Professional Documents
Culture Documents
INCOME TAX
INCOME
TAX
INCOME
TAX
Tax
on
all
yearly
prots
arising
from
property,
professions,
trades
or
oces,
or
as
a
tax
on
a
persons
income,
emoluments,
prots
and
the
like
(Fisher
v.
Trinidad).
Income
tax
is
a
direct
tax
on
actual
or
presumed
income
(gross
or
net)
of
a
taxpayer
received,
accrued
or
realized
during
the
taxable
year.
WITHHOLDING
TAX
It
is
not
an
internal
revenue
tax
but
a
mode
of
collecYng
income
tax
in
advance
on
income
of
the
recipient
of
income
thru
the
payor
of
income.
[NOTE:
Sec.
21,
NIRC
enumerates
various
internal
revenue
taxes.]
There
are
2
types
of
withholding
taxes,
namely:
(1)
nal
withholding
tax;
and
(2)
creditable
withholding
tax.
FORMULA
GLOBAL
SYSTEM
Gross
sales/revenue
Less:
Cost
of
sales/service
Gross
income
Less:
DeducYons
PAE
(for
individual)
Net
taxable
income
MulYplied
by
applicable
rate
(graduated
or
at)
Income
tax
due
Less:
Creditable
WT
Balance
SCHEDULAR
SYSTEM
Gross
selling
price
or
fair
market
value,
whichever
is
higher
Ymes
applicable
tax
rate
=
Tax
due
(real
property)
Gross
selling
price
less
cost
or
adjusted
basis
=
Capital
gain
Ymes
applicable
tax
rate
=
Tax
due
(shares
of
dom
corp)
Gross
income
Ymes
applicable
rate
=
Tax
due
(passive
inv
income)
NATURE
OF
ASSET
ORDINARY
ASSET
CAPITAL ASSET
KINDS
OF
TAXPAYERS
INDIVIDUAL
CITIZEN
Immigrant
or
permanent
worker
NRC
from
date
of
departure
from
the
Phil
OFW
(seamen)
NRC
if
his
aggregate
stay
outside
the
Phil
is
more
than
183
days
CORPORATION
PARTNERSHIPS
TAXABLE
EXEMPT
EXEMPT
RepresentaYve
oce
Regional
headquarters
(RHQ)
SOURCES OF INCOME
Interest
Interest
from
sources
within
Phil
and
interest
on
bonds
and
obligaYons
of
residents,
corporate
or
otherwise
Dividend
From
domesYc
corporaYon
and
from
foreign
corporaYon,
unless
less
than
50%
of
gross
income
of
foreign
corporaYon
for
3
years
prior
to
declaraYon
of
dividends
was
derived
from
sources
within
the
Phil;
hence,
apply
only
raYo
of
Phil-
source
income
to
gross
income
from
all
sources
Services
Place
where
services
are
performed,
except
in
case
of
internaYonal
air
carrier
and
shipping
lines
which
are
taxed
at
2.5%
on
their
Gross
Phil
Billings.
Revenues
from
trips
originaYng
from
the
Phil
are
considered
as
income
from
sources
within
the
Philippines,
while
revenues
from
inbound
trips
are
treated
as
income
from
sources
outside
the
Philippines.
Rentals
and
royalJes
LocaYon
or
use
of
property
or
property
right
in
Phil
Sale
of
real
property
Located
in
the
Philippines
Sale
of
personal
property
Located
in
the
Philippines
Gain
from
sale
of
shares
of
stocks
of
a
domesJc
corporaJon
is
ALWAYS
treated
as
income
from
sources
within
the
Philippines.
Other
intangible
property
Mobilia
sequuntur
personam
it
follows
domicile
of
owner
GROSS INCOME
SALE
OF
GOODS
Gross
Sales
Less:
Cost
of
Sales:
Beg.
Inventory
SALE
OF
SERVICES
Gross
Revenue
Less:
Cost
of
Service
consisYng
of
all
direct
costs
and
expenses
+
Purchases
Gross
income
Total
available
for
sale
Times
2%
-
Ending
inventory
MCIT
Cost
of
Sales
NOTE:
MCIT
is
imposed
beginning
Gross
income
on
the
4th
taxable
year
Times
2%
immediately
following
the
year
in
which
the
corp
commenced
bus
MCIT
operaYons
(Sec
27(E)(1),
NIRC)
NOTE:
MCIT
is
now
computed
MCIT
aver
4
years
immediately
on
quarterly
basis.
If
quarterly
Pay
following
the
year
bank
MCIT
>
than
RCIT,
excess
MCIT
of
prior
year
is
not
allowed.
commenced
bus
operaYons
(Manila
Bank
v
CIR,
GR
168118,
Aug
28,
2006)
INCOME
INCOME
means
cash
or
its
equivalent
coming
to
a
person
within
a
Mere
increase
in
the
value
of
property
does
not
consYtute
taxable
income.
It
is
not
yet
realized
during
the
year.
Transfer
of
appreciated
property
to
the
employee
for
services
rendered
is
taxable
income.
NATURE
OF
INCOME
COMPENSATION
INCOME
CAPITAL GAIN
OTHER INCOME
This
is
treated
as
income
from
foreign
sources;
hence,
exempt
from
Phil
income
tax
B. ORDINARY INCOME
INTEREST
INCOME
TYPES
OF
INTEREST
INCOME
Taxable income:
DIVIDEND
INCOME
REQUISITES
FOR
DIVIDEND
DECLARATION
TYPES
OF
DIVIDENDS
Taxable
Cash
dividend
Property
dividend
Exempt
DIVIDEND
INCOME
Inter-corporate
dividend:
Exempt
from
tax
CorporaYon
paying
dividend:
DomesYc
corporaYon
Recipient
of
dividend:
Another
domesYc
corporaYon
or
resident
foreign
corporaYon
Tax-sparing
provision
If
foreign
country
does
not
impose
income
tax
on
dividend
paid
by
foreign
corporaYon
OTHER
INCOME
Income
from
any
source
whatever
The
words
income
from
any
source
whatever
discloses
a
legislaYve
policy
to
include
all
income
not
expressly
exempted
from
the
class
of
taxable
income
under
our
laws
(Madrigal
vs.
Raerty,
supra;
Commissioner
vs.
BOAC).
The
words
income
from
any
source
whatever
is
broad
enough
to
cover
gains
contemplated
here.
These
words
disclose
a
legislaYve
policy
to
include
all
income
not
expressly
exempted
within
the
class
of
taxable
income
under
our
laws,
irrespecYve
of
the
voluntary
or
involuntary
acYon
of
the
taxpayer
in
producing
the
gains
(GuVerrez
vs.
Collector,
CTA
Case
65,
Aug.
31,
1955).
Any
economic
benet
to
the
employee
whatever
may
have
been
the
mode
by
which
it
is
eected
is
taxable.
Thus,
in
stock
opYons,
the
dierence
between
the
fair
market
value
of
the
shares
at
the
Yme
the
opYon
is
exercised
and
the
opYon
price
consYtutes
addiYonal
compensaYon
income
to
the
employee
(Commissioner
vs.
Smith,
324
U.S.
177).
EXCLUSIONS
R.A. 7641 (5 yrs & 60 yrs) and R.A. 4917 (10 yrs & 50 yrs)
Miscellaneous items
EXEMPT ASSOCIATIONS
The
phrase
any
of
their
ac2vi2es
conducted
for
prot
does
not
qualify
the
word
proper2es.--
The
phrase
any
of
their
acYviYes
conducted
for
prot
does
not
qualify
the
word
properYes.
This
makes
income
from
the
property
of
the
organizaYon
taxable,
regardless
of
how
that
income
is
used
whether
for
prot
or
for
lovy
non-prot
purposes.
Thus,
the
income
derived
from
rentals
of
real
property
owned
by
the
Young
Mens
ChrisYan
AssociaYon
of
the
Philippines,
Inc.
(YMCA),
established
as
a
welfare,
educaYon
and
charitable
non-prot
corporaYon,
is
subject
to
income
tax.
The
rental
income
cannot
be
exempted
on
the
solitary
but
unconvincing
ground
that
said
income
is
not
collected
for
prot
but
is
merely
incidental
to
its
operaYon.
The
law
does
not
make
a
disYncYon.
Where
the
law
does
not
disYnguish,
neither
should
we
disYnguish.
Because
taxes
are
the
lifeblood
of
the
naYon,
the
Court
has
always
applied
the
doctrine
of
strict
interpretaYon
in
construing
tax
exempYons.
YMCA
is
exempt
from
the
payment
of
property
taxes
only
but
not
income
taxes
because
it
is
not
an
educaYonal
insYtuYon
devoYng
its
income
solely
for
educaYonal
purposes.
The
term
educaYonal
insYtuYon
has
acquired
a
well-known
technical
meaning.
Under
the
EducaYon
Act
of
1982,
such
term
refers
to
schools.
The
school
system
is
synonymous
with
formal
educaYon
which
refers
to
the
hierarchically
structured
and
chronologically
graded
learnings
organized
and
provided
by
the
formal
school
system
and
for
which
cerYcaYon
is
required
in
order
for
the
learner
to
progress
through
the
grades
or
move
to
higher
levels
(Commissioner
vs.
Court
of
Appeals
and
YMCA
of
the
Phils.,
G.R.
No.
124043,
Oct.
14,
1998).
DEDUCTIONS
KINDS
OF
DEDUCTIONS
Itemized
DeducYons
OpYonal
Standard
DeducYons
Special
DeducYons
ITEMIZED DEDUCTIONS
DEDUCTIONS
BUSINESS
EXPENSES
DEDUCTIONS
An
expense
is
ordinary
when
it
connotes
a
payment,
which
is
normal
in
relaYon
to
the
business
of
the
taxpayer
and
the
surrounding
circumstances.
An
expense
is
necessary
where
the
expenditure
is
appropriate
or
helpful
in
the
development
of
taxpayers
business
or
that
the
same
is
proper
for
the
purpose
of
realizing
a
prot
or
minimizing
a
loss.
P9.4
M
paid
in
1985
for
adverYsing
a
product
was
staggering
incurred
to
sVmulate
future
sales
to
create
or
maintain
some
form
of
goodwill
for
the
taxpayers
trade
or
business
or
for
the
industry
or
profession
of
which
the
taxpayer
is
a
member.
Goodwill
generally
denotes
the
benet
arising
from
connecYon
and
reputaYon,
and
eorts
to
establish
reputaYon
are
akin
to
acquisiYon
of
capital
assets.
Therefore,
expenses
related
thereto
are
not
business
expenses
but
capital
expenditures
(CIR
vs.
General
Foods
Phi.,
GR
No.
143672,
Apr.
24, 2003).
DEDUCTIONS
Legal
and
accountants
fees
for
prior
years
were
not
billed
in
corresponding
years
(1984-1985).
It
was
paid
by
taxpayer
in
succeeding
year
(1986)
when
it
was
billed
by
the
lawyer
and
accountant.
Taxpayers
uses
accrual
method
of
accounYng.
Accrual
of
income
and
expense
is
permieed
when
the
all
events
test
has
been
met.
This
test
requires
(1)
xing
a
right
to
income
or
liability
to
pay,
and
(2)
the
availability
of
reasonably
accurate
determinaYon
of
such
income
or
liability.
It
does
not,
however,
demand
that
the
amount
of
income
or
liability
be
known
absolutely;
it
only
requires
that
a
taxpayer
has
at
its
disposal
the
informaYon
necessary
to
compute
the
amount
with
reasonable
accuracy,
which
implies
something
less
than
an
exact
or
completely
accurate
amount.
Moreover,
deducYon
takes
the
nature
of
tax
exempYon;
it
must
be
construed
strictly
against
the
taxpayer
(Commissioner
vs.
Isabela
Cultural
CorporaVon,
G.R.
No.
172231,
Feb.
12,
2007).
DEDUCTIONS
INTEREST EXPENSE
DEDUCTIONS
TAXES
DEDUCTIONS
LOSSES
(Rev.
Regs.
No.
12-77
and
Rev.
Regs.
No.
10-79)
DEDUCTIONS
BAD
DEBTS
DEDUCTIONS
TAX
BENEFIT
RULE
The
taxpayer
is
obliged
to
declare
as
taxable
income
any
subsequent
recovery
of
bad
debts
in
the
year
they
were
collected
to
the
extent
of
the
tax
benet
enjoyed
by
the
taxpayer
when
the
bad
debts
were
wrieen
o
and
claimed
as
deducYon
from
gross
income.
It
also
applies
to
taxes
previously
deducted
from
gross
income
but
which
were
subsequently
refunded
or
credited
by
the
BIR.
He
has
to
report
income
to
the
extent
of
the
tax
benet
derived
in
the
year
of
deducYon.
DEDUCTIONS
DEPRECIATION
1.
The
allowance
for
depreciaYon
must
be
reasonable;
2.
It
must
be
for
property
arising
out
of
its
use
in
the
trade
or
business,
or
out
of
its
not
being
used
temporarily
during
the
year;
3.
It
must
be
charged
o
during
the
taxable
year
from
the
taxpayers
books
of
accounts;
4.
DepreciaYon
shall
be
computed
on
the
basis
of
historical
cost
or
DEDUCTIONS
CHARITABLE
CONTRIBUTIONS
1.
The
charitable
contribuYon
must
actually
be
paid
or
made
to
the
Philippine
government
or
any
poliYcal
subdivision
thereof
exclusively
for
public
purposes,
or
any
of
the
accredited
domesYc
corporaYon
or
associaYon
specied
in
the
Tax
Code;
2.
It
must
be
made
within
the
taxable
year;
3.
It
must
not
exceed
10%
(individual)
or
5%
(corporaYon)
of
the
taxpayers
taxable
income
before
charitable
contribuYons
(whether
deducYble
in
full
or
subject
to
limitaYon);
4.
It
must
be
evidenced
by
adequate
receipts
or
records;
and
5.
The
amount
of
charitable
contribuYon
of
property
other
than
money
shall
be
based
on
the
acquisiYon
cost
of
said
property
(Sec.
34(H),
NIRC).
The
limitaYon
is
imposed
to
prevent
abuse
of
donaYng
painYngs
and
other
valuable
properYes
and
claiming
excessive
deducYons
therefrom.
DEDUCTIONS
D.
OpJonal
Standard
DeducJon
Privilege
is
available
only
to
ciYzens
or
resident
aliens
as
well
corporaYons
subject
to
the
regular
corporate
income
tax;
thus,
non-resident
aliens
and
non-resident
foreign
corporaYons
are
not
enYtled
to
claim
the
opYonal
standard
deducYon.
Standard
deducYon
is
opYonal;
i.e.,
unless
taxpayer
signies
in
his/its
return
his/its
intenYon
to
elect
this
deducYon,
he/it
is
considered
as
having
availed
of
the
itemized
deducYons;
Such
elecYon
when
made
by
the
qualied
taxpayer
is
irrevocable
for
the
year
in
which
made;
however,
he
can
change
to
itemized
deducYons
in
succeeding
year(s);
DEDUCTIONS
PERSONAL
EXEMPTIONS
RA
8424:
Jan
1,
1998
Single
and
estate
or
trust
P20,000
Head
of
family
P25,000
Married
P32,000
For
each
child,
not
to
exceed
4
P8,000
PERSONAL
EXEMPTIONS
Status-at-the-end-of-the-year
rule
Status-at-the-end-of-the-year
rule
which
means
that
whatever
is
the
status
of
the
taxpayer
at
the
end
of
the
calendar
year
shall
be
used
for
purposes
of
determining
his
personal
and
addiYonal
exempYons
generally
applies.
A
change
of
status
of
the
taxpayer
during
the
taxable
year
generally
benets,
but
does
not
prejudice,
him.
Thus,
if
he
marries
at
the
end
of
the
year,
he
shall
be
enYtled
to
personal
exempYon
of
P32,000/
P50,000.
If
a
child
is
born
at
any
Yme
during
the
calendar
year,
even
on
the
last
day
of
the
year,
the
taxpayer
is
enYtled
to
claim
his
child
as
a
dependent
enYtling
him
to
deduct
addiYonal
exempYon
of
P8,000/
P25,000
for
that
year.
On
the
other
hand,
if
one
of
his
qualied
dependent
children
dies
during
the
year,
the
law
considers
that
the
child
died
on
the
last
day
of
the
year;
hence,
he
is
enYtled
to
claim
the
full
amount
of
addiYonal
exempYon
of
P8,000/P25,000
for
the
deceased
child
for
the
year.
ACCOUNTING
METHODS
Cash
method
Accrual
method
All
events
test;
amounts
received
in
advance
are
not
treated
as
revenue
of
the
period
in
which
received
but
as
revenue
of
future
periods
in
which
earned
(Manila
Mandarin
Hotels
vs.
CIR,
CTA
Case
No.
5046,
Mar
24,
1997).
Installment
sales
Sale
on
the
installment
plan
IniYal
payments
do
not
exceed
25%
of
GSP
Percentage
of
compleYon
Crop
year
method
Period
Q1
Return
Q2
Return
Q3
Return
Annual
Return
Q1
Return
Q2
Return
Q3
Return
Annual
Return
ComputaYon
of
the
quarterly
and
annual
tax
returns
of
individuals
(except
those
receiving
purely
compensaYon
income)
and
corporaYons
shall
be
made
on
the
cumula2ve
basis;
i.e.,
gross
income
and
deducYons
are
consolidated
and
the
income
tax
liability
is
computed
on
the
consolidated
net
income,
and
the
income
taxes
paid
for
the
preceding
quarter(s)
are
credited
against
the
consolidated
income
tax
due.
May
31
of
same
year
August
31
of
same
year
November
30
of
same
year
April
15
of
the
following
year
(if
on
calendar
year),
or
15th
day
of
the
fourth
month
following
the
close
of
the
scal
year
(if
on
scal
year).
WITHHOLDING
TAX
An
income
payment
is
subject
to
the
expanded
withholding
tax,
if
the
following
condiYons
concur:
a.
An
expense
is
paid
or
payable
by
the
taxpayer,
which
is
income
to
the
recipient
thereof
subject
to
income
tax;
b.
The
income
is
xed
or
determinable
at
the
Yme
of
payment;
c.
The
income
is
one
of
the
income
payments
listed
in
the
regulaYons
that
is
subject
to
withholding
tax,
except
when
payor
is
a
Top
20,000
CorporaYon;
d.
The
income
recipient
is
a
resident
of
the
Philippines
liable
to
income
tax;
and
e.
The
payor-withholding
agent
is
also
a
resident
of
the
Philippines.
WITHHOLDING TAX
BUSINESS
TAXES
VAT
Taxable
transacYons
Sale
or
lease
of
goods
or
properYes
Sale
of
services
ImportaYon
of
goods
NON-VAT/EXEMPT
FROM
VAT
TRANSACTIONS
TransacYon
is
subject
to
Other
Percentage
Tax
(Title
V,
NIRC)
and
exempt
from
VAT
VAT
is
imposed
on
transacYon
in
addiYon
to
Excise
Tax,
if
any
Tax
is
imposed
on
Gross
Receipts
or
Gross
Income
Seller of services
Importer of goods
Tax rates
EXEMPT
SALE
ExempYon
removes
the
VAT
at
the
exempt
stage
Exempt
taxpayer
cannot
reclaim
VAT
passed
on
to
it
by
VAT-registered
sellers
Exempt
sales
are
not
taxable
sales
for
VAT
purposes
Dealers
in
securiYes
Lending
investors
TransportaYon
contractors
on
their
transport
of
goods
or
cargoes
DomesYc
common
carriers
by
air
and
sea
between
points
in
the
Philippines
Sales
of
electricity
(by
generaYon,
transmission,
and
distribuYon
companies)
Services
of
franchise
grantees,
except
water
and
gas
Non-life
insurance
companies,
except
crop
insurance
Similar
services,
regardless
of
whether
or
not
the
performance
thereof
calls
for
the
exercise
or
use
of
the
physical
or
mental
faculYes
Tax
Code
not
only
requires
that
the
services
other
than
processing,
manufacturing
or
repacking
of
goods
and
that
payment
for
such
services
be
in
acceptable
foreign
currency
accounted
for
in
accordance
with
BSP
rules.
Another
essenYal
condiYon
for
qualicaYon
to
zero-raYng
under
Sec
102(b)(2)
is
that
the
recipient
of
such
services
is
doing
business
outside
the
Phil.
While
this
requirement
is
not
expressly
stated
in
the
2nd
paragraph
of
Sec.
102(b),
this
is
clearly
provided
in
the
1st
paragraph
of
Sec
102(b)
where
the
listed
services
must
be
for
other
persons
doing
business
outside
the
Phil.
The
above
phrase
not
only
refers
to
services
enumerated
in
the
rst
paragraph,
but
also
pertains
to
the
general
term
services
appearing
in
the
second
paragraph.
Otherwise,
those
subject
to
the
regular
VAT
under
Sec
102(a)
can
avoid
paying
the
VAT
by
simply
sYpulaYng
payment
in
foreign
currency
inwardly
remieed
by
the
recipient
of
services.
To
interpret
Sec.
102(b)(2)
to
apply
apply
to
a
payer-
recipient
of
services
doing
business
in
the
Phil
is
to
make
the
payment
of
regular
VAT
dependent
on
the
generosity
of
the
taxpayer.
A
tax
is
a
mandatory
exacYon,
not
a
voluntary
contribuYon.
Signicantly,
the
amended
SecYon
108(b)
[previously
Sec
102(b)]
of
the
present
Tax
Code
claries
this
legislaYve
intent.
For
zero-raYng
of
services,
it
must
be
rendered
to
a
person
engaged
in
business
conducted
outside
the
Phil.
The
payer-recipient
of
respondents
services
is
the
ConsorYum
which
is
a
joint
venture
doing
business
in
the
Phil.
While
the
ConsorYums
principal
members
are
non-resident
foreign
corps,
the
ConsorYum
itself
is
doing
business
in
the
Phil.
This
is
shown
in
BIR
Ruling
23-95,
which
states
that
the
contract
between
ConsorYum
and
NPC
is
for
a
15-year
term.
Considering
the
length
of
Yme,
the
ConsorYums
operaYon
and
maintenance
of
NPCs
power
barges
cannot
be
classied
as
a
single
or
isolated
transacYon.
This
case
is
dierent
from
CIR
v.
American
Express
InternaVonal,
Inc.
(Phil
Branch),
because
in
the
laeer
case,
the
recipient
of
services
is
AEII
(HK
Branch)
doing
outside
the
Phil
(CIR
v.
BWSC
Mindanao,
Inc.,
GR153205,
Jan
22,
2007).
CIRs
ling
of
its
Answer
before
the
CTA
challenging
claim
for
refund
eecYvely
serves
as
a
revocaYon
of
VAT
Ruling
03-99
and
BIR
Ruling
23-95.
However,
such
revocaYon
cannot
be
given
retroacYve
eect
since
it
will
prejudice
respondent.
Sale
of
medicines
by
the
hospital
pharmacy
to
in-paYents
is
exempt
from
VAT,
but
sale
to
out-paYents
is
subject
to
12%
VAT
(St.
Lukes
Medical
Center
v.
CTA
and
CIR,
1998).
Tolling
fees
received
by
a
hotel
for
PLDT
is
not
part
of
its
gross
receipts
Payment
of
VAT
by
the
hotel
on
fees
for
providing
limousine
service
to
its
client
is
correct.
It
is
not
subject
to
the
3%
common
carriers
tax.
Claim
for
tax
credit
is
denied
(Manila
Mandarin
Hotel
v.
CIR)
Gross
receipts
of
theatre
owner
or
operator
from
sales
of
Yckets
to
moviegoers
are
exempt
from
VAT.
Theatres
and
movie
houses
are
not
included
in
the
enumeraYon
of
taxable
services
in
the
VAT
law.
Our
tax
laws,
past
and
present,
did
not
adopt
more
specic
terms
for
sale
or
exchange
of
services
to
include
showing
of
lms
in
public
(SM
Prime
Holdings
v.
CIR,
CTA
Case
7079,
2006).
PAGCOR
is
exempt
from
VAT
pursuant
to
its
charter,
PD
1869.
Being
a
special
law,
PD
1869
prevails
over
RA
7716,
a
subsequent
general
law.
To
be
valid,
repeal
of
special
law
should
be
express
(CIR
v.
Acesite
Hotel
Corp,
GR
147295,
Feb
16,
2007).
ASSESSMENT CYCLE
ASSESSMENT
CYCLE
BIR
ACTION
Cancell
assessment
Deny
protest
Revise
assessment
BIR
INACTION
Appeal
to
CTA
REMEDIES
OF
TAXPAYERS
ADMINISTRATIVE
REMEDY
BEFORE
PAYMENT
OF
TAX
PROTEST
OF
ASSESSMENT
JUDICIAL
REMEDY
APPEAL
TO
COURT
OF
TAX
APPEALS
ASSESSMENT
WHAT
IS
AN
ASSESSMENT?
NoYce
that
taxpayer
owes
government
a
sum
of
money
Contains
computaYon
of
tax
liability
and
a
demand
for
payment
of
tax
within
a
certain
period
(CIR
v.
Pascor
Realty
&
Dev
Corp)
PURPOSE
OF
ASSESSMENT
To
establish
tax
liability
where
an
assessment
is
required
ASSESSMENT
FORMS
OF
ASSESSMENT
1. Formal
assessment
noYce
(FAN)
2. CollecYon
leeer
a.
Leeer
demanding
payment
of
erroneously
refunded
amount
(Guagua
Electric
Co
v.
CIR),
or
amount
paid
by
bouncing
check
(Republic
v.
Limaco
&
de
Guzman)
b.
Follow-up
or
collecYon
leeer
duly
received
by
taxpayer
within
the
prescripYve
period
(TAXPAYER
DENIED
RECEIPT
OF
ORIGINAL
DEMAND
LETTER
AND
ASS.
NOTICE)
(Republic
v.
Nielson
&
Co)
ASSESSMENT
WHEN
MUST
ASSESSMENT
BE
MADE?
(Sec.
203
&
222,
NIRC)
COUNTING
OF
PERIOD
TAXABLE
YEAR
Normal
year
(365
days)
Leap
year
(366
days)
the third year from ling of return shall be treated as invalid due to prescripYon.
EO
292
(AdministraYve
Code
of
1987),
being
the
more
recent
law
than
Civil
Code,
governs
the
computaYon
of
legal
period.
Accor-dingly,
a
year
shall
be
understood
to
be
12
calendar
months;
a
month
of
30
days,
unless
it
refers
to
a
specic
calendar
month
(CIR
vs.
Primetown
Property
Group,
GR
No.
162155,
Aug
22,
2007).
ASSESSMENT
WHEN
IS
ASSESSMENT
DEEMED
MADE?
Issue
date
of
assessment
noYce
is
not
reckoning
point
for
prescripYon
Date
the
assessment
noYce
and
demand
leeer
is
released,
mailed
or
sent
to
taxpayer
consYtutes
actual
assessment
(Republic
v.
Limaco
&
de
Guzman)
PresumpYon
of
receipt
in
the
regular
course
of
mail
applies,
if
it
was
properly
addressed,
postage
was
prepaid,
and
was
mailed.
If
one
element
is
absent,
presumpYon
does
not
lie
(Enriquez
v.
Sunlife
of
Canada)
BIR
disallowed
certain
itemized
deducYons
and
considered
some
cost
items
as
subject
to
5%
tax,
without
indicaYng
factual
and
legal
bases.
During
the
preliminary
stage,
BIR
informed
taxpayer
thru
preliminary
5-day
leeer
and
furnished
copy
of
audit
working
paper.
CTA
considered
assessment
as
void.
CA
armed
CTA
decision.
SC
ruled
above
documents
were
not
valid
subsYtutes
for
mandatory
noYce
in
wriYng
of
legal
and
factual
bases
of
assessment.
These
steps
were
mere
perfunctory
discharge
of
CIRs
duYes
in
correctly
assessing
a
taxpayer.
Just
because
CIR
issued
an
advice,
preliminary
leeer
and
nal
noYce
does
not
necessarily
mean
taxpayer
was
informed
of
law
and
facts.
Law
requires
that
they
be
stated
in
DL
and
FAN.
Otherwise,
the
express
provisions
of
Art.
228
of
NIRC
and
RR
12-99
would
be
rendered
nugatory.
The
alleged
factual
bases
in
the
advice,
preliminary
leeer
and
audit
working
papers
did
not
suce.
Moreover,
due
to
the
absence
of
a
fair
opportunity
to
be
informed
of
legal
and
factual
bases
of
assessment,
the
assessment
is
void.
Old
law
merely
required
taxpayer
to
be
noYed
of
assessment.
This
was
changed
in
1998
(CIR
vs.
Enron
Subic
Power
Corp,
GR
No.
166387,
Jan.
19,
2009).
ASSESSMENT
NOTICE
Preliminary
collecYon
leeer
presupposes
the
existence
of
valid
assessment
noYce.
Preliminary
collecYon
leeer
shall
serve
as
assessment
noYce,
if
it
was
iniYal
noYce
received
by
taxpayer,
taxpayer
did
not
receive
any
assessment
noYce,
and
no
follow-up
leeer
was
sent
or
preliminary
conference
was
arranged.
30-day
period
to
protest
shall
commence
from
date
of
receipt
of
preliminary
collecYon
leeer
(United
InternaVonal
Pictures
vs.
CIR,
CTA
Case
No.
5884,
Jan.
5,
2002)
PROTEST
Valid
protest
of
an
assessment
is
one
assailing
the
formal
assessment
noYce
(FAN)
and
the
leeer
of
demand,
not
the
preliminary
assessment
noYce
(PAN).
PAN
is
required
merely
to
inform
the
taxpayer
of
the
proposed
assessment.
Failure
to
protest
within
30
days
will
make
the
formal
assessment
noYce
nal
and
executory.
Failure
to
respond
to
PAN
within
15
days
will
render
taxpayer
in
default
and
a
FAN
would
subsequently
be
issued
(Cebu
Rosver
Pawnshop
vs.
CIR,
CTA
Case
No.
6425,
Mar.
17,
2003).
PROTEST
CIR
vs.
BPI
Oct
28,
1988
CIR
assessed
peYYoner
for
def.
percentage
tax
and
DST
for
1986
Dec
10,
1988
--
BPI
replied
staYng
Your
def
assessments
are
no
assessments
at
all
As
soon
as
this
is
explained
and
claried
in
a
proper
leeer
of
assessment,
we
shall
inform
you
of
the
taxpayers
decision
on
whether
to
pay
or
protest
the
assessment.
June
27,
1991
--
BPI
received
leeer
from
BIR,
staYng
..
Your
leeer
failed
to
qualify
as
a
protest
under
RR
12-85
sYll
we
obliged
to
explain
the
basis
of
the
assessments.
July
6,
1991
--
BPI
requested
a
reconsideraYon
of
assessments.
Dec
12,
1991
--
BIR
denied
protest,
which
was
received
on
Jan
21,
1992.
Feb
18,
1992
--
BPI
led
peYYon
for
review
in
CTA.
PROTEST
Nov
16,
1995
--
CTA
dismissed
peYYon
for
lack
of
jurisdicYon;
assessments
had
become
nal
and
unappealable.
May
27,
1996,
CTA
denied
reconsideraYon.
On
appeal,
CA
reversed
CTAs
decision.
It
ruled
Oct
28,
1988
noYces
were
not
valid
assessments
because
they
did
not
inform
the
taxpayer
of
the
legal
and
factual
bases
therefor.
It
declared
the
proper
assessments
were
those
in
May
8,
1991
leeer
which
provided
the
reasons
for
claimed
deciencies.
CIR
elevated
case
to
SC.
CIR
did
not
inform
BPI
in
wriYng
of
the
law
and
facts
on
which
assessments
were
made.
He
merely
noYed
BPI
of
his
ndings,
consisYng
of
the
computaYon
of
the
tax
liabiliYes
and
a
demand
for
payment
within
30
days
from
receipt.
He
relied
on
former
Sec.
270,
NIRC,
prior
to
its
amendment
by
RA
8424.
In
CIR
vs.Reyes,
GR
159694,
Jan
27,
2006,
the
only
requirement
was
for
the
CIR
to
noYfy
or
inform
the
taxpayer
of
his
ndings.
Nothing
in
the
old
law
required
a
wrieen
statement
to
the
taxpayer
of
the
law
and
the
facts.
The
Court
cannot
read
into
the
law
what
obviously
was
not
intended
by
Congress.
That
would
be
judicial
legislaYon.
PROTEST
Jurisprudence
simply
required
that
assessments
contain
a
computaYon
of
tax
liabiliYes,
the
amount
to
be
paid
plus
a
demand
for
payment
within
a
prescribed
period.
The
sentence
the
taxpayer
shall
be
informed
in
wriYng
of
the
law
and
the
facts
on
which
the
assessment
is
made;
otherwise,
the
assessment
shall
be
void.
was
not
in
old
Sec.
270,
but
was
only
inserted
in
Sec.
228
in
1997
(R.A.
8424).
The
inserted
sentence
was
not
an
armaYon
of
what
the
law
required;
the
amendment
by
RA
8424
was
an
innovaYon
and
could
not
be
reasonably
inferred
from
the
old
law.
The
Oct
28,
1998
noYces
were
valid
assessments,
which
BPI
should
have
protested
within
30
days
from
receipt.
The
Dec
10,
1988
reply
it
sent
to
BIR
did
not
qualify
as
a
protest,
since
the
leeer
itself
stated
we
shall
inform
you
of
the
taxpayers
decision
on
whether
to
pay
or
protest
the
assessment.
BPIs
failure
to
protest
the
assessment
made
it
nal
and
executory.
The
assessment
is
presumed
to
be
correct
(CIR
vs
BPI,
GR
134062,
Apr
17,
2007).
DENIAL
OF
PROTEST
DIRECT
DENIAL
Leeer
of
CIR
states
in
clear
terms
his
denial
of
protest.
INDIRECT
DENIAL
Final
NoYce
Before
Seizure
consYtutes
as
a
decision
on
a
protested
assessment;
hence,
appealable
to
the
CTA
(CIR
vs.
Isabela
Cultural
Corp,
361
SCRA
71
(2004)
INACTION
OF
COMMISSIONER
The
taxpayer
has
two
opYons:
Wait
for
the
decision
of
the
Commissioner
on
the
protest
and
le
the
appeal
to
the
CTA
within
30
days
from
date
of
receipt
of
the
denial
of
protest;
or
File
appeal
to
the
CTA
within
30
days
from
lapse
of
the
180-day
period
(Lascona
Land
Co
vs
CIR,
CTA
Case
No.
5777,
Jan
4,
2000)
APPEALS
ADMINISTRATIVE APPEAL
JUDICIAL APPEAL
PRESCRIPTION
The
3-year
period
within
which
to
assess
any
deciency
tax
commences
aver
the
last
day
prescribed
by
law
for
the
ling
of
the
income
tax
return.
For
VAT,
each
taxable
quarter
shall
have
its
own
prescripYve
period.
VAT
return
is
led
quarterly
and
a
nal
return
is
not
required
at
the
end
of
the
year.
In
case
of
creditable
withholding
taxes,
the
3-year
period
shall
be
counted
shall
be
counted
from
the
last
day
required
by
law
for
ling
monthly
remieance
return.
Each
monthly
return
is
already
a
complete
return.
The
annual
informaYon
return
submieed
to
BIR
is
just
an
annual
report
of
income
payments
and
taxes
withheld
and
is
not
in
the
nature
of
a
nal
adjustment
return
(HPCO
Agridev
Corp.
vs.
CIR,
CTA
Case
No.
6355,
July
18,
2002)
PRESCRIPTION
Request
for
reconsideraYon
or
claricaYon
on
the
assessment
made
by
the
taxpayer
does
not
suspend
the
running
of
the
statute
of
limitaYons.
However,
request
for
reinvesYgaYon
may
suspend
the
running
of
prescripYve
period
when
it
has
been
granted
by
CIR
(BPI
vs.
CIR,
GR
No.
139736,
Oct
17,
2005)
Mere
ling
of
the
protest
leeer
without
requesYng
for
a
reinvesYgaYon
does
not
suspend
the
running
of
the
prescripYve
period
to
collect
(Phil
Global
CommunicaVons
vs.
CIR,
CTA
EB
Case
No.
37,
Feb.
2005)
REQUISITES
OF
WAIVER
Waiver
must
be
in
the
form
idenYed
in
RMO
20-90;
Expiry
date
of
period
agreed
upon
is
indicated
in
the
waiver;
Waiver
form
requires
statement
of
the
kind
of
tax
and
amount
of
tax
due;
if
not
indicated
in
the
waiver,
there
is
no
agreement;
Waiver
is
signed
by
taxpayer
or
his
authorized
representaYve.
In
case
of
corporaYon,
waiver
is
signed
by
any
responsible
ocial.
CIR
or
his
authorized
representaYve
shall
sign
waiver
indicaYng
that
BIR
has
accepted
and
agreed
to
the
waiver;
Date
of
acceptance
by
BIR
is
indicated;
Date
of
execuYon
and
acceptance
by
BIR
should
be
before
expiraYon
of
prescripYve
period;
Waiver
is
executed
in
3
copies;
second
copy
is
for
taxpayer.
Fact
of
receipt
by
the
taxpayer
should
be
indicated
in
the
original
copy
(Pzer,
Inc.
vs.
CIR,
CTA
Case
No.
6135,
Apr.
21,
2003;
FMF
Dev.
Corp.
vs.
CIR,
CTA
Case
No.
6153,
Mar.
20,
2003)
REQUISITES
OF
WAIVER
Waiver
must
indicate
denite
expiraYon
date
agreed
upon
by
CIR
and
taxpayer
Waiver
should
state
date
of
acceptance
by
BIR.
Without
the
date,
it
cannot
be
determined
whether
waiver
was
accepted
before
expiraYon
of
3-year
period.
Taxpayer
must
be
furnished
copy
of
accepted
waiver.
Under
RMO
20-90,
second
copy
of
waiver
is
for
taxpayer.
Fact
of
receipt
by
taxpayer
of
his
copy
should
be
indicated
in
the
original
copy
(Phil.
Journalists
vs.
CIR,
supra).
RMO
20-90
must
be
strictly
construed
against
the
government;
they
are
mandatory
in
character.
More-over,
the
waiver
of
the
statute
of
limitaYons
is
not
a
waiver
of
the
right
to
invoke
the
defense
of
prescripYon
(CIR
vs.
FMF
Dev
Corp,
GR
No.
167765,
June
30,
2008).
FRAUD
TAX
AVOIDANCE
is
the
tax
saving
device
within
the
means
sancYoned
by
law,
used
in
good
faith
and
at
arms
length.
TAX
EVASION
is
a
scheme
used
outside
of
those
lawful
means
and
when
availed
of,
it
usually
subjects
the
taxpayer
to
further
or
addiYonal
civil
or
criminal
liabiliYes.
It
connotes
3
factors:
end
to
be
achieved;
an
accompanying
state
of
mind
that
is
described
as
evil,
willful
or
deliberate;
and
course
of
acYon
which
is
unlawful.
Altonagas
sole
purpose
of
acquiring
and
transferring
Ytle
of
properYes
on
same
day
was
to
create
tax
shelter.
Sale
to
him
by
CIC
was
a
sham
and
without
business
purpose.
Sale
by
Altonaga
to
RMI
was
tainted
with
fraud.
Even
before
the
purported
sale
of
property
by
CIC
to
Altonaga,
it
received
P40
M
from
RMI.
That
was
reected
by
RMI
in
its
nancial
statement
(CIR
vs.
Estate
of
Benigno
Toda,
GR
No.
147188,
Sept.
14,
2004)
END OF PRESENTATION
END OF PRESENTATION