment of VAT on the
imported goods.
(b) For the domestic purchase of goods and
properties = Invoice showing the
information required under Secs. 113
(Invoicing and Accounting Requirements
for VAT-Registered Persons) and 237
(Issuance of Receipts or Sales or
Commercial Invoices) of the Tax Code.
(c) For the purchase of real property = public
instrument i.e., deed of absolute sale,
deed of conditional sale,
contract/agreement to sell, etc., together
with VAT invoice issued by the seller.
(d) For the purchase of services = official
receipt showing the information required
under Secs. 113 and 237 of the Tax Code.
A cash register machine tape issued to a
registered buyer shall constitute valid proof of
substantiation of tax credit only if it shows the
information required under Secs. 113 and 237 of
the Tax Code.
(2) TRANSITIONAL INPUT TAX shall be
supported by an inventory of goods as shown
in a detailed list to be submitted to the BIR.
(3) Input tax on "DEEMED SALE"
DESTINATION PRINCIPLE OR
CROSS-BORDER DOCTRINE
DESTINATION PRINCIPLE
(1) It is the basis for the jurisdictional reach of
the VAT.
(2) CIR v. American Express International (2005):
As a general rule, goods and services are
taxed only in the country where they are
consumed. (Deoferio Jr. and Mamalateo. The
Value Added Tax in the Philippines, p. 43)
INVOICING REQUIREMENTS
INVOICING REQUIREMENTS IN
GENERAL
A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or
exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods
or properties, and for every sale, barter or
exchange of services.
Transaction
Invoicing Requirement
Transfer, use or
consumption not in
Transaction
Invoicing Requirement
Consignment of goods
if actual sale is not
made within 60 days
Invoice, at the time of
the transaction, which
should include all the
info prescribed above;
data in the invoice
shall be duly recorded
in the subsidiary sales
journal
Retirement from or
cessation of business
with respect to all
goods on hand
An inventory shall be
prepared and
submitted to the RDO
who has jurisdiction
over the taxpayer s
principal place of
business not later
than 30 days after
retirement or
cessation from
business. An invoice
shall be prepared for
the entire inventory,
which shall be the
basis of the entry into
the subsidiary sales
journal. The invoice
need not enumerate
the specific items
appearing in the
inventory regarding
the description of the
goods. If the business
is to be continued by
the new owners or
successors, the entire
amount of output tax
on the amount
deemed sold shall be
allowed as input
taxes.
CONSEQUENCES OF ISSUING
ERRONEOUS VAT INVOICE OR VAT
OFFICIAL RECEIPT
[Sec. 113 (D), NIRC]
TAXPAYER S REMEDIES
ASSESSMENT
CONCEPT OF ASSESSMENT
Assess means to impose a tax; to charge with a
tax; to declare a tax to be payable; to apportion
a tax to be paid or contributed, to fix a rate; to
fix or settle a sum to be paid by way of tax; to
set, fix or charge a certain sum to each taxpayer;
to settle determine or fix the amount of tax to
be paid [84 C.J.S 74-750]
Formula:
Increase in Net worth
Add: Non-deductible Item
Less: Non-taxable income or receipts
subjected to final tax transfer taxes
Taxable Net Income
Less: Personal and additional exemptions
NET INCOME SUBJECT TO TAX
Jeopardy Assessment
A tax assessment made by an authorized
Revenue Officer (RO) without the benefit of
complete or partial audit, in light of the RO s
belief that the assessment and collection of the
deficiency tax will be jeopardized by delay
caused by the taxpayer s failure to: i) comply
with audit and investigation requirements to
present his books of accounts and/or pertinent
records or ii.) Substantiate all or any of the
deductions, exemptions or credits claimed in his
return.
6(E), NIRC]
(a) Dividing the Philippines into different
zones or areas, and determining the
FMV of real properties in each zone or
area, upon consultation with
competent appraisers from private and
public sectors.
(b) For the purpose of computing any
internal revenue tax, the value of the
property shall be WHICHEVER IS
HIGHER OF:
(i) The FMV as determined by the
Commissioner, or
&Reinvestigation)
RECONSIDERATION
refers to a plea of reevaluation of the assessment on the basis of
existing records WITHOUT NEED OF
ADDITIONAL EVIDENCE. It may involve both
question of fact or of law or both
Rates of Surcharge:
There shall be imposed a penalty equivalent to
Deficiency Interest
the interest due on any
amount of tax due or installment thereof which
is not paid on or before the date prescribed for
its payment [Mamalateo, 2008]
COLLECTION
REQUISITES
When the government may avail of the
remedies of collection:
General Rule: When the assessment shall have
become final, executory and demandable.
Exception:
When the all of the following conditions concur:
(1) It is an appeal to the CTA from a decision of
the CIR, or Commissioner of Customs or the
RTC, provincial, city or municipal treasurer or
the Secretary of Finance, the case may be,
AND
(2) In the opinion of the Court of Tax Appeals,
the collection may jeopardize the interest of
the Government and/or the taxpayer. [Sec. 11,
R.A. 1125 as amended by R.A. 9282]
Prescriptive periods
Where return
filed was NOT
false or
fraudulent:
Where no
return filed, or
the return was
false or
fraudulent:
Collection
with prior
assessment
should be
made within 5
years from
the date of
assessment
of the tax.
[Sec. 203 in
relation to
Sec. 222,
NIRC]
by distraint or
levy, or by
judicial
proceedings
should be
made within 5
years from the
date of
assessment
[based on Sec.
222(c), NIRC]
by distraint or
levy, or by
judicial
proceedings
Where return
filed was NOT
false or
fraudulent:
Where no
return filed, or
the return was
false or
fraudulent:
Collection
without prior
assessment
should be
made within 3
years from
the date of
filing of
return or date
return is due,
whichever is
LATER [based
on Sec. 203,
NIRC]
by judicial
proceedings
should be
made within
ten years after
the discovery
of the falsity,
fraud or
omission to
file a return.
by judicial
proceedings
Administrative
(1) Distraint of Personal Property including
garnishment deposit
(2) Summary remedy of levy on real property
(3) Forfeiture to the government for want of
bidder
(4) Further Distraint or Levy
(5) Tax Lien
(6) Compromise and Abatement
(7) Penalties and Fines
Judicial
(1) Civil
(2) Criminal
Kinds of Distraint:
(1) Constructive Distraint
(2) Actual Distraint
(D) Sale
The sale shall be held either at the main
entrance of the municipal or city hall or on the
premises to be sold. Property will be awarded
to the highest bidder. In case the proceeds of
the sale exceeds the claim and costs of sale, the
excess shall be turned over to the owner of the
property. [Sec. 213, NIRC]
be
property
other
period for
Tax lien
Tax liens
(1) When a taxpayer neglects or refuses to pay
his internal revenue tax liability after
demand, the amount so demanded shall be
a lien in favor of the government from the
time the assessment was made by the CIR
until paid with interest, penalties, and costs
that may accrue in addition thereto upon
ALL PROPERTY AND RIGHTS TO
PROPERTY BELONGING to the taxpayer.
(2) HOWEVER, the lien shall not be valid against
any mortgagee, purchaser or judgment
creditor until NOTICE of such lien shall be
filed by the Commissioner in the Office of the
Register of Deeds of the province or city
where the property of the taxpayer is situated
or located. [Sec. 219, NIRC]
Compromise
C:\Users\Justin\Desktop\191498_1.jpg
Assessment not necessary before filing a
criminal charge for tax evasion
An assessment is not necessary before a
criminal charge can be filed. The criminal
charge need only be proved by a prima facie
showing of a wilful attempt to file taxes, such as
failure to file a required tax return. [CIR v. Pascor
Realty, June 29, 1999]
REFUND
NATURE OF A CLAIM FOR REFUND:
It partakes of the nature of an exemption and is
strictly construed against the claimant. The
burden of proof is on the taxpayer claiming the
refund that he is entitled to the same. [CIR v.
Tokyo Shipping (1995)]
GOVERNMENT REMEDIES
ADMINISTRATIVE REMEDIES
(1)
(2)
(3)
for
(4)
(5)
(a) In the case of a VAT-registered Person. (i) Failure to issue receipts or invoices; or
(ii) Failure to file a value-added tax return
as required under Section 114; or
(iii) Understatement of taxable sales or
receipts by thirty percent (30%) or
JUDICIAL REMEDIES
(1) Civil Action
(2) Criminal Action
Civil Action
Two ways by which civil liability is enforced:
(1) by filing a civil case for the collection of sum
of money with the proper regular court; and
(2) by filing an answer to the petition for review
filed by the taxpayer with the Court of Tax
Appeals. [Mamalateo, 2008]
Criminal Action
Any person convicted of a crime under the Code
shall:
(1) be liable for the payment of the tax, and
(2) be subject to the penalties imposed under
the Code. [Sec. 253(A), NIRC]
Offender
Penalty
Not a citizen of the
Philippines
he shall be deported
immediately after serving
the sentence
A public officer or
employee
the maximum penalty
prescribed for the offense
shall be imposed on him
shall be dismissed from
public office, and
perpetually disqualified
from holding any public
office, to vote, and to
participate in any election
CPA
partnerships etc.
imposed on the partner,
president, general
manager, branch
manager, treasurer,
officer-in-charge and
employees responsible for
the violation (Sec. 253,
NIRC)
Criminal Offenses
Offense
Who is liable
Penalty
Willful attempt to evade or
defeat tax. [Sec. 254]
Any person who willfully
attempts in any manner to evade
or defeat any tax or the payment
thereof.
Fine: P30,000 - P100,000
AND
Imprisonment: 2-4 years
Plus other penalties
Failure to File Return, Supply
Correct and Accurate
Information, Pay Tax, Withhold
and Remit Tax and Refund
Excess Taxes Withheld on
Compensation [Sec. 255]
Any person required to pay any
tax, make a return, keep any
record, or supply correct and
accurate information
Offense
Who is liable
Penalty
Unlawful Use of Denatured
Alcohol [Sec. 261]
Any person who for the purpose
of manufacturing any beverage,
uses denatured alcohol or
alcohol specially denatured to be
used for motive power or
withdrawn under bond for
industrial uses or alcohol
knowingly misrepresented to be
denatured to be unfit for oral
intake or who knowingly sells or
offers for sale such preparations
containing as an ingredient such
alcohol.
P 100,000;
Fine: P10,000-P20,000
AND
Imprisonment: 2-4 years
Offense
Who is liable
Penalty
Failure or Refusal to Issue
Receipts or Sales or Commercial
Invoices, Violations Related to
the Printing of Such Receipts or
Invoices and Other Violations
[Sec. 264]
Any person who, being required
under Section 237 to issue
receipts or sales or commercial
invoices
Fine: P 1,000 - P50,000
AND
Imprisonment: 2- 4 years
Offenses Relating to Stamps
[Sec. 265]
Offense
Who is liable
Penalty
Penalty for Selling, Transferring,
Encumbering or in any way
disposing of property Placed
under Constructive Distraint
[Sec. 276]
Any taxpayer, whose property
has been placed under
constructive distraint
Fine: at least P5,000 AND
at least twice the value of the
property
OR
Imprisonment: 2 years 1 day - 4
years
OR Both
Failure to Surrender Property
Placed under Distraint and Levy
[Sec. 277]
Any person having in his
possession or under his control
any property or rights to
property, upon which a warrant
of constructive distraint or actual
distraint and levy has been
issued
Fine: P 5,000 or more
OR
Imprisonment: 6 months 1 day 2 years,
OR Both
Procuring Unlawful Divulgence
of Trade Secrets [Sec. 278]
Any person procures an officer or
employee of the BIR to divulge
any confidential information
Amount of reward:
10% of the revenues, surcharges or fees
recovered and/or fine/penalty imposed, or
P1,000,000, whichever is LOWER.
(a) The same amount shall be given if the
offender offered to compromise and such
offer has been accepted and collected by the
Commissioner.
(b) If no revenue, surcharge or fees be actually
collected, such person is not entitled to a
reward
(c) For discovery and seizure of SMUGGLED
GOODS: The cash reward is 10% of the FMV
of the smuggled and confiscated goods, or
P1,000,000, whichever is LOWER.
CIVIL PENALTIES
(1) Surcharge
(2) Interest
SURCHARGE
Surcharge - penalty imposed in addition to the
tax required to be paid [Sec. 248(A), NIRC]
INTEREST
In General
20% per annum on the unpaid amount of tax,
interest at the rate of twenty percent (20%) per
annum from the date prescribed for payment
until the amount is fully paid. [Sec. 249(A),
NIRC]
Deficiency Interest
20% per annum on any deficiency in the tax due
from the date prescribed for its payment until
the full payment thereof. [Sec. 249(B), NIRC]
Delinquency interest
20% per annum on the unpaid amount in case
of failure to pay:
(a) The amount of the tax due on any return
required to be filed; or
(b) The amount of the tax due for which no
return is required; or
(c) A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the
letter of demand and assessment notice
[Sec. 249(C), NIRC]
COMPROMISE AND
ABATEMENT OF TAXES
(see discussion under Remedies of the Taxpayer)
STARTCommissioner or
Regional Director
Issues Letter of
Authority (LA)
RO sends notice
of informal
conferenceRevenue Officer (RO)
conducts Audit w/in 120
days. If 120 days lapse
LA is revalidated,
Taxpayer
responds w/in 15
daysRegional
Assessment
Division issues a
Preliminary
Assessment Notice
(PAN)
Is response w/n
15 days? Is it
meritorious?
Send Formal Letter
of demand and Final
Assessment Notice
(FAN) is issuedNO to
eitherASSESSMENT
ENDSYes tobothFile protest w/n 30
days from receipt of
assessment. Submit
supporting papers wi/in
60 days from protestProtest made w/in
30 days?
Supporting papers
submitted w/in 60
days?
Commissioner decides on
protest within 180 daysYES to
bothAssessment becomes
Final, Warrant of Distraint
& Levy IssuedCommissioner
decides w/n
180 days?
Appeal to the Court of Tax
Appeals w/in 30 days after
lapse of 180 days OR wait for
a decision by the BIR
(Lascona Land oil vs. CIR)
Appeal to the Court of Tax
appeals within 30 days OR file
motion for reconsideration
within 30 days. MR tolls 30
day period to appeal to CTADecision
favorable to
taxpayer?
NOIf MR is denied, appeal to
the CTA within remainder
of the 30 daysNOIf CTA decision is unfavorable to
taxpayer, file MR with CTA
Division w/in 15 days. Appeal to
Organization and
Function of the BIR
RULE-MAKING AUTHORITY OF
THE SECRETARY OF FINANCE
AUTHORITY OF SECRETARY OF
FINANCE TO PROMULGATE RULES
AND REGULATIONS [Sec. 244, NIRC]
The Secretary of Finance, upon
recommendation of the Commissioner, shall
promulgate all needful rules and regulations for
effective enforcement of the provisions of the
Code.
SPECIFIC PROVISIONS TO BE
CONTAINED IN RULES AND
REGULATIONS [Sec. 245, NIRC]
(1) The time and manner in which Revenue
Regional Director shall canvass their
respective Revenue Regions for the purpose
of discovering persons and property liable to
national internal revenue taxes, and the
manner in which their lists and records of
taxable persons and taxable objects shall be
made and kept;
Exceptions:
(a) Where the taxpayer deliberately misstates or
omits material facts from his return or any
document required of him by the BIR;
(b) Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Required:
Not otherwise specifically enumerated in the
LGC or taxed under NIRC or other applicable
laws
(1) Not unjust, excessive, oppressive,
confiscatory or contrary to declared
national policy
(2) Pursuant to an ordinance enacted with
public hearing conducted for the purpose.
[Sec. 186, LGC]
187, LGC]
LGU
Power
Province
Municipality
City
Barangay
Tax on Transfer of Real Property
. (135)
. (151)
Franchise tax
. (137)
Professional tax
. (139)
Amusement tax
. (140)
Tax on Business
. (143)
.
. (147)
.
. (148)
.
. (149)
.
Community Tax
.
.
. (152a)
Service Fees on the use of
Barangay-owned properties
. (152b)
Barangay Clearance
. (152c)
. (152d)
Service Fees and Charges (153)
.
.
.
.
Public Utility Charges (154)
.
.
.
.
Toll Fees or Charges (155)
.
.
.
.
Real Property Tax
.
.
(within Metro Manila)
.
Tax Imposed
Rate/Amount
Base
Exemptions
Others
registration; and by
the provincial
assessor as a
condition for
cancellation of old tax
declaration.
Not
exceeding
1/20 of 1%
Gross annual
receipts for the
preceding
calendar year
Capital
investment
Receipts from
printing and/or
publishing of books
and other reading
materials
prescribed by the
DECS as school
texts or references
In the succeeding
calendar year,
regardless of when
business started
operating, tax shall be
based on gross
receipts for preceding
calendar year, or any
fraction thereof.
Tax Imposed
Rate/Amount
Base
Exemptions
Others
(b) Newly-started
business
Not
exceeding
50% of 1%
Not more
than 1/20 of
1%
Gross annual
receipts for the
preceding
calendar year
based on the
incoming
receipt, or
realized, within
its territorial
jurisdiction
Capital
investment
In the succeeding
calendar year,
regardless of when
business started
operating, tax shall be
based on gross
receipts for preceding
calendar year, or any
fraction thereof.
Permit to extract
sand, gravel and other
quarry resources to be
issued exclusively by
the provincial
governor pursuant to
an Ordinance by the
Sangguniang
Panlalawigan
Distribution of
proceeds:
(a) Province 30%
(b) Component
City/ Municipality
where resources
were extracted 30%
(c) Barangay where
resources were
extracted - 40%
Tax Imposed
Rate/Amount
Base
Exemptions
Others
principal office is
maintained.
Employers shall
require payment of
professional tax as a
condition for
employment.
Payable annually, on
or before Jan 31.
(6) Amusement Tax.
Collected from
proprietors, lessees, or
operators of theaters,
cinemas, concert halls,
circuses, boxing stadia,
and other places of
amusement [Sec 140,
LGC]
Not more
than 10%
(amended by
RA 9640,
2009)
Gross receipts
from admission
fees
Holding of operas,
concerts, dramas,
recitals, painting,
and art exhibitions,
flower shows,
musical programs,
literary and
oratorical
presentations
Exception to
exemption: Pop,
rock, or similar
concerts
In case of theaters or
cinemas, tax shall first
be deducted and
withheld by their
proprietors, lessees
and operators
Proceeds to be shared
equally by the
province and
municipality where
amusement places
are located.
Tax Imposed
Rate/Amount
Base
Exemptions
Others
Manufacturers,
producers,
wholesalers, dealers
and retailers referred
to in column 1 shall be
exempt from tax on
peddlers
Other Information
(1) 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
In accordance with the schedule in
Section 143 (a), NIRC
(d) Cement
(e) Laundry soap, detergents, and
medicine
(f) Agricultural implements.
equipment and post-harvest
facilities, fertilizers, pesticides,
insecticides, herbicides and
other farm inputs;
(g) Poultry feeds and other animal
feeds;
(h) School supplies
Not exceeding 1/2 of rates
prescribed in the schedule in Sec 143,
NIRC
(4) Retailers
Gross sales or receipts for the
preceding calendar year of:
(a) 400k or less: 2% per annum
(b) more than 400k: 1% per annum
Barangays have the
exclusive power to tax
gross receipts amounting
to:
(a) 50k or less: in cities
(b) 30k or less: in
municipalities [Sec. 143
(d), Sec. 152, LGC]
Other Information
(5) Contractors and other
independent contractors
In accordance with the schedule in
Sec. 143 (e)
Catch-all provision.
Specific:
(1) Municipality has power to impose reasonable
rates for sealing and licensing of weights and
measures [Sec. 148, LGC]
(2) The Municipality has exclusive authority to
grant fishery privileges in municipal waters.
The sangguniang bayan may:
(a) Grant fishery privileges to erect fish
corrals, oysters, mussels or other aquatic
beds or bangus fry areas, within a
definite zone of the municipal waters, as
(b) Grant marginal fishermen the privilege
to gather, take or catch bangus fry,
prawn fry or kawag-kawag or fry of other
species and fish from the municipal
waters by nets, traps or other fishing
gears free of rental, fee, charge or
imposition.
(c) Issue licenses for the operation of fishing
vessels of three (3) tons or less
(3) The Sanggunian may penalize the use of
explosives, noxious or poisonous substances,
electricity, muro-ami, and other deleterious
methods of fishing and prescribe a criminal
penalty therefor [Sec. 149, LGC]
Illustration of Rules 1 to 3:
A company has a principal office in
Mandaluyong, while its sales office and factory
are in Sta Rosa:
(1) sales made in Sta Rosa, will be recorded in
Sta Rosa
(2) sales made in Los Baos, Calamba or
Cabuyao (i.e. delivered to customers located
in those places), will be recorded in
Mandaluyong
(3) aside from sales made in Sta Rosa, Sta Rosa
also gets 70% of sales recorded in
Mandaluyong, pursuant to Rule 3
Illustration:
A company has a principal office in Valenzuela
and has its factory in Bulacan. It also has
branches selling merchandise in Muntinlupa,
Bacolod, Cebu.
(1) sales made in Muntinlupa, Bacolod and
Cebu will go to the said cities
(2) sales in all other places which do not have a
sales branch shall be distributed as follows:
30% to Valenzuela and 70% to Bulacan
Community tax
Who may levy [Sec. 156,
LGC]
Cities or municipalities
Accrues on the 1st day of January of each year to be paid not later than the las
t
day of February of each year
Penalty
If unpaid within the prescribed period, an interest of 24% shall be added per
annum from the due date until payment. [Sec. 161, LGC]
year
(b) Except: New taxes, fees or charges, or
changes in the rates thereof which shall
accrue on the first day of the quarter next
following the effectivity of the ordinance
Taxpayer s remedies
(1) Periods of assessment and collection of local
taxes, fees or charges
(a) Assessment: Within 5 years from the
date they become due
(b) In case of Fraud or Intent to Evade Tax:
Within 10 years from discovery of fraud
Fundamental Principles
(CAPUE)
(1) Current fair market value is the basis for
assessment
Coverage
For a Province, or a City or Municipality within
Metro Manila
(1) Land
(2) Building
(3) Machinery
(4) Other improvements not specifically
exempted [Sec. 232, LGC]
Proof of Exemption
(1) Documentary evidence such as affidavits, bylaws, contract, articles of incorporation
(2) Given to local assessor
(3) Within 30 days from date of declaration
(4) Failure to file, will be listed as in Assessment
Rolls as taxable
GOCCs
Philippine Ports Authority vs. City of Iloilo (G.R.
No. 109791, July 14, 2003): GOCCs are NOT
covered by the exemption since the exemption
only refers to instrumentalities without
personalities distinct from the government.
Provision
involved
SC Ruling
Mactan
Airport
Authority
vs.
Marcos
(1996)
Sec 133 (o), LGC.
LGUs not
allowed to
levy (o)
taxes/fees/charges of any kind
on the national
gov t, its
agencies,
instrumentalities and LGUs.
Sec 234(a).
Manila
Airport
Authority
vs. CA
(2006)
Sec 133 (o), LGC
outside the
Charitable Institutions
LUNG CENTER of the PHILS vs. QUEZON CITY
(G.R. No. 144104, June 29, 2004): A charitable
institution doesn't lose its character and its
exemption simply because it derives income
from paying patients so long as the money
received is devoted to the charitable object it
was intended to achieve, and no money inures
to the benefit of persons managing the
institution.
(b) Machinery
Brand New
The FMV is the acquisition
cost
If the machinery is
imported, the acquisition
cost includes freight,
insurance, bank and other
charges, brokerage,
arrastre and handling,
duties and taxes, plus cost
of inland transportation,
handling, and installation
charges at the present
site. [Sec. 224, LGC]
All other
Cases
FMV is determined by
dividing the remaining
economic life of the
machinery by its
estimated economic life
and multiplied by the
replacement/reproduction
cost. [Sec. 224, LGC]
Depreciation
Allowance
Rate not exceeding five
percent (5%) of its original
cost or replacement cost,
for each year of use
The remaining value shall
be fixed at not less than
twenty percent (20%) of
such original, replacement
or reproduction cost for so
long as the machinery is
useful and in operation.
[Sec. 225, LGC]
Date of Accrual
Real property tax for any year
shall accrue on the first day of
January. [Sec. 246, LGC]
Notice for
Collection
On or before the 31st of
Prescriptive
Periods for
Collection
Within five (5) years from the
date they become due
Instances for
Suspension of
Prescriptive
Period
(1) Local treasurer is legally
prevented to collect tax.
(2) The owner or property
requests for
reinvestigation and writes
a waiver before expiration
of period to collect.
(3) The owner of property is
out of the country or
cannot be located [Sec.
270, LGC]
Collecting
Authority
The local treasurer.
He may deputize the
barangay treasurer to collect
all taxes upon filing of a
bond. [Sec. 247, LGC]
Administrative
Levy
Upon the failure to pay the tax when due, the
local treasurer shall issue a warrant levying the
real property subject to tax. The warrant shall
include a duly authenticated certificate showing
the name of the owner or person having legal
interest therein, description of the property,
amount of the tax due and interest thereon.
(1) Warrant must be mailed or served to owner
or person having legal interest in the
property
(2) Written notice of levy must be mailed or
served to the assessor and the Register of
Deeds where the property is located
(3) The Register of Deeds must annotate the
levy on the tax declaration and certificate of
title [Sec. 258, LGC]
When
Available
There is no bidder; or
The highest bid is for an amount
insufficient to pay the real
property tax and the related
interest and costs of sale
Duty of the
Local
Treasurer
The local treasurer conducting
the sale shall purchase the
property in behalf of the LGU to
satisfy the claim and within two
(2) years thereafter shall make a
report of his proceedings.
Redemption
Period
Within one (1) year from the date
of forfeiture
Judicial
. The LGU may enforce the collection by civil
action in any court of competent jurisdiction.
. Must be filed by local treasurer within five (5)
to ten (10) years. [Sec. 266 in relation to Sec.
270, LGC]
Taxpayer s remedies
Administrative
(1) Protest
Appeal to the SC
Appeal must be filed within fifteen (15) days
from receipt of decision of the CTA (Rule 45,
Rules of Court)
Judicial
(1) Question on the legality of a tax ordinance
(a) Any question on the constitutionality or
legality of a tax ordinance may be raised
on appeal within thirty (30) days from
effectivity to the Secretary of Justice who
shall render a decision within sixty (60)
days from the date of receipt of the
appeal.
(b) The appeal shall not have the effect of
suspending the effectivity of the tax
ordinance and the accrual and payment
of the tax.
(c) Within thirty (30) days after receipt of the
decision or the lapse of the sixty-day
period without the Secretary of Justice
acting upon the appeal, the aggrieved
party may file appropriate proceedings
with a court of competent jurisdiction.
(Sec. 187, LGC)
STARTFlowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Gov t CodeOwner declares real
property once every 3
years (sec. 202) w/n
Jan 1 to June 30Assessor declares
real property if owner/
administrator fails to
do so (sec. 204)
Assessor prepares
assessment rolls
wherein real property
shall be listed, valued
and assessed (sec. 205)
For purposes of this flowchart owner means owner or administrator of real proper
ty or any person having legal interest theretoOwner may claim
for tax exemption
(sec. 206)
Submit documents
supporting exemption w/
in 30 days from
declaration (sec. 206)Required
Documents
submitted w/in
30 days?
Property
proven as tax
exempt?
Property shall be
dropped from
assessment roll
(sec. 206)
Property shall be
listed as taxable in
the assessment
roll (sec. 206)
Within 30 days from
assessment, assessor
sends notice to owner
(sec. 223)
Owner may protest
assessment within 60
days from receipt of notice
to the Local Board of
Assessment Appeals
(LBAA) (Sec. 226)
LBAA must decide
within 120 days
from receipt of
appeal (sec. 229)
If LBAA rejects protest, owner
may appeal to the Central
Board of Assessment Appeals
(CBAA) w/in 30 days from
receipt of notice (Sec. 229)
If CBAA rejects protest,
owner may appeal to
the CTA en banc within
30 days from receipt of
decisionAppeal to the
Supreme Court w/
in 15 daysYesYesIs real property
tax exempt?
NoENDNoYesNoEND
LT acts on claim
for refund/tax
credit w/in 60
days?
LT grants
refund/tax
credit?
NoYesYesNoTaxpayer may appeal
w/in 60 days from
receipt of notice (or
expiration of 60 days)
to LBAA (Sec. 226)
LT- Local TreasurerLGU - Local Government UnitLBAA- Local Board of Assessment Ap
pealsCBAA- Central Board of Assessment AppealsCTA- Court of Tax AppealsEND
Custom duties
(a) Taxes on the importation or exportation of
commodities
(b) Tariff or tax assessed upon the merchandise
imported from or exported to a foreign
country
Procedure:
(1) Tariff Commission shall conduct an
investigation and hold public hearings
wherein interested parties shall be afforded
reasonable opportunity to be present,
produce evidence, and be heard. It shall also
hear the views and recommendations of any
government office, agency or instrumentality
concerned.
(2) Commission shall be submit their findings
and recommendations to the NEDA within
REQUIREMENTS OF IMPORTATION
(1) Beginning and ending of importation
(a) Importation begins when the carrying
vessel or aircraft enters the jurisdiction of
the Philippines with intention to unload
therein [Sec. 1202, TCC]
(b) Importation is deemed terminated upon
payment of duties, taxes and other
charges due upon the articles, or secured
to be paid, at a port of entry AND the
legal permit for withdrawal shall have
been granted, or in case said articles are
free of duties, taxes and other charges,
until they have legally left the jurisdiction
of the customs. [Sec. 1202, TCC]
EXCEPT:
(1) amendment by the master,
consignee or agent
(2) attached to the original manifest
CANNOT amend the manifest after the
invoice and/or entry covering the
importation have been received and
recorded in the office of the appraiser
EXCEPT:
(1) Obvious clerical error or any other
discrepancy is committed in the
preparation
(2) Without fraudulent intent
(3) Discovery would not have been made
until after examination of the
importation is completed
Form:
(a) signed by the importer, consignee or
holder of the bill, by or for whom the
entry is effected [Sec. 1305]
(b) in the required number of copies in
such form as prescribed by regulations;
and
(c) shall contain the names of the
importing vessel or aircraft, port of
departure and date of a the number
and mark of packages, or the quantity,
if in bulk, the nature and correct
commodity description of the articles
contained therein, and its value as set
forth in a proper invoice to be
presented in duplicate the entry [Sec.
1306]
Value:
(a) Upon written application, Collector
shall furnish importer within 30 days
the latest information as to the DV of
articles to be imported.
(b) Importer must present all pertinent
papers and documents, act in good
faith and unable to obtain
information due to unusual conditions
(c) Information given is not an appraisal
nor is it binding upon the Collector s
right of appraisal.
Exceptions:
(1) Fraud
(2) Protest
(3) Compliance audit pursuant to the
provisions of the Code
Other Notes:
Readjustment of Appraisal,
Classification or Return [Sec. 1407, TCC]
Exceptions
(a) Within one year after payment of the
duties, upon statement of error in
conformity with seventeen hundred
and seven hereof, approved by the
Collector
(b) Within fifteen days after such
payment upon request for
reappraisal and/or reclassification
addressed to the Commissioner by
the Collector, if the appraisal and/or
classification is deemed to be low
(c) Upon request for reappraisal and/or
reclassification, in the form of a
timely protest addressed to the
Collector by the interested party if
the latter should be dissatisfied with
the appraisal or return
(d) Upon demand by the Commissioner
of Customs after the completion of
compliance audit pursuant to the
provisions of this Code." [R.A. 9135,
April 27, 21001]
Smuggling
In order to prevent smuggling and to secure the
collection of the legal duties, taxes and other
charges, the customs service shall exercise
surveillance over the coast, beginning when a
vessel or aircraft enters Philippine territory and
concluding when the article imported therein
has been legally passed through the
customhouse. [Sec. 2202]
3603, TCC]
(3) Concealment or Destruction of Evidence of
Fraud: Any person who willfully conceals or
destroys, any invoice, book or paper relating
to any article liable to duty, after an
inspection thereof has been demanded by
the Collector of any Collection district, or at
any time conceals or destroys any such
invoice, book or paper for the purpose of
suppressing any evidence of fraud therein
contained [Sec. 3605, TCC]
(4) Affixing Seals: Any person who shall willfully
break or destroy any seal placed by a
customs official upon any car, or other
conveyance by land, sea or air, or any
compartment thereof [Sec. 3606, TCC]
(5) Removal, Breakage, Alteration of Marks: Any
person who alters, defaces or obliterates any
distinctive mark placed by a customs official
on any package of warehoused articles [Sec.
3607, TCC]
(6) Removing Goods from Customs Custody: Any
importer or owner of warehoused articles, or
person in his employ, who by contrivance,
fraudulently opens the warehouse, or gains
access to the articles, except in the presence
of the proper official of the customs acting in
the execution of his duty [Sec. 3608, TCC]
(7) Failure to Keep Importation Records and Give
Full Access to Customs Officers: Any person
who shall fraudulently remove warehoused
articles from any public or private warehouse
or shall fraudulently conceal such articles in
any such warehouse, or shall aid or abet any
such removal or concealment [Sec. 3609,
TCC]
CLASSIFICATION OF GOODS
(1) Taxable importation
All articles, when imported from any foreign
country into the Philippines, shall be subject
to duty upon each importation, even though
previously exported from the Philippines,
except as otherwise specifically provided for
in this Code or in other laws. [Sec. 100, TCC]
CLASSIFICATION OF DUTIES
Note:
General Rule: The following methods are
sequentially applied
another s business;
(2) They are legally recognized
partners in business;
(3) There exists in an er-ee relationship
between them;
(4) Any person directly or indirectly
owns, controls or holds 5% or more
of the outstanding voting stock or
shares of bother seller and buyer;
(5) One of them directly or indirectly
controls the other;
(6) Both of them are directly or
indirectly controlled by a 3rd person;
(7) Together they directly or indirectly
control a 3rd person; or
(8) Related by affinity or consanguinity
up to 4th civil degree.
Identical goods
(a) Same in all respects (physical characteristics,
quality and reputation)
(b) Produced in the same country as the goods
being valued
(c) Produced by producer of the goods being
valued
Similar goods
(a) like characteristics and like component
materials
(b) capable of performing same functions
(c) commercially interchangeable
(d) produced in same country
(e) produced by same producer
Commissions OR
additions made in connection with profit
general expenses AND
transport, insurance and associated costs
customs duties and other national taxes
PRICE
Less:
COMMISSIONS/ADDITIONS
Less:
COSTS
Less:
DUTIES and TAXES
DEDUCTIVE VALUE
DV is calculated by:
determining aggregate of relevant costs,
charges and expenses or value of (1)
Kinds of weight:
(a) Gross Weight - weight of same,
together with the weight of all
containers, packages, holders and
packings, of any kind, in which said
articles are contained, held or packed
at the time of importation
(b) Legal Weight
weight at the time of
their sale to the public in usual retail
quantities
(c) Net Weight only the actual weight
at the time of importation excluding
the weight of the immediate and all
other containers
REMEDIES
Government
Administrative/Extrajudicial
Search, seizure, forfeiture, arrest
(1) Enforcement of Tax Lien
Sec. 1508
(a) When an importer has an outstanding
and demandable account with the Bureau
of Customs,
(1) Collector shall hold the delivery of the
article.
(2) Upon notice, he may sell such
importation or a portion of it to satisfy
the obligation.
(b) Importer may settle his obligation
anytime before the sale.
What:
to make seizure of any vessel, aircraft, cargo,
animal or any movable property when the same
is subject to forfeiture or liable for any fine
under the tariff and customs law
2316]
Cash bond
(a) if importer wishes to secure release of article
for legitimate use
(b) amount fixed by Collector
(c) appraised value of article and/or fine,
expenses, costs
Judicial
Taxpayer
Protest
When made: at the time payment of the amount
claimed to be due is made within 15 days
thereafter [Sec. 2308]
Form:
(a) Must be in writing
(b) Must point out the particular decision or
ruling of the Collector of Customs to which
exception is taken or objection made
(c) Must state the grounds relied upon for relief
[Sec. 2310, TCC]
Other requirements:
(a) Payment of the amount due and the
corresponding docket fee shall be made
before protest [Sec. 2308]
(b) Upon demand of Collector, the importer
shall furnish samples of the articles which
are the subject of the protest
Automatic Review:
Happens in case a decision is made adverse to
the Government
Abandonment
When available:
(1) Abatement for Damage incurred during
Voyage [Sec. 1701]
(2) Abatement or Refund for the following:
(a) Missing Packages [Sec. 1702]
(b) Deficiency of Contents in Packages [Sec.
1703]
(c) Articles Lost or Destroyed after Arrival
[Sec. 1704]
(d) Dead or Injured Animals [Sec. 1705]
How:
(1) Claim made in writing
(2) Collector shall verify with the records in his
office
(3) Certify claim to Commissioner with his
recommendation and necessary papers
(4) Commissioner shall then cause the claim to
be paid if found correct
STARTCollector determines
probable cause
(illegal importation)
Flowchart IX: Remedies from Seizure and Forfeiture Cases-Tariffs and
Customs CodeCollector conducts
hearingAmount
involved less
than 5M?
Importer may secure
release of goods by
filing of cash bond
(Sec. 2301)
Collector s
decision favorable
to taxpayer/
adverse to gov t?
Taxpayer appeals
to Customs
Commissioner 15
days from receipt
of noticeDoes
Commissioner
decide w/n 30
days?Is
Commissioner s
decision
favorable to
taxpayer/
adverse to
gov t?
Appeal to the
Court of Tax
Appeals within 30
days from notice
of decisionAutomatic Review* by
the Secretary of
Finance (SOF) (Sec.
2313, CMO 3-2002)
MR within 15 days
from receipt of
decisionAppeal to CTA en
banc 15 days from
receipt of decision
denying MRAppeal to the
Supreme CourtENDYesNoYesNoNoYesAutomatic review* by Customs
Commisioner (Sec. 2313)
Does
commissioner
decide w/in 30
days?
Is
Commissioner s
decision favorable
to taxpayer/
adverse to gov t?
NoYesYesYesNo, amount is at least5MDoes SOF
decide within
30 days?
Decision becomes
final &
unappealableIs SOF s
decision
favorable to
taxpayer/adverse
to gov t?
NoYes
Inaction construed as
affirmation of
commissioner s decision
(or of collector s decision
in case of inaction by
commissioner)
NoENDInaction construed as affirmation
of Collector s decisionNoAppeal
to CTAInaction construed
as affirmation of
Collector s
decisionYesCollector seizes goods
and reports it to the
Commissioner and to
COA. Owner is notified
of seizure*Automatic review is intended to protect the interest of the Governmen
t. W/o auto review, the Commissioner and SoF would not know
about the decision laid down by the Collector favoring the taxpayer. Automatic r
eview is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the taxpayer & adverse to th
e Government. (Yaokasin v. Commissioner 180 SCTA 591
establishment of a
domestic industry
If at the time of
importation any article
(or its container if the
article cannot be
marked), is not marked
in any official language
of the Philippines and
in a conspicuous place
as legibly, indelibly
and permanently as
the nature of the
article (or container).
This is used to prevent
deception of
consumers.
Whenever the
President finds that
the public interest will
be served thereby,
additional customs
duty shall be imposed
upon articles wholly or
in part the growth or
product of, or imported
in a vessel of, any
foreign country
whenever he shall find
as a fact that such
country
(1) Imposes, directly or
indirectly, upon any
Phil product
unreasonable charge,
exaction, regulation or
limitation which is not
equally enforced upon
the like articles of
other foreign
countries; or
(2) Discriminates in
fact against the
commerce of the
Philippines, as to place
the commerce of the
Philippines at a
disadvantage
compared with the
commerce of any
foreign country.
(Sec 5) General
Safeguard Measure:
Whenever there is a
positive final
determination of the
Commission that a
product is being
imported into the
country in increased
quantities, whether
absolute or relative to
the domestic
production, as to be a
substantial cause of
serious injury or threat
thereof to the
domestic industry;
however, in the case of
non-agricultural
products, the Secretary
of Agriculture shall
first establish that the
application of such
safeguard measures
will be in the public
interest
(Sec 21) Special
Safeguard Measure for
Agricultural Products:
Imposed upon
agricultural products,
consistent with Phil
international treaty
obligations, if its:
a) Cumulative import
volume in a given year
exceeds its trigger
volume subject to the
conditions under Sec.
23, RA 8800, or but
not currently; and
b) Actual CIF import
price is less than its
trigger price subject to
conditions under Sec.
24, RA 8800
Secretary of Agriculture
Anti-Dumping Duty
= Normal Value Export Price
Equivalent to the subsidy
5% ad valorem of the
articles
Not exceeding 100% ad
valorem upon the articles
appropriately set to a
level not exceeding onethird of the applicable
out-quota customs duty
on the agricultural
product under
consideration in the year
when it is imposed
For b), compute as
follows:
(a) 0 - if price difference
is at most 10% of the
trigger price
(b) 30% of the amount
by which the price
difference exceeds
10% of the trigger
price
(c) 50% - if it exceeds
40% but less than
60%
(d) 70% - if it exceeds
60 but at most 75%
(e) 90% - if it exceeds
75%
Notes:
Exceptions to the Marking of Articles: [In the
following situations, the containers shall be the
one subject to marking.]
(a) Article is incapable of being marked
(b) Article cannot be marked prior to shipment
to the Philippines without injury
(c) Article cannot be marked prior to shipment
to the Philippines, except at an expense
economically prohibitive of its importation
(d) Marking of a container of such article will
reasonably indicate the origin of such article
(e) Article is a crude substance
(f) Article is imported for use by the importer
and not intended for sale in its imported or
any other form
(g) Article is to be processed in the Philippines
by the importer or for his account otherwise
than for the purpose of concealing the origin
of such article and in such manner that any
mark contemplated by this section would
necessarily be obliterated, destroyed or
permanently concealed
(h) An ultimate purchaser, by reason of the
character of such article or by reason of the
circumstance of its importation, must
necessarily know the country of origin of such
article even though it is not marked to
indicate its origin
(i) Article was produced more than twenty years
prior to its importation into the Philippines
(j) Article cannot be marked after importation
except at an expense which is economically
prohibitive, and the failure to mark the article
before importation was not due to any
purpose of the importer, producer, seller or
shipper to avoid compliance with this section
JUDICIAL REMEDIES
CTA Division
(1) Decisions and Inaction of the Commissioner
of Internal Revenue in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other matters
arising under the National Internal Revenue
or other laws administered by the Bureau of
Internal Revenue;
CTA en Banc
(1) Decisions or resolutions on motions for
reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive
appellate jurisdiction over:
CTA Division
(1) Over appeals from the judgments,
resolutions or orders of the Regional Trial
Courts in tax cases originally decided by
them, in their respected territorial
jurisdiction.
(2) Over petitions for review of the judgments,
resolutions or orders of the Regional Trial
Courts in the exercise of their appellate
jurisdiction over tax cases originally decided
by the Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial
Courts in their respective jurisdiction.
CTA En Banc
(1) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
original jurisdiction over cases involving
criminal offenses arising from violations of
the National Internal Revenue Code or the
Tariff and Customs Code and other laws
administered by the Bureau of Internal
Revenue or Bureau of Customs;
(2) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
in Division in the exercise of its exclusive
appellate jurisdiction over criminal offenses
mentioned in the preceding subparagraph;
and
JUDICIAL PROCEDURES
Local taxes
The LGU concerned may enforce the collection
of delinquent taxes, fees, charges or other
revenues by civil action in any court of
competent jurisdiction. The civil action shall be
filed by the local treasurer. [Sec. 183, LGC]
Prescriptive period
Local taxes, fees, or charges may be collected
Civil cases
The
The
The
The
The
The
Criminal cases
CTA Division
(to CTA En
Banc)
15 days from
receipt of
decision
May be
extended for
good cause
for not more
than 15 days
Petition for
review as
provided in
Rule 43 of the
Rules of Court
The Court en
banc shall act
on the appeal.
Regional Trial
Courts in the
exercise of
their
appellate
jurisdiction
(To CTA
division)
15 days from
receipt of
decision
Petition for
review as
provided in
Rule 43 of the
Rules of Court