Taxation Law

Things necessary to be put in your head

General Principles ................................................................................................................................... 2
Situs of Taxation .................................................................................................................................. 2
Miscellaneous Notes............................................................................................................................ 2
Income Taxation ...................................................................................................................................... 3
What are Subject to Final Income Tax (See Sec. 57(A)) ......................................................................... 3
GOCCs Exempt from Income Taxation ................................................................................................. 3
Improperly Accumulated Earnings Tax shall not apply to the Following ............................................... 3
All Events Test ..................................................................................................................................... 3
Rule on Trusts...................................................................................................................................... 3
Specific Deductions ............................................................................................................................. 4
Net Operating Loss Carry Over [NOLCO] (Section 34 (D)(3)) ................................................................. 4
Miscellaneous Notes............................................................................................................................ 4
Remedies ................................................................................................................................................ 5
Requisites for a Valid Assessment ........................................................................................................ 5
Deficiency vs. Delinquency .................................................................................................................. 5
A waiver of the statute of limitations must (requisites): ....................................................................... 5
Period to Assess Deficiency Tax ........................................................................................................... 5
Remedies in case of False..., Fraudulent..., or Failure... ........................................................................ 6
What Affects the Running of the Prescriptive Period............................................................................ 6
Protesting an Assessment/ Remedy Before Payment ........................................................................... 7
What Constitutes an Indirect Denial of Protest .................................................................................... 7
Delegation of Power to issue BIR Rulings (Sec. 7, NIRC)........................................................................ 8
Process in the Court of Tax Appeals (CTA) ............................................................................................ 9
Tax Audit Process ................................................................................................................................ 9
Remedies Available to the Government (Tax Collection Process) ....................................................... 10
Distraint vs. Levy ............................................................................................................................... 11
When Constructive Distraint may be Done (Sec. 206, NIRC) ............................................................... 11
Surcharge .......................................................................................................................................... 11
Prescriptive Period for Criminal Violations of the Tax Code ................................................................ 11
Claim for Refund, Requisites .............................................................................................................. 12
Jurisdiction of the CTA ....................................................................................................................... 12
Authority of CIR to Abate Taxes ......................................................................................................... 13
Power to Compromise ....................................................................................................................... 13
Cases that can be compromised ........................................................................................................ 13
Cases that cannot be compromised ................................................................................................... 14
Miscellaneous Notes.......................................................................................................................... 14
Estate & Donor Taxation........................................................................................................................ 15
Gross Estate ...................................................................................................................................... 15
Rule on Reciprocity ............................................................................................................................ 16
Deductions from the Gross Estate (Sec. 86) (Sec. 6 of RR No. 2-03) .................................................... 16
Deductible Taxes ............................................................................................................................... 17
Date-of-Death Valuation Rule ......................................................................................................... 17
Requisites of Vanishing Deduction ..................................................................................................... 17

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Exclusion from Gross Estate ............................................................................................................... 17
Time of Filing / Extension of time to file ............................................................................................. 18
Summary: 202002 million rule ....................................................................................................... 18
Donors Tax: Who is a stranger and applicable tax rate (Sec. 99) ........................................................ 18
Rule on Political Contributions (Sec. 99 (C)) ....................................................................................... 18
VAT ....................................................................................................................................................... 19
Kinds of Transactions that are subject to VAT .................................................................................... 19
Mandatory VAT Registration .............................................................................................................. 19
Input vs. Output Tax .......................................................................................................................... 19
Common Carriers............................................................................................................................... 20
Lease of Properties ............................................................................................................................ 20
VAT Refund ....................................................................................................................................... 20
VAT on Senior Citizens ....................................................................................................................... 21
Miscellaneous Notes.......................................................................................................................... 21
Local Taxation ....................................................................................................................................... 21
GOCCS exempted from local taxation [CHEW] ................................................................................... 21
Real Property Taxation .......................................................................................................................... 22
Exemptions........................................................................................................................................ 22

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Taxation Law
Things necessary to be put in your head

GENERAL PRINCIPLES
Fiscal Adequacy - sources of revenues must be adequate to meet government expenditures and their
variations.
Theoretical Justice - The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Administrative Feasibility - Tax laws must be capable of effective and efficient enforcement.

SITUS OF TAXATION
KIND OF TAX

Poll/Capitalization/Community
Tax

SITUS
Residence of the taxpayer, regardless of the
source of income or location of the property of the
taxpayer.

Property Tax
Real Property
Personal Property

Excise Tax
Value Added Tax

Where the real property is located, following the

doctrine of Lex rei sitae or lex situs.
Wherever it was actually kept or located, following
the doctrine of mobilia sequuntur personam
(Movables follow the person)
On the place where the act is performed or
occupation engaged in.
The place where the transaction is made. If the
transaction is made (perfected and consummated)
outside of the Philippines, then we can no longer
tax such transaction.

Income Tax

Non-resident alien
Non-resident foreign corporation
Non-resident citizen
Resident citizen
Domestic corporation
Resident alien
Resident foreign corporation

Sources of income derived from within the

Philippines
Sources of income derived from within and
without the Philippines
Sources of income derived from sources within
the Philippines

Estate and Donors Tax (same rule applies!)

Non-resident Alien
Resident/Non-resident citizen
Resident alien

Properties situated within the Philippines

Properties wherever situated

MISCELLANEOUS NOTES

The doctrine of Unjust Enrichment applies to the Government

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INCOME TAXATION
WHAT ARE SUBJECT TO FINAL INCOME TAX (SEE SEC. 57(A))
1. GEN:
XPN:

2.
3.
4.
5.

Fringe Benefits (Sec. 33(A),NIRC)

when required by the nature of, or necessary to the trade, business or profession of the
employer, or when the fringe benefit is for the convenience or advantage of the
employer. (Sec. 33 (A), NIRC)
Interests, Royalties, Prizes, and Other Winnings (Sec. 24(B))
Cash and/or Property Dividends (Sec. 24(B))
Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange (Sec. 24(B))
Capital Gains from Sale of Real Property (Sec. 24(B))

GOCCS EXEMPT FROM INCOME TAXATION

** All others are taxable as corporations
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)

IMPROPERLY ACCUMULATED EARNINGS TAX SHALL NOT APPLY TO THE FOLLOWING

1. Banks and other non-bank financial intermediaries;
2. Insurance companies;
3. Publicly-held corporations;
4. Taxable partnerships;
5. General professional partnerships;
6. Non- taxable joint ventures; and
7. Enterprises duly registered with the Philippine Economic Zone Authority (PEZA)
ALL EVENTS TEST

The accrual of income and expense is permitted when the all-events test has been met. Requisites:
1. Fixing of a right to income or liability to pay; and
2. The availability of the reasonable accurate determination of such income or liability.

RULE ON TRUSTS

An irrevocable trust is treated as a separate taxable entity and taxed in the same manner (and on
the same basis) as an individual. Hence, income of an irrevocable trust may be exempt from the 20%
final withholding tax if the underlying investment is a qualified long-term investment, and if the
trust holds on to that investment for at least five years.

A revocable trust is only a pass-through entity and is not, for tax purposes, separate from those who
establish or create it by pooling their money for investment purposes. Income from such trusts is
included in the taxable income of the grantor. (BIR Ruling 03-2005, July 22, 2005)

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SPECIFIC DEDUCTIONS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Sub-sections A to J and M1 of Section 34 of the NIRC refer to the other specific deductions:
Ordinary and Necessary Expenses
Interest
Taxes
Losses
Bad Debts
Depreciation
Depletion of Oil and Gas Wells and Mines
Charitable and Other Contributions
Research and Development
Pension Trusts

NET OPERATING LOSS CARRY OVER [NOLCO] (SECTION 34 (D)(3))

The law allows for a deduction from the gross income the net operating loss of the business or
enterprise for any taxable year immediately preceding the current taxable year for the next three (3)
consecutive taxable years. Said deduction, however, is subject to some limitations, to wit:

1. It is necessary that the loss had not been previously offset as deduction from gross income;
2. Any net loss incurred in a taxable year during which the taxpayer was exempt from income tax (as in
the case of tax honeymoon) shall not be allowed as a deduction;
3. A NOLCO shall be allowed only if there had been no substantial change in the ownership of the
business or enterprise

MISCELLANEOUS NOTES

Cohan rule  Taxpayers may use estimates when they can show that there is some factual
foundation on which to base a reasonable approximation of the expense, but cannot ascertain
the same due to absence of documentary evidence.

A corporation cannot enjoy the benefit of NOLCO for as long as it is subject to MCIT in any
taxable year.

The running of the three-year period for the expiry of NOLCO is not interrupted by the fact that
such corporation is subject to MCIT in any taxable year during such three-year period.2

Proportionate test  A stock dividend representing the transfer of surplus to capital account
shall not be subject to tax.

Requiring that the income tax return or the final adjustment return of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law and jurisprudence.

Authors note: Subsection K refers to additional requirements for deductibility of certain payments, while
subsection L refers to the OSD (optional standard deduction), previously discussed.
2
Section 6.5, Revenue Regulations No. 14-2001

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REMEDIES
REQUISITES FOR A VALID ASSESSMENT
COMPUTATION
VALID
of
Assessment
Tax Liabilities
(for BOTH PAN & FAN)

DEMAND

FACTUAL
BASIS

LEGAL
BASIS

(source: Art. 228 par. 7 & CIR vs. Pascor Realty & Devt Corp, G.R. No. 128315 June 29, 1999)

DEFICIENCY VS. DELINQUENCY

DEFICIENCY
There is deficiency when:
1. The amount imposed by law exceeds
amount shown as tax upon return; or
2. The BIR determines that tax exists, in the
case when there is no amount in the
return or there is no return.
Has to go through a process (LOA, PAN, FAN,
protest, etc)
Filing of a civil action during pendency of a
protest is a ground for a motion to dismiss
Generally not subject to the 25% surcharge

DELINQUENCY
There is a delinquency when:
1. Self-assessed tax is not paid at all or it is
only partially paid; or
2. The deficiency tax assessed by the BIR
has become final and executory.
Can be immediately collected.
Filing of a civil action for collection of tax is the
proper remedy of the government
Subject to administrative penalties

A WAIVER OF THE STATUTE OF LIMITATIONS MUST (REQUISITES):

1.
2.
3.
4.

indicate the expiry date of the period agreed upon to assess/collect the tax
be signed by the taxpayer himself or his duly authorized representative.
Be duly notarized
Be signed by the CIR or the revenue official authorized by him, indicating that the BIR has
accepted and agreed to the waiver.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be
before the expiration of the period of prescription or before the lapse of the period agreed upon
in case a subsequent agreement is executed.
6. Be executed in three (3) copies [source: RMO No. 20-90, issued on 04 April 1990]

PERIOD TO ASSESS DEFICIENCY TAX

Gen Rule: taxes shall be assessed within three (3) years after either
(a) the last day prescribed by law for the filing of the return, or
(b) the actual filing of the return,
...whichever is later. (Sec. 203)
xpn:
1. Extra-ordinary prescription. The tax may be assessed, or a proceeding in court for the collection
of such tax may be filed without assessment, at any time within ten (10) years after the
discovery of either of the following (Sec. 222(a), NIRC):
a. False return, [regardless of intent to evade tax]
b. Fraudulent return with intent to evade tax, or

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c. Failure to file a return, as in the case of:
i. A wrong return (Butuan Sawmill, Inc. vs. CTA, G.R. No. L-20601 [1966])
ii. A grossly defective return (CIR vs. Gonzales, 18 SCRA 757 [1966])
2. Compromise (waiver through agreement). If before the expiration of the time prescribed in
Section 203 for the assessment of the tax [3 years], both the Commissioner and taxpayer have
agreed in writing to its assessment after such time, the tax may be assessed within the period
agreed upon, extendible by subsequent agreements. (Sec. 222(b), NIRC)

REMEDIES IN CASE OF FALSE..., FRAUDULENT..., OR FAILURE...

[(1) False return, (2) Fraudulent return with intent to evade tax, or (3) Failure to file a return] Either:
I.

Assessment and Collection

a. The tax may be assessed within 10 years after discovery of the falsity, fraud or omission
(Sec. 222(a), NIRC), and
b. Collected within five (5) years following the assessment of the tax (Sec. 222(c), NIRC);
OR

II. Collection only: A proceeding in court for the collection of tax is filed within ten (10) years
after the discovery of the falsity, fraud or omission. (Sec. 222(a), NIRC)

WHAT AFFECTS THE RUNNING OF THE PRESCRIPTIVE PERIOD

1. Suspension. The running of the Statute of Limitations provided in Sections 203 [3 years]
and 222 [10 years, or the period agreed upon] on the making of assessment and the
beginning of distraint or levy a proceeding in court for collection, in respect of any
deficiency, shall be suspended (Sec. 223, NIRC):
a. For the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty
(60) days thereafter;
b. When the taxpayer requests for a reinvestigation which is granted by the
Commissioner;
c. When the taxpayer cannot be located in the address given by him in the return
filed upon which a tax is being assessed or collected
d. When the warrant of distraint or levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and
e. When the taxpayer is out of the Philippines. (end of Sec. 223, NIRC)
f. Extension of time for payment of Estate tax, as provided in Sec. 91(B) of the NIRC.
2. Estoppel, as when by the tax payers repeated requests or positive acts the Government
has been, for good reasons, persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant by the

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Government. (CIR vs. Suyoc Mining, 104 Phil. 819 [1958])

3. Amendment. If there is a substantial amendment, then the prescriptive period begins to
run from the date of the filing of the amended return. Otherwise, it will be reckoned
from the date of the filing of the original return. (CIR vs. Phoenix, GR No. L-19727, May
20, 1965)
PROTESTING AN ASSESSMENT/ REMEDY BEFORE PAYMENT
Gen Rule: Once the assessment has become final and executory, the taxpayer in a collection case cannot
go into the merits of the assessment.
xpn:
1. Non-service of PAN (CIR vs. Metro Star Superama, Inc, G.R. 185371, Dec 2010)
2. Waiver on part of Government (Republic vs. Ker, 18 SCRA 208 [1966])
3. No valid waiver of the prescriptive period on the part of the taxpayer3

WHAT CONSTITUTES AN INDIRECT DENIAL OF PROTEST

In all these cases, the 30-day period is reckoned from such implicit denial of protest:
1. Inaction by the CIR within the 180-day period (Sec. 228, last par., NIRC) from either:
a. Protest, in the following cases:
i. Request for reconsideration, since it is not based on new or additional evidence,
ii. Request for reinvestigation, when
1. the document is already submitted with the protest, or
2. there is no submitted document
b. The submission of documents, in case of its submission in a request for reinvestigation
c. The lapse of the 60-day period in a request for reinvestigation, when the tax-payer
reserves his right to submit additional document.
2. Filing of a collection case before the regular courts for the collection of the tax (Yabes vs.
Flojo, G.R. No. L-46954 [1982])
3. Issuance of a warrant of distraint or levy4, except:
a. When the protest was not taken into account before the warrant of distraint and levy
was issued5
b. When the taxpayer is left in the dark as to which action of the commissioner is
appealable6
4. Sending of a Final notice before seizure, indicating that the CIR is giving the taxpayer the
LAST OPPORTUNITY to settle the assessment.7

Philippine Journalists, Inc. vs. CIR, G.R. No. 162852, 16 December 2004, 447 SCRA 214)
See CIR vs. Algue and CTA, 158 SCRA 9 [1988], with respect to the second warrant of distraint or levy
5
See CIR vs. Algue and CTA, 158 SCRA 9 [1988], with respect to the first warrant of distraint or levy
6
See CIR vs. Union Shipping, 185 SCRA 547 [1990]
7
See CIR vs. Isabela Cultural Corp, G.R. No. 135210, July 11, 2001
4

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5. Sending of a Demand letter, containing a text with the words final decision and appeal,
similar to the tenor of the following:
i. This constitutes our final decision on the matter. If you are not agreeable, you
may appeal to the CTA within 30 days from receipt of this letter.8
ii. This is our final decision based on the investigation. If you disagree, you may
appeal this final decision within 30 days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and demandable.9
6. Referral by the Commissioner of the request for reinvestigation to the Solicitor General,10
because this shows the insistence of the commissioner to collect tax.
7. Service of a preliminary collection letter, since it presupposes the existence of a valid
assessment notice.11

DELEGATION OF POWER TO ISSUE BIR RULINGS (SEC. 7, NIRC)

Gen Rule: The commissioner may delegate its power to make or issue BIR rulings
xpn:
1. Rulings of first impression
2. Rulings that reverse, revoke, or modify any existing ruling of the Bureau.

See Advertising Associates vs. CA, 133 SCRA 765 [1984]

See Allied Banking Corporation vs. CIR, G.R. No. 175097 [2010]
10
See Republic vs. Lim Tian Teng Sons, G.R. No L-21731, March 31, 1966
11
See United International Pictures vs. Commissioner, CTA Case No. 5884, June 5, 2002, as cited in Mamalateo,
Reviewer on Taxation, 2008 ed. p.484
9

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PROCESS IN THE COURT OF TAX APPEALS (CTA)

Entry to CTA
30 days*, except criminal cases from RTC (15 days)
* NOTE: the period specified herein reckons
from the date of receipt of the decision.

YES

RP or LCC?
NO

Legend:
RP = Real Property Tax cases originating from
the CBAA (Central Board of
Assessment Appeals)
LCC = Local tax, Collection, or Criminal cases
originating from the RTC in its
appellate jurisdiction
MR = Motion for Reconsideration
MNT = Motion for New Trial
SC = Supreme Court

CTA Division
15 days*
MR/MNT
with division
(Mandatory)
15 days*
CTA En Banc
15 days*
MR/MNT w/
CTA En Banc?
(optional)

YES

NO
Appeal to SC

TAX AUDIT PROCESS

Letter of Authority
Service of LOA and notice of
INFOCON to Taxpayer
INFOCON
PRN
PAN

Legend:
INFOCON = Informal Conference
PAN = Pre-assessment notice
FAN = Formal assessment notice
FLDAN = formal letter of demand and
assessment notice
PRN = Post-reporting notice
FDDA = Final decision on disputed
assessments.
TP = Taxpayer

FAN with letter of demand / FLDAN

Protest?
NO
Assessment
becomes final

YES

FDDA
Reconsideration, or
Reinvestigation

Appeal?

YES

Case goes
to CTA

NO
Decision becomes final,
executory, and demandable

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REMEDIES AVAILABLE TO THE GOVERNMENT (TAX COLLECTION PROCESS)

1. IF the service of warrant of distraint or levy was filed on time, and the taxpayer have
sufficient properties to cover the taxes,
THEN the property can be sold even beyond the prescriptive period.
2. IF a judicial proceeding was initiated on time and the taxpayer have sufficient
properties,
THEN the property can be sold even beyond the prescriptive period.
3. IF the service of warrant of distraint or levy was filed on time, and the taxpayer does
not have sufficient properties,
THEN the running of the prescriptive period to collect will be suspended. Only a
warrant of distraint or levy duly served upon the taxpayer who has no properties will
suspend the prescriptive period to collect. Thus,
4. IF a judicial proceeding was initiated on time, and the taxpayer does not have sufficient
properties,
THEN the running of the prescriptive period to collect will NOT be suspended.

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However, as regards the judicial proceeding, Rule 39 of the Rules of court

governs, providing that the execution of judgment may be done within five (5) years
from the writ of execution, and a motion for revival of judgment may be granted by the
court, until such judgment is satisfied.
(source: Republic vs. Hizon [G.R. No. 130430 December 13, 1999] and Advertising Associates Inc. vs. CA
[133 SCRA 765 [1984]] in relation to Sec. 223 of the NIRC)

DISTRAINT VS. LEVY

DISTRAINT
Personal property only
Pre-emption only (no right of
redemption)
No forfeiture in favor of
government in case there is no
bidder/bid is insufficient, but BIR
may purchase the property.
There is constructive distraint

LEVY
Real property only
Pre-emption and redemption
(w/in 1 year from sale) available.
Sec. 215 provides that forfeiture is
available in case there is no
bidder/bid is insufficient.
There is NO constructive levy

WHEN CONSTRUCTIVE DISTRAINT MAY BE DONE (SEC. 206, NIRC)

When the taxpayer, regardless of whether he is delinquent or not, is either:
1. Retiring from any business subject to tax, or
2. Intending to leave the Philippines or
3. Intending to remove his property therefrom or
4. Intending to hide or conceal his property or
5. Intending to perform any act tending to obstruct the proceedings for collecting the tax
due or which may be due from him.
SURCHARGE
The situations where 25% surcharge is applicable are as follows (Sec. 248, NIRC):
1. Late filing, Late paying, and non-filing [Sec. 248(a)(1) and (4)]
2. Wrong venue [Sec. 248(a)(2)]
3. Delinquency surcharge [Sec. 248(a)(3)]
The situations where the 50% surcharge is applicable are:
1. In case of willful neglect to file the return within the period prescribed by the tax code, or
2. In case a false or fraudulent return is willfully made (Sec. 248(B), NIRC)

PRESCRIPTIVE PERIOD FOR CRIMINAL VIOLATIONS OF THE TAX CODE

Five (5) years, to be counted either:
1. From the commission of the violation of the law, if known at that time, or
2. From
(a)
The discovery thereof and
(b)
The institution of judicial proceedings for its investigation and
punishment (Lim vs. CA, 190 SCRA 616 [1990] virtually imprescriptible)

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CLAIM FOR REFUND, REQUISITES

1. The claim must be filed with the CIR within the two-year period from the date of payment of
the tax or for corporate TP, from the date of filing of the FAR;
2. It must be shown on the return that the income received was declared as part of the gross
income, and
3. The fact of withholding must be established by a copy of a statement duly issued by the
payor to the payee showing the amount paid and the amount of the tax withheld.12
GEN: a claim for refund or credit must be duly filed with the commissioner for tax erroneously or
illegally collected may be recovered. (Sec. 229, NIRC)
XPN: 1. Where on the face of the return upon which payment was made, such payment appears clearly
to have been erroneously paid (Sec. 229, par. 2, NIRC), or
2. When the petitioner paid the disputed assessments under protest before filing his petition for
review with the CTA. (Vda. de San Agustin vs. CIR, G.R. No. 138485, September 10, 2001)
The choice of the taxpayer, whether tax refund or tax credit, may be deduced as follows:
1. Tax refund, when the taxpayer files a written claim for the same, although it failed to signify its
intention in its return.13
2. Tax credit, when the taxpayer filled out the portion Prior Years Excess Credits in its FAR.14
3. Tax credit for the succeeding taxable years after tax credit was chosen for the prior taxable yr.15

JURISDICTION OF THE CTA

[insert diagram here]
1. Exclusive appellate jurisdiction to review by appeal, on:
a. Decisions of CIR in disputed assessments, refunds, or other matters arising under the
NIRC or other laws administered by the BIR;
b. Inaction by the CIR involving matters in (a) above, where the NIRC provides a specific
period of action, in which case the inaction shall be deemed a denial.
c. Decisions of RTC in local tax cases originally decided or resolved by them
d. Decisions of the Commissioner of Customs in cases involving liability for customs duties
e. Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real property
originally decided by the provincial or city board of assessment appeals (LBAA)
f. Decisions of the Secretary of Finance on customs cases elevated to him automatically
for review from Commissioner of Customs which are adverse to the Government
g. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural
product, commodity or article, involving dumping and countervailing duties under the
Tariff and Customs Code.

12
13

Banco Filipino Savings and Mortgage Bank vs. CA, G.R. No. 155682, March 27, 2007, 519 SCRA 93, 96

Philam Asset Management, Inc vs. CIR, G.R. Nos. 156637/162004, December 14, 2005, wrt its 1997 FAR
14
Philam Asset Management, Inc vs. CIR, G.R. Nos. 156637/162004, December 14, 2005, wrt its 1998 FAR
15
CIR vs. BPI, G.R. No. 178490, July 7, 2009

D i c h o s o | 13
2. Jurisdiction over criminal offenses as herein provided:
a. Exclusive Original jurisdiction over criminal tax offenses, where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is at least One million pesos
(1,000,000.00), or where there is a specified amount claimed.
b. Exclusive appellate jurisdiction in criminal offenses:
i. Over appeals from the judgments RTC in tax cases originally decided by them
ii. Over petitions for review of the judgments RTC in the exercise of their appellate
jurisdiction over tax cases originally decided by the MTC
3. Jurisdiction over tax collection cases as herein provided:
a. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties when the amount is at least than One
million pesos (1,000,000.00).
b. Exclusive appellate jurisdiction in tax collection cases:
i. Over appeals from the judgments RTC in tax cases originally decided by them
ii. Over petitions for review of the judgments RTC in the exercise of their appellate
jurisdiction over tax cases originally decided by the MTC

AUTHORITY OF CIR TO ABATE TAXES

Accordingly, the commissioner can abate a tax liability when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the
amount due. (Sec. 204(A), NIRC)
POWER TO COMPROMISE
A correlation of Sec. 7(c) and 204 would provide that where the basic tax involved involves an
amount:
1. Exceeding P1,000.000, the National Evaluation Board may approve the compromise
2. Does not exceed P500,000, the Regional Evaluation board may approve the compromise
3. In between P500,000 and 1,000,000, the Commissioner may approve the compromise.
For there a compromise to be granted, the following requisites must concur:
1. It falls under any of the cases that can be compromised and does not belong to any of
those that cannot be compromised;
2. There must be a valid basis for compromise, i.e. doubtful validity, or financial incapacity
3. Taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic
Act No. 1405 or under other general or special laws, and such waiver shall constitute as
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
(Penultimate paragraph of Sec. 3, RR 302002, promulgated December 16, 2002)

CASES THAT CAN 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 Offices, Revenue District Offices, Legal Service, Large

D i c h o s o | 14
Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the
National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court or those involving criminal tax fraud.
(Sec. 2, RR 302002, promulgated December 16, 2002)

CASES THAT CANNOT BE COMPROMISED

1. Criminal violations that are either:
a. Already filed in court; or
b. Involving fraud (Sec. 204(B), NIRC)
2. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt
on the taxpayers obligation to withhold;
3. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his
duly authorized representative;
4. Criminal violations already filed in court;
5. Delinquent accounts with duly approved schedule of installment payments;
6. Cases where final reports of reinvestigation or reconsideration have been issued resulting to
reduction in the original assessment and the taxpayer is agreeable to such decision by signing
the required agreement form for the purpose. On the other hand, other protested cases shall
be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a
case to case basis;
7. Cases which become final and executory after final judgment of a court, where compromise is
requested on the ground of doubtful validity of the assessment; and
8. Estate tax cases where compromise is requested on the ground of financial incapacity of the
taxpayer. (nos. 2-8 coming from Sec. 2, RR 302002, December 16, 2002)

MISCELLANEOUS NOTES

The consent of the taxpayer is NOT necessary to get documents under the best evidence
obtainable rule (Sec. 5, NIRC; Fitness By Design, Inc. vs. CIR, G.R. No. 177982 [2008])

In a False Return, there is a deviation from the truth, whether intentional or not. It may be due
to mistake, ignorance, or carelessness. A Fraudulent Return, on the other hand, implies
intentional deceitful entry with intent to evade the taxes due.

The act of requesting a reinvestigation alone does not suspend the period. The request should
first be granted, in order to effect suspension. (CIR vs. Hambrecht & Quist Philippines, Inc., G.R.
No. 169225, November 17, 2010)

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to

defeat and evade the income tax. A crime is complete when the violator has knowingly and
willfuly filed a fraudulent return with intent to evade and defeat the tax. (Ungab vs. Cusi, 97
SCRA 877 [1980])

D i c h o s o | 15

ESTATE & DONOR TAXATION

GROSS ESTATE
Gross Estate shall include ALL the properties, wherever situated for the ff decedents: (Sec. 85, NIRC)
1. Resident Citizens
2. Non-resident citizens
3. Resident Alien.
Only the following shall form part of the gross estate of the non-resident alien:
1. Real property situated in the Philippines
2. Personal property
a. Tangible personal property situated in the Philippines
b. Intangible personal property which has established a situs in the Philippines.
Generally, the situs is the domicile or residence of the non-resident alien, following
the principle of mobilia sequuntur personam. However, for taxation purposes, Sec.
104 of the NIRC enumerates intangible personal properties that should have a situs
in the Philippines, to wit:
i.
Franchise which must be exercised in the Philippines;
ii.
Shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws;
iii.
Shares, obligations or bonds by any foreign corporation eighty-five percent
(85%) of the business of which is located in the Philippines;
Shares, obligations or bonds issued by any foreign corporation if such shares,
iv.
obligations or bonds have acquired a business situs in the Philippines;
v.
Shares or rights in any partnership, business or industry established in the
Philippines, shall be considered as situated in the Philippines
GEN: Only properties existing at the time of death are included in the gross estate.
XPN:
I. Properties NOT EXISTING at the time of death but are nonetheless INCLUDED in the estate. These
are [GRIDI]:
1.
2.
3.
4.
5.

Properties transferred in contemplation of death (Sec. 85(B), NIRC)

Properties whose transfer can be revoked (revocable transfer) (Sec. 85(C), NIRC)
Properties that passed under the general power of appointment (Sec. 85(D), NIRC)
Proceeds of life insurance taken out by the decedent upon his life (Sec. 85(E), NIRC)
Properties that were transferred for insufficient consideration (Sec. 85(G), NIRC)

II. Properties, though EXISTING at the time of death are NOT INCLUDED in the estate. These are [SS]:
1. Properties that passed under the special power of appointment
2. Capital of the surviving spouse (Sec. 85(H), NIRC)
XPN to XPN only in cases of (1) transfers in contemplation of death, (2) Property Passing Under General
Power of Appointment, and (3) revocable transfer:
A bona fide sale for an adequate and full consideration in money or money's worth. (last phrase of Sec.
85(B), first phrase of Sec. 85[D], and Sec. 85[C] for revocable transfer , respectively, all of NIRC)

D i c h o s o | 16

GENERAL Power of Appointment

Property passed through this mode are
included in the Gross Estate of the transferor
donee has full dominion over the property as
if he owned it

SPECIAL Power of Appointment

Property passed through this mode are
excluded in the Gross Estate of the transferor
donee may appoint only amongst a restricted
or designated class of persons other than
himself
all attributes of ownership are transferred at transferee is like a pass-through who has a
the time of death
restricted dominion of such property
RULE ON RECIPROCITY
There are two instances when the intangible personal property of a non-resident alien is
exempt from tax, i.e. when the foreign country of which the decedent (or donor) was a citizen
and resident at the time of his death (or donation):
1. Does not impose transfer tax with respect to the intangible personal property of the
citizens of the Philippines; OR
Imposes transfer taxes but grants a similar exemption from transfer or death taxes of every character or
description in respect of intangible personal property owned by citizens of the Philippines not residing in
that foreign country. This is known as the reciprocity rule.

DEDUCTIONS FROM THE GROSS ESTATE (SEC. 86) (SEC. 6 OF RR NO. 2-03)
Resident Aliens or Citizens (Sec. 86[A])
Non-resident Alien (Sec. 86[B])
1. Expenses, Losses, Indebtedness, and Taxes [ELIT] 1. Expenses, Losses, Indebtedness, and Taxes
a. Actual Funeral Expenses (200,000 or 5%)
a. Actual Funeral Expenses
b. Judicial Expense
b. Judicial Expense
c. Claims Against the Estate
c. Claims Against the Estate
d. Claims against insolvent persons
d. Claims against insolvent persons
e. Unpaid Mortgages
e. Unpaid Mortgages
f. Taxes (except income, property, estate tax)
f. Losses
g. Casualty Losses
2. Property Previously Taxed
2. Property Previously Taxed
3. Transfers for Public Use
3. Transfer for Public Use
4. Family Home (1 Million max)
5. Standard Deduction (1 Million)
6. Medical Expenses (w/in 1yr, less than 500,000)
7. Retirement Law

Although medical expenses or those incurred for the last sickness of the decedent may form part of
claims against the estate (Sec. 86(A)(1)(c)), it cannot be so as medical expenses are considered as
special deductions and governed by Sec. 86(A)(6) of the NIRC.

Family home must be certified by the Barangay Captain where the family home is situated.
What Funeral Expenses include (RR 2-03)
(a) The mourning apparel of the surviving spouse and unmarried minor children of the
deceased bought and used on the occasion of the burial;
(b) Expenses for the deceaseds wake, including food and drinks;

D i c h o s o | 17
(c) Publication charges for death notices;
(d) Telecommunication expenses incurred in informing relatives of the deceased;
(e) Cost of burial plot, tombstones, monument or mausoleum but not their upkeep. In case the
deceased owns a family estate or several burial lots, only the value corresponding to the
plot where he is buried is deductible;
(f) Interment and/or cremation fees and charges; and
(g) All other expenses incurred for the performance of the rites and ceremonies incident to
interment.
Expenses incurred after the interment, such as for prayers, masses, entertainment, or the like
are not deductible. Any portion of the funeral and burial expenses borne or defrayed by relatives and
friends of the deceased are not deductible. Medical expenses as of the last illness will not form part of
funeral expenses. (Sec. 6(A)(1), RR 2-2003)

DEDUCTIBLE TAXES

Taxes which have accrued as of the death of the decedent which were unpaid as of the time
of death. This deduction will not include the following taxes Sec. 6(A)(5), RR 2-2003:
a. Income tax upon income received after death, or
b. Property taxes not accrued before his death, or the
c. estate tax due from the transmission of his estate.
DATE-OF-DEATH VALUATION RULE

where a lien claimed against the estate was certain and enforceable on the date of the decedent's
death, the fact that the claimant subsequently settled for lesser amount did not preclude the estate
from deducting the entire amount of the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death developments are not material in
determining the amount of the deduction. (Dizon vs. CTA, G.R. No. 140944, April 30, 2008)

REQUISITES OF VANISHING DEDUCTION

1. The decedent must have previously acquired the property either by:
a. Donation, or
b. Succession
2. The time interval between the...
a. Death of the previous decedent, OR the donation, and the
b. Death of the current decedent
...must be at most five (5) years.
3. The property must be situated in the Philippines.
4. The previous Estate tax or Donors tax must have been previously paid
5. There was no previous vanishing deduction on the property

EXCLUSION FROM GROSS ESTATE

1.
2.
3.
4.

The merger of usufruct in the owner of the naked title

Fideicommissary substitutions
Transmission in accordance with the predecessors desire
Transfers for Social welfare, cultural and charitable institutions, subject to the ff limitations:

No part of the net income of which insures to the benefit of any individual, &

Not more than thirty percent (30%) shall be used for administration purposes.

D i c h o s o | 18

TIME OF FILING / EXTENSION OF TIME TO FILE

Ground

Extension of time to file

meritorious cases

Time limit

Not to exceed 30 days

Effect

Does not suspend

Extension of time to pay

when 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
Extension of time not to exceed either:
1. 5 yrs, in cases of judicial settlement, or
2. 2 yrs, in cases of extra-judicial settlement.
Suspends the period for assessment

SUMMARY: 202002 MILLION RULE

For easier recall and correlation, the 202002M summarizes the requirements for each threshold
amount of the estate, to wit:
1. Where the gross estate exceeds Php 20,000, a notice of death is required;
2. Where the gross estate exceeds Php 200,000, an estate tax return is required; and
3. Where the gross estate exceeds Php 2,000,000, such return shall be supported with a statement
duly certified to by a Certified Public Accountant (CPA).

DONORS TAX: WHO IS A STRANGER AND APPLICABLE TAX RATE (SEC. 99)
When the donation is between relatives, the applicable tax rate is as shown in the graduated
rates in Sec. 99(A). Otherwise, the tax applicable will be Sec. 99(B), or a fixed rate of 30% of the net gifts.
Relatives considered by the tax code:
(1)
Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
(2)
Relative by consanguinity in the collateral line within the fourth degree of relationship.
The degree of relationship (4th degree limit) is material only with respect to collateral relatives.
There is no limit with respect the number of degrees of relationship with respect to ancestor or lineal
descendants. A legally adopted child is entitled to all the rights and obligations provided by law to
legitimate children, and therefore, donation to him shall not be considered as donation made to
stranger. (Sec. 10(B), R.R. 22003) An obligation imposed by law, such as the support given by the
parent to a child, is not subject to donors tax.
Donation made between business organizations and those made between an individual and a
business organization shall be considered as donation made to a stranger. (Sec. 10(B), R.R. 22003)
Thus, the applicable tax rate would always be 30% of the net gifts, pursuant to Sec. 99(B) of the NIRC.

RULE ON POLITICAL CONTRIBUTIONS (SEC. 99 (C))

To be considered as exempt from income tax of the candidate, the campaign contributions must
have been utilized to cover a candidates expenditures for his / her electoral campaign.
Unutilized/excess campaign funds, that is, campaign contributions net of the candidates campaign
expenditures, shall be considered as subject to income tax, and as such, must be included in the
candidates taxable income as stated in his/her Income Tax Return (ITR) filed for the subject taxable
year. (Sec. 2, RR No. 72011, February 16, 2011)

D i c h o s o | 19

VAT
KINDS OF TRANSACTIONS THAT ARE SUBJECT TO VAT
1.
2.
3.

Barter, sale, or exchange (BSE) of goods (Sec. 106)

Sale or exchange (SE) of services (Sec. 108)
Importation of goods (Sec. 107)

GEN: Rule on regularity (to be subject to VAT, the transaction must be made in the ordinary or regular
course of trade or business.)
XPN:
1. Importations (Sec. 107, NIRC), and
2. Services rendered by non-resident foreign persons in the Philippines. (Sec. 105, NIRC)

MANDATORY VAT REGISTRATION

1. Gross sales or receipts for the past twelve (12) months, other than those that are exempt under Sec.
109 (1)(A) to (U) of the Tax Code, exceeded 1,500,000.0016; or
2.

There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code, will exceed
One million five hundred thousand pesos (1,500,000.00).

3. Moreover, franchise grantees of radio and television broadcasting, whose gross annual receipt for
the preceding calendar year exceeded Php 10,000,000.00, shall register within thirty (30) days from
the end of the calendar year.

INPUT VS. OUTPUT TAX

OUTPUT TAX
VAT due on the sale or lease of taxable goods,
properties or services by a VAT-registered or VATregistrable person. (CIR vs. Seagate Technology
(Phils), GR No. 153866, February 11, 2005,
footnote 38)
Paid for the sale or importation
Paid directly by the seller, who is primarily liable
therefor

INPUT TAX
VAT due from or paid by a VAT-registered person in
the course of trade or business on the importation
of goods or local purchases of goods or services,
including the lease or use of property from a VATregistered person. (Seagate case, ft. 40)
Paid for the purchase
Paid by the buyer, who indirectly burdens the VAT

If the output tax is equal to the input tax, then the VAT payable is zero. This means that there is no
value added to the goods or services; hence, no VAT.

If the output tax is greater than the input tax, then the net result would be an excess output tax. The
excess would be a positive VAT payable value the net VAT to be paid by the taxpayer.

If the output tax is less than the input tax, then the net result would be an excess input tax. The
excess input tax may be carried over to the next quarter and deducted from the output tax, and
thereafter claim a refund if the net result is zero. Unlike in income taxation for corporations under
the last paragraph of Sec. 76, there is no irrevocability rule in VAT.
16

1,919,500.00 threshold was introduced by Revenue Regulation No. 16-2011 (October 27, 2011) on Sec.109(v)

D i c h o s o | 20

COMMON CARRIERS
Common
Carrier

Seller is a/an...

Source/Destination

Land

ANY

ANY

Air or Sea

Domestic
Carrier
Intl C NETB*

w/in the Philippines

Phil to/from Abroad
ANY

What is
transported?

Liable for
VAT?

Passengers ()
Goods ()
 or 
 or 
 or 

NO
YES
YES
YES at 0%
NO

Liable for
franchise
tax?
Yes - 3%
NO
NO
NO
YES 3%

* International Carrier Not engaged in trade or business

LEASE OF PROPERTIES
Lease Amount
Exceeds Php
12,800?

Sellers Annual
Income Exceeds Php
1,919,500?

NO

NO

NO

 YES

 YES

NO

 YES

 YES

Liable for
VAT?

Liable for
Franchise Tax?

Required to Register?

NO
Sec.109(Q)

NO
Sec.109(Q)

NO
Sec.109(V)
 YES
Sec. 108

NO No law
imposes the same

NO No law
imposes the same
 YES
Sec.116 109(v)

NO No law
imposes the same

NO No law imposes
such requirement

NO No law imposes
such requirement

NO No law imposes
such requirement
 YES Sec.
236(G)(1)(a)

VAT REFUND
Grounds:
1. Excess input VAT attributable to effectively zero-rated sales (Sec. 112(a)), and
2. Excess input VAT at the time of cancellation of the VAT registration (Sec. 112(b)).
How to Claim Refund:
1. Administrative claim for refund with the BIR, within two years from the close of the taxable
quarter from which the zero rated sales or cancellation of VAT registration were made.
2. Judicial claim for refund, within 30 days either:

from the date of the denial of BIR made within the 120-day period to decide, OR

if there is no such decision but inaction, from the date of the lapse of the 120-day period

The two-year prescriptive period in the administrative claim does NOT apply to the judicial claim
General Law on Tax Remedies
Under the general law on tax remedies, the
taxpayer has option either to (1) wait for the
decision of the BIR, or (2) appeal to the CTA
within 30 days from the lapse of the 180-day
period to decide
The lapse of the 180-day period was deemed a

Sec. 112, NIRC on VAT

The taxpayer has no other option to wait for
the decision of the BIR and must appeal
within 30 days from the lapse of the 120-day
period.
The lapse of the 120-day period is deemed a

D i c h o s o | 21
General Law on Tax Remedies
denial of the petition ONLY for purposes of
appeal.
The 180-day period is not mandatory, and the
taxpayer may file an appeal within the 180-day
period without waiting for the decision of the
BIR.

Sec. 112, NIRC on VAT

denial per se of the appeal.
The 120-day period is mandatory, and the
taxpayer cannot file an appeal within the
120-day period without a decision denying
the claim for VAT refund. Otherwise, it
would be dismissed for being premature.

VAT ON SENIOR CITIZENS

Electric and water consumption of senior citizens are exempt from VAT
a senior citizen shall be subject to VAT if he is self-employed or engaged in business or practice
of profession, and his gross annual sales and/or receipts exceeds 1,919,500. Otherwise, he

shall be subject to 3% percentage tax. (Sec. 9, Revenue Regulation No. 7-2010)

MISCELLANEOUS NOTES

Importation of Tax-exempt persons is exempt from VAT. However, when such goods are
transferred to non-exempt persons or entities, then such transaction is subject to VAT.

For purposes of VAT, a professional partnership shall be treated as a separate and distinct
taxable person from the individual partners composing the partnership.

All gross receipts from sales of services shall entirely be taxable against the partnership.

Sales of services made by any of the partners thereof in his personal and individual
capacity shall be taxable against such partner. (Sec. 2, RR No. 1-2003, January 2, 2003)

The legislature never intended to include cinema/theater operators or proprietors in the

coverage of VAT. (CIR vs. SM Prime Holdings, Inc. G.R. No. 183505, February 26, 2010)

Destination Principle  Goods and services are taxed only in the country where they are
consumed.

Cross Border Doctrine  No VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority.

Pre-emption in the matter of taxation simply refers to an instance where the national
government elects to tax a particular area, impliedly withholding from the local government the
delegated power to tax the same field.

LOCAL TAXATION
GOCCS EXEMPTED FROM LOCAL TAXATION [CHEW]
(Sec. 193, LGC)
1. Local water districts,
2. Cooperatives duly registered under R.A. No. 6938
3. Non-stock and non-profit hospitals, and
4. Non-stock and non-profit educational institutions

D i c h o s o | 22

REAL PROPERTY TAXATION

EXEMPTIONS
1. Ownership Exemptions
2. Character Exemptions
3. Usage Exemptions