Taxation Law-San Beda

San Beda College of Law
1
MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES
POWER OF TAXATION
TAXATION power by which the
sovereign through its law-making body
raises revenue to defray the necessary
expenses of government from among
those who in some measure are
privileged to enjoy its benefits and must
bear its burdens.
Two Fold Nature of the Power of
Taxatio
1. It is an inherent attribute of
sovereignty
2. It is legislative in character
Extet of Taxi! Power
Subject to constitutional and
inherent restrictions the power of
taxation is regarded as comprehensive
unlimited plenary and supreme.
SCOPE OF LEGISLATI"E TAXING POWER
1. !mount or rate of tax
2. !pportionment of the tax
". #ind of tax
$. %ethod of collection
&. 'urpose(s of its levy provided it is
for public purpose
). Subject to be taxed provided it is
within its jurisdiction
*. Situs of taxation
TAXES enforced proportional
contributions from the persons and
property levied by the law-making body
of the State by virtue of its sovereignty
in support of government and for public
needs.
C#ARACTERISTICS OF TAXES
1. forced charge+
2. pecuniary burden payable in money+
". levied by the legislature+
$. assessed with some reasonable rule
of apportionment+ ,see theoretical
justice-
&. imposed by the State within its
jurisdiction+
). levied for a public purpose.
RE$%ISITES OF A "ALI& TAX
1. should be for a public purpose
2. the rule of taxation shall be uniform
". that either the person or property
taxed be within the jurisdiction of
the taxing authority
$. that the assessment and collection
of certain kinds of taxes guarantees
against injustice to individuals
especially by way of notice and
opportunity for hearing be provided
&. the tax must not impinge on the
inherent and .onstitutional
limitations on the power of taxation
T#EORIES AN& 'ASES OF TAXATION
1. Life(lood Theor)
/axes are what we pay for civili0ed
society. 1ithout taxes the government
would be paraly0ed for lack of the
motive power to activate and operate it.
2ence despite the natural reluctance to
surrender part of one3s hard-earned
income to the taxing authorities every
person who is able to must contribute
his share in the running of the
government. (CIR v. Algue, Inc.)
2. Ne*e++it) Theor)
/he power to tax is an attribute of
sovereignty emanating from necessity. It
is a necessary burden to preserve the
State3s sovereignty and a means to give
the citi0enry an army to resist an
aggression a navy to defend its shores
from invasion a corps of civil servants to
serve public improvements designed for
the enjoyment of the citi0enry and those
which come within the State3s territory
and facilities and protection which a
government is supposed to provide.
(Phil. Guaranty Co., Inc. v. CIR)
". 'eefit+,Prote*tio - Re*i.ro*it)
Theor)
/axation is described as a symbiotic
relationship whereby in exchange of the
benefits and protection that the citi0ens
get from the 4overnment taxes are
paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE
CHAIRPERSON : Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP : Rachelle Saya SUBJECT HEADS: Jemina Sy,
Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee
*&illemo
1
Note 1hile taxes are intended for
general benefits special benefits to
taxpayers are not re5uired. /he
4overnment renders no special or
commensurate benefit to any particular
person or property.
IS T#E POWER TO TAX T#E POWER TO
&ESTRO/0
1. 1Power to tax i+ the .ower to
de+tro)2 ,!arshall "ictum) # refers to
the unlimitedness and the degree or
vigor with which the taxing power may
be employed to raise revenue.
- the financial needs of the State may
outrun any human calculation so the
power to meet those needs by taxation
must not be limited even though taxes
become burdensome or confiscatory.
2. 1Power to tax i+ ot the .ower to
de+tro) while the Su.re3e Court +it+2
($olmes "ictum) 6 the power to tax
knows no limit except those expressly
stated in the .onstitution.
!arshall and $olmes "ictum Reconciled
!lthough the power to tax is almost
unlimited it must not be exercised in an
arbitrary manner. If the abuse is so
great so as to destroy the natural and
fundamental rights of people it is the
duty of the judiciary to hold such an act
unconstitutional.
P%RPOSES AN& O'4ECTI"ES OF TAXATION
5. Re6eue basically the purpose of
taxation is to provide funds or
property with which the State
promotes the general welfare and
protection of its citi0ens.
2. No,Re6eue 78e)9 PR
:
EP;
a. Promotion of general welfare
b. Regulation
c. Reduction of social ine5uality
d. Encourage economic growth
e. Protectionism
POWER OF 4%&ICIAL RE"IEW IN TAXATION
!s long as the legislature in
imposing a tax does not violate
applicable constitutional limitations or
restrictions it is not within the province
of the courts to in5uire into the wisdom
or policy of the exaction the motives
behind it the amount to be raised or the
persons property or other privileges to
be taxed.
/he court7s power in taxation is
limited only to the application and
interpretation of the law.
Note /he principle o% &udicial non'
inter%erence extends to the
administrative realm.
ASPECTS OF TAXATION
1. 8evy or imposition of the tax ,tax
legislation-
2. 9nforcement or tax administration
,tax administration-
'ASIC PRINCIPLES OF A SO%N& TAX S/STE<
78E/9 FAT;
1. Fi+*al Ade=ua*) sufficiency to
meet government expenditures and
other public needs.
2. Ad3ii+trati6e Fea+i(ilit)-
Co6eie*e capability of being
effectively enforced.
". Theoreti*al 4u+ti*e based on the
taxpayer7s ability to pay+ must be
progressive. ,!bility to 'ay /heory-
TAXATION
POLICE
POWER
E<INENT
&O<AIN
1. Purpose
/o raise
revenue
/o promote
public
purpose
through
regulations
/o facilitate
the State7s
need of
property for
public use
2. Amount of Exaction
No limit 8imited to
the cost of
regulation
issuance of
the license or
surveillance
No exaction+
but private
property is
taken by the
State for
public
purpose
3. Benefits Received
No special
or direct
benefit is
received by
the
taxpayer+
merely
general
benefit of
protection
No direct
benefit is
received+ a
healthy
economic
standard of
society is
attained
! direct
benefit results
in the form of
just
compensation
to the
property
owner
*&illemo
1
4. Non-impairment of Contracts
.ontracts
may not be
impaired
.ontracts
may be
impaired
.ontracts may
be impaired
5. ransfer of Propert! Ri"#ts
/axes paid
become part
of public
funds
No transfer
but only
restraint in
its exercise
/ransfer is
effected in
favor of the
State
$. %cope
!ll persons
property and
excises
!ll persons
property
rights and
privileges
(nly upon a
particular
property
S/STE<S OF TAXATION
Glo(al S)+te3 S*hedular S)+te3
! system
employed where
the tax system
views
indifferently the
tax base and
generally treats in
common all
categories of
taxable income of
the individual.
! system employed
where the income tax
treatment varies and
is made to depend on
the kind or category
of taxable income of
the taxpayer.
! system which
taxes all
categories of
income except
certain passive
incomes and
capital gains. It
prescribes a
unitary but
progressive rate
for the taxable
aggregate incomes
and flat rates for
certain passive
incomes derived
by individuals.
! system which
itemi0es the different
incomes and provides
for varied percentages
of taxes to be
applied thereto.
EXA<PLES OF TAXES LE"IE& WIT# A
REG%LATOR/ P%RPOSE> OR CO<'INE&
EXERCISE OF POLICE POWER AN& T#E POWER
OF TAXATION.
a. %otor vehicle registration fees
are now considered revenue or tax
measures.(Pal v. )du, G.R No. *'+,-.-,
August ,/,,0..)
/his case reversed the doctrine
previously held in :epublic v. 'hilippine
:abbit ;us 8ines Inc. "2 S.:! 211 to
the effect that motor vehicle
registration fees are regulatory
exactions and not revenue measures.

(. /he tax imposed on videogram
establishments is not only regulatory but
a revenue measure because the earnings
of such establishments have not been
subject to tax depriving the government
of an additional source of income. (1io
v. 2ideogram Regulatory 3oard, ,/,
4CRA 56.)
*. /he <coconut levy funds= were
all raised under the state7s taxing and
police powers.
/he state7s concern to make it a
strong and secure source not only in the
livelihood of the significant segment of
the population but also of export
earnings the sustained growth of which
is one of the imperatives of the
economic growth.= Philippine Coconut
Producers 7ederation, Inc. Coco%ed v.
Presidential Commission on Good
Government (,8. 4CRA 5-9, 5/5)

CONSTR%CTION OF TAX LAWS
1. 'ublic purpose is always presumed.
2. If the law is clear apply the law in
accordance to its plain and simple
tenor.
". ! statute will not be construed as
imposing a tax un&ess it does so
clearly expressly and
unambiguously.
$. In case of doubt it is construed most
strongly against the 4overnment
and li(erall) in favor of the
taxpayer.
&. 'rovisions of a taxing act are not to
be extended by implication.
). /ax laws operate prospectively
un&ess the purpose of the legislature
to give retrospective effect is
expressly declared or may be
implied from the language used.
*. /ax laws are +.e*ial law+ and
prevail over a general law.
NATURE OF TAX LAWS
1. >ot political in character
2. .ivil in nature not subject to ex
post facto law prohibitions
". >ot penal in character
*&illemo
1
TAXES ARE PERSONAL TO T#E TAXPA/ER
1. ! corporation7s tax delin5uency
cannot be enforced against its
stockholders. 7Cor.orate Etit)
&o*trie;
):ception Stockholders may be
held liable for unpaid taxes of a
dissolved corporation?
a. if it appears that the corporate
assets have passed into their
hands or
b. when the stockholders have
unpaid subscriptions to the
capital of the corporation
2. 9state taxes are obligations that
must be paid by the executor or
administrator out of the net assets
and cannot be assessed against the
heirs.
):ception If prior to the payment
of the estate tax due the properties
of the deceased are distributed to
the heirs then the latter is
subsidiary liable for the payment of
such portion of the estate tax as his
distributive share bears to the total
value of the net estate. (4ec. 0,
Rev. Regs. No. 5'566-; see CIR vs.
Pineda G.R. No. *'558-+.
4eptember ,/, ,098))
CLASSIFICATION OF TAXES
1. !s to subject matter?
a. Per+oal Tax taxes are of fixed
amount upon all persons of a
certain class within the
jurisdiction without regard to
property occupation or business
in which they may be engaged.
b. Pro.ert) Tax assessed on
property of a certain class
c. Ex*i+e Tax imposed on the
exercise of a privilege
d. Cu+to3+ &utie+ duties charged
upon the commodities on their
being imported into or exported
from a country.
2. !s to burden?
a. &ire*t Tax both the incidence
of or liability for the payment of
the tax as well as the impact or
burden of the tax falls on the
same person.
b. Idire*t Tax , /he incidence of
or liability for the payment of
the tax falls on one person but
the burden thereof can be
shifted or passed on to another.
". !s to purpose?
a. Geeral Tax levied for the
general or ordinary purposes of
the 4overnment
b. S.e*ial Tax levied for special
purposes
$. !s to manner of computation?
a. S.e*ifi* Tax the computation
of the tax or the rates of the tax
is already provided for by law.
b. Ad 'a&orem Tax tax upon the
value of the article or thing
subject to taxation+ the
intervention of another party is
needed for the computation of
the tax.
&. !s to taxing authority?
a. Natioal Tax levied by the
>ational 4overnment
b. Lo*al Tax levied by the local
government
). !s to rate?
a. Pro!re++i6e Tax rate or
amount of tax increases as the
amount of the income or earning
to be taxed increases.
b. Re!re++i6e Tax tax rate
decreases as the amount of
income to be taxed increases.
c. Pro.ortioate Tax based on a
fixed proportion of the value of
the property assessed.
I<POSITIONS NOT STRICTL/ CONSI&ERE& AS
TAXES
1. Toll amount charged for the cost
and maintenance of the property
used.
2. Pealt) punishment for the
commission of a crime.
". Co3.ro3i+e Pealt) amount
collected in lieu of criminal
prosecution in cases of tax
violations.
$. S.e*ial A++e++3et levied only on
land based wholly on benefit
accruing thereon as a result of
improvements or public works
undertaken by government within
the vicinity.
&. Li*e+e or Fee regulatory
imposition in the exercise of the
police power.
*&illemo
1
). <ar!i Fee exaction designed to
stabili0e the currency.
*. &e(t a sum of money due upon
contract or one which is evidenced
by judgment.
@. Su(+id) a legislative grant of
money in aid of a private enterprise
deemed to promote the public
welfare.
A. Cu+to3+ dutie+ ad fee+ duties
charged upon commodities on their
being transported into or exported
from a country.
1B. Re6eue a broad term that
includes taxes and income from
other sources as well.
11. I3.o+t in its general sense it
signifies any tax tribute or duty. In
its limited sense it means a duty on
imported goods and merchandise.
Tax S.e*ial
A++e++3et
Imposed on persons
property and excises
8evied only on land
'ersonal liability
attaches on the
person assessed in
case of non-payment
.annot be made a
personal liability of
the person assessed
>ot based on any
special or direct
benefit
;ased wholly on
benefit
8evied and paid
annually
9xceptional both as
to time and locality
9xemption granted
is applicable (Art.
2I, 4ec. 5.(-) ,0.8
Constitution)
9xemption does not
apply.
>.;. If property is
exempt from :eal
'roperty /ax it is
also exempt from
Special !ssessment.
Tax Li*e+e Fee
;ased on the power
of taxation
9manates from
police power
/o generate
revenue
:egulatory
!mount is unlimited !mount is limited
to the cost of ,1-
issuing the license
and ,2- inspection
and surveillance
>ormally paid after
the start of a
business
>ormally paid
before
commencement of
business
/axes being the
lifeblood of the
State cannot be
surrendered except
for lawful
consideration
8icense fee may be
with or without
consideration
>on-payment does
not make the
business illegal but
maybe a ground for
criminal
prosecution
>on-payment
makes the business
illegal
TEST IN &ETER<INING IF T#E I<POSITION IS A
TAX OR A LICENSE FEE
If the purpose is primarily revenue
or if revenue is at least one of the real
and substantial purposes then the
exaction is a tax. If the purpose is
regulatory in nature it is a license.
(PA* v. )du)
Tax &e(t
!n obligation
imposed by law
.reated by contract
Cue to the
government in its
sovereign capacity
%ay be due to the
government but in
its corporate
capacity
'ayable in money 'ayable in money
property or services
Coes not draw
interest except in
case of delin5uency
Craws interest if
stipulated or
delayed
Not assignable !ssignable
Not subject to
compensation or
set-off
Subject to
compensation or
set-off
>on-payment is
punished by
imprisonment
e:cept in poll tax
No imprisonment in
case of non-payment
(Art. III, 4ec. 56
,0.8 Constitution)
Imposed only by
public authority
.an be imposed by
private individual
*&illemo
1
TEST IN &ETER<INING IF T#E I<POSITION IS A
TAX OR A LICENSE FEE
If the purpose is primarily revenue or
if revenue is at least one of the real
and substantial purposes then the
exaction is a tax. If the purpose is
regulatory in nature it is a license.
(PA* v. )du)
Tax &e(t
!n obligation
imposed by law
.reated by contract
Cue to the
government in its
sovereign capacity
%ay be due to the
government but in
its corporate
capacity
'ayable in money 'ayable in money
property or services
Coes not draw
interest except in
case of delin5uency
Craws interest if
stipulated or
delayed
Not assignable !ssignable
Not subject to
compensation or
set-off
Subject to
compensation or
set-off
>on-payment is
punished by
imprisonment
e:cept in poll tax
No imprisonment in
case of non-
payment (Art. III,
4ec. 56 ,0.8
Constitution)
Imposed only by
public authority
.an be imposed by
private individual
CO<PENSATION OR SET,OFF
General Rule /axes cannot be the
subject of compensation or set-off.
Reasons
1. lifeblood theory
2. taxes are not contractual
obligation but arise out of duty
to the government
". the government and the
taxpayer are not mutually
creditors and debtors of each
other. (7rancia v. IAC)
):ception 1hen both obligations are
due and demandable as well as fully
li5uidated and all the re5uisites for a
valid compensation are present
compensation takes place by operation
of law. ("omingo v. Garlitos)
&OCTRINE OF E$%ITA'LE RECO%P<ENT NOT
FOLLOWE& IN T#E P#ILIPPINES
! tax presently being assessed
against a taxpayer which has prescribed
may not be recouped or set-off against
an overpaid tax the refund of which is
also barred by prescription. It is against
public policy since both parties are
guilty of negligence.
Tax Toll
9nforced
proportional
contributions from
persons and property
! sum of money for
the use of
something a
consideration which
is paid for the use of
a property which is
of a public nature+
e.g. road bridge
! demand of
sovereignty
! demand of
proprietorship
>o limit as to the
amount of tax
!mount of toll
depends upon the
cost of construction
or maintenance of
the public
improvement used
Imposed only by the
State
%ay be imposed by?
,1- 4overnment
,2- 'rivate
individuals or
entities
Tax Pealt)
9nforced
proportional
contributions from
persons and
property
Sanction imposed as
a punishment for
violation of a law
or acts deemed
injurious+ violation
of tax laws may give
rise to imposition of
penalty
Intended to raise
revenue
Cesigned to regulate
conduct
%ay be imposed
only by the
government
%ay be imposed by?
,1- 4overnment
,2- 'rivate
individuals or
entities
*&illemo
1
Tax Tariff
!ll embracing term
to include various
kinds of enforced
contributions upon
persons for the
attainment of
public purposes

! kind of tax
imposed on articles
which are traded
internationally
TAXPA/ERS? S%IT
! case where the act complained of
directly involves the illegal disbursement
of public funds derive from taxation
(<ustice !elo, dissenting in =ilosbayan,
Inc vs Guingona, <r.)
TAXPA/ERS AN& P%'LIC OFFCIALS #A"E
()C*% %AN+,
RE$%ISITES FOR TAXPA/ERS? S%IT
a. /he tax money is being
extracted and spent in violation of
specific constitutional protections
against abuses of legislative power.
b. /hat public money is being
deflected to any improper purpose
(Pascual vs 4ecretary o% Public
>or?s)
c. That the petitioner seeks to
restrain respondents from wasting
public funds through the enforcement
of an invalid or unconstitutional law
LI<ITATIONS ON T#E TAXING
POWER
A. IN#ERENT LI<ITATIONS 78E/9 SPINE;
5. /erritoriality or Situs of taxation
:. Public purpose of taxes
@. International comity
A. Non-delegability of the taxing power
B. /ax Exemption of the government
75; TESTS IN &ETER<INING P%'LIC P%RPOSE
a. &ut) Te+t whether the thing to be
furthered by the appropriation of
public revenue is something which
is the duty of the State as a
government to provide.
(. Pro3otio of Geeral Welfare Te+t
whether the proceeds of the tax
will directly promote the welfare of
the community in e5ual measure.
7:; NON,&ELEGA'ILIT/ OF T#E TAXING
POWER
-enera& Ru&e. /he power of taxation is
peculiarly and exclusively exercised by
the legislature. ,See Scope of
8egislative /axing 'ower supra-
- refers to tax legislation
Exceptions to Non'delegability
1. Dlexible /ariff .lause? !uthority of
the 'resident to fix tariff rates
import and export 5uotas tonnage
and wharfage dues and other duties
or imposts. (Art. 2I, 4ec.5.(5), ,0.8
Constitution)
2. 'ower of local government units to
levy taxes fees and charges. (Art.
@, 4ec. /, ,0.8 Constitution)
". Celegation to administrative
agencies for implementation and
collection.
- merely refers to tax administration
or implementation
7@; SIT%S OR TERRITORIALIT/ OF TAXATION
/he power to tax is limited only to
persons property or businesses Aithin
the jurisdiction or territory of the taxing
power.
FACTORS T#AT &ETER<INE T#E SIT%S9
a. #ind or classification of the tax
being levied
b. Situs of the thing or property
taxed
c. .iti0enship of the taxpayer
d. :esidence of the taxpayer
e. Source of the income taxed
f. Situs of the excise privilege
business or occupation being taxed
APPLICATION OF SIT%S OF TAXATION
8id of Tax Situ+
'ersonal or
.ommunity tax
:esidence or
domicile of the
taxpayer
:eal property tax 8ocation of property
(*e: rei sitae)
'ersonal property
tax
-tangible? where it
is physically located
or permanently kept
(*e: rei sitae)
-intangible? subject
to 4ec. ,6+ o% the
NIRC and the
*&illemo
1
principle of mobilia
seBuuntur personam
;usiness tax 'lace of business
9xcise or 'rivilege
tax
1here the act is
performed or where
occupation is
pursued
Sales tax 1here the sale is
consummated
Income /ax .onsider
,1- citi0enship
,2- residence and
,"- source of income
(4ec. +5, ,008 NIRC)
/ransfer tax :esidence or
citi0enship of the
taxpayer or location
of property
Dranchise /ax State which granted
the franchise
SIT%S OF TAXATION OF INTANGI'LE PERSONAL
PROPERT/
-enera& Ru&e. Comicile of the owner
pursuant to the principle of the mobilia
seBuuntur personam or movables follow
the person.
Exceptions
1. 1hen the property has ac5uired a
business situs in another jurisdiction+
2. 1hen an express provision of the
statute provide for another rule.
Illustration Dor purposes of estate
and donor7s taxes the following
intangible properties are deemed
with a situs in the 'hilippines?
,1- franchise which must be
exercised in the 'hilippines+
,2- shares obligations or bonds
issued by any corporation
organi0ed or constituted in the
'hilippines in accordance with
its laws+
,"- shares obligations or bonds by
any foreign corporation eighty-
five percent ,@&E- of the
business of which is located in
the 'hilippines+
,$- shares obligations or bonds
issued by any foreign corporation
if such shares obligations or
bonds have ac5uired a business
situs in the 'hilippines+ and
,&- shares or rights in any
partnership business or industry
established in the 'hilippines.
(4ec. ,6+, ,008 NIRC).
7A; EXE<PTION OF T#E GO"ERN<ENT
!s a matter of public policy
property of the State and of its
municipal subdivisions devoted to
government uses and purposes is
deemed to be exempt from taxation
although no express provision in the law
is made therefor.
General Rule /he 4overnment is tax
exe3.t.
- 2owever it can also tax itself.
R%LES9
1. !dministrative !gencies
a. 4overnmental function - tax
exe3.t unless when the law
expressly provides for tax. (4ec.
-5 38)
b. 'roprietary function 6 taxa(le
unless exempted by law. (4ec.
58C)
2. 4F..s
General Rule Income is taxa(le at
the rate imposed upon corporations
or associations engaged in a similar
business industry or activity.
):ception 4SIS SSS '2I. '.SF
and '!4.F:. ,Sec. 2*,.- >I:.-
". 4overnment 9ducational Institutions
a. 'roperty or real estate tax 6
property actually directly and
exclusively used for educational
purposes 6 exe3.t but income
of whatever kind and character
from any of their properties
real or personal regardless of
the disposition is taxa(le. (4ec.
-6, last par., NIRC)
(. Income received by them as
such are exe3.t from taxes.
2owever their income from any
of their activities conducted for
profit regardless of the
disposition is taxa(le. (4ec. -6,
last par., NIRC)
A. Income derived from any public
utility or from the exercise of any
essential governmental function
*&illemo
1
accruing to the 4overnment of the
'hilippines or to any political
subdivision thereof is not included in
gross income and exe3.t from
taxation. (4ec. -5(3)(8)(b), NIRC)
&. Conations in favor of governmental
institutions are considered as income
on the part of the donee. 2owever
it is not considered as taxable
income because it is an e:clusion
from the computation of gross
income. (4ec.-5 (3)(-), NIRC)
). /he amount of all be5uests
legacies devises or transfers to or
for the use of the 4overnment or
any political subdivision for
exclusively public purposes is
deductible from the gross estate.
(4ec..9 (A)(-), NIRC)
C. 4ifts made to or for the use of the
>ational 4overnment or any entity
created by any of its agencies which
is not conducted for profit or to any
political subdivision of the said
4overnment are exe3.t from
donor7s tax. (4ec. ,6,(A)(5), NIRC)
D. 8ocal government units are
ex.re++l) .rohi(ited by the 84.
from levying tax upon >ational
4overnment its agencies and
instrumentalities and local
government units. C4ec. ,-- (o),
*GCD
E. Gnless otherwise provided in the
8ocal 4overnment .ode ,84.- tax
exemptions granted to all persons
whether natural or juridical
including 4F.. except local water
districts cooperatives duly
registered under :! >o. )A"@ non-
stock and non-profit institutions are
withdraw upon effectivity of the
84.. (4ec. ,0-, *GC)
5F. :eal property owed by the
:epublic of the 'hilippines or any of
its political subdivisions except when
the beneficial use thereof has been
granted for consideration or
otherwise to a taxable person shall
be exe3.t from payment of real
property tax. (4ec. 5-+, *GC)
7B; INTERNATIONAL CO<IT/
/hese principles limit the authority
of the government to effectively impose
taxes on a sovereign state and its
instrumentalities as well as on its
property held and activities undertaken
in that capacity. 9ven where one enters
the territory of another there is an
implied understanding that the former
does not thereby submit itself to the
authority and jurisdiction of the other.
'. CONSTIT%TIONAL LI<ITATIONS
A. GENERAL OR IN&IRECT
CONSTIT%TIONAL LI<ITATIONS
5. &ue Pro*e++ Clau+e /Art. ,,,0 %ec. 10
1123 Constitution4
Re=ui+ite+9
a. /he interests of the public as
distinguished from those of a
particular class re5uire the
intervention of the State.
(4ubstantive limitation)
b. /he means employed must be
reasonably necessary to the
accomplishment of the purpose
and not unduly oppressive.
(Procedural limitation)
/he constitutionality of a legislative
taxing act 5uestioned on the ground of
denial of due process re5uires the
existence of an actual case or
controversy.
:. E=ual Prote*tio Clau+e 7Art. ,,,0
%ec. 10 1123 Constitution
Re=ui+ite+ of a "alid Cla++ifi*atio9
a. based upon substantial
distinctions
b. germane to the purposes of the
law
c. not limited to existing conditions
only
d. apply e5ually to all members of
the class
@. Freedo3 Of S.ee*h Ad Of The
Pre++ /Art. ,,,0 %ec. 40 1123
Constitution4
/here is curtailment of press
freedom and freedom of thought and
expression if a tax is levied in order
to suppress this basic right and
impose a prior restraint. (1olentino
vs. 4ecretary o% 7inance, GR No.
,,/+//, August 5/, ,00+)
*&illemo
1
A. No,Ifri!e3et Of Reli!iou+
Freedo3 Ad Wor+hi. 7Art. ,,,0 %ec.
50 1123 Constitution4
! license tax or fee constitutes a
curtailment of religious freedom if
imposed as a condition for its
exercise. (American 3ible 4ociety
vs. City o% !anila, GR No. *'09-8,
April -6, ,0/8)
B. No,I3.air3et Of Cotra*t+ 7Art.
,,,0 %ec. 150 1123 Constitution4
>o law impairing the obligation
of contract shall be passed. (4ec.
,6, Art. III, ,0.8 Constitution)
/he rule however does not
apply to public utility franchises or
right since they are subject to
amendment alteration or repeal by
the .ongress when the public
interest so re5uires. (Cagayan
)lectric E *ight Co., Inc. v.
Commissioner, GR No. 965,9,
4eptember 5/, ,0./)
R%LES9
a. 1hen the exemption is bilaterally
agreed upon between the
government and the taxpayer 6 it
cannot be withdrawn Aithout
violating the non-impairment
clause.
b. 1hen it is unilaterally granted by
law and the same is AithdraAn by
virtue of another law 6 no violation.
c. 1hen the exemption is granted
under a franchise 6 it may be
AithdraAn at any time thus not a
violation of the non-impairment of
contracts
G. Pre+idetial .ower to !rat
re.rie6e+> *o33utatio+ ad
.ardo+ ad re3it fie+ ad
forfeiture+ after *o6i*tio 7AR.
',,0 %EC. 110 1123 C)N%,*,)N4
&ue
Pro*e++
E=ual
Prote*tio
%ifor3it)
/axpayer
may not
be
deprived
of life
liberty or
property
without
due
/axpayers
shall be
treated alike
under like
circumstances
and conditions
both in the
privileges
conferred and
/axable
articles or
kinds of
property of
the same
class shall
be taxed at
the same
rate. /here
process of
law.
>otice
must
therefore
be given
in case of
failure to
pay taxes
liabilities
imposed.
should
therefore
be no direct
double
taxation
'. SPECIFIC OR &IRECT
CONSTIT%TIONAL LI<ITATIONS
5. No,I3.ri+o3et For &e(t Or No,
Pa)3et Of Poll Tax 7Art. ,,,0 %ec.
250 1123 Constitution4
:. Rule Re=uiri! That A..ro.riatio+>
Re6eue Ad Tariff 'ill+ Shall
Ori!iate Ex*lu+i6el) Fro3 The
#ou+e Of Re.re+etati6e+ 7Art. ',0
%ec. 240 1123 Constitution4
@. %ifor3it)> E=uita(ilit) Ad
Pro!re++i6it) Of Taxatio /Art. ',0
%ec. 22/140 1123 Constitution4
%ifor3it) all taxable articles or
kinds of property of the same class
are taxed at the same rate.
E=uita(ilit) the burden falls to
those who are more capable to pay.
Pro!re++i6it) rate increases as the
tax base increases.
$9 Is a tax law adopting a regressive
system of taxation validH
A9 Ies. /he .onstitution does not
really prohibit the imposition of indirect
taxes which like the J!/ are
regressive. /he .onstitutional provision
means simply that indirect taxes shall be
minimi0ed. /he mandate to .ongress is
not to prescribe but to evolve a
progressive tax system. ()2A1 )n 3anc
Resolution, 1olentino, et al vs 4ecretary
o% 7inance, (ctober -6, ,00/)
A. Li3itatio+ O The Co!re++ioal
Power To &ele!ate To The
Pre+idet The Authorit) To Fix
Tariff Rate+> I3.ort Ad Ex.ort
$uota+> Et*. /Art. ',0 %ec. 22/240
1123 Constitution4
B. Tax Exe3.tio Of Pro.ertie+
A*tuall)> &ire*tl) Ad Ex*lu+i6el)
%+ed For Reli!iou+> Charita(le Ad
*&illemo
1
Edu*atioal Pur.o+e+. /Art. ',0
%ec. 22/34 30 1123 Constitution4
/he constitutional provision
,above cited- which grants tax
exemption applies only to property
or realty taxes assessed on such
properties used actually directly
exclusively for religious charitable
and educational purposes. (*ladoc
vs. Commissioner, GR No. *',056,,
<une ,9, ,09/)
/he present .onstitution
re5uired that for the exemption of
<lands buildings and
improvements= they should not only
be <exclusively= but also <actually=
and <directly= used for religious and
charitable purposes. (Province o%
Abra vs. $ernando, GR No. *'+0--9,
August -,, ,0.,)
/he test of exemption from
taxation is the use of the property
for the purposes mentioned in the
.onstitution. (Abra 2alley College
Inc. vs. ABuino, GR No. *'-06.9,
<une ,/, ,0..)
EXCL%SI"E '%T NOT A'SOL%TE %SE
/he term < exclusively used= does
not necessarily mean total or absolute
use for religious charitable and
educational purposes. If the property is
incidentally used for said purposes the
tax exemption may still subsist. (Abra
2alley College Inc. vs. ABuino, Gr No. *'
-06.9, <une ,/, ,0..)
.orollarily if a property although
actually owned by a religious charitable
and educational institution is used for a
non- exempt purpose the exemption
from tax shall not attach
ART. XI">
SEC A7@;
ART. "I>
SEC :D7@;
4rantee >on- stock
non profit
educational
institution
:eligious
educational
charitable
institutions
/axes
covered
Income tax
.ustom
Cuties
'roperty tax
(")C4 (rder
No. ,-8',.8)
'roperty tax
G. "oti! Re=uire3et I Coe*tio
With The Le!i+lati6e Grat Of Tax
Exe3.tio /Art. ',0 %ec. 22/440
1123 Constitution4
C. No,I3.air3et Of The
4uri+di*tio Of The Su.re3e Court
I Tax Ca+e+ /Art. ',,,0 %ec. 2 And
5/24/B40 1123 Constitution4
D. Exe3.tio Fro3 Taxe+ Of The
Re6eue+ Ad A++et+ Of
Edu*atioal I+titutio+> I*ludi!
Grat+> Edow3et+> &oatio+
Ad Cotri(utio+. /Art. 6,'0 %ec.
4/34 And /440 1123 Constitution4
OT#ER SPECIFIC TAX PRO"ISIONS IN
T#E CONSTIT%TION
1. 'ower of the 'resident to veto any
particular item or items in an
appropriation revenue or tariff bill.
(Art 2I, 4ec. 58(5), ,0.8
Constitution)
2. >ecessity of an appropriation before
money may be paid out of the public
treasury. (Art. 2I, 4ec. 50 (,), ,0.8
Constitution)
". >on-appropriation of public money
or property for the use benefit or
support of any sect church or
system of religion. (Art. 2I, 4ec. 50
(5), ,0.8 Constitution)
$. /reatment of taxes levied for a
special purpose. (Art. 2I, 4ec. 50
(-), ,0.8 Constitution)
&. Internal revenue allotments to local
government units. (Art. @, 4ec. 9,
,0.8 Constitution)
&O%'LE TAXATION
&O%'LE TAXATION taxing the same
property twice when it should be taxed
but once.
IS &O%'LE TAXATION PRO#I'ITE& IN T#E
P#ILIPPINES0
No. /here is no constitutional
prohibition against double taxation. It is
not favored but permissible. (Pepsi Cola
3ottling Co. v. City o% 3utuan, ,09.).
8IN&S OF &O%'LE TAXATION
75; &ire*t &u.li*ate Taxatio -
O(oxiou+ double taxation in the
objectionable or prohibited sense.
*&illemo
1
/his constitutes a violation of
substantive due process.
Ele3et+9
a. the same property or subject
matter is taxed twice when it should
be taxed only once.
b. both taxes are levied for the
same purpose
c. imposed by the same taxing
authority
d. within the same jurisdiction
e. during the same taxing period
f. covering the same kind or
character of tax.
(2illanueva vs. City o% Iloilo)
7:; Idire*t &u.li*ate Taxatio not
legally objectionable. /he absence
of one or more of the above-
mentioned elements makes the
double taxation indirect.
7@; &o3e+ti*, this arises when the taxes
are imposed by the local or national
government ,within the same state-
7A; Iteratioal, refers to the
imposition of comparable taxes in
two or more states on the same
taxpayer in respect of the same
subject matter and for identical
periods.
RE<E&IES OF &O%'LE TAXATION
1. Tax S.ari! Rule 6 same dividend
earned by a >:D. within the 'hil. is
reduced by imposing a lower rate of
1&E ,in lieu of the "&E- on the
condition that the country to which
the >:D. is domiliced shall allow a
credit against the tax due from the
>:D. taxes deemed to have been
paid in the 'hil. ,Sec.2@ ; &b- ,.I:
vs 'rocter K 4amble- (GR No.
99.-., "ec. 5, ,00,-
2. Tax dedu*tio+
):ample? vanishing deduction under
Section @),!-,2- >I:.
". Tax *redit+
Instances under the NIRC
Dor 2A1 purposes the tax on
inputs or items that go into the
manufacture of finished products
,which are eventually sold- may be
credited against or deducted from
the output tax or tax on the finished
product.
7oreign income ta:es may be
credited against the 'hil. Income
tax subject to certain limitations
by citi0ens including members of
general professional partnerships or
beneficiaries of estates or trusts
,pro rata- as well as domestic
corporations.
! tax credit is granted for estate
ta:es paid to a foreign country on
the estate of citi0ens and resident
aliens subject to certain limitations.
/he donorFs ta: imposed upon a
citi0en or a resident shall be
credited with the amount of any
donor7s tax imposed by the authority
of a foreign country subject to
certain limitations.
$. Tax Exe3.tio+
&. Pri*i.le of Re*i.ro*it)
). Treatie+ with other +tate+
<ET#O&S RESORTE& TO '/ A TAX TREAT/ IN
OR&ER TO ELI<INATE &O%'LE TAXATION
FIRST <ET#O&9 /he tax treaty sets out
the respective rights to tax by the state
of source or situs and by the state of
residence with regard to certain classes
of income or capital. In some cases an
exclusive right to tax is conferred in one
of the contracting states+ however for
other items of income or capital both
states are given the right to tax although
the amount of tax that may be imposed
by the state of source is limited.
SECON& <ET#O&9 /he state of source is
given a full or limited right to tax
together with the state of residence. In
this case the treaty makes it incumbent
upon the state of residence to allow
relief in order to avoid double taxation.
TWO <ET#O&S OF RELIEF ARE %SE& %N&ER T#E
SECON& <ET#O&9
1. The exe3.tio 3ethod- the income
or capital which is taxable in the state
of source or situs is exempted in the
state of residence although in some
instances it may be taken into account
in determining the rate of tax applicable
to the tax payer7s remaining income or
*&illemo
1
capital.,/his may be done using the tax
deduction method which allows foreign
income taxes to be deducted from gross
income in effect exempting the
payment from being further taxed.-
2. The *redit 3ethod, although the
income or capital which is taxed in the
state of source is still taxable in the
state of residence. /he tax paid in the
former is credited against the tax levied
in the latter.(Commissioner o% Internal
Revenue v. 4.C <ohnson and 4on, Inc. et
al., G.R No. ,58,6/, <une 5/, ,000)
Exe3.tio
<ethod
Credit <ethod
Docus is on the
income or capital
itself
Docus is on the tax
N(1)? .omputational illustration
between a tax deduction and a tax
credit?

Tax dedu*tio 3ethod
4ross income
8ess? allowable deductions
i*ludi!
foreign taxes paid
Income subject to tax
%ultiplied by rate
Income tax due
Tax *redit 3ethod
4ross income
8ess? allowable deductions
ex*ludi!
foreign taxes paid
Income subject to tax
%ultiplied by rate
Income tax due
8ess? foreign taxes paid
>et income tax due
FOR<S OF ESCAPE
FRO< TAXATION
75; S#IFTING the process by which the
tax burden is transferred from the
statutory taxpayer (impact o% ta:ation)
to another (incident o% ta:ation) without
violating the law.
I<PACT OF TAXATION 6 point on which tax
is originally imposed.
INCI&ENCE OF TAXATION 6 point on which
the tax burden finally rests or settles
down.
Illustration Jalue added tax. /he
seller is re5uired by law to pay tax but
the burden is actually shifted or passed
on to the buyer.
8IN&S OF S#IFTING
a. Forward +hifti!, when burden of
tax is transferred from a factor of
production through the factors of
distribution until it finally settles on
the ultimate purchaser or consumer
(. 'a*Hward +hifti!, when burden is
transferred from consumer through
factors of distribution to the factors
of production
*. Oward +hifti!, when the tax is
shifted 2 or more times either
forward or backward
7:; CAPITALIIATION a mere increase in
the value of the property is not income
but merely an unreali0ed increase in
capital. >o income until after the
actual sale or other disposition of the
property in excess of its original cost.
EXCEPT9 if by reason of appraisal the
cost basis of property increased and the
resultant basis is used as the new tax
base for purposes of computing the
allowable depreciation expense the net
difference between the original cost
basis and new basis is taxable under the
economic bene%it principle. (3IR Ruling
No. 650, !arch ,0, ,00.)
7@; TRANSFOR<ATION the manufacturer
or producer upon whom the tax has been
imposed fearing the loss of his market if
he should add the tax to the price pays
the tax and endeavors to recoup himself
by improving his process of production
thereby turning out his units at a lower
cost.
7A; TAX A"OI&ANCE the exploitation by
the taxpayer of legally permissible
alternative tax rates or methods of
assessing taxable property or income in
order to avoid or reduce tax liability.
9xample? <estate planning=
,conveyance of property to a family
*&illemo
1
corporation for shares- ("elpher 1rades
Corp. vs. IAC, ,/8 4CRA -+0)
7B; TAX E"ASION use by the taxpayer of
illegal or fraudulent means to defeat or
lessen the payment of the tax.
FACTORS IN TAX E"ASION
1. the end to be achieved i.e. payment
of less than that known by the taxpayer
to be legally due or paying no tax when
it is shown that the tax is due+
2. an accompanying state of mind
which is described as being evil in bad
faith willful or deliberate and not
coincidental+ and
". a course of action which is unlawful.
IN&ICIA OF FRA%& IN TAX E"ASION
1. Dailure to declare for taxation
purposes true and actual income derived
from business for 2 consecutive years
(Republic vs GonGales, *',8095)
2. Substantial under-declaration of
income tax returns of the taxpayer for $
consecutive years coupled with
intentional overstatement of deductions
(CIR vs Reyes, ,6+ P$I* ,69,)
TAX
A"OI&ANCE
TAX
E"ASION
Jalidity 8egal and not
subject to
criminal penalty
Illegal and
subject to
criminal
penalty
9ffect %inimi0ation of
taxes
!lmost
always
results in
absence of
tax payments
7G; TAX EXE<PTION a grant of
immunity to particular persons or
corporations from the obligation to pay
taxes.
LEGAL 'ASIS9 >o law granting any tax
exemption shall be passed without the
concurrence of a majority of all the
members of .ongress 7AR1 2I. 4)C 5.(+)
(7 1$) ,0.8 C(N41I1H1I(N)

8IN&S OF TAX EXE<PTION
1. !s to source
a. Co+titutioal immunities from
taxation that originate from the
constitution.
(. Statutor) those which emanate
from legislation
Exa3.le+ of Statutor) Exe3.tio+
Sec. 2* >I:.
Sec. 1B& /ariff and .ustoms
.ode
Sec. 2"$ 8ocal 4overnment .ode
Special 8aws such as the
Fmnibus Investment .ode of 1A@*
,9F 22)- 'hilippine Fverseas
Shipping !ct ,:! 1$B* as amended-
Dertili0er Industry !ct ,:! "B&B as
amended- %ineral :esources
Cevelopment Cecree of 1A*$ ,'C $)"
as amended- .ottage Industry !ct
,:! "1@ as amended- and
exemptions in <2ousing for 8ow
Income 4roup= ,'C 12B& as
amended-
*. Cotra*tual, agreed to by the
taxing authority in contracts
lawfully entered into by them
under enabling laws
d. Treat)
e. Li*e+i! Ordia*e
2. !s to form
75; Ex.re++ expressly granted by
organic or statute law
7:; I3.lied when particular
persons property or excises are
deemed exempt as they fall
outside the scope of the taxing
provision itself.
". !s to extent
75; Total absolute immunity
7:; Partial one where a collection
of a part of the tax is dispensed
with
$. !s to object
75; Per+oal granted directly in
favor of certain persons
7:; I3.er+oal granted directly in
favor of a certain class of
property
PRINCIPLES GO"ERNING TAX EXE<PTION
a. 9xemptions from taxation are
hi!hl) di+fa6ored in law and are
not .re+u3ed.
(. 2e who claims as exemption must
be able to justify his claim by the
*leare+t !rat of organic or statute
law by word+ too .lai to be
*&illemo
1
mistaken. If ambiguous there is no
exemption.
*. 2e who claims exemption should
prove by *o6i*i! .roof that he
is exempted.
d. /axation is the rule+ tax exemption
is the e:ception.
e. /ax exemption must be +tri*tl)
*o+trued against the taxpayer and
liberally in favor of the taxing
authority.
f. /ax exemptions are not presumed.
!. .onstitutional grants of tax
exemption are +elf,exe*uti!.
h. /ax exemptions are .er+oal.
T#E FOLLOWING PARTA8E T#E NAT%RE OF
TAX EXE<PTION
1. Ceductions for income tax purposes
2. .laims for refund
". /ax amnesty
$. .ondonation of unpaid tax liabilities
N(1) must be +tri*tl) *o+trued
against the taxpayer
W#EN EXE<PTIONS ARE CONSTR%E&
LI'ERALL/ IN FA"OR OF GRANTEE
1. 1hen the law so provides for such
liberal construction.
2. 9xemptions from certain taxes
granted under special circumstances
to special classes of persons.
". 9xemptions in favor of the
government its political subdivisions
or instrumentalities.
$. 9xemptions to traditional
exemptees such as those in favor of
religious and charitable institutions.
&. If exemptions refer to the public
property
$9 %ay a tax exemption be revokedH
A9 Ies. It is an act of liberality which
could be taken back by the government
unless there are restrictions. Since
taxation is the rule and exemption
therefrom is the exception the
exemption may be withdrawn by the
taxing authority. (!actan Cebu
International Airport Authority vs.
!arcos, 59, 4CRA 998)
RESTRICTIONS ON RE"OCATION OF TAX
EXE<PTIONS
a. No i3.air3et *lau+e. 1here the
exemption was granted to private
parties based on material
consideration of a mutual nature
which then becomes contractual and
is covered by the non-impairment
clause of the .onstitution.
b. Adhere*e to for3, if the tax
exemption is granted by the
.onstitution its revocation may be
effected through .onstitutional
amendment only
c. 1here the tax exemption grant is in
the form of a special law and not by
a general law even if the terms of
the general act are broad enough to
include the codes in the general law
unless there is manifest intent to
repeal or alter the special law
(Province o% !isamis (riental vs
Cagayan )lectric PoAer and *ight
Co. Inc)
NAT%RE OF TAX A<NEST/
1. 4eneral or intentional overlooking by
the state of its authority to impose
penalties on persons otherwise guilty
of evasion or violation of a revenue
or tax law.
2. 'artakes of an absolute forgiveness of
waiver of the government of its right
to collect.
". /o give tax evaders who wish to
relent and are willing to reform a
chance to do so.

R%LES ON TAX A<NEST/
1. /ax amnesty
a- like tax exemption it is never
favored nor presumed
b- construed strictly against the
taxpayer ,must show complete
compliance with the law-
2.4overnment not estopped from
5uestioning the tax liability even if
amnesty tax payments were already
received.
Reason? 9rroneous application and
enforcement of the law by public
officers do not block subse5uent
correct application of the statute. /he
government is never estopped by
mistakes or errors of its agents.
3asis? 8ifeblood /heory
".Cefense of tax amnesty like insanity
is a personal defense.
*&illemo
1
Reason? :elates to the circumstances
of a particular accused and not the
character of the acts charged in the
information.
Tax a3e+t) Tax exe3.tio
Immunity from all
criminal civil and
administrative
liabilities arising
from non payment
of taxes
Immunity from civil
liability only
!pplies only to past
tax periods hence
retroactive
application
'rospective
application
&OCTRINE OF I<PRESCRIPTI'ILT/
!s a rule taxes are imprescriptible
as they are the lifeblood of the
government. 2owever tax statutes may
provide for statute of limitations.
/he rules that have been adopted
are as follows?
a.4 Nationa& ,nterna& Revenue Code
/he statute of limitation for
assessment of tax if a return is filed is
within three 7@; )ear+ from the last day
prescribed by law for the filling of the
return or if filed after the last day
within three years from date of actual
filling. If no return is filed or the return
filed is false or fraudulent the period to
assess is within te )ear+ from discovery
of the omission fraud or falsity.
/he period to collect tax is within
three )ear+ from date of assessment. In
the case however of omission to file or
if the return filed is false or fraudulent
the period to collect is within te )ear+
from discovery without need of an
assessment.
7.4 ariff and customs code
It does not express any general
statute of limitation+ it provided
however that L7 Ahen articles have
entered and passed %ree o% duty or %inal
ad&ustment o% duties made, Aith
subseBuent delivery, such entry and
passage %ree o% duty or settlement o%
duties Aill, a%ter the e:piration o% one
/14 !ear, %rom the date o% the %inal
payment o% duties, in the absence o%
%raud or protest, be %inal and conclusive
upon all parties, unless the liBuidation
o% import entry Aas merely tentative.I
(4ec ,96-,1CC)
c.- (oca& -overnment Code
*ocal 1a:es, %ees, or charges shall
be assessed Aithin five /54 !ears %rom
the date they became due. In case o%
%raud or intent to evade the payment o%
ta:es, %ees or charges the same may be
assessed Aithin ten /154 !ears %rom
discovery o% the %raud or intent to
evade payment. 1hey shall also be
collected either by administrative or
&udicial action Aithin five /54 !ears
%rom date o% assessment (4ec. ,0+. *GC)
TAX ENFORCE<ENT AN&
A&<INISTRATION
SO%RCES OF TAX LAWS 78e)9 SPEC
:
TRA
'LT;
5. Statutes
:. Presidential Cecrees
@. Executive Frders
A. Constitution
B. Court Cecisions
G. Tax .odes
C. Revenue :egulations
D. Administrative Issuances
E. 'I: :ulings
5F. Local /ax Frdinance
55. Tax /reaties and .onventions
RE$%ISITES OF TAX REG%LATIONS
1. :easonable
2. 1ithin the authority conferred
". Not contrary to law
$. %ust be published
N(1) !dministrative regulations must
always be in harmony with the
provisions of the law. In case of
discrepancy between the basic law and
the implementing rule or regulation the
former prevails.
NON,RETROACTI"IT/ OF 'IR R%LINGS
General Rule? :ulings are not
retroactive if they are prejudicial to the
taxpayer. (4ec. 5+9, NIRC)
):ceptions
1. 1here the taxpayer deliberately
misstates or omits material facts
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from his return or any document
re5uired of him by the ;I:.
2. 1here the facts subse5uently
gathered by the ;I: is materially
different from the facts on which
the ruling is based.
". 1here the taxpayer acted in bad
faith.
PRINCIPLE OF LEGISLATI"E APPRO"AL OF AN
A&<INISTRATI"E INTERPRETATION T#RO%G#
REENACT<ENT
1here a statute is susceptible of the
meaning placed upon it by a ruling of
the government agency charged with its
enforcement and the legislature
thereafter reenacts the provision
without substantial change such action
is to some extent confirmatory that the
ruling carries out the legislative
purpose.
R%LE OF NO ESTOPPEL AGAINST T#E
GO"ERN<ENT
General Rule /he 4overnment is not
estopped by the mistakes or errors of its
agents+ erroneous application and
enforcement of law by public officers do
not bar the subse5uent correct
application of statutes. (). RodrigueG,
Inc. vs. Collector, *'5-6+,, <uly -,,
,090)
):ception In the interest of justice and
fair play as where injustice will result
to the taxpayer. (see CIR vs. CA, GR No.
,,80.5, 7eb. 9, ,008; CIR vs. CA, GR No.
,68,-/, 7eb. -, ,000)
AGENCIES IN"OL"E& IN TAX A&<INISTRATION
1. ;ureau of Internal :evenue
6 internal revenue taxes
Agents o% the CIR
a. .ommissioner of .ustoms with
respect to taxes on imported goods
b. head of the appropriate
government office with respect to
energy tax
c. banks duly accredited by the .I:
(4ec. ,5, ,008 NIRC)
2. ;ureau of .ustoms 6 customs law
enforcement
". 'rovincial city and municipal
assessors and treasurers 6 local and
real property taxes
ORGANIIATION AN& F%NCTION OF T#E
'%REA% OF INTERNAL RE"EN%E 7'IR;
;I: shall be under the supervision
and control of the Cept. of Dinance (4ec.
5, NIRC)
POWERS AN& &%TIES OF T#E 'IR
A++e++3et and *olle*tio of all
national internal revenue taxes fees
and charges
1. Efor*e3et of all forfeitures
penalties and fines connected
therewith
2. Exe*utio of judgments in all cases
decided in its favor by the .ourt of
/ax !ppeals ,./!- and the ordinary
courts
". 4ive effect to and ad3ii+ter the
supervisory and police powers
conferred to it by the .ode or other
laws
ASSESS<ENT a finding by the taxing
authority that the taxpayer has not paid
the correct taxes. It is also a written
notice to a taxpayer to the effect that
the amount stated therein is due as a
tax and containing a demand for the
payment thereof.
Geeral rule9 /axes are self-assessing
and thus do not re5uire the issuance of
an assessment notice in order to
establish the tax liability of a taxpayer.
Ex*e.tio+9
1. /ax period of a taxpayer is
terminated C4ec. 9("), NIRCD
2. Ceficiency tax liability arising from a
tax audit conducted by the ;I: C4ec.
/9(3), NIRCD
". /ax lien C4ec. 5,0, NIRCD
$. Cissolving corporation C4ec. /5(c),
NIRCD
SIGNIFICANCE OF ASSESS<ENT
a. In the proper pursuit of judicial and
extrajudicial remedies to enforce
taxpayer liabilities and certain
matters that relate to it such as the
imposition of surcharges and
interests
b. In the application of statute of
limitations
c. In the establishment of tax liens
and
d. In estimating the revenues that may
be collected by government in the
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coming year. (!amalateo,
2ictorino. RevieAer on 1a:ation,
566+)
8IN&S
5. SELF, ASSESS<ENT, one in which the
tax is assessed by the taxpayer
himself
:. &EFICIENC/ ASSESS<ENT, made by the
tax assessor himself whereby the
correct amount of the tax is
determined after an examination or
investigation is conducted. /he
liability is determined and assessed
for the following reason?
a. amount ascertained exceeds that
which is shown as the tax by the
taxpayer in his return
b. no amount of tax is shown in the
return
c. taxpayer did not file any return
at all
@. ILLEGAL AN& "OI& ASSESS<ENT,
assessment wherein tax assessor has
no power to assess at all
A. ERRONEO%S ASSESS<ENT, assessor has
power to assess but errs in the
exercise thereof
'%R&EN OF PROOF IN PRE,ASSESS<ENT
PROCEE&INGS
/here is a presumption of
correctness and good faith on the part of
the .I:+ thus the burden lies on the
taxpayer. Ftherwise the finding of the
.I: will be conclusive and he will assess
the taxpayer. /he same is true even if
the .I: is wrong if the taxpayer does
not controvert. (Cagayan Robina 4ugar
!illing Co. vs. Court o% Appeals, GR.
No. ,55+/,, (ctober ,5, 5666)
Reasons9 a. lifeblood theory
b. presumption of regularity in
performance of public
functions
N(1) !ssessments by the ;I: must have
on its face the law and facts upon which
the presumption is made.
PRINCIPLES GO"ERNING TAX ASSESS<ENTS
1. !ssessments are prima facie
presumed correct and made in good
faith.
2. It should be based on actual facts.
". It is discretionary on the part of the
.ommissioner.
$. /he authority of the .ommissioner
to assess taxes may be delegated
except the power to make final
assessments.
&. It must be directed to the right
party.
Authorit) of a Re6eue Offi*er -
pursuant to a 8etter of !uthority issued
by the :egional Cirector
a. /o examine taxpayers within
the jurisdiction of the district in
order to collect the correct
amount of tax+
b. /o recommend the assessment of
any deficiency tax due in the
same manner that the said acts
could have been performed by the
:evenue :egional Cirector.
General Rule income tax returns are
confidential.
):ception in5uiry into income tax
returns may be authori0ed-
1. inspection is authori0ed upon
written order of the 'resident of the
'hilippines+
2. inspection is authori0ed under
Dinance :egulations >o. "" of the
Secretary of Dinance+
". production of the tax return is
material evidence in a criminal case
wherein the government is
interested in the result+ or
$. production or inspection thereof is
authori0ed by the taxpayer himself.
Networth <ethod, inventory method of
income tax verification.
!pplies the accounting principle?
assets 6 liabilities M networth
.ondition for its use?
1. taxpayer7s books do not clearly
reflect his income or the taxpayer
has no books or if he has books he
refuses to produce them+
2. there is evidence of possible source
or sources of income to account for
increases in networth+
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". there is a fixed starting point or
opening networth+ and
$. there must be proper adjustments to
conform with the income tax laws.
POWERS AN& &%TIES OF T#E CO<<ISSIONER
I. SECTION A ,power to interpret tax law
and decide tax cases-
5. Iter.ret .ro6i+io+ of thi+ Code ad
other tax law+ +u(Je*t to re6iew of the
Se*retar) of Fia*e
7$ua+i,le!i+lati6e;
:. &e*ide9 7$ua+i,Judi*ial;
a- disputed assessment
b- refunds of internal
revenue taxes fees and charges
c- penalties imposed in
relation thereto
d- other matters arising
from this .ode or other laws or
portions thereof administered by
the ;I: subject to the exclusive
appellate jurisdiction of the ./!
(4ec. +)
II. SECTION B ,power to obtain
information summon examine and take
testimony of persons-
@. For the Co33i++ioer to a+*ertai9
,a- correctness of any return or in
making a return where none has
been made
,b- liability of any person for any
internal revenue tax or in
correcting such liability
,c- tax compliance

/he .ommissioner is authori0ed?
1. to 9xamine any relevant ;ook paper
record or other data
2. to Fbtain any information ,costs
volume of production receipts sales
gross income etc- on a regular basis
from?
i. any person other than the person
under investigation or
ii. any office or officer of the
national(local government gov7t
agencies and instrumentalities
,;angko Sentral gov7t owned and
controlled corporations- ,e.g. 8/F
:egister of Ceeds-
". to Summon
i. the person liable for tax or
re5uired to file a return or
ii. any officer or employee of such
person or
iii. any person having in his
possession(custody(care
-- the books of accounts
-- accounting records of entries
relating to the business of the
person liable for tax or any other
person
-- to produce such books
papers records and other data
and to give testimony
$. to take the /estimony of the person
concerned under oath as may be
relevant to the in5uiry
&. to cause revenue officers and
employees to make a .anvass of any
revenue district or region
>othing in Section & shall be
construed as granting the .ommissioner
the authority to in5uire into bank
deposits other than as provided for
under sec. ) ,D- of the .ode.
III. SECTION G ,power to make
assessments prescribe additional
re5uirements for tax administration
and enforcement-
A. Exa3iatio of retur+ ad
deter3iatio of tax due
!. !fter a return has been filed the
.ommissioner or his
representative may authori0e
i.
the 9xamination of any taxpayer
and
ii.
the !ssessment of the correct
amount of tax+
;. D
ailure to file a return shall not
prevent the commissioner from
authori0ing the examination of
any taxpayer+
N !ny tax or deficiency tax so
assessed shall be paid upon
notice and demand from the
.ommissioner or his
representative
N !ny return statement or
declaration %iled in any
authori0ed office shall not be
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1
withdrawn+ but within three
years from date of filing the
same may be modified
changed or amended+
provided that no notice for
audit or investigation of such
return has in the meantime
been actually served upon the
taxpayer.
B.Failure to +u(3it re=uired retur+ ad
other do*u3et+
If a person
i. fails to file a re5uired return or
report at the time prescribed or
ii. willfully or otherwise files a
false or fraudulent return
/he .ommissioner shall %ake or
!mend the return from
i. his own knowledge or
ii. from such
information as he can obtain
through testimony or otherwise
which shall be prima facie
correct and sufficient for all
legal purposes
G.I6etor),taHi!> Sur6eilla*e>
Pre+u3.ti6e Gro++ Sale+
!. .ommissioner may at any time
during the taxable year
,a- order the inventory taking of
goods of any taxpayer or
,b- may place the business
operations of any person
,natural(juridical- under
observation or Surveillance
if there is reason to
believe that such is not
declaring his correct income
sales or receipts for tax
purposes.
/he findings may be used
as basis for assessing the
taxes and shall be deemed
prima facie correct.
;. .ommissioner may prescribe a
%inimum amount of gross
receipts sales and taxable base
,taking into account the sales and
income of other persons engaged
in similar business-?
i. 1hen a person has failed to
issue receipts as re5uired by
sec.11" ,Invoice re5uirements
for J!/-registered persons-
and Sec. 2"* ,Issuance of
:eceipts or .ommercial
Invoices- or
ii. 1hen the books of accounts
or records do not correctly
reflect the declarations made
or re5uired to be made in a
return
Such minimum amount shall
be considered correct.
C. Ter3iate taxa(le .eriod
.ommissioner shall declare the tax
period of a taxpayer /erminated and
send notice to the taxpayer of such
decision with a re5uest for immediate
payment of the tax when it has come to
the knowledge of the .ommissioner?
a- that a taxpayer is retiring from
business subject to tax or
b- is intending to leave the 'hils.
or
c- to remove his property
therefrom or
d- to hide or conceal his property
or
e- is performing any act tending to
obstruct the proceedings for
the collection of tax
D. Pre+*ri(e Real Pro.ert) "alue+
/he .ommissioner is authori0ed to?
a. Civide the 'hils. into different
0ones or areas and
b. Cetermine the fair market value
of real properties located in each
0one or area
7or ta: purposes, the value o%
the property shall be Ahichever is
higher o%
a) 7air mar?et value as
determined by the
Commissioner; or
b) 7air mar?et value as shoAn in
the schedule o% values o% the
provincial and city assessors.
E. Authorit) to I=uire ito 'aH
&e.o+it
>otwithstanding :.!. 1$B& ,;ank
Secrecy 8aw- the .ommissioner is
authori0ed to in5uire into the ;ank
deposits of?
,a- a decedent to determine his gross
estate
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,b- a taxpayer who has filed an
application to compromise
payment of tax liability by reason
of financial incapacity
1he ta:payerFs application %or
compromise shall not be considered
unless he Aaives in Ariting his
privilege under RA ,+6/ and other
general or special laAs. 4uch Aaiver
shall authoriGe the Commissioner to
inBuire into his ban? deposits.
5F. Authorit) to Re!i+ter tax a!et+
,a- /he .ommissioner shall accredit
and :egister individuals and
general professional partnerships
and their rep. who prepare and
file tax returns and other papers
or who appear before the ;I:
,b- /he .ommissioner shall create
national and regional
accreditation boards.
1hose Aho are denied
accreditation may appeal the same
to the 4ec. (% 7inance Aho shall
rule on the appeal Aithin 96 days
%rom receipt o% such appeal. 7ailure
to do so Aithin the prescribed
period shall be deemed as approval
%or accreditation.
55. Authorit) to Pre+*ri(e Additioal
Re=uire3et+
/he .ommissioner may prescribe
the manner of compliance with any
documentary or procedural
:e5uirement for the submission or
preparation of financial statements
accompanying tax returns.
I". SECTION C ,!uthority to Celegate
'ower -
5:. The Co33i++ioer 3a) dele!ate the
.ower+ 6e+ted i hi3 to
- subordinate officials with rank
e5uivalent to Civision .hief or
higher subject to
limitations(restrictions imposed
under the rules and regulations
9O.9'/ ,the following powers
shall >F/ be delegated-
a- power to :ecommend the
promulgation of rules and
regulations by the Sec. of
Dinance
b- power to Issue rulings of first
impression or to :everse revoke
modify any existing rule of the
;I:
c- power to .ompromise or !bate
any tax liability
provided hoAever that the
regional evaluation board may
compromise?
1. assessments issued by
regional offices involving
deficiency taxes of '&BBBBB
or less and
2. minor criminal violations as
may be determined by the
rules and regulations
". discovered by regional and
district officials
Regional )valuation 3oard is
composed o%?
i. :egional Cirector as .hairman
ii. !sst. :egional Cirector
iii. 2eads of the 8egal !ssessment
and .ollection Civ.
iv. :evenue Cistrict Ffficer having
jurisdiction over the taxpayer
d- power to !ssign or reassign
internal revenue officers to
establishments where
articles subject to excise tax
are kept.
". SECTIONS D> 5A> 5B> 5G> 5C ,Fther
'owers-
5@. Cuty to ensure the provision and
distribution of forms receipts
certificates and appliances and
the acknowledgment of payment of
taxes (4ec. .)
5A. !uthority to administer oaths and to
take testimony (4ec. ,+)
5B. !uthority to make arrests and
sei0ures (4ec. ,/)
5G. !uthority to employ assign or
reassign internal revenue officers
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involved in excise tax functions to
establishments where articles
subject to excise tax are produced
or kept (4ec. ,9)
5C. !uthority to assign or reassign
internal revenue officers and
employees of the ;I: to other or
special duties connected with the
enforcement or administration of
the revenue laws (4ec. ,8)
ARE LEGAL OFFICERS OF T#E 'IR A%T#ORIIE&
TO INSTIT%TE APPEAL PROCEE&INGS WIT#O%T
T#E PARTICIPATION OF T#E SOLICITOR
GENERAL0
>F. /he institution or
commencement before a proper court of
civil and criminal actions and
proceedings arising under the /ax
:eform !ct which shall be conducted by
legal officers of the ;I: is not in dispute.
!n appeal from such court however is
not a matter of right. It is still the
Solicitor 4eneral who has the primary
responsibility to appear for the
government in appellate proceedings.
(Commissioner vs. *a 4uerte Cigar and
Cigarette 7actory, GR No. ,++0+5, <uly
+, 5665)
SO%RCES OF RE"EN%E
/he following taxes fees and
charges are deemed to be national
internal revenue taxes. (4ec. 5,, NIRC)
1. Income tax
2. 9state and donor3s taxes
". Jalue-added tax
$. Fther percentage taxes
&. 9xcise taxes
). Cocumentary stamp taxes
*. Such other taxes as are or hereafter
may be imposed and collected by
the ;ureau of Internal :evenue.
II. NATIONAL TAXATION
A. INCO<E TAXATION
&EFINITIONS
INCO<E TAX 6 tax on all yearly profits
arising from property possessions
trade or business or as a tax on a
person7s income emoluments
profits and the like (9, C<4 ,//0)
6 tax on income
whether gross or net. (58 Am. <ur.
-6.)
INCO<E 6 all wealth which flows into the
taxpayer other than as a mere
return of capital.
CAPITAL 6 resource of person which can
be used in producing goods and
services.
I*o3e Ca.ital
!ll wealth which
flows into the
taxpayer other than
as a mere return of
capital.
Dund or property
which can be used
in producing goods
or services
Dlow of 1ealth Dund or property
Source of wealth 1ealth
RE$%ISITES FOR INCO<E TO 'E TAXA'LE
1. /here must be a gain or profit.
2. /he gain must be reali0ed or
received.
". /he gain must not be excluded by
law or treaty from taxation.
TESTS ON TAXA'ILIT/ OF INCO<E
1. Flow of Wealth Te+t 6 /he
determining factor for the
imposition of income tax is
whether any gain was derived
from the transaction.
1. RealiKatio Te+t - unless the
income is deemed Preali0edP
there is no taxable income.
2. E*oo3i*,'eefit Pri*i.le
Te+t
-flow of wealth reali0ed is
taxable only to the extent that
the taxpayer is economically
benefited.
CRITERIA IN I<POSING INCO<E TAX
1. CitiKe+hi. Pri*i.le 6 ! citi0en of
the 'hilippines is subject to 'hilippine
income tax ,a.- on his worldwide
income if he resides in the 'hilippines
or ,b.- only on his income from sources
within the 'hilippines if he 5ualifies as
nonresident citi0en.
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2. Re+ide*e Pri*i.le 6 resident alien
is liable to pay income tax on his income
from sources within the 'hilippines but
exempt from tax on his income from
sources outside the 'hilippines.
". Sour*e Pri*i.le 6 !n alien is subject
to 'hilippine income tax because he
derives income from sources within the
'hilippines. /hus a nonresident alien is
liable to pay 'hilippine income tax on
his income from sources within the
'hilippines such as dividend interest
rent or royalty despite the fact that he
has not set foot in the 'hilippines.
CLASSIFICATION OF TAXPA/ERS
Idi6idual+
a. citi0ens
,1- resident citi0ens 7RC;
,2- non-resident citi0ens 7NRC;
b. aliens
,1- resident aliens 7RA;
,2- non-resident aliens 7NRA;
(a) engaged in trade or
business within the
'hils. 7NRAET';
(b) not engaged in trade or
business within the
'hilippines 7NRANET';
Cor.oratio+
a. Comestic 7&C;
b. Doreign
,1- resident foreign corporation
7RFC;
,2- non-resident foreign
corporation 7NRFC;
E+tate+
Tru+t+
Parter+hi.+
A. IN&I"I&%ALS
W#O ARE TAXA'LE0
1. Re+idet CitiKe
2. No,re+idet CitiKe
! non-resident citi8en means a
Dilipino citi0en?
a. who establishes to the
satisfaction of the .ommissioner
the fact of his physical presence
abroad with a definite intention
to reside therein+
b. who leaves the 'hilippines
during the taxable year to reside
abroad either as an immigrant
or for employment on a
permanent basis+
c. who works and derives income
from abroad and whose
employment thereat re5uires
him to be physically present
abroad most of the time during
the taxable year+
d. who is previously considered as a
non-resident and who arrives in
the 'hilippines at anytime during
the taxable year to reside
thereat permanently shall be
considered non-resident for the
taxable year in which he arrives
in the 'hilippines with respect to
his income derived from sources
abroad until the date of his
arrival C4ec.55 ()), NIRCD
N(1) !n o6er+ea+ *otra*t worHer
7OCW; is taxable only on income
derived from sources within the
'hilippines. QSec. 2" ,;-,.-R
! +ea3a is considered as an
F.1 provided the following
re5uirements are met?
1. receives compensation for services
rendered abroad as a member of
the complement of a vessel+ and
2. such vessel is engaged exclusively
in international trade.
;ased on the above provisions
there are three ,"- types of
nonresident citi0ens namely? ,1-
immigrants+ ,2- employees of a foreign
entity on a permanent basis+ and
,"- overseas contract workers.
Immigrants and employees of a foreign
entity on a permanent basis are
treated as nonresident citi0ens from
the time they depart from the
'hilippines. 2owever overseas
contract workers must be physically
present abroad most of the time
during the calendar year to 5ualify as
nonresident citi0ens.
". Re+idet alie ' means an individual
whose residence is within the
'hilippines and who is not a citi0en
thereof. C4ec.55 (7, NIRC)D
$. No,re+idet alie e!a!ed i
trade or (u+ie++ withi the
Phili..ie+. 7NRAET';
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1
! non-resident a&ien means an
individual whose residence is not
within the 'hilippines and who is not
a citi0en thereof. C4ec.55 (G)D
/he term trade or 7usiness
includes the performance of the
functions of a public office. C4ec. 55
(4)D
/he term trade0 7usiness or
profession shall not include
performance of services by the
taxpayer as an employee. C4ec. 55
(CC)D
! non-resident alien individual
who shall come to the 'hilippines
and stay therein for an aggregate
period of more than 1@B days during
any calendar year shall be deemed a
non'resident alien doing business in
the Philippines 4ection 55(G)
notAithstanding C4ec. 5/(A)(,)D
&. No,re+idet alie ot e!a!ed i
trade or (u+ie++ withi the
Phili..ie+. 7NRANET';
ONL/ RESI&ENT CITIIENS are taxable
for income derived from sources Aithin
and Aithout the Philippines. !ll other
individual income taxpayers are taxable
only for income derived from sources
Aithin the Philippines.
Tax Rate+9 'lease refer to Aex A.
'. CORPORATIONS
W#O ARE TAXA'LE0
1. &o3e+ti* Cor.oratio 6 created or
organi0ed in the 'hils. or under its
law C4ec. 55(C), NIRCD
2. Re+idet Forei! Cor.oratio 6
engaged in trade or business within
the 'hilippines C4ec. 55($), NIRCD
3. No,re+idet Forei! Cor.oratio 6
not engaged in trade or business
within the 'hilippines C4ec. 55(I),
NIRCD
A Cor.oratio I*lude+9
1. 'artnerships no matter how
created or organi0ed+
2. Soint-stock companies+
". Soint accounts ,cuentas en
participacion-
$. !ssociations+ or
&. Insurance companies C4ec. 55(3),
NIRCD.
Ex*lude+9
1. 4eneral professional
partnerships+
2. Soint venture or consortium
formed for the purpose of
undertaking construction projects or
engaging in petroleum coal
geothermal and other energy
operations pursuant to an operating
or consortium agreement under a
service contract with the
4overnment.
CORPORATIONS EXE<PT FRO< INCO<E
TAXATION 7FOR INCO<E REALIIE& AS S%C#;
%N&ER NIRC
5. Tho+e eu3erated uder %ec. 35.
9xempt corporations are subject
to income tax on their income from
any of their properties real or
personal or from any other activities
conducted for profit regardless o%
the disposition made o% such income.
2. With re+.e*t to GOCC+> the general
rule is that these corporations are
taxable as any other corporation
except?
a. 4SIS
b. SSS
c. '2I.
d. '.SF
e. '!4.F: C4ec. 58 (C)D
". Re!ioal or Area #ead=uarter+
uder %ec. 22 /++4 6 not subject to
income tax
:egional operating head5uarters
under 4ec. 55())) shall pay a tax of
1BE of their taxable income.
ONL/ &O<ESTIC CORPORATIONS are
taxable for income derived from sources
Aithin and Aithout the 'hilippines. !ll
other corporate income taxpayers are
taxable only for income derived from
sources Aithin the 'hilippines.
Tax Rates: Please refer to Annex B.
C. ESTATES AN& TR%STS
ESTATE 6 refers to the mass of properties
left by a deceased person.
R%LES ON TAXA'ILIT/ OF ESTATE
*&illemo
1
1hen a person who owns property
dies the following taxes are payable
under the provisions of the income ta:
laA?
1. Income tax for individual under Sec.
2$ and 2& ,to cover the period
beginning Sanuary to the time of
death-+
2. 9state income tax under Sec. )B if
the estate is under administration or
judicial settlement.
ESTATES %N&ER 4%&ICIAL SETTLE<ENT
A. &uri! the Pede*) of the
Settle3et
Geeral Rule9 !n estate under
judicial settlement is subject to
income tax in the same manner as
individuals. Its status is the same as
the status of the decedent prior to
his death.
Ex*e.tio+9
1. /he entitlement to personal
exemption is limited only to
'2BBBB.
2. >o additional exemption is
allowed.
". /he distribution to the heirs
during the taxable year of estate
income is deductible from the
taxable income of the estate.
Such distributed income shall
form part of the respective
heirs7 taxable income.
1here no such
distribution to the heirs is made
during the taxable year that the
income is earned and such
income is subjected to income
tax payment by the estate the
subse5uent distribution thereof
is no longer taxable on the part
of the recipient.
'. TER<INATION OF T#E 4%&ICIAL
SETTLE<ENT 7W#ERE T#E #EIRS STILL
&O NOT &I"I&E T#E PROPERT/;
1. If the heirs contribute to the
estate money property or
industry with intention to divide
the profits between(among
themselves an unregistered
partnership is created and the
estate becomes liable for the
payment of corporate income
tax. ()vangelista vs. Collector,
GR No. *'0009, (ctober ,/,
,0/8; (Ja vs. Commissioner, GR
No. *',0-+5, !ay 5/, ,085)
2. If the heirs without contributing
money property or industry to
improve the estate simply
divide the fruits thereof
between(among themselves a
co-ownership is created and
individual income tax is imposed
on the income received by each
of the heirs payable in their
separate and individual
capacity. (Pascual vs.
Commissioner, GR No. *'8.,--,
(ctober ,., ,0..; (billos vs.
Commissioner, GR No. *'9.,,.,
(ctober 50, ,0./)
ESTATES N) %N&ER 4%&ICIAL SETTLE<ENT
'ending the extrajudicial
settlement either of the following
situations may arise?
1. If the heirs contribute money
property or industry to the estate
with the intention of dividing the
profits between(among themselves
an unregistered partnership is
created and the estate becomes
liable for the payment of corporate
income tax+ or
2. If the heirs without contributing
money property or industry to the
estate simply divide the fruits
thereof between(among themselves
a co-ownership is created and
income tax is imposed on the income
received by each of the heirs
payable in their separate and
individual capacity.
TR%ST 6 ! right to the property whether
real or personal held by one person for
the benefit of another.
W#EN TR%STS ARE TAXA'LE ENTITIES
1. ! trust the income of which is to be
accumulated
2. ! trust in which the fiduciary may at
his discretion either distribute or
accumulate the income.
R%LES ON TAXA'ILIT/ OF T#E INCO<E OF A
TR%ST
*&illemo
1
1. /he income of the trust for the
taxable year which is to be
distributed to the beneficiaries #
%iling and payment o% ta: lie on the
bene%iciaries.
2. /he income of the trust which is to
be accumulated or held for future
distribution whether consisting of
ordinary income or gain from the
sale of assets included in the
PcorpusP of the estate 6 %iling o%
return and payment o% ta: become
the burden o% the trustee or
%iduciary.
):ceptions?
a. In the case of a revocable trust
the income of the trust will be
returned by the grantor.
b. In a trust where the income is
held for the benefit of the
grantor the income of the trust
becomes income to the grantor.
c. In the case of trust
administered in a foreign
country the income of the trust+
undiminished by any amount
distributed to the beneficiaries
shall be taxed to the trustee.
IRRE"OCA'LE TR%STS ,irrevocable both as
to corpus and as to income- 6
/rust itself through the trustee or
fiduciary is liable for the payment of
income tax. /axed exactly in the same
way as estates under judicial settlement
and its status as an individual is that of
the trustor. It is entitled to the
minimum personal exemption ,'2BBBB-
and distribution of trust income during
the taxable year to the beneficiaries is
deductible from the trust7s taxable
income.
RE"OCA'LE TR%STS 6 the trustor not the
trust itself is subject to the payment of
income tax on the trust income.
EXE<PTION OF E<PLO/EES? TR%ST
'rovided?
1. the employee7s trust must be part of
a pension stock bonus or profit
sharing plan of the employer for the
benefit of some or all of his
employees+
2. contributions are made to the trust
by such employer or such
employees or both+
". such contributions are made for the
purpose of distributing to such
employees both the earnings and
principal of the fund accumulated by
the trust and
$. that the trust instrument makes it
impossible for any part of the trust
corpus or income to be used for or
diverted to purposes other than the
exclusive benefit of such employees.
(4ec. 963, NIRC)
/ax exemption is likewise to be
enjoyed by the i*o3e of the .e+io
tru+t+ otherwise taxation of those
earnings would result in a diminution of
accumulated income and reduce
whatever the trust beneficiaries would
receive out of the trust fund.
(Commissioner vs. Court o% Appeals,
Court o% 1a: Appeals and GC*
Retirement Plans, GR No. 0/655, !arch
5-, ,005)
&. PARTNERS#IPS
8IN&S OF PARTNERS#IP FOR TAX P%RPOSES
%N&ER T#E NIRC
1. Geeral Profe++ioal Parter+hi.+
7GPP; - formed by persons for?
a. the sole purpose of exercising a
common profession and
b. no part of the income of which is
derived from engaging in any
trade or business. C4ec. 55(3),
NIRCD.
2. Taxa(le or 'u+ie++ Parter+hi. 6
!ll other partnerships except
general professional partnerships no
matter how created or organi0ed.
It includes unregistered joint
ventures and business partnerships.
2owever joint ventures are not
taxables as corporations when it is+
,a- undertaking construction projects
,b- engaged in petroleum coal and
other energy operation under a
service contract with the
government
-enera& co-partners#ips /-CP4
are partnerships which are by law
assimilated to be within the context
of and so legally contemplated as
*&illemo
1
corporations. /he partnership itself
is subject to corporate taxation. /he
individual partners are considered
stockholders and therefore profits
distributed to them by the
partnership are taxable as dividends.
/he taxable income for a taxable
year after deducting the corporate
income tax imposed therein shall be
deemed to have been actually or
constructively received by the
partners in the same taxable year
and shall be taxed to them in their
individual capacity Ahether actually
distributed or not. C4ec. 8-("),
NIRCD
LIA'ILIT/ OF A PARTNERS#IP
1. Geeral Profe++ioal Parter+hi. .-
/hey are not sub&ect to income ta:
but are re5uired to file returns of
their income for the purpose of
furnishing information as to the
share of each partner in the net gain
or profit which each partner shall
include in his individual return. /he
partnership shall act as the
withholding agent.
/he net income ,income for
distribution- shall be computed in
the same manner as a corporation.
Cate of filing of the return is !pril
1& of each year.
2. Taxa(le or 'u+ie++ Parter+hi. -
/he income tax of this type of
'artnership is computed and ta:ed
li?e that o% a corporation . /his kind
of partnership like a regular
corporation is also re5uired to file a
5uarterly corporate income tax
return. Diling and payment of
5uarterly return is within )B days
after the end of each 5uarter while
the annual return is on or before
!pril 1& of the following year.
LIA'ILIT/ OF A PARTNER
Rule+9
5. Share of a .arter i !eeral
.rofe++ioal Parter+hi.
a. 9ach partner shall report as
gross income ,business income-
his distributed share actually or
constructively received in the
net income of the partnership.
(4ec. 59, NIRC) Q/he same share
shall be subject to creditable
withholding tax of 1BE.R /hey
are liable in their separate and
individual capacity.
b. Share of a partner in the loss
of a general professional
partnership may be taken by the
individual partner in his return
of income.
c. 9ach partner in a general
professional partnership shall
report as gross income his
distributed share in the net
income of the 4'' based on his
agreed ratio whether he avails
of itemi0ed or optional standard
deduction.
d. 'ayments made to a partner of
a 4'' for services rendered shall
be considered as ordinary
business income subject to Sec.
2$! ,9ffective Sanuary 1 1A@2-
:. Share of a .arter i Taxa(le or
'u+ie++ .arter+hi.
a. Share of a partner in the net
income of a taxable or business
partnership ,dividend- shall be
subject to a final tax as follows.
:esident .iti0en >on-
resident .iti0en and
:esident !lien ,2BBB and
onward- 6 1BE (4ec. 5+35)
>on-resident !lien engaged
in trade or business 6 2BE
(4ec. 5/ A5)
>on-resident alien not
engaged in trade or business
6 2&E (4ec. 5/3)
b. Share of a partner in the loss
of a taxable or business
partnership maybe taken by the
individual partner in his return
of income.
c. 'ayments made to a partner of
a business or taxable partnership
for services rendered shall be
considered as compensation
income subject to sec. 2$!.
8IN&S OF INCO<E TAXES
*&illemo
1
%N&ER T#E NIRC
1. >et Income /ax
2. Fptional .orporate Income tax
". %inimum .orporate Income /ax
$. Improperly !ccumulated 9arnings
/ax
&. 'referential :ates or Special :ates
of Income /ax
). 4ross Income /ax
*. Dinal Income /ax
@. Dringe ;enefits /ax
A. .apital 4ains /ax
75; NET INCO<E TAX
&EFINITION9 %eans gross income less
deductions and(or personal and
additional exemptions (4ec. -,, NIRC)
NET INCO<E TAX FOR<%LA
9ntire Income
*ess 9xclusions and Income subject
to Dinal /ax ,e.g. 'assive
Income-
4ross Income
*ess Ceductions ,and(or additional
exemptions if applicable-
>et /axable Income
!ultiply by /ax :ate ,E-
>et Income /ax Cue
*ess /ax .redit if any
Tax Still due> if a)
GROSS INCO<E
&EFINITION9 %eans all income derived
from whatever source including but not
limited to the following /%ec. 324
a. .ompensation+
b. 4ross income from profession trade
or business+
c. 4ains form dealings in property+
d. Interests+
e. :ents+
f. :oyalties+
g. Cividends+
h. !nnuities+
i. 'ri0es and winnings+
j. 'ensions+
k. 'artner7s share in the net income of
the general professional partnership
See Aex & for detailed discussion
of items.
8IN&S OF &I"I&EN&S
5. Ca+h ad Pro.ert) &i6ided+
Individual /axpayer
a. Drom Comestic .orporations
:. >:. :! 6 5FL (4ec.
5+A)
>:!9/; 6 :FL (4ec. 5/A5)
>:!>9/; 6 :BL on gross
income (4ec. 5/3)
b. Drom Doreign .orporations
:. >:. :! >:!9/; 6 B,
@:L (4ec. 5+, 5/A,)
>:!>9/; 6 :BL on gross
income (4ec. 5/3)
.orporate /axpayer
a. Doreign to Comestic .orp. 6 @:L
(4ec. -5A)
b. Comestic to Comestic .orp. 6
Exe3.t+ intercorporate
dividends (4ec. 58")
c. Comestic to Doreign .orp. -
:esident Doreign .orp. 6
Exe3.t (4ec. 5. CAD 8d)
>onresident Doreign .orp. 6
5BL subject to the condition
stated in 4ec. 5. C3D /.
Ftherwise it shall be taxed
at @:L. (4ee Commissioner
vs. Procter and Gamble, GR
No. 99.-., "ecember 5,
,00,)
:. Sto*H &i6ided+
4eneral rule? Not subject to tax
because it does not constitute
income+ it represents transfer of
surplus to capital account. (4ec.
8-3, ,008 NIRC)
9xceptions?
a. Sec. *"; 1AA* >I:.
,1- there is redemption or
cancellation
,2- the transaction involves
stock dividends and
,"- the <time and manner= of
the transaction makes it
<essentially e5uivalent to a
distribution of taxable
dividends=. ,see
Commissioner vs. Court o%
Appeals, Court o% 1a:
Appeals E AN4C(R, GR No.
,6./89, <an. -6, ,000)
*&illemo
1
b. the recipient is other than the
shareholder (3achrach vs.
4ei%ert, GR No. *'59/0, (ctober
,5, ,0/6)
c. change in the stockholder7s
e5uity results by virtue of the
stock dividend issuance.
". Li=uidati! &i6ided+ 1hen a
corporation distributes all of its
assets in complete li5uidation or
dissolution the gain reali0ed or
loss sustained by the
stockholder whether individual
or corporation is taxable
income or deductible loss as the
case may be. (4ec. 8-A)
! li5uidating dividend is not
a dividend income. /he
transaction is considered a sale
or exchange of property
between the corporation and the
stockholder.
EXCL%SIONS FRO< GROSS INCO<E
N(1) Gnder the 1AA* /ax .ode the
term <exclusions= refers to items that
are not included in the determination of
gross income either because?
,a- they represent return of capital
or are not income gain or profit+ or
,b- they are subject to another kind
of internal revenue tax+ or
,c- they are income gain or profit
that are expressly exempt form income
tax under the constitution tax treaty
/ax .ode or a general or special law.
1. Pro*eed+ of life i+ura*e paid by
reason of the death of the insured to
his estate or to any beneficiary
,individual partnership or
corporation but not a transferee for
a valuable consideration- directly or
in trust.
N(1)? if the proceeds are
retained by the insurer the interest
thereon is taxable+
2. Retur of i+ura*e .re3iu3M
N(1)? if such amounts ,when added
to amounts already received before
the taxable year under such
contracts- exceed the aggregate
premiums or considerations paid
,whether or not paid during the
taxable year- then the excess shall
be included in the gross income.
2owever in the case of a transfer for
a valuable consideration by
assignment or otherwise of a life
insurance endowment or annuity
contract or any interest therein
only the actual value of such
consideration and the amount of the
premiums and other sums
subse5uently paid by the transferee
are exempt from taxation. >o loss is
reali0ed on surrender of a life
insurance policy for its surrender
value.
3. Gift> (e=ue+t or de6i+e
4ifts be5uests and devises
,which are subject to estate or gift
taxes- are excluded but not the
income from such property. If the
amount received is on account of
services rendered whether
constituting a demandable debt or
not or the use of the opportunity to
use of capital the receipt is income
(Pirovano vs. Commissioner, ,+
4CRA .-5)
. Co3.e+atio for .er+oal iJurie+
or +i*He++> whether () +uit or
a!ree3et
N(1)? /he phrase <personal
injuries= should be given a
restrictive meaning to refer only to
physical injuries. /he theory for this
is that recoupment on account of
such losses is not income since it is
not derived from capital from labor
or from both combined. !nd the
fact that the payment of
compensation for such loss was
voluntary does not change its
exempt status. It was in fact
compensation for a loss which
impaired petitioner7s capital.
!. I*o3e exe3.t uder Treat)M
". Retire3et (eefit+> .e+io>
!ratuitie+> et*.
a. those derived under :.!. *)$1
,pertains to private firms
without retirement trust fund-+
b. those received by officials and
employees of private employers
*&illemo
1
in accordance with a reasonable
private benefit plan+
ReBuisites?
,1- in the service of the same
employer for at least 1B
years+
,2- at least &B years old+
,"- must be availed of only once
,$- plan approved by the ;I:
,R.R.5'0.-+
c. separation pay because of
death sickness or other
physical disability or for any
cause beyond the control of the
official or employee ,e.g.
retrenchment redundancy or
cessation of business-+
K%or any cause beyond the
control o% said o%%icial or
employeeI 6 connotes
involuntariness on the part of
the official or employee+
separation must not be asked or
initiated by the official or
employee.
d. social security benefits
retirement gratuities pensions
and other similar benefits
received by citi0ens and aliens
who come to reside permanently
here from foreign sources
private or public+
e. benefits due to residents under
the laws of the G.S.
administered by the G.S.
Jeterans !dministration
f. SSS benefits+ and
g. 4SIS benefits.
#. <i+*ellaeou+ ite3+
a. 'assive income derived in the
'hilippines by?
,1- Doreign governments+
,2- Dinancing institutions
owned controlled or
enjoying refinancing from
foreign governments
,"- International or regional
financial institutions
established by foreign
governments
b. Income derived from any
public utility or from the
exercise of any governmental
function+
c. 'ri0es and awards made
primarily in recognition of
religious charitable scientific
educational artistic literary or
civic achievement
ReBuisites?
,1- recipient was selected
without any action on his
part+ and
,2- recipient is not re5uired to
render substantial future
services.
d. 'ri0es and awards granted to
athletes in sports competitions
and sanctioned by their national
sports association +
e. 1"
th
month pay and other
benefits up to '"BBBB.BB+
f. 4SISSSS %edicare and union
dues of individuals+
g. 4ains derived from debt
securities with a maturity of
more than & years+
h. 4ains from redemption of shares
in %utual Dund.
EXCLUSIONS VS. DEDUCTIONS
Ex*lu+io+
NSe*. @:7';O
&edu*tio+
NSe*. @AO
:efer to flow of
wealth which are not
treated as part of
gross income
because?
,1- exempted by the
fundamental law+ ,2-
exempted by statute+
,"- do not come
within the definition
of income
:efer to the
amounts which the
law allows to be
subtracted from
gross income in
order to arrive at
net income
'ertain to the
computation of gross
income
'ertain to the
computation of the
net income
Something earned or
received by the
taxpayer which do
not form part of gross
income
Something spent or
paid in earning of
gross income
&E&%CTIONS
&EFINITION? Items or amounts which the
law allows to be deducted from gross
*&illemo
1
income in order to arrive at the taxable
income.
'ASIC PRINCIPLES GO"ERNING &E&%CTIONS
a. /he taxpayer seeking a deduction
must point to some specific
provisions of the statute authori0ing
the deduction+ and
b. 2e must be able to prove that he is
entitled to the deduction authori0ed
or allowed. (Atlas Consolidated
!ining E "ev. Corp. vs.
Commissioner, GR No. *'590,,,
<anuary 5,, ,0.,)
c. !ny amount paid or payable which is
otherwise deductible from or taken
into account in computing gross
income or for which depreciation or
amorti0ation may be allowed shall
be allowed as deduction only if it is
shown that the tax re5uired to be
deducted and withheld therefrom
has been paid to the ;I:. C4ec.
-+(=), NIRCD
N(1) Ceductions for income tax
purposes partake of the nature of tax
exemptions+ hence if tax exemptions
are to be strictly construed then it
follows that deductions must also be
strictly construed.
TAXPA/ERS W#O CANNOT A"AIL OF
&E&%CTIONS FRO< GROSS INCO<E
1. .iti0ens and resident aliens whose
income is purely compensation
income ,except for premium
payments on health and(or
hospitali0ation insurance-+
2. >on-resident aliens not engaged in
trade or business in the 'hilippines+
and
". >on-resident foreign corporation
CLASSES OF &E&%CTIONS
5. Idi6idual+
a. with gross compensation income
from employer-employee
relationship only
,1- premium payments on health
and(or hospitali0ation
insurance
,2- personal additional
exemptions
b. gross income from business or
practice of profession
,1- Fptional Standard Ceduction
,FSC-
,2- Itemi0ed deductions
,"- premium payments on health
and(or hospitali0ation
insurance
,$- personal additional
exemptions
:. Cor.oratio+
Itemi0ed Ceductions
8IN&S OF &E&%CTIONS
a. O.tioal +tadard dedu*tio+ 7OS&;
1BE of the gross income.
/he FSC may be availed of
only by individuals ,except
nonresident alien- who are not
purely compensation income
earners.
b. Per+oal ad additioal exe3.tio+
!vailable only to individuals
,business income and compensation
income earners-.
>:!9/; may be entitled to
personal exemptions ,only- subject
to reciprocity i.e.
a. the country of which he is a
subject or citi0en has an income
tax law+ and
b. the income tax law of his
country allows personal
exemption to citi0ens of the
'hilippines not residing therein
but deriving income therefrom
and not to exceed the amount
allowed in >I:..
/he personal exemption shall be
e5ual to that allowed by the income
tax law of his country to a citi0en of
the 'hilippines not residing therein
or the amount provided in the >I:.
whichever is lower.
Idi6idual+ not etitled to the+e
exe3.tio+9
a. >on-resident !lien not engaged
in trade or business
b. !lien individual employed by
:egional or !rea 2ead5uarters
of %ultinational .ompanies
c. !lien individual employed by
Fffshore ;anking Gnits
*&illemo
1
d. !lien individual employed by
'etroleum Service .ontractor
and Subcontractor
c. Ite3iKed dedu*tio+
a. ordinary and necessary
expenses
b. interests
c. taxes
d. losses
e. bad debts
f. depreciation of property+
g. depletion of oil and gas wells
and mines+
h. charitable and other
contributions+
i. research and development+
j. pension trust contributions of
employees+ and
k. premium payments on health
and(or hospitali0ation insurance.
,/his is the only deduction which
a compensation income earner
may claim as a deduction.-
d. S.e*ial dedu*tio+
a. private proprietary educational
institutions and hospitals that
are non-profit (4ec. -+ A, 5)
b. insurance companies (4ec. -8)
c. estates and trusts (4ec. 9,)
PERSONAL EXE<PTIONS
A. A3out+ of Per+oal Exe3.tio+
9%ec. 350 N,RC:
1. P :F>FFF 6 Single individual or
married individual judicially
decreed legally separated
without 5ualified dependent
children.
2. P :B>FFF 6 2ead of the family or
married individual judicially
decreed legally separated
with 5ualified dependent
children.
". P @:>FFF 6 Dor eac# legally
married individual.
#ead of the Fa3il)
1. Gnmarried or legally separated
person with one or both parents
or one or more brothers or
sisters or one or more
legitimate recogni0ed natural or
legally adopted children living
with and dependent upon the
taxpayer for their chief support+
and
KChie% supportI means more
than one-half of the
re5uirements for support.
2. 1here such brother ( sister or
children are not more than 21
years of age unmarried and not
gainfully employed or where
such dependents regardless of
age are incapable of self 6
support because of mental or
physical defect.
'arents brothers sisters and senior
citi0en with the tax payer whether
relative or not may 5ualify the
taxpayer to the personal exemption of
'2&BBB as head of the family but not to
the additional e:emption o% P.,666.
'. Additioal Exe3.tio for
&e.edet+ 9%ec. 350 N,RC:
' @BBB 6 Dor each of the 5ualified
dependent children not
exceeding four ,$- in
number.
/he additional exemption refers
only to 5ualified dependent children
such as legitimate recogni0ed natural
illegitimate and legally adopted.
/he proper claimant of the
additional exemption is the husband
being the head of the family except
under the following cases?
1. 2usband is unemployed
2. 2usband is working abroad like
an FD1 or a seaman
". 2usband explicitly waived his
right of the exemption in favor
of his wife in the withholding
exemption certificate.
! Seior CitiKe is?
1. any
resident citi0en of the
'hilippines
2. at least
sixty )B years old including
those who have retired from
both government offices and
private enterprises and
". has an
income of not more than Sixty
thousand pesos ,)BBBB- per
*&illemo
1
annum subject to the review of
the >ational 9conomic
Cevelopment !uthority ,>9C!-
every three years.
'arents and dependents 5ualify
the taxpayer to the personal
exemption of '2&BBB as head of the
family but not to the additional
e:emption o% P.,666.
N(1) >:!9/; may deduct personal
exemption ,not additional
exemption- but only to the extent
allowed by his country to Dilipinos
not residing therein and shall not
exceed the aforementioned
amounts. >:!>9/; cannot claim
any personal or additional
exemptions.
C. Cha!e of Statu+ 9%ec. 350 N,RC:
1. If the taxpayer should marry or
should have additional
dependents during the taxable
year he may claim the
corresponding exemptions in full
for such year.
2. If the taxpayer should die during
the taxable year his estate may
claim the corresponding
exemptions as if he died at the
close of such year.
". If the spouse or any dependent
should die or any dependent
should marry or become twenty-
one years old during the year or
should become gainfully
employed the taxpayer may
claim the exemptions as if the
spouse or dependent died or as
if such dependent married
became twenty one years old or
became gainfully employed at
the close of such year.
$. Dor any other event and for
which there are no specific rules
applicable from the above-
mentioned the status of the
taxpayer at the end of the year
shall determine his exemptions.
(strictly construed against the
ta:payer)
9xamples?
became legally separated 6
can only claim ' 2BBBB
2& years old child became
incapacitated 6 cannot claim
additional exemption
ITE<IIE& &E&%CTIONS
A. OR&INAR/ AN& NECESSAR/
EXPENSES
NECESSAR/ EXPENSE 6 appropriate and
helpful in the development of taxpayer3s
business and are intended to minimi0e
losses or to increase profits. /hese are
the day-to-day expenses.
OR&INAR/ EXPENSE 6 normal or usual in
relation to the taxpayer7s business and
the surrounding circumstance.
RE$%ISITES OF '%SINESS EXPENSE TO 'E
&E&%CTI'LE
1. ordinary and necessary+
2. paid or incurred w(in the taxable
year+
". paid or incurred in carrying on a
trade or business+
$. substantiated with official receipts
or other ade5uate records.
&. if subject to withholding taxes proof
of payment to the ;ureau of Internal
:evenue must be shown.
). must be reasonable ,when the
expense is not lavish extravagant or
excessive under the circumstances-
*. must not be contrary to law public
policy or morals.
N(1) 1hile illegal income will form
part of income of the taxpayer
expenses which constitute bribe
kickback and other similar payment
being against law and public policy are
not deductible from gross income.
(4ubsec. A, ,, c)
CAPITAL EXPEN&IT%RE 6 !n expenditure
that benefits not only the current period
but also future periods. It is not
deductible but depreciable e:cept if
the taxpayer is a non-profit proprietary
educational institution which may elect
either to deduct the capital expense or
depreciate it.
See Aex E 6 ;usiness 9xpenses
*&illemo
1
See Aex F 6 .eiling on
<9ntertainment !musement and
:ecreational 9xpenses=
'. INTEREST
INTEREST $ shall refer to the payment for
the use or forbearance or detention of
money regardless of the name it is
called or denominated. It includes the
amount paid for the borrower3s use of
money during the term of the loan as
well as for his detention of money after
the due date for its repayment.
RE$%ISITES FOR &E&%CTI'ILIT/ 7RE". REG.
NO. 5@,:FFF;
1. /here must be an indebtedness+
2. /here should be an interest
expense pai d or incurred upon
such indebtedness+
". /he indebtedness must be that of
the taxpayer+
$. /he indebtedness must be connected
with the taxpayer3s trade business
or exercise of profession+
&. /he interest expense must have been
paid or incurred during the taxable
year+
). /he interest must have been
stipulated in writing+
*. /he interest must be legally due+
@. /he interest arrangement must not
be between related taxpayers+
A. /he interest must not be incurred to
finance petroleum operations+ and
1B. In case of interest incurred to
ac5uire property used in trade
business or exercise of profession
the same was not treated as a
capital expenditure.
11. /he interest is not expressly
disallowed by law to be deducted
from gross income of the taxpayer.
R%LES ON &E&%CTI'ILIT/ OF INTEREST
EXPENSE
Geeral Rule - In general the amount of
interest expense paid or incurred within
a taxable year of indebtedness in
connection with the taxpayer3s trade
business or exercise of profession shall
be allowed as a deduction from the
taxpayer3s gross income.
Li3itatio - /he amount of interest
expense paid incurred by a taxpayer in
connection with his trade business or
exercise of a profession from an existing
indebtedness shall be reduced by an
amount e5ual the following percentages
of interest income earned which had
been subjected to final withholding
depending on the year when the interest
income earned vi0?
"@E - beginning Sanuary 1 2BBB and
thereafter
Ai3 of Li3itatio9 /o discourage so-
called <back-to-back= loans where a
taxpayer secures a loan from a bank
turns around and invests the loan
proceeds in money market placements.
;y imposing a limit as to the amount of
interest expense that can be deducted
from gross income the previous practice
of tax arbitrage was absolutely nullified.
Tax Ar(itra!e 6 is a method of
borrowing without entering into a
debtor(creditor relationship often to
resolve financing and exchange control
problems. In tax cases back-to-back
loan is used to take advantage of the
lower of tax on interest income and a
higher rate of tax on interest expense
deduction.
Illu+tratio9
Fn Sune 1 2BBB .ompany O has?
1. Fbtained a loan from !;. Dinancing
.orporation in connection with the
operation of its business and its
interest expense on the loan
amounted to ' 12BBBB.
2. Ceposit account in C9D ;ank and
derived interest income thereof
amounting to '2BBBBB on which the
final tax of '$BBBB has been
withheld.
!ssume that .ompany O7s net
income before the deduction of
interest expense is '&BBBBB.
/he deductible expense shall be
computed as follows?
/ear :FFF
>et Income before
interest expense '&BBBBB
*&illemo
1
*ess Interest 9xpense '12BBBB
*ess "@E of interest
income from deposit
,"@E x '2BBBBB- *)BBB
&edu*ti(le Itere+t
Ex.e+e AA>FFF
/axable Income '$&)BBB
Deductible Inteest Ex!ense
1. Interest on taxes such as those paid
for deficiency or delin5uency since
taxes are considered indebtedness
,provided that the tax is a
deductible tax except in the case of
income tax-. 2owever fines
penalties and surcharges on account
of taxes are not deductible. 1he
interest on unpaid business ta: shall
not be sub&ected to the limitation
on deduction.
2. Interest paid by a corporation on
scrip dividends
". Interest-on deposits paid by
authori0ed banks of the 3ang?o
4entral ng Pilipinas to depositors
if it is shown that the tax on such
interest was withheld.
$. Interest paid by a corporate taxpayer
who is liable on a mortgage upon real
property of which the said
corporation is the legal or e5uitable
owner even though it is not directly
liable for the indebtedness.
N)N,&E&%CTI'LE INTEREST EXPENSE
1. !n individual taxpayer reporting
income on the cash basis incurs an
indebtedness on which an interest is
paid in advance through discount or
otherwise?
allowed as a deduction in the
year the indebtedness is paid
if the indebtedness is payable
periodic amortiGation on the
amount of interest which
corresponds to the amount of
the principal amorti0ed or paid
during the year shall be allowed
as deduction in such taxable
year.
2. Interest paid on indebtedness
between related taxpayer
". If the indebtedness is incurred to
finance petroleum exploration
$. Interest on preferred stock which
in reality is dividend
&. Interest on unpaid salaries and
bonuses
). Interest calculated for cost keeping
on account of capital or surplus
invested in business which does not
represent charges arising under
interest-bearing obligation.
*. Interest paid when there is no
stipulation for the payment thereof.
OPTIONAL TREAT<ENT OF INTEREST EXPENSE
!t the option of the taxpayer
interest incurred to acBuire property
used in trade or business may be
allowed as a deduction or treated as
capital e:penditure. C4ec -+ (3)(-),
NIRCD
C. TAXES
/axes mean TAXES PROPER> and
therefore no deductions are allowed for?
1. interest
2. surcharges
". penalties or fines incident to
delin5uency (4ec. .6, Rev. Reg. 5)
RE$%ISITES FOR &E&%CTI'ILIT/
1. must be in connection with
taxpayer7s business+
2. tax must be imposed by law on and
payable by taxpayer ,direct tax-+
and
". paid or incurred during the taxable
year.
TAXES N) &E&%CTI'LE
1. income tax+
2. estate and donor7s tax+
". special assessments+
$. excess electric consumption tax+
&. foreign income tax war profits and
excess profits tax if the taxpayer
makes use of tax credit+ and
). final taxes being in the nature of
income tax.
N(1) /axes allowed as deductions
when refunded or credited shall be
included as part of gross income in the
year of receipt to the extent of the
income tax benefit of said deduction.
,1a: 3ene%it Rule-
*&illemo
1
Dor >:!9/; and :D. taxes paid or
incurred are allowed as deductions only
if and to the extent that they are
connected from income within the
'hilippines.
EXCEPTIONS to re5uirement that only
such persons on whom the tax is
imposed by law can claim deduction
thereof?
1. /axes of shareholder upon his
interest as such and paid by the
corporation without reimbursement
from him can be claimed by the
corporation as deduction.
2. ! corporation paying the tax for the
holder its bonds or other obligation
containing a tax-free covenant
clause cannot claim deduction for
such taxes paid by it pursuant to
such covenant.
TAX CRE&IT
&EFINITION9 right of an income taxpayer
to deduct from income tax payable the
foreign income tax he has paid to his
foreign country subject to limitation.
W#O CAN CLAI< TAX CRE&IT
1. resident citi0ens of the 'hilippines
2. resident aliens under the principle of
reciprocity
". domestic corporations which include
partnerships except general
professional partnership
$. beneficiaries of estates and trusts
&. members of beneficiaries of local
partnerships
W#O ARE N) ENTITLE& TO TAX CRE&IT
1. non-resident citi0ens
2. resident aliens if without
reciprocity
". resident aliens whose income is
derived solely from sources within
the 'hilippines
$. foreign corporations ,resident and
non-resident-
FOR<%LA FOR CO<P%TING LI<ITATION
5. Per *outr) li3itatio
/axable
income from
foreign country O 'hil. M /ax .redit
/axable income income tax 8imit
from all sources
:. O6er,all li3itatio
/axable
income from
outside sources O 'hil. M /ax .redit
/axable income income tax 8imit
from all sources
1he alloAable ta: credit is the KloAer
amountI betAeen the ta: credit
computed under No. , and No. 5.
W#EN CRE&IT FOR TAXES <A/ 'E TA8EN
/he credit for taxes provided by
Section "B,.-,"- to ,A- may ordinarily be
taken either in the return for the year in
which the taxes accrued or on which the
taxes were paid dependent upon
whether the accounts of the taxpayer
are kept and his returns filed upon the
accrual basis or upon cash receipts and
disbursements basis.
LI<ITATIONS ON CRE&IT FOR FOREIGN TAXES
1- /he amount of credit in respect to
the taxes paid or accrued to any
country shall not exceed the same
proportion of the tax against which
such credit is taken which the
taxpayer7s net income from sources
within such country taxable under
/itle II ,income /ax- bears to his
entire net income for the same
taxable year+ and
2- /he total amount of the credit shall
not exceed the same proportion of
the tax against which such credit is
taken which the taxpayer7s net
income from sources without the
'hilippines taxable under /itle II
,Income /ax- bears to his entire net
income for the same taxable year.
&. LOSSES
LOSSES refer to such losses which do
not come under the category of bad
debts inventory losses depreciation
etc. and which arise in taxpayer3s
profession trade or business.
1. !ctually sustained during the taxable
year
*&illemo
1
2. .onnected with the trade business
or profession
". 9videnced by a close and completed
transaction
$. >ot compensated for by insurance or
other form of indemnity
&. >ot claimed as a deduction for
estate tax purposes
). >otice of loss must be filed with the
;ureau of Internal :evenue Aithin
+/ days %rom the date o% discovery
of the casualty or robbery theft or
embe00lement.
N(1) /he taxpayer7s failure to record
in his books the alleged loss proves that
the loss had not been suffered hence
not deductible. (City *umber vs.
"omingo and Court o% 1a: Appeals, GR
No. *',.9,,, <anuary -6, ,09+)
CATEGOR/ AN& T/PES OF LOSSES
5. OR&INAR/ LOSSES
a. Incurred in trade or business or
practice of profession
Net operatin" &oss carr!-over
/N)(C)4
:efers to the excess of
allowable deductions over gross
income of the business for any
taxable year which had not
been previously offset as
deduction from gross income.
.an be carried over as a
deduction from gross income for
the next " consecutive years
immediately following the year
of such loss.
Dor mines other that oil and
gas well net operating loss
incurred in any of the first ten
years of operation may be
carried over for the next &
years.
ReBuirements
,1- /he taxpayer was not
exempt from income tax in
the year of such net
operating loss+
,2- /he loss was not incurred in
a taxable year during the
taxpayer was exempt from
income tax+ and
,"- /here has been no
substantial change in the
ownership of the business or
enterprise.
/here is no substantial
change in the ownership of
the business when?
(a) not less than *&E in
nominal value of the
outstanding issued shares
is held by or on behalf of
the same persons+ or
(b) not less than *&E of the
paid up capital is held by
or on behalf of the same
person.
N(1) /he " year period shall
continue to run notwithstanding
that the corporation paid its taxes
under %.I/ or that the individual
availed the 1BE FSC.
See Aex S for illustration.
b. Ff property connected with the
trade business or profession if
the loss arises from fires
storms shipwreck or other
casualties or from robbery
theft or embe00lement.
75; Total de+tru*tio
/he replacement cost to
restore the property to its
normal operating condition
but in no case shall the
deductible loss be more than
the net book value of the
property as a whole
immediately before
casualty.
7:; Partial &e+tru*tio
/he excess over the net
book value immediately
before the casualty should
be capitali0ed subject to
depreciation over the
remaining useful life of the
property.
:. CAPITAL LOSSES 7LOSSES ARE &E&%CTI'LE
ONL/ TO T#E EXTENT OF CAPITAL
GAINS;
a. 8osses from sale or exchange of
capital assets
*&illemo
1
b. 8osses resulting from securities
becoming worthless and which
are capital assets.
c. 8osses from short sales of
property.
d. 8osses due to failure to exercise
privilege or option to buy or sell
property.
@. SPECIAL 8IN&S OF LOSSES
a. ;a"erin" &osses - deductible only to
the extent of gain or winnings. C4ec.
-+ (")(9)D; deemed to apply only to
individuals
b. (osses on <as# sa&es of stoc=s - not
deductible because these are
considered to be artificial loss.
;as# sa&es 6 a sale or other
disposition of stock or securities
where substantially identical
securities are ac5uired or purchased
within )1-day period beginning "B
days before the sale and ending "B
days after the sale. C4ec. -.D
Geeral rule9 8osses from wash sales
are not deductible.
Ex*e.tio9 1hen the sale is made by
a dealer in stock or securities and
with respect to a transaction made in
the ordinary course of the business of
such dealer losses from such sale is
deductible.
Ele3et+ of Wa+h Sale+9
,1- /he sale or other disposition of
stock resulted to a loss+
,2- /here was an ac5uisition or
contract or option for ac5uisition
of stock or securities within "B
days before the sale or "B days
after the sale+ and
,"- /he stock or securities sold were
substantially the same as those
ac5uired within the )1-day
period.
c. A7andonment &osses
in petroleum operation and producing
well.
,1- In case a contract area where
petroleum operations are
undertaken is partially or wholly
abandoned all accumulated
exploration and development
expenditures pertaining thereto
shall be allowed as a deduction.
,2- In case a producing well is
abandoned the unamorti0ed cost
thereof as well as the
undepreciated cost of e5uipment
directly used therein shall be
allowed as deduction in the year
the well e5uipment or facility is
abandoned.
d. (osses due to vo&untar! remova& of
7ui&din" incident to renewal or
replacements - deductible expense
from gross income.
e. (oss of usefu& va&ue of capita&
assets due to charges in business
conditions - deductible expense only
to the extent of actual loss sustained
,after adjustment for improvement
depreciation and salvage value-
f. (osses from sa&es or exc#an"es of
propert! 7et<een re&ated
taxpa!ers -losses of this nature is not
deductible but gains are taxable.
g. (osses of farmers - if incurred in the
operation of farm business it is
deductible.
#. (oss in s#rin=a"e in va&ue of stoc= 6
if the stock of the corporation becomes
worthless the cost or other basis may be
deducted by the owner in the taxable
year in which the stock of its
worthlessness is made. !ny amount
claimed as a loss on account of shrinkage
in value of the stock through fluctuation
in the market or otherwise cannot be
deducted from gross income.
E. 'A& &E'TS
'A& &E'TS shall refer to those debts
resulting from the worthlessness or
uncollectibility in whole or in part of
amounts due the taxpayer by others
arising from money lent or from
uncollectible amounts of income from
goods sold or services rendered.
*&illemo
1
1. 9xisting indebtedness due to the
taxpayer which must be valid and
legally demandable+
2. .onnected with the taxpayer3s
trade business or practice of
profession+
". %ust not be sustained in a
transaction entered into between
related parties+
$. !ctually ascertained to be worthless
and uncollectible as of the end of
the taxable year.+ and
&. !ctually charged off in the books of
accounts of the taxpayer as of the
end of the taxable year.
E$%ITA'LE &OCTRINE OF TAX 'ENEFIT
! recovery of bad debts previously
deducted from gross income constitutes
taxable income if in the year the
account was written off the deduction
resulted in a tax benefit. (1a: 3ene%it
Rule)
Illustration
.ase ! .ase ; .ase .
>et
income
,loss-
before
write off
for bad
debts
'1BBBB ,' ABBB- ' &BBB
8ess?
!ccounts
written off
as bad
debts "BBB 2BBB

)BBB
Dinal >et
Income
,8oss- ' *BBB ,'11BBB- ,'1BBB-
;ad debts
recovery
in a subse-
5uent year

"BBB

2 BBB

) BBB
TAXA'LE
INCO<E
u.o the
(ad de(t
re*o6er) P@>FFF

P , F , PB>FFF
ASCERTAIN<ENT OF WORT#LESSNESS
'roof of /wo Dacts?
1. taxpayer did in fact ascertain the
debt to be worthless in the year
for which deduction is sought
2. that in so doing he acted in good
faith. (Collector vs. Goodrich
International Rubber, GR No. *'
5559/, "ec. 55, ,098)
Cepends upon the particular facts and
the circumstances of the case.
4ood faith does not re5uire that the
taxpayer be an <incorrigible optimist=
but on the other hand he may not be
unduly pessimistic.
F. &EPRECIATION
&EPRECIATION 6 the gradual diminution in
the service or useful value of tangible
property due from exhaustion wear and
tear and normal obsolescence.
/he term also applies to
amorti0ation of intangible assets the
use of which in trade or business i s o%
limited duration.
1. /he allowance for depreciation
must be reasonable.
2. It must be for property use or
employment in trade or business or
out of its not being used
temporarily during the year.
". /he allowance must be charged off
within the taxable year.
$. Schedule on the allowance must be
attached to the return.
PROPERT/ #EL& '/ ONE PERSON FOR LIFE
WIT# T#E RE<AIN&ER TO ANOT#ER PERSON
/he deduction shall be computed as
if the life tenant was the absolute owner
of the property and as such the expense
shall accrue to him.
PROPERT/ #EL& IN TR%ST
!llowable deduction shall be
apportioned between the income
beneficiaries and the trustees in
accordance with the pertinent provisions
of the instrument creating or in the
absence of such provisions on the basis
of the trust income allowable to each.
<ET#O&S OF &EPRECIATION
/he term Preasonable allowanceP
shall include ,but not limited to- an
allowance computed in accordance
Aith the regulations prescribed by the
Cepartment of Dinance under any of the
following methods.
1. Straight-line method
*&illemo
1
2. Ceclining-balance method
". Sum of the years-digit method
$. !ny other method which may be
prescribed by the Cepartment of
Dinance upon recommendation of
the .ommissioner of Internal
:evenue.
<ET#O&S OF &EPRECIATION
8id For3ula
1-Straight-line cost- salvage value
estimated life
2-Ceclining
balance
cost 6 depreciation x :ate
estimated life
"-Sum of the years
digits ,SIC-
nth period x cost- salvage
SIC
Illustration ! machine is used in the
manufacturing department of
.orporation ! compute the depreciation
per annum with the following facts?
.ost M '1&BBB Salvage
JalueM '&BBB
1. 4traight *ine !ethod with estimated
life M & years
1&BBB 6 &BBB M '2BBB
& years
2. "eclining balance with rate of 2BBE
Iear 1? 1&BBB 6 B x 2BBE M ')BBB
&
Iear 2?1&BBB6)BBB x 2BBE M'")BB
&
-. 4um o% the years digits
SIC for & years M &T$T"T2T1 or 1&
Iear 1? &(1& x ,1&BBB 6 &BBB-
M '"""".""
Iear 2? $(1& x ,1&BBB 6 &BBB-
M '2))).)*
AGREE<ENT AS TO %SEF%L LIFE ON W#IC#
&EPRECIATION RATE IS 'ASE&
/he ;ureau of Internal :evenue and
the taxpayer may agree in writing on the
useful life of the property to be
depreciated. /he agreed rate may be
modified if justified by facts or
circumstances. /he change shall not be
effective before the taxable year on
which notice in writing by certified mail
or registered mail is served by the party
initiating.
SPECIAL T/PES OF &EPRECIATION
1. 'etroleum Fperations
Cepreciation of all properties
directly related to production of
petroleum shall be allowed
under straight-line ,S8- or
declining balance ,C;- method
%ay shift from C; to S8 method
Gseful life? 1B years or shorter
life as allowed by the
.ommissioner
Gseful life of property not
directly related to production? &
years under straight line method
2. %ining Fperations
Cepreciation on all properties in
mining operations other than
petroleum operations at the
normal rate if expected life is
less than 1B years.
If expected life is more than 1B
years depreciation shall be any
number of years between &
years and the expected life.
". Cepreciation deductible by non-
resident aliens engaged in
trade(business or non-resident
corporation
a. Fnly when such property is
located in the Philippines.
G. &EPLETION OF OIL AN& GAS
WELLS AN& <INES
&EPLETION - exhaustion of natural
resources as in mines oil and gas
wells. /he natural resources are called
<wasting assets=. !s the physical units
representing such resources are
extracted and sold such assets move
towards exhaustion.
#nown as cost of depletion
allowance for mines oil gas wells and
other natural deposits starting calendar
year 1A*) and fiscal year beginning Suly
11A*&
TO W#O< ALLOWE&
Fnly mining entities owning
economic interest in mineral deposits.
)conomic interest means interest in
minerals in place investment therein or
secured by operating or contract
agreement for which income is derived
*&illemo
1
and return of capital expected from the
extraction of mineral.
%ere economic or pecuniary
advantage to be derived by production
by one who has no capital investment in
the mineral deposit does not amount to
economic interest.
FEAT%RES
1. Intangible 9xploration and
development drilling cost in
petroleum exploration shall be
treated either as?
a. revenue expenditures+ or
b. capital expenditures
2. /he total amount deductible for
exploration and development
expenditures shall not exceed &BE of
net income from mining operation.
/he excess shall be carried forward
to the succeeding year until fully
deducted.
#. C#ARITA'LE AN& OT#ER
CONTRI'%TIONS
TAX TREAT<ENT
A. &edu*ti(le
I Full
'. &edu*ti(le
Su(Je*t To
Li3itatio
5; :ecipient is?
,a- 4overnment
of the
'hilippines+
,b- !ny of its
agencies or
political
subdivisions+
or
,c- !ny fully-
owned
government
corporation
For .riorit)
a*ti6it) i9
1. Science+
2. 9ducation
". .ulture
$. 2ealth
&. 9conomic
Cevelopment
). 2uman
Settlement
*. Iouth and
Sports
Cevelopment
5; :ecipient is?
,a- 4overnment
of the
'hilippines+
,b- !ny of its
agencies or
political
subdivisions
Dor a non-priority
activity in any of the
areas mentioned in
! and exclusively for
a public purpose.

:; :ecipient is a
foreign or
international
organi0ation
with an
agreement with
the 'hilippine
4overnment on
deductibility or
in accordance
with special law.
:; >on-government
organi0ations
@; :ecipient is an
accredited non-
government
organi0ation
organi0ed( operated
for ,purposes-?
@; :ecipient is an
accredited
domestic
corporation or
association
organi0ed(opera
ted for
,purposes-?
*&illemo
1
,a- Scientific+
,b- 9ducational+
,c- .ultural+
,d- .haracter
building(you
th and sports
development
,e- .haritable
,f- Social
welfare
,g- 2ealth
,h- :esearch
Ad +ati+f)i!
the followi!
*oditio+9
1. /he donation
must be
utili0ed not
later than the
1&
th
day of
the "
rd
month
following the
close of its
taxable year.
2. /he
administrativ
e expense
must not
exceed "BE of
total
expenses.
". Gpon
dissolution
assets must
be distributed
to another
non-profit
domestic
corporation
or to the
state.
,a- Scientific
,b- 9ducational+
,c- .ultural+
,d- Iouth and sports
development
,e- .haritable
,f- Social welfare
(g) Religious
(h) Rehabilitation
o% 2eterans
If the conditions
in /able ! is not
complied with?
Su(Je*t to li3itatio9
,a- Individual -
1BE taxable
income from
trade
business or
profession
before
contribution
,b- .orporation -
&E taxable
income from
trade
business or
profession
before
contribution
1. /he contribution or gift must be
actually paid.
2. It must be given to the organi0ations
specified in the code.
". /he net income of the institution
must not inure to the benefit of any
private stockholder or individual.
"AL%ATION
.haritable contribution of property
other than money shall be based on the
ac5uisition cost of said property.
I. RESEARC# AN& &E"ELOP<ENT
7RP&;
TAX TREAT<ENT
)ither as
5. Re6eue Ex.editure+
:e5uisites?
a. 'aid or incurred during
the taxable year
b. Frdinary and necessary
expenses in connection with
trade business or profession
c. >ot chargeable to
capital account
:. &eferred Ex.e+e+
:e5uisites?
a. 'aid or incurred in
connection with trade business
or profession
b. >ot treated as expense
c. .hargeable to capital
account but not chargeable to
property subject to depreciation
or depletion.
A3out dedu*ti(le9
!mount ratably distributed over
a period of )B months beginning with
the month taxpayer reali0ed
benefits from such expenditures.
EXCL%SION FRO< RESEARC# AN&
&E"ELOP<ENT EXPEN&IT%RES
1. !ny expenditure for the ac5uisition
or improvement of land or for the
improvement of property to be used
in connection with research and
development subject to depreciation
and depletion.
2. !ny expenditure paid or incurred for
the purpose of ascertaining the
existence location extent or
5uality of any deposit of ore or other
mineral including oil or gas.
4. PENSION TR%ST CONTRI'%TIONS
PENSION TR%ST CONTRI'%TIONS 6 a
deduction applicable only to the
employer on account of its contribution
to a private pension plan for the benefit
of its employee. /his deduction is purely
business in character.
*&illemo
1
1. /he employer must have established
a pension or retirement plan to
provide for the payment of
reasonable pensions to his
employees+
2. /he pension plan is reasonable and
actuarially sound+
". It must be funded by the employer+
$. /he amount contributed must be no
longer subject to the control and
disposition of the employer+
&. /he payment has not yet been
allowed as a deduction+ and
). /he deduction is apportioned in
e5ual parts over a period of 1B
consecutive years beginning with the
year in which the transfer or
payment is made.
S%<<AR/ OF R%LES ON RETIRE<ENT 'ENEFITS
PLAN - PENSION TR%ST
1. Exe3.t fro3 I*o3e Tax
employees7 trust under 4ec. 96(3)
2. Ex*lu+io fro3 Gro++ I*o3e
amount received by the employee
from the fund upon compliance of
certain conditions under 4ec. -5(3)
(9)
@. &edu*tio fro3 Gro++ I*o3e
a. !mounts contributed by the
employer during the taxable
year into the pension plan to
cover the pension liability
accruing during the year 6
considered as ordinary and
necessary expenses under 4ec.
-+(A)(,)
b. 1(1B of the reasonable amount
paid by the employer to cover
pension liability applicable to
the years prior to the taxable
year or so paid to place the
trust in a sound financial basis 6
deductible under 4ec. -+(<)
8. PRE<I%< PA/<ENTS
ON #EALT# AN&-OR
#OSPITALIIATION INS%RANCE
&EFINITION9 It is an amount of premium
on health and(or hospitali0ation paid by
an individual taxpayer ,head of family or
married- for himself and members of his
family during the taxable year.
1. Insurance must have actually been
taken
2. /he amount of premium deductible
does not exceed '2$BB per family
or '2BB per month during the
taxable ear.
". /hat said family has a gross income
of not more than '2&BBBB for the
taxable year.
$. In case of married individual only
the spouse claiming additional
exemption shall be entitled to this -
deduction.
W#O <A/ A"AIL OF T#E &E&%CTION
1. Individual taxpayers earning purely
compensation income during the
year.
2. Individual taxpayer earning business
income or in practice of hi s
profession whether availing of
itemi0ed or optional standard
deductions during the year.
". Individual taxpayer earning both
compensation and business or
practice of profession during the
year.
NON,&E&%CTI'LE EXPENSES
REASONS FOR NON,&E&%CTI'ILIT/
1. 'ersonal expenses
2. .apital expenditures
". Items not normally subject to
income tax and therefore are not
deductible.
$. Items taken advantage of by the
taxpayer to avoid payment of
income tax.
SPECIFIC ITE<S 7SECTION @G;
1. 'ersonal living or family expenses+
2. !mount paid out for new buildings or
for permanent improvements or
betterment made to increase the
value of any property or estate
):cept that intangible drilling
and development cost incurred in
petroleum operations are
deductible+
". !mount expended in restoring
property or in making good the
exhaustion thereof for which an
allowance has been made+
*&illemo
1
$. 'remiums paid on any life insurance
policy covering the life of any officer
or employee or of any person
financially interested in any trade or
business carried on by the taxpayer
individual or corporate when the
taxpayer is directly or indirectly a
beneficiary under such policy. C4ec.
-9D
&. 8osses from sales or exchanges of
property betAeen related
ta:payers. C4 ec. -9D
TRANSACTIONS 'ETWEEN RELATE& PARTIES
1. ;etween members of the family+
K7amilyI includes only the
brothers sisters ,whether by the
whole or half blood- spouse
ancestors and lineal
descendants of the taxpayer.
2. 9xcept in the case of distributions in
li5uidation?
a. between an individual and a
corporation more than &BE in
value of the outstanding stock of
which is owned directly or
indirectly by or for such
individual+
b. between two corporations more
than &BE in value of the
outstanding stock of each of
which is owned directly or
indirectly by or for the same
individual if either one of such
corporations with respect to the
taxable year of the corporation
preceding the date of the sale of
exchange was a personal holding
company or a foreign personal
holding company+ or
". ;etween the grantor and a fiduciary
of any trust+
$. ;etween the fiduciary of a trust and
the fiduciary of another trust if the
same person is a grantor with
respect to each trust+
&. ;etween a fiduciary of a trust and a
beneficiary of such trust.
TAX CONSE$%ENCES
/he following are not deductible?
1. Interest expense C4ec. -+ (3)(5)D
2. ;ad debts C4ec. -+ ())(,)D
". 8osses from sales or exchanges of
property C4ec -9 (3)D
7:; OPTIONAL CORPORATE
INCO<E TAX
SECTION :C 7A;
APPLIES TO9
1. Comestic corporations ,C.-
2. :esident foreign corporations ,:D.-
RATE OF TAX AN& &ATE OF EFFECTI"IT/
5BL of the Gro++ I*o3e effective
Sanuary 1 2BBB
CON&ITIONS OR RE$%IRE<ENTS
1. ! tax effort ratio of 2BE of 4ross
>ational 'roduct
2. ! ratio of $BE income tax collection
to total tax revenues
". ! J!/ tax effort of $E of 4>'
$. ! B.AE ratio of .onsolidated 'ublic
Sector Dinancial 'osition ,.'SD'- to
4>'
OT#ER FEAT%RES
1. !vailable only to firms whose
ratio of?
.ost of sales
UM&&E
4ross sales or receipts from all
sources
2. /he election shall be irrevocable
for three ,"- consecutive years
<EANING OF GROSS INCO<E
Geeral *o*e.t
4ross sales
*ess
,1- Sales :eturn+
,2- Ciscount and allowances
,"- .ost of goods sold - means
all business expenses
directly incurred to produce
the merchandise to bring
them to their present
location and use.
7@; <INI<%< CORPORATE
INCO<E TAX 7<CIT;
SECTION :C 7E;
W#O ARE CO"ERE&0
%.I/ is imposed on domestic and
resident foreign corporations
*&illemo
1
1. 1henever such corporation has 0ero
or negative taxable income+ or
2. 1henever the amount of
%.I/ is greater than the normal
income tax due from such
corporation determined under
Section 2*Q!R.
LI<ITATIONS
1. /he %.I/ shall apply only to
domestic and resident foreign
corporations subject to the normal
corporate income tax ,income tax
rates under Sec 2*Q!R of the ./:'-.
2. In the case of a domestic
corporation whose operations or
activities are partly covered by the
regular income tax system and partly
covered under a special income tax
system the %.I/ shall apply on
operations covered by the regular
corporate income ta: system.
". In computing for the %.I/ due from
a resident foreign corporation only
the gross income from sources within
the 'hilippines shall be considered
for such purpose.
W#EN &OES A CORPORATION 'ECO<E
LIA'LE %N&ER T#E <CIT0
%.I/ is imposed beginning on
the fourth taxable year immediately
following the year in which such
corporation commenced its business.
/he taxable year in which the business
operations commenced shall be the year
when the corporation registers with the
;I:.
CARR/ FORWAR& OF T#E EXCESS
<INI<%< TAX
!ny excess of %.I/ over the normal
income tax can be carried forward
on an annual basis.
/he excess can be credited against
the normal income tax due in the
next " immediately succeeding
taxable years.
!ny amount of the excess %.I/
which cannot be credited against the
normal income tax due in the next
"-year period shall be forfeited.
RELIEF FRO< <CIT
/he Secretary of Dinance is
authori0ed to suspend the imposition of
the %.I/ on any corporation which
suffers losses because of?
a. prolonged labor dispute+
b. force majeure+ or
c. legitimate business reverses.
<4ubstantial losses %rom a prolonged
labor disputeP means losses arising from a
strike staged by the employees which
lasted for more than six ,)- months
within a taxable period and which has
caused the temporary shutdown of
business operations.
<7orce ma&eureP means a cause due
to an irresistible force as by P!ct of 4odP
like lightning earth5uake storm flood
and the like. /his term shall also
include armed conflicts like war and
insurgency.
<*egitimate business reversesP shall
include substantial losses sustained due
to fire robbery theft or
embe00lement or for other economic
reason as determined by the Secretary
of Dinance.
TAX RATE9 :L of !ro++ i*o3e or
taxable base pertinent to a
trading(merchandising concern or a
service entity
TAX 'ASE9 4ross Income
<EANING OF GROSS INO<E
Geeral *o*e.t - gross income means?
4ross sales
*ess
,1- Sales :eturn+
,2- Ciscount and allowances
,"- .ost of goods sold - means
all business expenses
directly incurred to produce
the merchandise to bring
them to their present
location and use.
8IN&S OF '%SINESS
A. Tradi! or <er*hadi+i! Co*er
Gro++ I*o3e M
gross sales(
Co+t of Sale+ M
1.Invoice cost of the
*&illemo
1
receipts less sales
returns discounts
and allowances and
cost o% goods sold
goods sold+
2.import duties +
".freight in
transporting the
goods to the place
where the goods
are actually sold+
$.insurance while
the goods are in
transit.
'. <aufa*turi!
Gro++ I*o3e
,Same-
Co+t of Sale+ Q !ll
cost of production of
finished goods such
as
1.raw materials
used+
2.direct labor+
".manufacturing
overhead+
$.freight cost+
&.insurance
premiums+
).other costs
incurred to bring
the raw materials
to the factory or
warehouse.
C. Ser6i*e+
Gro++ I*o3e Q
4ross receipts less
sales returns
allowances
discounts and costs
o% services
Co+t of Ser6i*e+ M !ll
direct costs and
expenses necessarily
incurred to provide
the services re5uired
by the customers and
clients including?
a. Salaries and
employee benefits
of personnel
consultants and
specialists directly
rendering the
service+
b. .ost of facilities
directly utili0ed in
providing the
service.
It shall ot
i*lude itere+t
ex.e+e e:cept %or
ban?s and other
%inancial
institutions.
4ross income e:cludes passive
income subject to final tax.
Fther income and 9xtraordinary
Income are included since :: A-A@
provides that gross sales include
sales contributory to income taxable
under the regular corporate tax.
See Aex T for interplay of normal
tax optional corporate income tax
and %.I/.
7A; I<PROPERL/ ACC%<%LATE&
EARNINGS 7IAE; TAX
SECTION :E
7RE"EN%E REG%LATIONS NO. : :FF5;
&EFINITION9 KImproperly accumulated
earnings (IA))I are the profits of a
corporation that are permitted to
accumulate instead of being distributed
by a corporation to its shareholders for
the purpose of avoiding the income ta:
with respect to its shareholders or the
shareholders of another corporation.
TAX RATE9 5FL of the Improperly
!ccumulated /axable Income ,in
addition to other taxes-.
Rati"nale be#ind IAET
If the earnings and profits were
distributed the shareholders would then
be liable to income tax thereon
whereas if the distribution were not
made to them they would incur no tax
in respect to the undistributed earnings
and profits of the corporation. /hus a
tax is being imposed+
a. in the nature of a penalty to the
corporation for the improper
accumulation of its earnings and
b. as a form of deterrent to the
avoidance of tax upon
shareholders who are supposed
to pay dividends tax on the
earnings distributed to them by
the corporation.
1I<PROPERL/ ACC%<%LATE& TAXA'LE
INCO<E2
/axable income for the year
!dd?
Income exempt from tax+
Income excluded from gross income+
Income subject to final tax+
*&illemo
1
>et operating loss carry-over ,NOLCO-
Total
8ess?
Income tax paid(payable for the taxable
year
Cividends actually or constructively
paid(issued from the applicable year7s
taxable income
!mount reserved for the reasonable
needs of the business as defined in the
:egulations
Tax (a+e of i3.ro.erl) a**u3ulated
eari!+ tax
EXCL%SIONS
Dor corporations using the calendar
basis the accumulated earnings tax
shall not apply on IA) as o% "ec. -,,
,008.
Dor fiscal year basis the tax shall
not apply to the 12-month period of
fiscal year 1AA*-1AA@.
I!9 as of the end of a calendar
or fiscal year period on or after Cec.
"1 1AA@ shall be subject to the 1BE
tax.
W#O ARE CO"ERE&0
Geeral Rule9 /he I!9 tax shall apply to
every corporation formed or availed
for the purpose of avoiding the
income tax with respect to its
shareholders or the shareholders of
any other corporation by permitting
earnings and profits to accumulate
instead of being divided or
distributed. /hese are?
1. "omestic corporations as
defined under the /ax .ode+
2. .orporations which are classified
as closely'held corporations.
those corporations at least
fifty percent ,&BE- in value
of the outstanding capital
stock or at least fifty
percent ,&BE- of the total
combined voting power of all
classes of stock entitled to
vote is owned directly or
indirectly by or for not more
than twenty ,2B- individuals.
Comestic corporations not
falling under the aforesaid
definition are therefore
publicly-held corporations.
Ex*e.tio9 /he said tax shall not apply
to?
1. 'ublicly held corporations (4ec. 50)
2. ;anks and other non-banks Dinancial
intermediaries (4ec. 50)
". Insurance companies (4ec. 50)
$. /axable partnerships (deemed to
have actually or constructively
received the ta:able income under
4ec. 8-")
&. 4eneral professional partnerships
(e:empt; ta:able against the
partners)
). >on- taxable joint ventures and
*. 9nterprises duly registered with the
'hilippine 9conomic Vone !uthority
,'9V!- under :.!. *A1) and
enterprises registered pursuant to
the ;ases .onversion and
Cevelopment !ct of 1AA2 under :.!.
*22* as well as other enterprises
duly registered under special
economic 0ones declared by law
which enjoy payment of special tax
rate on their registered operations
or activities in lieu of other taxes
national or local.
@. Doreign corporations CRR No. 65'
566,D
E"I&ENCE OF P%RPOSE TO A"OI&
INCO<E TAX
1. /he fact that any corporation is a
mere holding company or investment
company shall be prima %acie
evidence of a purpose to avoid the
tax upon its shareholders or
members.
I+ta*e+ idi*ati6e of .ur.o+e to
a6oid i*o3e tax u.o
+hareholder+9
1. Investment of substantial
earnings and profits of the
corporation in unrelated
business or in stock or
securities of unrelated
business+
2. Investment in bonds and other
long-term securities+
*&illemo
1
". !ccumulation of earnings in
excess of 1BBE of paid-up
capital not otherwise
intended for the reasonable
needs of the business as
defined in these :egulations.
2. /he fact that the earnings or profits
of a corporation are permitted to
accumulate beyond the reasonable
needs o% the business shall be
determinative of the purpose to
avoid the tax upon its shareholders
or members unless the corporation
by the clear preponderance of
evidence shall prove the contrary.
1Rea+oa(le eed+ of the
(u+ie++2 includes the reasonably
anticipated needs of the business
such as?
a. !llowance for the increase in the
accumulation of earnings up to
1BBE of the paid-up capital of
the corporation as of ;alance
Sheet date inclusive of
accumulations taken from other
years+
b. 9arnings reserved for definite
corporate expansion projects or
programs as approved by the
;oard of Cirectors or e5uivalent
body+
c. :eserved for building plants or
e5uipment ac5uisition as
approved by the ;oard of
Cirectors or e5uivalent body+
d. :eserved for compliance with
any loan covenant or pre-
existing obligation established
under a legitimate business
agreement+
e. 9arnings re5uired by law or
applicable regulations to be
retained by the corporation or in
respect of which there is legal
prohibition against its
distribution+
f. In the case of subsidiaries of
foreign corporations in the
'hilippines all undistributed
earnings intended or reserved
for investments within the
'hilippines as can be proven by
corporate records and(or
relevant documentary evidence.
/he controlling intention o% the
ta:payer is that which is manifested at
the time o% accumulation not
subse5uently declared intentions which
are merely the product of afterthought.
! speculative and indefinite purpose will
not suffice.
Cefiniteness of plan(s coupled with
action(s taken towards its
consummation is essential.
PERIO& FOR PA/<ENT OF &I"I&EN&-
PA/<ENT OF IAET
Cividends must be declared and paid
or issued not later than one year
following the close of the taxable year
otherwise the I!9/ if any should be
paid within fifteen ,1&- days thereafter.
7 B; INCO<E S%'4ECT TO
PREFERENTIAL OR SPECIAL
RATES
'ertains to income derived by a
particular individual or corporation
belonging to a class of income taxpayer
that is subject to either a preferential or
special rate.
Tax Rate+? 'lease refer to Aex C.
7G; GROSS INCO<E TAX 7GIT;
GROSS INCO<E TAX 7GIT; FOR<%LA
9ntire Income
*ess 9xclusions and Income subject
to Dinal /ax ,e.g. 'assive
Income-
4ross Income
!ultiply by /ax :ates ,E-
>et Income /ax Cue
GIT APPLIES TO
1. >on-resident alien not engaged in
trade or business ,2&E-+ and
2. >on-resident foreign corporation.
,"2E-
Tax Rate+9 'lease refer to Aex A
and '.
*&illemo
1
7C; FINAL INCO<E TAX
GENERAL PRINCIPLES
1. It is constituted as a full and final
payment of the income tax due from
the payee on a particular type of
income subject to final withholding
tax 7FWT;.
/he finality of the withholding
tax is limited only to the payee7s
income tax liability and does not
extend to other taxes that may be
imposed on said income.
2. /he income subjected to final
income tax is no longer subject to
the net income tax+ otherwise there
would be a violation of prohibited
double taxation.
". /he liability for the payment of the
tax rests primarily on the payor as
withholding agent.
$. /he payee is not re5uired to file an
income tax return for the particular
income subjected to D1/. It is the
withholding agent who files the
return.
&. /he rate of the final tax is
multiplied to the gross income.
/hus deductions and(or personal
and additional exemptions are not
allowed.
7D; FRINGE 'ENEFIT TAX 7F'T;
FRINGE 'ENEFIT TAX is a fina& income
tax on the employee which shall be
withheld and paid by the employer on a
5uarterly basis.
FRINGE 'ENEFIT 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. 2ousing
2. 9xpense !ccount
". Jehicle of any kind
$. 2ousehold personnel such as maid
driver and others
&. Interest on loan at less than market
rate to the extent of the difference
between the market rate and actual
rate granted.
). %embership fees dues and other
expenses borne by the employer for
the employee in social and athletic
clubs and similar organi0ations
*. 9xpenses for foreign travel
@. 2oliday and vacation expenses
A. 9ducational assistance to the
employee or his dependents+ and
1B. 8ife or health insurance and other
non-lire insurance premiums or
similar amounts on excess of what
the law allows.
PERSONS LIA'LE
/he E<PLO/ER ,as a withholding
agent- whether individual professional
partnership or a corporation regardless
of whether the corporation is taxable or
not or the government and its
instrumentalities
TAX RATE9 @:L ,from Sanuary 1 2BBB
onwards- of the Grossed up !onetary
2alue (G!2) of fringe benefits.
In the case of aliens the tax rates to
be applied on fringe benefit shall be as
follows?
1. >:!>9;/ 2&E
2. !liens employed by regional 2F
1& E
". !liens employed by F;G 1&E
$. !liens employed by 'etroleum
Service .ontractors and
Subcontractors 1&E
1G<"2 OF T#E FRINGE 'ENEFIT
REPRESENTS
1. /he whole amount of income
reali0ed by the employee which
includes the net amount of money or
net monetary value of property
which has been received+ plus
2. /he amount of fringe benefit tax
thereon otherwise due from the
employee but paid by the employer
for and in behalf of the employee.
<G<"= of the fringe benefit
shall be determined by dividing the
monetary value of the fringe benefit by
the Gro++ed u. di6i+or. /he 4rossed up
*&illemo
1
divisor is the difference between 1BBE
and the applicable rates.
/EAR
GROSSE& %P
&I"ISOR
RATE
1AA@ ))E "$E D1/
1AAA )*E ""E D1/
2BBB
onwards
)@E "2E D1/
FRINGE 'ENEFITS N) S%'4ECT TO F'T
1. Dringe benefits not considered as
gross income 6
a. if it is re5uired or necessary to
the business of employer
b. if it is for the convenience or
advantage of employer
2. Dringe ;enefit that is not taxable
under Sec. "2 ,;- 6 9xclusions from
4ross Income
". Dringe benefits not taxable under
Sec. "" Dringe ;enefit /ax?
a. Dringe ;enefits which are
authori0ed and exempted under
special laws such as the 1"th
month 'ay and Fther ;enefits
with the ceiling of '"BBBB.
b. .ontributions of the employer
for the benefit of the employee
to retirement insurance and
hospitali0ation benefit plans+
c. ;enefits given to the :ank and
Dile 9mployees whether granted
under a collective bargaining
agreement or not+ and
d. /he "e minimis benefits 6
benefits which are relatively
small in value offered by the
employer as a means of
promoting goodwill
contentment efficiency of
9mployees
/he term <RaH ad File
E3.lo)ee+= shall mean all
employees who are holding
neither managerial nor
supervisory position as defined
in the 8abor .ode
In the case of rank and file
employees fringe benefits other
than those excluded from gross
income under the /ax .ode and
other special laws are taxable
under the individual normal tax
rate.
&E&%CTI'ILIT/ TO T#E TAXA'LE
INCO<E OF T#E E<PLO/ER
Geeral Rule9 /he amount of taxable
fringe benefit and the fringe benefits tax
shall constitute allowable deductions
from gross income of the employer.
Ex*e.tio9
If the basis for computation of the
fringe benefits tax is the depreciation
value the 0onal value or the fair market
value only the actual fringe benefits tax
paid shall constitute a deductible
expense for the employer. /he value of
the fringe benefit shall not be
deductible and shall be presumed to
have been tacked on or actually claimed
as depreciation expense by the
employer. 'rovided however that if the
aforesaid 0onal value or fair market
value of the said property is greater
than its cost subject to depreciation the
excess amount shall be allowed as a
deduction from the employer3s gross
income as fringe benefit expense. (4ec.
5.--C"D, Rev. Reg. No. -'0.)
EXA<PLE OF &E <INI<IS 'ENEFITS NOT
S%'4ECT TO F'T 7RR NO. D,:FFF AN&
5F,:FFF;
1. %oneti0ed unused vacation leave
credits of ':IJ!/9 employees not
exceeding ,1B- days during the year
and the moneti0ed value of leave
credits paid to government officials
and employees
2. %edical cash allowance to
dependents of employees not
exceeding '*&B.BB per employee per
semester or '12& per month+
". :ice subsidy of '1BBB.BB or one ,1-
sack of &Bkg. rice per month
amounting to not more than
'1BBB?BB
$. Gniform and clothing allowance not
exceeding '"BBB per annum+
&. !ctual yearly medical benefits not
exceeding '1BBBB per annum+
). 8aundry allowance not exceeding
'"BB per month+
*. 9mployees achievement awards e. g.
for length of service or safety
achievement which must be in the
form of a tangible personal property
other than cash or gift certificate
*&illemo
1
with an annual monetary value of
not exceeding '1BBBB received by
the employee under an established
written plan which does not
discriminate

in favor paid
employees+
@. 4ifts given during .hristmas and
major anniversary celebrations not
exceeding '" BBB per employee per
annum+
A. Dlowers fruits books or similar
items given to employees under
special circumstances
1B. Caily meal allowance for overtime
work not exceeding 2&E of the basic
minimum wage.
Ti3e for fili! of =uarterl) re3itta*e
retur of fial i*o3e taxe+ withheld
/he tax imposed under Sec. "" shall
be treated as a final income tax on the
employee that shall be withheld and
paid by the employer whether a large
taxpayer or non-large taxpayer on or
7efore t#e 15
t#
da! of t#e mont#
following the calendar 5uarter in which
the fringe benefits were granted ,:: B$-
2BB2-.
Dor !dditional :ules on Dringe
;enefits refer to Aex #.
7E; CAPITAL GAINS TAX
S%<<AR/ OF TAX RATES
5. Idi6idual+
a. Fn sale of shares of stock of a
domestic corporation not listed
and traded thru a local stock
exchange held as capital asset
(n the Net Capital Gain
>ot over '1BBBBB 6 D/
of &E
!mount in excess of '1BBBBB 6 D/
of 1BE
b. Fn sale of real property in the
'hilippines held as capital asset
Fn the gross selling price, or the
current %air mar?et value at the
time of sale whichever is higher 6
D/ of )E
:. Cor.oratio+
a. Fn sale of shares of stock of a
domestic corporation not listed
and traded thru a local stock
exchange held as capital asset
(n the Net Capital Gain #
>ot over '1BBBBB 6 D/ of
&E
!mount in excess
of '1BBBBB 6 D/ of 1BE
b. Fn sale of land(building held as
capital asset
Fn the gross selling price, or the
current %air mar?et value at the
time of sale whichever is higher
6 D/ of )E
(Reyes, 2irgilio. Income 1a: *aA and
Accounting # A NeA Approach, 5665)
CAPITAL GAINS AN& LOSSES
,N -ENERA(
CONCEPT OF CAPITAL ASSETS
Gnder the tax code there is no
definition for the term Pcapital assetsP.
1hat it gives is the meaning of ordinary
assets?
a. Ordiar) a++et+ /%ec. 310 N,RC4
a. Stock in trade of the taxpayer or
other properties of a kind which
would properly be included in
the inventory of the taxpayer+
b. 'roperty held by the taxpayer
primarily for sale to customers in
the ordinary course of business+
c. 'roperty used in trade or
business and subject to
depreciation+ and
d. :eal property used in trade or
business.
b. Ca.ital A++et+ include all property
held by the taxpayer whether or not
connected in trade or business but
not including those enumerated
above ,W1- as ordinary assets.
CAPITAL GAIN CAPITAL LOSS
/he gain derived
from the sale or
exchange of capital
assets.
/he loss incurred
from the sale or
exchange of capital
assets.
*&illemo
1
NET CAPITAL
GAIN
NET CAPITAL
LOSS
/he excess of the
gains from sales(
exchanges of capital
assets over the
gains from such
sales( exchanges.
/he excess of the
losses from sales or
exchanges of capital
assets over the gains
from such sales or
exchanges.
TRANSACTION RES%LTING IN TAXA'LE
GAINS '%T NON,RECOGNITION OF LOSSES
a. Sale or exchange between
related parties+
b. 1ash sales by non-dealers of
securities and when not subject
to the stock transfer tax+
c. 9xchanges not solely in kind in
merger and consolidation+ and
d. Sales or exchanges that are not
at arms length.
RE$%ISITES FOR RECOGNITION OF
CAPITAL GAIN-LOSS
1. /he transaction must involve
property classified as capital
asset+ and
2. /he transaction must be a sale
or exchange or one considered as
e5uivalent to a sale or exchange.
R%LES ON T#E RECOGNITION OF
CAPITAL GAINS OR LOSSES
IN&I"I&%AL CORPORATION

#oldi!
Period
/he percentages
of gain or loss to be
taken into account
shall be the
following?
a.1BBE - if the
capital assets has
been held for 12
mos. or less+ and
b.&BE - if the
capital asset has
been held for
more than 12
mos.
.apital gains and
losses are
recogni0ed to the
extent of 1BBE.
,/here is no
holding period-
No,
dedu*ti(ilit) of
Net Ca.ital
lo++e+
.apital losses
are allowed only
to extent of the
capital gains+
hence the net
capital loss is
not deductible.
.apital losses
are allowed only
to extent of the
capital gains+
hence the net
capital loss is
not deductible.
Ex*e.tio? If any
domestic bank or
trust company a
substantial part of
whose business is
the receipt of
deposits sells any
bond debenture
note or certificate
or other evidence
of indebtedness
issued by any
corporation
,including one
issued by a
government or
political
subdivision-
Net Ca.ital Lo++
Carr) O6er
!llowed
/he net capital loss
,in an amount not in
excess of the taxable
income before
personal exemption for
such year- shall be
treated in the
succeeding year ,but
not beyond 12 months-
as a deduction as
short-term capital loss
,at 1BBE- from the net
capital gains.
>ot allowed
See Aex % for illustration.
SALE OR EXC#ANGE OF CAPITAL ASSETS
/he following are considered as sale
or exchange of capital assets?
1. :etirement of bonds
2. Short sales of property
". Dailure to exercise privilege or
option to buy or sell property
$. Securities becoming worthless
&. Cistribution in li5uidation of
corporations
*&illemo
1
). :eadjustment of interest in a
general professional partnership.
TAX FREE EXC#ANGES
Sales or exchanges resulting in non-
recognition of gains or losses?
1. 9xchange solely in ?ind in legitimate
3er!er+ ad *o+olidatio+
includes?
a. ;etween the corporations which
are parties to the merger or
consolidation ,property for
stocks-+
b. ;etween a stockholder of a
corporation party to a merger or
consolidation and the other
party corporation ,stock for
stock-+
c. ;etween a security holder of a
corporation party to a merger or
consolidation and the other
party corporation ,securities for
securities-
2. /ransfer to a *otrolled *or.oratio
6 exchange of property for stocks
resulting in ac5uisition of corporate
control by a person alone or
together with others not exceeding
four.
1Cotrol2 means ownership of
stocks in a corporation amounting to
at least &1E of the total voting
power of all classes of stocks
entitled to vote.
SALE OR EXC#ANGE OF OR&INAR/ ASSETS
4eneral rules of income taxation
apply to both gain and loss.
See Aex & ,4ross Income 6 4ains
from dealings in property-
S%<<AR/ OF TAX TREAT<ENT OF
GAINS-LOSSES IN T#E EXC#ANGE OF
PROPERTIES
Geeral Rule9 Gpon the sale or
exchange of property the entire gain or
loss as the case may be shall be
recogni0ed. QSec. $B ,. 1-R
Ex*e.tio+9
1. /ransactions where gains and losses
are not recogni0ed 6
a. 9xchange solely in kind in
legitimate mergers and
consolidation
b. /ransfer to a controlled
corporation QSec. $B,. 2-R
1. /ransactions where
gain is recogni0ed
but not the loss 6
a. /ransactions between related
taxpayers QSec. ")R
b. Illegal transactions QSec. A)
:ev. :eg. 2R
c. 9xchanges of property not
solely in kind in pursuance of
corporate mergers and
consolidations QSec. $B ,. "-R
I<PORTANT &ISTINCTION
If it is an ordiar) a++et the
ordinary gains and losses are considered
in determining income or loss from
trade business or profession. (4ee 4ecs.
-5A, -+")
If it is a *a.ital a++et determine
further whether or not it is a real
property located in the 'hilippines. If it
is then it is subject to capital gains tax.
(4ee 4ecs. 5+", 58"/) (4ee also 4ec s.
5+C, 58"5) If not the capital gains and
losses are considered in determining the
taxable income. (4ec. -0)
%>ARE% )? %)C@
/he taxation of shares of stock
whether or not listed and traded in the
stock exchange is subject to %inal ta:.
W#O ARE LIA'LE TO T#E TAX
1. Individual taxpayer citi0en or alien
2. .orporate taxpayer domestic or
foreign
". Fther taxpayers such as estate
trust trust funds and pension among
others.
RATES OF TAX
1. Share+ of +to*H ot traded throu!h
a lo*al +to*H ex*ha!e 6 >et capital
gains derived during the taxable
year from sale exchange or
transfer shall be taxed as follows ,on
a per transaction basis-?
>ot over ' 1BBBBB - &E
*&illemo
1
Fver ' 1BBBBB - 1BE
2. Share+ of +to*H li+ted throu!h a
lo*al +to*H ex*ha!e 6 X of 1E of
the gross selling price of the stock.
EXCEPTIONS TO T#E TAX
1. 4ains derived by dealers in
securities.
2. !ll other gains which are specifically
exempt from income tax under
existing investment incentives and
other special laws.
'ASIS FOR CO<P%TING GAIN OR LOSS 7'IR
R%LING 5AG,ED;
/he fair market value ,D%J- of the
sale of shares not traded but listed
in the stock exchange is the highest
closing price on the day the shares
were sold transferred or exchanged.
1hen no sale is made in the stock
exchange the D%J shall be the
highest selling price on the day
nearest to the day of sale transfer
or exchange.
Dor shares not listed in the
exchange the D%J shall be the book
value nearest the valuation date
/he above rules shall be used in
computing for the net capital gain(loss
for disposition of shares.
I<PORTANT FEAT%RES
1. Sale of shares of stock of a domestic
corporation listed and traded in a
local stock exchange and that of
initial public offering shall be subject
to 'ercentage tax ,;usiness /ax-
2. .apital losses sustained during the
year ,not listed and traded in a local
stock exchange- shall be allowed as
a capital loss deductible on the same
taxable year only ,no carry-over-
". /he entire amount of capital gain
and capital loss ,not listed and
traded in a local stock exchange-
shall be considered without taking
into account holding period
irrespective of who is the taxpayer
,all 1BBE-
$. >on-deductibility of losses on wash
sales.
FILING AN& PA/<ENT OF TAX
1. Li+ted ad Traded i the Sto*H
Ex*ha!e - /he stockbroker shall
turn over the tax collected to the
;.I.:. within %ive (/) banking days
from the date of collection.
2. Not traded throu!h the +to*H ex*ha!e
- It shall be paid by the seller on a per
transaction basis upon filing of the
re5uired return within -6 days
following each sale or other
disposition of shares of stock.

/REA( PR)PERA4
PERSONS LIA'LE AN& TRANSACTIONS
AFFECTE&
5. Idi6idual tax.a)er+> e+tate+ ad
tru+t+
Sale or exchange or other
disposition of real property
considered as capital assets.
/he said sale shall include Lpacto
de retro saleP and other conditional
sale.
:. &o3e+ti* Cor.oratio
Sale or exchange or disposition
of lands and(or building which are
not actually used in business and are
treated as capital asset.
EXCEPTIONS TO T#E TAX
1. 4ains derived by dealers in real
estate
RATE AN& 'ASIS OF TAX
! final tax of )E is based on the
gross selling price or %air mar?et value
or Gonal value whichever is higher.
Note9 4ain or loss is immaterial
there being a conclusive presumption of
gain.
See Aex G 6 4uidelines in
Cetermining 1hether a :eal
'roperty is a .apital or an Frdinary
!sset.
EXE<PTION OF CERTAIN IN&I"I&%ALS FRO< T#E
CAPITAL GAINS TAX ON T#E SALE OR
&ISPOSITION OF A PRINCIPAL RESI&ENCE
*&illemo
1
Coditio+9
a. Sale or disposition of the old
principal residence+
b. ;y natural persons - citi0ens or aliens
provided that they are residents
taxable under Sec. 2$ of the .ode
,does not include an estate or a
trust-+
c. /he proceeds of which is fully
utili0ed in ,a- ac5uiring or ,b-
constructing a new principal
residence within eighteen ,1@-
calendar months from date of sale or
disposition+
d. >otify the .ommissioner within
thirty ,"B- days from the date of sale
or disposition through a prescribed
return of his intention to avail the
tax exemption+
e. .an only be availed of only once
every ten ,1B- years+
f. /he historical cost or adjusted basis
of his old principal residence sold
exchanged or disposed shall be
carried over to the cost basis of his
new principal residence
g. If there is no full utili0ation the
portion of the gains presumed to
have been reali0ed shall be subject
to capital gains tax.
GROSS INCO<E FRO< &IFFERENT SO%RCES
7SEC. A:;
'lease refer to Aex I.
ACCO%NTNG PERIO&S AN& <ET#O&S OF
ACCO%NTING
I. ACCO%NTING PERIO&S
A. Geeral rule 7Se*. A@;
/axable income is computed
upon the basis of taxpayer7s
annual accounting period ,fiscal or
calendar year- in accordance with
the method of accounting
employed.
If no method of accounting
employed or method does not
clearly reflect the income
computation shall be made in
accordance w( such method as
the opinion of the .ommissioner
clearly reflects the income.
/axable income is computed
based on calendar year if?
1. accounting period is other
than a fiscal year
2. taxpayer has no accounting
period
". taxpayer does not keep
books
$. taxpayer is an individual
Fi+*al )ear? accounting period of
12 months ending on the last day
of any month other than
Cecember
Caledar )ear? accounting period
from Sanuary 1 to Cecember "1
'. Period+ i whi*h ite3+ of !ro++
i*o3e i*luded 7Se*. AA;
!mount of all items of gross
income shall be included in the
gross income for the taxable
year in which received by the
taxpayer unless any such
amounts are to be properly
accounted for in a different
period under methods of
accounting permitted
In case of death of taxpayer?
include for the taxable year in
which falls the date of his death
all amounts which accrued up to
the date of his death+ if not
otherwise properly includible in
respect of such period or a prior
period
C. Period for whi*h dedu*tio ad
*redit+ taHe 7Se*. AB;
Ceductions provided in this /itle
shall be taken for the taxable
year in which Lpaid or incurred
dependent upon the method of
accounting upon the basis of
which the net income is
computed unless in order to
reflect the income deductions
should be taken as of a different
period.
In case of death of taxpayer?
deductions allowed for the
taxable period in which falls the
date of his death amounts
accrued up to the date of his
death if not otherwise properly
allowable in respect of such
period or a prior period.
*&illemo
1
&. Cha!e of a**outi! .eriod
7Se*.AG;
#inds of changes?
- from fiscal year to calendar
year
- from calendar year to fiscal
year
- from one fiscal year to
another
9ffect of change? >et income
shall with the approval of the
.ommissioner be computed on
the basis of the new accounting
period subject to Sec. $*.
E. Fial or adJu+t3et retur+ for a
.eriod of le++ tha 5: 3oth+
,1- :eturns for short period
resulting from change of
accounting period
taxpayer is other than an
individual
with the approval of the
.ommissioner
If change is from fiscal year to
calendar year?
- separate final or adjustment
return be made for the
period between the close of
the last fiscal year for which
return was made and the
following Cecember "1
If change is from calendar year
to fiscal year?
the last calendar for which
return was made and the
date designated as the close
of the fiscal year
If change is from one fiscal year
to another?
the former fiscal year and
the date designated as the
close of the new fiscal year
,2- Income computed on basis of
short period
In what casesH
a. 1here a separate final or
adjustment return is made
on account of a change in
accounting period
b. In all other cases where a
separate final or
adjustment return is
re5uire or permitted by
:K: prescribed by Sec. of
Dinance. upon
recommendation of
.ommissioner
;oth shall be made for a
fractional part of a year.
/hen income is computed on the
basis of the short period for
which separate final or
adjustment return is made.
II. <ET#O&S OF ACCO%NTING
A. Ca+h 3ethod
:ecognition of income
and expense dependent on
inflow or outflow of cash.
5. A**rual 3ethod
%ethod under which
income gains and profits are
included in gross income when
earned whether received or not
and expenses are allowed as
deductions when incurred?
although not yet paid. It is the
right to receive and not the
actual receipt that determines
the inclusion of the amount in
gross income
9xamples
?
1. interest or rent income
earned but not yet
received
2. rent expense accrued
but not yet paid
". wages due to workers
but remaining unpaid
:. A**outi! for
lo!,ter3 *otra*t+
*ong'term contracts?
building installation or
construction contracts
covering a period in excess
of 1 yr
'ersons whose gross income
is derived in whole or in part
*&illemo
1
from such contracts shall
report such income upon the
basis of percentage o%
completion
/he return is accompanied
by a return certificate of
architects or engineers
showing the percentage of
completion during the
taxable year of the entire
work performed under the
contract
Ceductions from gross
income? all expenditures
made during the taxable
year on account of the
contract? account being
taken of the material and
supplies on hand at the
beginning and end of the
taxable period for use in
connection with the work
under the contract but not
yet so applied.
!mended return may be
permitted (re5uired by the
.ommissioner? if upon
completion of contract
taxable income has not been
clearly reflected for any
year,s-.
@. I+tall3et
(a+i+
,1- Sales of dealers in personal
property
Gnder rules and
regulations prescribed by
the Sec. of Dinance a person
who regularly sells or
otherwise disposes of
personal property on the
installment plan may return
as income there from in any
taxable year that proportion
of the installment payments
actually received in that
year which the gross profit
reali0ed or to be reali0ed
when payment is completed
bears to the contract price.
):ample 4ale in 5666
.ontract price ,.'-
,installments
receivable- '2BB BBB
.ost 1&BBBB
4ross profit ,4'- &BBBB
Installments payable in 2
e5ual annual installments
4'(.' ratio
M &BBBB(2BBBBB M 2&E
.ollections in 2BBBM'1BBBBB
Income for 2BBB
M '1BBBBB x 2&E M '2&BBB
,2- Sales of realty and casual
sales of 'ersonalty
In cases o%
a. casual sale or other
casual disposition of
personal property
,other than
inventory on hand of
the taxpayer at the
close of the taxable
year- for a price Y
'1BBB or
b. sale or other
disposition of real
property if in either
case the initial
payments do not
exceed 2&E of the
selling price
$oA may income be
returned? same as in
sales of dealer in
personal property above
Initial payments
payments received in
cash or property other
than evidences of
indebtedness of the
purchaser during the
taxable period in which
the sale or other
disposition is made.
,"- Sales of real
property considered as
capital asset by individuals
Individual who sells of
disposes of real
property considered as
capital asset and is
otherwise 5ualified to
report the gain under ,2-
above may pay the
capital gains tax in
*&illemo
1
installments under rules
and regulations to be
promulgated by the Sec.
of Dinance.
,$- .hange from accrual to
installment basis
taxpayer must be
entitled to benefits
under ,1- hereof sales of
dealers in personal
property
in computing income for
the year of change or
any subse5uent year?
amounts actually
received during any such
year on account of sales
or other dispositions of
property made in any
prior year shall not be
excluded.
A. Allo*atio of
i*o3e ad dedu*tio+
!pplicable to? cases of 2 or
more organi0ations trades
or businesses ,incorporated
and organi0ed within the
'hilippines- owned or
controlled directly
(indirectly by the same
interest
.ommissioner is authori0ed
to distribute apportion or
allocate gross income or
deductions between or
among such organi0ation
trade or business if he
determines that such
distribution apportionment
or allocation is necessary in
order to prevent evasion of
taxes or to clearly reflect
the income of any such
organi0ation trade or
business.
FILING OF TAX RET%RN AN& PA/<ENT OF TAX
TAX RET%RN 6 /his is a report made by
the taxpayer to the ;I: of all gross
income received during the taxable
year the allowable deductions including
exemptions the net taxable income the
income tax rate the income tax due
the income tax withheld if any and the
income tax still to be paid or
refundable.
PERSONS RE$%IRE& TO FILE INCO<E TAX
RET%RN
a. Idi6idual
1. :esident citi0en+
2. >on-resident citi0en on income
from within the 'hil.+
". :esident alien on income from
within the 'hil.+
$. >:!9/; on income from within
the 'hil.
&. !n individual ,citi0ens ( aliens-
engaged in business or practice
of a profession within the 'hil.
regardless of the amount of
gross income+
). Individual deriving compensation
income concurrently from two or
more employers at any time
during the taxable year+
*. Individual whose pure
compensation income derived
from sources within the 'hil.
exceeds ')BBBB.
b. Taxa(le E+tate ad Tru+t
c. Geeral Profe++ioal Parter+hi.
d. Cor.oratio
1. >ot exempt from income tax+
2. 9xempt from income tax under
Sec. "B of >I:. but has not
shown proof of exemption.
IN&I"I&%ALS EXE<PT FRO< FILING INCO<E TAX
RET%RN
1. Individual whose gross income does
not exceed total personal and
additional exemptions+
2. Individual with respect to pure
compensation income derived from
sources within the 'hilippines the
income tax on which has been
correctly withheld+
". Individual whose sole income has
been subjected to final withholding
income tax+
$. Individual who is exempt from
income tax.
*&illemo
1
S%'STIT%TE& FILING is when the
employer7s annual return may be
considered as the <substitute= Income
/ax :eturn ,I/:- of employee inasmuch
as the information provided in his
income tax return would exactly be the
same information contained in the
employer7s annual return.
#OW IS 1S%'STIT%TE& FILING2 &IFFERENT
FRO< 1NON,FILING20
Su(+tituted Fili! 6 an individual
taxpayer although re5uired
under the law to file his income
tax return will no longer have
to personally file his own income
tax return.
6 but instead the
employerFs annual in%ormation
return filed is the considered
<substitute= income tax return
of the employee inasmuch as the
information in the employer7s
return is e:actly the same
in%ormation contained in the
employee7s return.
No,fili! 6 applicable to certain
types of individual taxpayers
who are not re5uired under the
law to file an income tax return.
9xample? employee whose
pure compensation income does
not exceed ')BBBB and has only
one employer for the taxable
year and whose tax withheld is
e5uivalent to his tax due.
S%'STIT%TE& FILING OF INCO<E TAX RET%RNS
'/ E<PLO/EES RECEI"ING P%REL/
CO<PENSATION INCO<E. NSECTION A> RR @,
:FF:M R<C F5,F@O
Re=ui+ite+9
1. /he employee receives purely
compensation income ,regardless of
amount- during the taxable year.
2. /he employee receives the income
only from one employer during the
taxable year.
". /he amount o% ta: due from the
employee at the end of the year
eBuals the amount of tax withheld
by the employer.
$. /he employee3s spouse also complies
with all three ,"- conditions stated
above.
&. /he employer files the annual
information return ,;I: Dorm >o.
1)B$-.D-
). /he employer issues ;I: Dorm 2"1)
,Fct 2BB2 9>.S- version to each
employee
IN&I"I&%ALS NOT $%ALIFIE& FOR S%'STIT%TE&
FILING 7STILL RE$%IRE& TO FILE;
1. Individuals deriving compensation
from two or more employers
concurrently or successively during
the taxable year.
2. 9mployees deriving compensation
income regardless of the amount
whether from a single or several
employers during the calendar year
the income tax of which has not
been withheld correctly ,i.e. tax due
is not e5ual to the tax withheld-
resulting to collectible or refundable
return.
". 9mployees whose monthly gross
compensation income does not
exceed '&BBB or the statutory
minimum wage whichever is higher
and opted for non-withholding of tax
on said income.
$. Individuals deriving other non-
business non-profession-related
income in addition to compensation
income not otherwise subject to
final tax.
&. Individuals receiving purely
compensation income from a single
employer although the income tax of
which has been correctly withheld
but whose spouse falls under 1 to $
above.
). >on-resident aliens engaged in trade
or business in the 'hilippines
deriving purely compensation
income or compensation income
and other non-business non-
profession-related income.
N(1) >on-filing of I/: for employees
who are 5ualified for the substituted
filing shall be (P1I(NA* for the taxable
year 2BB1 the returns for which shall be
filed on or before !pril 1& 2BB2.
/hereafter substituted filing where
*&illemo
1
applicable shall be !AN"A1(RM. C4ec /
RR -'5665)
RE$%IRE<ENT OF 'AN8S FOR S%'<ISSION OF
AN ITR FOR LOAN OR CRE&IT CAR&
APPLICATIONS
;anks may re5uire the submission of
;I: Dorm >o. 1*BB ,for employees not
entitled to substituted filing of I/:-.
2owever for employees entitled to
substituted filing of I/: the submission
of the Soint .ertification will suffice.
4OINT CERTIFICATION - It is a sworn
statement made by the employer and
employee which serve the following
purposes?
1. It contains the employee3s consent
that ;I: Dorm >o. 1)B$.D may be
considered his substituted return in
lieu of ;I: Dorm >o. 1*BB which the
employee no longer filed.
2. It contains the employer3s
certification that he has reported
the employee3s income to the ;I:
and that he has remitted the taxes
on the employee3s income as
indicated in ;I: Dorm >o. 1)B$-.D.
". It serves as proof of financial
capacity in case the employee
decides to apply for a bank loan or a
credit-card or for any other
purpose as if he had in fact filed a
;I: Dorm >o. 1*BB.
IN&I"I&%ALS RE$%IRE& TO FILE AN
INFOR<ATION RET%RN
Individuals not re5uired to file an
income tax return may nevertheless be
re5uired to file an information return
pursuant to rules and regulations
prescribed by the Secretary of Dinance
upon recommendation of the
.ommissioner.
PLACE OF FILING
1. 8egal residence - authori0ed agent
bank+ :evenue Cistrict Ffficer+
.ollection agent or duly authori0ed
treasurer
2. 'rincipal place of business
". 1ith the Fffice of the .ommissioner
Ti3e For Fili! 7Pa) a+ )ou file +)+te3;
Apri& 15 6 for those earning sole
compensation income or solely business
practice of profession or combination of
business and compensation.
RET%RN AN& PA/<ENT OF ESTI<ATE& INCO<E
TAX '/ IN&I"I&%AL 7SELF,E<PLO/E& OR
PRACTICE OF PROFESSION;
1. Dirst 5uarter - !pril 1& of current year
2. Second 5uarter -!ugust 1& of current
year
". /hird 5uarter 6 >ovember 1& of current
year
$. Dinal 5uarter - !pril 1& of the following
year.
Note? 1hen the tax due is in excess of '2
BBB - the taxpayer may elect to pay in two
,2- e5ual installments?
1
st
installment - !pril 1&
2
nd
installment - on or before Suly 1&
EXTENSION OF TI<E TO FILE RET%RN
/he .ommissioner may on
meritorious cases grant a reasonable
extension of time for filing income tax
return and may subject the imposition of
twenty ,2B- percent interest per annum
from the original due date.
Retur Of #u+(ad Ad Wife
File oe 75; retur for the taxpayer
year if following re5uisites
complied+
a. %arried individuals ,citi0ens
resident or nonresident aliens-
b. Co not derived income purely
from compensation.
If i3.ra*ti*a(le to file oe retur?
each spouse file a separate return of
income but the return so filed shall
be consolidated by the ;ureau for
the purposes of verification for the
year.
*&illemo
1
%N<ARRIE& <INOR
Income of unmarried minors derived
from property received by the living
parent shall be included in the
return of the parent except?
a. when donor7s tax has been paid
on such property or
b. when transfer of such property is
exempt from donor7s tax
PERSONS %N&ER &ISA'ILIT/
If a taxpayer is unable to make his
own return it may be made by his
1. duly authori0ed agents+
2. representative+
". by guardian+
$. other person charged with the care
of his person or property+
who will assume the responsibility of
making the return and incurring
penalties provided for erroneous
false or fraudulent return.
RET%RN OF ESTATE> TR%ST AN& PARTNES#IP
9state and /rust with gross income
of '2BBBB or more and partnership
,whether professional or business- shall
file their income tax return on or before
!pril 1&.
TAX RET%RNS OF GENERAL PROFESSIONAL
PARTNERS#IPS 7GPP;
9ach 4'' shall file in duplicate a
return of its income ,except those
income exempt-
Shall set forth?
a. items of gross income and
deductions allowed
b. names of partners
c. /I>
d. address and share of each
partner
Tax Retur of a Cor.oratio
/hose re5uired to file?
1. .orporation subject to tax having
existed during the taxable year
whether with income or not.
2. .orporation in the process of
li5uidation or receivership.
". Insurance company doing business in
the 'hilippines or deriving income
therein
$. Doreign corporation having income
from within the 'hilippines
Fili! of retur 7Pa) a+ )ou file +)+te3;
Zuarterly returns for the first three
,"- 5uarters on a strictly sixty ,)B- day
basis and the final or adjusted return on
the 1&th day of the fourth ,$th- month
following the close of either a
-
fiscal on
calendar year.

See Aex " for Illustration.
Who +hall file0
/he return shall be filed by the
president vice-president or other
principal officer and shall be sworn to by
such officer and by the treasurer or
assistant treasurer.
WIT##OL&ING TAXES
Withholdi! Taxe+
8id+9
1. 1ithholding /ax at Source?
a. Dinal 1ithholding /ax
b. .reditable 1ithholding /ax
,9xpanded withholding tax-
2. 1ithholding /ax on .ompensation
,1ages-
". 1ithholding /ax on .reditable
Jalue-!dded /ax
$. 1ithholding of 'ercentage /ax
FINAL
WIT##OL&ING
TAX S/STE<
CRE&ITA'LE
WIT##OL&ING
TAX S/STE<
/he amount of
income tax withheld
by the withholding
agent is constituted
as a full and final
payment of the
income due from the
payee on the said
income. QSec. 2.&*
,a- :ev. :eg. 2-A@R
/axes withheld on
certain income
payments are
intended to e5ual or
at least approximate
the tax due from the
payee on the said
income.
*&illemo
1
/he liability for
payment of the tax
rests primarily on
the payor or the
withholding agent.
/he payee is not
re5uired to file an
income tax return
for the particular
income.
/he income
recipient is still
re5uired to file an
income tax return
and(or pay the
difference between
the tax withheld and
the tax due on the
income. QSec.
2.&*,;- :ev. :egs.
2-A@R
Ti3e to Withhold Tax at Sour*e
- arises at the time an income is paid
or payable whichever comes first. /he
term <payable= refers to the date the
obligation becomes due demandable or
legally enforceable. (4ec. 5./+.+ Rev.
Regs. 5.0.)
Nature of Withholdi! A!et?+ Lia(ilit)
/he withholding agent is directly
and independently liable for the correct
amount of the tax that should be
withheld from the dividend remittance.
(Commissioner vs. Procter and Gamble,
GR No. 99.-., "ecember 5, ,00,)
CONSE$%ENCES FOR FAIL%RE TO WIT##OL&9
1. liable for surcharges and
penalties+
2. liable upon conviction to a penalty
e5ual to the total amount of the
tax not withheld or not accounted
for and remitted. (4ec. 5/,, ,008
NIRC)
". any income payment which is
otherwise deductible from the
payor7s gross income will not be
allowed as a deduction if it is
shown that the income tax
re5uired to be withheld is not paid
to the ;I:. (4ec. 5./../, Rev. Reg.
5'0.)
Withholdi! Tax O Co3.e+atio
9very employer must withhold
from compensation paid an amount
computed in accordance with the
regulations.
Ex*e.tio9
1here such compensation
income of an individual?
1. Coes not exceed the statutory
minimum wages+ or
2. Dive thousand ,'&BBB- monthly
,')BBBB a year-
<#ic#ever is #i"#er.
ELE<ENTS OF WIT##OL&ING ON
CO<PENSATION
1. /here must be an employer-
employee relationship
2. /here must be payment of
compensation or wages for services
rendered
3. There must be a payroll period.
CO<PENSATION EXE<PTE&
1. :emunerations received as an
incident of employment
2. :emunerations paid for agriculture
labor
". :emunerations paid for domestic
services
$. :emunerations for casual not in the
course of an employer3s trade or
business.
&. .ompensation for services of a
citi0en resident of the 'hilippines
for a foreign government or an
international organi0ation
). Camages
*. 8ife insurance
@. !mount received by the insured as
return of premium
A. .ompensation for injuries and
sickness
1B. Income exempt under treaty
11. /hirteenth ,1"th- month pay and
other benefits
12. 4SIS+ SSS+ 'hilhealth and other
contributions
Tax,Free Co6eat 'ON& 9%ec. 53/C4:
CO"ENANT 'ON&S 6 bonds mortgages
deeds of trust and other similar
obligations of domestic(resident foreign
corporation which contain a
contract(provision by which the obligor
agrees+
1. to pay any portion of the tax
imposed upon the obligee+
2. to reimburse the obligee for any
portion of the tax+ or
". to pay the interest without
deduction for any tax which the
*&illemo
1
obligor may be re5uired(permitted
to pay or to retain therefrom.
Fbligor shall deduct and withhold a
tax M "BE of the interest and other
payments whether interest or other
payments are payable annually or at
a shorter period+ whether bonds
securities obligations had been(will
be issued( marketed and the
interest and other payments paid
within and without the 'hilippines if
the interest or other payment is
payable to a non-resident alien or a
citi0en or resident of the 'hilippines
I*o3e of Re*i.iet 9%ec. 52 /d4:
Income which any creditable tax is
re5uired to be withheld at source
shall be included in the return of its
recipient.
/he e:cess of the amount of tax
withheld over the tax due on his
return shall be refunded to him
subject to Section 2B$ ,abatement
refund(credit taxes-.
If amount withheld at source is less
than the tax due on his return the
difference is paid in accordance with
Section &) ,payment and assessment
of income tax-.
!ll taxes withheld shall be
considered as trust funds and
maintained in a separate account
and not commingled with any other
funds of the withholding agent.
'. TRANSFER TAXES
TRANSFER TAX INCO<E TAX
/ax on transfer of
property.
/ax on income
:ates are lower
--&E to 2BE -
estate tax
-- 2E to 1& E or
"BE - donor7s
tax
:ates are higher
-- &E to "2E
8esser exemptions %ore exemptions
75; ESTATE TAXES
&EFINITION9 an excise tax on the right of
transmitting property at the time of
death and on the privilege that a person
is given in controlling to a certain extent
the disposition of his property to take
effect upon death.
E+tate Tax For3ula
4ross 9state (4ec. ./)
*ess ,1- Ceductions (4ec. .9)
,2->et share of the SS in the .''
>et /axable 9state
!ultiply by /ax rate (4ec. .+)
9state /ax due
*ess /ax .redit Qif anyR (4ec. .9C)D or
,,6C3D
9state /ax Cue if any

GROSS ESTATE
A de*edet?+ !ro++ e+tate i*lude+
/%ec. 254
RESI&ENT P NON,
RESI&ENT
CITIIEN>
RESI&ENT ALIEN
&ECE&ENT
NON,RESI&ENT
ALIEN &ECE&ENT
1. :eal property
Aherever
situated
1. :eal property
situated in the
Philippines.
2. 'ersonal
property
Aherever
situated
a- /angible
and
b- Intangible
2. 'ersonal property
a- /angible
property
situated in the
Philippines
b- Intangible
personal
property with
a situs in the
Philippines
unless
exempted on
the basis of
reciprocity.
The law that !o6er+ the i3.o+itio of
e+tate tax
*&illemo
1
/he statute in force at the time o%
death o% the decedent shall govern
estate taxation.
Ita!i(le .er+oal .ro.ertie+ with a
+itu+ i the Phil. /%ec. 1540 1113
N,RC4
1. Dranchise which must be exercised
in the 'hilippines+
2. Shares obligations or bonds issued
by any corporation or sociedad
anonima organi0ed or constituted in
the 'hilippines in accordance with
its laws+
". Shares obligations or bonds issued
by any foreign corporation eighty-
five per centum ,@&E- of the
business of which is located in the
'hilippines+
$. Shares obligations or bonds issued
by any foreign corporation if such
shares obligations or bonds have
ac5uired a business situs in the
'hilippines+
&. Shares or rights in any partnership
business or industry established in
the 'hilippines.
Ita!i(le .er+oal .ro.ert)> with a
+itu+ i the Phili..ie+> of a de*edet
who i+ a o,re+idet alie +hall ot
for3 .art of the !ro++ e+tate if
7re*i.ro*it) *lau+e; /%ec. 1544
1. the decedent at the time of his
death was a citi0en and resident of a
foreign country which at the time of
his death
a. did ot i3.o+e a tra+fer tax or
death tax of any character
1. in respect of intangible personal
property of citi0ens of the
'hilippines not residing in that
foreign country+ or
2. the laws of the foreign country of
which the decedent was a citi0en
and resident at the time of his death
a. allow a +i3ilar exe3.tio from
transfer taxes or death taxes of
every character
b. in respect of intangible personal
property owned by citi0ens of
the 'hilippines not residing in
that foreign country
(Reciprocity).
"aluatio of the !ro++ e+tate
/he properties comprising the gross
estate shall be valued based on their fair
market value as of the time of death.
PROPERT/ "AL%ATION
1- :eal 'roperty - fair market value
a- as determined by the
.ommissioner or
b- as shown in the
schedule of values
fixed by the
provincial and city
assessors
12I.29J9: IS 2I429:
2- Shares of Stock
Gnlisted
.ommon Shares
'referred
Shares
8isted
,book value
-par value
,arithmetic mean
between the highest and
lowest 5uotation at a
date nearest the date of
death if none is
available on the date of
death itself.
"-:ight to
usufruct use or
habitation as
well as that of
annuity
- shall be taken into
account the probable
life of the beneficiary in
accordance with the
latest basic standard
mortality table to be
approved by the
Secretary of Dinance
upon recommendation of
the Insurance
.ommissioner.
$- 'ersonal
property
- whether tangible or
intangible appraised at
D%J. <Sentimental
value= is practically
disregarded.
I*lu+io+ i the Gro++ E+tate /%ec. 254
5. &ECE&ENT?S INTEREST
/o the extent of the interest in
property of the decedent at the time of
his death.
*&illemo
1
:. TRANSFER IN CONTE<PLATION OF
&EAT#
1. ! transfer motivated by the thought
of impending death although death
may not be imminent+ or
2. ! transfer by which the decedent
retained for his life or for any period
which does not in fact end before his
death?
a. the possession or enjoyment of
or the right to the income from
the property or
b. the right either alone or in
conjunction with any person to
designate the person who shall
possess or enjoy the property or
the income therefrom.
Ex*e.tio9 bona fide sale for an
ade5uate and full consideration in
money or money7s worth.
@. RE"OCA'LE TRANSFER
! transfer whereby the terms of
enjoyment of the property may be
altered, amended, revo?ed or
terminated by the decedent alone or in
conjunction with any other person or
where any such power is relin5uished in
contemplation of the decedent7s death.
It is enough that the decedent had the
power to alter amend or revoke though
he did not exercise such power.
A. TRANSFER %N&ER GENERAL POWER
OF APPOINT<ENT
! power of appointment is the right
to designate the person or persons who
will succeed to the property of the prior
decedent.
/he general power of appointment
may be exercised by the decedent?
1. by will+ or
2. by deed executed in contemplation
of his death+ or
". by deed under which he has retained
for his life or for any period not
ascertainable without reference to
his death or for any period which
does not in fact end before his
death?
a. the possession or enjoyment of
or the right to the income from
the property+ or
b. the right either alone or in
conjunction with any person to
designate the persons who shall
possess or enjoy the property or
the income therefrom.
B. PROCEE&S OF LIFE INS%RANCE
'roceeds of life insurance taken by
the decedent on his own life shall be
included in the gross estate if the
beneficiary is?
a. the estate of the decedent his
e:ecutor or administrator
,regardless whether the designation
is revocable or irrevocable-+ or
b. a third person other than the estate
executor or administrator where the
designation of the beneficiary is
revocable.
G. TRANSFERS FOR INS%FFICIENT
CONSI&ERATION
/he value to be included in the gross
estate is the e:cess of the fair market
value of the property at the time of the
decedent7s death over the consideration
received. /his is applicable in cases of
transfer in contemplation of death
revocable transfer and transfer under
general power of appointment made for
a consideration but is not a bona fide
sale for an ade5uate and full
consideration in money or money7s
worth.
C. PRIOR INTERESTS
!ll transfers trusts estates
interests rights powers and
relin5uishment of powers made
created arising existing exercised or
relin5uished before or after the
effectivity of the >I:..
Pro.ert) relatio+ (etwee #u+(ad
ad Wife
/he property relations between the
spouses shall be governed by contract
,marriage settlement- executed before
the marriage.
*&illemo
1
In the absence of such contract or if
the contract is void?
Fn marriages contracted before !ugust
" 1A@@ the system of conjugal
partnership of gains shall govern+
Fn marriages contracted on or after
!ugust " 1A@@ ,effectivity of the
Damily .ode of the 'hilippines- the
system of absolute community of
property shall govern.
Exe3.t Tra+3i++io+ /%ec. 234
1. /he merger of usufruct in the owner
of the naked title+
2. Dideicommisary substitution+
". /he transmission from the first heir
legatee or donee in favor of another
beneficiary in accordance with the
will of the predecessor+ and
!ll be5uests devices 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+ 'rovided that not more
than "BE of the said be5uests legacies
or transfers shall be used by such
institutions for administration purposes.
&
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*&illemo
1
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(
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2
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5
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3
4
/he following are deductible from
the gross estate of citi0ens and resident
aliens?
1. 9xpenses losses indebtedness
taxes etc. /ordinar! deductions4
2. /ransfer for public use
". Janishing deduction
$. Damily home
&. Standard deduction e5uivalent to
one million pesos ,'1BBBBBB-
). %edical expenses
*. !mounts received by heirs under :!
$A1* ,:etirement ;enefits-
@. >et share of the surviving spouse in
the conjugal or community property
5. OR&INAR/ &E&%CTIONS
A. Fueral Ex.e+e+
/he amount deductible is the lowest
among the following?
1. actual funeral expenses
2. &E of the gross estate
". '2BBBBB.
*&illemo
1
It i*lude+ the followi!9
1. %ourning apparel of the surviving
spouse and unmarried minor children
of the deceased bought and used in
the occasion of the burial.
2. 9xpenses of the wake preceding the
burial including food and drinks.
". 'ublication charges for death
notices.
$. /elecommunication expenses in
informing relatives of the deceased.
&. .ost of burial plot. /ombstone
monument or mausoleum but not
their upkeep. In case deceased
owns a family estate or several
burial lots only the value
corresponding to the plot where he
is buried is deductible.
). Interment fees and charges.
*. !ll other expenses incurred for the
performance of the ritual and
ceremonies incident to the
interment.
9xpenses incurred a%ter the
interment such as for prayers masses
entertainment or the like are not
deductible.
!ny portion of the funeral and burial
expenses borne or de%rayed by relatives
and %riends of the deceased are not
deductible.
'. 4%&ICIAL EXPENSES OF T#E
TESTA<ENTAR/ OR INTESTATE
PROCEE&INGS
9xpenses allowed as deduction under
this category are those?
1. incurred in the inventory-taking
of assets comprising the gross
estate
2. administration
". payment of debts of the estate
as well as the distribution of the
estate among the heirs.
In short these deductible items are
expenses incurred during the settlement
of the estate but not beyond the last day
prescribed by law or the extension
thereof for the filing of the estate tax
return.
C. CLAI<S AGAINST T#E ESTATE
/he word PclaimsP is generally
construed to mean debts or demands of
a pecuniary nature which could have
been enforced against the deceased in
his lifetime and could have been
reduced to simple money judgments.
.laims against the estate or
indebtedness in respect of property may
arise out of?
1. .ontract+
2. /ort+ or
". Fperation of 8aw.
Re=ui+ite+9
1. /he liability represents a
personal obligation of the
deceased existing at the time of
his death except unpaid
obligations incurred incident to
his death such as unpaid funeral
expenses ,i.e. expenses
incurred up to the time of
interment- and unpaid medical
expenses which are classified
under a different category of
deductions+
2. /he liability was contracted in
good faith and for ade5uate and
full consideration in money or
money3s worth+
". /he claim must be a debt or
claim which is valid in law and
enforceable in court+
$. /he indebtedness must not have
been condoned by the creditor
or the action to collect from the
decedent must not have
prescribed.
&. CLAI<S AGAINST INSOL"ENT PERSONS
Re=ui+ite+9
1. /he amount thereof has been
initially included as part of his gross
estate ,for otherwise they would
constitute double deductions if they
were to be deducted-
2. /he incapacity of the debtors to pay
their obligation is proven.
C. %NPAI& <ORTGAGE
In case unpaid mortgage payable is
being claimed by the estate
verification must be made as to who
was the beneficiary of the loan
proceeds.
*&illemo
1
If the loan is found to be merely an
accommodation loan where the loan
proceeds went to another person
the value of the unpaid loan must be
included as a receivable of the
estate.
If there is a legal impediment to
recogni0e the same as receivable of
the estate said unpaid obligation(
mortgage payable shall not be
allowed as a deduction from the
gross estate.
In all instances the mortgaged
property to the e:tent o% the
decedentNs interest therein, should
always form part of the gross
taxable estate.
F. TAXES
/axes which have accrued as of the
death of the decedent which were
unpaid as of the time of death.
The followi! are ot dedu*ti(le9
1. income tax on income received
after death
2. property taxes not accrued
before death
". estate tax
G. LOSSES
Re=ui+ite+9
1. It should arise from fire storm
shipwreck or other casualty
robbery theft or embe00lement+
2. >ot compensated by insurance
or otherwise+
". >ot claimed as deduction in an
income tax return of the taxable
estate+
$. Fccurring during the settlement
of the estate+ and
&. Fccurring before the last day for
the payment of the estate tax
,last day to pay? six months after
the decedent7s death-.
:. TRANSFER FOR P%'LIC %SE
Re=ui+ite+9
1. /he disposition is in a last will and
testament
2. /o take effect after death
". In favor of the government of the
'hil. or any political subdivision
thereof
$. Dor exclusive public purposes.
Note /his should also include be5uests
devices or transfers to social welfare
cultural and charitable institutions.
@. "ANIS#ING &E&%CTION
&EFINITION9 /he deduction allowed from
the gross estate for properties that were
subject to donor7s or estate taxes. It is
called vanishing deduction because the
deduction allowed diminishes over a
period of five years. /he rate of
deduction depends on the period from
the date of transfer to the death of the
decedent as follows?
PERIO& &E&%CTION
1 year or less 1BBE
1 year 6 2 years @BE
2 years 6 " years )BE
" years 6 $ years $BE
$ years 6 & years 2BE
Re=ui+ite+9
1. the present decedent died within &
years from transfer of the property
from a prior decedent or donor.
2. /he property must be located in the
'hils.
". /he property formed part of the
taxable estate of the prior decedent
or of the taxable gift of the donor.
$. /he estate tax or donor7s tax on the
gift must have been finally
determined and paid.
&. /he property must be identified as
the one received from the prior
decedent or something ac5uired in
exchange therefor.
). >o vanishing deduction on the
property was allowable to the estate
of the prior decedent.
A. FA<IL/ #O<E
Coditio+9
1. /he family home must be the actual
residential home of the decedent
and his family at the time of his
death as certi%ied by the 3arangay
*&illemo
1
Captain of the locality where the
family home is situated+
2. /he total value of the family home
must be included as part of the gross
estate of the decedent+ and
". !llowable deduction must be in an
amount e5uivalent to
1. the current fair market value of
the family home as declared or
included in the gross estate or
2. the extent of the decedent3s
interest ,whether
conjugal(community or exclusive
property- whi*he6er i+ lower
but not exceeding '1BBBBBB
B. STAN&AR& &E&%CTION
! deductionin the amount of Fne
%illion 'esos ,'1BBBBBB- shall be
allowed as an additional deduction
Aithout need o% substantiation.
/he full amount of '1BBBBBB shall
be allowed as deduction for the benefit
of the decedent.
G. <E&ICAL EXPENSES
!ny amount of medical expenses
incurred within one year from death
in excess of Dive 2undred /housand
'esos ,'&BBBBB- shall no longer be
alloAed as a deduction under this
subsection.
>either can any unpaid amount
thereof in excess of the '&BBBBB
threshold nor any unpaid amount for
medical expenses incurred prior to
the one-year period from date of
death be allowed to be deducted
from the gross estate as claim
against the estate.
C. A<O%NT RECEI"E& '/ #EIRS
%N&ER REP%'LIC ACT NO.
AE5C
!ny amount received by the heirs
from the decedent3s employer as a
conseBuence o% the death o% the
decedent'employee in accordance with
:epublic !ct >o. $A1* is allowed as a
deduction provided that the amount of
the separation benefit is included as
part of the gross estate of the decedent.
D. NET S#ARE OF T#E
S%R"I"ING SPO%SE IN T#E
CON4%GAL PARTNERS#IP OR
CO<<%NIT/ PROPERT/
!fter deducting the allowable
deductions (only the ordinary
deductions) appertaining to the conjugal
or community properties included in the
gross estate the share of the surviving
spouse must be removed to ensure that
only the decedent3s interest in the
estate is taxed.
*&illemo
1
&
E
&
%
C
T
I
O
N
S
O
N

G
R
O
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A
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N
-
R
E
%
,
+
E
N

A
(
,
E
N
%
/he following are deductible from the gross
estate of non-resident aliens?
1. 9xpenses losses indebtedness and
taxes ,98I/- (ordinary deductions)
For3ula9
1a: O 'hil. 4ross
Credit 9state O 1orld
*imit 1orld 4ross 98I/
9state
2. /ransfer for public use
". Janishing deduction on property in
the 'hilippines.
$. .onjugal share of the surviving
spouse
*&illemo
1
E
S
T
A
T
E
T
A
X
C
R
E
&
I
T
! tax credit is granted for estate
taxes paid to a foreign country on the
estate of citi0ens and resident aliens
subject to the following limitations
5. Oe forei! *outr) ol)
/he tax credit is whichever is
lower between?
$. 9state tax paid to the foreign
country
&. /ax .redit 8imit M
>/9 foreign country O 'hil. estate
>/9 world /ax
(NE ' Net 1a:able )state)
:. <ore tha oe forei! *outr)
/he credit shall be that which is
the lower amount between 8imit !
and 8imit ;.
Li3it A. 1hichever is lower
between?
9state tax paid to a foreign
country
/ax .redit 8imit M
>/9 foreign country O 'hil. estate
>/9 world /ax
Li3it '. 1hichever is lower
between?
/otal of estate taxes paid to all
foreign countries
/ax .redit 8imit M
>/9 outside 'hil. O 'hil. estate
NTE, world /ax
S
E
T
T
L
E
<
E
N
T

O
F

T
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E
S
T
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A. FILING
Noti*e Of &eath To 'e Filed
In all cases of transfers subject to
tax or where though exempt from tax
the gross value o% the estate e:ceeds
P56,666 the executor administrator or
any of the legal heirs Aithin tAo
months after the decedent7s death or
within a like period after 5ualifying as
such executor or administrator shall
give a written notice thereof to the
.ommissioner. (4ec. .0)
A E+tate Tax Retur I+ Re=uired To 'e
Filed
1. when the estate is subject to estate
tax+ or
2. when the estate is not subject to
estate tax but the gross estate
exceeds ' 2BBBBB+ or
*&illemo
1
3. regardless of the amount of the
gross estate where the gross estate
consists of registered or registrable
property such as motor vehicle or
shares of stock or other similar
property for which clearance from
the ;I: is re5uired as a condition
precedent for the transfer of
ownership thereof in the name of
the transferee.
Ti3e for Fili! of the e+tate tax retur
/he estate tax return shall be filed
<it#in six /$4 mont#s a%ter the death of
the decedent.
Exte+io9 /he ;I: may in meritorious
cases grant an extension of not
e:ceeding thirty (-6) days for the filing
of the estate tax return.
Whe The Gro++ E+tate Ex*eed+
P:>FFF>FFF> The E+tate Tax Retur
Shall 'e A**o3.aied ') A State3et
Whi*h I+ Certified ') A Ide.edet
Certified Pu(li* A**outat Stati!
1. the itemi0ed assets of the decedent
with its corresponding gross value at
the time of his death or in the case
of a non-resident not citi0en of the
'hilippines that part of his gross
estate situated in the 'hilippines+
2. the itemi0ed deductions from the
gross estate+
3. the amount of tax due whether paid
or still due and outstanding.
Pla*e Where to File the E+tate Tax
Retur
5. Re+idet CitiKe
- with the !ccredited !gent ;ank
,!!;- :evenue Cistrict Ffficer
.ollection Ffficer or duly authori0ed
/reasurer of the city or municipality
where the decedent was domiciled at
the time of his death.
:. No,re+idet 7*itiKe or alie;
a. has registered executor or
administrator
- with the :evenue Cistrict
Fffice where such executor or
administrator is registered
b. executor or administrator is not
registered
- with the :evenue Cistrict
Fffice having jurisdiction over
the executor7 or administrator7s
residence
c. no executor or administrator
- with the Fffice of the
.ommissioner (4ec. 0C, Rev. Reg.
5'566-)
'. PA/<ENT
Pa)3et of the e+tate tax due
/he estate tax due shall paid at the
time when the estate tax return is filed.
1hen the .ommissioner finds that
the payment of the estate tax on the
due date would impose undue hardships
upon the estate or any heir?
a. the payment of the estate tax
may be extended for a period
not to exceed five ,&- years if
there is a judicial settlement of
the estate+ or
b. the payment of the estate tax
may be extended for a period
not to exceed two ,2- years if
there is an extra-judicial
settlement of the estate.
N(1) In case the available cash is not
sufficient to pay its total estate tax
liability the estate may be allowed to
pay ta: by installment. (4ec. 07, Rev.
Reg. 5'566-)
Lia(ilit) for Pa)3et
The estate ta% shall be paid b& the
e%ecutor or administrator before deliver&
to an& beneficiar& of his distributive share
of the estate.
Such beneficiary to the extent of his
distributive share of the estate shall be
subsidiarily liable for the payment of
such portion of the estate tax as his
distributive share bears to the value of
the total net estate. (4ec. 0G, Rev. Reg.
5'566-)
>o judge shall authori0e the
distribution of the estate unless a
certification from the .ommissioner that
tax has been paid is shown. ,Sec. A$-
>o shares or other forms of securities
shall be transferred in the books of any
corporation partnership business or
industry organi0ed in the 'hilippines
unless a similar certification by the
.ommissioner is shown. ,Sec. A*-
*&illemo
1
1hen a bank has knowledge of the
death of a person who maintained a
joint account it shall not allow any
withdrawal by the surviving depositor
without the above certification. ,Sec.
A*-
Provided. that the administrator of
the estate or any one ,1- of the heirs of
the decedent may upon authori0ation
by the .ommissioner withdraw an
amount not exceeding twenty thousand
pesos 7P:F>FFF; without the said
certification.
/here is nothing in the /ax .ode and
in the pertinent remedial law that
implies the necessity of the probate
court or estate settlement of court7s
approval of the State7s claim for estate
taxes before the same can be enforced
and collected by the ;I:. Fn the
contrary under Section A$ it is the
probate or settlement court which is
bidden not to authori0e the delivery of
the distributive share to any interested
party without a certification from the
.I: showing the payment of the estate
tax. (!arcos II vs. Court o% Appeals, GR
No. ,56..6, <une /, ,008)
COLLECTION OF TAX FRO< T#E #EIRS
!n estate or inheritance tax
whether assessed before or after the
death of the deceased can be collected
from the heirs even after the
distribution of the properties of the
decedent. (Palanca vs. Commissioner o%
Internal Revenue, GR No. ,999,,
<anuary -,, ,095)
/he 4overnment has two ways of
collecting taxes due from the estate.
a. ;y going after all the heirs and
collecting from each one of
them the amount of the tax
proportionate to the inheritance
received or
b. 'ursuant to the lien created by
Section 21A of the /ax .ode
upon all property and rights to
property belonging to the
taxpayer for unpaid income tax
is by subjecting said property of
the estate which is in the hands
of an heir or transferee to the
payment of the tax due the
estate. (Commissioner o%
Internal Revenue vs. Pineda, GR
No. * #558-+, 4eptember ,/,
,098)
7:; &ONOR?S TAXES
&EFINITION9 ! tax on the privilege of
transmitting one7s property or property
rights to another or others without
ade5uate and full valuable
consideration.
Co6era!e Of The Tax /%EC. 1544
RESI&ENT P NON,
RESI&ENT CITIIEN>
RESI&ENT ALIEN
&ONOR
NON,RESI&ENT
ALIEN &ONOR
1. :eal property
Aherever situated
1. :eal property
situated in the
Philippines.
Aherever situated
a. /angible and
Intangible
a. /angible property
situated in the
Philippines
b. Intangible
personal property
with a situs in the
'hilippines unless
exempted on the
basis of
reciprocity.
Re=ui+ite+
1. .apacity of the donor
2. Conative Intent
". Celivery whether actual or
constructive of the subject gift
*&illemo
1
$. !cceptance by the donee
Law that !o6er+ the i3.o+itio of
&oor?+ Tax
/he donor7s tax shall not apply
unless and until there is a completed
gift. /he transfer is per%ected from the
moment the donor knows of the
acceptance by the donee+ it is
completed by the deliver either
actually or constructively of the
donated property to the donee. /hus
the law in force at the time o% the
per%ectionPcompletion o% the donation
shall govern the imposition of the
donor7s tax.
! gift that is incomplete because of
reserved powers becomes complete
when either?
1. the donor renounces the power+ or
2. his right to exercise the reserved
power ceases because of the
happening of some event or
contingency or the fulfillment of
some condition other than because
of the donor3s death.
:enunciation by the surviving
spouse of his(her share in the
conjugal partnership or absolute
community a%ter the dissolution
o% the marriage in favor of the
heirs of the deceased spouse or
any other person(s is subject to
donor3s tax.
1hereas general renunciation
by an heir including the
surviving spouse of his(her
share in the hereditary estate
left by the decedent is not
subject to donor3s tax unless
specifically and categorically
done in favor of identified heir(s
to the exclusion or disadvantage
of the other co-heirs in the
hereditary estate. (4ec. ,,, Rev.
Reg. 5'566-)
STRANGER , a person who is not a
brother sister spouse ancestor and
lineal descendant or of a relative by
consanguinity in the collateral within the
$
th
civil degree.
! legally adopted child is entitled to
all the rights and obligations
provided by laA to legitimate
children and therefore donation to
him shall not be considered as
donation made to stranger.
Conation made between business
organi0ations and those made
between an individual and a business
organi0ation shall be considered as
donation made to a stranger.
"aluatio of !ift+ of .ro.ert)
/he fair market value of the
property given at the time of the gift
shall be the value of the gift.
Ita!i(le .er+oal .ro.ertie+ with a
+itu+ i the Phil. 7+a3e a+ i e+tate tax
+u(Je*t to the re*i.ro*it) rule; /%ec.
1544
7ormula ((n a cumulative basis over a
period o% one calendar year)
5. O the 5
+t
doatio of a )ear
4ross gifts xxx
*ess Ceductions from gross
gifts
xxx
>et gifts
!ultiply by /ax :ate
xxx
xxx
Conor7s tax on the net gifts xxx
:. O doatio of a +u(+e=uet
date duri! the )ear
4ross gifts made on this date OO
*ess Ceductions from gross gifts OO
>et gifts OO
Add? !ll prior net gifts within the
year
OO
!ggregate net gifts
!ultiply by? /ax :ate
OO
OO
Conor7s tax on aggregate net gifts OO
*ess Conor7s tax on all prior net
gifts
OO
Conor7s tax on the net gifts on this
date
OO
Exe3.tio of *ertai !ift+
1. 4ifts made by a resident
a. Cowries or gifts made on
account of marriage and before
*&illemo
1
its celebration or within one
year thereafter by parents to
each of their legitimate
illegitimate or adopted children
to the extent of the first '1B
BBB.
b. 4ifts made to or for the use of
the >ational 4overnment or any
entity created by any of its
agencies which is not conducted
for profit or to any political
subdivision of the said
government.
c. 4ifts in favor of educational
charitable religious cultural or
social welfare corporation
institutions foundations trust
or philanthropic organi0ation
research institution or
organi0ation accredited non-
government organi0ation ,>4F-.
'rovided that no more than "BE
of said gifts shall be used by
such donee for administration
purposes.
2. 4ifts made by a non-resident not
a citi0en of the 'hil.
a. same as ,b-
b. same as ,c- except accredited
non-government organi0ation
,>4F-
A o,.rofit edu*atioal ad-or
*harita(le *or.oratio> i+titutio>
a**redited o,!o6er3et
or!aiKatio> tru+t or .hilatro.hi*
or!aiKatio> re+ear*h i+titutio or
or!aiKatio i+
1. one incorporated as a non-stock
entity
2. paying no dividends
". governed by trustees who receive no
compensation and
$. devoting all its income whether
students7 fees or gifts donations
subsidies or other forms of
philantrophy to the accomplishment
and promotion of the purposes
enumerated in its !rticles of
Incorporation.
Tax *redit for door?+ taxe+ .aid to a
forei! *outr)
1. Conor was a Dilipino citi0en or
resident alien
2. !t time of foreign donation
". Conor7s taxes of any character and
description
$. !re imposed and paid by the
authority of a foreign country.
Li3itatio+ o tax *redit
1. /he amount of the credit in respect
to the tax paid to any country shall
taken which the decedent7s net
gifts situated within such country
taxable under the >I:. bears to his
entire net gift+ and
2. /he total amount of the credit shall
taken which the decedent7s net gift
situated outside the 'hilippines
taxable under the >I:. bears to his
entire net gift.
For3ula of Tax Credit Li3it
5. For door?+ taxe+ .aid to oe
forei! *outr)
>4 situated /ax
in a foreign country O 'C/ M .redit
9ntire net gift 8imit
7NG , Net Gift+M P&T , Phil. &oorR+ Tax;
:. For door?+ taxe+ .aid to two or
3ore forei! *outr)
>4 outside the 'hil. O 'C/ M /ax
9ntire net gifts .redit
8imit
/he allowable tax credit is the
loAer amount between the tax credit
limit under ,a- and ,b-.
SETTLE<ENT OF T#E &ONOR?S TAX
Ti3e for Fili! of Retur ad .a)3et
of the &oor?+ Tax
/he donor7s tax return is filed and
the donor7s tax due is paid Aithin thirty
(-6) days after the date the gift is made.
*&illemo
1
/he return shall be under oath in
duplicate setting forth?
1. 9ach gift made during the calendar
year which is to be included in
computing net gifts+
2. /he deductions claimed and
allowable+
". !ny previous net gifts made during
the same calendar year+
$. /he name of the donee+
&. :elationship of the donor to the
donee+ and
). Such further information as may be
re5uired by rules and regulations
made pursuant to law.
N(1) /he filing of a notice of donation
is not reBuired, unlike in estate tax
where notice of death is re5uired.
Pla*e for Fili! of Retur ad .a)3et
of the &oor?+ Tax
5. Re+idet
1ith an authori0ed agent bank the
:evenue Cistrict Ffficer :evenue
.ollection Ffficer or duly
authori0ed /reasurer of the city or
municipality where the donor Aas
domiciled at the time of the
transfer or if there be no legal
residence in the 'hilippines with
the (%%ice o% the Commissioner.
:. No,re+idet
Diled with the Philippine )mbassy
or Consulate in the country where
he is domiciled at the time of the
transfer or directly with the
(%%ice o% the Commissioner.
Tax rate
If the donee is a +tra!er the rate of
tax shall be "BE of the net gifts.
If the donee is ot a +tra!er
the rate shall be from 2E to 1&E of the
net gifts.
See Aex W - Conor7s /ax
C. TAX RE<E&IES
%N&ER T#E NIRC
I. TAX RE<E&IES OF T#E
GO"ERN<ENT
I3.orta*e
1. /hey enhance and support the
government7s tax collection.
2. /hey are safeguards of taxpayer7s
rights against arbitrary action.
Tax *olle*tio *aot (e re+traied ()
*ourt iJu*tio /%ec. 2120 1113 N,RC4
4u+tifi*atio9 8ifeblood /heory
Ex*e.tio9 Injunction may be issued by
the ./! in aid of its appellate
jurisdiction under :! 112& ,as amended
by :! A2@2-.
Coditio+ for the I++ua*e of a
IJu*tio () the Court of Tax A..eal+
/he ./! may enjoin collection of
taxes?
a. If in its opinion the same may
jeopardi0e the interest of the
government and(or the taxpayer.
b. In this instance the court may
re5uire the taxpayer either to deposit
the amount claimed or file a surety bond
for not more than double the amount
with the court.
N ;efore enforcement of remedies
assessment is necessary to trigger the
process. If no return is filed the
.ommissioner is empowered to obtain
information and to summon(examine
and take testimony of persons to
determine the amount of tax due. (4ec.
/, ,008 NIRC)
TAX RE<E&IES %N&ER T#E 5EEC TAX CO&E9
1. Summary 6 remedies at the
administrative level or regulation that
are executed without ceremony or
delay+ short or concise
2. Substantive 6 remedies provided for
by law or regulation+ an essential part or
constituent or relating to what is
essential
". 'rocedural 6 remedies involving law of
pleading evidence jurisdiction etc.
*&illemo
1
$. !dministrative 6 remedies available at
the administration ,;I:- level
&. Sudicial 6 remedies that are
enforced through judicial action
which may be civil or criminal
tax re3edie+ of the !o6er3et to
effe*t *olle*tio of taxe+
1. .ompromise (4ec. 56+)
2. Cistraint ,!ctual and
.onstructive) (4ecs. 56/'56.)
". 8evy (4ec. 5683)
$. /ax 8ien (4ec. 5,0)
&. .ivil !ction (4ec. 55,)
). .riminal !ction (4ecs. 55,, and
555)
*. Dorfeiture of 'roperty (4ec.
55+'55/)
@. Suspension of business
operations in violation of J!/
(4ec. ,,/)
A. 9nforcement of !dministrative
Dine
/he remedies of distraint and levy as
well as collection by civil and criminal
actions may in the discretion of the
.ommissioner be pursued singly or
independently of each other or all of
them simultaneously.
75; CO<PRO<ISE
&EFINITION9 ! contract whereby the
parties by reciprocal concessions avoid
litigation or put an end to one already
commenced (Art. 565., NeA Civil
Code).
Re=ui+ite+
1. /he taxpayer must have a tax
liability.
2. /here must be an offer ,by the
taxpayer of an amount to be paid by
the taxpayer-
". /here must be an acceptance ,by
the .ommissioner or taxpayer as the
case may be- of the offer in the
settlement of the original claim.
Offi*er+ authoriKed to *o3.ro3i+e
1. /he Co33i++ioer of Iteral
Re6eue ,.I:- with respect to
criminal and civil cases arising from
violations of the /ax .ode C4ecs.
8(C) and 56+, ,008 NIRCD. /his
power of the .I: is discretionary and
once exercised by him cannot be
reviewed or interfered with by the
.ourts. (=oppel, Philippines vs.
Commissioner, GR No. *',088,
4eptember 5,, ,0/6)
2. ;y the Re!ioal E6aluatio 'oard
composed of?
a. the :egional Cirector as
.hairman
b. !ssistant :egional Cirector
the heads of the 8egal
!ssessment and .ollection
Civisions and
c. the :evenue Cistrict Ffficer
having jurisdiction over the
taxpayer as members+
on assessments issued by the
regional offices involving basic
taxes of '&BBBBB or less and
minor criminal violations.
Ca+e+ whi*h 3a) (e *o3.ro3i+ed
1. Celin5uent accounts
2. .ases under administrative protests
". .ivil tax cases being disputed before
the courts
$. .ollection cases filed in courts
&. .riminal violations other than those
already filed in court or those
involving criminal tax fraud+ and
". 'ases covered b& pre(assessment
notices but ta%pa&er is not agreeable
to the findings of the audit office as
confirmed b& the review office.
(Sec.2, Rev. Reg. 7-2001)
Ex*e.tio+
1. 1ithholding tax cases+
2. .riminal tax fraud cases+
". .riminal violations already filed in
court+
$. Celin5uent accounts with duly
approved schedule of installment
payments+
&. .ases where final reports of
reinvestigation or reconsideration
have been issued resulting to
reduction in the original assessment
and the taxpayer is agreeable to
such decision.
*&illemo
1
). .ases which become final and
executory after final judgment of a
court where compromise is
re5uested on the ground of doubtful
validity of the assessment (RR. -6#
5665)+
*. 9state tax cases where compromise
is re5uested on the ground of
financial incapacity of the taxpayer.
(RR. -6#5665)
Co33i++ioer 3a) *o3.ro3i+e the
.a)3et of a) iteral re6eue tax
whe
1. ! rea+oa(le dou(t a+ to the
6alidit) of the *lai3 against the
taxpayer exists+ or
a. /he delin5uent account or
disputed assessment is one
resulting from a jeopardy
assessment.
b. /he assessment seems to be
arbitrary in nature appearing
to be based on presumptions
and there is reason to believe
that its is lacking in legal
and(or factual basis+ or
c. /he taxpayer failed to file an
administrative protest on
account of the alleged failure
to receive notice of assessment
or preliminary assessment and
there is reason to believe that
its is lacking in legal and(or
factual basis+ or
d. /he taxpayer failed to file a
re5uest for
reinvestigation(reconsideration
within "B days from receipt of
final assessment notice and
there is reason to believe that
its is lacking in legal and(or
factual basis+ or
e. /he taxpayer failed to elevate
to the ./! an adverse decision
of the .ommissioner or his
authori0ed representative in
some cases within "B days from
receipt thereof and there is
reason to believe that its is
lacking in legal and(or factual
basis+ or
f. /he assessment were issued on
or after San. 1 1AA@ where the
demand notice allegedly failed
to comply with the formalities
prescribed under Sec. 22@ of
the 1AA* >I:.+ or
g. !ssessments made based on the
<;est 9vidence Fbtainable
:ule= and there is reason to
believe that the same can be
disputed by sufficient and
competent evidence.
h. /he assessment was issued
within the prescriptive period
for assessment as extended by
the taxpayer3s execution of
1aiver of the Statute of
8imitations the validity or
authenticity of which is being
5uestioned or at issue and there
is strong reason to believe and
evidence to prove that it is not
authentic. (RR. -6# 5665)
i. /he assessment is based on an
issue where a court of
competent jurisdiction made an
adverse decision against the
;ureau but for which the
Supreme .ourt has not decided
upon with finality. (RR. 6.'
566+).
2. /he financial position of the
taxpayer demonstrates a *lear
ia(ilit) to .a) the assessed tax
C4ec. 56+(A), ,008 NIRC). In such
case the taxpayer should waive the
confidentiality privilege on bank
deposits under :! >o. 1$B& C4ec.
9(7)(5), NIRCD.
Dinancial Incapacity. [ /he offer
to compromise based on financial
incapacity may be accepted upon
showing that?
a. /he corporation ceased operation
or is already dissolved. 'rovided
that tax liabilities corresponding
to the Subscription :eceivable or
!ssets distributed(distributable to
the stockholders representing
return of capital at the time of
cessation of operation or
dissolution of business shall not be
considered for compromise+ or
b. /he taxpayer as reflected in its
latest ;alance Sheet supposed to
be filed with the ;ureau of
Internal :evenue is suffering from
*&illemo
1
surplus or earnings deficit
resulting to impairment in the
original capital by at least &BE
provided that amounts payable or
due to stockholders other than
business-related transactions
which are properly includible in
the regular Paccounts payableP are
by fiction of law considered as
part of capital and not liability
and provided further that the
taxpayer has no sufficient li5uid
asset to satisfy the tax liability+ or
c. /he taxpayer is suffering from a
networth deficit ,total liabilities
exceed total assets- computed by
deducting total liabilities ,net of
deferred credits and amounts
payable to stockholders(owners
reflected as liabilities except
business-related transactions-
from total assets ,net of prepaid
expenses deferred charges pre-
operating expenses as well as
appraisal increases in fixed
assets- taken from the latest
audited financial statements
provided that in the case of an
individual taxpayer he has no
other leviable properties under
the law other than his family
home+ (4ec. -, RR. -6#5665).
c. /he taxpayer is a compensation
earner with no other source of
income and the family7s gross
monthly compensation does not
exceed ,'1B&BB(month if single+
'21BBB(month if married- and
that it appears that the taxpayer
possesses no other leviable(
distrainable assets other than his
family home+ or
d. /he taxpayer has been granted by
the S9. or by any competent
tribunal a moratorium or
suspension of payments to
creditors or otherwise declared
bankrupt or insolvent. (4ec. -, RR.
68'566,)
/he .ongressional Fversight
.ommittee under Section 2AB of the
1AA* >I:. is empowered to re5uire the
;I:?
1. /he submission of all
pertinent information including
but not limited to industry
audits collection performance
data status reports on criminal
actions initiated against
persons+ and
2. /he submission of taxpayer
returns.
<ii3u3 Co3.ro3i+e Rate+ 7<CR; of
a) tax lia(ilit)
a. In case of financial incapacity?
%.: M 1BE of the basic assessed tax
b. Fther cases?
%.: M $BE of the basic assessed tax
C4ec. 56+(A), ,008 NIRCD
A..ro6al of the *o3.ro3i+e () the
E6aluatio 'oard i+ re=uired whe
a. the basic tax involved exceeds
'1BBBBBB.BB or
b. the settlement offered is less than
the %.:.
N(1) /he %.: may be less than the
prescribed rates of 1BE or $BE as the
case may be provided it is approved by
the 9valuation ;oard ,composed of the
;I: .ommissioner and the four ;I:
Ceputy .ommissioners-.
Co3.ro3i+e of Cri3ial "iolatio+
Geeral Rule9 !ll criminal violations
under the ./:' may be compromised.
Ex*e.tio+9
1. /hose already filed in court
2. /hose involving fraud C4ec. 56+(3),
,008 NIRCD.
Extet of the Co33i++ioer?+
&i+*retio to Co3.ro3i+e Cri3ial
"iolatio+
1. 'efore the *o3.lait i+ filed with
the Pro+e*utor?+ Offi*e9 /he .I:
has full discretion to compromise
except those involving fraud.
*&illemo
1
2. After the *o3.lait i+ filed with
the Pro+e*utor?+ Offi*e (ut (efore
the ifor3atio i+ filed with the
*ourt /he .I: can still compromise
provided the prosecutor must give
consent.
". After information is fi&ed <it# t#e
court9 /he .I: is no longer
permitted to compromise with or
without the consent of the
'rosecutor. (People vs. !agdaluyo,
GR No. *',95-/, April 56, ,09,)
/his is more so when the court
has rendered a fial Jud!3et. !s a
mere agent of the 4overnment the
.ommissioner is not authori0ed to
accept anything less than what is
adjudicated in favor of the
4overnment. ;y virtue of such final
judgment the 4overnment has
already ac5uired a 6e+ted ri!ht.
Nature of a Co3.ro3i+e i
ExtraJudi*ial Settle3et of the
Tax.a)er?+ Cri3ial Lia(ilit) for hi+
"iolatio
It is consensual in character hence
may not be imposed on the taxpayer
without his consent. /he ;I: may only
suggest settlement of his tax liability
through a compromise. /he extra-
judicial settlement and the amount of
the suggested compromise penalty
should conform with the schedule of
compromise penalties provided under
the relevant ;I: regulations or orders.
Re3ed) i *a+e the tax.a)er refu+e+
or fail+ to a(ide the tax *o3.ro3i+e
1. 9nforce the compromise
a. If it is a judicial compromise it
can be enforced by mere
execution. ! judicial compromise
is one where a decision based on
the compromise agreement is
rendered by the court on re5uest
of the parties.
b. !ny other compromise is
extrajudicial and like any other
contract can only be enforced by
court action.
2. :egard it as rescinded and insist
upon original demand (Art. 56+,,
Civil Code).
Co3.ro3i+e Pealt)
It is an amount of money that the
taxpayer pays to compromise a tax
violation. /his is paid in lieu of criminal
prosecution. ! taxpayer cannot be
compelled to pay a compromise penalty.
If he does not want to pay the .I: must
institute a criminal action.
CO<PRO<ISE "S. A'ATE<ENT
Compromise involves a reduction of
the taxpayer7s liability while
abatement means that the entire tax
liability of the taxpayer is cancelled.
A'ATE<ENT
The Co33i++ioer 3a) a(ate or *a*el
a tax lia(ilit) whe
1. /he tax or any portion thereof
appears to be uJu+tl) or
ex*e++i6el) a++e++ed+ C4ec. 56+(3),
,008 NIRCD.
a. 1hen the filing of the
return(payment is made at the
wrong venue+
b. 1hen the taxpayer7s mistake in
payment of his tax is due to
erroneous written official advice
of a revenue officer+
c. 1hen the taxpayer fails to file the
return and pay the tax on time
due to substantial losses from
prolonged labor dispute force
majeure legitimate business
reverses provided however the
abatement shall only cover the
surcharge and the compromise
penalty and not the interest
imposed under Sec. 2$A of the
.ode+
d. 1hen the assessment is brought
about or the result of taxpayer7s
non-compliance with the law due
to a difficult interpretation of said
law.
e. 1hen the taxpayer fails to file the
return and pay the correct tax on
time due to circumstances beyond
his control provided however
*&illemo
1
the abatement shall only cover
the surcharge and the compromise
penalty and not the interest
imposed under Sec. 2$A of the
.ode+
f. 8ate payment of the tax under
meritorious circumstances ,ex.
Dailure to beat bank cut-off time
surcharge erroneously imposed
etc.- (4ec. 5, Rev. Reg. ,-'566,)
2. /he ad3ii+tratio ad *olle*tio
*o+t+ i6ol6ed do ot Ju+tif) the
*olle*tio of the amount due C4ec.
56+(3), ,008 NIRCD.
a. !batement of penalties on
assessment confirmed by the
lower court but appealed by the
taxpayer to a higher court
b. !batement of penalties on
withholding tax assessment under
meritorious circumstances
c. !batement of penalties on
delayed installment payment
under meritorious circumstances
d. !batement of penalties on
assessment reduced after
reinvestigation but taxpayer is
still contesting reduced
assessment+ and
e. Such other circumstances which
the .ommissioner may deem
analogous to the enumeration
above. (4ec. -, Rev. Reg. ,-'566,)
". /he Commissioner may also even
without a *lai3 therefor refund or
credit any tax where on the face of
the return upon which payment was
made such .a)3et a..ear+ *learl)
to ha6e (ee erroeou+l) .aid
(4ec. 550, ,008 NIRC)).
7:; &ISTRAINT
&EFINITION9 It is the sei0ure by the
government of personal property
tangible or intangible to enforce the
payment of taxes. /he property may be
offered in a public sale if taxes are not
voluntarily paid. It is a summary remedy.
Nature of the Warrat of &i+trait or
Le6)
/he warrant is a summary procedure
<forcing= the taxpayer to pay. /he
receipt of a warrant may or may not
partake the character of a final decision.
If it is an indication of a final decision
the taxpayer may appeal to the ./!
within "B days from service of the
warrant.
Cuties of the officer serving the
warrant of distraint?
1. %ake an account of the personal
properties distrained+
2. Sign the list of personal
properties distrained to which
shall be added a statement of
the sum demanded and note of
the time and place of sale+
". 8eave either with the owner or
person from whose possession
such personal properties were
taken or at the dwelling or
place of business of such person
with someone of suitable age
and discretion ,Sec. 2B@ ./:'-
Two t).e+ of &i+trait
1. A*tual9 there is taking of
possession of the personal
property from the taxpayer by
the government. 'hysical
transfer of possession is not
always re5uired. /his is true in
the case of intangible property
such as stocks and credits.
2. Co+tru*ti6e9 the owner is
merely prohibited from disposing
of his property.
A*tual 6+. Co+tru*ti6e &i+trait
ACT%AL
&ISTRAINT
CONSTR%CTI"E
&ISTRAINT
%ade only on the
property of a
delin5uent taxpayer
%ade on the property
of any taxpayer
whether delin5uent
or not
/here is taking of
possession
/he taxpayer is
merely prohibited
from disposing of his
property
9ffected by leaving a
list of distrained
9ffected by re5uiring
the taxpayer to sign
*&illemo
1
ACT%AL
&ISTRAINT
CONSTR%CTI"E
&ISTRAINT
property or by
service of a warrant
of distraint or
garnishment
a receipt of the
property or by the
revenue officer
preparing and leaving
a list of such
property
!n immediate step
for collection of
taxes
>ot necessarily so
'oth
!re summary remedies for the collection of
taxes+
N(1)? :efer only to personal property+ and
cannot be availed of where the amount of
the tax involved is not more than '1BB
Re=ui+ite+ for the exer*i+e of the
re3ed) of di+trait
1. /he taxpayer must be delin5uent
,except in constructive distraint- in
the payment of tax+
2. /here must be a subse5uent demand
for its payment ,assessment-+
". /he taxpayer must fail to pay the tax
at the time re5uired+ and
$. /he period within which to assess or
collect the tax has not yet
prescribed.
Per+o+ who +hall +eiKe ad di+trait
.er+oal .ro.ert) 7a*tual di+trait;
1. !mount of delin5uent tax is more
than '1BBBBBB 6 .ommissioner or
his duly authori0ed representatives.
2. !mount of delin5uent tax is
'1BBBBBB or less 6 :evenue Cistrict
Ffficer. (4ec. 568(A), ,008 NIRC)
A%T#ORIT/ OF T#E CO<<ISSIONER TO
IN$%IRE INTO 'AN8 &EPOSIT ACCO%NTS
Cistraint includes garnishment of
money even in bank deposits because :!
1$B& ,;ank Secrecy 8aw- covers only
divulging of information of deposits. >o
in5uiry is made on garnishment for it
only earmarks a portion of the deposits.
>otwithstanding any contrary
provision of :! 1$B& the .ommissioner
is authori0ed to in5uire into the bank
deposits of?
1. a decedent to determine his gross
estate
2. a taxpayer who waives his right by
reason of financial incapacity to pay his
tax liability ,Sec.& >I:.-
Pro*edure+ for the A*tual &i+trait or
Gari+h3et
I
Co33e*e3et of di+trait
.ro*eedi!+
9ither by the .I: or his duly authori0ed
representative+ or by the :evenue
Cistrict Ffficer
II
Ser6i*e of Warrat of &i+trait
7Se*. :FD;
1ith respect to?
1. 'ersonal property 6
,a- upon the owner of the goods
chattels or other personal
property+ or
,b- upon the person from whose
possession such properties are
taken.
2. Stocks and other securities
,a- upon the taxpayer+ and
,b- upon the president manager
treasurer or other responsible
officer of the corporation
company or association which
issued the said stock and
securities.
". ;ank accounts shall be garnished by
serving a warrant of distraint 6
,a- upon the taxpayer+ and
,b- upon the president manager
treasurer or other responsible
officer of the bank.
*&illemo
1
Note Gpon receipt of the warrant of
distraint the bank shall turn over to the
.ommissioner so much of the bank
accounts as may be sufficient to satisfy
the claim of the government.
$. Cebts and credits 6
,a- persons owing or having in his
possession the debts+
,b- or under his control such credits+
or
,c- upon his agent.
Note /he warrant of distraint shall be
sufficient authority to the person owing
the debts or having in his possession or
under his control any credits belonging
to the taxpayer to pay to the
.ommissioner the amount of such debts
or credits.
Tax.a)er 3u+t +i!
re*ei.t
III
Po+ti! of Noti*e
7Se*. :FE> NIRC;
>otice specifying the time and place
of sale and the articles distrained. /he
posting shall be made in not less than
two ,2- public places in the city or muni-
cipality where the distraint is made.
Fne place for posting of such notice is at
the Fffice of the %ayor of such city or
municipality.
I"
Sale of Pro.ert) &i+traied
The tax.a)er?+ .ro.ert) 3a) (e .la*ed
uder *o+tru*ti6e di+trait whe he
1. is retiring from any business subject
to tax+
2. is intending to 6
a. leave the 'hilippines
b. remove his property therefrom
c. hide or conceal his property
". is performing any act tending to
obstruct the proceeding for
collecting the tax due or which may
be due from him (4ec. 55-, ,008
NIRC).
Pro*edure for the Co+tru*ti6e
&i+trait of Per+oal Pro.ert)
Tax.a)er?+ o(li!atio to .re+er6e
.I: shall re5uire the taxpayer or any
person having possession or control of
such property to
,a- sign a receipt covering the property
distrained and
,b- obligate himself to
1. preserve the same intact and
unaltered and
2. not to dispose of the same in any
manner whatsoever without the
express authority of the
.ommissioner of Internal
:evenue.
If the taxpayer or person in possession of
the property refuses or fails to sign the
receipt referred to the revenue officer
effecting the constructive distraint shall
,a- proceed to prepare a list of such
property and
,b- in the presence of two ,2- witnesses
leave a copy thereof in the premises
where the property distrained is located
after which the said property shall be
deemed to have been placed under
constructive distraint.
7@; LE"/
*&illemo
Re3ed) whe tax.a)er did?t +i!
re*ei.t
1
&EFINITION9 It refers to the act of sei0ure
of real property in order to enforce the
payment of taxes. /he property may be
offered in a public sale if after sei0ure
the taxes are not voluntarily paid.
RE$%ISITES FOR T#E EXERCISE OF T#E RE<E&/
OF LE"/
Same as in the remedy of distraint.
Whe 3a) Le6) (e Effe*ted0
:eal property may be levied upon
before simultaneously or after the
distraint of personal property belonging
to the delin5uent C4ec. 568(3), ,008 NIRCD;
and the remedy by distraint and levy
may be repeated if necessary until the
full amount including all expenses is
collected (4ec. 5,8, ,008 NIRC).
Pro*edure of Le6) o Real Pro.ert)

I
Pre.are Certifi*ate of Le6)

I
'reparation of a duly authen-ticated
certificate containing?
,a- description of the property levied+
,b- name of the taxpayer and
,c- the amounts of tax and penalty due
from him. /his certificate shall
operate with the force of a legal
execution throughout the 'hilippines
(4ec. 5683, ,008 NIRC).

Service of written notice to?
,a- the delin5uent taxpayer+ or
,b- if he is absent from the 'hilippines
to his agent or manager of the business
in respect to which the liability arose+ or
c. to the occupant of the property.
d. the proper :egister of Ceeds shall
also be notified of the levy (4ec. 5683,
,008 NIRC).
III
Ad6erti+e3et of the Ti3e ad
Pla*e of Sale
/he advertisement shall contain?
1. the amount of tax and penalties due+
2. name of the taxpayer against whom
taxes are levied+
". short description the property to be
sold.
/he advertisement shall be made
within 2B days after the levy and the
same shall be for a period of at least "B
days. It shall be effectuated by?
a. posting a notice at the main entrance
of the municipal building or city hall
and in a public and conspicuous
place in the barrio or district in
which the real property lies+ and
b. by publication once a week for "
weeks in a newspaper of general
circulation in the municipality or city
where the property is located (4ec.
5,-, C1RP).

&i+trait 6+. Le6)
&ISTRAINT LE"/
:efers to personal
property
:efers to real
property
Dorfeiture by the
government is not
provided
Dorfeiture is
authori0ed
/he taxpayer is not
given the right of
redemption with
respect to distrained
personal property.
/he right of
redemption is
granted in case of
real property levied
upon and sold or
forfeited to the
government.
*&illemo
II
Ser6i*e of Noti*e
I"
Sale
1
&ISTRAINT LE"/
'oth
!re summary remedies for the collection of
taxes+ and
.annot be availed of where the amount of
the tax involved is not more than '1BB
Rede3.tio of Pro.ert) Sold
>ithin , year %rom the date o% sale,
the property may be redeemed by the
delin5uent taxpayer or anyone from him
upon payment of the taxes penalties
and interest thereon from the date of
delin5uency to the date of sale
together with interest on purchase price
at 1&E per annum from the date of sale
to the date of redemption. (4ec. 5,+,
NIRC).
Forfeiture to the Go6er3et
If there is no bidder in the public
sale or if the amount of the highest bid
is insufficient to pay the taxes penalties
and costs the real property shall be
forfeited to the 4overnment.
Further &i+trait ad Le6)
/he remedy of distraint and levy
may be repeated if necessary until the
full amount of the tax delin5uency due
including all expenses is collected from
the taxpayer. Ftherwise a clever
taxpayer who is able to conceal most of
the valuable part of his property would
escape payment of his tax liability by
sacrificing an insignificant portion of his
holdings.
7A; TAX LIEN
&EFINITION? It is a legal claim or charge
on property either real or personal
established by law as a security in
default of the payment of taxes (/,
Am<ur ..,). 4enerally it attaches to
the property irrespective of ownership
or transfer thereof.
Extet ad ature
/he tax together with interests
penalties and costs that may accrue in
addition thereto is a lien upon all
property and rights to property
belonging to the ta:payer.
/he lien shall not be valid against
any mortgagee purchaser or judgment
creditor until notice of such lien shall be
filed by the .ommissioner of Internal
:evenue in the Fffice of the :egister of
Ceeds of the province or city where the
property of the taxpayer is situated or
located (4ec. 5,0, ,008 NIRC).
Whe doe+ it Atta*h0
>ot only from the service of the
warrant of distraint but from the time
tax became due and payable.
Lie 6+. &i+trait
LIEN &ISTRAINT
Cirected against
the property
subject to the tax
>eed not be
directed against the
property subject to
tax
:egardless of the
owner of the
property
'roperty sei0ed
must be owned by
the taxpayer
7B; CI"IL ACTIONS
&EFINITION9 Dor tax remedy purposes
these are actions instituted by the
government to collect internal revenue
taxes. It includes filing by the
government with the probate court
claims against the deceased taxpayer.
Whe re+orted to0
1. 1hen a tax is assessed but the
assessment becomes final and
unappealable because the tax.a)er
fail+ to file a ad3ii+trati6e
.rote+t with the CIR withi @F da)+
fro3 re*ei.tM or
2. 1hen a protest against assessment is
filed and a decision of the .I: was
rendered but the said decision
becomes final executory and
demandable for failure of the
*&illemo
1
tax.a)er to a..eal the de*i+io to
the CTA withi @F da)+ fro3
re*ei.t of the de*i+io.
N(1) Sudicial action may be resorted
to even be%ore assessment although
impractical as stated in 4ec. 56-, ,008
NIRC <\ and no proceeding in court
without assessment for the collection of
such taxes shall be begun a%ter the
expiration of such ,"year- period.=
It should be noted that no civil
or criminal action for the recovery of
taxes shall be filed in court without the
approval of the .ommissioner.
Where to file
1. Court of Tax A..eal+ 6 where the
principal amount of taxes and fees
exclusive of charges and penalties
claimed is (ne million pesos and
above.
2. Re!ioal Trial Court> <ui*i.al
Trial Court> <etro.olita Trial
Court 6 where the principal amount
of taxes and fees exclusive of
charges and penalties claimed is less
than (ne million pesos. (4ec. 8, RA
No. 05.5)
T#E APPRO"AL OF T#E CIR IS ESSENTIAL IN
CI"IL CASES. 2owever under 4ec. 8, ,008
NIRC the .ommissioner may delegate
such power to a :egional Cirector.
&efe+e+ whi*h are .re*luded () fial
ad exe*utor) a++e++3et+
1. Invalidity or illegality of the
assessment+ and
2. 'rescription of the government7s
right to assess.
7G; CRI<INAL ACTIONS
/he judgment in the criminal case
shall not only impose the penalty but
shall also order the payment of taxes
subject of the criminal case as finally
decided by the .ommissioner (4ec. 56/,
NIRC).
Where to file
1. Court of Tax A..eal+ 6 on criminal
offenses arising from violations of
the >I:. or /.. and other laws
administered by the ;I: and the
;F. where the principal amount of
taxes and fees exclusive of charges
and penalties claimed is (ne million
pesos and above.
2. Re!ioal Trial Court> <ui*i.al
Trial Court> <etro.olita Trial
Court 6 on criminal offenses arising
from violations of the >I:. or /..
and other laws administered by the
;I: and the ;F. where the principal
amount of taxes and fees exclusive
of charges and penalties claimed is
less than (ne million pesos or Ahere
there is no speci%ied amount
claimed. (4ec. 8, RA No. 05.5)
I<PORTANT CONSI&ERATIONS
1. >o criminal action shall be
begun without the approval of the
.ommissioner. (4ec. 556, ,008 NIRC)
2. It shall be brought in the
name of the 4overnment and shall
be conducted by the legal officers of
the ;I:.
EFFECT OF AC$%ITTAL OF T#E
TAXPA/ER IN A CRI<INAL ACTION

It does not necessarily result in the
exoneration of said taxpayer from his
civil liability to pay taxes.
Ratioale9 /he duty to pay tax is
imposed by statute prior to and
independent of any attempt on the part
of the taxpayer to evade payment. It is
not a mere conse5uence of the felonious
acts charged nor is it a mere civil
liability derived from a crime. (Republic
vs. Patanao, GR No. *',+,+5, !ay -6,
,09,)
EFFECT OF S%'SE$%ENT SATISFACTION
OF CI"IL LIA'ILIT/
/he subse5uent satisfaction of civil
liability by payment or prescription does
not e:tinguish the taxpayer7s criminal
liability.
NO S%'SI&IAR/ I<PRISON<ENT

*&illemo
1
In case of insolvency on the part of
the taxpayer subsidiary imprisonment
cannot be imposed as regards the ta:
Ahich he is sentenced to pay.
2owever it may be imposed in cases
of failure to pay the fine imposed. (4ec.
5.6, ,008 NIRC)
CRI<INAL ACTION <A/ 'E FILE&
&%RING T#E PEN&ENC/ OF AN
A&<INISTRATI"E PROTEST IN T#E 'IR
It is not a re5uirement for the
filing thereof that there be a precise
computation and assessment of the tax
since what is involved in the criminal
action is not the collection of tax but a
*ri3ial .ro+e*utio for the 6iolatio
of the NIRC. Provided, hoAever, that
there is a .ri3a fa*ie showing of a
willful atte3.t to evade taxes. (4ee
Hngab vs. Cusi, GR Nos. *'+,0,0'5+, !ay
-6, ,0.6 in relation to Commissioner vs.
Court o% Appeals, GR No. ,,0-55, <une
+, ,009)
7C; FORFEIT%RE
&EFINITION9 divestiture of property
without compensation in conse5uence
of a default or offense.
ENFORCE<ENT OF T#E RE<E&/ OF
FORFEIT%RE
a. I *a+e of .er+oal .ro.ert) /he
forfeiture of chattels and removable
fixtures of any sort is enforced by
+eiKure ad +ale or de+tru*tio of
the specific forfeited property.
b. I *a+e of real .ro.ert) /he
forfeiture of real property is
enforced by a Jud!3et of
*ode3atio ad +ale in a legal
action or proceeding civil or
criminal as the case may re5uire.
c. I *a+e of di+tilled +.irit+> li=uor+>
*i!ar+> *i!arette+ 3aufa*tured>
.rodu*t+ of to(a**o ad a..aratu+
u+ed for their .rodu*tio Gpon
forfeiture may be destroyed by
order of the .ommissioner where the
sale may be injurious to public
health or prejudicial to law
enforcement.
d. Other arti*le+ +u(Je*t to ex*i+e tax
whi*h ha6e (ee 3aufa*tured or
re3o6ed i 6iolatio of the Code>
die+ for .riti! or 3aHi! faHe
re6eue +ta3.+ ad la(el+ Gpon
forfeiture may be sold or destroyed
at the discretion of the
.ommissioner. Dorfeited property
shall not be destroyed until at least
2B days from sei0ure.
EFFECT OF T#E FORFEIT%RE OF
PROPERT/
/he effect is to transfer the title to
the specific thing from the owner to the
government. !ll the proceeds in case of
a sale go to the coffers of the
government (H.4. vs. 4urla, GR No.
9/-9, 4eptember 5, ,0,,). In sei0ure for
the enforcement of a tax lien the
residue after deducting the tax liability
and expenses will go to the taxpayer
(3an? o% the Phil. Island vs. 1rinidad,
GR No. ,96,+, (ctober +, ,0+,).
INFOR<ER?S REWAR& 7Se* :D:;
A. Dor violations of the >I:. a reward
of 1BE of the revenues surcharges
or fees re*o6ered and(or fine or
penalty imposed and *olle*ted or ' 1
% per case whichever is lower shall
be given to?
1. any person who voluntarily gives
definite and sworn information
not yet in the possession of the
;I: leading to the discovery of
fraud upon the Internal :evenue
8aws and(or any violations thereof
2. an informer where the offender
has offered to compromise the
violation of law comiited by him
and his offer has been accepted
and *olle*ted by the .I: . /his
*&illemo
1
excludes an Internal :evenue
Ffficer(employee or other public
official(employee or his relative
within the sixth degree
N /his shall not refer to a case already
pending or examined by the .I:
'. Dor the discovery and sei0ure of
smuggled goods
- a reward of 1BE of the D%J of the
smuggled and confiscated goods or
' 1 % per case whichever is
lower shall be given to persons
instrumental in the discovery and
sei0ure of such smuggled goods.
N /his does not apply to all public
officials whether incumbent or retired
who ac5uired the information in the
course of performance of their duties
during their incumbency.
PRESCRIPTI"E PERIO&S FOR
T#E ASSESS<ENT AN&
COLLECTION OF TAXES
RATIONALE OF PRESCRIPTI"E PERIO&S
Such periods are designated to
secure the taxpayers against
unreasonable investigation after the
lapse of the period prescribed. /hey are
also beneficial to the government
because tax officers will be obliged to
act promptly.
R%LES ON PRESCRIPTION
1. 1hen the tax law itself is silent
on prescription the tax is
imprescriptible+
2. 1hen no return is re5uired tax
is imprescriptible+
Note :emedy of taxpayer is to file a
return.
". Cefense of prescription is
waivable+
W#AT CONSTIT%TES ASSESS<ENT0
!n assessment contains not only
a computation of tax liabilities but also
a demand for payment within a
prescribed period.

PRESCRIPTI"E PERIO& FOR T#E
ASSESS<ENT OF TAXES
Geeral Rule9
1hree (-) years after the date
the return is due or filed whichever is
later (4ec. 56-, ,008 NIRC).
Ex*e.tio+9
,. Failure to file a retur9 ten ,1B-
years from the date of the
discovery of the omission to file
the return (4ec.555CAD);
5. Fal+e or fraudulet retur with
itetio to e6ade the tax9 ten
,1B- years from the date of the
discovery of the falsity or fraud
(4ec.555 CAD);
Note >othing in Section 222,!-
shall be construed to authori0e the
examination and investigation or
in5uiry into any tax return filed in
accordance with the provisions of
any tax amnesty law or decree.
Draud must be alleged and
proved as a %act. It must be the
product of a deliberate intent to
evade taxes. It may be
established by the?
a. Intentional and substantial
understatement of tax
liability by the taxpayer+
b. Intentional and substantial
overstatement of deductions
of exemptions+ and(or
c. :ecurrence of the above
circumstances
Dalsity constitutes a deviation
from the truth due to mista?e,
carelessness or ignorance.
There i+ fraud i the followi! de*ided
*a+e+9
1. Draud must be the product of a
deliberate intent to evade taxes
,<alandoni vs. Republic-
2. Simple statement that return filed
was not fraudulent does not disprove
existence of fraud ,1ayengco vs.
Collector-
*&illemo
1
". Substantial under-declarations of
income for six consecutive five years
demonstrate fraudulence of return
,PereG vs. C1A-
$. 'resence of fictitious expenses with
no evidence presented proves
existence of fraud ,1an Guan vs.
Commissioner-
2owever the courts did not consider
the tax returns filed as false or
fraudulent with intent to evade payment
of tax in the following cases?
a. %ere understatement in the tax
return will not necessarily imply
fraud (<alandoni vs. Republic)
b. Sale of a real property for a price
less than its fair market value is
not necessarily a false return
(Commissioner vs. Ayala
4ecurities)
c. Draud is a 5uestion of fact and the
circumstances constituting fraud
must be alleged and proved in the
trial court (Commissioner vs.
Ayala 4ecurities)
d. Draud is never imputed and the
courts never sustain findings of
fraud upon circumstances that
only create suspicion
(Commissioner vs. <avier)
e. %istakes of revenue officers on
three different occasions remove
element of fraud ,AGnar vs. C1A
and Collector)
-. A!ree3et i writi! to the
extension of the period to assess
between the .I: and the
taxpayer before the expiration
of the "-year period. >;? /he
extended period agreed upon
can further be extended by a
subse5uent written agreement
made before the expiration of
the extended period previously
agreed upon (4ec. 555CbD).
+. Writte wai6er of reu*iatio
of the original three ,"- year
limitation signed by the
ta:payer (4ambrano vs. Court o%
1a: Appeals, GR No. *'.9/5,
!arch -6, ,0/8).
Note >otice of the assessment is
released mailed or sent to the taxpayer
also within the " year period. It is not
reBuired that the notice be received by
the ta:payer Aithin the prescribed
period. ;ut the sending of the notice
must clearly be proven. (3asilan )state,
Inc. vs. Commissioner, GR No. *'55+05,
4eptember /, ,098)
A<EN&<ENT OF RET%RN
If the amended return is
substantially di%%erent from the original
return the prescriptive period shall be
counted %rom the %iling o% the amended
return. ;ut the said period shall run
from the %iling o% the original return if
the same is su%%iciently complete to
enable the .ommissioner to make a
proper assessment. (Commissioner vs.
Phoeni: Assurance Co., GR No. *',0858,
!ay 56, ,09/)
Whe Su(+tati6e9
a. substantial under declaration
(e:ceeding -6Q o% that
declared) of taxable sales
receipts or income
b. or a substantial overstatement
,e:ceeding -6Q of deductions-
(4ec. 5+.)
COLLECTION OF TAXES
Geeral Period+9
7ive (/) years 6 from assessment
or within period for collection agreed
upon in writing before expiration of the
&-year period (4ec. 555, ,008 NIRC).
1en (,6) years 6 without
assessment in case of false or fraudulent
return with intent to evade or failure to
file return (4ec. 555, ,008 NIRC).
W#AT IS T#E PRESCRIPTI"E PERIO&
W#ERE T#E GO"ERN<ENT?S ACTION IS
ON A 'ON& W#IC# T#E TAXPA/ER
EXEC%TES IN OR&ER TO SEC%RE T#E
PA/<ENT OF #IS TAX O'LIGATION0
1en (,6) years under !rt.
11$$,1- of the .ivil .ode and not three
,"- years under the >I:.. In this case
the 4overnment proceeds by court
action to forfeit a bond. /he action is
for the enforcement of a contractual
*&illemo
1
obligation. (Republic vs. Araneta, GR
No. *',+,+5, !ay -6, ,09,)
GRO%N&S FOR S%SPENSION OF T#E
R%NNING OF T#E STAT%TE OF
LI<ITATIONS
a. 1hen the .I: is prohibited from
making the assessment or
beginning the distraint or levy or
a proceeding in court and for
sixty ,)B- days thereafter+
b. 1hen the taxpayer re5uests for
a reconsideration which is
granted by the .I:+
c. 1hen the taxpayer cannot be
located in the address given by
him in the return unless he
informs the .I: of any change in
his address.
d. 1hen the warrant of distraint or
levy is duly served and no
property is located+ and
e. 1hen the taxpayer is out of the
'hilippines (4ec. 55-, ,008
NIRC).
A TAX RET%RN IS CONSI&ERE& FILE&
FOR P%RPOSES OF STARTING T#E
R%NNING OF T#E PERIO& OF
LI<ITATIONS IF
a. /he return is valid 6 it has complied
substantially with the re5uirements
of the law+ and
b. /he return is appropriate 6 it is a
return for the particular tax re5uired
by law.
Note ! defective tax return is the
same as if no return was filed at all.
"IOLATION OF AN/ PRO"ISION OF T#E
TAX CO&E /%EC. 2210 1113 N,RC4
1. Should be filed within %ive (/) years
from the ,a- day of the commission
o% the violation of the law and if
the same be not known from the ,b-
discovery thereo% and the
institution o% the &udicial
proceedings for its investigation and
punishment.
2. Illustrative case? (*im vs. Court o%
Appeals GR Nos. +.,-+'-8, (cober
,. , ,006)
a. charge is failure or refu+al to
.a) deficiency income tax 6
committed only after the finality
of the assessment coupled with
the taxpayer7s willful refusal to
pay the taxes within the allotted
period. ,i.e. cannot be
committed upon filing the
return-
b. charge is fili! of fal+e or
fraudulet retur with itet
to e6ade the assessment 6 in
addition to the fact of discovery
there must be a judicial
proceeding for the investigation
and punishment of the tax
offense before the & year
prescriptive period begins to
run.
II. TAX RE<E&IES OF T#E
TAXPA/ER
Geeral Re3edie+
A. A&<INISTRATI"E
'efore Pa)3et
a. Prote+t filing a petition for
reconsideration or
reinvestigation within "B
days from receipt of
assessment 1ithin )B days
from filing of protest all
relevant supporting
documents should have been
submitted otherwise the
assessment shall become
%inal 6 cannot be appealed
(4ec. 55., ,008 NIRC).
Note Submission of documents
within the )B day period is
optional to the ta:payer.
P/hat the relevant
supporting documents
mentioned in the law refers
to such documents which the
taxpayer feels would be
*&illemo
1
necessary to support his
protest and not what the
.ommissioner feels should
be submitted otherwise
taxpayer would always be at
the mercy of the ;I: which
may re5uire production of
such documents which
taxpayer could not produce.P
(4tandard Chartered 3an?
vs. CIR, C1A Case No. /909,
August ,9, 566,)
! protest is a vital
document which is a formal
declaration of resistance of
the taxpayer. It is a
repository of all arguments.
It can be used in court in
case administrative remedies
have been exhausted. It is
also the formal act of the
taxpayer 5uestioning the
official actuation of the .I:.
/his is e5uivalent to a
pleading.
b. Eteri! ito a *o3.ro3i+e
(4ec. 56+, ,008 NIRC).
After Pa)3et
Diling of claim for refund
or tax credit within 2 years from
date of payment regardless of
any supervening cause (4ec. 550,
,008 NIRC).
'. 4%&ICIAL
Ci6il A*tio
a. A..eal to the Court of Tax
A..eal+ within "B days from
receipt of decision on the protest
or from the lapse of 1@B days due
to inaction of the .ommissioner
(4ec. 55., ,008 NIRC).
b. A*tio to *ote+t forfeiture of
*hattel> at any time (efore the
+ale or de+tru*tio thereof to
recover the same and upon giving
proper bond enjoin the sale+ or
after the +ale and within )
months an action to recover the
net proceeds reali0ed at the sale
(4ec. 5-,, ,008 NIRC); and
c. A*tio for da3a!e+ against a
revenue officer by reason of any
act done in the performance of
official duty (4ec. 558, ,008
NIRC).
Cri3ial A*tio
a. Fili! of *ri3ial *o3.lait
a!ai+t erri! 'IR offi*ial+ ad
e3.lo)ee+.
b. IJu*tio when the ./! in its
opinion the collection by the ;I:
may jeopardi0e taxpayer.
Note 1ith the enactment of the new
./! law ,:! >o. A2@2- amending :! >o.
112& ./! now has jurisdiction over
criminal cases. (4ee Chapter 2I ' Court
o% 1a: Appeals.)
Su(+tati6e Re3edie+
1. Zuestioning the constitutionality or
validity of tax statutes or regulations
2. >on-retroactivity of rulings (4ec.5+9,
NIRC)
". Dailure to inform the taxpayer in
writing of the legal and factual bases
of assessment makes it void (4ec.
55., NIRC)
$. 'reservation of books of accounts and
once a year examination ,Sec. 2"&
>I:.-
ASSESS<ENT AN& PROTEST
Assessment
General rule /axes are self assessing
and thus do not re5uire the issuance of
an assessment notice in order to
establish the tax liability of a taxpayer.
):ceptions
1. /ax period of a taxpayer is
terminated (4ec. 9("), NIRC)
2. Ceficiency tax liability arising
from a tax audit conducted by
the ;I: (4ec. /9(3), NIRC)
". /ax lien (4ec. 5,0, NIRC)
$. Cissolving .orporation (4ec.
/5(c), NIRC)
Protest
5. &ire*t deial of .rote+t
Admnistrative decision on a disputed
assessment ' /he decision of the
.ommissioner or his duly authori0ed
representative shall ,a- state the facts
the applicable law rules and regulation
or jurisprudence on which such decision
is based otherwise the decision shall be
void in which case the same shall not be
considered a decision a disputed
assessment and ,b- that the same is his
*&illemo
1
final decision (4ec. -.,./, Rev. Regs. No.
,5'00)
:. Idire*t deial of .rote+t
a. .ommissioner did not rule on the
taxpayer7s motion for
reconsideration of the
assessment 6 it was only when
respondent received the
summons on
the civil action for the
collection of deficiency income
tax that the period to appeal
commenced to run
(Commissioner vs. Hnion
4hipping Corp.)
b. :eferral by the .ommissioner of
re5uest for reinvestigation to
the Solicitor 4eneral (Republic
vs *im 1ian 1eng 4ons)
c. :eiterating the demand for
immediate payment of the
deficiency tax due to taxpayer7s
continued refusal to execute
waiver (Commissioner vs. Ayala
4ecurities Corp.)
d. 'reliminary collection letter may
serve as assessment notice
(Hnited International Pictures
vs. Commissioner)
ACTS OF 'IR CO<<ISSIONER
CONSI&ERE& AS &ENIAL OF PROTEST
W#IC# SER"E AS A 'ASIS FOR APPEAL
TO T#E CO%RT OF TAX APPEALS
1. filing by the ;I: of a civil suit for
collection of the deficiency tax
(Commissioner vs. Hnion 4hipping
Corporation, GR No. 99,96, !ay 5,,
,006)
2. indication to the taxpayer by the
.ommissioner <in clear and
une5uivocal language= of his final
denial. (Commissioner vs. Hnion
4hipping Corporation, GR No. 99,96,
!ay 5,, ,006)
". ;I: demand letter reiterating his
previous demand to pay sent to the
taxpayer after his protest of the
assessment. (4urigao )lectric Co.,
Inc. vs. C1A, GR No. *'5/5.0, <une
5., ,08+; Commissioner vs. Ayala
4ecurities Corporation, GR No. *'
50+./, !arch -,, ,089)
$. /he actual issuance of a warrant of
distraint and levy in certain cases
cannot be considered a final decision
on a disputed settlement.
(Commissioner vs. Hnion 4hipping
Corporation, GR No. 99,96, !ay 5,,
,006)
FILING OF CLAI< FOR
TAX REF%N& OR TAX CRE&IT
GRO%N&S FOR FILING A CLAI< FOR TAX
REF%N& OR TAX CRE&IT
1. /ax is collected erroneously or
illegally.
2. 'enalty is collected without
authority.
". Sum collected is excessive.
TAX REF%N& "S. TAX CRE&IT
TAX REF%N& TAX CRE&IT
/he taxpayer asks for
restitution of the
money paid as tax
/he taxpayer asks
that the money so
paid be applied to his
existing tax liability
/wo-year period to
file claim with the
.I: starts after the
payment of the tax
or penalty
/wo-year period
starts from the date
such credit was
allowed ,in case
credit is wrongly
made-.
RE$%ISITES OF TAX REF%N& OR TAX
CRE&IT
1. Clai3 3u+t (e i writi!M
2. It 3u+t (e filed with the
Co33i++ioer withi two 7:; )ear+
after the .a)3et of the tax or
.ealt).
Note >o suit or proceeding shall be
begun after the expiration of the
said two ,2- years regardless of any
supervening cause that may arise
after payment.
". Show .roof of .a)3et.
CO<<ENCE<ENT OF T#E TWO 7:; /EAR
PERIO& 74%RISPR%&ENCE;
*&illemo
1
5. Tax +ou!ht to (e refuded i+
ille!all) or erroeou+l) *olle*ted
- from the date the tax was paid.
(Commissioner vs. 2ictorias !illing,
GR No. *'5+,6., <anuary -,, ,09.)
:. Tax i+ .aid ol) i i+tall3et+ or
ol) i .art
- from the date the last or final
installment or payment because for
tax purposes there is no payment
until the whole or entire tax liability
is fully paid. (Collector vs. Prieto,
GR No. *',,089, August 50, ,09,)
@. Tax.a)er 3erel) 3ade a de.o+it
- counted from the conversion of
the deposit to payment (Hnion
Garment vs. Collector, C1A Case No.
+,9, November ,8, ,0/.)
- %erely making a deposit is not
e5uivalent to payment until the
amount is actually applied to the
specific purpose for which it was
deposited.
A. Tax ha+ (ee withheld fro3 +our*e
7throu!h the withholdi! tax
+)+te3;
- counted from the date it falls due
at the end of the taxable year
- ! taxpayer who contributes to the
withholding tax system does not
really deposit an amount to the
government but in truth performs
and extinguishes his tax obligation
for the year concerned. (Gibbs vs.
Commissioner, GR No. *',8+69,
November 50, ,09/)
B. Ed of taxa(le )ear 6+. date of the
fili! of the fial adJu+ted retur
- from the date when the final
adjusted return was filed.
- the rationale in computing this
period is the fact that it is only then
the corporation can ascertain
whether it made profits or incurred
losses in its business operations.
(ACCRA Investments vs. Court o%
Appeals, GR No. 09-55, "ecember
56, ,00,)
G. &ate whe =uarterl) i*o3e tax
wa+ .aid 6+. date whe fial
adJu+ted retur wa+ filed
- from the date when final adjusted
return was filed
- /he filing of the 5uarterly income
tax return ,Sec. )@- and payment of
5uarterly income tax should only be
considered mere installments of the
annual tax due. (Commissioner vs.
1!@ 4ales, GR No. .-8-9, <anuary
,/, ,005)
C. &ate whe the fial adJu+t3et
retur wa+ a*tuall) filed /ex. Apr.
24 6+. La+t da) whe the
adJu+t3et retur *ould +till (e
filed /ex. Apr. 154
- from the date the final adjustment
return was actually filed.
(Commissioner vs. Court o% Appeals,
GR No ,,85/+, <anuary 5,, ,000)
D. Tax wa+ ot erroeou+l) or ille!all)
.aid (ut the tax.a)er (e*a3e
etitled to refud (e*au+e of
+u.er6ei! *ir*u3+ta*e+
- from the date the taxpayer
becomes entitled to refund and not
from the date of payment.
(Commissioner vs. "on Pedro
Central AGucarera, GR No. *'5.+98,
7eb. 5., ,08-)
PA/<ENT %N&ER PROTEST IS NOT
NECESSAR/ %N&ER NIRC
! suit or proceeding for tax refund
may be maintained <whether or not such
tax penalty or sum has been paid under
protest or duress= (4ec. 550, NIRC).
Note Similarly payment under protest
is not necessary in refund for local
taxes. (4ee 4ec. ,09, *GC).
2owever payment under protest is
necessary in claim for refund for real
property taxes (4ec. 5/5, *GC) and for
customs duties (4ec. 5-6., 1CC).
S%SPENSION OF T#E TWO,/EAR
PRESCRIPTI"E PERIO&
1. /here is a pending litigation
between the 4overnment and the
taxpayer+ and
2. .I: in that litigated case agreed to
abide by the decision of the S. as to
the collection of taxes relative
thereto (Panay )lectric Co. vs.
Collector, GR No. *',6/8+, !ay 5.,
,0/.).
INTEREST ON TAX REF%N&S
Geeral Rule9
*&illemo
1
4overnment cannot be reBuired
to pay interest on taxes refunded to the
taxpayer in the absence of a statutory
provision clearly or expressly directing
or authori0ing such payment.
,.ommissioner vs. 4Aeeney, GR No. *'
,5,8., August 50, ,0/0)
Ex*e.tio+9
1. 1hen the .I: acted with patent
arbitrariness. !rbitrariness
presupposes inexcusable or obstinate
disregard of legal provisions.
(Commissioner vs. 2ictorias !illing,
GR No. *',0998, Nov. 50, ,099)
2. Gnder Sec. *A,.-,2- with respect to
income taxes withheld on the wages
of the employees.
TAX CRE&IT CERTIFICATE
1. %ay be applied against any internal
revenue tax e:cept withholding
taxes
2. Friginal copy is surrendered to the
revenue office
". >o tax refund will be given resulting
from availment of incentives granted
by law where no actual payment was
made ,4ec. 56+C, ,008 NIRC).
FORFEIT%RE OF CAS# REF%N&-TAX
CRE&IT
1. Dorfeiture of refund in favor of the
government when a refund check or
warrant remains unclaimed or
uncashed within five ,&- years from
date of mailing or delivery.
2. Dorfeiture of /ax .redit 6 a tax
credit certificate which remains
unutili0ed after five ,&- years from
date of issue shall be invalid unless
revalidated (4ec. 5-6, ,008 NIRC).
REGLE<ENTAR/ PERIO&S
IN INCO<E TAX I<POSE&
'/ LAW %PON T#E TAXPA/ER
7P%RS%ANT TO RE". REG. NO. 5:,EE>
SEC. ::D OF T#E 5EEC NIRC> AN& RA
NO. 55:B AS A<EN&E& '/ RA NO.
E:D:;
;I: makes a tax a++e++3et
If taxpayer is not satisfied with the

assessment file a .rote+t withi @F da)+
from receipt thereof
Su(3it +u..orti! do*u3et+ withi

GF da)+ from date of the filing of the
protest
If protest is denied> ele6ate the 3atter

to the .ommissioner of Internal :evenue
,.I:; withi @F da)+ from receipt of the
decision of the .I:7s duly authori0ed
representative officer
A..eal to the &i6i+io of the Court of

Tax A..eal+ 7CTA; withi @F da)+ from
receipt of final decision of .I: or his
duly authori0ed representative ,the
taxpayer has the option to appeal
straight to the ./! upon receipt of the
decision of the .I:7s duly authori0ed
representative-
If the .I: or his duly authori0ed

representative fail+ to a*t o the
.rote+t withi 5DF da)+ from date of
submission by taxpayer the latter may
a..eal withi @F da)+ from lapse of the
1@B-day period with the ./! Civision
/he 'arty adversely affected by the ./!

Civision7s decision may file one motion
for reconsideration(new trial withi 5B
da)+ from receipt of decision. If the %:
is denied file a petition for review with
the ./! en banc
A..eal to the Su.re3e Court withi 5B

da)+ from receipt of the ./! en banc
decision under :ule $& of the :ules of
.ourt
Pre,A++e++3et Noti*e> Whe Not
Re=uired /%ec. 2220 N,RC4
1. 1hen the finding for any
deficiency tax is the result of
mathematical error in the
computation of the tax as
appearing on the face of the
return+ or
*&illemo
1
2. 1hen a discrepancy has been
determined between the tax
withheld and the amount
actually remitted by the
withholding agent+ or
". 1hen a taxpayer who opted to
claim a refund or tax credit of
excess creditable withholding
tax for a taxable period was
determined to have carried over
and automatically applied the
same amount claimed against
the estimated tax liabilities for
the taxable 5uarter or 5uarters
of the succeeding taxable year+
or
$. 1hen the excise tax due on
excisable articles has not been
paid+
&. 1hen an article locally
purchased or imported by an
exempt person such as but not
limited to vehicles capital
e5uipment machineries and
spare parts has been sold
traded or transferred to non-
exempt persons.
Notes
!s a general rule payment
under protest is not re5uired
under the >I:. except when
partial payment of
uncontroverted taxes is
re5uired under :: 12-AA.
/he .ommissioner may even
without a written claim
therefor refund or credit
any tax where on the face
of the return upon which
payment was made such
payment appears clearly to
have been erroneously paid.
In case of the .I:7s final
denial of the claim for
refund the "B-day period to
appeal with the ./! must be
within the 2-year peremptory
period for instituting judicial
action.
See Aex N !ssessment
'rocess and !ppeal
A&&ITIONS TO T#E TAX
7SECS. :AC,:B: NIRC;
&EFINITION9 increments to the basic tax
incident due to the taxpayer7s non-
compliance with certain legal
re5uirements.
1. CI"IL PENALT/ - S%RC#ARGE
1. 2&E surcharge
a. Dailure to file any return and
pay the tax due thereon as
re5uired under the
provisions of this .ode or
rules and regulations on the
date prescribed+ or
b. Gnless otherwise authori0ed
by the .ommissioner filing a
return with an internal
revenue officer other than
those with whom the return
is re5uired to be filed+ or
c. Dailure to pay the deficiency
tax within the time
prescribed for its payment in
the notice of assessment+ or
d. Dailure to pay the full or
part of the amount of tax
shown on any return
re5uired to be filed under
the provisions of this .ode
or rules and regulations or
the full amount of tax due
for which no return is
re5uired to be filed on or
before the date prescribed
for its payment. (4ec. 5+.)
2. &BE surcharge
a. in case of willful neglect to
file the return within the
period prescribed by the
.ode or
will not apply in case a
taxpayer without notice
from the .ommissioner
or his duly authori0ed
representative
voluntarily files the said
return ,only 2&E shall be
imposed-
&BE surcharge shall be
imposed in case the
taxpayer files the return
only after prior notice in
writing from the
.ommissioner or his duly
*&illemo
1
authori0ed representa-
tive (4ec. +.5, Rev. Reg.
,5'00)
b. in case a false or fraudulent
return is willfully made
Prima 7acie evidence
substantial underdeclaration
(e:ceeding -6Q o% that
declared) of taxable sales
receipts or income
or a substantial
overstatement (e:ceeding
-6Q o% actual deductions) of
deductions ,Sec. 2$@-
2. INTEREST
- 2BE per annum or such higher rate
as may be prescribed by the rules
and regulations
a. Ceficiency interest (4ec. 5+03)
b. Celin5uency interest (4ec. 5+0C)
c. Interest on 9xtended 'ayment
(4ec. 5+0")
". OT#ER CI"IL PENALTIES OR
A&<INISTRATI"E FINES
a. Dailure to file certain
information returns (4ec. 5/6)
b. )ailure of a withholding agent to
collect and remit ta% (Sec. 251)
c. )ailure of a withholding agent of
refund e%cess withholding ta%
(Sec. 252)
III. LOCAL TAXATION
POWERS AN& LI<ITATIONS
NAT%RE AN& SO%RCE OF LOCAL
TAXING POWER 7SEE. SEC B> ART. X>
5EDC CONSTIT%TION AN& SEC. 5:E>
LGC;
/he 8ocal 4overnment Gnit has the
power?
a. to create its own sources of
revenue and
b. to levy taxes fees and charges.
.ongress cannot enact laws
depriving 84G from exercising such
power to tax but it may set guidelines
and limitations for the exercise.
%uc# taxes0 fees0 and c#ar"es
s#a&& accrue exc&usive&! to t#e &oca&
"overnment units.
Nature of the Taxi! Power
a. >ot inherent+
b. 9xercised only if delegated to
them by law or .onstitution+
c. >ot absolute+ subject to
limitations provided for by law.
Gnder the present constitutional
rule <where there is neither a grant nor
a prohibition by statute the tax power
must be deemed to exist although
.ongress may provide statutory
limitations and guidelines. /he basic
rationale for the current rule is to
safeguard the viability and self-
sufficiency of local government units by
directly granting them general and broad
tax powers.= ,!anila )lectric Co. vs.
Province o% *aguna, G.R. No. ,-,-/0-

A+.e*t+ of Lo*al Taxi! Power
a. local taxation
b. real property taxation
Fuda3etal Pri*i.le+ !o6eri!
Lo*al Taxatio 7Se*. 5@F> l!*;
a. Shall be uniform in each local
sub-unit
b. Shall be e5uitable and based as
much as possible on the
taxpayer7s ability to pay
c. 8evied for public purposes
d. Shall not be unjust excessive
oppressive or confiscatory
e. Shall not be contrary to law
public policy national
economic policy or in restraint
of trade
f. .ollection of local taxes and
other impositions shall not be
let to any person
*&illemo
1
g. /he revenues collected under
the .ode shall inure solely to
the benefit of and subject to
disposition by the 84G levying
the tax or other imposition
unless otherwise specifically
provided therein
h. 9ach 84G shall as far as
practicable evolve a
progressive system of taxation.
Lo*al Taxi! Authorit) 7Se*. 5@:> l!*;
Shall be exercised by the Sanggunian
of the 84G concerned through an
appropriate ordinance.
Power to .re+*ri(e Pealtie+ for Tax
"iolatio+ ad Li3itatio+ thereo
7Se*. B5G> l!*;
1. /he Sanggunian is authori0ed to
prescribe fines or other penalties
for violations of tax ordinances.
a. in no case shall fines be less
than '1BBB nor more than
'&BBB
b. nor shall the imprisonment be
less than one ,1- month nor
more than six ,)- month.
2. Such fine or other penalty shall be
imposed at the discretion of the
court.
". /he Sangguniang ;arangay may
prescribe a fine of not less than
'1BB nor more than '1BBB.
Power to AdJu+t Lo*al Tax Rate 7Se*.
5E5> l!*;
!djustment of the tax rates as
prescribed herein should not be oftener
than once every five ,&- years and in no
case shall such adjustment exceed ten
percent ,1BE- of the rates fixed under
the 84..
Power to Grat Lo*al Tax Exe3.tio+
7Se*. 5E:> l!*;
8ocal government units may
through ordinances duly approved
grant tax exemptions incentives or
reliefs under such terms and conditions
as they may deem necessary.
Tax Exe3.tio+ Exi+ti! 'efore the
Effe*ti6it) of the LGC ha+ (ee
A(oli+hed 7Se*. 5E@> l!*;
Gnless otherwise provided in this
.ode tax exemptions or incentives
granted to or presently enjoyed by all
persons whether natural or juridical
including government-owned or
controlled corporations are hereby
withdrawn upon the effectively of the
84.
except the following?
@. local water districts
A. cooperatives duly registered under
:.!. >o. )A"@ non-stock and non-
profit hospitals and
1B. educational institutions.
/he power to grant tax exemptions
tax incentives and tax reliefs shall not
apply to regulatory %ees which are
levied under the police power of the
84G.
/ax exemptions shall be conferred
through the issuance of a non-
transferable tax exemption certificate.
Guidelie+ for the Grati! of Tax
Exe3.tio+> Tax I*eti6e+ ad Tax
Relief+ /Art. 22297:0 Ru&es and
Re"u&ations ,mp&ementin" t#e ("c4
5. O the !rat of tax exe3.tio+ or
tax relief+9
a. the same may be granted in
cases of natural calamities civil
disturbance general failure of
crops or adverse economic
conditions such as substantial
decrease in prices of agricultural
or agri-based products.
b. /he grant shall be through an
ordinance.
c. !ny exemption or relief granted
to a type or kind of business shall
apply to all business similarly
situated.
d. /he same shall take effect only
during the next calendar year for
a period not exceeding 12
months as may be provided in
the ordinance.
e. In the case of shared revenues
the exemption or relief shall only
extend to the 84G granting such
exemption or relief.
2. O the !rat of tax i*eti6e+9
a. /he same shall be granted only
to new investments in the
*&illemo
1
locality and the ordinance shall
prescribe the terms and
conditions therefore.
b. /he grant shall be for a definite
period of not exceeding 1
calendar year.
c. /he grant shall be by ordinance
passed prior to the 1
st
day of
Sanuary of any year.
d. !ny grant to a type or kind of
business shall apply to all
businesses similarly situated.
LE"/ING OF LOCAL TAXES 7LOCAL TAX
OR&INANCE;
Re=ui+ite+?
1. /he procedure applicable to local
government ordinances in general
should be observed (4ec. ,.8, *GC)
2. 'rocedural details (4ecs. /+, //, and
/0, *GC)
a. necessity of a 5uorum
b. submission for approval by the
local chief executive
c. he matter of veto and overriding
the same
d. the publication and affectivity
". 'ublic hearings are re5uired before
any local tax ordinance is enacted
(4ec.,.8, *GC)
$. 1ithin 1B days after their approval
publication in full for " consecutive
days in a newspaper of general
circulation. In absence of such
newspaper in the province city or
municipality then the ordinances
may be posted in at least 2
conspicuous and publicly accessible
places (4ec. ,.0, *GC)

Re+idual Taxi! Power+ of the Lo*al
!o6er3et uit+ 7Se*. 5DG> l!*;
/o levy taxes fees or charges on any
base or subject >F/?
1. Specifically enumerated in 84.
2. /axed under the provisions of
the >I:. as amended and
". Fther applicable laws
Coditio+?
1. /hat the taxes fees or charges shall
not be unjust excessive oppressive
confiscatory or contrary to declared
national policy
2. /he ordinance levying such taxes
fees or charges shall not be enacted
without any prior public hearing
conducted for the purpose.
LI<ITATIONS OF T#E RESI&%AL POWER
1. .onstitutional limitations on
taxing power
2. .ommon limitations prescribed
in Sec. 1"" of the 84.
". Dundamental principles
governing the exercise of the
taxing power of the 84Gs
prescribed under Sec. 1"B of
the 84.
$. /he ordinance levying such
residual taxes shall not be
enacted without any prior
public hearing conducted for
the purpose and
&. /he principle of preemption.
Pri*i.le of Pree3.tio or
Ex*lu+ioar) do*trie
1here the >ational 4overnment
elects to tax a particular area it
impliedly withholds from the local
government the delegated power to tax
the same field. /his doctrine principally
rests on the intention of the .ongress.
Ex*luded i3.o+itio+ 7.ur+uat to the
do*trie of .ree3.tio;9
a. /axes which are levied under the
>I:. unless otherwise provided
by 84. of 1AA1+
b. /axes fees etc. which are
imposed under the /ariffs and
.ustoms .ode+
c. /axes fees etc. the imposition
of which contravenes existing
governmental policies or which
violates the fundamental
principles of taxation+
d. /axes fees and other charges
imposed under special law.
CO<<ON LI<ITATIONS ON LOCAL
TAXING POWER 7SEC. 5@@> LGC;
8ocal government units cannot levy?
1. Income tax except on banks and
other financial institutions+
2. &ocumentary stamp tax+
*&illemo
1
". Estate tax inheritance gifts
legacies and other ac5uisitions
mortis causa except as
otherwise provided
$. Customs duties registration fees
of vessels and wharfage on
wharves tonnage dues and all
other kinds of customs fees
charges and dues except
wharfage on wharves
constructed and maintained by
the local government unit
concerned+
&. Taxes fees charges and other
impositions upon goods carried
into or out of or passing
through the territorial
jurisdictions of local government
units in the guise of charges for
wharfage tolls for bridges or
otherwise.
). Taxes fees or charges on
agricultural and a5uatic products
when sold by marginal farmers
or fishermen+
*. Taxes on business enterprises
certified by the ;oard of
Investments as pioneer or
non-pioneer for a period of )
and $ years respectively from
the date of registration+
@. Excise taxes on articles
enumerated under the >I:. as
amended and taxes fees or
charges on petroleum products+
A. Percentage or value-added tax
,J!/- on sales barters or
exchanges or similar transactions
on goods or services except as
otherwise provided herein+
1B. Taxes on the gross receipts of
transportation contractors and
persons engaged in the
transportation of passengers or
freight by hire and common
carriers by air land or water
except as provided in the .ode+
11. Taxes on premiums paid by way
of :einsurance or retrocession+
12. Taxes fees or charges for the
registration of motor vehicles
and for the issuance of all kinds
of licenses or permits for the
driving thereof except tricycle+
1". Taxes fees or other charges on
'hilippine products actually
exported except as otherwise
provided in the .ode+
1$. Taxes fees or charges on
.ountryside and barangay
business enterprises and
cooperatives duly registered
under :.!. )@1B and :.!. )A"@
,.ooperatives .ode of the
'hilippines- + and
1&. Taxes fees or charges of any
kind on the >ational
4overnment its agencies and
instrumentalities and local
government units.
CLASSIFICATION OF CO<<ON
LI<ITATIONS
1. /axes which are levied under the
>I:. unless otherwise provided by
the 84.
Numbers 10 20 30 20 10 15
2. /axes fees etc. which are imposed
under the /ariffs and .ustoms .ode
Number 4
". /axes fees and charges where the
imposition of which contravenes
existing governmental policies or
which are violative of the
fundamental principles of taxation
Numbers 50 $0 30 110 130 140 15
$. /axes fees and charges imposed
under special laws.
Number 12
TAXES AN& OT#ER I<POSITIONS T#AT
T#E LOCAL GO"ERN<ENT <A/ LE"/
7A; PRO"INCES
/%EC%. 134-1410 (-C4
1. /ax on /ransfer of :eal 'roperty
2. /ax on ;usiness of 'rinting and
'ublication
". Dranchise /ax
$. /ax on Sand 4ravel and other
Zuarry :esources extracted from
'ublic 8and
&. 'rofessional /ax
). !musement /ax
*. !nnual Dixed /ax for every
Celivery /ruck or Jan of
%anufacturers or 'roducers
1holesalers of Cealers or
:etailers in certain products
*&illemo
1
See Aex 4 for the rates and
details.
7'; <%NICIPALITIES
/%EC. 1430 (-C4
5. <ui*i.al Taxe+, taxes on the
businesses of the following?
a. Fn manufacturers assemblers
repackers processors brewers
distillers rectifiers and
compounders of li5uors distilled
spirits and wines or
manufacturers of any article of
commerce of whatever kind or
b. Fn wholesalers distributors or
dealers in any article of
commerce of whatever kind or
c. Fn exporters and on
manufacturers millers
producers wholesalers
distributors dealers or retailers
of essential commodities
d. Fn retailers
e. Fn contractors and other
independent
f. Fn banks and other financial
g. Fn peddlers engaged in the sale
of any merchandise or article of
commerce
h. Fn any business not otherwise
specified in the preceding
paragraphs which the
sanggunian concerned may deem
proper to tax.
:. <ui*i.al o,re6eue fee+ ad
*har!e+
/he municipality may impose
and collect such reasonable fees and
charges on business and occupation
except professional taxes reserved for
provinces. ,Sec. 1$*. 84.-
Rate+ of Tax withi the <etro.olita
<aila Area 7+e*. 5AA> l!*;
- >ot to exceed by &BE the
maximum rates prescribed in the
preceding Section.
Pa)3et of 'u+ie++ Taxe+
a. It shall be payable for every
separate or distinct
establishment or place where
business subject to the tax is
conducted and one line of
business does not become
exempt by being conducted with
some other business for which
such tax has been paid.
b. /he tax on a business must be
paid by the person conducting
the same.
c. In cases where a person
conducts or operates 2 or more
of the businesses mentioned in
Section 1$" of 84.
- which are subject to the
same rate o% ta: the tax shall be
computed on the combined total
gross sales or receipts of the said 2
or more related businesses.
- which are subject to
di%%erent rates o% ta: the gross
sales or receipts of each business
shall be separately reported for the
purpose of computing the tax due
from each business.
See Aex 8 for the rates and
details.
7C; CITIES
/%EC. 1510 (-C4
/he city may levy the taxes fees
and charges which the province or
municipality may impose.
/he tax rates that the city may levy
may e:ceed the maximum rates
allowed for the province or
municipality by not more than &BE
except the rates of professional and
amusement taxes.
7&; 'ARANGA/S
/%EC. 1520 (-C4
*&illemo
1
;arangays may levy the following taxes
fees and charges which shall accrue
exclusively to them?
a. Taxe+ 6 Fn stores or retailers
with fixed business
establishments with the gross
sales or receipts for the
preceding calendar year of
'&BBBB or less ,for barangays in
the cities- and '"BBBB or less
,for barangays in municipalities-
b. Rate M not exceeding 1E of such
gross sales or receipts.
c. Ser6i*e Fee+ or Char!e+ 6 Dor
services rendered in connection
with the regulation or the use of
barangay-owned properties or
service facilities such as palay
copra or tobacco dryers
d. 'ara!a) Cleara*e 6 >o city or
municipality may issue any
license or permit fee for any
business or activity unless a
clearance is first obtained from
the barangay where such
business or activity is located or
conducted.
e. Other Fee+ ad Char!e+ 6 /he
barangay may levy reasonable
fees and charges?
1. Fn .ommercial breeding of
fighting cocks cockfights
and cockpits+
2. Fn places of :ecreation
which charge admission fees+
and
". Fn ;illboards signboards
neon signs and outdoor
advertisements.
SIT%S OF LOCAL TAXATION
A. Situ+ A**ordi! to the Ca+e+
1ith respect to excise tax the
tax is upon the performance of an act
enjoyment of a privilege or the engaging
in an occupation. /he power to levy such
tax is not dependent on the domicile of
the taxpayer but on the place in which
the act is performed or the occupation is
engaged in+ not upon the location of the
office but the place where the sale is
perfected. ,Allied 1hread Co., Inc. v.
City !ayor o% !anila, *'+6509-
1ith respect to sale it is the
place of the consummation of the sale
associated with the delivery of the
things which are the subject matter of
the contract that determines the situs of
the contract for purposes of taxation
and not merely the place of the
perfection of the contract. ,4hell Co.,
Inc. v. !unicipality o% 4ipocot,
Camarines 4ur ,6/ Phil ,59--
'. Situ+ A**ordi! to Se*. 5BF> LGC
'ra*h or +ale+ offi*e 6 a fixed place in
the locality which conducts the
operation of the business as an extension
of the principal office
Pri*i.al offi*e- the head or the main
office of the business+ the city or the
municipality specifically mentioned in
the !rticles of Incorporation or official
registration papers as being the official
address of said principal office shall be
considered the situs thereof.
1. 'lace of sale ,with branch or sales
outlet therein-?
%unicipality or city where the
branch or outlet is located.
2. 'lace of sale ,no branch or sales
outlet-?
%unicipality or city of principal
office ,not in the place of sale-
". If manufacturer assembler
contractor producer or exporter
,%!.'9- with factory project office
plant or plantation ,D'''-
$. "BE of recorded sales in the principal
office? city or municipality where
the principal office is located
&. *BE of recorded sales in the
principal office? city or municipality
where the D''' is located
pro rata if D''' are located in
different municipalities or cities
in proportion to their respective
volumes of production.
). If plantation is located in some other
place than where the factory is
located the foregoing *BE shall be
subdivided as follows?
)BE to the city or municipality
where the factory is located
*&illemo
1
$BE to the city or municipality
where the plantation is located.
CO<<ON RE"EN%E,RAISING POWERS
OF LG%+ /%EC. 153 ) 1554
1. Service fees and charges for services
rendered
2. 'ublic Gtility .harges for the
operation of public utilities owned
operated and maintained by 84Gs
within their jurisdiction.
". /oll fees or charges for the use of
any public road pier or wharf
waterway bridge ferry or
telecommunication system funded
and constructed by the local
government unit concerned
Ex*e.tio+9
a. Ffficers and enlisted men of the
!D' and '>'+
b. 'ost office personnel delivering
mail+ and
c. 'hysically handicapped and
disabled citi0ens who are
sixty-five ,)&- years or older.
,Sec. 1&2 84.-
1hen public safety and welfare so
re5uires the sanggunian concerned may
discontinue the collection of the tolls
and thereafter the said facility shall be
free and open for public use.
CO<<%NIT/ TAX
.ities or municipalities may levy a
community tax.
A. Idi6idual+ Lia(le /%ec. 1534
a. every inhabitant of the
'hilippines+
b. eighteen ,1@- years of age or
over+
c. under any of the following
instances?
d. who has been regularly
employed on a wage or salary
basis for at least thirty (-6)
consecutive Aor?ing days
during any calendar year+ or
e. who is engaged in business or
occupation+ or
f. who owns real property with
an aggregate assessed value
of '1BBB or more+ or
g. who is re5uired by law to file
an income tax return
Tax Rate M '&.BB and an annual
additional tax of '1.BB for every
'1BBB of income regardless of
whether from business exercise of
profession or from property which in
no case shall exceed '&BBB.
In case of husband and wife
the additional tax herein imposed
shall be based upon the total
property owned by them and the
total gross receipts or earnings
derived by them.
'. 4uridi*al Per+o+ /%ec. 1524
9very corporation no matter how
created or organi0ed whether
domestic or resident foreign
engaged in or doing business in the
'hilippines shall pay an annual
community tax.
Tax Rate M '&BB and an annual
additional tax which in no case shall
exceed '1BBBB in accordance with the
following schedule?
1. Dor every P/,666 Aorth o% real
property owned by it during the
preceding year based on the
valuation used for the payment
of the real property tax - '2.BB+
and
2. Dor every P/,666 o% gross
receipts or earnings derived by
it from its business in the
'hilippines during the preceding
year - '2.BB.
/he dividends received by a
corporation shall for the purpose of the
additional tax be considered as part o%
the gross receipts or earnings of said
corporation.
T#E FOLLOWING ARE EXE<PT FRO<
T#E CO<<%NIT/ TAX /%EC. 1514
1. Ciplomatic and consular
representatives+ and
2. /ransient visitors when their stay in
the 'hilippines does not exceed
three ,"- months.
PLACE OF PA/<ENT9 place of residence
of the individual or in the place where
the principal office of the juridical
entity is located.
*&illemo
1
TI<E OF PA/<ENT9 accrues on the 1
st
day of Sanuary of each year which shall
be paid not later than the last day of
Debruary of each year.
PENALTIES FOR &ELIN$%ENC/9 an
interest of 2$E per annum from the due
date until it is paid shall be added to the
amount due.
! community tax certificate may
also be issued to any person or
corporation not subject to the
community tax upon payment of '1.BB
(4ec. ,95, *GC).
Pre+etatio of Co33uit) Tax
Certifi*ate o Certai O**a+io+ /%ec.
1$34
A. Idi6idual
1. 1hen an individual subject to
the community tax
acknowledges any document
before a notary public+
2. takes the oath of office upon
election or appointment to
any position in the
government service+
". receives any license
certificate or permit from any
public authority+ pays any tax
or fee+
$. receives any money from any
public fund+
&. transacts other official
business+ or
). receives any salary or wage
from any person or
corporation.
/he presentation of the community tax
certificate shall not be re5uired in
connection with the registration of a
voter.
'. Cor.oratio
1. receives any license certificate
or permit from any public
authority+
2. pays any tax or fee+
". receives money from public
funds+ or
$. transacts other official business.
/he city of municipal treasurer
deputi0es the barangay treasurer to
collect the community tax in their
respective jurisdictions. (4ec. ,9+, *CG)
/he proceeds of the community tax
actually and directly collected by the
city or municipal treasurer shall accrue
entirely to the general fund of the city or
municipality concerned.
'roceeds of the community tax
collected through the barangay
treasurers shall be apportioned as
follows?
&BE accrues to the general fund
of the city or municipality
concerned+ and
&BE accrues to the barangay
where the tax is collected.

Colle*tio Of Lo*al Taxe+
Tax Period ad <aer of Pa)3et
/%ec. 1$50 (-C4
Gnless otherwise provided the
tax period shall be the calendar
year.
Such taxes fees and charges
may be paid in 5uarterly
installments.
A**rual of Tax /%ec. 1$$0 (-C4
Gnless otherwise provided shall
accrue on the first day of Sanuary of
each year.
2owever new taxes fees or
charges or changes in the rates
thereof shall accrue on the %irst
day o% the Buarter ne:t %olloAing
the effectivity of the ordinance
imposing such new levies or rates.
Ti3e of Pa)3et /%ec. 1$30 (-C4
Gnless otherwise provided shall
be paid Aithin the %irst tAenty (56)
days o% <anuary or of each
subse5uent 5uarter as the case may
be.
%ay for a justifiable reason or
cause be extended without
surcharges or penalties but only for
a period not e:ceeding si: (9)
months.
Sur*har!e+ ad Pealtie+ o %.aid
Taxe+> Fee+ or Char!e+ /%ec. 1$20
(-C4
*&illemo
1
Surcharge not exceeding 2&E of
the amount of taxes fees or charges
including surcharges until such
amount is fully paid.
;ut in no case shall the total
interest on the unpaid amount or
portion thereof exceed thirty-six
,")- months.
Itere+t+ o Other %.aid Re6eue+
/%ec. 1$10 (-C4
!n interest thereon at the rate
not exceeding 2E per month from the
date it is due until it is paid but in no
case shall the total interest on the
unpaid amount or portion thereof
exceed thirty-six ,")- months.
Colle*tio of Lo*al Re6eue+ () the
Trea+urer /%ec. 135 (-C4
!ll local taxes fees and charges
shall be collected by the provincial city
municipal or barangay treasurer or their
duly authori0ed deputies.
/he provincial city or municipal
treasurer may designate the barangay
treasurer or his deputy to collect local
taxes fees or charges.
In case a bond is re5uired for the
purpose the provincial city or
municipal government shall pay the
premiums thereon in addition to the
premiums of the bond that may be
re5uired under the .ode.
LOCAL TAX RE<E&IES
%N&ER T#E LGC
5. TAX RE<E&IES OF T#E
LOCAL GO"ERN<ENT %NITS 7LG%+;
Ci6il Re3edie+ Of The Lo*al
Go6er3et %it+ 7LG%; To Effe*t
Colle*tio Of Taxe+
75; Lo*al Go6er3et?+ Lie 6 8ocal
taxes fees charges and other
revenues constitute a lien superior
to all liens charges or
encumbrances in favor of any
person enforceable by any
appropriate administrative or
judicial action.
7:; Ci6il Re3edie+
,a- by administrative action through
distraint of personal property
and by levy upon real property
,b- by judicial action
9ither of these remedies or all may
be pursued concurrently or
simultaneously at the discretion of the
84G concerned.
4%RIS&ICTION OF CO%RTS O"ER LOCAL
TAXATION CASES
a. 1ith the amendment brought by
:! >o. A2@2 the .ourt of /ax
!ppeals now has appellate
jurisdiction over local taxation
cases decided by the :egional
/rial .ourt in the exercise of its
appellate or original jurisdiction.
b. :egular judicial courts are not
prohibited from enjoining the
collection of local taxes subject
to :ule &@ ,'reliminary
Injunction- of the :ules of .ourt.
Note Gnlike the >I:. the 8ocal /ax
.ode does not contain any specific
provision prohibiting courts from
enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
local taxes are involved. ;ut it cannot
negate the procedural rules and
re5uirements under :ule &@ of the :ules
of .ourts. (2alley 1rading Co. vs. C7I o%
Isabela, GR No. +0/50, !arch -,, ,0.0)
PRESCRIPTI"E PERIO&S FOR T#E ASSESS<ENT
AN& COLLECTION
OF LOCAL TAXES
PRESCRIPTI"E PERIO&S OF ASSESS<ENT
1. Lo*al taxe+> fee+> or *har!e+ 6 five
,&- years from the date they became
due. (4ec. ,0+, *GC).
2. Whe there i+ fraud or itet to
e6ade the .a)3et of taxe+> fee+
or *har!e+ 6 ten ,1B- years %rom
discovery of the fraud or intent to
evade the payment (4ec. ,0+ *GC).
*&illemo
1
PRESCRIPTI"E PERIO& OF COLLECTION
8ocal taxes fees or charges
may be collected within five ,&- years
from the date of assessment by
administrative or judicial action. >o
such action shall be instituted after the
expiration of such period (4ec. ,0+,
*GC).
GRO%N&S FOR T#E S%SPENSION OF
T#E R%NNING OF T#E PRESCRIPTI"E
PERIO&S
a. /he treasurer is legally
prevented from the assessment
or collection of the tax+
b. /he taxpayer re5uests for a
reinvestigation and executes a
waiver in writing before the
expiration of the period within
which to assess or collect+ and
c. /he taxpayer is out of the
country or otherwise cannot be
located (4ec. ,0+, *GC).
2. TAX RE<E&IES OF
T#E TAXPA/ER
Re3edie+ Of The Tax.a)er I Lo*al
Taxatio
A. A&<INISTRATI"E
Before assessment
a. A..eal 6 any 5uestion on
constitutionality or legality of tax
ordinance within "B days from
effectivity thereof to Secretary of
Sustice 74ec. ,.8 *GC)
b. &e*larator) relief whenever
applicable.
After assessment
a. Prote+t 6 within )B days from receipt
of assessment (4ec. ,0/ *GC).
'ayment under protest is not
necessary.
b. Pa)3et P +u(+e=uet refud or
tax *redit within 2 years from
payment of tax to local treasurer
(4ec. ,09 *GC). It is to be noted
that unlike in internal revenue
taxes the supervening cause applies
in local taxation because the period
for the filing of claims for refund or
credit of local taxes is counted not
necessarily from the date of
payment but from the date the
taxpayer is entitled to a refund or
credit.
c. Ri!ht of rede3.tio 6 1 year from
the date of sale or from the date of
forfeiture (4ec. ,80, *GC).
'. 4%&ICIAL
5. Court a*tio
within "B days after receipt of
decision or lapse of )B days of
Secretary of Sustice7s inaction
(4ec. ,.8 *GC)
within "B days from receipt
when protest of assessment is
denied (4ec. ,0/ *GC)
if no action is taken by the
treasurer in refund cases and the
two year period is about to lapse
(4ec. ,0/ *GC)
if remedies available does not
provide plain speedy and
ade5uate remedy.
:. A*tio for de*larator) relief
". IJu*tio 6 if irreparable damage
would be caused to the taxpayer and
no ade5uate remedy is available.
I". REAL PROPERT/
TAXATION
&efiitio+9
REAL PROPERT/ TAXATION ! direct
tax on ownership of lands and
buildings or other improvements
thereon payable regardless of
whether the property is used or
not although the value may vary
in accordance with such factor.
Gnder the 84. it covers
the administration appraisal
assessment levy and collection
of :eal 'roperty /ax i.e. tax on
land and building and other
structures and improvements on
it including machineries.
REAL PROPERT/ 6 subject to the
definition given by Art. +,/ o%
the Civil Code.
*&illemo
1
I<PRO"E<ENT 6 valuable addition made
to a property or amelioration in
its condition amounting to more
than a mere replacement of
parts involving capital
expenditures and labor.
NAT%RE AN& CLASSES
C#ARACTERISTICS OF REAL PROPERT/
TAX
1. Cirect tax on the Fwnership of
real property
2. Ad valorem tax. /he value is
based on the tax base.
". 'roportionate 6 the tax is
calculated on the basis of a
certain percentage of the value
assessed.
$. Indivisible single obligation
&. 8ocal tax
TAXING A%T#ORITIES /%EC. 2330 (-C4
LG%
Rate of 'a+i* Real
Pro.ert) Tax
1. 'rovince not e:ceeding 1E of
assessed value
2. .ity not e:ceeding 2E
". %unicipality
within %etro
%anila
not e:ceeding 2E.
F%N&A<ENTAL PRINCIPLES GO"ERNING
REAL PROPERT/ TAXATION /%EC. 1120
(-C4
1. :eal property shall be appraised at
its current and Dair market value+
2. :eal property shall be classified for
assessment purposes on the basis of
actual Gse.
". :eal property shall be assessed on
the basis of Gniform classification
within each 84G
$. /he appraisal assessment levy and
collection of :' /ax shall not be let
to any 'rivate person
&. /he appraisal and assessment of real
property shall be 95uitable.
EXTENT OF T#E POWER TO LE"/
;asic real property tax+
1E additional real estate tax to
finance the Special 9ducation
Dund+ (4ec. 5-9)
&E additional ad valorem tax on
Idle lands+ (4ec. 5-9, *GC) and
Special levy or special
assessments ,may be imposed
even by municipalities outside
%etro %anila- on lands comprised
within its territorial jurisdiction
specially benefited by public
works projects or improvements
funded by the local government
unit concerned.
Provided
Special levy shall not exceed
)BE of the actual cost of
such projects and
improvements including the
costs of ac5uiring land and
such other real property in
connection therewith
not apply to lands exempt
from basic real property tax
and the remainder of the
land have been donated to
the local government unit
concerned for the
construction of said
projects. (4ec. 5+6, *GC).
FOR P%RPOSES OF REAL PROPERT/
TAXATION I&LE LAN&S S#ALL INCL%&E9
7%EC. 2330 (-C4
1. !gricultural lands 3ore tha oe
he*tare in area oe,half of whi*h
re3ai u*ulti6ated or unimproved by
the owner of the property or person
having legal interest therein.
!gricultural lands planted to
permanent or perennial crops with
at least &B trees to a hectare shall
not be considered idle lands.
8ands actually used for gra0ing
purposes shall likewise not be
considered idle lands+ and
2. 8ands other than agricultural
located in a city or municipality
3ore tha oe thou+ad +=uare 3eter+
in area oe,half of whi*h re3ai
uutiliKed or ui3.ro6ed by the
owner of the property or person
having legal interest therein.
*&illemo
1
I&LE LAN&S EXE<PT FRO< TAX 7%EC.
2320 (-C4
;y reason of?
,. %orce ma&eure
1. civil disturbance
2. natural calamity
". or any cause which physically or
legally prevents the owner of
the property or person having
legal interest therein from
improving utili0ing or
cultivating the same.
CLASSIFICATION OF LAN&S FOR P%RPOSES
OF ASSESS<ENT %EC. 212 /A4
a. .ommercial
b. !gricultural
c. :esidential
d. %ineral
e. Industrial
f. /imberland
g. Special
SPECIAL CLASSES OF REAL PROPERT/
/%EC. 21$0 (-C4
1. 2ospitals
2. .ultural and Scientific purposes
". owned and used by 8ocal water
districts
$. 4F..s rendering essential public
services in the supply and
distribution of water and(or
generation or transmission of
electric power.
PROPERTIES EXE<PT FRO< REAL
PROPERT/ TAX 7%EC. 2340 (-C;
9xemption is limited only to the
following?
1. :eal property owed by the
government e:cept when the
(eefi*ial u+e thereof has been
granted to a taxable person+
2. .haritable institutions
churches personages or
convents appurtenant thereto
mos5ues non-profit or religious
cemeteries and all lands
buildings and improvements
a*tuall)> dire*tl) ad
ex*lu+i6el) u+ed for religious
charitable or educational
purposes (Art. 2I, 4ec. 5.,
Constitution);
". %achineries and e5uipment that
are a*tuall)> dire*tl) ad
ex*lu+i6el) u+ed by local water
utilities and 4F..7s engaged in
the supply and distribution of
water and(or electric power+
$. :eal property owed by duly
registered cooperatives as
provided for in :! )A"@+ and
&. %achinery and e5uipment u+ed
for pollution control and
environmental protection.
ACT%AL %SE OF PROPERT/ AS 'ASIS
FOR ASSESS<ENT 7%EC. 213 (-C;
:eal property shall be classified
valued and assessed on the basis of
a*tual u+e regardless o% Ahere located,
Ahoever oAns it, and Ahoever uses it.
Gnpaid realty taxes attach to the
property and is chargeable against the
person who had actual or beneficial use
and possession of it regardless of
whether or not he is the owner. /o
impose the real property tax on the
subse5uent owner which was neither the
owner nor the beneficial user of the
property during the designated periods
would not only be contrary to law but
also unjust. ()state o% *im vs. City o%
!anila, GR No. 069-0, 7ebruary 5,,
,006)
PROCE&%RE
STEP 59 &ECLARATION OF REAL
PROPERT/
&ECLARATION '/ OWNER OR A&<INISTRATOR
7SEC. :F:,:F@;
Dile a sworn declaration with the
assessor
- once every " years during
the period from Sanuary 1
to Sune "B.
7or neAly acBuired property 6
W#EN? %ust file with the assessor within
)B days from date of transfer
W#AT? Sworn statement containing the
fair market value and description of the
property.
*&illemo
1
7or improvement on property
W#EN? %ust file within )B days upon
completion or occupation ,whichever
comes earlier-
W#AT? Sworn statement containing the
fair market value and description of the
property.
&ECLARATION '/ PRO"INCIAL - CIT/ -
<%NICIPAL ASSESSOR /%EC. 2544
W#EN? Fnly when the person under Sec.
2B2 re%uses or %ails to make a
declaration within the prescribed time.
>o oath by the assessor is re5uired.
Notes. Proof of Exe3.tio of Real
Pro.ert) fro3 Taxatio , /%ec. 25$4
W#O? ;y any person or for whom real
property is declared.
.laim for exemption must be filed
with the assessor together with
sufficient documentary evidence to
support claim
W#EN9 within "B days from the date of
declaration of property.
IF PROPERT/ IS &ECLARE& FOR T#E FIRST
TI<E 7SEC.:::;
If Ceclared for the first time real
property shall be assessed for back
taxes?
Dor ot 3ore tha 5F )ear+ prior to
date of initial assessment
/axes shall be computed on the basis
of applicable schedule of values in force
during the corresponding period.
STEP :9 LISTING OF REAL
PROPERT/ IN T#E ASSESS<ENT
ROLLS 7SECS. :FB> :FC;
!ll declarations shall be kept and
filed under a uniform
classification system to be
established by the provincial city
or municipal assessor.
STEP @9 APPRAISAL AN&
"AL%ATION OF REAL PROPERT/
7SECS. :5:,:5A> ::A,::B;
&eter3iatio of fair 3arHet 6alue
7F<";
?or &and
!ssessor of the province(city or
municipality may summon the
owners of the properties to be
affected and may ta?e depositions
concerning the property its
ownership amount nature and
value (4ec. 5,-, *GC)
!ssessor prepares a schedule of
D%J for different classes of
properties.
Sanggunian enacts an ordinance
/he schedule of D%J is
published in a newspaper of
general circulation in the
province city or municipality
concerned or in the absence
thereof shall be posted in the
provincial capitol city or
municipal hall and in two other
conspicuous public places
therein (4ec. 5,5, *GC)
?or mac#iner!
1. Dor ;rand new machinery? D%J is the
ac5uisition cost
2. In all other cases? D%J
M :emaining eco. life O :eplacement
9stimated 9co.8ife .ost
STEP A9 &ETER<INE ASSESSE&
"AL%E 7SEC. :5D;
&eter3ie A++e++ed "alue
Procedure
1. /ake the schedule of D%J
2. !ssessed Jalue M D%J x
!ssessment level
". /ax M !ssessed value x /ax rate
STEP B9 PA/<ENT AN& COLLECTION
OF TAX
7a; A**rual of Tax9 Sanuary of every
year and such will constitute as
a superior lien. (4ec. 5+9)
7(; Ti3e ad <aer of Pa)3et9
(4ec. 5/6)
1. basic real property tax in $ e5ual
installments ,%arch "1 Sune "B
September "B Cecember "B-
*&illemo
1
2. special levy 6 governed by
ordinance
7*; Itere+t for Late Pa)3et (4ec. 5//)
1. two percent 7:L; for ea*h 3oth
on unpaid amount until the
delin5uent amount is paid
2. provided in no case shall the
total interest exceed thirty-six
,")- months.
7d; For Ad6a*e ad Pro3.t Pa)3et
1. !dvance payment 6 discount not
exceeding 2BE of annual tax ,Sec.
2&1 8.4-
2. 'rompt payment 6 discount not
exceeding 1BE of annual tax due
,!rt "$2 I::-
Colle*tio of Tax /%ec. 2434
It shall be the responsibility of the
city or municipal treasurer concerned.
/he city or municipal treasurer may
deputi0e the barangay treasurer to
collect all taxes on real property located
in the barangay+ provided the barangay
treasurer is properly bonded.
Period to Colle*t /%ec. 2354
1. within five ,&- years from the
date they become due
2. within ten ,1B- years from
discovery of fraud in case there
is fraud or intent to evade
Su+.e+io of Pre+*ri.ti6e Period /%ec.
2354
1. local treasurer is le!all)
.re6eted to collect tax.
2. the owner or property re5uests
for rei6e+ti!atio and write+ a
wai6er before expiration of
period to collect.
". the owner of property is out of
the country or cannot be
located.
REAL PROPERT/ TAX
RE<E&IES %N&ER T#E LGC
5. TAX RE<E&IES OF T#E LOCAL
GO"ERN<ENT TO EFFECT
COLLECTION OF TAXES
A. A&<INISTRATI"E
1. :eal 'roperty tax lien (4ecs. 5/8,
*GC) 6 superior to all liens charges
or encumbrances+
2. Cistraint (4ec. 5/+C3D, *GC);
". 8evy (4ec. 5/+CAD, 5/. *GC);
$. 'urchase of property by local
treasurer for want of bidder (4ec.
59-, *GC).
'. 4%&ICIAL
.ivil !ction ( 4ec. 599, 586 *GC)
PRESCRIPTI"E PERIO&S FOR T#E
COLLECTION OF REAL
PROPERT/ TAXES
1. 'a+i* real .ro.ert) tax ad a)
other tax le6ied uder the title o
Real Pro.ert) Taxatio6 five ,&-
years from the date they became
due. (4ec. 586, *GC).
2. Whe there i+ fraud or itet to
e6ade the .a)3et of taxe+ ten
,1B- years from discovery of the
fraud or intent to evade the
payment (4ec. 586, *GC).
GRO%N&S FOR T#E S%SPENSION OF
T#E R%NNING OF T#E PRESCRIPTI"E
PERIO&S
1. /he treasurer is legally prevented
from the assessment or collection of
the tax+
2. /he taxpayer re5uests for a
reinvestigation and executes a
waiver in writing before the
expiration of the period within
which to assess or collect+ and
". /he taxpayer is out of the country or
otherwise cannot be located (4ec.
586, *GC).
:. TAX RE<E&IES OF T#E
TAXPA/ER
A. A&<INISTRATI"E
Prote+t 6 payment under protest is
re5uired within "B days to provincial
city or municipal treasurer. >o protest
shall be entertained unless the tax is
first paid. (4ec. 5/5 *GC)
Clai3 for Tax Refud or .redit (4ec.
5/-)
*&illemo
1
a- the taxpayer may file a written
claim for refund or credit with
the provincial or city treasurer
within two years from the date
the taxpayer is entitled to such
reduction or adjustment.
b- in case of denial of refund or
credit appeal to 8;!! as in
protest case.
Rede3.tio of real .ro.ert) (4ec. 59,
*GC)
Re3ed) a!ai+t the A++e++3et-A..eal
,
st
within )B days from notice of
assessment of provincial city or
municipal assessor to 8;!! (4ec. 559
*GC)
5
nd
decision of 8;!! to .;!! (4ec. 5-6
*GC)
-
rd
decision of .;!! to .ourt of /ax
!ppeals en banc
+
th
within 1& days from receipt of
decision of .ourt of /ax !ppeals en
banc to the Supreme .ourt
APPEALS IN REAL PROPERT/
TAXATION
within )B days
Fwner('erson with legal interest
must file?
1- 1ritten 'etition under Fath
2- 1ith Supporting Cocuments
within "B days

within "B days
within 1& days
'. 4%&ICIAL
1. Court A*tio appeal of .;!!7s
decision to .ourt of /ax !ppeals en
banc.
2. Suit a++aili! 6alidit) of taxM
re*o6er) of refud of taxe+ paid
(4ec. 9+ P" +9+).
". Suit to de*lare i6alidit) of tax due
to irre!ularit) i a++e++3et ad
*olle*tio (4ec. 9+ P" +9+)
$. Suit a++aili! the 6alidit) of tax +ale
(4ec. .- P" +9+) (4ec. 598 *GC)
Codoatio of Real Pro.ert) Taxe+
1. ;y the Sanggunian
:eal property taxes may be
condoned wholly or partially in a
given local government unit when?
a. /here is general failure of crops+
b. /here is substantial decrease in
the price of agricultural or agri-
based products+ or
c. /here is calamity.
2. ;y the 'resident of the 'hilippines
when public interest so re5uires.
". TARIFF AN&
C%STO<S CO&E
&EFINITIONS
TARIFF9 .ustoms duties toll or tribute
payable upon merchandise to the
4overnment.

C%STO< &%TIES9 /ax assessed upon
merchandise from or exported to a
foreign country. (Garcia v. ):ecutive
4ec., GR No. ,6,58-, <uly-, ,005))

Note Customs and tari%%s are
synonymous Aith one another. 1hey
both re%er to the ta:es imposed on
imported or e:ported Aares, articles, or
merchandise.
*&illemo
LOCAL 'OAR& OF ASSESS<ENT APPEALS
7L'AA +hould de*ide withi 5:F da)+
fro3 re*ei.t of .etitio;
CENTRAL 'OAR& OF ASSESS<ENT
APPEALS
CO%RT OF TAX APPEALS 7EN 'ANC;
S%PRE<E CO%RT
PRO"INCIAL> CIT/ OR <%NICIPAL
ASSESSOR
1
Other T).e+ of Fee+ Char!ed () the
'ureau of Cu+to3+
1. !rrastre charge
2. 1harfage due 6 counterpart of
license charged not for the use of
any wharf but for a special fund
known as the 'ort 1orks Dund.
". ;erthing fee
$. 2arbor fee
&. /onnage due
<eai! ad S*o.e of the Tariff ad
Cu+to3+ Law+
Include not only the provisions of the
/ariff and .ustoms .ode ,/..- and
regulations pursuant thereto but all
other laws and regulations that are
subject to the ;ureau of .ustoms ,;F.-
or otherwise within its jurisdiction.
!s to its scope therefore tariff and
customs laws extend not only to the
provisions of the /.. but to all other
laws as well the enforcement of which
is entrusted to the ;F..
T#E '%REA% OF C%STO<S
F%NCTIONS OF T#E '%REA% OF
C%STO<S
1. !ssessment and collection of
revenues from imported articles and
all other impositions under the tariff
and customs laws+
2. .ontrol smuggling and related
frauds+
". Supervision and control over the
entrance and clearance of vessels
and aircraft engaged in foreign
commerce+
$. 9nforcement of /.. and related
laws+
&. Supervision and control over the
handling of foreign mails arriving in
the 'hilippines+
). Supervise and control all import and
export cargoes for the protection of
government revenue+
*. 9xclusive original jurisdiction over
sei0ure and forfeiture cases under
the tariff and customs laws.
4%RIS&ICTION OF COLLECTOR OF
C%STO<S O"ER I<PORTATION OF
ARTICLES
1. .ause all articles for importation to
be entered in the customhouse
2. .ause all such articles to be
appraised and classified
". !ssess and collect the duties taxes
and other charges thereon and
$. 2old possession of all imported
articles until the duties taxes and
other charges are paid thereon.
(4ec. ,569, 1CC)

TERRITORIAL 4%RIS&ICTION OF T#E
'OC
1. !ll seas within the jurisdiction of the
'hilippines
2. !ll coasts ports airports harbors
bays rivers and inland waters
whether navigable or not from the
sea. (,
st
par, 4ec. 96-, 1CC)
C%STO<S &%TIES
W#EN TARIFF AN& C%STO<S APPLIE&
Fnly after importation has begun but
before importation is terminated.
Importation begins
1- when the conveying vessel or
aircraft
2- enters the jurisdiction of the
'hil.
"- with intention to unload therein
Importation is deemed terminated
,a- upon payment of the duties taxes
and other charges due upon the articles.
,b- and legal permit for withdrawal
shall have been granted.
In case the articles are free of
duties taxes and other charges until
they have legally left the jurisdiction of
the customs (4ec. ,565, 1CC)
INTENTION TO %NLOA&
9ven if not yet unloaded and there is
unmanifested cargo forfeiture may take
place because importation has already
begun.
*&illemo
1
ARTICLES %N&ER TCC
!ay either be
1. Su(Je*t to dut) 6
a. 8ive animals and animal
products+
b. Jegetable products+
c. !nimal or vegetable fats+ oils
and their cleavage products+
prepared edible fats+ animal or
vegetable waxes+
d. 'repared foodstuffs+ beverages
spirits and vinegar+ tobacco and
manufactured tobacco
substitutes+
e. %ineral products+
f. 'roducts of chemical or allied
industries+
g. 'lastics and articles thereof+
rubber and articles thereof+
h. :aw hides and skins+ leather
etc.+
i. 1ood and articles of wood etc.+
j. 'ulp of wood etc.+
k. /extiles and textile articles+
l. !rticles of stone+ plaster
cement etc.+
m. Dootwear headgear etc.+
n. >atural or cultured pearls
precious(semi-precious stones+
o. ;ase metals and articles of base
metals+
p. %achinery and mechanical
appliances+ electric e5uipment+
sound recorders etc+
5. Jehicles aircraft vessels and
associated transport e5uipment+
r. Fptical photographic medical
surgical instruments etc.+
s. !rms ammunition parts and
accessories+
t. %iscellaneous manufactured
articles+ and
u. 1orks of art collector3s pieces
arid anti5ues (4ec. ,6+, 1itle ,,
1CC).
2. Prohi(ited fro3 (ei! i3.orted
,'rohibited importation-
a. Absolutely prohibited such as?
weapons of war+ gambling
devices+ narcotics or prohibited
drugs+ immoral obscene or
insidious articles+ and those
prohibited under special laws
(4ec.,65, 1CC).
b. Ruali%iedly prohibited
1here such conditions as to
warrant a lawful importation do
not exist the legal effects of the
importation of 5ualifiedly
prohibited articles are the same
as those of absolutely prohibited
articles. (Auyong $ian vs. C1A,
GR No. *'5.8.5, 4eptember ,5,
,08+)
". Coditioall),free fro3 tariff ad
*u+to3+ dutie+ ,conditionally-free
importation-
/hose provided in Sec. 1B& /..+
/hose granted to government
agencies 4F..s with
agreements with foreign
countries+
/hose given to international
institutions entitled to
exemption by agreement or
special laws+ and
/hose that may be granted by
the 'resident upon >9C!7s
recommendation.
$. Free fro3 TC dutie+ ,duty-free-
Imported goods must be
entered in a customhouse at their
port of entry otherwise they shall be
considered as contraband and the
importer is liable for smuggling (4ee
4ec. ,6,, 1CC).
!ll articles when imported from
any country into the 'hilippines shall
be subject to duty upon each
importation even though previously
exported from the 'hilippines
except as otherwise specifically
provided for in the /.. or other
laws.
Lia(ilit) for Cu+to3+ &utie+
Geeral Rule9 !ll importations (
exportations of goods are subject to
customs duties (4ec. ,6/, 1CC).
Ex*e.tio+9
,1- 9xemptions under the /..+
,2- 9xemptions granted to
government agencies
instrumentalities or 4F..s with
existing contracts
commitments agreements or
*&illemo
1
obligations with foreign
countries+
,"- 9xemptions of international
organi0ations pursuant to
agreements or special laws+ and
,$- 9xemptions granted by the 'res.
of the 'hil. upon
recommendation of >9C! (4ec.
,6/, 1CC).
LIA'ILIT/ OF I<PORTER FOR C%STO< &%TIES
! personal debt which can be
discharged only by payment in
full thereof+
! lien upon the imported articles
while they are in custody or
subject to the control of the
government. (4ec. ,56+, 1CC).
Extet Of I3.orter?+ Lia(ilit)
/he liability of an importer is
limited to the value of the imported
merchandise. In case of forfeiture of
the sei0ed material the maximum civil
penalty is the forfeiture itself.
(!endoGa vs. "avid, GR No. *'0+/5,
!arch 58, ,09,)
&raw(a*H
! device resorted to for enabling a
commodity affected by taxes to be
exported and sold in foreign markets
upon the same terms as if it had not
been taxed at all. (Hy Chaco 4ons vs.
Collector o% Customs, GR No. 89,.,
!arch 58, ,0,-)
I3.ort Etr)
It is a declaration to the ;F.
showing particulars of the imported
article that will enable the customs
authorities to determine the correct
duties. !n importer is re5uired to file an
import entry. It must be accomplished
from disembarking of last cargo from
vessel.
Tra+a*tio 6alue uder RA NO. D5D5
It is the invoice value of the
goods plus freight insurance costs
expenses and other necessary expenses.
/his replaces the 2ome .onsumption
Jalue as basis of valuation of goods.
CLASSIFICATION OF C%STO< &%TIES
!. Re!ular &utie+ 6 those which are
imposed and collected merely as a
source of revenue.
1. Ad 6alore3 dut)9 /his is a duty
based on the value of the
imported article.
2. S.e*ifi* dut)9 /his is a duty
based on the dutiable weight of
goods ,either the gross weight
legal weight or net weight-.
". Alterati! dutie+9 /his is a
duty which alternates ad
valorem and specific.
$. Co3.oud &ut)9 /his is a duty
consisting of ad valorem and
specific duties.

;. S.e*ial dutie+ those which are
imposed and collected in addition to
the ordinary customs duties usually
to protect local industries against
foreign competition.
5. &u3.i! dut)
:. Couter6aili! dut)
@. <arHi! dut)
A. &i+*ri3iator) dut)

NAT%RE OF SPECIAL C%STO<S &%TIES
Special customs duties are
additional import duties imposed on
specific kinds of imported articles under
certain conditions.
P%RPOSE OF SPECIAL C%STO<S &%TIES
/he special customs duties are
imposed for the protection of consumers
and manufacturers as well as 'hil.
products from undue competition posed
by foreign-made products.
SPECIAL &%TIES CO<PARE&
*&illemo
1
&%<PING &%T/ CO%NTER"AILING &%T/ <AR8ING &%T/
&ISCRI<INATOR/
&%T/
1. Nature
Imposed upon
foreign products
with value lower
than their fair
market value to the
detriment of local
products.
Imposed upon foreign
goods enjoying subsidy
thus allowing them to
sell at lower prices to
the detriment of local
products similarly
situated.
Imposed upon
those not
properly marked
as to place of
origin of the
goods.
Imposed upon
goods coming
from countries
that discriminate
against 'hilippine
products.
5. AmountCRate
Cifference between
the actual price
and the normal
value of the article.
95uivalent to the
bounty subsidy or
subvention.
&E ad valorem
of articles
!ny amount not
exceeding 1BBE
ad valorem of the
subject articles
". ,mposin" Aut#orit!
Special committee
on !nti-Cumping
,composed of the
Secretary of Dinance
as .hairman+
%embers? the
Secretary of C/I
and either the
Secretary of
!griculture if article
in 5uestion is
agricultural product
or the Secretary of
labor if non-
agricultural product
Secretary of Dinance .ommissioner of
.ustoms
'resident of the
'hilippines
FLEXI'LE TARIFF CLA%SE
/he 'resident may fix tariff rates
import and export 5uotas etc. under
/.. (4ee 4ec. 5., Art. 2I, Constitution
and 4ec. +6,, 1CC)
1. to increase reduce or remove
existing protective rates of import
duty ,including any necessary change
in classification-.
/he existing rates may be
increased or decreased to any level
on one or several stages but in no
case shall the increased rate of
import duty be higher than a
maximum of one hundred ,1BBE- per
cent ad valorem
2. to establish import 5uota or to ban
imports of any commodity as may
be necessary+ and
". to impose an additional duty on all
imports not exceeding ten ,1BE- per
cent ad valorem whenever
necessary?
LI<ITATIONS I<POSE& REGAR&ING T#E
FLEXI'LE TARIFF CLA%SE
a. .onduct by the /ariff .ommission of
an investigation in a public hearing.
/he .ommission shall also hear
the views and recommendations of
any government office agency or
instrumentality concerned.
*&illemo
1
/he .ommission shall submit
their findings and recommendations
to the >9C! within thirty ,"B- days
after the termination of the public
hearings.
/he >9C! thereafter submits its
recommendation to the 'resident.
1. /he power of the 'resident to
increase or decrease the rates of
import duty within the
abovementioned limits fixed in the
.ode shall include the modi%ication
in the %orm o% duty.
In such a case the corresponding
ad valorem or specific e5uivalents of
the duty with respect to the imports
from the principal competing foreign
country for the most recent
representative period shall be used
as bases (4ec. +6,, 1CC).
T#E TARIFF CO<<ISSION 7TC;
F%NCTIONS OF T#E TARIFF
CO<<ISSION
5. I6e+ti!ati6e Power+ 7Se*. BFB>
TCC;
a. the administration of and the
fiscal and industrial effects of
the tariff and customs laws of
this country now in force or
which may hereafter be enacted+
b. the relations between the rates
of duty on raw materials and the
finished or partly finished
products+
c. the effects of ad valorem and
specific duties and of compound
specific and ad valorem duties+
d. all 5uestions relative to the
arrangement of schedules and
classification of articles in the
several schedules of the tariff
law+
e. the tariff relations between the
'hilippines and %oreign
countries commercial treaties
preferential provisions
economic alliances the effect of
export bounties and preferential
transportation rates+
f. the volume of importations
compared with domestic pro-
duction and consumption+
g. conditions causes and effects
relating to competition of
foreign industries with those of
the 'hilippines including
dumping and cost of production+
and
h. in general to investigate the
operation of customs and tariff
laws including their relation to
the national revenues their
effect upon the industries and
labor of the country and to
submit reports of its
investigation as provided.
:. Ad3ii+trati6e A++i+ta*e to the
Pre+idet ad Co!re++ 7Se*. BFG>
TCC;
TAX RE<E&IES %N&ER T#E
TARIFF AN& C%STO<S CO&E
7TCC;
TAX RE<E&IES OF T#E
GO"ERN<ENT
A. A&<INISTRATI"E
5. Tax Lie 7Se*. 5:FA TCC;
attaches on the goods
regardless of ownership while
still in the custody or control
of the 4overnment
availed of when the
importation is neither
prohibited nor improperly
made
:. Ad3ii+trati6e Fie+ ad
Forfeiture+
applied when the
importation is unlawful
and it may be exercised even
where the articles are not or
no longer in .ustom7s
custody
' unless the importation is
merely attempted in which
case it may be effected only
while the goods are still
within the .ustoms
jurisdiction or in the hands
of a person who is aware
*&illemo
1
thereof (4ec. 5/-, E 5/-6,
1CC)
under 4ec. 5/-6(a) o% the
1CC in order to warrant
forfeiture it is not necessary
that the vessel or aircraft
must itself carry the
contraband. /he
complementary if collateral
use of the .essna plane for
smuggling operation is
sufficient for it to be
deemed to have been used
in smuggling. (*lamado vs.
Commissioner o% Customs,
GR No. *'5..60, !ay ,9,
,0.-)
@. Redu*tio of *u+to3+ dutie+ -
*o3.ro3i+e
subject to approval of Sec.
of Dinance (4ec. 860, 5-,9
1CC)
. *ei+ure, *earch, -rrest (Sec.
2205, 2210, 2211 TC')
'. 4%&ICIAL
1. thi+ re3ed) i+ or3all)
a6ailed of whe the tax lie
i+ lo+t () the relea+e of the
!ood+
.ivil !ction ,Sec. 12B$
/..-
.riminal !ction
TAX RE<E&IES OF T#E TAXPA/ER
A. A&<INISTRATI"E
1. Prote+t
a. !ny importer or interested
party if dissatisfied with
published value within 1&
days from date of
publication or within & days
from the date the importer
is entitled to refund if
payment is rendered
erroneous or illegal by
events occurring after the
payment.
b. /axpayer 6 within 1& days
from assessment. 'ayment
under protest is necessary.
(4ec. 5-6., 55,6 1CC)
2. Refud
a. ! written claim for refund
may be submitted by the
importer in abatement cases
on missing packages
deficiencies in the contents
of packages or shortages
before arrival of the goods in
the 'hilippines articles lost
or destroyed after such
arrival dead or injured
animals and for manifest
clerical errors+ and
b. Crawback cases where the
goods are re-exported (4ec.
,86,',86. 1CC).
". Settle3et of a) +eiKure ()
.a)3et of fie or rede3.tio
;ut this shall not be allowed
in any case where
importation is absolutely
prohibited or the release
would be contrary to law or
when there is an actual and
intentional fraud (4ec. 5-68
1CC).
$. A..eal
1ithin 1& days to the
.ommissioner after
notification by .ollector of
his decision (4ec. 5-,-
1CC).
'. 4%&ICIAL
5. A..eal
1ithin "B days from receipt
of decision of the
.ommissioner or Secretary of
Dinance to the division of the
./! (4ec. 5+6- 1CC, 4ec. 8
RA ,,5/, as amended by 4ec.
0 RA 05.5)
Since Sec.11 of :! 112& as
amended by :! A2@2
empowers the /ax .ourt to
issue injunctions it would
appear that an importer may
appeal without first paying
the duties such as in
sei0ure but not in protest
cases.
:. A*tio to =ue+tio the le!alit)
of +eiKure
@. A(ado3et /%ec. 1251 CC4
a. expressly (4ec. ,.6, 1CC)
*&illemo
1
b. impliedly 6
c. failure to file an import
entry within "B days
from the discharge of
goods or
d. having filed an entry
fails to claim within 1&
days but it shall not be
so effective until so
declared by the
collector. (4ec. ,.6,, as
amended by RA 89/,)
TWO 8IN&S OF PROCEE&INGS IN
T#E '%REA% OF C%STO<S 7'OC;
A. C%STO<S PROTEST CASES
&EFINITION9 /hese are cases which deal
solely with liability for customs duties
fees and other charges.
Note ;efore filing a protest there
must first be a payment under protest.
Whe *u+to3+ .rote+t a..li*a(le
/he customs protest is re5uired to be
filed only in case the liability of the
taxpayer for duties taxes fees and
other charges is determined and the
taxpayer disputes said liability.
Whe Cu+to3+ .rote+t N) re=uired
1here there is no dispute but the
claim for refund arises by reason of the
happening of supervening events such as
when the raw material imported is
utili0ed in the production of finished
products subse5uently exported and a
duty drawback is claimed.
Re=uire3et+ for 3aHi! a .rote+t
1. %ust be in writing
2. %ust point out the particular
decision or ruling of the .ollector of
.ustoms to which exception is taken
or objection made+
". %ust state the grounds relied upon
for relief+
$. %ust be limited to the subject
matter of a single adjustment+
&. %ust be filed when the amount
claimed is paid or within 1& days
after the payment+
). 'rotestant must furnish samples of
goods under protest when re5uired.
PROCE&%RE IN C%STO<S PROTEST
CASES
/he .ollector acting within his
jurisdiction shall cause the imported
goods to be entered at the customhouse
/he .ollector shall assess li5uidate and

collect the duties thereon or detain the
said goods if the party liable does not
pay the same
/he party adversely affected ,the

protestant- may file a written protest on
his foregoing liability with the .ollector
within 1& days after paying the
li5uidated amount ,the payment under
protest rule applies-
2earing within 1& days from receipt of

the duly presented protest. Gpon
termination of the hearing the .ollector
shall decide on the same within "B days

If decision is adverse to
the protestant
If decision is adverse to
the government

!ppeal with the
.ommissioner within
1& days from notice
!utomatic :eview by
the .ommissioner

!ppeal with the .ourt
of /ax !ppeals Civision
within "B days from
notice
!utomatic review by
the Secretary of
Dinance

*&illemo
1
!ppeal with the

./! en banc
!ppeal by certiorari
with the Supreme
.ourt within 1& days
from notice
If decision of
.ommissioner or
Secretary of Dinance is
adverse to the
protestant he may
appeal to the ./! and
S. under the same
procedure on the left.

Rea+o+ for the auto3ati* re6iew of
de*i+io+ ad6er+e to the Go6er3et
1. /o protect the interest of the
4overnment
2. ! favorable decision will not be
appealed by the taxpayer and
certainly a .ollector will not
appeal his own decision.
". 8ifeblood /heory
'. SEII%RE AN& FORFEIT%RE CASES
&EFINITION9 /hese refer to matters
involving smuggling. It is administrative
and civil in nature and is directed
against the res or imported articles and
entails a determination of the legality of
their importation. /hese are actions in
rem.
/hus It is of no defense that the
owner of the vessel sought to be
forfeited had no actual knowledge that
his property was used illegally. /he
absence or lack of actual knowledge of
such use is a defense personal to the
owner himself which cannot in any way
absolve the vessel from the liability of
forfeiture. (Commissioner o% Customs
vs. !anila 4tar 7erry, Inc., GR Nos.
-,889'8., (ctober 5,, ,00-)
S<%GGLING
1. !n act of any person who shall?
a. Draudulently import any article
contrary to law or
b. !ssist in so doing or
c. :eceive conceal buy sell
facilitate transport conceal or
sell such article knowing its
illegal importation (4ec. -96,,
1CC)
d. 9xport contrary to law. (4ec.
-/,+, 1CC)
2. /he 'hilippines is divided into
various ports of entry 6 entry other
than port of entry will be
S%G448I>4.
PORT OF ENTR/
! domestic port open to both
foreign and coastwise trade including
<airport of entry=. (4ec. -/,+, 1CC)
!88 articles imported into the
'hilippines whether subject to duty or
not shall be entered through a
customshouse at a port of entry.
9>/:I? in .ustoms law means-
1. the
documents filed at the
.ustoms house
2. the
submission and acceptance
of the documents
". the
procedure of passing goods
through the customs house
(RodrigueG vs. Court o%
Appeals, GR No. ,,/5,.,
4eptember ,., ,00/)
CONTRA'AN&9 !rticles of prohibited
importations or exportations. (4ec. -/,+,
1CC)
E"I&ENCE FOR CON"ICTION IN
S<%GGLING CASES
%ere possession of the article in
5uestion - unless defendant could
explain that his possession is lawful to
the satisfaction of the court (4ec. -96,,
1CC). 'ayment of the tax due after
apprehension is not a valid defense
(RodrigueG vs. Court o% Appeals, GR No.
,,/5,., 4eptember ,., ,00/)
T#INGS S%'4ECT TO CONFISCATION IN
S<%GGLING CASES
!nything that was used for
smuggling is subject to confiscation like
the vessel plane etc. (*lamado vs.
Commissioner o% Customs, GR No. *'
5..60, !ay ,9, ,0.-).
*&illemo
1
Ex*e.tio9 .ommon carriers that are
not privately chartered cannot be
confiscated.
RIG#T OF C%STO<S OFFICERS TO
EFFECT SEII%RE P ARREST /%EC. 22554
1. %ay sei0e any vessel aircraft cargo
article animal or other movable
property when the same is subject to
forfeiture or liable for any time as
imposed under tariff and customs
laws rules K regulations
2. %ay exercise such powers only in
conformity with the laws and
provisions of the /..
CO<<ON CARRIERSM FORFEIT%RE
1. .ommon carriers are generally not
subject to forfeiture although if the
owner has knowledge of its use in
smuggling and was a consenting
party it may also be forfeited.
2. If a motor vehicle is hired to carry
smuggled goods but it has no
.ertificate of 'ublic .onvenience
,.'.- it is not a common carrier. It
is thus subject to forfeiture and
lack of personal knowledge of the
owner or the carrier is not a defense
to forfeiture.
PROPERTIES NOT S%'4ECT TO
FORFEIT%RE IN T#E A'SENCE OF PRI<A
FACIE E"I&ENCE
/he forfeiture of the vehicle vessel
or aircraft shall not be effected if it is
established that the owner thereof or his
agent in charge of the means of
conveyance used as aforesaid has no
=no<&ed"e of or participation in t#e
un&a<fu& act?
Provided however that a prima
facie presumption shall exist against the
vessel vehicle or aircraft under any of
the following circumstances?
1. If the conveyance has been used
for smuggling at least twice
before+
2. If the owner is not in the
business for which the
conveyance is generally used+
and
". If the owner is financially not in
a position to own such
conveyance.
&OCTRINE OF #OT P%RS%IT
Re=ui+ite+9
5. O6er "e++el+
a. !n act is done in 'hil. 1aters
which constitutes a violation of
the tariff and customs laws
b. a pursuit of such vessel began
within the jurisdictional waters
which
,i- may continue beyond the
maritime 0one and
,ii- the vessel may be sei0ed on
the high seas.
:. O6er I3.orted Arti*le+
a. /here is a violation of the tariff
and customs laws
b. !s a conse5uence they may be
pursued in the 'hil.
c. 1ith jurisdiction over them at
any place therein for the
enforcement of the law. (5
nd
par. 4ec. 96-, 1CC)
REGIONAL TRIAL CO%RTS 7RTC;
"S.
'%REA% OF C%STO<S 7'OC;
/he :/.s do not have jurisdiction
over sei0ure and forfeiture
proceedings conducted by the ;F.
and to interfere with these
proceedings. /he .ollector of
.ustoms has exclusive jurisdiction
over all 5uestions touching on the
sei0ure and forfeiture of dutiable
goods.
>o petitions for certiorari
prohibition or mandamus filed with
the :/. will lie because these are in
reality attempts to review the
.ommissioner3s actuations. >either
replevin filed with the :/. will
issue. Rationa&e. "octrine o%
Primary <urisdiction.
9ven if a .ustoms sei0ure is illegal
exclusive jurisdiction ,to the
exclusion of regular courts- still
belongs to the ;ureau of .ustoms
(<ao v. Court o% Appeals, GR No.
,6+96+, (ctober 9, ,00/).
GOO&S IN C%STO<?S C%STO&/ 'E/ON&
REAC# OF ATTAC#<ENT
*&illemo
1
4oods in the custom7s custody
pending payment of customs duties are
beyond the reach of attachment. !s long
as the importation has not been
terminated the imported goods remain
under the jurisdiction of the ;ureau of
.ustoms. (2iduya vs. 3erdiago, GR No.
*'505,., (ctober 50, ,089)
A&<INISTRATI"E AN& 4%&ICIAL
PROCE&%RES RELATI"E TO C%STO<S
SEII%RES AN& FORFEIT%RES
Cetermination of probable cause and
issuance of warrant
!ctual sei0ure of the articles
8isting of description appraisal and

classification of sei0ed property
:eport of sei0ure to the .omm. of

.ustoms and the .hairman .omm.
on !udit
Issuance by the .ollector of a

warrant of detention
>otification to owner or importer
Dormal hearing
Cistrict collector renders his

decisions

If decision is not
favorable to the
aggrieved owner or
importer
If decision is not
favorable to the
government

!ppeal by the
aggrieved owner or
importer
!utomatic :eview
by the
.ommissioner
PERSONS #A"ING POLICE A%T#ORIT/
TO ENFORCE T#E TARIFF P C%STO<S
LAWS AN& EFFECT SEARC#ES>
SEII%RES AN& ARRESTS /%EC. 22530
CC4
1- officials of the ;F. district
collectors police officers agents
inspectors and guests of the ;F.+
2- officers of the 'hil. >avy and other
members of the !D' and national law
enforcement agencies when authori0ed
by the .ommissioner of .ustoms
"- officials of the ;I: on all cases
falling within the regular performances
of their duties when the payment of
internal taxes are involved+
$- officers generally empowered by law
to effect arrests and execute processes
of courts when acting under the
direction of the .ollector.
RE$%IRE<ENTS FOR C%STO<S
FORFEIT%RE
1. /he wrongful making by the owner
importer exporter or consignee of
any declaration or affidavit or the
wrongful making or delivery by the
same persons of any invoice letter
or paper - all touching on the
importation or exportation of
merchandise.+ and
2. /hat such declaration affidavit
invoice letter or paper is false.
(7arolan, <r. vs. Court o% 1a:
Appeals, GR No. +556+, <anuary 5,,
,00-)
PLACES W#ERE SEARC#ES P SEII%RES
<A/ 'E CON&%CTE&
,a- enclosures
,b- dwelling house ,there must be
search warrant issued by a judge-
,c- vessels or aircrafts and persons
or articles conveyed therein
,d- vehicles beasts and persons
,e- persons arriving from foreign
countries.

Note. ;urden of proof in sei0ure or
forfeiture is on the claimant. (4ec.
5/-/, 1CC)
RE$%IRE<ENTS FOR <ANIFEST
! manifest in coastwise trade for
cargo and passengers transported from
one place or port in the 'hilippines to
another is re5uired when one or both of
such places is a port of entry (4ec. 069,
1CC). %anifests are also re5uired of
vessel from a foreign port (4ec. ,66/,
1CC).
*&illemo
1
IS <ANIFEST RE$%IRE& ONL/ FOR
I<PORTE& GOO&S0
>F. !rticles subject to sei0ure
do not have to be imported goods.
%anifests are also re5uired for articles
found on vessels or aircraft engaged in
coastwise trade. (Rigor vs. Rosales, GR
No. *'--8/9, (ctober 5-, ,0.5)
%N<ANIFESTE& CARGO IS S%'4ECT TO
FORFEIT%RE whether the act of
smuggling is established or not under the
principle o% res ipsa loBuitur. It is
enough that the cargo was unmanifested
and that there was no showing that
payment of duties thereon had been
made for it to be subject to forfeiture.

SETTLE<ENT OF FORFEIT%RE CASES
Geeral Rule9 Settlement of cases by
payment of fine or redemption of
forfeited property is alloAed.
Ex*e.tio+9
1. the importation is absolutely
prohibited or
2. the surrender of the property to
the person offering to redeem
would be contrary to law or
". when there is fraud. (4ec. 5-68,
1CC)
AC$%ITTAL IN CRI<INAL C#ARGE NOT
RES 4%&ICATA IN SEII%RE OR
FORFEIT%RE PROCEE&INGS
Rea+o+9
1- .riminal proceedings are actions in
personam while sei0ure or forfeiture
proceedings are actions in rem.
2- .ustoms compromise does not
extinguish criminal liability. (People
vs. "esiderio, GR No. *'56.66/,
November 59, ,09/)
Note. !t any time prior to the sale the
delin5uent importer 3a) +ettle hi+
o(li!atio+ with the ;ureau of .ustoms
in which case the aforesaid articles may
be delivered upon payment of the
corresponding duties and taxes and
compliance with all other legal
re5uirements (4ec. ,/6., 1CC)
A'ATE<ENT
/he reduction or non-imposition of
customs duties on certain imported
materials as a result of?
1- Camage incurred during voyage+
2- Ceficiency in contents packages
"- 8oss or destruction of articles
after arrival
$- Ceath or injury of animals
FRA%&%LENT PRACTICES CONSI&ERE&
AS CRI<INAL OFFENSES AGAINST
C%STO<S RE"EN%E LAWS
1- Gnlawful importation+
2- 9ntry of imported or exported article
by means of any false or fraudulent
practices invoice declaration
affidavit or other documents+
"- 9ntry of goods at less than their true
weights or measures or upon a
classification as to 5uality or value+
$- 'ayment of less than the amount
due+
&- Diling any false or fraudulent claim
for the payment of drawback or
refund of duties upon the
exportation of merchandise+ or
)- Diling any affidavit certificate or
other document to secure to himself
or others the payment of any
drawback allowance or refund of
duties on the exportation of mdse.
greater than that legally due
thereon. (4ec. -965, 1CC)
"I. CO%RT OF
TAX APPEALS
7RA 55:B a+ a3eded
() RA E:D:;
See ANNEX O for comparison of ./!
as created by :! >o. 112& and the
amendments made by :! >o. A2@2.
NAT%RE AN& POWERS
ELE"ATION OF RAN8
*&illemo
1
shall be of the same level as the
.ourt of !ppeals possessing all the
inherent powers of a .ourt of Sustice
CO<POSITION
.onsists of a 'residing Sustice and
five ,&- !ssociate Sustices
%ay sit en banc or in two ,2-
Civisions each Civision consisting of
three ,"- Sustices. /he 'residing
Sustice and the most Senior
!ssociate Sustice shall serve as
chairmen of the two divisions
$%OR%<
Dour ,$- Sustices shall constitute a
5uorum for sessions )N 3ANC.
/wo ,2- Sustices for sessions of a
"I2I4I(N.
PR(2I")" in case the reBuired Buorum
cannot be had due to any vacancy,
disBuali%ication, inhibition, disability,
or any other laA%ul cause, the Presiding
<ustice shall designate any <ustice o%
other "ivisions o% the Court to sit
temporarily therein.
POWERS
1. to administer oaths+
2. to receive evidence+
". to summon witnesses by
subpoena+
$. to re5uire production or papers
or documents by subpoena duces
tecum+
&. to punish contempt+
). to promulgate rules and
regulations for the conduct of its
business+
*. to assess damage against
appellant if appeal to ./! is
found to be frivolous or dilatory+
@. to suspend the collection of the
tax pending appeal+ and
A. to render decisions on cases
brought before it
1B. to issue order authori0ing
distraint of personal property
and levy of real property
&ISTRAINT OF PERSONAL PROPERT/
AN& LE"/ OF REAL PROPERT/
Gpon the issuance of any ruling
order or decision by the ./! favorable to
the national government the ./! shall
issue an order authori0ing the ;I:
through the .ommissioner?
1. to sei0e and distraint any goods
chattels or effects and the personal
property including stocks and other
securities debts credits bank
accounts and interests in and rights
to personal property and(or
2. levy the real property of such
persons in sufficient 5uantity to
satisfy the tax or charge together
with any increment thereto incident
to delin5uency.
/his remedy shall not be exclusive
and shall not preclude the .ourt from
availing of other means under the :ules
of .ourt.
4%RIS&ICTION
I. EXCL%SI"E APPELLATE 4%RIS&ICTION
TO RE"IEW '/ APPEAL
7a; Cecisions of the Commissioner
of ,nterna& Revenue
1. in cases involving disputed
assessments refunds of
internal revenue taxes fees
or other charges penalties
in relation thereto
2. or other matters arising
under the >I:. or other laws
administered by the ;I:+
7(; Inaction by the Commissioner of
,nterna& Revenue
1. in cases involving disputed
assessments refunds of
internal revenue taxes fees
or other charges penalties
in relation thereto
under the >I:. or other laws
administered by the ;I:
where the >I:. provides a
specific period for action in
which case the inaction shall
be deemed a denial+
7*; Cecisions orders or resolutions
of the RC
6 in local tax cases originally
decided or resolved by them in
the exercise of their original or
appellate jurisdiction+
*&illemo
1
7d; Cecisions of the Commissioner
of Customs
1. in cases involving liability
for customs duties fees or
other money charges
sei0ure detention or release
of property affected fines
forfeitures or other
penalties in relation
thereto
under the .ustoms 8aw or
other laws administered by
the ;ureau of .ustoms+
7e; Cecisions of the Centra& Board
of Assessment Appea&s
6 in the exercise of its appellate
jurisdiction over cases involving
the assessment and taxation of
real property originally decided
by the provincial or city board of
assessment appeals+
7f; Cecisions of the %ecretar! of
?inance
6 on customs cases elevated to
him automatically for review
from decisions of the
.ommissioner of .ustoms which
are adverse to the 4overnment
under Section 2"1& of the /ariff
and .ustoms .ode+
7!; Cecisions of the %ecretar! of
rade and ,ndustr! in the case
of nonagricultural product
commodity or article and the
4ecretary o% Agriculture in the
case of agricultural product
commodity or article
6 involving dumping and
countervailing duties under Secs.
"B1and "B2 respectively of the
/ariff and .ustoms .ode and
safeguard measures under :!
>o @@BB where either party
may appeal the decision to
impose or not to impose said
duties.
II. 4%RIS&ICTION O"ER CASES
IN"OL"ING CRI<INAL CASES
/a4 Exc&usive ori"ina& Durisdiction
over all criminal cases arising from
violations of the >I:. or /ariff and
.ustoms .ode and other laws
administered by the ;I: or the
;ureau of .ustoms
Provided hoAever, Ahere the
principal amount of taxes and
fees exclusive of charges and
penalties claimed is less than
one million pesos ,'1 BBB BBB.
BB- or where there is no
specified amount claimed - the
offenses or penalties shall be
tried by the regular courts and
the jurisdiction of the ./! shall
be appellate.
!ny provision of law or the :ules
of .ourt to the contrary
notwithstanding the criminal
action and the corresponding
civil action for the recovery of
civil liability for taxes and
penalties shall at all times be
simultaneously instituted with
and jointly determined in the
same proceeding by the ./!
the filing of the criminal action
being deemed to necessarily
carry with it the filing of the
civil action and no right to
reserve the filing of such civil
action separately from the
criminal action will be
recogni0ed.
/74 Exc&usive appe&&ate Durisdiction
in criminal offenses
Fver appeals from the
judgments resolutions or orders
of the :/. in tax cases originally
decided by them in their
respective territorial
jurisdiction.
Fver petitions for review of the
judgments resolutions or
orders of the :/. in the exercise
of their appellate jurisdiction
over tax cases originally decided
by the %etropolitan /rial .ourts
%unicipal /rial .ourts and
%unicipal .ircuit /rial .ourts in
their respective jurisdiction.
III. 4%RIS&ICTION O"ER TAX
COLLECTION CASES
/a4 Exc&usive ori"ina& Durisdiction
in tax collection cases involving
final and executory assessments
*&illemo
1
for taxes fees charges and
penalties.
In collection cases where the
principal amount of taxes and
fees exclusive of charges and
penalties claimed is less than
one million pesos ,' 1 BBB BBB.
BB- 6 shall be tried by the proper
!unicipal 1rial Court
!etropolitan 1rial Court and
Regional 1rial Court.
/74 Exc&usive appe&&ate Durisdiction
in tax collection cases
Fver appeals from the
judgments resolutions or orders
of :/. in tax collection cases
originally decided by them in
their respective territorial
jurisdiction.
Fver petitions for review of the
judgements resolutions or
orders of the :/. in the exercise
of their appellate jurisdiction
over tax collection cases
originally decided by the
%etropolitan /rial .ourts
%unicipal /rial .ourts and
%unicipal .ircuit /rial .ourts in
their respective jurisdiction.
In criminal and collection cases the
4overnment may directly file the
said cases with the ./! covering
amounts within its exclusive and
original jurisdiction.
See ANNEX P 6 .omparative
Ciagrams on ./! jurisdiction.
1Other <atter+2
/hose controversies which can be
considered within the scope of the
function of the ;I: ( ;F. under ejusdem
generis rule ,e.g. action for the nullity of
distraint and levy+ 5uestioning the
propriety of the assessment+ collection
of compromise penalties-.
APPEAL
Whe
1ithin "B days after the receipt of
such decision or ruling or after the
expiration of the period fixed by law for
action.
<ode+ of A..eal
,1- ;y filing a petition for review under
a procedure analogous to that
provided for under :ule $2 of 1AA*
:ules on .ivil 'rocedure
decision ruling or inaction of
the Commissioner o% Internal
Revenue Commissioner o%
Customs the 4ecretary o%
7inance the 4ecretary o% 1rade
and Industry or the 4ecretary o%
Agriculture or the Regional 1rial
Courts
this appeal shall be heard by a
Civision of the ./!
,2- ;y filing a petition for review under
a procedure analogous to that
provided for under :ule $" of 1AA*
:ules on .ivil 'rocedure
decisions or rulings of the
Central 3oard o% Assessments
Appeals and the Regional 1rial
Courts in the exercise of its
appellate jurisdiction
this appeal shall be heard by the
./! en banc.
Pro*edure
!. !ny party adversely affected by a
ruling order or decision of a Civision
of the ./! may file a motion for
reconsideration or new trial before
the same Civision within 1& days
from notice
;. !ny party adversely affected by a
resolution of a Civision of the ./! on
a motion for reconsideration or new
trial may file a petition for review
with the ./! en banc.
.. !ny party adversely affected by a
decision or ruling of the ./! en banc
may file with the Supreme .ourt a
verified petition for review on
certiorari pursuant to :ule $& of the
1AA* :ules on .ivil 'rocedure.
*&illemo
1
Thirt) 7@F; da) Pre+*ri.ti6e Period for
A..eal
Starts to run from the date the
ta:payer receives the appealable
decision. If the taxpayer7s re5uest for
reconsideration ,i.e. the protest is
denied or the original assessment is
maintained the appealable decision is
the decision denying the re5uest for
reconsideration.
/he said period is &urisdictional and
non'e:tendible. :e5uests or motions for
reconsideration however operate to
suspend the running of the period to
appeal. ! pro forma re5uest for
reconsideration or one which is directed
to the Secretary of Dinance does not
suspend the running of the "B-day
reglementary period.
Ol) A Fial &e*i+io I+ A..eala(le To
The Court Of Tax A..eal+
'reliminary collection letters post
reporting notices and pre-assessment
notices are not appealable because
they are not the final decision of the
.ommissioner.
!n assessment can be appealed if
taxpayer does not seek a
reconsideration.
!t times there is an exchange of
communications between taxpayer
and .ommissioner states that his
action is final then period for
appeal begins to run.
.ommissioner must state that his
decision is final for period of appeal
to run.
Dinal decision cannot be implied
from issuance of warrant of distraint
and levy unless it is issued after a
re5uest for reconsideration.
GENERAL R%LE9 >ew issues cannot be
raised for the first time on appeal.
EXCEPTIONS9
a. Cefense of prescription
:eason? /his is a statutory right.
(2isayan *and 1ransportation vs.
Collector)
b. 9rrors of administrative officials
:eason? State can never be in
estoppel and lifeblood theory.
(Commissioner vs. Procter and
Gamble Phils. !%g. Corp, GR No.
99.-., April ,/, ,0..)
N(1) 2owever this was reversed in
Supreme .ourt7s subse5uent resolution
wherein it was held that <in the absence
of explicit statutory provisions to the
contrary the 4overnment must follow
the same rules of procedure which bind
private parties.= (Commissioner vs.
Procter and Gamble, GR No. 99.-.,
"ecember 5, ,00,, Resolution)
Tax *olle*tio Not Su+.eded duri!
A..eal
Geeral Rule9 >o appeal taken to the
./! shall suspend the payment levy or
distraint and(or sale of any property of
the taxpayer.
Ex*e.tio9 /he ./! is empowered to
suspend the collection of internal
revenue taxes and custom duties only
when there was a 6
c- showing that collection of the tax
may jeopardi0e the interest of the
government and ( or the taxpayer+
d- deposit of the amount claimed or
file a surety bond for not more
than double the amount of tax
with the .ourt when re5uired+ and
e- showing by taxpayer that appeal is
not frivolous nor dilatory.
Ca The CTA EJoi Colle*tio of
Taxe+0
Sec. 11 of :! >o. 112& as amended
by Sec. A of :! >o. A2@2 grants ./!
power to suspend collection of tax if
such collection works to serious
prejudice of either taxpayer or
government.
2owever Sec. 21@ of the /ax .ode
provides no court may grant
injunction to restrain collection of
any tax fee or charge imposed by
/ax .ode.
/he provision in /ax .ode refers to
courts other than the ./!.
(3laBuera vs. RodrigueG, GR No. *'
,,50/, !arch 50, ,0/.)
!ppeal to the ./! does not
automatically suspend collection
*&illemo
1
unless ./! issues suspension order at
any stage of proceedings.
Si3ultaeou+ fili! of a a..li*atio
for refud or *redit ad i+titutio of a
*a+e (efore the CTA allowed
/he law fixes the same period of
two ,2- years for filing a claim for refund
with the .ommissioner and for filing a
case with the ./!. /he two-year period
for both starts from the date after the
payment of the tax or penalty or from
the approval of the application for
credit.
)7servation. If we are not going to
allow the taxpayer to file a refund
before the ./! and let him wait for the
.I:7s decision and the latter failed to
render a decision within the 2-year
period the said taxpayer can no longer
file a refund before the ./! because his
right to appeal has prescribed.
Wei!ht of &e*i+io of CTA
Cecisions of /ax .ourt have
persuasive effect and may serve as
judicial guides. /hey have more
persuasive value than ;I: :ulings.
./!7s findings of fact are entitled to
the highest respect. (Raymundo vs.
de <oya, GR No. *'588--, "ecember
-, ,0.6)
/he Supreme .ourt will not set aside
conclusions reached by /ax .ourt
which by the very nature of its
function is dedicated exclusively to
the consideration of tax problems
and has developed an expertise on
the subject unless there has been
an abuse or an improvident exercise
of authority on its part.
(Commissioner vs. Court o% Appeals
E Atlas Consolidated, GR No. .98./,
November 5,, ,00,)
"II."AL%EA&&E& TAX
7"AT;
TITLE I" OF NIRC
&EFINITION9 /he value-added tax is an
indirect tax and the amount of tax may
be shifted or passed on to the buyer
transferee or lessee of the goods
properties or services. /his rule shall
likewise apply to existing contracts of
sale or lease of goods properties or
services at the time of the effectivity of
:epublic !ct >o. **1).
J!/ replaced Sales /ax as imposed by
previous /ax 8aws.
#ISTOR/9
a. 9xecutive Frder >o. 2*"
b. :epublic !ct >o. **1)
c. :epublic !ct >o. @2$1
d. :epublic !ct >o. @$2$ ,took
effect on 1 Sanuary 1AA@-
TRANSACTIONS CO"ERE& '/ "AT9
1. Sale of .ommodities or 4oods ,in
the course of trade or business
only-
2. Sale of Services ,in the course of
trade or business only-
". 9xportation ,in the course of
trade or business only-
$. Importation ,<#et#er or not in
the course of trade or business-
PERSONS LIA'LE FOR "AT
!ny person who in the course of
trade or business sells barters
exchanges leases goods or properties
renders services and any person who
imports goods shall be subject to the
value-added tax ,J!/- imposed in
Sections 1B) to 1B@ of the >ational
Internal :evenue .ode.
E,N >E C)*R%E )? RA+E )R
B*%,NE%%F
/he regular conduct or pursuit of a
commercial or an economic activity
including transactions incidental
thereto by any person regardless of
whether or not the person engaged
therein is a non-stock nonprofit private
organi0ation ,irrespective of the
disposition of its net income and
whether or not it sells exclusively to
members or their guests- or government
entity.
/herefore if the disposition of goods
or services is NOT in the course of trade
or business then it is not subject to J!/+
*&illemo
1
with the exception of importation of
course.
/he rule of regularity to the
contrary notwithstanding services as
defined in this .ode rendered in the
'hilippines by non-resident foreign
persons shall be considered as being
course of trade or business.
I3.ortatio i+ +u(Je*t to "AT
re!ardle++ of whether or ot it i+ i the
*our+e of trade or (u+ie++
/he reason for the rule is to protect
our local or domestic goods or articles
and to regulate the entry or introduction
of foreign articles to our local market.
:egulation is one of the purposes of
/axation.
Tax Rate+9
1. 1BE - the rate used in sale of
commodities and goods sale of
services and importation.
2. Vero-rated ,BE- - the rate used in
exportation.
<ANNER OF CO<P%TING T#E "AT9
A. 15G rate of ax
1. In sale of commodities and goods
1BE is multiplied with the 4ross
Selling 'rice.
2. In sale of services 1BE is multiplied
with the 4ross :eceipts.
". In importation 1BE is multiplied
with the rates used by the ;ureau of
.ustoms in imposing tariff and
customs duties plus customs duties
excise taxes if any and other
charges such tax to be paid by the
importer prior to the release of such
goods from customs custody?
'rovided /hat where the customs
duties are determined on the basis
of the 5uantity or volume of the
goods the value-added tax shall be
based on the landed cost plus excise
taxes If any. customs duties.
B. Bero-rated /5G4 rate of tax
1. 9xport Sales as provided in Section
1B),!-,2-,a-
2. Doreign .urrency Cenominated Sale
as provided in Section 1B) ,!-,2-,b-
". Sale to persons or entities which is
J!/ exempt under special laws or
international agreements to which
the 'hilippines is a signatory as
provided in Section 1B) ,!-,2-,c-
$. /ransactions subject to 0ero-rated
,BE- as provided in Section 1B@,;-
REGISTRATION %N&ER T#E "AT S/STE<
7SECTION :@G OF T#E NIRC;
-enera& Ru&e. Dailure to register is
subject to temporary closure of the
establishment for & days as provided in
Section 11&,b-.
Ex*e.tio9 It does not apply to an
exporter who fails to register. /he effect
is instead of treating the transaction as
0ero-rated ,BE- it is treated as an
exempt transaction.
What i+ the differe*e0 In Gero'rated
(6Q) transactions, ta: credit is
available. $oAever, in e:empt
transactions, ta: credit is not available.
EXE<PT TRANSACTIONS 7SECTION 5FE;9
1. In Section 1BA,a- and ,c- food and
non-food products are 2A1'e:empt
as long as these products are in its
original state. /he simple process of
preparation or preservation for the
market such as free0ing drying
salting broiling roasting smoking
or stripping doe+ ot remove the
product from its category of being in
its original state.
2owever even if the products were
no longer in its original state it can
still be J!/-exempt under Section
1BA,r- if sold by agricultural
cooperatives duly registered by
.ooperative Cevelopment !uthority.
2. Gnder Section 1BA,m- private
educational institutions are exempt
from J!/ if duly accredited by the
C9.S or by the .29C. In case of
government educational institution
no accreditation is re5uired.
". /ransactions in the field of !rts are
J!/-exempt only as provided in
*&illemo
1
Section 1BA,n- if the seller is the
artist himself or the artist7s services
performed for the production of
such works.
$. Section 1BA,p- makes :egional or
!rea 2ead5uarters exempt from
J!/.
&. Gnder Section 1BA,w- in order for
the sale or lease of real property to
be exempted from J!/ the
transaction must >F/ be conducted
in the ordinary course of trade or
business. It complements Section
1B),!-,1-,a- where it states that in
order for the sale or lease of real
property to be covered by J!/ it
must be made in the ordinary course
of trade or business.
). :evenue :egulations >o. )-A* adds a
re5uirement in order for the lease of
residential units with a monthly
rental of not more than '@BBB.BB
as provided in Section 1BA,x- to be
J!/ exempt that the annual gross
receipts must not exceed
'&&BBBB.BB.
*. Section 1BA,0- provides that the sale
or lease of goods or performances of
services other than those mentioned
in the preceding paragraphs are J!/
exempt if the 4ross !nnual :eceipts
do not exceed '&&BBBB.BB.
2owever the limitation of
'&&BBBB.BB does apply for those
transactions from Section 1BA,a- to
,y- except ,x- because :evenue
:egulations >o. )-A* imposes a
'&&BBBB.BB limitation.
In cases of tax-free importation of
goods into the 'hilippines by
persons entities or agencies exempt
from tax where such goods are
subse5uently sold transferred or
exchanged in the 'hilippines to non-
exempt persons or entities the
purchasers transferees or recipients
shall be considered the importers
thereof who shall be liable for any
internal revenue tax on such
importation. /he tax due on such
importation shall constitute a lien on
the goods superior to all charges or
liens on the goods irrespective of
the possessor thereof.
TRANSACTIONS &EE<E& SALE9
/he following transactions shall be
deemed sale therefore making them
covered by J!/?

75; /ransfer use or consumption not in
the course of business of goods or
properties originally intended for sale or
for use in the course of business+
7:- Cistribution or transfer to?
7a; Shareholders or investors as
share in the profits of the J!/-registered
persons+ or
7(; .reditors in payment of debt+
7@; .onsignment of goods if actual sale is
not made within sixty ,)B- days following
the date such goods were consigned+ and
7A; :etirement from or cessation of
business with respect to inventories of
taxable goods existing as of such
retirement or cessation.
>o< to determine t#e 'A. /he tax
shall be computed by multiplying the
total amount indicated in the invoice by
one-eleventh ,1(11-.
Exa3.le9 the total amount indicated in
the invoice is '11B. '11B(11 M '1B. '1B
is the amount of J!/.
TAX CRE&IT AN& REF%N&
?ormu&a for ax Credit.
Futput
8ess? Input
J!/ due.
If Input is greater than Futput
/ax .redit is available.
H,NP* A6H means the value-added tax
due from or paid by a J!/-registered
person in the course of his trade or
business on importation of goods or local
purchase of goods or services including
lease or use of property from a J!/-
registered person. It shall also include
the transitional input tax determined in
*&illemo
1
accordance with Section 111 of the
>I:..
H)*P* A6H means the value-added
tax due on the sale or lease of taxable
goods or properties or services by any
person registered or re5uired to register
under Section 2") of the >I:..
If at the end of any taxable 5uarter
the output tax exceeds the input
tax the excess shall be paid by the
J!/-registered person. If the input
tax exceeds the output tax the
excess shall be carried over to the
succeeding 5uarter or 5uarters. !ny
input tax attributable to the
purchase of capital goods or to 0ero-
rated sales by a J!/-registered
person may at his option be
refunded or credited against other
internal revenue taxes subject to
the provisions of Section 112.
)P,)N% )? A A6PAAER A% PR)',+E+
,N %EC,)N 112.
1. to claim for tax credit+ or
2. to claim for refund
/he claim which must be in writing
for both cases must be filed within 2
years after the close of the taxable
5uarter when the sales were made for?
a- the issuance of a tax credit
certificate+ b- refund of creditable input
tax due or paid attributable to such
sales.
#OW TO &ETER<INE CRE&ITA'LE INP%T
TAX
/he sum of the excess input tax
carried over from the preceding month
or 5uarter and the input tax creditable
to a J!/-registered person during the
taxable month or 5uarter shall be
reduced
reduced by the amount of claim for
refund or tax credit for value-added tax
and other adjustments such as purchase
returns or allowances and input tax
attributable to exempt sale.
/he claim for tax credit referred to
in the foregoing paragraph shall include
not only those filed with the ;ureau of
Internal :evenue but also those filed
with other government agencies such as
the ;oard of Investments or the ;ureau
of .ustoms.
/he .ommissioner within 12B days
in proper cases from the date of
submission of complete documents in
support of the application shall grant a
refund or issue the tax credit certificate
for creditable input taxes.
:emedy in case of full or partial
denial or failure on the part of the
.ommissioner to act upon the
application for tax credit or refund? the
taxpayer affected may within thirty ,"B-
days from the receipt of the decision
denying the claim or after the expiration
of the one hundred twenty day-period
appeal the decision or the unacted claim
with the .ourt of /ax !ppeals.
RET%RN AN& PA/<ENT OF "AT
9very person liable to pay the value-
added tax shall file a 5uarterly return of
the amount of his gross sales or receipts
within 2& days following the close of
each taxable 5uarter prescribed for each
taxpayer? Provided, hoAever, /hat J!/-
registered persons shall pay the value-
added tax on a monthly basis.
!ny person whose registration has
been cancelled in accordance with
Section 2") shall file a return and pay
the tax due thereon Aithin 5/ days from
the date of cancellation of registration?
Provided, /hat only one consolidated
return shall be filed by the taxpayer for
his principal place of business or head
office and all branches.
*&illemo

Taxation Law-San Beda

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Copyright:

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Taxation Law-San Beda

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Copyright:

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San Beda College of Law

If taxpayer is not satisfied with the

Su(3it +u..orti! do*u3et+ withi

If protest is denied> ele6ate the 3atter

A..eal to the &i6i+io of the Court of

If the .I: or his duly authori0ed

/he 'arty adversely affected by the ./!

A..eal to the Su.re3e Court withi 5B

/he .ollector shall assess li5uidate and

/he party adversely affected ,the

2earing within 1& days from receipt of

TAXATION LAW COMMITTEE

!ppeal with the

!ctual sei0ure of the articles

8isting of description appraisal and

:eport of sei0ure to the .omm. of

Issuance by the .ollector of a

>otification to owner or importer

Cistrict collector renders his

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