Professional Documents
Culture Documents
REVIEW NOTES
By:
ATTY. ERWIN D. CABARLES, CPA
Partner, Demonteverde Vinco Tuble and Demonteverde
Professor, UNO-Recoletos School of Law
BAR Reviewer, UNO-Recoletos Bar Review
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UNO-Recoletos
School of Law
PART 1
GENERAL PRINCIPLES OF TAXATION
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CHAPTER 1
Concepts, Classifications, and Distinctions
Taxation Defined
Taxation is the act of levying a tax.
It is the process or means by
which the sovereign, through its law-making body, raises income to
defray the necessary expenses of government.
As a power it refers to the inherent power of the State to demand
enforced contributions for public purpose or purposes.
It is the inherent power of a State to collect enforced proportional
contribution to support the expenses of government.
Basic Purposes of Taxation
1. The primary purpose of taxation on the part of the government is to
provide funds or property with which to promote the general welfare
and protections of its citizens and to enable it to finance its
multifarious activities.
Almost all revenues of the government are derived from taxes raised
through taxation.
2. Taxation may also be employed for purposes of regulation or control.
Taxes Defined
Taxes are the enforced proportional contributions from persons and
property levied by the law-making body of the State by virtue of its
sovereignty for the support of the government and all public needs.
Taxes are enforced proportionate contributions, which the State collects
in exercising its inherent power from persons, property or interest to
defray the expenses of the government.
Essential elements of tax
1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property, or the exercise of a right or
privilege.
5. It is levied by the State which has jurisdiction over subject or
object of taxation.
6. It is levied by the law-making body of the State; and
7. It is levied for public purpose or purposes.
It is also important characteristic of a tax that
required to be paid at regular periods or intervals.
it
is
commonly
Basis of Taxation lifeblood of the government and their prompt and certain
availability is an imperious need. The collection of taxes must
be made without hindrance if the state is to maintain its orderly
existence.
Lifeblood Doctrine (Bar 1991)
Taxes are the lifeblood of government and should be collected without
unnecessary hindrance.
They what we pay for a civilized society.
Without taxes, the government would be paralyzed for lack of motive
power to activate and operation it.
The government, for its part, is
expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and
material values.
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Theories of Taxation
1. Necessity Theory.
The power of taxation proceeds upon the theory that the existence of
government is a necessity; that it cannot continue without means to
pay its expenses; and that for this means it has a right to compel
all its citizens and property within its limits to contribute.
2. Benefits-Protection Theory
The basis of taxation is found in the reciprocal duties of protection
and support between the State and its inhabitants. In return for his
contribution, the taxpayer receives benefits and protection from the
government. This is so-called benefits received principle.
Benefits Received Principle (Doctrine of Symbiotic Relationship)
the one is compensation for the other: protection for support and
support for protection. This does not mean, however, that only those
who are able to and do pay taxes can enjoy the privileges and
protection given to a citizen by the government.
Question:
May a person legally refuse to pay a tax on ground
that he will derive no personal benefit from the tax?
Answer:
No, in return for the tax, the government promises or
renders no definite specific commodity or benefit to
any particular property or person. The only benefit
to which the taxpayer is entitled is that derived from
his enjoyment of the privileges of living in an
organized society established and safeguarded by the
devotion of taxes to public purposes.
(97 Bar)
Question:
Assuming that the new Constitution drafted by the delegates
and ratified by the people failed to provide for the
enactment of law imposing taxes, may the legislative body
created by the same Constitution enact tax laws? Explain
your answer.
Answer:
Yes, the legislative body may enact tax laws.
Taxation is an inherent power of a sovereign state and can
be exercised whether or not the Constitution provides for
it. Absence of any Constitutional limitations, the taxing
power becomes unlimited provided revenues raised therein are
for a public purpose.
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Purposes of Taxation
1. Primary purpose (General, fiscal or revenue)
To raise revenue for government expenditures.
government and for all public needs.
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activities,
Unlimited -
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Taxation
Police Power
As to PURPOSE
Is exercised to promote
public welfare through
regulation.
As to AMOUNT
OF EXACTION
As to the
BENEFITS
RECEIVED BY
THE TAXPAYER
No special or direct
benefit is received by the
taxpayer other than the
fact that the government
secures the citizen that
general benefit resulting
from the protection of his
person and property and
the welfare of all.
As to
SUPERIORITY OF
CONTRACTS
As to TRANSFER
OF PROPERTY
RIGHTS
Taxation
Eminent Domain
As to PURPOSE
As to
COMPENSATION
As to the
PERSONS
AFFECTED
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are:
Public purpose
International comity
Non-delegation of the power to tax
Tax exemptions granted government agencies or instrumentalities.
or
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valid
defense
against
the
Answer:
No, double taxation is not a valid defense against the
legality of a tax.
There is no constitutional
prohibition double taxation.
A tax enactment cannot
be illegal simply because it results to double
taxation.
1997 Bar. 1(c)
Question:
What are the various methods
occurrence of double taxation?
of
avoiding
the
Answer:
There are two methods of relief:
1. The exemption method
Income or capital taxable in the state of source or
situs but exempted in the sate of residence; and
2. The credit method
While the income or capital is taxed in both the
state of source and in the state of residence, the
tax paid in the former is credited against the tax
levied in the latter.
1996 Bar 2(a) (5%); 1980 Bar 3,9
(Villanueva vs. City of Iloilo, 26 SCRA 578)
Question:
X, a lessor of a property, pays real estate tax on the
premises, a real estate dealers tax based on rental
receipts and income tax on the rentals. X claims that
this is double taxation. Decide.
Answer:
1. There is no double taxation. The three (3) types
of taxes have different purposes/nature and are
imposed by different taxing authorities.
2.
3.
4.
Question:
When an item of income is taxed in the Philippines and
the same income is taxed in another country, is there
a case of double taxation?
Answer:
No, there is no double taxation.
The foreign
government has the right to withhold taxes, in the
exercise of its inherent and sovereign right to tax.
There are two (2) separate taxing authorities
involved.
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4.
Progressive Taxation
Art. VI, Sec. 28[1] of the Constitution
Congress shall evolve a progressive system
taxation.
of
and
Schedular
Answer:
1. Global or Uniform Tax Rate refers to tax structure
where only one (1) tax rate is applied across the
tax base.
2. Schedular or Progressive Tax Rates refer to the
imposition of graduated rates of taxes in scalar
range or a layered set of tax bases.
1997 Bar 5(b) (2.5%)
Question:
To which system would you say the method of taxation
under the National Internal Revenue Code belongs:
Answer:
1.
The National Internal Revenue Code uses both the
Global and the Schedular Systems of Taxation.
The Corporate Income Tax Rate and the 10% VAT
Rate as examples of Global rates of taxes.
2.
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5.
Non-impairment Clause
Art. III, Sec. 10 of the Constitution
No law shall be passed impairing the obligations of
contracts.
7.
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11.
of
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Answer:
Yes, being a charitable institution, Mercy Hospital
can claim tax exemption under the Constitution but
only with respect to real property taxes provided that
such real properties are used actually direct and
exclusively for charitable purposes.
The exemption in favor of property used exclusively
for charitable or educational purposes is not limited
to property actually indispensable therefore, but
extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said
purposes, such as in the case of hospitals, a school
for training nurses, a nurses home, property use to
provide housing facilities for interns, resident
doctors, superintendents, and other members of the
hospital staff, and recreational facilities for
student nurses, interns, and residents, such as
Athletic fields including a firm used for the
inmates of the institution.
13.
Tax Exemption granted
institution (2000 Bar (9))
to
non-stock
non-profit
educational
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15.
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Answer:
The revocation were constitutional provided the
corporate beneficiaries did not have to perform a
reciprocal duty in order to avail of the exemptions.
The congressional power to grant an exemption carries
with it the consequent power to revoke the same.
16.
Municipal Taxation
Art. X, Sec. 5 of the Constitution
Each local government unit shall have the power to
create its own sources of revenues and to levy taxes,
fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent
with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the
local governments.
17.
Special Fund
Art. VI, Sec. 29(3) of the Constitution
All money collected on any tax levied for a special
purpose shall be treated as a special fund and paid
out for such purpose only. If the purpose for which a
special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred
to the general funds of the government.
18.
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on
property,
real
or
personal,
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in
Doctrine of Imprescriptibility
1997 Bar 4; 2001 Bar 3(a)
Question:
Taxes were generally imprescriptible; statutes, however, may
provide otherwise. State the rules that have been adopted
on this score by
a) The National Internal Revenue Code;
b) The Tariff and Customs Code;
c) The Local Government Code.
Answer:
The rules that have been adopted are as follows:
a) National Internal Revenue Code
The statute of limitation for assessment of tax if a
return is filed is within three (3) years from the last
day prescribed by law for the filing of the return or if
filed after the last day, within three years from date of
actual filing. If no return is filed or the return filed
is false or fraudulent, the period to assess is within
ten years from discovery of the omission, fraud or
falsity.
The period to collect the tax is within three years 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 ten years from discovery
without need of an assessment.
Any internal revenue tax which has been assessed within
the period of limitation may be collected by distraint or
levy or by a proceeding in court within five (5)
following the assessment of the tax.
b) Tariff and Customs Code
It does not express any general statute of limitation; it
provided, however, that when articles have entered and
passed free of duty or final adjustment of duties made,
with subsequent delivery, such entry and passage free of
duty or settlement of duties will after the expiration of
one (1) year, from the date of the final payment of
duties, in the absence of fraud or protest, be final and
conclusive upon all parties, unless the liquidation of
import entry was merely tentative.
c) Local Government Code
Local taxes, fees, or charges shall be assessed within
five (5) years from the date they become due. In case of
fraud or intent to evade the payment of taxes, fees or
charges the same may be assessed within ten (10) years
from discovery of the fraud or intent to evade payment.
They shall also be collected either by administrative or
judicial action within five (5) years from date of
assessment.
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PART 2
INCOME TAXATION
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Basis of Taxation
Income derived from sources within and
without the Philippines.
Domestic Corporation
Income Defined
Income, in its broad sense, means all wealth which flows into the
taxpayer other than as a mere return on capital.
Doctrine of Constructive Receipt of Income
The doctrine is designed to prevent the taxpayer on the cash basis from
deferring or postponing the actual receipt of taxable income. Without
the rule, the taxpayer can conveniently select the year in which he will
report his income.
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Answer:
Income means any wealth, which flows into the taxpayer other
than a return of capital. Income is the service of wealth.
Capital is the investment that brings about income. Capital
is a fund or property existing at one distinct point of
time. Capital is wealth.
Requisites for Income to be Taxable
1. There must be a gain or profit.
2. The gain must be received or realized.
3. The gain must not be excluded by law or treaty from taxation.
1.Compensation Income
Rules on Inclusion of the Corresponding amount as income from
compensation paid for services rendered
Mode of Payment
Cash
At a stipulated
price
In stocks
Living quarters
furnished in
addition to salary
Bonuses representing
additional payments
for satisfactory
services rendered
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No, the fair market value of the use of the small hum
is not subject to the 32% tax as a fringe benefit.
The use of said hut is not taxable under the Employer
Convenience Rule.
Xs use of the hut is for the
convenience of his employer and intrinsically for his
personal benefit.
1996 Bar 6(a) (5%)
Question:
X is employed as a driver of a corporate lawyer and
receives a monthly salary of P5,000.00 with free board
and lodging with an equivalent value of P1,500.00.
What will be the basis of Xs income tax? Why?
Answer:
Xs income tax will be based on the sum of his Salary
(P5,000.00) and the equivalent value of his free board
and lodging (P1,500.00).
He does not benefit from the Employer Convenience Rule
because his free board and lodging is not needed to
provide any convenience at all in the exercise of his
employers occupation as a Corporate Lawyer.
1996 Bar 6(b) (5%)
Question:
Will your answer in question be the
employer is an obstetrician? Why?
Answer:
No, my answer will be different.
be based solely on his salary.
same
if
Xs
Vacation Leave Credits, not exceeding ten (10) days per year,
are not subject to income taxes.
However, any Monetized vacation leaves in excess of ten (10)
days shall be subject to income taxes through the withholding
tax mechanism.
UNO-Recoletos
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made
the
not
the
Answer:
Upon either of the following methods:
(1) He may report as income at the time when such
buildings or improvements are completed, the fair
market value of such buildings or improvements
subject to the lease; or
(2) He may spread over the life of the lease, the
estimated depreciated value of such buildings or
improvements at the termination of the lease and
report as income for each year of the lease an
aliquot part thereof.
Taxability
Rate
Is taxable paid to
shareholders or members.
Property
dividend
Subject to Final
Withholding Tax. 6%,8%
and 10%, beginning
1998 upwards.
FMV of property received. Same as cash dividend.
Is taxable.
Stock dividend
Not taxable.
Scrip dividend
Taxable.
Liquidating
dividend
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(12)
(13)
(14)
(15)
(16)
of
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of
property
acquired
by
gift,
bequest,
devise,
or
Income from such property as well as gift, etc. of income from any
property, in cases of transfer of dividend interest, shall be
included in gross income.
treaty
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(f) Benefits received from the GSIS under RA No. 8291 including
the retirement gratuity received by government officials and
employees.
1996 Bar 9(a) (5%)
Question:
A, an employee of the Court of Appeals, retired upon
reaching the compulsory age of 65 years.
Upon
compulsory retirement, A received the money value of
his accumulated leave credits in the amount of
P500,000.00.
Is the said amount subject to tax? Explain.
Answer:
No, all the amounts received, on account of an
employees separation from employment without his
desire nor consent to do so, are not subject to income
taxes.
Subject employee is forced to retire at his
compulsory age.
8.
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the
refer to:
personal exemptions;
additional exemptions Sec. 35) and
premium payments on health and/ or hospitalization insurance
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1.
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1993 Bar 1
Question:
X is the manager of Mang Douglas Hamburger Inc. X had
dinner with Y, owner of a chain of restaurants to
convince the latter to carry Mang Douglas hamburgers.
After Y agreed both went their separate ways.
X
celebrated by going to a singles bar. He picked up a
partner and consumed a bottle of beer. He drove home
at 3:00 a.m..
On his way home, he sideswiped a
pedestrian, who died as a result of the accident. X
amicably settled the case by paying the heir of the
pedestrian.
The money, however, came from Mang
Douglas Hamburger Inc.
Discuss whether the reward, given to the heir, can be
claimed by Mang Douglas Hamburger Inc. as an expense
deductible in its income tax return.
Answer:
The reward given to the heir cannot be an expense
deductible for Mang Douglas Hamburger Inc.
The
damage, which X caused upon the pedestrian, is not an
ordinary, necessary and normal expense in the conduct
of the hamburger business. X was no longer performing
his regular task when he inflicted the damage.
Requisites for deductibility of compensation payments
1. The payments are reasonable; and
2. They are, in fact, payments for personal services actually rendered
2.
3.
Taxes
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4.
Losses
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Losses which are not allowed by law to be deducted from gross income
1. Loss on voluntary removal of building on land purchased with a
view to erecting another building.
2. Wagering losses not covered by wagering gains;
3. Capital losses not covered by capital gains;
4. Losses from exchanges of property in corporate readjustments;
5. Losses (generally) from wash sales of stock and securities;
6. Losses from illegal transactions;
7. Losses from sales or exchanges of property between related
taxpayers; and
8. Losses not incurred in trade, business, or profession.
Net Operating Loss Carried Over (NOLCO)
The net operating loss of a taxable year not deducted from Gross Income,
which can be carried over as a deduction from Gross Income for next
three (3) consecutive years following the loss.
Limitations
(1) Net loss incurred in a year during which the taxpayer was tax
exempt cannot be claimed as a tax deduction.
(2) Net operating loss carried over shall be allowed only if there is
no substantial change in the ownership of the business.
5.
Bad Debts
6.
Depreciation
Depreciation Defined
Depreciation is the gradual diminution in the useful value of tangible
property used in trade, business, or profession resulting from
exhaustion, wear and tear, and obsolescence.
The term is also applied to amortization of the value of intangible
assets, the use of which in trade or business is definitely limited in
duration.
Requisites that must concur for the deduction of depreciation
1. The allowance for depreciation must be reasonable;
2. It must be for property used in the trade, business,
profession;
3. It must be charged off during the taxable year; and
4. A statement on the allowance must be attached to the return.
7.
Depletion
What is depletion
Depletion is the exhaustion of natural resources like mines and
oil and gas wells as a result of production or severance from such
mines or wells.
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or
8.
9.
10.
Pension Trusts
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Tax on Individuals
Personal Exemptions
Personal Exemptions defined
Personal Exemptions are arbitrary amounts allowed, in the nature of a
deductions from taxable income, for personal, living or family expenses
of an individual taxpayer.
They are considered to be the equivalent of the minimum subsistence of
the taxpayer.
Who are allowed personal exemptions under the Tax Code
1. Citizens of the Philippines;
2. Resident aliens;
3. Non-resident aliens engage in trade or business in the Philippines
under certain conditions;
4. Estate and trusts, which are treated for purposes of personal
exemptions as a single individual.
Personal exemptions allowed to citizens of the Philippines and resident
aliens
1. P50,000 single, married judicially decreed as legally separated
with no qualified dependents; and
2. P50,000 married individuals.
Additional exemptions is allowed of P25,000 for each dependent (not
parents, brothers, or sisters), not exceeding four (4), for head of the
family or married individuals.
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TRANSFER TAXES
Estate Tax
Transfer Tax Defined
Transfer Tax are taxes imposed upon the gratuitous disposition of
private property. They are not taxes on property as such because their
imposition does not rest upon general ownership but on the passing of
the property.
Gross Estate of the Decedent
Resident or Filipino Decedent
The gross estate shall include, to the extent of his interest, the value
at the time of his death of all:
(a) Real or immovable property wherever situated;
(b) Tangible personal property wherever situated; and
(c) Intangible personal property wherever situated.
Non-resident alien decedent
It shall include, to the extent of his interest, the value at the time
of his death of all:
(a) Real property situated in the Philippines;
(b) Tangible personal property situated in the Philippines; and
(c) Intangible personal property with a situs in the Philippines unless
exempted on the basis of reciprocity.
When proceeds of a life insurance policy taken out by the decedent upon
his own life includible in the gross estate
(1) If the beneficiary is the estate of deceased, his executor or
administrator;
(2) If the beneficiary is other than the decedent, where the insured
reserved to himself the power to change or revoke the name of the
beneficiary during his lifetime.
Effect of transfers of property made by the decedent during his
lifetime, where such transfer partake of the nature of testamentary
dispositions
Such transfer (which are inter vivos in form but mortis cause in
substance) are treated by law as farce and are, therefore, disregarded.
The consequence is that they are includible in the taxable gross estate.
Inter vivos transfer which are treated as substitutes for testamentary
dispositions
(1) Transfer in contemplation of death;
(2) Transfer with retention or reservation of certain rights;
(3) Revocable transfers;
(4) Transfer of property arising under a general power of appointment;
and
(5) Transfer for insufficient consideration.
Meaning of transfer in contemplation of death
The words mean that it is the though of death, as a controlling motive,
which induces the disposition of the property for the purpose of
avoiding the tax.
2001 Bar 15
Question:
A, aged 90 years and suffering from incurable cancer,
on August 1, 2001 wrote a will and, on the same day,
made several inter-vivos gifts to his children. Ten
days later, he died. In your opinion, are the intervivos gifts considered transfers in contemplation of
death for purposes of determining properties to be
included in his gross estate. Explain your answer.
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Answer:
Yes, such donation inter-vivos is within the concept
of transfer in contemplation of death. Such transfer
is defined by the law as a gift in contemplation of
death, as a controlling motive, which induces the
disposition of the property for the purpose of
avoiding the tax.
Exclusions from Estate
1. Separate property of surviving spouse;
2. Share of surviving spouse in conjugal property.
Net estate subject to tax
The tax code imposed an estate tax on net estates with value exceeding
P200,000.
By implication, net estates which are not in excess of
P200,000 are exempt from the estate tax.
Properties or transfers which are exempt from estate tax under special
laws.
1. Benefits received by members of the GSIS and the SSS by reason of
death;
2. Amounts
received
from
the
Philippines
and
United
States
governments for damages suffered during the last war.
3. Benefits received by beneficiaries residing in the Philippines
under laws administered by the U.S. Veterans Administration; and
4. Bequests to social welfare, cultural, and charitable (not
including educational and religious) institutions no part of the
net income of which inures to the benefit, of any individual,
provided that not more than 30% of said bequests shall be used by
the donee for administration purposes.
Deductions from Gross estate
1. Ordinary deductions
(a) Funeral expenses
(b) Judicial expenses of proceedings
(c) Claims against the estate
(d) Claims against insolvent persons
(e) Unpaid mortgages
(f) Unpaid taxes
(g) Casualty losses
2. Vanishing deductions
3. Transfer for exclusively public use
4. The value of the decendents family home not exceeding P1 million
pesos
5. Standard deduction equivalent to P1 million;
6. Medical expenses under certain conditions;
7. Retirement benefits received by the heirs under RA 4917
8. Share of surviving spouse in the conjugal or community property.
Requisites for deductibility of funeral expenses
1. Funeral expenses must be actually paid and incurred by the estate;
2. The amount thereof is limited to 5% of the gross estate, whichever
is lower, but in no case to exceed P200,000.
Expenses incurred after the interment, e.g. prayers, masses, etc., or
those borne by relatives and/or friends are not deductible.
2001 Bar 16
Question:
On the first anniversary of the death of Y, his heirs
hosted a sumptuous dinner for his doctors, nurses and
others who attended to Y during his last illness. The
cost of the dinner amounted to P50,000.00. Compared to
his gross estate, the P50,000 did not exceed five
percent of the estate. Is the said cost of the dinner
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to
commemorate
his
one-year
death
anniversary
deductible from his gross estate? Explain your answer.
Answer:
No, such is not deductible expense.
Expenses incurred after the interment, e.g. prayers,
masses, etc., or those borne by relatives and/or
friends are not deductible.
Judicial expenses
These expenses include administration expenses or those actually and
necessarily incurred in the administration of the estate, that is, in
the collection of assets, payments of debts, and distribution among
persons entitled to the estate.
Requisites for claims against decedents estate to be deductible
1. They were contributed in good faith and for an adequate and full
consideration in money or moneys worth;
2. They must be existing against the estate;
3. They must be legally enforceable obligations of the decedent and
ought to be enforced by the claimants; and
4. They must be reasonably certain in amount.
Requisites that must concur in order that the claims of the deceased
against insolvent persons may be deductible from the decedents gross
estate
1. The amount of said claims has been initially included as part of
his gross estate; and
2. The incapacity of the debtors to pay their obligations is proven,
not merely alleged.
Requisites for unpaid mortgage indebtedness be deductible from gross
estate
1. The fair value of the property mortgaged without deducting the
mortgage indebtedness has been initially included as part of his
gross estate; and
2. The mortgage indebtedness was contracted in good faith and for an
adequate and full consideration in money or moneys worth.
Unpaid taxes to be deductible
Taxes owed by the decedent and unpaid, being debts in favor of the
government, are also deductible as a claim against the estate but income
taxes upon income received after death of the decedent, or property
taxes not accrued before his death, or any estate tax are not, because
they are chargeable to the income of the estate.
Casualty losses
Casualty losses include all losses incurred during the settlement of the
estate arising from fires, storms, shipwreck or other casualties, or
from robbery, theft, or embezzlement.
Requisites of casualty losses
1. There must be a loss arising from any causes given above;
2. Such loss is not compensated for by insurance or otherwise;
3. Such loss has not been claimed as a deduction for income tax
purposes; and
4. Such loss was incurred not later than the last day of the payment
of the estate tax.
Transfer for pubic use
The Tax Code allows the deduction from the gross estate the amount of
all bequests, legacies, or transfers, to or for the use of the
government or any political subdivision thereof for exclusively public
purposes.
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Rule with respect to the deduction from the gross estate of the value of
the decedents family home
An amount equivalent to the current or fair market value or zonal value
of the decedents family home, whichever is higher.
If the said current or fair value or zonal value exceeds P1 million, the
excess shall be subject to estate tax.
As a sine quo non condition for the exemption or deduction, said family
home must have been the decedents family home as certified by the
Barangay captain of the locality.
Vanishing deduction (property previously taxed) [PPT]
The deduction, which is commonly referred to as vanishing deduction, is
an amount allowed to reduce the taxable estate of decedent where
property
(1) received by him from a prior decedent by gift, bequest, devise or
inheritance, or
(2) transferred to him by gift, has been the object of previous
transfer taxation.
The rate by gift, has been the object of previous transfer taxation.
The rate of deduction gradually diminishes and entirely vanishes
depending upon the time interval between the two successive transfers.
When and with whom must the return be filed for purposes of estate tax
Time
Within six (6) months from the decedents death.
A certified copy of the schedule of partition and the order of the court
approving the same shall be furnished the Commissioner within 30 days
after the promulgation of the order.
Place
Except in cases where the Commissioner of Internal Revenue otherwise
permits, with an authorized agent bank or the revenue district officer,
revenue collection officer or duly authorized treasurer of the city or
municipality where the decedent domiciled at the time of his death, or
if there be no legal residence in the Philippines, with the Office of
the Commissioner of Internal Revenue.
When and where is the estate tax due and payable
General rule
It shall be due and payable at the time the return is filed by the
executor, administrator or the heirs.
It shall be paid at the place where the return is filed.
Exception
The Commissioner of Internal Revenue may grant extension when he finds
that the payment on the due date of the estate tax or of any part
thereof would impose undue hardship upon the estate or any of the heirs.
The extension cannot exceed five (5) years in case the estate is settled
through the courts, or two (2) years in case it is settled extrajudicially.
The running of the statute of limitations for assessment as provided in
Section 203 is suspended for the period of any such extension.
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Conditions for the grant of the CIR of extension to pay the estate
taxes
1. The taxpayer is not guilty of negligence, intentional disregard
of rules and regulations, or fraud; otherwise, no extension may
be granted and
2. The executor, administrator, or beneficiary, may be required to
furnish a performance bond in an amount not exceeding double the
amount of the tax due conditioned upon the payment of said tax in
accordance with the terms of the extension.
Donors Tax
Gift tax defined
Gift tax is the tax imposed on the transfer without consideration of
property between two or more persons who are living at the time of the
transfer is made; or the tax imposed on the transfer of property by gift
inter vivos without relation to the death of the donor.
Property included in gift
1. Real and personal property, whether tangible or intangible, or
mixed, wherever situated, where the donor is a resident or
citizen of the Philippines at the time of the donation; and
2. Real and personal property situated in the Philippines where the
donor is a non-resident alien at the time of the donation.
Property excluded in gift
Real and personal property situated outside the Philippines where the
donor is a non-resident alien at the time of donation;
Gifts which are exempt from donors tax
1. Gifts made by a resident:
(a) Dowries or gifts made on account of marriage and before its
celebration or within one (1) year thereafter of parents to
each of their legitimate, recognized or adopted children to
the extent of the first P10,000.
(b) Gifts made to or for the use of the National Government or
any entity created by any of its agencies which is not
conducted for profit; or to any political subdivision of
the said Government; and
(c) Gifts in favor of an educational and/ or charitable or
religious
corporation,
institution,
accredited
nongovernment organization subject to the condition that not
more than 30% of said gifts shall be used by the donee for
administration purposes.
2. Gifts made by a non-resident alien
In the case of non-resident alien, only gifts mentioned in letters
(b) and (c) are exempt from the donors tax.
3. Specific exemption of P100,000.
The Tax Code imposes a donors
tax on net gifts exceeding P100,000. The consequence is that net
gifts of amount of P100,000 or less are exempt from the tax.
2000 Bar 12 (b)
Question:
What conditions must occur in order that all grants,
donations and contributions to non-stock, non profit
private educational institutions may be exempt from
donors tax under Section 101 (a) of the Tax Code.
Answer:
Under the NIRC the following conditions must be
present in order that donations and contributions to
non-stock, non profit private education institutions
may be exempt from donors tax:
1.
The donor is a resident Filipino Citizen;
2.
The donee is a non-stock, non profit private
educational institution;
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3.
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PART 3
TAX REMEDIES
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Scope
Amount involved is in excess of one
million pesos (P1,000,000.00)
2. Civil Action
A civil action is resorted to when a tax liability becomes collectible,
that is,
(1) the assessment becomes final and unappealable, or
(2) the decision of the Commissioner has become final, executory, and
demandable.
When assessment becomes final and unappealable
A tax is assessed and the taxpayer fails to file and administrative
protest by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of assessment.
When is decision of the Commissioner becomes final, executor and
demandable
A protest against the assessment is filed by the taxpayer but the
Commissioners decision denying in whole or in part the said protest,
was not appealed to the Court of Tax Appeals (CTA) within thirty (30)
days from receipt of such decision.
Sec. 220, NIRC
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A civil action for tax collection filed with the regular courts cannot
be instituted without the approval of the Commissioner.
Note: The approval by the Commissioner of Internal Revenue of a civil
action for the collection of taxes is not jurisdictional, but one
relating to capacity to sue or affecting the cause of action only.
RA 8424 Sec. 7 of the present code authorizes the BIR Commissioner to
delegate the powers vested in him under the pertinent provisions of the
Code to any subordinate official with the rank equivalent to a division
chief or higher, subject to several exceptions.
1999 Bar 4
Yabes vs. Flojo, 15 SCRA 278
Question:
A Co., a Philippine corporation, received an income
tax deficiency assessment from the BIR on May 5, 1995.
On May 31, 1995, A Co. filed its protest with the BIR.
On July 30, 1995, A Co. submitted to the BIR all
relevant supporting documents.
The CIR did not
formally rule on the protest but on January 25, 1996,
A Co. was served a summons and a copy of the complaint
for collection of the tax deficiency filed by the BIR
with the RTC. On February 20, 1996, A Co. brought a
Petition for Review before the CTA. The BIR contended
that the Petition is premature since there was no
formal denial of the protest of A Co. and should
therefore be dismissed.
1.
2.
Answer:
1. Yes, the CTA has jurisdiction over the case. The
Supreme Ruled in Yabes vs. Flojo, 15 SCRA 278,
that the filing of a civil action in court to
collect a tax which was the subject of a pending
protest in the BIR was a justifiable basis for the
taxpayer to appeal to the Court of Tax Appeals and
to move for the dismissal in the trial court of
the Governments action to collection the tax
under dispute.
2. No,
the
RTC
has
no
jurisdiction
over
the
collection case not yet demandable. The action of
the BIR is still premature and the RTC should take
cognizance of the action when the amount due
becomes demandable.
3. Criminal Action
A criminal action cannot be instituted without the approval of the
Commissioner of Internal Revenue.
Sec. 221, NIRC
The remedy of criminal action is resorted to not only for collection of
taxes but also for enforcement of statutory penalties of all sorts.
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4. Compromise
A compromise is an agreement between two or more persons who, to avoid a
lawsuit, amicably settle their differences on such terms as they can
agree on.
Compromise penalty is a certain amount of money which the taxpayer pays
to compromise a tax violation.
Compromise penalties are paid in lieu of criminal prosecution, and
cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
If an offer of compromise is rejected by the taxpayer, the compromise
penalty cannot be enforced thru an action in court or by distraint and
levy.
The CIR should file a criminal action if he believes that the
taxpayer is criminally liable for violation of the tax law as the only
way to enforce penalty.
Cases which may be compromised
1. Delinquent accounts;
2. Cases under administrative protest after issuance of the final
assessment notice to the taxpayer which are still pending in the
Regional Officers, Revenue District Offices, Legal Service, Large
Taxpayer Service (LTS), Collection Service, Enforcement Service
and other offices in the National Office;
3. Civil tax cases being disputed before the courts (MTC to SC);
4. Collection cases filed in courts;
5. Criminal violations other than those already filed in court or
those involving criminal tax fraud; and
6. Cases covered by pre-assessment notices but taxpayer is not
agreeable to the findings of the audit office as confirmed by the
review office.
Sec. 204, NIRC
The Commissioner may compromise any internal revenue tax when:
1. A reasonable doubt as to the validity of the claim against the
taxpayer exists; or
2. The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.
2000 Bar 16 (a)
Question:
Under what conditions may the Commissioner of Internal
Revenue be authorized to Compromise the payment of any
internal revenue tax?
Answer:
The Commissioner may compromise any internal revenue
tax when:
1. A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates
a clear inability to pay the assessed tax.
Instances when the CIR may cancel a Tax Liability
1. The tax appears unjustly or excessively assessed; or
2. The administration and collection costs do not
collection.
justify
Cases
1.
2.
3.
4.
the
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5. Tax Lien
A tax lien is a legal claim or charge on property (whether real or
personal) established by law as a sort of security for the payment of
tax obligations.
An unpaid internal revenue tax, together with related interest,
penalties and costs, constitutes a lien in favor of the government from
the time an assessment therefore is made and until paid, upon all
property and rights to property belonging to the taxpayer.
A tax lien created in favor of the government is superior to all other
claims or preferences.
Sec. 219, NIRC
The lien is not valid against any mortgagee, purchaser, or judgment
creditor until notice of such lien shall have been filed in the register
of deeds of the province or city where the property of the taxpayer is
located.
1995 Bar 5
It is settled that the claim of the government
predicated on a tax lien is superior to the claim of a
private litigant predicated on a judgment.
The tax
lien attaches not only from the service of the warrant
of distraint of personal property but from the time
the tax became due and payable.
6. Forfeiture
The forfeiture of chattels and removable fixtures of any sort shall be
enforced by the seizure and sale, or destruction, of the specific
forfeited property. The forfeiture of real property shall be enforced
by a judgment of condemnation and sale in the legal action or
proceeding, civil or criminal, as the case may require.
Forfeiture and seizure distinguished (1968 Bar)
Forfeiture
For the enforcement of tax lien,
the residue, after deducting the
tax liability and expenses, will go
to the taxpayer.
Seizure
All proceeds of the sale will go to
the coffers of the government.
7. Civil Penalties
Sec. 248.
Covering civil penalties.
25% to 50% of the total tax due.
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2001 Bar 3(b), 1996 Bar 12, 1997 Bar 4, Bar. 1999 1
Remedy
Assessment of
Internal Revenue
Taxes
Period Required
3 Years after the last day of filing of the
return.
If the return is filed beyond the period
prescribed:
The three (3) year period shall be counted
from the day the return is filed.
In case of a false or fraudulent return with
intent to evade tax or failure to file a
return.
Any time within ten (10) years after the
discovery of the falsity, fraud or omission
Collection
Criminal liability
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False Return
False return merely implies a
deviation from the truth or fact
whether intentional or not.
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1.
Administrative Protest
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BIR
Aud
it
Service
to
taxpaye
r
Pre-assessment
notice
Yes
Repl
y
No
Service
to
taxpaye
r
Assessment of
tax deficiency
Prote
st
Administrative
Protest
NO
Assessment
shall become
final and
unappealable
Yes
Appea
l to
CIR
Unfavorable
CTA
FAVORABLE TO
Taxpayer:
Service
to
taxpaye
r
Taxpayer is given
fifteen (15) days
from receipt of the
pre-assessment
notice, extendible
for not more than ten
(10) days
Taxpayer is given
thirty (30) days from
receipt of the
assessment to file
administrative
protest.
Within 60 days from
filing of
administrative
protest, all relevant
documents should be
submitted otherwise,
the assessment shall
become final and
unappealable.
Appeal to
CTA
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2.
Appeals
Tax Appeals is a highly specialized body which reviews tax
proceedings therein are judicial in nature although it is
the technical rules of evidence.
Quorum
Consisting of a Presiding Judge and two Associate Judges, the presence
of any two of them shall constitute a quorum, and the concurrence of two
judges shall be necessary to promulgate any decision thereof.
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PART 4
TARIFF AND CUSTOMS LAWS
And
LOCAL TAXATION
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Customs Laws
Imported articles subject to customs duty
All imported articles, when imported from any foreign country into the
Philippines, are subject to duty upon each importation, even though
previously exported from the Philippines, except as otherwise provided
in the Tariff and Customs Code or in other laws.
Liability of Importer for duties
Unless otherwise relieved by laws or regulations, the liability of
duties, taxes, fees and other charges attaching on importation
constitutes a personal debt due from the importer to the government
which can be discharged only by payment in full of said duties and
charges. It also constitute a lien upon the articles imported which may
be enforced while such articles are in custody or subject to the control
of the government.
Duties, powers and jurisdiction of the Bureau of Customs
1. The assessment and collection of the lawful revenues from
imported articles and all other dues, fees, charges, fines and
penalties accruing under the tariff and customs laws;
2. the prevention and suppression of smuggling and other frauds upon
the customs;
3. the supervision and control over the entrance and clearance of
vessels and aircraft engaged in foreign commerce;
4. the enforcement of tariff and customs laws and all other laws,
rules
and
regulations
relating
to
tariff
and
customs
administration;
5. the supervision and control over the handling of foreign mails
arriving in the Philippines, for the purpose of the collection of
the lawful duty on the dutiable articles thus imported and the
prevention of smuggling through the medium of such mails;
6. supervision and control over all import and export cargoes,
landed or stored in piers, airports, terminal facilities,
including
container
yards
and
freight
stations,
for
the
protection of government revenue; and
7. Exclusive original jurisdiction on seizure and forfeiture cases
under the tariff and customs laws.
Pascual vs. Comm. Of Customs
L-12219, April 25, 1962
Proceedings in seizure cases are actions in rem
directed against the property seized, not against the
owner thereof.
The forfeiture may be enforced against the goods
independently of the criminal prosecution against the
offender.
In a seizure case, the government seeks the transfer
of the title to the property from the owner to the
state as a punishment to the property itself.
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Supervisory
Finance
authority
of
Commissioner
of
Customs
and
Secretary
of
In seizure cases
Supervisory authority exercised by the Commissioner while the case
is pending in the Office of the Collector of Customs and before
the decision of the Collector becomes final.
2000 Bar 20
Question:
On the basis of a warrant of seizure and detention
issued by the Collector of Customs for the purposes of
enforcing Tariff and Customs Laws, assorted brands of
cigarettes said to have been illegally imported into
the Philippines were seized from a store where they
were openly offered for sale. Dissatisfied with the
decision rendered after hearing by the Collector of
Customs on the confiscation of the articles, the
importer filed a petition for review with the Court of
Tax Appeals.
The Collector moved to dismiss the
petition for lack of jurisdiction.
Rule on the
motion?
Answer:
The motion should be granted. The aggrieved party
should have elevated this matter to the commissioner
of
customs.
The
Customs
code
provides
that
supervisory authority exercised by the Commissioner
while the case is pending in the Office of the
Collector of Customs and before the decision of the
Collector becomes final.
2002 Bar 14
Question:
The Collector of Customs of the Port of Cebu issued
warrants of seizure and detention against the
importation of machineries and equipment by LLD Import
and Export Co., (LLD) for alleged non-payment of tax
and customs duties in violation of customs laws. LLD
was notified of the seizure but before it could be
heard, the Collector of Customs issued a notice of
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Answer:
A.
No, the Court of Tax Appeals have no jurisdiction
over the petition for review and writ of
prohibition.
The aggrieved party should have
elevated the case to the Commissioner of customs.
B.
No, the appeal to the CTA for tax refund is not
possible. The aggrieved party should have made a
request for a tax refund from the Commissioner of
Customs.
Any
adverse
decision
of
the
Commissioner may be appealed to the Secretary of
Finance or Court of Tax Appeals.
Local Taxation
Nature of Taxing Power of Local Governments
1. Not inherent unlike a sovereign state, municipal corporations have
no inherent power to tax.
Being mere creatures of
law, they may exercise the power only if delegated to
them by the national legislature or conferred by the
Constitution itself.
2. Limited the new Constitution declares that each local government
shall have the power to create its own sources of
revenue and to levy taxes, fees, and charges, subject
to such limitations and guidelines as the Congress may
provide.
Fundamental Principles governing local taxation
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(2) be equitable and based as far as practicable on the
taxpayer's ability to pay;
(3) be levied and collected only for public purposes;
(4) not be unjust, excessive, oppressive, or confiscatory;
(5) not be contrary to law, public policy, national economic
policy, or in the restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions
shall in no case be let to any private person;
(d) The revenue collected pursuant to the provisions of this Code shall
inure solely to the benefit of, and be subject to the disposition
by, the local government unit levying the tax, fee, charge or other
imposition unless otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a
progressive system of taxation.
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Public
Hearin
g
Approval
of Local
Chief
Executive
Municip
al
Ordinanc
e
Override the
veto of the
Chief
Executive by
2/3 votes of
all the
members
Y
Veto
Override
Duly enacted
Ordinance
Effectivity
Ordinance for
Local Devt Plans
Local investment
programs
Other Ordinance
Publication:
No penal clause [Posting
on bulletin boards]
With penal clause
[Publication in a
newspaper of Gen
Circulation
Review by
Sangguniang
Panlalawigan
30 days after
receipt
Ordinance is
ineffective
Declaration
of validity
1. Effectivity upon
declaration of validity
2. No action taken after 30
days [Presumption of
validity]
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Community Taxes
Individuals Liable to Community Tax.
Every inhabitant of the Philippines
(1) eighteen (18) years of age or over
(2) who has been regularly employed on a wage or salary basis for at
least thirty (30) consecutive working days during any calendar
year, or who is engaged in business or occupation, or who owns real
property with an aggregate assessed value of One thousand pesos
(P1,000.00) or more, or who is required by law to file an income
tax return shall pay an annual additional tax of Five pesos (P5.00)
and an annual additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of whether from
business, exercise of profession or from property which in no case
shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall
be based upon the total property owned by them and the total gross
receipts or earnings derived by them.
Juridical Persons Liable to Community Tax.
Every corporation no matter how created or organized, whether domestic
or resident foreign, engaged in or doing business in the Philippines
shall pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand
pesos (P10,000.00) in accordance with the following schedule:
(2) For every Five thousand pesos (P5,000.00) worth of real property in
the Philippines owned by it during the preceding year based on the
valuation used for the payment of real property tax under existing
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(6) hospitals,
(7) cultural, or scientific purposes, and
(8) those owned and used by local water districts, and
government-owned or controlled corporations rendering
essential public services in the supply and distribution of
water and or generation and transmission of electric power.
Exemptions from Real Property Tax
The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of
its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person;
(b) Charitable
institutions,
churches,
parsonages
or
convents
appurtenant thereto, mosques, non-profit or religious cemeteries
and all lands, buildings, and improvements actually, directly, and
exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government owned or
controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided
for under R.A. No. 6938; and
(e) Machinery
and
equipment
used
for
pollution
control
and
environmental protection.
2002 Bar 10
Question:
Under the Local Government Code what properties are
exempt from real property taxes?
Answer:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit
or religious cemeteries and all lands, buildings,
and
improvements
actually,
directly,
and
exclusively used for religious, charitable or
educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water
districts and government owned or controlled
corporations
engaged
in
the
supply
and
distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. 6938;
and
(e) Machinery and equipment used for pollution
control and environmental protection.
Actual Use of Real Property as Basis for Assessment.
Real property shall be classified, valued and assessed on the basis of
its actual use regardless of where located, whoever owns it, and whoever
uses it.
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2002 Bar 11
Question:
The real property of Mr. And Mrs. Angeles, situated in
a commercial area in front of the public market, was
declared in their Tax Declaration as residential
because it had been used by them as their family
residence from the time of its construction in 1990.
However, since January 1997, when the spouses left for
the United States to stay there permanently with their
children, the property has been rented to a single
proprietor engaged in the sale of appliances and agriproducts.
The Provincial Assessor reclassified the property as
commercial for tax purposes starting January 1998.
Mr. Mrs. Angeles appeal to the Local Board of
Assessment
Appeals,
contending
that
the
Tax
Declaration previously classifying their property as
residential is binding.
How should be the appeal be decided?
Answer:
The appeal will be decided in favor of the government
for the Local Government Code provides that Real
property shall be classified, valued and assessed on
the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it.
2001 Bar 20
Question:
Under Article 415 of the Civil Code, in order for
machinery and equipment to be considered real
property, they must be placed by the owner of the land
and, in addition, must tend to directly meet the needs
of the industry or works carried on by the owner. Oil
Companies,
such
as
Caltex
and
Shell,
install
underground tanks in the gasoline stations located on
land leased by the oil companies from others.
Are
those underground tanks, which were not placed there
by the owner of the land but which were instead placed
there by the lessee of the land, considered real
property for purposes of real property taxation under
the Local Government Code? Explain your answer.
Answer:
Yes, the underground tanks of the oil companies
constitute machinery for Real Property Tax purposes.
It is the beneficial use of the tanks that make it
part of the taxable real property. In addition, said
tanks are used actually and directly in the business
of petroleum retailing.
General Revision of Assessment and Property Classification.
(Sec. 219 of the Local Government Code_
The provincial, city or municipal assessor shall undertake a general
revision of real property assessments within two (2) years after the
effectivity of this Code and every three (3) years thereafter.
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ASSESSMENT PROCEDURES
If no Declaration of owner
[Failure/Refusal to File]
The City/Provincial Assessor shall
himself declare the property.
[Sec. 204 of the local Govt Code]
ASSESSMENT ROLLS
If proven to be TAX
EXEMPT
ASSESSMENT ROLLS
Amendment of Schedule of
Fair Market Values
Recommendation by Provincial, City or
Municipal Assessor to the Sangguniang
amendments to correct errors in
valuation in the Schedule of Fair
Market Values
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ASSESSMENT ROLLS
General Revision
On Going Revision
Assessment/
Reassessment
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Reassessement is due to
1. Partial or total destruction
2. Major change in actual use
3. Great and sudden inflation or deflation
of real property values
4. Gross illegality of assessment
5. Any other abnormal cause
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BAR QUESTION:
What are the characteristics of the Value-Added Tax?
ANSWER:
The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services.
BAR 1996 (1996)
Who are liable for the payment of Value-Added Tax?
ANSWER:
The persons liable for the value-added tax are:
a. Sellers of goods and proper ties in the course of trade
or business;
b. Sellers of services in the course of trade or
business,
including lessors of goods and properties;
c. Importers of taxable goods, whether in the course
business or not.
SCOPE
1.
2.
3.
4.
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of
of
Makati
Leasing
is
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Bar Question:
What is the basis of the Value-Added Tax on
taxable sales of real property?
ANSWER:
The basis of the Value-Added Tax on
taxable sale of real property is "GROSS
SELLING PRICE" which is either selling price
stated in the sale document or the "Zonal
Value", whichever is higher. In the absence
of zonal values, the gross selling price
shall refer to the market value as shown in
the
latest
tax
declaration
or
the
consideration, whichever is higher.
INPUT VAT, OUTPUT VAT, and EXCESS OUTPUT or INPUT TAX
INPUT VAT the value-added tax due from or paid by a VAT-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 VAT-registered person.
OUTPUT VAT the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to
register under Section 236, Tax Code.
VALUE ADDED TAX PAYABLE
Total OUTPUT VAT less INPUT VAT (OV IN = VAT PAYABLE)
TAXPAYERS under the VAT System
1. 12% rated VAT Taxpayer
2. 0% rated VAT Taxpayer
3. VAT-EXEMPT Taxpayer
SALES
1.
2.
3.
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EXEMPT TRANSACTIONS
VAT EXEMPT TRANSACTIONS the sale of goods, property or services and
the use of or lease of property is not subject to value-added tax
(output tax) and the seller is not allowed any tax credit or deduction
on value added tax (input tax) previously paid.
ZERO RATED VS EXEMPT TRANSACTION
The person making the exempt sale shall not bill any output tax and
purchase, on the other hand, a VAT-Registered purchaser of VAT-Exempt
goods, property or services is not entitled to any imput tax on such
purchases.
In contrast, zero-rated sale is subject to VAT but will not result to
any output tax.
The taxpayer, however, is entitled to a credit for any
input tax.
VAT EXEMPT TRANSACTIONS
1. Sale or importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally
used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor
2. Sale or importation of fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty fees for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals considered as pets;
3. Importation of personal and household effects belonging to
residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines, provided,
that such goods are exempt from customs duties under the Tariff
and Customs Code of the Philippines.
4. Sale or importation of coal and natural gas, in whatever form or
state, and petroleum products (except lubricating oil, processed
gas, grease, wax and petrolatum) subject to excise tax imposed
under Title VI;
5. Importation of passenger and/or cargo vessels of more than five
thousand tons (5,000) whether coastwise or ocean-going, including
engine and spare parts of said vessel to be used by the importer
himself as operator thereof
6. Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except
any vehicle, vessel, aircraft, machinery and other goods for use
in the manufacture and merchandise of any kind in commercial
quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or
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