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UPDATES IN TAXATION
Atty. Rizalina V. Lumbera
(For 2016 Bar Examinations)
(Inclusive of BIR Issuances)
PART 1 : NATIONAL INTERNAL REVENUE CODE
(1). TAX EXEMPTIONS OF VARIOUS INSTITUTIONS
FACTS: Institution occupies real property. Part of the property is leased to KFC.

A. GOVERNMENT AGENCIES (Example: PNP)


General Rule: Government agencies are exempt from payment of taxes as long as they
are directly performing government functions
Exception: If the agency is in the exercise of proprietary functions, it is subject to tax
and treated as an ordinary corporation subject to corporate income tax of 30%.
GOCCs are considered as ordinary corporations except SSS, PHIC, PCSO, GSIS.
PAGCOR is already taxable under the new law because it gives some semblance of
legitimacy to gambling.
1. PNP earns money from collection of license fees.
a. Is this income? Yes.
b. Is this taxable? No.
2. Rentals paid by KFC
a. Is this income? Yes.
b. Is this taxable? Yes.
3. X donates P500,000 to PNP.
a. Is this income on the part of PNP? Yes, but it is not subject to income
tax [Sec 32 (B)(3), NIRC excludes gifts, bequests, devises from gross
income].
b. Is the donation subject to estate/donors tax? No. Transfers for public
use are exempt from estate or donors tax ( Sections 87 and 101 of
the tax Code)
c. Can X deduct the donation from his gross income? It depends.
i. If X were a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for
compensation income earners (personal exemptions, additional
exemptions & premiums on health/hospitalization insurance).
Donations are not among them.
ii. If X were an individual engaged in trade or business, the entire
amount may be deducted.
iii. If X were a corporation, the entire amount may be deducted.
4. Should PNP decide to deposit in a bank the funds from license fees, rentals, and the
gift of P 500,000.00, thereby earning interest income of 2% per annum, is the
interest from bank deposit income and taxable?
a. Is it income? YES.
b. IS IT TAXABLE? YES, last paragraph of Section 30 NIRC states that
income of whatever kind and character from an activity conducted for
profit shall be subject to income tax;
5. Payment of Real Estate Tax - government agencies directly performing government
functions are exempt. Under the Local Government Code of 1991, real properties

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owned by the government and any of its agencies or instrumentalities shall be


exempt from real property tax except when the beneficial use thereof pertains to
non-exempt entity.
NOTE: It is the beneficial use of the property that exempts the government agency
from payment of tax.

B. GOVERNMENT EDUCATIONAL INSTITUTIONS (GEI) such as public elementary


school, public high school, state colleges (Example: PUP)
1. PUP earns money from tuition fees.
a. Is it income? Yes
b. Is it taxable? No. Sec. 30, NIRC exempts income by the institution when it
is realized as such.
2. Rental fee received from KFC
a. Is it income? Yes.
b. Is it taxable? Yes. The last paragraph of Sec. 30, NIRC provides that
income from any activity conducted for profit regardless of the
disposition shall be subject to tax.
3. X donated P500,000 to PUP.
a. Is it income on the part of PUP? Yes, but not subject to income tax.
(same reason as government agencies).
b. Is it subject to estate/donors tax? No. Section 87/101 of the tax
code on transfer for public use;
c. Can X deduct the donation from gross income? Same rules as
government agencies.
4. Should GEI decide to deposit in a bank the funds from tuition fees, rentals, and the
gift of P 500,000.00, thereby earning interest income of 2% per annum, is the interest
from bank deposit income and taxable?
i. Is it income? YES.
ii. IS IT TAXABLE? YES, last paragraph of Section 30 NIRC states that
income of whatever kind and character from an activity conducted for
profit shall be subject to income tax;
5. Real Estate Tax (RET) - As long as the property is ACTUALLY, DIRECTLY and
EXCLUSIVELY used for educational purposes, it is exempt from payment of RET.
Under the Local Government Code of 1991, real properties actually, directly and
exclusively used for educational, religious, and charitable purpose shall be exempt from
real property tax. Real properties owned by the government and any of its agencies or
instrumentalities shall be exempt from real property tax except when the beneficial use
thereof pertains to non-exempt entity.

C. NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS


1. Money received as tuition fee
a. Is it income? YES
b. Is it taxable? NO.
There is an apparent conflict between the Constitutional provision and Sec. 30
of the NIRC: The Constitutional provision indicates that the basis for
exemption is the use of revenue but under Sec 30, NIRC, the source of
revenue is the basis of the exemption. Solution: Apply the rules of StatCon Follow the NIRC because it is considered as a special law as opposed to the
Constitution which is considered to be a general law. Therefore, exempt from
payment of income tax under Section 30. This is considered as income as
such.
2. Rental fee received from KFC
a. Is it income? Yes.
b. Is it taxable? Yes. (last paragraph Sec 30, NIRC)

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3. X donated P500,000 to the institution.


a. Is it income on the part of the institution? Yes but it is not subject to
tax [Sec. 32 (B)(3), NIRC]
b. Is it subject to estate/donors tax? No, provided that not more than 30%
is used for administration purposes. . (Section 87 and 101 of the Tax Code)
c. Can X deduct the amount of the donation from his gross income? It
depends.
i. If X were a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for
compensation income earners (personal exemptions, additional
exemptions & premiums on health/hospitalization insurance).
Donations are not among them.
ii. If X were an individual engaged in trade or business, up to the
extent of 10% of the amount of taxable income may be
deducted;
iii. If X were a corporation, up to the extent of 5% of the amount of
taxable income may be deducted
4. Should NSNPEI decide to deposit in a bank the funds from tuition fees, rentals,
and the gift of P 500,000.00, thereby earning interest income of 2% per annum,
is the interest from bank deposit income and taxable?
i. Is it income? YES.
ii. IS IT TAXABLE? YES, last paragraph of Section 30 NIRC states that
income of whatever kind and character from an activity conducted for
profit shall be subject to income tax;
5. Real Estate Tax - Such institution is exempt from payment of RET (BASIS: LGC
and Constitution) Under the Local Government Code of 1991, real properties
actually, directly and exclusively used for educational, religious, and charitable
purpose shall be exempt from real property tax.
6. Income from operating a canteen
For the operation of a canteen inside the campus, the income therein being
incidental to the operations of the school is exempt;
7. Income from bookstore
Not subject to income tax since operation from bookstore is an ancillary activity
the conduct of which is carried out within the school premises
8. Income from dormitories
Not subject to income tax provided the dormitory is within the campus as the
same is an ancillary activity. However, income from dormitory located outside of
school premises shall be subject to income tax already.
9. Income from concessionaires of the canteen and operators of the dormitory.
These are already subject to income tax and treated as income from an activity
conducted for profit pursuant to the last paragraph of Section 30, NIRC.
Revenue Memorandum Circular No. 76-03 provides that revenues derived from
assets used in the operation of cafeterias/canteens and bookstores are exempt from
taxation provided they are owned and operated by the educational institution as
ancillary services and the same are located within the school premises. However,
they shall be subject to internal revenue taxes on income from trade, business or
activity, the conduct of which is not related to the exercise or performance by such
institutions of their educational purposes or functions ( ie. Rental payment from their
building/premises).
The interest income from currency bank deposits and yield from deposit substitutes
instruments actually, directly, and exclusively in pursuance of their purposes as an
educational institution are exempt from the 20% final tax and 7 % tax on interest
income under the expanded foreign currency deposit system upon compliance of
certain conditions;

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D. PROPRIETARY EDUCATIONAL INSTITUTIONS


1. Income tax
General Rule: Proprietary Educational institutions are not exempt from tax unless
there is a law providing for an exemption. Sec 27(B) NIRC in relation to the

Constitution: If the income from unrelated trade/activity (ut/a)exceeds


50% of the total income, it is treated as an ordinary corporation taxable
at the rate of 30%. Otherwise, it is subject to a preferential rate of 10%.
NOTE: The exemption from income tax is not absolute but dependent on the income
from unrelated trade or activity.
2. If X donates P500,000 to the institution:

a. Is it income on the part of the institution? Yes, but not included in


computation of the gross income, therefore not taxable. [Sec. 32 (B)(3),

NIRC]

b. Is it subject to estate/donors tax? No, provided that not more than 30%
is used for administration purposes.
c.

Can X deduct the amount of the donation from his gross income? It
depends.
i. If X were a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for
compensation income earners (personal exemptions, additional
exemptions & premiums on health/hospitalization insurance).
Donations are not among them.
ii. If X were an individual engaged in trade or business, up to
the extent of 10% of the amount of taxable income may
be deducted;

d. If X were a corporation, up to the extent of 5% of the amount of


taxable income may be deducted;
3. Should PEI decide to deposit in a bank the funds from tuition fees, rentals, and the
gift of P 500,000.00, thereby earning interest income of 2% per annum, is the
interest from bank deposit income and taxable?
i.
ii.

Is it income? YES.
IS IT TAXABLE? YES, applying Section 27, the entire income from
these activities maybe taxed at 30% or 10%. 30% if income from
uta exceeds 50% of its total income and 10% if uta does not
exceed 50% of its total income;

4. Real Estate Tax - The institution is exempt from payment of RET (Local
Government Code of 1991). Under the Local Government Code of 1991, real
properties actually, directly and exclusively used for educational, religious, and
charitable purpose shall be exempt from real property tax.

E. CHARITABLE/ RELIGIOUS INSTITUTIONS


NOTE: The Constitutional provision regarding charitable/religious institutions is limited only
to exemption from RET. The exemption is based on the ACTUAL USE of the property not
ownership.
The term educational does not refer to those managed by the religious institutions but to
the carrying on by these institutions of educational purpose incidental to its primary purpose.
(i.e. catechism, church daycare centers, etc.)

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1. Money received as a charitable/religious institution


a. Is it income? Yes.
b. Is it taxable? No. Sec. 30, NIRC exempts income by the institution if it is
realized as such.
2. Rental fee received from KFC
a. Is it income? Yes.
b. Is it taxable? Yes. The last paragraph of Sec. 30, NIRC provides that
income from any activity conducted for profit regardless of the
disposition shall be subject to tax.
3. X donated P500,000 to the institution.
a. Is it income on the part of the institution? Yes, but it is not subject to
tax as gifta bequests nd devises are items of exclusions. [Sec. 32 (B)(3),

NIRC]

b. Is it subject to estate/donors tax? No, provided that not more than 30%
is used for administration purposes.
c. Can X deduct the amount of the donation from his gross income? It
depends.
i. If X is a compensation income earner, he cannot deduct.
Reason: There are only 3 allowable kinds of deductions for
compensation income earners (personal exemptions, additional
exemptions & premiums on health/hospitalization insurance).
Donations are not among them.
ii. If X is an individual engaged in trade or business, 10% of the
amount of donation may be deducted
iii.

If X is a corporation, 5% of the amount of donation may be


deducted

4. Real Estate Tax - The institution is exempt from payment of RET (Local
Government Code of 1991). Under the Local Government Code of 1991, real
properties actually, directly and exclusively used for educational, religious, and
charitable purpose shall be exempt from real property tax.

F. Exemption of Non-Profit ORGs/Hospitals( MC 4-2014)

Revalidated tax exemption certificates for hospitals and non-stock non-profit


organizations operating hospitals to secure the revalidated tax exemption certificate;
All rulings issued prior to Nov 1, 2012 providing for tax exemption of hospitals are
no longer valid;
Off shoot of case CIR vs. St. Lukes Hospital, 12 Sept 2012;
Proprietary non-profit hospitals and non-stock non profit organizations operating
hospitals;
Procedure:
1. Submit request for re-validation of exemption;
2. Submit ff documents:
- Application letter stating basis under Section 30, NIRC;
- Copies of latest AI and By-Laws;
2. Submit ff documents:
- BIR Registration;
- Tax Clearance;
- ITRs for the last 3 yrs;
- Statement about operations of
company;
Exemption and/or Revalidation of Tax Exemption Certificates:
Section 30 NIRC ( RMO 20-2013)
Documentary Requirements for application for revalidation:
1. Original copy of application letter citing particular paragraph of S 2. Certified
true copy of the latest AI and BL issued by SEC;
2. Original copy of Certification under Oath by an executive officer of corp. as
to: (i). previous amendments/changes in the AI and BL; (ii) manner of
activities, and (iii) the sources and disposition of income, if any, of the

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subject corporation or association.


3. Certified true copy BIR Registration;
4. Original copy of the Certification under Oath by the Treasurer as to the
amount of income, compensation, salaries or any emoluments paid by the
corporation or association to its trustees, officers and other executive
officers;
5. Original copy of the RDO Certification that the corporation is not the subject
of any pending investigation, on-going audit, pending tax assessment,
administrative protest, claim for refund or issuance of tax credit certificate,
collection proceedings, or a judicial appeal;
6. If thereby be any, the Original copy of the Certification issued by the RDO
on the status thereof;
7. Certified true copies of ITRs/AIR and Financial Statements for the last three
(3) years; and
8. Original copy of a statement under Oath by an executive officer of the
corporation or association as to its modus operandi
Additional Requirements for Educational Institutions:
1. Certified true copy of government recognition/permit/accreditation to operate as
an educational institution issued by the CHED, DepEd, or TESDA;
2. If more than 5 yrs, certificate of good standing;
3. Original copy of Certificate of utilization of annual revenues and assets by the
Treasurer or his equivalent of the non-stock and non-profit educational institution
4. Original copy of Certificate of utilization of annual revenues and assets by the
Treasurer or his equivalent of the non-stock and non-profit educational institution.
REQUIREMENTS FOR EXEMPTION under Section 30 (e):
1. It must be a non-stock corporation or association organized and operated exclusively
for religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans;
2. It should meet the ff tests:

Organizational Test-corporations documents exclusively limit its purposes to par


e of Section 30;

Operational Test- regular activities of the corporation be exclusively devoted to


the accomplishment of the purposes in par (e), Section 30;
3. All the net income or assets of the corporation or association must be devoted to its
purpose/s and no part of its net income or asset accrues to or benefits any member
or specific person;
4. It must not be a branch of a foreign non-stock non-profit corporation.
Validity of Tax Exemption/Revalidated Exemption:

3 years from date of effectivity specified in the certificate/ruling;


Renewable in nature subject to submission of documents and approval of BIR;
Failure to file ITR results to cancellation of tax exemption certificate beginning
the taxable year when ITR was not filed;

DEFINITIONS:

NON-STOCK NON-PROFIT/INUREMENT
under Section 30 NIRC ( MC 51-2014)

Non-stock: no part of income is distributed as dividends and any profit as incident of


operations, shall be used for furtherance of its purpose;
Non- profit: no net income or asset accrues to or benefits any member, with all net
income or asset devoted to purpose and all its activities conducted not for profit;

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NOTE: For exemption to apply as NSNP corporation under Section 30, NIRC, its
earnings/assets shall not INURE to the benefit of any trustee, officer, member, or
specific person
Considered as INUREMENT
1. Payment of compensation, salaries, honorarium to trustees or organizers;
2. Payment of exorbitant or unreasonable compensation to employees;
3. Provision of welfare aid/financial assistance to members;
4. Donation to any person/entity;
5. Purchase of goods/services in excess of FMV from an entity where trustee, officer
has an interest;
6. Upon dissolution, assets are distributed to trustees, organizers, officers, members;
CLARIFICATIONS ON TAX EXEMPTION RULING (RMO 34-2014)

Nature of Tax Exemption Rulings:


1. Do not confer tax exemptions which are not provided for by law;
2. Do not abrogate exemptions which are granted by the law;
3. BIR merely seeks to validate/confirm whether the conditions set forth by law for the
grant of tax exemption are present or whether such conditions have been complied
with by the applicant;
4. BIR aims to determine whether an applicant is earning income from other activities
conducted for profit which should be subjected to tax in accordance with the last
paragraph of Section 30 of NIRC.
5. Non-stock, non-profit entities with valid and existing Tax Exemption Rulings are
presumably compliant with the conditions for availment of tax exemption with
respect to any income earned as such.

Effects of non-filing, late filing and/or revocation of Tax Exemption Rulings:


1. Absence of a valid, current and subsisting Tax Exemption Ruling will not operate to
divest qualified entities of the tax exemption provided under the Constitution or
Section 30 of the Tax Code.
2. Failure to secure a Tax Exemption Ruling for a given taxable year or shorter period
(as in the case of late filers), must prove compliance with the conditions laid down
by law and other issuances in the event of a tax investigation.
3. Failure of NSNP entity to present valid exemption ruling to w/holding agents, results
to taxability of transactions (RMC 8-2014);
4. W/holding agents failure to withhold, results to imposition of penalties;

(2). INCOME TAXATION


HOW DO WE DETERMINE INCOME FROM SOURCES WITHIN THE PHILIPPINES? THE
FOLLOWING INCOME ARE FROM SOURCES WITHIN:
(1) Interests. - Interests derived from sources within the Philippines, and interests on bonds,
notes or other interest-bearing obligation of residents, corporate or otherwise;
(2) Dividends. - The amount received as dividends:
(a) from a domestic corporation; and
(b) from a foreign corporation, unless less than fifty percent (50%) of the gross income
of such foreign corporation for the three-year period ending with the close of its taxable
year preceding the declaration of such dividends or for such part of such period as the
corporation has been in existence) was derived from sources within the Philippines as
determined under the provisions of this Section; but only in an amount which bears the
same ration to such dividends as the gross income of the corporation for such period
derived from sources within the Philippines bears to its gross income from all sources.
(3) Services.- Compensation for labor or personal services performed in the Philippines;

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(4) Rentals and Royalties. - Rentals and royalties from property located in the Philippines or
from any interest in such property;
(5) Sale of Real Property - Gains, profits and income from the sale of real property located in
the Philippines; and
(6) Sale of Personal Property - Gains; profits and income from the sale of personal property:
Gains, profits and income from the sale of personal property produced (in whole or in
part) by the taxpayer within and sold without the Philippines, or produced (in whole or in
part) by the taxpayer without and sold within the Philippines, shall be treated as derived
partly from sources within and partly from sources without the Philippines.
Gains, profits and income derived from the purchase of personal property within and its
sale without the Philippines, or from the purchase of personal property without and its
sale within the Philippines shall be treated as derived entirely form sources within the
country in which sold: Provided, however, That gain from the sale of shares of stock in a
domestic corporation shall be treated as derived entirely form sources within the
Philippines regardless of where the said shares are sold.
(A). QUESTIONS TO ASK IN INCOME TAXATION:
1.
2.
3.
4.

Did you receive anything? ( in cash or in kind/ legal or illegal source)


If you did, is it income?
If income, is it taxable?
If it is taxable, how do you determine taxability and what kind of tax do
we impose?

NOTE: In question number 3, taxability of income depends on the KIND OF TAXPAYER,


SOURCE OF INCOME, AND KIND OF INCOME.

(B). WHO ARE THE INCOME TAXPAYERS?

(1). INDIVIDUALS
(A). CITIZENS
(1). RESIDENT CITIZENS;
(2). NON-RESIDENT CITIZENS;
(B). ALIENS
(1). RESIDENT ALIENS;
(2). NON-RESIDENT ALIENS;
(I). NON-RESIDENT ALIENS ENGAGED IN T/B;
(II). NON-RESIDENT ALIENS NOT ENGAGED IN T/B
NOTE: ESTATES AND TRUSTS ARE TREATED AS INCOME TAX PAYERS;
(2). CORPORATIONS
"corporation" shall include partnerships, no matter how created or organized, jointstock companies, joint accounts (cuentas en participacion), association, or insurance
companies, but does not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an operating
consortium agreement under a service contract with the Government.

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"General professional partnerships" are partnerships formed by persons for the


sole purpose of exercising their common profession, no part of the income of which is
derived from engaging in any trade or business; PARTNERSHIPS ARE TREATED AS
CORPORATE TAXPAYERS WHICH ARE FURTHER CLASSIFIED INTO GENERAL PROFESSIONAL
PARTNERSHIPS (GPP) OR GENERAL CO-PARTNERSHIPS (GCP). A GPP IS EXEMPT FROM
PAYMENT OF INCOME TAX AS A COPORATE TAXPAYER, WHILE A

GCP IS LIABLE FOR INCOME

TAX.

(A).

DOMESTIC CORPORATIONS; "domestic", when applied to a corporation,


means created or organized in the Philippines or under its laws

(B). FOREIGN CORPORATIONS; "foreign", when applied to a corporation, means a


corporation which is not domestic;
(1). RESIDENT FOREIGN CORPORATIONS; "resident foreign corporation"
applies to a foreign corporation engaged in trade or business within the
Philippines.
(2). NON-RESIDENT FOREIGN CORPORATIONS.
'nonresident foreign
corporation' applies to a foreign corporation not engaged in trade or business
within the Philippines.

(C). TABLE ON TAXABILITY OF INDIVIDUALS AND CORPORATE TAXPAYERS

KINDS OF INCOME AND TAXES

KINDS OF
TXPAYERS

SOURCE OF
INCOME

W/IN

W/OUT

ALL
INCOME
OTHER
THAN (B),
( C ), (D)

PASSIVE
INCOME

CG ON
SALE OF
S OF S

CG ON
SALE OF
RP

(A)

(B)

(C)

(D)

INDIVIDUALS (including estates and trusts)


RC

NIT

FWT

FWT

FWT

NRC

NIT

FWT

FWT

FWT

RA

NIT

FWT

FWT

FWT

NRAETB

NIT

FWT

FWT

FWT

NRANETB

FWT

FWT

GIT/FT

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KINDS OF INCOME AND TAXES

KINDS OF
TXPAYERS

SOURCE OF INCOME

W/IN

ALL
INCOME
OTHER
THAN
(B), ,
(D)

PASSIVE
INCOME

CG ON
SALE OF
S OF S

CG ON SALE
OF RP

(A)

(B)

(C)

(D)

W/OUT

CORPORATIONS ( including GCP)


DC

NIT

FWT

FWT

FWT

RFC

NIT

FWT

FWT

N/A

NRFC

FWT

N/A

GIT/FT

ADDITIONAL TAXES FOR CORPORATIONS


INTERCORPORATE
DIVIDENDS
DC

D-D Exempt

RFC

D-RFC Exempt

NRFC

D-NRFC 15%
FWT

MCIT

IAET

BPRT

2% OF
GI
2% OF
GI

10%
FWT

N/A

N/A

15% FWT

N/A

N/A

N/A

D. INDIVIDUAL TAXPAYERS:
1. Resident citizens:
a. All income within and without other than passive income under letter (B), CG on
sale of SoS (C) and CG on sale of RP (D): NIT
b. Passive income (PI) from within the Phils. - Final Tax
Interest on bank deposits (peso currency): 20%
Interest on bank depsoits (foreign currency): 7.5%
Interest on long term deposits not pre-terminated for 5 yrs: EXEMPT
Royalties: 20% except for literary and musical compositions 10%
PCSO/LOTTO winnings: EXEMPT
PRIZES AND WINNINGS: 20% except prizes and winnings of P
10,000.00 or less which are subject to NIT;
OTHER EXEMPT PRIZES AND AWARDS:
1. Prizes and awards in sports competitions sanctioned by the national
sports commission;
2. Prizes and awards made primarily in recognition of religious,
charitable, scientific, educational, artistic, literary, or civic
achievements but only if the recipient was selected without any action
on his part to enter the contest or proceeding and the recipient is not
required to render substantial future services as a condition to
receiving the prize or award;

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Passive income (PI) from outside the Phils. - all PI received by a resident citizen
from outside of the Philippines are subject to Net Income Tax (NIT), not FWT;
c.

Dividends:
1. Issued by DC 10% Final Tax
2. Issued by FC NIT

d. Sale of Shares of Stocks treated as capital assets


1. Gains from Sale of capital shares of stocks - Capital Gains Tax
(CGT)(FWT) if not traded thru the local stock exchange. If traded thru
the stock exchange, of 1% of the GSP (percentage tax under Section
127 of the NIRC);
2. Gains from Sale of ordinary shares of stocks - NIT
Note: In case of sale of shares of stocks in a foreign corporation, all gains are
subject to NIT. In case of sale of shares of stocks in DC and FC, in case of loss (
ex: if sold for insufficient consideration), if untraded thru the local stock
exchange, impose donors or estate tax on the difference bet the FMV and the
consideration . However, if sold thru the local stock exchange, % tax plus
donors or estate tax. (Basis: Section 100 in relation to Sections 85 and 100 of
the tax code)
e. Sale of Real Property
1. If the property is within the Philippines and capital in character - 6%
CGT (FWT). Otherwise, NIT if it is an ordinary asset.
2. If the property is outside the Philippines it is always subject to NIT
whether ordinary or capital asset.
Exemption from CGT for sale of real property: Requisites [Sec 24 (D)(2),
NIRC]:
i.

The real property must be the actual principal residence of the


taxpayer/seller;
ii. Seller must inform the BIR of his intention to avail of the exemption
(within 30 days from sale);
iii. Seller must build or purchase another principal residence within 18
months from sale;
iv. Proceeds from the sale should be used in building/purchasing new
principal residence
v. 6% CGT will be applied proportionately to proceeds not used for new
principal residence.
2. Non-resident citizen
The term "nonresident citizen" means:
(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner
the fact of his physical presence abroad with a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to
reside abroad, either as an immigrant or for employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who arrives
in the Philippines at any time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a nonresident citizen for the taxable year in which
he arrives in the Philippines with respect to his income derived from sources abroad until
the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving

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the Philippines to reside permanently abroad or to return to and reside in the Philippines
as the case may be for purpose of this Section.
TAXABILITY:
a. All income within other than passive income under letter (B), CG on sale of SoS
(C) and CG on sale of RP (D): NIT; All income from without the Philippines are
EXEMPT from TAX;
b. Passive income (PI) from within the Phils. - Final Tax
Interest on bank deposits (peso currency): 20%
Interest on bank depsoits (foreign currency): 7.5%
Interest on long term deposits not pre-terminated for 5 yrs: EXEMPT
Royalties: 20% except for literary and musical compositions 10%
PCSO/LOTTO winnings: EXEMPT
PRIZES AND WINNINGS: 20% except prizes and winnings of P
10,000.00 or less which are subject to NIT;
OTHER EXEMPT PRIZES AND AWARDS:
1. Prizes and awards in sports competitions sanctioned by the national
sports commission;
2. Prizes and awards made primarily in recognition of religious,
charitable, scientific, educational, artistic, literary, or civic
achievements but only if the recipient was selected without any action
on his part to enter the contest or proceeding and the recipient is not
required to render substantial future services as a condition to
receiving the prize or award;
Passive income from outside the Phils. - all PI received by a non- resident
citizen from outside of the Philippines are EXEMPT FROM TAX;
c.

Dividends:
d. Issued by DC 10% Final Tax
e. Issued by FC NIT

d. Sale of Shares of Stocks treated as capital assets


i. Gains from Sale of capital shares of stocks - Capital Gains Tax
(CGT)(FWT) if not traded thru the local stock exchange. If traded thru
the stock exchange, of 1% of the GSP (percentage tax under Section
127 of the NIRC);
ii. Gains from Sale of ordinary shares of stocks in a domestic corp.- NIT
e. Sale of Real Property
3. If the property is within the Philippines and capital in character - 6%
CGT (FWT). Otherwise, NIT if it is an ordinary asset.
4. If the property is outside the Philippines it is not subject to tax
whether ordinary or capital asset.
Exemption from CGT for sale of real property: Requisites [Sec 24 (D)(2),
NIRC]:
vi. The real property must be the actual principal residence of the
taxpayer/seller;
vii. Seller must inform the BIR of his intention to avail of the exemption
(within 30 days from sale);
viii. Seller must build or purchase another principal residence within 18
months from sale;
ix. Proceeds from the sale should be used in building/purchasing new
principal residence

JURISTS BAR REVIEW CENTER


x.

13

6% CGT will be applied proportionately to proceeds not used for new


principal residence.

3. Resident Alien (Taxability is the same as non-resident citizen);


4. Non-Resident Alien ETB (Taxability is the same as non-resident citizen except for
Dividends from a domestic corporation which is subject to 20% FWT);
A nonresident alien individual who shall come to the Philippines and stay therein
for an aggregate period of more than one hundred eighty (180) days during any
calendar year shall be deemed a 'nonresident alien doing business in the
Philippines.

5. Non-Resident Alient Not ETB


All income plus PI are subject to GIT (Final Tax) of 25%, unless there is a Filipino
counterpart who is given the option to be taxed at GIT 15%; CGT on sale of SoS and
CGT on sale of RP, same as other individual taxpayers;
All kinds of individual taxpayers can avail of the exemption from payment of CGT for sale of
real property, except corporate taxpayers.
Question: Is an alien exempt from the payment of CGT for sale of real property?
Answer:
Resident aliens, under certain circumstances (succession, ownership of
condominium units and former Filipino citizens), are allowed by Phil. laws to
own real property.
Apply same rules to NRA engaged in trade/business
NRA not engaged in trade/business - there is a further limitation
They must be among those enumerated in Sec. 25 (c), (d), (e) of the NIRC
[Key: MOP]:
a. those employed by Regional Area/Operational Headquarters of
Multinational Companies
b. those employed by Offshore Banking Units
c. those employed by Petroleum Service Contractors and Subcontractors
Preferential Tax Treatment under Sec. 25, NIRC:
NOTE: If the NRAs Filipino counterpart is given the option to be taxed at 15% on the gross
income instead of GIT 25%, the alien may also be taxed at the same rate of 15% GIT. It is
not necessary that the Filipino counterpart should exercise the option. It is enough that
there is an option.

Note: If one is taxed on the gross, there are no deductions allowed.


Summary of rules on individual taxpayers:
1.
2.
a.
b.
3.
4.

Among all individual taxpayers, only RC is taxed for income within and outside the
Phils.
All kinds of taxpayers are similarly taxed for income within EXCEPT:
NRA engaged in t/b- 20% Final tax on cash and property dividends
NRA not engaged in t/b are taxed on the gross income
All kinds of individual taxpayers are subject to CGT on sale of shares of stock
All kinds of individual taxpayers may be exempt from 6% CGT on sale of real
property

(E). CORPORATE TAXPAYERS:


Additional notes:
MCIT is in lieu of 30% corporate net income tax while IAET is in addition to all other
taxes imposed upon the corporation.

JURISTS BAR REVIEW CENTER

14

A foreign corporation can NEVER be subjected to CGT on sale of real property


because under the Constitution, they are NEVER allowed to own real property in the
Philippines.
(F). INCLUSIONS, EXCLUSIONS, DEDUCTIONS:

INCLUSIONS:
GROSS INCOME DEFINED (CGDIRAP):
Except when otherwise provided, gross income means all income derived from whatever
source, including (but not limited to) the following items:
(1) Compensation for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a
profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general professional
partnership.

EXCLUSIONS:
1. Proceeds of Life Insurance Policy:
Facts: X is the employee of Y. X insures his own life and pays premium of P5,000 annually.
Beneficiaries are his wife and children (W & C). Policy states that if X pays premium for the
next 20 years, he will get:
Proceeds: P1M; Interest 10%; and Return of Premium (ROP)

Tax Effects/Consequence:
1. Can X deduct premium from computation of gross income? No. X is a
compensation income earner and premium for life insurance is not among those
deductions that a compensation income earner is allowed to make.
2. The policy states that if X survives to be 60 years old, he may receive the proceeds,
interest, and ROP.
a. If X survives, are the above-enumerated items considered as
income? The proceeds of P1M and the 10% interest are considered
income. ROP, being mere return of capital, is not.

Taxable? Only the 10% interest is taxable since proceeds of life insurance
policies are among the items of exclusions in Sec. 32(B), NIRC.

b. Assuming X dies and the proceeds are received by W & C, will this
be considered as income on their part? Yes, except for the ROP
(Reason: If X had lived, he would have received it as mere return of
capital).

Included in the computation of gross income? Only the 10% interest

is taxable since proceeds of life insurance policies are among the items of
exclusions in Sec. 32(B), NIRC.

JURISTS BAR REVIEW CENTER

15

3. When X dies, will the above-enumerated items be included in the


computation of the gross estate? It depends. There are 2 sets of rules:
a. If the beneficiary is the EXECUTOR/ADMINISTRATOR or the ESTATE, it
will be INCLUDED in the computation of estate, whether the
assignment of beneficiary is revocable or not.
b. If the beneficiary is anyone other than those in (a):
Revocable assignment- include in the computation of gross
estate
Irrevocable assignment- exclude in the computation of gross
estate

As long as the decedent has control over the proceeds, it will be


included in the computation of the gross estate.

Facts: X is the employee of Y. Y insured Xs life. Premium was paid by Y and he was also
the beneficiary and will receive proceeds: P1M +10% interest +ROP.

Tax Effects/Consequence:
1. Can Y deduct premium payments as business expense? No. This is not a
legitimate business expense. In addition Section 36, provides that
premiums on life insurance taken by the employer insuring the life of his
employees wherein directly or indirectly he is the beneficiary is NOT
DEDUCTIBLE.
2. If X dies and Y gets proceeds, is this income on the part of Y? Yes, except
the ROP. However, only the 10% interest is taxable. ROP and the amount of
P1M are the first 2 items of exclusion under Sec. 32 (B), NIRC.
3. Are the proceeds included in the computation of Xs gross estate? No. X did
not have any interest over the proceeds. In fact, the only participation of X is his
life.
Facts: X is the employee of Y. X took a life insurance but premium payments were made by
Y. Xs wife and children (W & C) were the assigned beneficiaries. Proceeds are as follows:
P1M +10% interest +ROP.

Tax Effects/Consequence:
1. Is it income on the part of X? Yes, the premium paid by employer Y is considered
as income on the part of X.
Is it taxable? If X is:
Managerial/supervisory employee - Fringe benefit tax
Rank and file employee - Net income tax

2. Can Y deduct the premium payments from the computation of gross income?
No, unless Y pays for the life insurance of ALL of his employees. If X gets singled out, Y
can never deduct because it is not a necessary business expense.

3. If X dies and the proceeds go to W & C, is this income on the part of W & C? Yes,
except for ROP. However, only the 10% interest is taxable (income tax).
Will this be included in the computation of the gross estate of X? It depends.
Apply the rules on revocable/irrevocable assignment of beneficiaries.
NOTE: Proceeds of accident insurance:
For purposes of income tax, proceeds of accident insurance are not income and not taxable
as they are merely reimbursements for the damage resulting from the accident. In case of
death however and for purposes of estate tax, they are generally speaking excluded from
the computation of the gross estate unless one of the risks insured against is the death of
the insured by accident in which case, the insurance maybe considered as a life insurance.

JURISTS BAR REVIEW CENTER

16

In this instance also, for purposes of income tax, they shall still be excluded from the
computation of gross income.
2. Gifts, Bequests, and Devises
Income on the part of the recipient donee/heir/recipient but not forming part of the taxable
income as this is an item of exclusion from the gross income of the donee/heir/recipient. If
however, the property received realizes income, then the income of the property forms part
of the gross income of the taxpayer;
3. Income exempt under a treaty
4. Damages
Damages - compensation for physical injuries/disability or death, or for causes beyond the
control of the employee and only those actually resulting therefrom are excluded from
computation of the gross income. Attorneys fees and costs of suit are only excluded if the
amount awarded is equivalent to the actual expense incurred. This shall not be considered
as income and not taxable because it is a mere reimbursement of the expense. Any amount
in excess of the actual expense is considered taxable income. Moral, exemplary, and any
other type of damages are taxable.
5. Retirement Benefits
The Labor Code requires the employer to contribute to a valid retirement fund. The
contribution is deductible since it is necessary in carrying on the trade/business.
If the employee is also allowed to contribute (contributory retirement fund), the employees
contribution is not deductible since it is not among the allowable deductions for
compensation income earners.
If the employee retires and receives retirement benefits:
Tax treatment: the retirement benefits are income but among the items of exclusions
listed in Sec. 32(B), NIRC hence, NOT TAXABLE. It is not considered compensation
provided that:
1. The employee is at least 50 years old;
2. Employed with the same employer for at least 10 years; and
3. The fund must be used for the benefit of the employee and no other purpose.

What if the fund is contributory? If the employee contributes to the fund, only the
interest/profits will be considered as income but excluded from the computation of gross
income therefore, not taxable. His contributions will be considered as mere return of capital,
hence, not income.

Example: The retirement plan provides that if the employee renders x years of
service and he dies, he shall be considered as retired as if he retired alive. The
heirs will receive the retirement benefits.
Tax Treatment:
1. Is it income on the part of the heirs? Yes.
Is it taxable? No. The benefits are among the items of exclusions from gross
income.
2. Is it part of the employees gross estate? Yes, provided that it will later on
be deducted from the gross estate.
3. Why do we have to add first before we deduct? Gross estate is defined as
the value of ALL the property of the deceased, real or personal, tangible or
intangible.
NOTE: Benefits received from SSS, GSIS, Pag-Ibig and PhilHealth , US Veterans Act
Not income
Not compensation
Not taxable

(The employees contributions are not deductible)

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17

6. Prizes and Awards


OTHER EXEMPT PRIZES AND AWARDS:
a. Prizes and awards in sports competitions sanctioned by the national sports
commission;
b. Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievements but only if the recipient was
selected without any action on his part to enter the contest or proceeding and the
recipient is not required to render substantial future services as a condition to
receiving the prize or award;
7. Miscellaneous Items: 13th month pay and other similar items
TAX TREATMENT OF EMPLOYEE BENEFITS:
Fringe
Benefits,
De
Minimis
Benefits,
and
Compensation
Managerial/Supervisory/Rank and File/ Minimum Wage Earners (MWEs)

for

- these are all benefits given by an employer to an employee


- the benefits must be in relation to the employers business
Compensation - All the basic benefits given by the employer to the employee
Fringe Benefits - Any benefit given to a managerial/supervisory employee above all
benefits given to other employees.
De Minimis Benefits Privileges of small value provided by the employer to an
employee;

DE MINIMIS BENEFITS (DMB)


(AS AMENDED BY RR 1-2015)
MONETIZED UNUSED VL (private
sector)

10 DAYS

MONETIZED VL/SL (government)

no limit

MEDICAL CASH ALLOWANCE TO


DEPENDENTS OF EMPLOYEES

NOT EXCEEDING P 750/EMPLOYEE/SEM


OR P 125/MO

RICE SUBSIDY

P 1,500/MO OR ONE SACK OF RICE OF


50KG/MO ( P 1,500.00)

UNIFORM/CLOTHING ALLOWANCE

P 5,000/YEAR (PER RR 8-2012)

ACTUAL MEDICAL ASSISTANCE

NOT EXCEEDING P 10,000/YEAR

LAUNDRY ALLOWANCE

NOT EXCEEDING P 300/MO

ACHIEVEMENT AWARDS

NOT EXCEEDING P 10,000/YEAR

GIFTS GIVEN DURING


CHRISTMAS/ANNIVERSARY
CELEBRATIONS

NOT EXCEEDING P
5,000/EMPLOYEE/YEAR

DAILY MEAL ALLOWANCE FOR


OT/NIGHT/GRAVEYARD SHIFT

NOT EXCEEDING 25% OF BASIC


MINIMUM

JURISTS BAR REVIEW CENTER


NEW (2015): BENEFITS
RECEIVED BY AN EMPLOYEE
PURSUANT TO CBA AND
PRODUCTIVITY INCENTIVE
SCHEME

NOT EXCEEDING
P10,000.00/YR/EMPLOYEE (PER
RR 1-2015)

NOTE: IF NOT PART OF ABOVE


LIST

NOT DE MINIMIS, IE,


TAXABLE/SUBJECT TO WT

18

The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be
considered in determining the P 82,000.00 ( amount as amended by RA 10653 February 2015)
ceiling of other benefits excluded from gross income under Section 32(b)(7)(e) of the Code.
Provided that, the excess of the de minimis benefits over the irrespective ceilings prescribed by
these regulations shall be considered as part of other benefits and the employee receiving it will be
subject to tax only on the excess over the P82,000.00 ceiling. Provided, further , that MWEs
receiving other benefits exceeding the P 82,000.00 limit shall be taxable on the excess benefits, as
well as on his salaries, wages and allowances, just like an employee receiving compensation income
beyond the SMW.
Any amount given by the employer as benefits to its employees, whether classified as de
benefits or fringe benefits, shall constitute as deductible expense upon such employer.
Where compensation is paid in property other than money, the employer shall make necessary
arrangements to ensure that the amount of the tax required to be withheld is available for payment to
the BIR.

minimis

Statutory Minimum Wage (SMW):


(SMW) shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board
(RTWPB), as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of
Labor and Employment (DOLE). The RTWPB of each region shall determine the wage rates in the
different regions based on established criteria and shall be the basis of exemption from income tax for
this purpose.
Holiday pay, overtime pay, night shift differential pay and hazard pay earned by the
aforementioned MWE shall likewise be covered by the above exemption. Provided, however, that an
employee who receives/earns additional compensation such as commissions, honoraria, fringe
benefits, benefits in excess of the allowable statutory amount of P82,000.00, taxable allowances and
other taxable income other than the SMW, holiday pay, overtime pay, hazard pay and night shift
differential pay shall not enjoy the privilege of being a MWE and, therefore, his/her entire earnings are
not exempt from income tax and, consequently, from withholding tax.
MWEs receiving other income, such as income from the conduct of trade, business, or practice
of profession, except income subject to final tax, in addition to compensation income are not exempted
from income tax on their entire income earned during the taxable year. This rule, notwithstanding, the
SMW, Holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from
withholding tax.

RA 10653 (signed into law in February 2015)


SB 2427 (RA 10653) increased the tax exemption of 13th month pay and other
benefits from P 30,000.00 to P 82,000.00;
For adjustment every 3 yrs based on Consumer Price Index of NSO;

Fringe Benefit defined.


"Fringe benefit" means any good, service or other benefit furnished or granted in cash
or in kind by an employer to an individual employee (except rank and file employees as
defined herein) such as, but not limited to, the following:
(1)
(2)
(3)
(4)

Housing;
Expense account;
Vehicle of any kind;
Household personnel, such as maid, driver and others;

JURISTS BAR REVIEW CENTER

19

(5) Interest on loan at less than market rate to the extent of the difference
between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.

Fringe Benefits Not Subject to FBT


The following fringe benefits are not subject to FBT of 32% based on the grossed up
monetary value:
(1) Fringe benefits which are authorized and exempted from tax under special
laws;
(2) Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;
(3) Benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not; and
(4) De minimis benefits as defined in the rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner.

EMPLOYEE BENEFITS
DMB

KINDS OF
EMPLOYEES

Basic Pay

M/S

C (NIT)

R/F

C (NIT)

MWE

SMW(Exempt)

OT/HP/HP/NSD

w/in
limits

excess

exempt
C (NIT)

exempt

exempt

exempt

transfer
to 82k
limit

OTHER BENEFITS

w/in
82k
limit

excess

exempt

FB

exempt

C (NIT)

exempt

not
treated as
MWE but
R/F; all
income
taxable

Specific Rules:
(1). Table is not applied if benefit is furnished for the convenience of the employer or
necessary in trade or business of the employer;
(2). If DMB received exceeds the limits provided by law, the excess shall be treated as
other benefits which if not exceeding the 82k limit shall be exempt from payment of tax;
(3). If other benefits exceed the 82k limit, the same shall be treated as FB in the case of
a M/S employee and C in the case of a R/F employee. In the case of an MWE whose
other benefits exceed the 82k limit, he stops being considered as an MWE and instead
treated as an ordinary R/F employee whose income from employment shall be subject to
tax except the DMB within limits and other benefits within the 82k limit;
(4). If an MWE has income derived from trade or business or any income other than
SMW, the SMW, OT/HP/HP/NSD, DMB within limits, and other benefits within 82k limit,
shall still be exempt from tax. When his other benefits exceed 82k limit, in which case,
the table for R/F employee shall be applied to him.

JURISTS BAR REVIEW CENTER

20

NOTE: If the employee is one of the NRAs not engaged in trade/business under Sec. 25
(c), (d), (e), NIRC, there is no distinction between fringe benefits and compensation
income because they are taxed on the gross.
If the benefit is either (1) furnished for the convenience of the employer or (2)
necessary to the trade or business of the employer, it is not income, not compensation,
not fringe benefits and not taxable.
Fringe Benefit Tax is NOT imposed on the following:
1. Rank and file employees they do not receive fringe benefits
2. NRA not engaged in t/b under Sec 25 (c), (d), (e) NIRC they are taxed on the
gross at the rate of either 25% or 15%.
3. Filipino counterpart of the NRA under Sec 25 NIRC who chooses to be taxed at
the rate of 15% on the gross.
INFORMERS REWARD:
Forms part of the gross income of the taxpayer informant and subject to income tax
TIPS AND GRATUITIES PAID BY CLIENTS and NIGHT SHIFT DIFFERENTIAL:
1. If paid directly by clients to employees, income and subject to tax on the part of
employee but cannot be subjected to withholding tax by the employer;
2. If paid to the employer by reason of service rendered by employees, income, taxable
on the part of the employee but subject to withholding by the employer;
3. Night shift differential, income and subject to tax on the part of the employee who is
not an MWE but subjected to withholding tax by the employer;
COMPENSATION FOR DEATH, PHYSICAL INJURIES, PHYSICAL DISABILITY PAID BY
EMPLOYER TO EMPLOYEE OR HIS HEIRS, OR FOR CAUSES BEYOND THE CONTROL OF
EMPLOYEE
1. Not income as mere compensation for the damage or loss of life;
2. Separation pay for retrenchment, redundancy, or any labor saving device is income
but not subject to tax due to causes beyond control of employee;
3. Backwages in case of illegal dismissal, income and subject to tax;
4. Separation pay in case of non-reinstatement of employee due to strained relation
between employer and employee after illegal dismissal, income but not taxable for
cause beyond the control of the employee;
5. Award of moral, exemplary and nominal damages in illegal dismissal cases, are
income but if strictly interpreted, should be subject to tax. In liberal interpretation,
these are exempt due to causes beyond control of employee. However, exemptions
are strictly construed against taxpayer claimant;

TAXABILITY OF CERTAIN TRANSACTIONS:


1. SPECIAL ALLOWANCE OF THE JUDICIARY (SAJ) (withholding taxes) ( RMC 582014)
a. SAJ of judges of equivalent rank of RTC and CA;
b. Special Allowance in an amount equivalent to SAJ not included in number 1;
c. Additional allowance given to judiciary and employees;
2. TAXABILITY OF STOCK OPTION PLANS ( RMC 79-2014)
KINDS:
a. Equity Settlement Option: option to purchase shares of stocks at a specific price and
specific date or period;

JURISTS BAR REVIEW CENTER

21

b. Cash Settlement Option: no actual shares of stocks transferred but a person is given
the right to obtain the difference between the actual FMV and the nominal value of the
shares at a specific date or period;
RULES:
1. If with Employer-employee relationship:
Without payment of price: employer cannot claim as deduction;
*With payment of price: treated as taxable capital gains on the part of
employer;
Subject to DST;
2. Sale, Barter, or Exchange of Option:
Treated as sale, barter, or exchange of stocks untraded thru the local stock
exchange subject to CGT;
If sold, bartered, or exchanged w/o consideration, treated as donation subject to
donors tax;
3. Exercise of the Option by the Employees:
a. Rank and File: Difference between book value/FMV (whichever is higher) at
exercise of option AND price at grant date, is treated as compensation subject to income
tax and withholding taxes;
b. Supervisory/ Managerial Employees: Difference between book value/FMV
(whichever is higher) at exercise of option AND price at grant date, is treated as fringe
benefit subject to FBT;
c. Difference between book value/FMV (whichever is higher) at exercise of option
AND price at grant date, is treated as additional consideration subject to withholding
taxes;
4. If granted not to an employee or a supplier of goods/services: Equity Settlement
Option: difference between book value/FMV (whichever is higher) at exercise of option
AND price at grant date, is treated as donation subject to donors tax;
3. Sale of Jewelry/ Gold/Metallic Minerals to NRANETB/NRFC (RR 5-2013)
a. Subject to Advance payment of business/income taxes and actual payment of excise
tax by those who sell jewelry, gold and other metallic minerals to NRANETB/NRFC who
come to PHILS for short period of time (e.g., as advertised in newspapers);
b. Advance payment to be credited for Sale of Gold:
Income Tax:
5% on gross payment;
VAT (12% on GSP)/% Tax (3% on gross sales)
ExciseTax-2%
c. Advance Payment for Sale of Jewelry:
Income Tax
VAT/% Tax
d. NRANETB/NRFC to maintain records of transactions;
e. Hotels/Venue to report to BIR of buying event;
4. Real Estate Service Practitioners and Other Professionals (RR 10-2013)
CWT: 15% if the gross income for the current year exceeds P720,000; and 10%, if
otherwise, on professional fees, talent fees, etc., for services rendered by individuals
engaged in the practice of profession or callings, such as:
Designers;
Real estate service practitioners (i. e. real estate consultants, real estate
appraisers and real estate brokers) requiring government licensure examination
given by the Real Estate Service pursuant to Republic Act No. 9646;
All other profession requiring government licensure examination regulated by
the Professional Regulations Commission, Supreme Court, etc. xxx ( i.e.
lawyers, doctors, dentists )

JURISTS BAR REVIEW CENTER

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CWT: 10% on gross commissions of


customs;
insurance;
stock;
immigration,
commercial brokers;
agents of professional entertainers;

5. Self-Employed Professionals (RR 4-2014)


TRO against implementation of RR 4-2014:
April, 2014: TRO for lawyers;
June 3, 2014: TRO for doctors;
June, 2014: TRO for accountants;
July, 2014: TRO for dentists;
Requirements on Self-Employed Professionals:
Register and pay the annual registration fee (ARF) with the RDO/LTDO;
Submit an affidavit (rates, manner of billings, and the factors considered in
determining service fees upon registration and every year thereafter on or
before January 31);
Register books of accounts and official appointment books ( names of
clients/date/time) of their practice of profession /occupation/calling;
Register sales invoices and official receipts (VAT or non-VAT) before using them
in any transactions;
For pro-bono cases, issue a BIR registered receipt, duly acknowledged by client
showing a discount of 100% as substantiation of the pro-bono service;
6. WT for Medical Practitioners ( RR 14-2013)
Medical Practitioners include doctors, nurses, medical technologists, allied health services,
dentists, and other practitioners who are not under an employer-employee relationship;
Paid by Hospitals/HMOs to medical practitioners: 15% WT if the income payments
for current year exceeds P 720,000; 10%, if otherwise;
Duty of Hospitals/Clinics/HMOs: withhold all the taxes due;
Hospitals/Clinics/HMOs should not allow practitioners to directly accept payments
from patients who were confined to hospitals. All payments of professional fees are
coursed thru the hospital; Exception:
- If there is proof that no fee was charged and paid by patient;
- Joint sworn declaration by practitioner and patient (forming part of records of
hospital);
- Administrator of hospital informs RDO that practitioner refuses to execute
sworn statement;
Hospitals are required to submit list of practitioners who did not charge any fee from
patients and whose charges are paid by patients directly to hospitals;

Hospital is required to submit to RDO, sworn statement executed by the


president/managing partner of the corporation/company/hospital/clinic as to the
complete and updated list of medical practitioners accredited with them.

7 . TIANGGES or Privilege Stores (RR 16-2013)


Privilege Store Defined:

stall not permanently fixed to the ground;


normally set up in places like shopping malls, hospitals, office buildings, hotels,
villages or subdivisions, churches, parks, streets and other public places;
Purpose is selling a variety of goods/services for short durations of time or
during special events (including festivals, fiestas, etc.);
If any business activity is for a cumulative period of more than fifteen (15) days:
NOT CONSIDERED AS PRIVILEGE STORE and treated as an individual
habitually engaged in t/b should be registered as regular TXs with
invoices/receipts;

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Parties and Obligations:


a. Exhibitor or Organizer:
primary lessee of the entire space where the operations of privilege stores are
held by virtue of a lease contract and who subsequently sub-leases the same to
the privilege store operators;
Obligations:
1. 5% expanded WT on rentals; remitted 10th day of ff month;
2. Keep Books of Accounts and Issue Receipts ( if sales do not exceed P
50,000.00 simplified bookkeeping)
(3). Submit List of Sales within Five (5) Days after the privilege store operation
b. Privilege Store Operator
individual leasing from the lessor/owner or subleasing from the exhibitor
or organizer a space upon which privilege stores are erected;

Obligations:
(1) Deduct EWT (5%) on rental payments;
(2) File ITR (15 April);
(3) Submit Information Statement on Privilege Store Activities.
(4) Keep Books of Accounts and Issue Receipts/Sales or Commercial
Invoices. If less than P 50,000.00 simplified bookkeeping;
(5) Submit List of Sales on Privilege Store Activities to the
Exhibitor/Organizer ( within 5 days from operations);

c. IF NOT CLASSIFIED AS Privilege Stores Operators (Regular Taxpayers):


Obligations:
(1). EWT on Rental Payments to Exhibitor/Organizer for Sub-Leased Spaces or
Lessor/Owner of Leased Property;
(2) Keep Books of Accounts and Issue Receipts/Sales or Commercial Invoices;
(3) File Income, Withholding, Business (Percentage or Value Added) and Other
Tax Returns, and Pay the Correct Amount of Taxes;
(4) File Other Information Returns and include CWT on rentals;
8. Association Dues/HOAs (Villages and Subds) (MC 9-2013)

RA 9904: Income and dues of HOAs are tax exempt provided they are used in
providing for cleanliness, safety, security, and other basic services of members
including maintenance of facilities;
New Rule: Income and dues of HOAs are exempt from income tax, VAT, and %
tax, provided:
(1). HOA is duly constituted as defined under RA 9904;
(2). LGU issues a certificate stating the basic community services and facilities
supplied by HOA and that LGUs lack of resources to provide, such as basic
services which redound to the benefit of all HOA members, ie, security, street
and vicinity lights , maintenance, repairs and cleaning of streets, garbage
collection/disposal;
(3). HOA shows proof that income and dues are used for basic services;
Gratuitous Donations to HOAs (MC 53-2013)
SUBJECT to Donors Tax; NOT SUBJECT to Income Tax;

Onerous Donations in Exchange for Goods, Services or Use or Lease of Properties:


(MC 53-2013)
TREATMENT: charges from activity in exchange for the performance of a
service, use of properties or delivery of an object are SUBJECT to INCOME TAX
and VAT or % TAX;

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9. On-line Stores (MC 55-2013)

Kinds (as to their participating parties):


1. Business to Consumer (B2C): selling goods and services to final
consumers;
2. Consumer to Consumer (C2C); and
3. Business to Business (B2B): job recruitment, online advertising, credit,
sales, market research, technical support, procurement and different types of
training.

Common Types:
1. Online shopping or online retailing sale directly to consumers over the
internet without an intermediary service;
2. Online intermediary service 3rd party that offers intermediation services
between two trading parties receiving commission. Intermediary service provider
(ISP) is a merchandiser/retailer if:
ISP controls such collection of buyers payments, and receives
commission from the merchant/retailer;
ISP markets multiple products for its own account;
3. Online advertisement/classified ads uses internet to deliver marketing
messages to attract customers;
4. Online auction conducted through the internet via an online service
provider; the seller sells the product or service to the person who bids the
highest price.

Requirements:
1. Register the business at the Revenue District Office (RDO);
2. Secure ATP;
3. Register books of accounts;
4. Issue ORs and invoices;

10. Marginal Income Earners ( MC 7-2014)


Marginal Income Earner (MIE) : individual (self-employed without any compensation
income) whose business does not realize gross sales or receipts exceeding P100,000in
any I2-month period;
Activities are principally for subsistence or livelihood, such as but not limited to:

Agricultural
Growers/produce(farmers/fishermen selling directly to consumers);
Small sari-sari stores;
Carinderias;
Drivers/operators of single unit tri-cyle;
Excluding licensed professionals, consultants, artists, sales agents, brokers;

Requirements/Rules:

Registration with BIR (Form 1901);


Sworn Statement of Income for the year;
NSO Certified or local civil registry BC;
Exempt from Annual Registration Fee;
Registration of books of account ( simplified);
Issuance of principal registered receipts;
Filing of ITR and Payment of annual income tax;
Exemption from business taxes;

11. CGT on sale/barter of S of S (Capital Asset) (RR 6-2013)


VALUE of SoS:
Use Adjusted Net Asset Method whereby all assets and liabilities of corp are adjusted to fair
market values. The net of adjusted asset minus the liability values is the indicated value of
the equity;

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VALUE of real property is the HIGHEST OF:


FMV (BIR Commissioner); OR
FMV (Tax Declaration); OR
FMV ( Independent Appraiser).
Determination of value of shares:
Step 1:
FMV of RP is HIGHEST OF:
Step 2:
Step 3:

MV per Tax Declaration


Zonal Valuation
Independent Appraiser
Difference between Book Value and FMV = Adjustment;
Adjusted net value of shares = (value of assets per AFS + adjustment) less
liabilities

12. Payouts of Employee Pension Plans ( RMC 39-2014)

Income of pension plans ( distributed as pension, as stock bonus, or pension) :


all dividends received by employee are subject to income tax;

Payouts representing share of employees: not taxable- just a return of capital;

13. Reminders for 09 May 2016 Elections (RMC 30-2016)

Candidates/political parties including party list groups: required to register with BIR,
issue ORs and withhold taxes;
POLITICAL PARTY: Register with RDO having jurisdiction over head office or
principal office;
INDIVIDUAL CANDIDATES: Register/update registration with RDO where principal
residence is located;
Registration of individual candidates automatically ends 30 days after election;
Political parties subsists;
Register Books of Accounts with RDO;
All parties/Candidates are required to issue ORs in duplicate for every contribution
received (cash/in kind);
Contributions in kind are valued at their cash equivalent or FMV;
All
candidates
(parties/individuals)
required
to
preserve
records
of
contributions/expenditures for at least 5 yrs after election for production to BIR
inspection;

INCOME TAX (IT) TREATMENT OF CAMPAIGN CONTRIBUTIONS:


Not part of GI;
NOT SUBJECT TO IT ( these are not given for personal expenditure/enrichment but
for utilization in campaigns);
FULLY UTILIZED: NOT INCOME; NOT SUBJECT TO IT;
NOT FULLY UTILIZED: Excess is subject to IT and included in the ITR for 2016;
Failure to file Statement of Expenditures with COMELEC: candidate not allowed to
claim as expenses from campaign contributions and entire amount subject to IT;
DONORS TAX (DT) TREATMENT:
Fully utilized campaign contributions during the campaign period only: exempt from
DT and fully deductible as political contributions on the part of donor;
Donations utilized before/after campaign period: subject to DT, not deductible as
political contributions on the part of donor;
Donations made by CORP in violation of Sec 39 of Corp Code ( no corporation,

domestic or foreign, shall give donations in aid of any political party or candidate or
for purposes of partisan political activity);

SUBJECT TO DT AND NOT DEDUCTIBLE AS POLITICAL CAMPAIGN CONTRIBUTIONS


ON THE PART OF DONOR CORP;

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ITR Requirements for Candidates:

If self-employed: declare unutilized/excess/unreported funds in the Q of June 2016


and not later than 15 Aug 2016 using 1701Q;
If purely compensation income: declare in 1700 for 2016 not later than 15 Apr 2017;
If candidate is neither self-employed nor compensation earner: file short period
return for the period Jan 2016 to 09 May 2016 using 1700 form and not later than
15 Aug 2016;
Political Parties: declare as ordinary DC for the 2Q not later than 29 Aug 2016;

14. Taxability of Monthly Provisional Allowance and Officers Allowance ( RMC


19-2016)

Subject to Income Tax;


Section 3 of RA 9040 does not include this benefit from the list of exempted items from
IT, thus, taxable;

DEDUCTIONS FROM GROSS INCOME


Itemized Deductions (Sec. 34 NIRC)
Take note that Sec. 34 pertains only to items related to the trade/business of the taxpayer.
Requisites of Deductibility of Items under Section 34 of the Tax Code:
(1). Necessary in Trade or Business of the taxpayer;
(2). Actually paid or incurred;
(3). Reasonable in amount; and
(4). Supported by documents.
The following are not allowed to claim any kind of deduction:
1. Taxpayers or income subject to Gross Income Tax (GIT)
2. Income subject to Final Withholding Tax
Comparison between OSD in income taxation and SD for estate taxation:
Optional Standard deduction
OSD is in lieu of other deductions from
gross income.
40% of gross income may be deducted

Standard deduction in estate tax


Standard Deduction is in addition to
other deductions from the gross estate
Maximum amount of P 1M may be
deducted

SUMMARY OF ALLOWABLE DEDUCTIONS:


(1). Individual earning purely compensation income:
(a) personal exemptions (PE),
(b). additional exemptions (AE) , and
. premium on health and hospitalization insurance (PHHI)
(2). Individual engaged in trade or business:
PE, AE, PHHI, plus Itemized deductions under Section 34; OR
PE, AE, plus Optional Standard deduction (OSD)

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Notes:
a. Individuals who are non-resident aliens not engaged in trade or business are not
allowed deductions as they are subject to Gross Income Tax.
b. Non-resident aliens engaged in trade or business are allowed personal exemptions
subject to reciprocity rule.
c. All kinds of individual taxpayers are not allowed to claim for deductions on income
which are subject to final withholding taxes such as passive income, capital gains on sale
of shares of stocks and real property;
(3). Corporate taxpayers
Itemized deductions under Section 34 OR OSD.
Non-resident foreign corporations which are subject to gross income tax are not allowed
to claim any deduction.
Income of all kinds of corporate taxpayers which are subject to final withholding taxes
such as passive income, capital gains on sale of shares of stocks and real property, are
not subject to deductions.

DEDUCTIONS: Section 34, 35, & 36, NIRC


(A). BUSINESS EXPENSES:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Illegal expenses are not deductible whether business is legal or illegal;


Legitimate expenses whether business is legal or illegal are deductible;
Capital expenditures are not deductible.
Ordinary means commonly incurred, necessary means appropriate and helpful to the
taxpayer or intended to realize profit or to minimize loss;
Rentals on lease of property provided taxpayer does not acquire interest other than as a
mere possessor, thus rentals on lease to own scheme are not deductible as they are
capital expenditures already;
Real estate tax on the property leased and shouldered by the lessee is deductible
expense on the part of the lessee BUT treated as taxable income on the part of the
lessor;
Cost of improvements introduced by lessee in an ordinary asset are not deductible
expense on the part of the lessee as these are capital investment on his part but maybe
depreciated by the lessee;
Travel and transportation expenses or expenses while away from home incurred by
employers and given to employees pursuant or trade or business when necessary and
reasonable;
Advertising expenses designed to stimulate the current sale of merchandise or use of
services are deductible business expenses;

Examples of non-deductible business expenses:


1. compensation to public relations firm for services rendered in carrying on campaign to
sell additional capital stock;
2. expenses relating to recapitalization and reorganization of corporation;
3. promotion or marketing expenses which are tantamount to purchase of goodwill;
4. bribes and kickbacks;
5. expenses for major repairs are not deductible but expenses for minor repairs are
deductible;
6. personal and living expenses of the taxpayer as they are already allowed to claim for
personal and additional exemptions;
7. advertising expenses/marketing expenses designed to stimulate the future sale of
merchandise or use of services as these are already considered as capital outlay;

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Tax Benefit Rule: applies to


(1). Taxes claimed and allowed as deductions from gross income when refunded or credited,
shall be included as part of gross income in the year of receipt to the extent of the income tax
benefit of said deduction;
(2). Bad debts claimed and allowed as deductions from gross income deducted but subsequently
paid or recovered;
(3). Casualty losses deducted as such but later recovered;

(B). Taxes as deduction: ( income and estate tax)


Income Tax

Estate Tax

Only taxes previously paid may be


deducted (unpaid taxes can never be
deducted)
The taxes must be in connection with
taxpayers trade/business

Taxes which remain unpaid and


accruing until the time of death may be
deducted from the gross estate
The taxes need not be in connection
with decedents trade or business

. Bad Debts/Interest on Loans: ( income and estate tax)


Facts: X borrowed P100,000 from Y with 10% interest per annum. Total amount due is
P110,000.
1. X paid Y P110 000.
Is it income on the part of Y? Only the 10% interest is income and taxable.
Can X deduct the 10% as interest on loan? Yes, provided that the loan was in relation to
Xs trade or business and subject further to the 33% limitation of the interest earnings of
the said debtor;
2. X was not able to pay Y
Tax consequence: Y may declare the P110,000 as bad debt. It will be deductible if: (1) Y
is engaged in trade/business and (2) the amount of bad debt is in relation to his trade or
business. There are no tax consequences on X.
NOTE: There can be no deduction if X and Y are related to each other under
Sec. 36(B), NIRC.
3. If X dies before paying his debt
Tax consequences: Y will have to file a claim during settlement of Xs estate. It will be
considered as a claim against the estate (CAE) and the entire amount may be deducted
from the estate whether or not the loan is in connection with Xs trade or business.

If the estate subsequently pays Y, is it income on his part? Only the interest is
income and taxable.
What if prior to Xs death, Y claimed the debt as a deduction (bad debt) and during
the settlement of the estate, the court ordered that Y be paid the amount of the
loan + interest? Apply the tax benefit rule.

4. If Y dies before X pays the debt.


Tax consequences:
a. The estate of Y should include the debt as part of Ys gross estate (a debt is an
intangible personal property, hence should be included in the gross estate as
provided under Section 85 of the NIRC)
b. The debt is an allowable deduction from the gross estate of Y as a claim against an
insolvent person (CAIP)

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If the estate of Y is allowed to deduct and X subsequently pays the debt + interest, the
tax benefit rule cannot be applied. The payment will form part of the income of the
estate subject to Net Income Tax. Remember that the estate is considered as a
taxpayer.
(D). Casualty Loss: (income and estate tax)
The property lost (1) must not be compensated by insurance and (2) must be lost due to
theft, robbery, embezzlement or other natural calamity . The loss is characterized by
suddenness;
LOSSES IN INCOME TAX
Property lost must be in relation to
trade/business of taxpayer
The loss must occur during the taxable
period

LOSSES IN ESTATE TAX


The property lost may or may not be in
relation to trade/ business of deceased
The loss may occur until 6 months after
death

NOTE: If the loss of property is previously deducted for income tax purposes, it
cannot be deducted for estate tax purposes.
(E). DEPRECIATION
Depreciation is allowed only for taxpayers engaged in trade or business . Depreciation period for
personal properties is five (5) years while the period for real properties ranges from 15 to 25
years depending on the economic or useful life of the asset.
Rules:
(1). A taxpayer who is purely earning purely compensation income is not allowed to claim
depreciation as a deduction;
(2). In case a taxpayer purchases an asset used in his trade or business, he is not entitled to
claim the amount as deductible business expense considering that the same is a capital
expenditure, but the taxpayer is allowed to claim depreciation of the asset as a deduction;
(3). Under a Build Operate Transfer agreement, the builder is allowed to depreciate the asset until
the time of transfer and after transfer, the transferee can also claim depreciation of the asset
based on the FMV of the property at the time of acquisition;
(4). Under a lease agreement with provision that all permanent improvements shall accrue to the
lessor upon end of lease contract, the lessee who is engaged in t/b can claim depreciation of the
improvements while the lessor can claim depreciation of the leased property excluding the
improvements;
(5). Under a lease to own contract, the lessee who introduces the improvements shall have the
right to claim depreciation of the improvements only while the lessor claims depreciation of the
leased property only. The lessee cannot claim rentals for the lease as deductible business
expenses because he acquires interest other than as a mere possessor of the property; Upon
expiration of the contract, the lessee owns the property in full and lessor loses all rights over the
property;
(F). PREMIUM ON HEALTH AND HOSPITALIZATION INSURANCE (PHHI)
This deduction is allowed to both taxpayers who are engaged in trade or business and those who
are not engaged in trade or business in the amount of P 2,400.00 per family provide that the
gross annual income does not exceed P 250,000.00.
(G). RESEARCH AND DEVELOPMENT
Expenses for research and development to be deductible from the gross income are limited to
those which are related to the trade and business of the taxpayer.

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(H). PERSONAL EXEMPTIONS/ADDITIONAL EXEMPTIONS


1. Individual taxpayers regardless of status are entitled to P50,000 personal exemption. Additional
exemption is at P 25,000.00 per child. Dependent pertains to a child of whatever kind and status,
not more than 21 years of age, not married, not gainfully employed, chiefly dependent and living
with the taxpayer, and regardless of age, if incapable of self-support by reason of physical or
mental defect.
2. The husband shall be the proper claimant of the additional exemption for qualified dependent
children unless he explicitly waives his right in favor of his wife in the Application for Registration
(BIR Form No. 1902) or in the Certificate of Update of Exemption and of Employers and
Employees Information (BIR Form No. 2305), whichever is applicable . Provided, however, that
where the spouse of the employee is unemployed or is a non-resident citizen deriving income
from foreign sources, the employed spouse within the Philippines shall be automatically entitled to
claim the additional exemptions for children.
3. Personal Exemption Allowable to Nonresident Alien Individual. - A nonresident alien
individual engaged in trade, business or in the exercise of a profession in the Philippines shall be
entitled to a personal exemption in the amount equal to the exemptions allowed in the
income tax law in the country of which he is a subject - or citizen, to citizens of the Philippines
not residing in such country, not to exceed the amount fixed in this Section as exemption for
citizens or resident of the Philippines: Provided, That said nonresident alien should file a true and
accurate return of the total income received by him from all sources in the Philippines, as
required by this Title.
4. For purposes of Additional Exemption, a PWD ( required to be a child of claiming parent) and
Foster Child ( as far as the foster parent is concerned) may qualify as dependent, subject
to the maximum of four dependents rule. Senior citizens are not qualified as dependents.
5. The additional exemption for dependent shall be claimed by only one of the spouses in the
case of married individuals.
6. In the case of legally separated spouses, additional exemptions may be claimed only by the
spouse who has custody of the child or children: Provided, That the total amount of additional
exemptions that may be claimed by both shall not exceed the maximum additional exemptions
herein allowed.
7. "Dependent" means a legitimate, illegitimate or legally adopted child chiefly dependent
upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of
age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable
of self-support because of mental or physical defect.
8. Change of Status:
If the taxpayer marries or should have additional dependent(s) as defined above
during the taxable year, the taxpayer may claim the corresponding additional
exemption, as the case may be, in full for such year.
If the taxpayer dies during the taxable year, his estate may still claim the personal and
additional exemptions for himself and his dependent(s) as if he died at the close of
such year.
If the spouse or any of the dependents dies or if any of such dependents marries,
becomes twenty-one (21) years old or becomes gainfully employed during the taxable
year, the taxpayer may still claim the same exemptions as if the spouse or any of the
dependents died, or as if such dependents married, became twenty-one (21) years old
or became gainfully employed at the close of such year.
(I). Items Not Deductible. -

General Rule. - In computing net income, no deduction shall in any case be allowed in respect
to -

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(1) Personal, living or family expenses;


(2) Any amount paid out for new buildings or for permanent improvements, or
betterments made to increase the value of any property or estate; This Subsection shall
not apply to intangible drilling and development costs incurred in petroleum operations
which are deductible under Subsection (G) (1) of Section 34 of the Code.
(3) Any amount expended in restoring property or in making good the exhaustion
thereof for which an allowance is or has been made; or
(4) Premiums paid on any life insurance policy covering the life of any officer or
employee, or of any person financially interested in any trade or business carried on by
the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a
beneficiary under such policy.

Losses from Sales or Exchanges of Property.


In computing net income, no deductions shall in any case be allowed in respect of losses
from sales or exchanges of property directly or indirectly
(1) Between members of a family. For purposes of this paragraph, the family of an
individual shall include only his brothers and sisters (whether by the whole or halfblood), spouse, ancestors, and lineal descendants; or
(2) Except in the case of distributions in liquidation, between an individual and
corporation more than fifty percent (50%) in value of the outstanding stock of which is
owned, directly or indirectly, by or for such individual; or
(3) Except in the case of distributions in liquidation, between two corporations more
than fifty percent (50%) in value of the outstanding stock of which is owned, directly or
indirectly, by or for the same individual if either one of such corporations, with respect to
the taxable year of the corporation preceding the date of the sale of exchange was
under the law applicable to such taxable year, a personal holding company or a foreign
personal holding company;
(4) Between the grantor and a fiduciary of any trust; or
(5) Between the fiduciary of and the fiduciary of a trust and the fiduciary of another
trust if the same person is a grantor with respect to each trust; or
(6) Between a fiduciary of a trust and beneficiary of such trust.
(J). RECOGNITION OF GAINS/LOSSES IN EXCHANGES OF PROPERTY
RULES:
(1). All gains and losses realized or incurred in exchanges of ordinary and capital assets are
RECOGNIZED;
(2). In exchanges of capital assets with gains, the gains are not immediately included in the
gross income but first charged against losses sustained in exchanges of capital assets. In
recognizing the gains/losses, the taxpayer may apply the concept of holding period ( if held for
more than one year- g/l recognized at 50%; if held for less than one year g/l recognized at
50%); The holding period does not apply to a corporate taxpayer, thus, all gains/losses are
recognized at 100%;
(3). After charging the gains against the losses and the taxpayer realizes Net capital gains, the
same shall be included in the gross income of the taxpayer. After charging the gains against the
losses and the taxpayer realizes net capital loss, then a taxpayer, other than a corporation, is
allowed to carry over the same for three succeeding years (NCLCO);
(4). In exchanges of ordinary assets with gains, the gains are not immediately included in the
gross income of the taxpayer but first charged against losses sustained in exchanges of ordinary
assets. Holding period does not apply. After charging the gains versus the losses, if taxpayer

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realizes net ordinary gains, include the same in the gross income but if the taxpayer realizes net
ordinary losses, no carry over will be allowed;
(5). Rule Nos. 1 to 4, are not applied in the following instances: (NO GAINS/ NO LOSS
RECOGNIZED)
(a). In case of valid merger and consolidation;
(b). In case a stockholder exchanges property for stocks in a corp wherein he, together
with three others, acquires control over the corporation;
. In wash sales of shares of stocks wherein the taxpayer sells shares of stocks wherein
he realized gains, gains are always recognized but in case of loss sustained and 30 days
prior to sale or 30 days after the sale, he acquires similar shares of stocks as the ones
disposed of and for which sustained losses, ALL LOSSES WILL NOT RECOGNIZED;
(d). In sale of shares of stocks (capital in character), not traded thru local stock
exchange, gains are always subject to either 5% or 10% FWT. If traded, gains or loss,
the tax is % tax under Section 127 of the NIRC;
(e). In sale of real property located in the Philippines (capital in character), whether
gains or loss, the taxpayer shall be subject to 6% CGT which is in the nature of FWT.
(K). COMPARISON BETWEEN NET CAPITAL LOSS CARRY OVER (NCLCO) AND NET
OPERATING LOSS CARRY OVER ( NOLCO)
Rules:
(1). NOLCO refers to net operating loss carry over which is applicable only to a corporate
taxpayer. If a corporate taxpayer has more deductions than gross income, the corporation
sustains net operating losses which maybe carried over to the succeeding year only.
Consequently, if during the succeeding year, the taxpayer realized taxable net income, this maybe
reduced by the net operating loss carried over from the previous year;
(2). NCLCO refers to net capital loss carry over which is applicable only to individual taxpayers.
This results from exchanges of capital assets wherein gains and losses have been recognized such
that during the taxable period, after charging all capital losses from the capital gains, the taxpayer
may either realize net capital gains (included in the gross income therefore taxable) OR net
capital loss ( which maybe carried over for the succeeding 3 years);
(3). NOLCO pertains to expenses and deductions from gross income while NCLCO pertains to
exchanges of capital assets;
(L). COMPARISON OF INCOME TAX, ESTATE TAX AND DONORS TAX IN THE
TREATMENT OF CAPITAL AND ORDINARY ASSETS [Please refer to Secs. 100, 85(B)
and 24(D), NIRC]
Transfers for Insufficient Consideration:
Example:

X has the following real properties all valued at P 3M each.


Within the Philippines:

House and Lot


Parlor

In the United States:

Vacation house
Parlor

Tax consequences if each real property was sold at P50,000:


Sale of House and Lot in Phils. - subject to CGT on sale of real property (6%) since it is
a capital asset and CGT is tax on the presumed gains realized from the sale
Sale of Parlor located in the Phils. - subject to donors tax or estate tax and not NIT
since there is no income derived from the sale
Sale of Vacation house in the US - donors tax or estate tax is imposed on the difference
between the fair market value of P3M and the consideration of P 50,000
Sale of parlor in the US - donors tax or estate tax is imposed on the difference between
the fair market value of P 3M and the consideration of P 50,000

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However, if the seller/taxpayer is a non-resident citizen or an alien, the sale of real


property outside the Philippines for insufficient consideration is not subject to NIT. The
same shall, however, will be subject to donors or estate tax taxable in the case of a
non-resident citizen and a resident alien;
Example:

X has the following personal properties all valued at P1M each.


Within the Philippines: Car for personal use
Car used for the parlor in the Phils.
In the United States:

Car for personal use when on vacation abroad


Car used for the parlor in the US

Tax consequence if each was sold at P50,000 - all will be subject to donors tax
When property other than real property provided under Section 24(B) NIRC is transferred for
insufficient consideration, the difference between the consideration and the fair market value
at the time of transfer shall be considered as a donation subject to donors tax (Section 100)
or estate tax (Sectioon 85g).
If the seller is a Non-Resident Alien at the time of transfer for insufficient consideration, only
the property in the Philippines is taxable.

All kinds of donors except NRA are taxable for donations of property within and outside the
Philippines.
Rules on determining taxability:

INCOME TAX (source of income determines taxability)


Taxable
Income
Income within
the Phils.
Income
outside the
Phils.

RC

NRC

NA

NRA

ESTATE AND DONORS TAX (location of the property determines taxability)

Located
within the
Phils.
Located
outside the
Phils.

RC

NRC

NA

NRA

Transfers of property not subject to estate tax: (Section 87, NIRC)


(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary heir;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary,
in accordance with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which insures to the benefit of any
individual: Provided, however, That not more than thirty percent (30%) of the
said bequests, devises, legacies or transfers shall be used by such institutions
for administration purposes;

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Sale of Shares of Stocks:


Tax treatment if shares of stocks outside the Philippines are sold cheap and seller is
NRA, do we impose CGT on shares of stocks outside the Philippines? Unfortunately, that
is missing in the law.
Correlation with Sec. 85(B) NIRC:
If the transfer for insufficient consideration is at the same time in contemplation of death
in the nature of a revocable transfer, or property passing under a general power of
attorney, CGT and donors tax are not imposed. We impose estate tax.
Please take note that the transfer occurs during the lifetime of the transferor.

What happens if the donors tax has been paid and transferor dies later on?
The payment shall be treated as part of the estate.
Upon death, if it is determined that the property was transferred for insufficient
consideration and in contemplation of death, it shall be subject to estate tax.

Situs of Tax on Intangible Personal Property (from point of view of income, estate
and donors taxes)

Income Tax:
General Rule: Mobilia sequuntur personam (movables follow the person)
Exceptions:

1.

Wells Fargo Bank v. CIR (70 Phil. 325) shares of stock are also
taxable in the situs of their actual location;
2. When the law itself provides for a different situs Example: Section
104, NIRC for estate and donors tax purposes;

VALUE ADDED TAX


(A). Transactions covered by Value Added Tax (VAT):
(1). Each sale of goods in the course of trade or business;
(2). Each sale of service in the course of trade or business;
(3). Each importation of goods whether or not in the course of trade or business.
In VAT, real property is considered as goods. IN case of rendition of service not
pursuant to employer-employee relationship, the same shall be covered by VAT.
(B). Transactions deemed sale in VAT:
There is no actual sale of goods but the law considers the goods sold, thus, subject to VAT,
such as:
(1). Transfer, use or consumption not in the course of trade or business of goods or
properties originally intended for sale or use in the course of trade or business;
(2). Distribution or transfer to shareholders or investors as share in the profits of Vat
registered person or to creditors in payment of debt;
(3).Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods were consigned; and
(4). Retirement from or cessation of business with respect to inventories of taxable goods
existing as of the time of retirement or cessation;
. How does VAT work?
Output Tax less Input Tax is equal TO VAT PAYABLE. IN CASE INPUT TAX IS MORE
THAN THE OUTPUT TAX, TAX CREDIT OR REFUND IS THE AVAILABLE REMEDY FOR THE
TAXPAYER.

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Output tax is the value added tax paid on sales of a vat registered person or entity while
input tax is the value added tax on trade and business related purchases of the taxpayer.
(D). Rates of VAT:
(1). 12% of the gross sales (sale of goods)/ gross receipts ( sale of service)/ amount fixed
by the Bureau of Customs to include excise and % taxes (for importation);
(2). Zero Rate; and
(3). Exempt Transactions.
(E). Distinctions between 0% and exempt transactions:
(1). 0% rated transactions are not subject to VAT at all stages while exempt transactions
are not subject to VAT only at a particular stage;
(2). In 0% rated transactions, the input tax attributable to the said transaction is allowed
to be credited against the output tax while in exempt transactions, the input tax is not
allowed to be credited against the output tax.
(F) ADMINISTRATIVE CLAIM FOR REFUND OF VAT ( Section 112 of NIRC) (MC 542014)

2:120:30 (VIP Periods)

Administrative claim for refund of Input VAT on zero rated transactions must be filed two
(2) years from close of taxable quarter when sale is made;

BIR next decides within 120 days from receipt of claim for refund; If not acted upon by
BIR, deemed DENIED;

Without a decision or an inaction xxx deemed a denial of the CIR within the 120
day period, the CTA has no jurisdiction over a petition for review. (CIR vs. San Roque

Power Corporation;Taganito Mining Corporation vs. CIR; Philex Mining


Corporation vs. CIR; G.R. No. 187485/G.R. No. 196113/G.R. No. 197156.
February 12, 2013);

After receipt of decision issued by the BIR denying the claim for refund OR in case of
non-action by the BIR, the TX may, within THIRTY (30) DAYS from receipt of t he actual
decision or THIRTY (30) DAYS from expiration of the 120 day period, go to CTA Division
for appeal;

The 30-day period provided for under Section 112 (C) of the National Internal Revenue
Code (NIRC) within which to appeal the decision of the Commissioner of Internal
Revenue (CIR) to the Court of Tax Appeals (CTA) need not necessarily fall within the
two-year prescriptive period;

REMEDIES UNDER THE NIRC


TAX RETURN - a subscribed and sworn statement filed by the taxpayer containing relevant and
material information. All taxes under the NIRC are in the nature of self-assessed
taxes:
Information required in a tax return: (examples)
Name, address and TIN of taxpayer
For INCOME TAX: source of income and deductions allowed
For ESTATE TAX: list of properties in the estate and the deductions allowed

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If the taxpayer falsifies or forges an entry or files a return fraudulently or in bad faith, he
will be criminally liable for PERJURY or FALSIFICATION as the circumstances may apply PLUS
DEFICIENCY TAXES.
In case of individuals engaged in trade or business, audited financial statements by a CPA are
necessary to support the return;

There is no return filed by the TX who was subjected to final withholding tax, but the
withholding agent must file the WT return;
In case of CGT, a return is filed 30 days after each transaction

RULES ON RETURNS OF INDIVIDUALS:


INDIVIDUAL TX REQUIRED TO FILE RETURNS:
(a) Every Filipino citizen residing in the Philippines;
(b) Every Filipino citizen residing outside the Philippines, on his income from sources
within the Philippines;
(c) Every alien residing in the Philippines, on income derived from sources within the
Philippines; and
(d) Every nonresident alien engaged in trade or business or in the exercise of profession
in the Philippines.
INDIVIDUAL TX NOT REQUIRED TO FILE RETURNS:
(a) An individual whose gross income does not exceed his total personal and additional
exemptions for dependents under Section 35: Provided, That a citizen of the Philippines
and any alien individual engaged in business or practice of profession within the
Philippine shall file an income tax return, regardless of the amount of gross income;
(b) An individual with respect to pure compensation income, as defined in Section 32
(A)(1), derived from sources within the Philippines, the income tax on which has been
correctly withheld under the provisions of Section 79 of this Code: Provided, That an
individual deriving compensation concurrently from two or more employers at any time
during the taxable year shall file an income tax return: Provided, further, That an
individual whose compensation income derived from sources within the Philippines
exceeds Sixty thousand pesos (P60,000) shall also file an income tax return;
(c) An individual whose sole income has been subjected to final withholding tax pursuant
to Section 57(A) of this Code; and
(d) An individual who is exempt from income tax pursuant to the provisions of this Code
and other laws, general or special.
NOTE: The foregoing notwithstanding, any individual not required to file an income tax
return may nevertheless be required to file an information return pursuant to rules and
regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.
INCOME COVERED BY THE RETURNS:
The income tax return shall be filed in duplicate by the following persons:
(a) A resident citizen - on his income from all sources;
(b) A nonresident citizen - on his income derived from sources within the Philippines;
(c) A resident alien - on his income derived from sources within the Philippines; and
(d) A nonresident alien engaged in trade or business in the Philippines - on his income
derived from sources within the Philippines.
Where to File?
Except in cases where the Commissioner otherwise permits, the return shall be filed with
an authorized agent bank, Revenue District Officer, Collection Agent or duly authorized

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Treasurer of the city or municipality in which such person has his legal residence or
principal place of business in the Philippines, or if there be no legal residence or place of
business in the Philippines, with the Office of the Commissioner.
When to File?
(1) The return of any individual specified above shall be filed on or before the fifteenth
(15th) day of April of each year covering income for the preceding taxable year.
(2) Individuals subject to tax on capital gains;
(a) From the sale or exchange of shares of stock not traded thru a local stock exchange
as prescribed under Section 24(c) shall file a return within thirty (30) days after each
transaction and a final consolidated return on or before April 15 of each year covering all
stock transactions of the preceding taxable year; and
(b). From the sale or disposition of real property under Section 24(D) shall file a return
within thirty (30) days following each sale or other disposition.
Husband and Wife:
Married individuals, whether citizens, resident or nonresident aliens, who do not derive income
purely from compensation, shall file a return for the taxable year to include the income of both
spouses, but where it is impracticable for the spouses to file one return, each spouse may file a
separate return of income but the returns so filed shall be consolidated by the Bureau for
purposes of verification for the taxable year.
Return of Parent to Include Income of Children:
The income of unmarried minors derived from properly received from a living parent shall be
included in the return of the parent, except (1) when the donor's tax has been paid on such
property, or (2) when the transfer of such property is exempt from donor's tax.
Persons Under Disability:
If the taxpayer is unable to make his own return, the return may be made by his duly authorized
agent or representative or by the guardian or other person charged with the care of his person
or property, the principal and his representative or guardian assuming the responsibility of
making the return and incurring penalties provided for erroneous, false or fraudulent returns.
Signature Presumed Correct:
The fact that an individual's name is signed to a filed return shall be prima facie evidence for all
purposes that the return was actually signed by him.

RULES ON CORPORATE RETURNS:


Requirements:
Every corporation subject to the tax herein imposed, except foreign corporations not engaged in
trade or business in the Philippines, shall render, in duplicate, a true and accurate quarterly
income tax return and final or adjustment return in accordance with the provisions of Chapter
XII of this Title. The return shall be filed by the president, vice-president or other principal
officer, and shall be sworn to by such officer and by the treasurer or assistant treasurer.
Taxable Year of Corporation:
A corporation may employ either calendar year or fiscal year as a basis for filing its annual
income tax return: Provided, That the corporation shall not change the accounting period
employed without prior approval from the Commissioner;

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Return of Corporation Contemplating Dissolution or Reorganization:


Every corporation shall, within thirty (30) days after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part of its capital
stock, including a corporation which has been notified of possible involuntary dissolution by the
Securities and Exchange Commission, or for its reorganization, render a correct return to the
Commissioner, verified under oath, setting forth the terms of such resolution or plan and such
other information as the Secretary of Finance, upon recommendation of the commissioner, shall,
by rules and regulations, prescribe.
The dissolving or reorganizing corporation shall, prior to the issuance by the Securities and
Exchange Commission of the Certificate of Dissolution or Reorganization, as may be defined by
rules and regulations prescribed by the Secretary of Finance, upon recommendation of the
Commissioner, secure a certificate of tax clearance from the Bureau of Internal Revenue which
certificate shall be submitted to the Securities and Exchange Commission.
Return on Capital Gains Realized from Sale of Shares of Stock not Traded in the Local
Stock Exchange:
Every corporation deriving capital gains from the sale or exchange of shares of stock not traded
thru a local stock exchange as prescribed under Sections 24 (c), 25 (A)(3), 27 (E)(2), 28(A)(8)(c)
and 28 (B)(5)(c), shall file a return within thirty (30) days after each transactions and a final
consolidated return of all transactions during the taxable year on or before the fifteenth (15th)
day of the fourth (4th) month following the close of the taxable year.
Extension of Time to File Returns:
The Commissioner may, in meritorious cases, grant a reasonable extension of time for filing
returns of income (or final and adjustment returns in case of corporations), subject to the
provisions of Section 56 of this Code.
Returns of General Professional Partnerships:
Every general professional partnership shall file, in duplicate, a return of its income, except
income exempt under Section 32 (B) of this Title, setting forth the items of gross income and of
deductions allowed by this Title, and the names, Taxpayer Identification Numbers (TIN),
addresses and shares of each of the partners.
Kinds
1.
2.
3.

of filing of return:
filing in good faith
filing in bad faith (fraudulent filing)
non-filing

SUBSTITUTED FILING applies to a compensation income earner who:


1. is employed only by one employer
2. there is no other form of income but compensation
3. not received any investigation prior to said substituted filing
There are only 2 parties in tax remedies: the TAXPAYER and BIR
A return may be amended within 3 years from the date of filing of the original return

provided that no notice of investigation has ACTUALLY been received by the


taxpayer;

Sec. 5 to 15 NIRC provide for powers of BIR to determine whether or not the entries in the
return are true and correct. When BIR exercises any or all the powers in Sec. 5-15 NIRC and
has negative findings, an investigation will be conducted. A Letter of Authority shall first be
issued, then by a preliminary assessment notice, and eventually a Final Assessment Notice
will be issued.

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Preliminary Assessment Notice - is a form of informal conference with the taxpayer and
allows the BIR to open his books of account. The taxpayers refusal to open books of
account will cause the BIR to issue a jeopardy assessment. Final Assessment Notice is later
issued;
No Preliminary Assessment Notice (PAN) is required (Sec. 228, NIRC):
1. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
2. When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable yr; or
4. When the excise tax due on excisable articles has not been paid; or
5. When an article locally purchased or imported by an exempt person, such as, not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
FINAL ASSESSMENT NOTICE (FAN) assessment for deficiency tax

DATE OF FILING
PRESCRIPTIVE PERIOD
1. Filed on due date

3 years from due date

2. Filed before due date

3 years from due date

3. Fled beyond due date

3 years from actual filing

4. Fraudulent filing

10 yes from discovery of bad


faith/fraud
10 years from discovery of non-filing

5. Non-filing

6. WAIVER BY TX: Depends on the agreement of the parties provided that the
agreement to extend is executed prior to expiration of the original period of
assessment;
Guidelines for Execution of Waivers (RMO 14-2016)

Since the TX is the applicant and the executor of the extension of the period of
limitation for its benefit in order to submit the required documents and accounting
records, the TX is charged with the burden of ensuring that the waivers of statute
of limitation are validly executed by its authorized representative;
The authority of the TX representative who participated in the conduct of audit or
investigation shall not be thereafter contested to invalidate the waiver;
The waiver may or may not be notarized. It is sufficient that the waiver is in writing;
Considering that the waiver is a voluntary act of TX, the waiver shall take legal
effect and be binding on the taxpayer upon its execution thereof;
TXs duty to submit waiver to the CIR or officials previously designated in existing
issuances or the concerned revenue district officer or group supervisor as
designated in the Letter Of Authority/Memorandum of Assignment who shall then
indicate acceptance by signing the same.
Waiver shall be executed and duly accepted prior to the expiration of the period to
assess or to collect.
TX has the duty to retain a copy of the accepted waiver.
Two (2) material dates that need to be present on the waiver:
a) The date of execution of the waiver by the taxpayer or its authorized

JURISTS BAR REVIEW CENTER

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representative; and
b) The expiry date of the period the taxpayer waives the statute of limitations
Before the expiration of the period set on the previously executed waiver, the
period earlier set may be extended by subsequent written waiver;

Due Dates for filing of Return:

Income Tax

Individuals:
Corporate taxpayer:

Estate Tax 6 months from death

April 15th of the following year


3 quarterly returns on a cumulative basis - 60 days from
the end of the quarter
1 final consolidated return filed on:
- Calendar year: April 15th
- Fiscal year: 15th day of the 4th month following close
of fiscal year

Donors Tax - 30 days from the donation reckoned from the date of document
VAT 3 quarterly returns plus 1 final consolidated return but with monthly remittances on
or before the 10th day of the month covering the transactions for the previous month.
GROUNDS FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF ASSESSMENT
1. Taxpayer requests for reinvestigation which is granted by the Commissioner
2. Taxpayer cannot be located in the address given by him in the return filed upon which a
tax is being assessed or collected
3. When the warrant of distraint or levy is duly served upon the taxpayer and no property
could be located
4. When the taxpayer is out of the Philippines

The date of issuance AND receipt of


determining prescriptive period.

notice of assessment is important in

Non-filing v. Late Filing


If the filing of return is beyond the taxable year, it is equivalent to non-filing
If the filing is made within the taxable year but beyond the due date, it is late

filing

FINAL ASSESSMENT NOTICE:


The taxpayer must file an administrative protest within 30 days from receipt of final
assessment (non-extendible);

It need not be in the form of a pleading and may be a letter for reinvestigation,
re-computation or motion for reconsideration
If the taxpayer files beyond the 30-day period, it is automatically denied
If the last day of filing falls on a Saturday, the next business day shall be
considered as the last day

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2 KINDS OF PROTEST
1. Complete the protest includes all necessary documents
2. Incomplete the documents may be completed within a period of time as maybe
required by the BIR which period shall not exceed 60 days;
The protest may result to:
GRANT end of the process
DENIAL
the decision may be appealed

to CTA Division 30 days from


receipt of the same

PARTIAL GRANT/DENIAL
NON-ACTION WITHIN 180 DAYS FROM FILING
Appeal may be taken at any time from the 181 st to the 210th day (30 days from
lapse of 180-day period)
In case of an incomplete protest, the 180-day period will start to run on the day the required
documents are completed (actual receipt of documents by the BIR)

If the taxpayer refuses to submit the documents, the 180-day period will not run
If submission of complete documents is made beyond the given period, the 180-day
rule will still apply provided that the BIR recognizes the late submission

If BIR issues a decision granting/denying the protest after the 180-day period and there is
already an appeal pending in the CTA division, the appeal shall continue and the taxpayer
shall manifest before the CTA that BIR has issued a decision. Is there a need to file another
appeal on the decision of the BIR? There is no need for filing of a new appeal as one is
already pending before the CTA.
If the BIR decision is in favor of the taxpayer, the taxpayer can withdraw his appeal or
inform CTA of BIR decision if protest is denied;
INSTANCES WHEN DIRECT APPEAL TO CTA EN BANC IS ALLOWED:
1. Decisions of RTC in tax collection cases rendered in exercise of its appellate jurisdiction;
2. Decisions of the Central Board of Assessment Appeals in local taxation cases
CTA DIVISION may GRANT ends the process
DENY
PARTLY GRANT/DENY

appeal to the CTA en banc

What is the period to appeal to the CTA en banc? RA 9282 does not provide a period so
we follow the Rules of Court (15 days from receipt of decision). In the meantime, the
prejudiced party may file a motion for reconsideration or motion for new trial within 15 days
from receipt of the unfavorable decision rendered by the Court of Appeals Division.

Is the BIR allowed to appeal to the CTA?

The BIR may not appeal its own decision to CTA division but it may appeal the decision of

CTA Division to CTA en banc. Either party or both parties may file the appeal to CTA
En Banc.

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What is the effect if the BIR issues a second assessment pending a protest regarding
the first assessment?

If the second assessment is substantially the same as the first, there is no need
to file another protest
If the two assessments are substantially different, another protest is necessary
otherwise, the second assessment will become FINAL & EXECUTORY

PRESCRIPTIVE PERIOD FOR COLLECTION OF TAXES:


ASSESSMENT (A)

COLLECTION (C)

Return is filed on or
before due date

3 years from due date

5 years from receipt of A

Return is filed after


due date

3 years from actual filing

5 years from receipt of A

Fraudulent
return

10 years from discovery of


fraud/bad faith

5 years from receipt of A

10 years from discovery of


non-filing

5 years from receipt of A

filing

Non-filing

of

No assessment is issued by the BIR


The BIR may opt not to issue assessment when:
1. return is filed fraudulently; or
2. no return is filed

10 years from discovery of


filing of fraudulent return
or non-filing

JURISDICTION IN TAX COLLECTION SUIT (apply BP 129 and RA 9282)


MTC and other
lower courts

RTC

CTA

Within Metro
Manila

P 0.00 to P 400,
000

More than P
400,000 to
below P 1 M

P 1M & above
exclusive of
interest,
penalties,
surcharges

Outside Metro
Manila

P 0.00 to P 300,
000

More than P
300, 000 to
below P 1 M

P 1M & above
exclusive of
interest,
penalties,
surcharges

Did RA 9282 (CTA Law) amend the Totality Rule under the Rules of Court by
giving CTA exclusive original jurisdiction of collection suits involving the amount
of at least P 1M exclusive of penalties, surcharges and interests?
No. If the case is with the MTC, RTC and other regular courts, we follow the Totality
Rule. If the case is originally filed with CTA, we exclude penalties, surcharges and
interests.

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TOTALITY RULE: Where the claims in all the causes of action are principally for recovery
of money, the aggregate amount claimed shall be the test of jurisdiction. (Rule 2 Sec. 5[d],
Rules of Court)
What if the BIR files a collection suit with the court and the taxpayer is still
preparing his protest to the assessment?
Solution: File the protest and answer the complaint.
If the answer is not filed, taxpayer may be declared in default and BIR will
present evidence ex-parte which may consequently lead to rendition of
judgment in favor of BIR and against the taxpayer which is prejudicial to any
possible appeal to the CTA that the taxpayer may avail of in relation to the
protest.
If answer is filed and without filing a protest, then the assessment becomes
final and executory which may be used by the BIR against the taxpayer in the
civil action for collection pending before the regular court.

If there is a pending protest and BIR filed an action for collection, filing of the action will
be equivalent to a denial of the protest, and the taxpayer may appeal to CTA division on
the basis of the summons and copy of the complaint filed served by the regular court to
the taxpayer.

JURISDICTION IN CRIMINAL SUITS


A criminal case consists of either:
1. A criminal offense with deficiency tax; or
2. A criminal offense only;
If the criminal action results to civil case, we follow the rules on jurisdiction on civil action for
collection ; If the criminal case consists of a criminal offense only, criminal procedure will
apply and jurisdiction will be determined by the penalty. In criminal offenses with deficiency
of tax, both the criminal and civil cases are filed simultaneously. Exoneration however from
criminal offense does not exonerate taxpayer from civil liability to pay the tax.

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PART II: TARIFF AND CUSTOMS CODE


(in relation to CTA JURISDICTION)

(1). Agencies involved:


Department of Trade and Industry (DTI)
Department of Agriculture (DA)
Department of Finance (DOF)

- dumping duties for non-agricultural products


- dumping duties for agricultural products
-automatic review of decisions of Commissioner
of Customs

Bureau of Customs (BOC)


(2). Procedure in Protest Cases:
Examiner issues an Assessment (import/export)

Commissioner of Customs

Rule against taxpayer

Rule for taxpayer

Appeal to CTA division

Automatic review by DOF

within 30 days from receipt


of decision denying protest

Reverse BOC decision


(end of

Uphold BOC
process)

If the BOC files a collection suit for deficiency, see jurisdiction of regular courts and the CTA on
the amount. In case of criminal offenses, we follow the same rules provided above under NIRC.
(3). Applicable laws:
(a). Tariff and Customs Code as implemented by the Bureau of Customs
(b). All other laws implemented by the BOC
(4). Territorial jurisdiction of the Bureau of Customs
(a). all seas within the jurisdiction of the Philippines following the archipelagic doctrine
(b). all coasts, ports, airports, harbors, bays, rivers and inland waters whether navigable
or not from the sea;
(5). Transactions covered:
(a). importation of goods
(b). exportation of goods
. transportation of passengers and cargoes into or out of, or within the Philippines
(6). Classification of articles under the TCC
(a). subject to duty
(b). prohibited articles
. conditionally free from tariff and duties ( Section 105, TCC; governmental agencies
and international institutions; granted by President upon NEDAs recommendation)
(d). absolutely free from tariff and duties

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(7). Kinds of Customs duties:


(a). regular:
ad valorem
specific duty
alternating duty
compound duty
(b). special:

dumping
countervailing
marking
discriminatory

(8). Flexible Tariff Clause under the constitution


Section 28, Article 6, 1987 Constitution subject to limitations under the law;
(9). Remedies under the TCC
BOC:

Administrative:

Judicial:

Tax lien
Fines and forfeitures
Reduction of customs duties
Compromise
Civil Action
Criminal Action

TAXPAYER:
Administrative:

Protest on published value


Protest on assessment (payment under protest)
Refund
Payment of fine or redemption after seizure
Appeal to BOC Commissioner from the BOC Examiner

Judicial:

Appeal to CTA
Action to question the legality of seizure
Abandonment
Note: failure to file import entry within 30 days from
discharge

(10). Procedure in protest cases:


(a). Arrival of goods
(b). Examiner/Collector issues assessment and collects the tariff and duties
. Within 15 days pay under protest ands file protest before the Collector/Examiner
(d). Hearing within 15 days from receipt of protest;
(e). Collector either grants or denies the protest;
Possible procedures:
If granted favorable to the importer, review by the Commissioner within 30 days from
decision by the Collector;
If Commissioner upholds the decision of the Collector ( favorable to taxpayer), automatic
review by the Dept of Finance;
If Commissioner reverses the decision of the Collector ( not favorable to the importer),
importer may appeal to the CTA Division within 30 days from receipt of such decision,
then file MR. to CTA Division, then appeal to CTA en banc, then petition for review to the
SC within 15 days from receipt of the decision of the CTA En Banc;
If Collector denies the protest, (favorable to the government), importer appeals to the
CTA Division within 30 days from receipt of such decision, then file MR. to CTA Division,
then appeal to CTA en banc, then petition for review to the SC within 15 days from
receipt of the decision of the CTA En Banc;

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(11). Procedure in Seizure and Forfeiture


- available in case of smuggling which may refer to the following: Prohibited articles;
Wrong entry of port; Export of goods contrary to law; Contraband
Notes:
(a). Common carriers are generally not subject to seizure and forfeiture
(b). In the absence of prima facie evidence, if the owner has no knowledge of or did not
participate in the unlawful act, the vessel shall not be subjected to seizure and
forfeiture;
. Examples of evidence of knowledge:
Use of the vehicle twice for the transaction;
Owner is not in the business for which the conveyance is generally used
Owner is not in a position to use such conveyance
(12). Doctrine of Hot Pursuit
If the act committed in violation of the TCC is done within Philippine waters, seizure and
forfeiture may be pursued or continued beyond the territorial jurisdiction or the maritime zone
and on the high seas;
(13). The regular courts have no jurisdiction over seizure and forfeiture cases except for writs
of injunction, mandamus, or prohibition. Seizure and protest cases are within the exclusive
jurisdiction of the Commissioner of Customs. Ordinary courts do not have jurisdiction over
seizure and forfeiture proceedings;
(14). Right of Police Officer to Enter Inclosure. Any person exercising the powers under
TCC may at anytime enter, pass through, or search any land or inclosure or any
warehouse, store or other building, not being a dwelling house. A warehouse, store
or other building or inclosure used for the keeping of storage of articles does not
become a dwelling house merely by reason of the fact that a person employed as watchman
lives in the place, nor will the fact that his family stays there with him alter the case.
(15). Search of Dwelling House. There must be for a Search Warrant issued by a
competent court. A dwelling house may be entered and searched only upon warrant issued
by a judge or justice of the peace, upon sworn application showing probable case
and particularly describing the place to be searched and person or thing to be
seized.
(16). Right to Search Vessels or Aircrafts and Persons or Articles Conveyed Therein.
It shall be lawful for any official or person exercising police authority to go abroad any vessel
or aircraft within the limits of any collection to go aboard any vessel or aircraft within the
limits of any collection district, and to inspect, search and examine said vessel or aircraft
and any trunk, package, box or envelope on board, and to search any person on board the said
vessel or aircraft and to this end to hail and stop such vessel or aircraft if under way, to use all
necessary force to compel compliance; and if it shall appear that any breach or violation of the
customs and tariff laws of the Philippines has been committed, whereby or in consequence of
which such vessels or aircrafts, or the article, or any part thereof, on board of or imported by
such vessel or aircraft, is liable to forfeiture, to make seizure of the same or any part thereof.
The power of search shall extend to the removal of any false bottom, partition, bulkhead or
other obstruction, so far as may be necessary to enable the officer to discover whether any
dutiable or forfeitable articles may be concealed therein.
No proceeding herein shall give rise to any claim for the damage caused to article or
vessel or aircraft.
(16). Right to Search Vehicles, Beasts and Persons. It shall also be lawful for a person
exercising authority to open and examine any box, trunk, envelope or other container, wherever
found where he has reasonable cause to suspect the presence therein of dutiable or
prohibited article or articles introduced into the Philippines contrary to law, and likewise to stop,

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search and examine any vehicle, beast or person reasonably suspected of holding or conveying
such article as aforesaid.
(17). Search of Persons Arriving From Foreign Countries. All persons coming into the
Philippines from foreign countries shall be liable to detention and search by the customs
authorities under such regulations as may be prescribed relative thereto.
(18). SMUGGLING: Seizure and Forfeiture proceedings are available to the BOC in the
case of smuggling which may refer to the following: Prohibited articles; Wrong entry of port;
Export of goods contrary to law; Contraband;
(19). Common carriers are generally not subject to seizure and forfeiture. In the absence of
prima facie evidence, if the owner has no knowledge of or did not participate in the unlawful act,
the vessel shall not be subjected to seizure and forfeiture. Presumption of knowledge of the
owner of the vessel if (a). vehicle was used twice for the transaction; (b). Owner is not in the
business for which the conveyance is generally used and (c). Owner is not in a position to use
such conveyance;
Conversely, if the vehicle is under a contract of private charter, the assumption is owner is aware
that the vessel is used for unlawful act, thus, BOC may subject vessel or vehicle to seizure and
forfeiture, unless the owner can prove otherwise.
(20). DTI imposes dumping duties for non-agricultural products and DA for agricultural
products. In protest cases over special levies by DTI and DA, there is no automatic review by the
BOC Comm and Sec of Finance;
(21). Importation begins when the carrying vessel or aircraft enters the jurisdiction of the
Philippines with the intention to unlade therein. Importation is deemed terminated upon
payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at a
port of entry and the legal permit for withdrawal shall have been granted, or in case said articles
are free of duties, taxes and other charges, until they have legally left the jurisdiction of
Customs.
(22). WHAT ARTICLES ARE SUBJECT TO DUTIES? All articles, when imported to the
Philippines, are subject to duty upon each importation, even though previously exported there
except as otherwise specifically provided for in the Tariff and Customs Code, as amended, or in
other laws.
Exemptions / Duty-Free Concessions:
Adult Passengers:

Two (2) reams of cigarette or two (2) tins of tobacco

Two (2) bottles of liquor or wine not exceeding one (1) liter per bottle
Balikbayan and Overseas Filipino Workers (OFWs) are entitled to a Ten Thousand
(10,000,00) Peso duty exemption on their USED personal and household effects. Any
excess thereof is subject to an ad valorem duty (Executive Order 206). In addition,
OFWs are entitled to duty and tax-free privileges on their USED appliances limited to one
of every kind provided the total value does not exceed PHP10,000.00. Any excess is
subject to duty and tax.
Balikbayan Categories

Filipino citizen who has been continuously out of the Philippines for a period of
at least one (1) year from the date of last departure;

A Filipino overseas worker (OFW); or

Former Filipino with foreign passport and members of his family (i.e. spouse and
children) who are traveling with him.

NOTE: EXEMPTION OF BALIKBAYAN BOXES INCREASED FROM P


10,000.00 TO P 150,000.00 (RA 10863; 30 May 2016)
Currency Regulations
It is illegal for any incoming or outgoing passenger to bring in or out Philippine Pesos in
excess of P10,000.00 without prior authoirty from the Bangko Sentral ng Pilipinas. Any
violation of this rule may lead to its seizure and civil penalties and / or criminal
prosecution. (BSP Circular 98-1995)
The transportation of foreign currency or monetary instruments is legal. However, the

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carrying of foreign currency in excess of US$10,000.00 or its equivalent in other foreign


currencies must be declared to a Customs Officer or the Bangko Sentral ng Pilipinas.
Prohibited and Regulated Articles (REGARDLESS OF QUANTITY)
The unlawful importation of prohibited articles (i.e. marijuana, cocaine or any other
narcotics or synthetic drugs, firearms and explosives and parts thereof, gun
replicas, obscene or immoral articles, adulterated or misbranded articles of
food or drugs, gambling outfits and paraphernalia, used clothing and rags
R.A. 4653, elephant / ivory tusk products) or those which violate the Intellectual
Property Rights Code, R.A. 8293 (i.e., DVDs, VCDs, other imitation products)
and regulated items (i.e., transceivers, controlled chemicals / substances /
precursors) constitute a violation of Philippine Customs Laws and may subject you to
criminal procesuctions and / or fines and penalties.
Agriculture and Quarantine Regulations
Agriculture quarantine restricts the entry of animals, fish and plant products or their byproducts (such as meat, eggs, birds, fruits, etc.). Transport of endangered species and
their by-products is also restricted / prohibited by CITES / DENR regulations. Likewise,
export of such products / by-products must be referred to quarantine officers to ensure
compliance with Philippine regulations and requirements of country of
destination. Failure to obtain prior import and / or export permit from the Philippine
Department of Agriculture together with corresponding health sanitary or phytosanitary
certificate from country of origin and to declare the same may result to seizure, fines
and / or penalties.
(23). Import Entry must be filed in the Customhouse within 30 days from the date of
discharge of the last package from the vessel, which shall not be extendible. Failure to file the
entry constitutes implied abandonment and will result in the ipso facto forfeiture of the
goods/shipment.
(24). Kinds of Import Entry:
Informal Entry

: a. Articles of a commercial nature intended for sale, barter or hire, the


dutiable value of which does not exceed P2,000.00;
b. Personal and household effects or articles, not in commercial
quantity, imported in passengers baggage, mail, or otherwise for
personal use.

Formal Entry:

a. Articles of a commercial nature intended for sale, barter, or hire, the


dutiable value of which is more than P2,000.00;
b. Articles for, which the Collector may, upon the recommendation of
the Tariff Commission for the protection of a local industry, or the
revenue, require formal entry regardless of value and whatever purpose
and nature of the importation.

All imported articles are subject to Formal and Informal entry except importation admitted
free of duty for the official use of embassies, legation and other agencies of foreign
governments who accord like privileges to corresponding agencies of the Philippines.
(25). Flexible Tariff Clause under the constitution
The Congress may, by law, authorize the President to fix within specified limits, and subject
to such limitations and restriction as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government (Article VI, Section 28, paragraph 2)Section 28, Article
6, 1987 Constitution subject to limitations under the law;
(26). In seizure and forfeiture proceedings, the Collector of Customs constitutes tribunal
expressly vested by law with the jurisdiction to hear and determine the subject matter of such
proceedings without any interference from the regular courts;

___________________________________________________________________

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PART III: LOCAL GOVERNMENT CODE OF 1991


1: ORDINARY LOCAL TAXES
Section 129 (LGC OF 1991): Power to Create Sources of Revenue:
Each local government unit shall exercise its power to create its own sources of revenue
and to levy taxes, fees, and charges subject to the provisions herein, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to
the local government units.
Section 130 (LGC OF 1991): Fundamental Principles:
The following fundamental principles shall govern the exercise of the taxing and other
revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) 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.
Nature of Local Taxing Power
- exercised by the Sanggunian
- inherent in the LGU
- exercised only if delegated by law or Constitution
- subject to limitations provided for by law;
- power includes to prescribe penalties or fines for violations of tax ordinance;
- power to adjust local tax rates shall not be oftener than once every five years and in
no case to
exceed 10% of the rates fixed by the LGC;
- grant of exemptions thru ordinances shall nor include regulatory fees:
- instance when exemption maybe granted: natural calamities
- exemptions should apply to all others similarly situated;
- effectivity of exemptions shall be during the next calendar year for a period not
exceeding 12 months;
- incentives maybe granted on new investments in the LGU; should be for a definite
period of time of not more than one (1) year thru an ordinance passed prior to first day
of January of the following year and shall be applicable to all similarly situated;
- power to tax by LGU is subject to constitutional and inherent limitations;
Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures;
Mandatory Public Hearings:
Issue: Validity of Ordinance
1. Public hearings shall be conducted for the purpose prior to the enactment thereof:

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2. Any question on the constitutionality or legality of tax ordinances or revenue


measures may be raised on appeal within thirty (30) days from the effectivity thereof
to the Secretary of Justice who shall render a decision within sixty (60) days from the
date of receipt of the appeal;
3. Appeal to the DOJ shall not suspend the effectivity of the ordinance and the accrual
and payment of the tax, fee, or charge levied therein;
4. Within thirty (30) days after receipt of the decision or the lapse of the sixty-day
period without the Secretary of Justice acting upon the appeal, the aggrieved party may
file appropriate proceedings with a court of competent jurisdiction.
5. Within ten (10) days after approval, certified true copies of all provincial, city, and
municipal tax ordinances or revenue measures shall be published in full for three (3)
consecutive days in a newspaper of local circulation: Provided, however, That in
provinces, cities and municipalities where there are no newspapers of local circulation,
the same may be posted in at least two (2) conspicuous and publicly accessible places.
6. Copies of all provincial, city, and municipal and barangay tax ordinances and revenue
measures shall be furnished the respective local treasurers for public dissemination.
Important principles in local taxation
(a). Residual Taxing Power
Power to levy taxes, fees, or charges on any base or subject not specifically
enumerated under the LGC and not taxed under the NIRC or any other tax laws
(b). Rule of pre-emption
If the national government elects a particular area as subject to taax, it impliedly
withholds from the local government unit the delegated power to tax the same
fields or area
Situs of local taxation
The same rule as in national taxation shall be applied to situs of local taxes
Taxes covered by the LGC of 1991
(a). Community Tax
(b). Ordinary/Regular Local Taxes
. Real Estate Tax
Community tax
(a). Individuals
18 years of age;
regularly employed on a wage or salary basis for at least thirty (30) days;
engaged in trade or business;
owns real property with an aggregate assessed value of P1,000.00 or more;
required by law to file ITR;
Rate:

P 5.00 plus P1.00 for every P1,000.00 above P5,0000.00

(b). Corporations
P500.00 not to exceed P10,000.00
For every P5,000.00 worth of real property P2.00
For every P5,000.00 worth of gross receipts or earnings P 2.00
. Place of payment:
(d). Time of payment:
(e). Penalty
:

residence or principal place of business


first day of January and not later than last day of February;
24% per annum

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Other Local/Regular Taxes


-Imposed on a calendar year basis but paid on a quarterly basis;
- Accrues on the first day of January, however, new taxes accrue on the first day of the
quarter next following the effectivity of the ordinance;
- Payable on the first twenty (20) days of January or of each quarter extendible for six
(6) months
Taxes imposed by specific LGU:
Provinces:

1.
2.
3.
4.

Tax on transfer of real property;


Tax on Business of printing and publication;
Franchise tax;
Tax on sand, gravel and other quarry resources from public
lands;
5. Professional tax;
6. Amusement tax;
7. Annual fixed tax on delivery truck or van of manufacturers,
producers, retailers, wholesalers in certain products:

Municipalities:
1. Taxes on manufacturers, assemblers, re-packers, etc. of any
article of whatever kind;
2. Wholesalers, distributors, dealers in any article of commerce;
3. Exporters and on manufacturers, millers, producers,
wholesalers, distributors, dealers of essential commodities;
4. Retailers,
5. Contractors;
6. Banks and other financial institutions;
7. Peddlers engaged in the sale of any merchandise or article of
commerce;
8. Tax on any business, not otherwise specified above;
9. Tax on business/occupation except professional fees;
10. Business taxes;
Cities:

Taxes which the province or municipality may impose;

Barangays:

1. Tax on stores/retailers with fixed business establishments with gross


sales or receipts for the previous year of P 50,000 or less for barangays
in cities and P 30,000 or less for barangays in municipalities;
2. Reasonable fees and charges on commercial breeding of fighting
cocks, cockfights and cockpits, on places of recreation with charge
admission fees, and on billboards, signboards, neon signs and outdoor
advertisements.

Common Fees/Charges for LGUs:


1. Reasonable fees and charges for services rendered;
2. Public utility charges for operation of public utilities owned, operated and maintained
by LGUs within its jurisdiction;
3. Toll fees for use of any public road, pier, wharf,, waterway, bridge, ferry or
telecommunication system funded/constructed by LGU except officers and enlisted
men of the AFP/PNP, post office personnel delivering mail, and physically
handicapped and disabled citizens who are 65 years old.
Remedies of the LGU in ordinary local taxes
Lien ( administrative)
Distraint or levy (administrative)
Collection Suit ( judicial in character)
These remedies maybe concurrently or simultaneously availed of by the LGU

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Prescriptive Period for Assessment and Collection of ordinary local taxes


ASSESSMENT

COLLECTION

5 yrs from due date ( Jan 1 every year)

5 yrs from receipt of Assessment

10 yrs from discovery of fraud or intent to


evade payment

5 yrs from receipt of Assessment

Suspension of Periods of Assessment and Collection:


The running of the periods of prescription provided in the preceding paragraphs shall be
suspended for the time during which:
(1) The treasurer is legally prevented from making the assessment of collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before
expiration of the period within which to assess or collect; and
(3) The taxpayer is out of the country or otherwise cannot be located.
Procedure in Protest Cases of Local Taxes; Issue: Validity of assessment

1. When the local treasurer or his duly authorized representative finds that correct taxes,

fees, or charges have not been paid, he shall issue a notice of assessment stating the
nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and
penalties.
2. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer
may file a written protest with the local treasurer contesting the assessment; otherwise,
the assessment shall become final and executory.
3. The local treasurer shall decide the protest within sixty (60) days from the time of
its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the assessment. However, if the local
treasurer finds the assessment to be wholly or partly correct, he shall deny the protest
wholly or partly with notice to the taxpayer.
4. The taxpayer shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day period prescribed herein within which
to appeal with the court of competent jurisdiction otherwise the assessment
becomes conclusive and unappealable.
Refund of Local Tax:
No case or proceeding shall be maintained in any court for the recovery of any tax, fee,
or charge erroneously or illegally collected until a written claim for refund or credit
has been filed with the local treasurer. No case or proceeding shall be entertained
in any court after the expiration of two (2) years from the date of the payment of
such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.
Civil Remedies for Collection of Ordinary Local Taxes:
1. Local Government's Lien
Local taxes, fees, charges and other revenues constitute a lien, superior to all liens,
charges or encumbrances in favor of any person, enforceable by appropriate
administrative or judicial action, not only upon any property or rights therein which may
be subject to the lien but also upon property used in business, occupation, practice of
profession or calling, or exercise of privilege with respect to which the lien is imposed.
The lien may only be extinguished upon full payment of the delinquent local taxes fees
and charges including related surcharges and interest.

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2. Civil Remedies
The civil remedies for the collection of local taxes, fees, or charges, and related
surcharges and interest resulting from delinquency shall be:
(a) By administrative action thru distraint of goods, chattels, or effects, and other
personal property of whatever character, including stocks and other securities, debts,
credits, bank accounts, and interest in and rights to personal property, and by levy upon
real property and interest in or rights to real property;
(b) By judicial action
Either of these remedies or all may be pursued concurrently or simultaneously at the
discretion of the local government unit concerned.
Distraint of Personal Property:
The remedy by distraint shall proceed as follows:
(a) Seizure: Upon failure of the person owing any local tax, fee, or charge to pay the
same at the time required, the local treasurer or his deputy may, upon written notice,
seize or confiscate any personal property belonging to that person or any personal
property subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in
question, together with any increment thereto incident to delinquency and the expenses
of seizure. In such case, the local treasurer or his deputy shall issue a duly authenticated
certificate based upon the records of his office showing the fact of delinquency and the
amounts of the tax, fee, or charge and penalty due. Such certificate shall serve as
sufficient warrant for the distraint of personal property aforementioned, subject to the
taxpayer's right to claim exemption under the provisions of existing laws. Distrained
personal property shall be sold at public auction in the manner hereon provided for.
(b) Accounting of distrained goods: The officer executing the distraint shall make or
cause to be made an account of the goods, chattels or effects distrained, a copy of
which signed by himself shall be left either with the owner or person from whose
possession the goods, chattels or effects are taken, or at the dwelling or place or
business of that person and with someone of suitable age and discretion, to which list
shall be added a statement of the sum demanded and a note of the time and place of
sale.
(c) Publication: The officer shall forthwith cause a notification to be exhibited in not
less than three (3) public and conspicuous places in the territory of the local government
unit where the distraint is made, specifying the time and place of sale, and the articles
distrained. The time of sale shall not be less than twenty (20) days after the notice to
the owner or possessor of the property as above specified and the publication or posting
of the notice. One place for the posting of the notice shall be at the office of the chief
executive of the local government unit in which the property is distrained.
(d) Release of distrained property upon payment prior to sale: If at any time prior to
the consummation of the sale, all the proper charges are paid to the officer conducting
the sale, the goods or effects distrained shall be restored to the owner.
(e) Procedure of sale: At the time and place fixed in the notice, the officer conducting
the sale shall sell the goods or effects so distrained at public auction to the highest
bidder for cash. Within five (5) days after the sale, the local treasurer shall make a
report of the proceedings in writing to the local chief executive concerned.
Should the property distrained be not disposed of within one hundred and
twenty (120) days from the date of distraint, the same shall be considered as sold to the
local government unit concerned for the amount of the assessment made thereon by the
Committee on Appraisal and to the extent of the same amount, the tax delinquencies
shall be cancelled.
Said Committee on Appraisal shall be composed of the city or municipal
treasurer as chairman, with a representative of the Commission on Audit and the city or
municipal assessor as members.

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(f) Disposition of proceeds: The proceeds of the sale shall be applied to satisfy the
tax, including the surcharges, interest, and other penalties incident to delinquency, and
the expenses of the distraint and sale. The balance over and above what is required to
pay the entire claim shall be returned to the owner of the property sold. The expenses
chargeable upon the seizure and sale shall embrace only the actual expenses of seizure
and preservation of the property pending the sale, and no charge shall be imposed for
the services of the local officer or his deputy. Where the proceeds of the sale are
insufficient to satisfy the claim, other property may, in like manner, be distrained until
the full amount due, including all expenses, is collected.
Levy on Real Property
a. After the expiration of the time required to pay the delinquent tax, fee, or charge,
real property may be levied on before, simultaneously, or after the distraint of
personal property belonging to the delinquent taxpayer.
b. the provincial, city or municipal treasurer, as the case may be, shall prepare a duly
authenticated certificate showing the name of the taxpayer and the amount of the
tax, fee, or charge, and penalty due from him. Said certificate shall operate with the
force of a legal execution throughout the Philippines.
c. Levy shall be effected by writing upon said certificate the description of the
property upon which levy is made. At the same time, written notice of the levy shall
be mailed to or served upon the assessor and the Register of Deeds of the province
or city where the property is located who shall annotate the levy on the tax
declaration and certificate of title of the property, respectively, and the
delinquent taxpayer or, if he be absent from the Philippines, to his agent or the manager
of the business in respect to which the liability arose, or if there be none, to the
occupant of the property in question.
d. In case the levy on real property is not issued before or simultaneously with the
warrant of distraint on personal property, and the personal property of the taxpayer is
not sufficient to satisfy his delinquency, the provincial, city or municipal treasurer, as the
case may be, shall within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer's real property.
e. A report on any levy shall, within ten (10) days after receipt of the warrant,
be submitted by the levying officer to the sanggunian concerned.

f. Advertisement and Sale:


1. Within thirty (30) days after the levy, the local treasurer shall proceed to
publicly advertise for sale or auction the property or a usable portion
thereof as may be necessary to satisfy the claim and cost of sale;
1. Such advertisement shall cover a period of at least thirty (30) days;
2. It shall be effected by posting a notice at the main entrance of the
municipal building or city hall, and in a public and conspicuous
place in the barangay where the real property is located, and by
publication once a week for three (3) weeks in a newspaper of
general circulation in the province, city or municipality where the property
is located.
3. The advertisement shall contain the amount of taxes, fees or charges,
and penalties due thereon, and the time and place of sale, the
name of the taxpayer against whom the taxes, fees, or charges are
levied, and a short description of the property to be sold.
4. At any time before the date fixed for the sale, the taxpayer may stay they
proceedings by paying the taxes, fees, charges, penalties and interests. If
he fails to do so, the sale shall proceed and shall be held either at the main
entrance of the provincial, city or municipal building, or on the property to
be sold, or at any other place as determined by the local treasurer

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conducting the sale and specified in the notice of sale;


5. Within thirty (30) days after the sale, the local treasurer or his deputy
shall make a report of the sale to the sanggunian concerned, and which
shall form part of his records.
6. After consultation with the sanggunian, the local treasurer shall make
and deliver to the purchaser a certificate of sale, showing the
proceeding of the sale, describing the property sold, stating the name of the
purchaser and setting out the exact amount of all taxes, fees, charges, and
related surcharges, interests, or penalties: Provided, however, That any
excess in the proceeds of the sale over the claim and cost of sales shall be
turned over to the owner of the property.
Redemption of Property Sold pursuant to levy and distraint:
1. Within one (1) year from the date of sale, the delinquent taxpayer or his
representative shall have the right to redeem the property upon payment to the local
treasurer of the total amount of taxes, fees, or charges, and related
surcharges, interests or penalties from the date of delinquency to the date of
sale, plus interest of not more than two percent (2%) per month on the
purchase price from the date of purchase to the date of redemption. Such
payment shall invalidate the certificate of sale issued to the purchaser and the owner
shall be entitled to a certificate of redemption from the provincial, city or municipal
treasurer or his deputy.
2. The provincial, city or municipal treasurer or his deputy, upon surrender by the
purchaser of the certificate of sale previously issued to him, shall forthwith return to the
latter the entire purchase price paid by him plus the interest of not more than two
percent (2%) per month herein provided for, the portion of the cost of sale and other
legitimate expenses incurred by him, and said property thereafter shall be free from the
lien of such taxes, fees, or charges, related surcharges, interests, and penalties;
3. The owner shall not, however, be deprived of the possession of said property and shall
be entitled to the rentals and other income thereof until the expiration of the time
allowed for its redemption.
4. In case the taxpayer fails to redeem the property as provided herein, the local treasurer
shall execute a deed conveying to the purchaser so much of the property as has been
sold, free from liens of any taxes, fees, charges, related surcharges, interests, and
penalties. The deed shall succinctly recite all the proceedings upon which the validity of
the sale depends.
Purchase of Property By the Local Government Units for Want of Bidder :

1. In case there is no bidder for the real property advertised for sale as provided herein,

or if the highest bid is for an amount insufficient to pay the taxes, fees, or charges,
related surcharges, interests, penalties and costs, the local treasurer conducting the sale
shall purchase the property in behalf of the local government unit concerned to satisfy
the claim and within two (2) days thereafter shall make a report of his proceedings
which shall be reflected upon the records of his office.
2. It shall be the duty of the Registrar of Deeds concerned upon registration with his
office of any such declaration of forfeiture to transfer the title of the forfeited property to
the local government unit concerned without the necessity of an order from a competent
court.
3. Within one (1) year from the date of such forfeiture, the taxpayer or any of his
representative, may redeem the property by paying to the local treasurer the full amount
of the taxes, fees, charges, and related surcharges, interests, or penalties, and the costs
of sale. If the property is not redeemed as provided herein, the ownership thereof shall
be fully vested on the local government unit concerned.

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Resale of Real Estate Taken for Taxes, Fees, or Charges:


The sanggunian concerned may, by ordinance duly approved, and upon notice of not
less than twenty (20) days, sell and dispose of the real property acquired under the
preceding section at public auction. The proceeds of the sale shall accrue to the general
fund of the local government unit concerned.
Personal Property Exempt from Distraint or Levy
The following property shall be exempt from distraint and the levy, attachment or
execution thereof for delinquency in the payment of any local tax, fee or charge,
including the related surcharge and interest:
(a) Tools and implements necessarily used by the delinquent taxpayer in his trade or
employment;
(b) One (1) horse, cow, carabao, or other beast of burden, such as the delinquent
taxpayer may select, and necessarily used by him in his ordinary occupation;
(c) His necessary clothing, and that of all his family;
(d) Household furniture and utensils necessary for housekeeping and used for that
purpose by the delinquent taxpayer, such as he may select, of a value not exceeding
Ten thousand pesos (P10,000.00);
(e) Provisions, including crops, actually provided for individual or family use sufficient for
four (4) months;
(f) The professional libraries of doctors, engineers, lawyers and judges;
(g) One fishing boat and net, not exceeding the total value of Ten thousand pesos
(P10,000.00), by the lawful use of which a fisherman earns his livelihood; and
(h) Any material or article forming part of a house or improvement of any real property.

Relevant Provisions of the LGC of 1991:


Section 165. Tax Period and Manner of Payment:
Unless otherwise provided in this Code, the tax period of all local taxes, fees and
charges shall be the calendar year. Such taxes, fees and charges may be paid in
quarterly installments.
Section 166. Accrual of Tax:
Unless otherwise provided in this Code, all local taxes, fees, and charges shall
accrue on the first (1st) day of January of each year. However, new taxes, fees
or charges, or changes in the rates thereof, shall accrue on the first (1st) day of
the quarter next following the effectivity of the ordinance imposing such new
levies or rates.
Section 167. Time of Payment:
Unless otherwise provided in this Code, all local taxes, fees, and charges shall be
paid within the first twenty (20) days of January or of each subsequent quarter,
as the case may be. The sanggunian concerned may, for a justifiable reason or
cause, extend the time for payment of such taxes, fees, or charges without
surcharges or penalties, but only for a period not exceeding six (6) months.
Section 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges:
The sanggunian may impose a surcharge not exceeding twenty-five (25%) of
the amount of taxes, fees or charges not paid on time and an interest at the
rate not exceeding two percent (2%) per month of the unpaid taxes, fees or
charges including surcharges, until such amount is fully paid but in no case shall
the total thirty-six (36%) months.

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Section 169. Interests on Other Unpaid Revenues:


Where the amount of any other revenue due a local government unit, except
voluntary contributions or donations, is not paid on the date fixed in the
ordinance, or in the contract, expressed or implied, or upon the occurrence of
the event which has given rise to its collection, there shall be collected as part of
that amount an interest thereon at the rate not exceeding two percent (2%) per
month from the date it is due until it is paid, but in no case shall the total
interest on the unpaid amount or a portion thereof exceed thirty-six (36)
months.
Section 170. Collection of Local Revenue by Treasurer.:
All local taxes, fees, and charges shall be collected by the provincial, city,
municipal, or barangay treasurer, or their duly authorized deputies.
The provincial, city or municipal treasurer may designate the barangay treasurer
as his deputy to collect local taxes, fees, or charges. In case a bond is required
for the purpose, the provincial, city or municipal government shall pay the
premiums thereon in addition to the premiums of bond that may be required
under this Code.
______________________________________________________________________________

2: REAL PROPERTY TAXATION


Fundamental Principles
The (1) appraisal and assessment; (2) levy and collection of real property tax
shall be guided by the following fundamental principles:
(a) Real property shall be appraised at its current and fair market value;
(b) Real property shall be classified for assessment purposes on the basis of its actual
use;
(c) Real property shall be assessed on the basis of a uniform classification within each
local government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to
any private person; and
(e) The appraisal and assessment of real property shall be equitable.
Nature:
-Article 415 of the Civil Code applies to include improvements;
-Direct tax on the ownership
-Ad valorem tax;
-Proportionate;
-Indivisible;
-Local tax;
-Idle lands maybe exempt from RET due to valid causes such as force majeure, civil
disturbance, natural calamity, or any other reason which prevents the owner from
utilizing the property
-Exemption from RET shall be based on the actual use not the ownership;
-Unpaid RET attaches to the land and not the owner, thus, the remedy of lien available
to the government
Subject matters covered by Real Property Taxation
a. Appraisal and Assessment by the Assessors Office;

"Appraisal" is the act or process of determining the value of


property as of a specified date for a specific purpose;
"Assessment" is the act or process of determining the value of a
property, or proportion thereof subject to tax, including the

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discovery, listing, classification, and appraisal of properties;


b. Levy and Collection by the Treasurers Office;
Rates of real estate tax:
Province:
City:
Municipality:

not exceeding 1% of assessed value


not exceeding 2% of assessed value
not exceeding 2% of assessed value

Kinds of Real Estate Tax:


ad valorem tax: based on a fixed proportion of the value of the property;
special levies: *special education fund (SPF)
*1% to finance SPF
*Additional ad valorem on idle lands not exceeding 5% of assessed
value of land
*For public works
*Lands benefited by public works
Imposed by other laws: Socialized housing tax
EXEMPTIONS FROM REAL ESTATE TAX
(a). real properties owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for consideration
to a taxable person;
(b). charitable institutions, churches, parsonages, convents, mosques, or religious
cemeteries and all L, B, and I, ADE for religious, charitable, and educational purposes;
. Machineries and equipment ADE by local water utilities and GOCCs engaged in
supply/distribution of water and/or generation of electric power;
(d). real properties owned by cooperatives;
(e). machinery and equipment used for pollution control and environment protection.
APPRAISAL AND COLLECTION of RPT
Section 201. Appraisal of Real Property. - All real property, whether taxable or exempt,
shall be appraised at the current and fair market value prevailing in the locality where
the property is situated. The Department of Finance shall promulgate the necessary
rules and regulations for the classification, appraisal, and assessment of real property
pursuant to the provisions of this Code.
Section 202. Declaration of real Property by the Owner or Administrator. - It shall be
the duty of all persons, natural or juridical, owning or administering real property,
including the improvements therein, within a city or municipality, or their duly authorized
representative, to prepare, or cause to be prepared, and file with the provincial, city or
municipal assessor, a sworn statement declaring the true value of their property,
whether previously declared or undeclared, taxable or exempt, which shall be the
current and fair market value of the property, as determined by the declarant. Such
declaration shall contain a description of the property sufficient in detail to enable the
assessor or his deputy to identify the same for assessment purposes. The sworn
declaration of real property herein referred to shall be filed with the assessor concerned
once every three (3) years during the period from January first (1st) to June thirtieth
(30th) commencing with the calendar year 1992.
Section 203. Duty of Person Acquiring Real Property or Making Improvement Thereon.
- It shall also be the duty of any person, or his authorized representative, acquiring at

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any time real property in any municipality or city or making any improvement on real
property, to prepare, or cause to be prepared, and file with the provincial, city or
municipal assessor, a sworn statement declaring the true value of subject property,
within sixty (60) days after the acquisition of such property or upon completion or
occupancy of the improvement, whichever comes earlier.
Section 204. Declaration of Real Property by the Assessor. - When any person, natural
or juridical, by whom real property is required to be declared under Section 202 hereof,
refuses or fails for any reason to make such declaration within the time prescribed, the
provincial, city or municipal assessor shall himself declare the property in the name of
the defaulting owner, if known, or against an unknown owner, as the case may be, and
shall assess the property for taxation in accordance with the provision of this Title. No
oath shall be required of a declaration thus made by the provincial, city or municipal
assessor.
Section 205. Listing of Real Property in the Assessment Rolls. (a) In every province and city, including the municipalities within the Metropolitan Manila
Area, there shall be prepared and maintained by the provincial, city or municipal
assessor an assessment roll wherein shall be listed all real property, whether taxable or
exempt, located within the territorial jurisdiction of the local government unit concerned.
Real property shall be listed, valued and assessed in the name of the owner or
administrator, or anyone having legal interest in the property.
(b) The undivided real property of a deceased person may be listed, valued and
assessed in the name of the estate or of the heirs and devisees without designating
them individually; and undivided real property other than that owned by a deceased may
be listed, valued and assessed in the name of one or more co-owners: Provided,
however, That such heir, devisee, or co-owner shall be liable severally and
proportionately for all obligations imposed by this Title and the payment of the real
property tax with respect to the undivided property.
(c) The real property of a corporation, partnership, or association shall be listed, valued
and assessed in the same manner as that of an individual.
(d) Real property owned by the Republic of the Philippines, its instrumentalities and
political subdivisions, the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person, shall be listed, valued and assessed in the name of the
possessor, grantee or of the public entity if such property has been acquired or held for
resale or lease.
Proof of Exemption of Real Property from Taxation:
Every person by or for whom real property is declared, who shall claim tax exemption for
such property under this Title shall file with the provincial, city or municipal assessor
within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim including corporate charters, title of
ownership, articles of incorporation, by-laws, contracts, affidavits, certifications and
mortgage deeds, and similar documents.
If the required evidence is not submitted within the period herein prescribed, the
property shall be listed as taxable in the assessment roll. However, if the property shall
be proven to be tax exempt, the same shall be dropped from the assessment roll.
Classes of Real Property for Assessment Purposes
For purposes of assessment, real property shall be classified as residential,
agricultural, commercial, industrial, mineral, timberland or special.
The city or municipality within the Metropolitan Manila Area, through their respective
sanggunian, shall have the power to classify lands as residential, agricultural,
commercial, industrial, mineral, timberland, or special in accordance with their zoning
ordinances.

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Special Classes of Real Property


All lands, buildings, and other improvements thereon actually, directly and exclusively
used for hospitals, cultural, or scientific purposes, and 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 shall be classified as special.
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.
General Revision of Assessment and Property Classification
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.
Valuation of Real Property
In cases where (a) real property is declared and listed for taxation purposes for the first
time; (b) there is an ongoing general revision of property classification and assessment;
or (c) a request is made by the person in whose name the property is declared, the
provincial, city or municipal assessor or his duly authorized deputy shall, in accordance
with the provisions of this Chapter, make a classification, appraisal and assessment or
taxpayer's valuation thereon: Provided, however, That the assessment of real property
shall not be increased oftener than once every three (3) years except in case of new
improvements substantially increasing the value of said property or of any change in its
actual use.
Date of Effectivity of Assessment or Reassessments
All assessments or reassessments made after the first (1st) day of January of any
year shall take effect on the first (1st) day of January of the succeeding year:
Provided, however, That the reassessment of real property due to its partial or total
destruction, or to a major change in its actual use, or to any great and sudden inflation
or deflation of real property values, or to the gross illegality of the assessment when
made or to any other abnormal cause, shall be made within ninety (90) days from the
date any such cause or causes occurred, and shall take effect at the beginning of the
quarter next following the reassessment.
Notification of New or Revised Assessment
When real property is assessed for the first time or when an existing assessment is
increased or decreased, the provincial, city or municipal assessor shall within thirty
(30) days give written notice of such new or revised assessment to the person
in whose name the property is declared. The notice may be delivered personally or
by registered mail or through the assistance of the punong barangay to the last known
address of the person to be served.
Remedies Against Assessment/Appraisal of Real Property: Appeal to LBAA/CBAA
Note: It is the Assessor who issues the assessment/appraisal of real property;
Procedures before LBAA/CBAA:
1. Any owner or person having legal interest in the property who is not
satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of
receipt of the written notice of assessment, appeal to the Local Board of
Assessment Appeals (LBAA) of the provincial or city by filing a petition under oath in the
form prescribed for the purpose, together with copies of the tax declarations and such
affidavits or documents submitted in support of the appeal;

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2. LBAA shall decide the appeal within one hundred twenty (120) days from the
date of receipt of such appeal. The Board, after hearing, shall render its decision
based on substantial evidence or such relevant evidence on record as a reasonable mind
might accept as adequate to support the conclusion.
3. The secretary of the Board shall furnish the owner of the property or the
person having legal interest therein and the provincial or city assessor with a
copy of the decision of the Board.
4. In case the provincial or city assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the person having legal interest
therein of such fact using the form prescribed for the purpose.
5. The owner of the property or the person having legal interest therein or the
assessor who is not satisfied with the decision of the LBAA, may, within thirty
(30) days after receipt of the decision of LBAA , appeal to the Central Board of
Assessment Appeals (CBAA), as herein provided. The decision of the Central Board
shall be final and executory.
6. Aggrieved party appeals to CTA En Banc within 30 days from the receipt of the
decision of the CBAA;
7. Aggrieved party appeals to the Supreme Court from the CTA decision within 15
days from receipt of the prejudicial decision;
Composition of LBAA:
(a) The Local Board of Assessment Appeals of the province or city shall be composed of
the Registrar of Deeds, as Chairman, the provincial or city prosecutor and the
provincial, or city engineer as members, who shall serve as such in an ex officio
capacity without additional compensation.
(b) The chairman of the Board shall have the power to designate any employee of the
province or city to serve as secretary to the Board also without additional compensation.
(c) The chairman and members of the Board of Assessment Appeals of the province or
city shall assume their respective positions without need of further appointment or
special designations immediately upon effectivity of this Code. They shall take oath or
affirmation of office in the prescribed form.
(d) In provinces and cities without a provincial or city engineer, the district engineer
shall serve as member of the Board. In the absence of the Registrar of Deeds, or the
provincial or city prosecutor, or the provincial or city engineer, or the district engineer,
the persons performing their duties, whether in an acting capacity or as a duly
designated officer-in-charge, shall automatically become the chairman or member,
respectively, of the said Board, as the case may be.
Composition of CBAA:
CBAA shall be composed of a chairman, and two (2) members to be appointed by
the President, who shall serve for a term of seven (7) years, without reappointment. Of
those first appointed, the chairman shall hold office for seven (7) years, one member for
five (5) years, and the other member for three (3) years. Appointment to any vacancy
shall be only for the unexpired portion of the term of the predecessor. In no case shall
any member be appointed or designated in a temporary or acting capacity. The
chairman and the members of the Board shall be Filipino citizens, at least forty (40)
years old at the time of their appointment, and members of the Bar or Certified Public
Accountants for at least ten (10) years immediately preceding their appointment.
Effect of Appeal of Assessment/Appraisal on the Payment of Real Property Tax:
Appeal on assessments of real property made under the provisions of this Code shall, in no case,
suspend the collection of the corresponding realty taxes on the property involved as assessed by

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the provincial or city assessor, without prejudice to subsequent adjustment depending upon the
final outcome of the appeal.

3. LEVY AND COLLECTION OF REAL PROPERTY TAX


Date of Accrual of Tax
The real property tax for any year shall accrue on the first day of January and
from that date it shall constitute a lien on the property which shall be superior to any
other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished
only upon the payment of the delinquent tax.
Collection of Tax (CITY OR MUNICIPAL TREASURER)
The collection of the real property tax with interest thereon and related expenses, and
the enforcement of the remedies provided for in this Title or any applicable laws, shall
be the responsibility of the city or municipal treasurer concerned.
The city or municipal treasurer may deputize the barangay treasurer to collect all taxes
on real property located in the barangay: Provided, That the barangay treasurer is
properly bonded for the purpose: Provided, further, That the premium on the bond shall
be paid by the city or municipal government concerned.
The provincial, city or municipal assessor shall prepare and submit to the treasurer of
the local government unit, on or before the thirty-first (31st) day of December each
year, an assessment roll containing a list of all persons whose real properties have been
newly assessed or reassessed and the values of such properties.
Notice of Time for Collection of Tax
The city or municipal treasurer shall, on or before the thirty-first (31st) day of
January each year, in the case of the basic real property tax and the additional tax for
the Special Education Fund (SEF) or any other date to be prescribed by the sanggunian
concerned in the case of any other tax levied under this title, post the notice of the
dates when the tax may be paid without interest at a conspicuous and
publicly accessible place at the city or municipal hall. Said notice shall
likewise be published in a newspaper of general circulation in the locality
once a week for two (2) consecutive weeks.
Payment of Real Property Taxes in Installments
The owner of the real property or the person having legal interest therein may pay the
basic real property tax and the additional tax for Special Education Fund (SEF) due
thereon without interest in four (4) equal installments; the first installment to be due
and payable on or before March Thirty-first (31st); the second installment, on or before
June Thirty (30); the third installment, on or before September Thirty (30); and the last
installment on or before December Thirty-first (31st), except the special levy the
payment of which shall be governed by ordinance of the sanggunian concerned.
The date for the payment of any other tax imposed under this Title without interest shall
be prescribed by the sanggunian concerned.
Payments of real property taxes shall first be applied to prior years delinquencies,
interests, and penalties, if any, and only after said delinquencies are settled may tax
payments be credited for the current period.
Tax Discount for Advanced Prompt Payment
If the basic real property tax and the additional tax accruing to the Special Education
Fund (SEF) are paid in advance in accordance with the prescribed schedule of payment,
the sanggunian concerned may grant a discount not exceeding twenty percent (20%) of
the annual tax due.

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Payment Under Protest


(a) No protest shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under protest". The protest in
writing must be filed within thirty (30) days from payment of the tax to the provincial,
city treasurer or municipal treasurer, in the case of a municipality within Metropolitan
Manila Area, who shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the
treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period
prescribed in subparagraph (a), the taxpayer may APPEAL TO THE LBAA AND THEN TO
CBAA;
Repayment/Refund of Excessive RPT Collections
When an assessment of basic real property tax, or any other tax, is found to be illegal or
erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a written
claim for refund or credit for taxes and interests with the provincial or city treasurer
within two (2) years from the date the taxpayer is entitled to such reduction
or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or credit
within sixty (60) days from receipt thereof. In case the claim for tax refund or
credit is denied, the taxpayer may avail of the remedy of appeal to LBAA/CBAA
Notice of Delinquency in the Payment of the Real Property Tax
(a) When the real property tax or any other tax imposed under this Title becomes
delinquent, the provincial, city or municipal treasurer shall immediately cause a notice of
the delinquency to be posted at the main hall and in a publicly accessible and
conspicuous place in each barangay of the local government unit concerned. The notice
of delinquency shall also be published once a week for two (2) consecutive weeks, in a
newspaper of general circulation in the province, city, or municipality.
(b) Such notice shall specify the date upon which the tax became delinquent and shall
state that personal property may be distrained to effect payment. It shall likewise state
that any time before the distraint of personal property, payment of the tax with
surcharges, interests and penalties may be made in accordance with the next following
Section, and unless the tax, surcharges and penalties are paid before the expiration of
the year for which the tax is due except when the notice of assessment or special levy is
contested administratively or judicially pursuant to the provisions of Chapter 3, Title II,
Book II of this Code, the delinquent real property will be sold at public auction, and the
title to the property will be vested in the purchaser, subject, however, to the right of the
delinquent owner of the property or any person having legal interest therein to redeem
the property within one (1) year from the date of sale.
Interests on Unpaid Real Property Tax
In case of failure to pay the basic real property tax or any other tax levied under this
Title upon the expiration of the periods as provided in Section 250, or when due, as the
case may be, shall subject the taxpayer to the payment of interest at the rate of two
percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent
tax shall have been fully paid: Provided, however, That in no case shall the total interest
on the unpaid tax or portion thereof exceed thirty-six (36) months.
Remedies For The Collection Of Real Property Tax
For the collection of the basic real property tax and any other tax, the local government
unit concerned may avail of the remedies by administrative action thru levy on real

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property or by judicial action.


a. Levy on Real Property. - After the expiration of the time required to pay the basic
real property tax or any other tax , real property subject to such tax may be levied upon
through the issuance of a warrant on or before, or simultaneously with, the institution of
the civil action for the collection of the delinquent tax. The provincial or city treasurer, or
a treasurer of a municipality within the Metropolitan Manila Area, as the case may be,
when issuing a warrant of levy shall prepare a duly authenticated certificate showing the
name of the delinquent owner of the property or person having legal interest therein,
the description of the property, the amount of the tax due and the interest thereon. The
warrant shall operate with the force of a legal execution throughout the province, city or
a municipality, within the Metropolitan Manila Area. The warrant shall be mailed to or
served upon the delinquent owner of the real property or person having legal interest
therein, or in case he is out of the country or cannot be located, the administrator or
occupant of the property. At the same time, written notice of the levy with the attached
warrant shall be mailed to or served upon the assessor and the Registrar of Deeds of the
province, city or municipality within the Metropolitan Manila Area where the property is
located, who shall annotate the levy on the tax declaration and certificate of title of the
property, respectively.
The levying officer shall submit a report on the levy to the sanggunian concerned within
ten (10) days after receipt of the warrant by the owner of the property or person having
legal interest therein.
Advertisement and Sale
Within thirty (30) days after service of the warrant of levy, the local treasurer
shall proceed to publicly advertise for sale or auction the property or a usable
portion thereof as may be necessary to satisfy the tax delinquency and expenses of
sale. The advertisement shall be effected by posting a notice at the main entrance
of the provincial, city or municipal building, and in a publicly accessible and
conspicuous place in the barangay where the real property is located, and by
publication once a week for two (2) weeks in a newspaper of general
circulation in the province, city or municipality where the property is located.
The advertisement shall specify the amount of the delinquent tax, the interest
due thereon and expenses of sale, the date and place of sale, the name of the
owner of the real property or person having legal interest therein, and a
description of the property to be sold. At any time before the date fixed for the
sale, the owner of the real property or person having legal interest therein may
stay the proceedings by paying the delinquent tax, the interest due thereon
and the expenses of sale. The sale shall be held either at the main entrance of the
provincial, city or municipal building, or on the property to be sold, or at any other place
as specified in the notice of the sale.
Within thirty (30) days after the sale, the local treasurer or his deputy shall
make a report of the sale to the sanggunian concerned, and which shall form part
of his records.
The local treasurer shall likewise prepare and deliver to the purchaser a certificate
of sale which shall contain the name of the purchaser, a description of the property
sold, the amount of the delinquent tax, the interest due thereon, the expenses of sale
and a brief description of the proceedings: Provided, however, That proceeds of the sale
in excess of the delinquent tax, the interest due thereon, and the expenses of sale shall
be remitted to the owner of the real property or person having legal interest therein.
Redemption of Property Sold
Within one (1) year from the date of sale, the owner of the delinquent real
property or person having legal interest therein, or his representative, shall have the
right to redeem the property upon payment to the local treasurer of the amount of the
delinquent tax, including the interest due thereon, and the expenses of sale from the
date of delinquency to the date of sale, plus interest of not more than two percent (2%)
per month on the purchase price from the date of sale to the date of redemption. Such
payment shall invalidate the certificate of sale issued to the purchaser and the owner of

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the delinquent real property or person having legal interest therein shall be entitled to a
certificate of redemption which shall be issued by the local treasurer or his deputy.
From the date of sale until the expiration of the period of redemption, the delinquent
real property shall remain in possession of the owner or person having legal interest
therein who shall be entitled to the income and other fruits thereof.
The local treasurer or his deputy, upon receipt from the purchaser of the certificate of
sale, shall forthwith return to the latter the entire amount paid by him plus interest of
not more than two percent (2%) per month. Thereafter, the property shall be free from
lien of such delinquent tax, interest due thereon and expenses of sale.
Final Deed to Purchaser
In case the owner or person having legal interest fails to redeem the delinquent property
as provided herein, the local treasurer shall execute a deed conveying to the purchaser
said property, free from lien of the delinquent tax, interest due thereon and expenses of
sale. The deed shall briefly state the proceedings upon which the validity of the sale
rests.
Purchase of Property By the Local Government Units for Want of Bidder
In case there is no bidder for the real property advertised for sale as provided herein,
the real property tax and the related interest and costs of sale the local treasurer
conducting the sale shall purchase the property in behalf of the local government unit
concerned to satisfy the claim and within two (2) days thereafter shall make a report of
his proceedings which shall be reflected upon the records of his office. It shall be the
duty of the Registrar of Deeds concerned upon registration with his office of any such
declaration of forfeiture to transfer the title of the forfeited property to the local
government unit concerned without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer or any of his
representative, may redeem the property by paying to the local treasurer the full amount
of the real property tax and the related interest and the costs of sale. If the property is
not redeemed as provided herein, the ownership thereof shall be vested on the local
government unit concerned.
Collection of Real Property Tax Through the Court AND Prescriptive Period for
Assessment and Collection
ASSESSMENT

COLLECTION

5 yrs from due date ( Jan 1 every year)

5 yrs from receipt of Assessment

10 yrs from discovery of fraud or intent to


evade payment

5 yrs from receipt of Assessment

Suspension of Period: The period of prescription within which to collect shall be


suspended for the time during which:
(1) The local treasurer is legally prevented from collecting the tax;
(2) The owner of the property or the person having legal interest therein
requests for reinvestigation and executes a waiver in writing before the
expiration of the period within which to collect; and
(3) The owner of the property or the person having legal interest therein is out
of the country or otherwise cannot be located
Action Assailing Validity of Tax Sale
No court shall entertain any action assailing the validity or any sale at public auction of
real property or rights therein until the taxpayer shall have deposited with the court the
amount for which the real property was sold, together with interest of two percent
(2%) per month from the date of sale to the time of the institution of the action. The

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amount so deposited shall be paid to the purchaser at the auction sale if the deed is declared
invalid but it shall be returned to the depositor if the action fails.
Neither shall any court declare a sale at public auction invalid by reason or irregularities
or informalities in the proceedings unless the substantive rights of the delinquent owner of the
real property or the person having legal interest therein have been impaired.
Payment of Delinquent Taxes on Property Subject of Controversy
In any action involving the ownership or possession of, or succession to, real property,
the court may, motu propio or upon representation of the provincial, city, or municipal treasurer
or his deputy, award such ownership, possession, or succession to any party to the action upon
payment to the court of the taxes with interest due on the property and all other costs that may
have accrued, subject to the final outcome of the action;

4. REFUND OF LOCAL TAXES


Refund of Local Taxes
written claim for refund or credit must be filed with the local treasurer two (2)
years from the date of the payment of such tax, fee, or charge, or from the date the
taxpayer is entitled to a refund or credit;

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5. OTHERS
A. Requisites of Tax Delinquency Sale ( LGC of 1991): Corporate Strategies Development
Corporation and Rafael R. Prieto Vs. Norman A. Agojo G.R. No. 208740 November 19, 2014.
Burden to prove compliance with the validity of the proceedings leading up to
the tax delinquency sale of real property is incumbent upon the buyer or the winning
bidder.
a. Posting of notice of delinquency at the main hall and in a publicly accessible and
conspicuous place in each barangay of the LGU;
b. Publication once a week for two (2) consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality;
c. If Treasurer issues a warrant of levy (WL), mail or serve WL to delinquent
owner of the real property or person having legal interest therein, or in case
he is out of the country or cannot be located, the administrator or occupant of
the property.
d. Notice with the attached WL mailed to or served upon the Assessor and the
Registrar of Deeds;
e. Within thirty (30) days after service of the WL, the local treasurer shall publicly advertise
for sale or auction the property or a usable portion thereof;
f. Advertisement shall be effected by posting a notice at the main entrance of the
provincial, city or municipal building, and in a publicly accessible and conspicuous place
in the barangay where the real property is located, and by publication once a week for
two (2) weeks in a newspaper of general circulation in the province, city or municipality
where the property is located.
2. NOTE: VERY IMPORTANT CASE: DOCTRINE: If issue is validity of assessment not
reasonableness of RPT assessment, ordinary courts ( NOT LBAA, CBAA) have jurisdiction over
the issue.

JURISTS BAR REVIEW CENTER

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NPC vs. MUNICIPAL GOVERNMENT OF NAVOTAS; GR 192300; 24 November 2014


FACTS: NPC entered into a BOT agreement with private corporation covering gas turbine power
stations wherein the power stations are in the actual control and supervision of NPC. LGU issues
an RPT assessment. NPC argues that the properties are exempt from RPT. Instead of exhausting
administrative remedies of filing protest, then appeal to LBAA and CBAA, NPC filed declaratory
relief with RTC assailing the validity of assessment NOT the reasonableness or correctness of
assessment.
RULING:
A. When the legality or validity of the assessment is in question, and not its reasonableness
or
correctness, appeals to the LBAA, and subsequently to the CBAA, are not necessary. Stated
differently, in the event that the taxpayer questions the authority and power of the assessor to
impose the assessment, and of the treasurer to collect the real property tax, resort to judicial
action ( ORDINARY COURTS) may prosper. In the case at bench, the petitioners are
questioning the very authority and power of the assessor, acting solely and
independently, to impose the assessment and of the treasurer to collect the tax. These
are not questions merely of amounts of the increase in the tax but attacks on the very
validity of any increase. If the only issue is the legality or validity of the assessment a question
of law direct recourse to the RTC is warranted.
B. As a rule, administrative remedies (PROTEST, LBAA, CBAA) must first be exhausted before resort
to judicial action can prosper, there is a well-settled exception in cases where the controversy
does not involve questions of fact but only of law. The proceedings of the LBAA shall be
conducted solely for the purpose of ascertaining the facts . . . ." It follows that appeals to
this Board (LBAA) may be fruitful only where questions of fact are involved. Again, the
protest contemplated under Sec. 252 of R.A. 7160 is needed where there is a question as
to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the
reasonableness of an increase in a real estate tax assessment, he is required to "first pay the tax"
under protest. Otherwise, the city or municipal treasurer will not act on his protest.
C. CTA Division has jurisdiction over decisions of the RTC in petitions for declaratory relief filed
by TX assailing the validity of assessment on the ground of exemption from RPT.
D. The real property tax for any year shall accrue on the first day of January and from
that date it shall constitute a lien on the property which shall be superior to any other lien,
mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the
payment of the delinquent tax.
E. It is the City or Municipal Treasurers Office which collects RPT;
F. Notice of Time for Collection of Tax. The city or municipal treasurer shall, on or before
the thirty-first (31st) day of January each year, post the notice of the dates when the tax
may be paid without interest at a conspicuous and publicly accessible place at the city or
municipal hall. Said notice shall likewise be published in a newspaper of general circulation in the
locality once a week for two (2) consecutive weeks.
G. Payment Under Protest is required in protest of RPT: 30 days from payment of tax and
filed before provincial, city treasurer or municipal treasurer, in the case of a municipality within
Metropolitan Manila Area. Treasurer decides within 60 days. If denied or after lapse of 60 day
period TX may go to LBAA (60 days) then to CBAA (30 days).
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