I.

GENERAL PRINCIPLES OF TAXATION It covers persons, businesses, activities, professions, rights, and
privileges.
A. DEFINITION AND CONCEPT OF TAXATION 2. Unlimited
1. Taxation as a process A tax does not cease to be valid merely because it regulates,
a means by which the sovereign, through its law- discourages, or even definitely deter the activities taxed. The
making body, raises revenue to defray the necessary power to impose taxes is one so unlimited in force and so
expenses of the government. It is merely a way of searching in extent that the courts scarcely venture to declare
apportioning the costs of government among those that it is subject to any restriction whatever, except such as rest
who in some measures are privileged to enjoy its in the discretion of the authority which exercises it.
benefits and must bear its burdens.
3. Plenary
2. Taxation as a power It is complete. Under the NIRC, the BIR may avail of certain
refers to the inherent power of the state to demand remedies to ensure the collection of taxes.
enforced contributions for public purpose or
purposes. 4. Supreme
Although referred to as the strongest of all the powers of the
CIRvs.Allegre,February 17, 1988 government, it cannot be interpreted to mean that it is superior
It is said that taxes are what we pay for civilized society. Without to other inherent powers of the government, only that it is
taxes, the government would be paralyzed for lack of the motive supreme insofar as the selection of the subject of taxation.
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of ones hard-earned income to the
taxing authorities, every person who is able must contribute his D. POWER OF TAXATION COMPARED WITH
share in the running of the government, for its part, is expected OTHER INHERENT POWERS
to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their Taxation Police Power Eminent
moral and material values. This symbiotic relationship is the Domain
rationale of taxation and should dispel the erroneous notion that
Purpose: To raise revenue To promote To facilitate the
it is an arbitrary method of exaction by those in the seat of
public welfare taking of
power. through private
regulations property for
B. NATURE OF TAXATION public use
1. It is an inherent attribute of sovereignty
---The power of taxation is inherent in sovereignty as an incident Amount of No limit (but as It is limited to No amount is
or attribute thereof, being essential to the existence of every Exaction: much as possible, the cost imposed(but
it must be equal to of regulation, rather the owner
government. It can be exercised by the government even if the needs of the is paid the
issuance of
the Constitution is entirely silent on the subject. government in
license or market value of
order to avoid the property
deficit scenario for surveillance fee
taken)
Note: the State)
a. Constitutional provisions relating to the
power of taxation do not operate as grants Benefits No special or No direct A direct benefit
of the power to the government. They received: direct benefit is benefit is results in the
merely constitute limitations upon a power received by the received, but a form of just
which would otherwise be practically without TP, merely healthy compensation
limit. general benefit economic to the property
of protection standard of owner
b. While the power to tax is not expressly
society is
provided for in our constitutions, its attained
existence is recognized by the provisions
relating to taxation. Non- Contracts may Contracts Contracts may
impairment not be impaired may be be impaired
MCIAA vs. Marcos, Sept. 11, 1996 of impaired
As an incident of sovereignty, the power to tax has been Contracts:
described as unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found Transfer of Taxes paid No transfer but Transfer is
only in the responsibility of the legislative which imposes the tax Property become part of only restraint in effected in
Rights: public funds its exercise favour of the
on the constituency who are to pay it.
State
2. It is legislative in character Scope: All persons, All persons, Only upon a
---The power to tax is exclusively legislative and cannot be property and property, rights, particular
exercised by the executive or judicial branch of the government. excises and privileges property
C. CHARACTERISTICS OF A TAXING POWER
1. Comprehensive

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Who May exercise May exercise May be:
exercises only by the govt only by the 1.exercised by F. PRINCIPLES OF SOUND TAX SYSTEM
the power? or its political govt or its the govt or its
subdivisions political political
subdivisions subdivisions; 1. Fiscal Adequacy
2.granted to The sources of tax revenue should coincide with, and
public service approximate the needs of government expenditure.
companies or Neither an excess nor a deficiency of revenue vis--
public utilities vis the needs of government would be in keeping with
the principle.
Basis Public necessity Public Public
necessity and necessity
the right of the 2. Administrative Feasibility
state and the Tax laws must be capable of being effectively
public to self- enforced with the least inconvenience to the taxpayer.
protection and
self- 3. Theoretical Justice
preservation The tax burden should be in proportion to the
taxpayers ability to pay (Ability to Pay Theory). The
E. PURPOSE OF TAXATION 1987 Constitution requires taxation to be uniform and
1. Revenue-raising equitable and that the State must evolve a progressive
---to raise funds or property with which the State promotes the system of taxation (Sec. 28[1],Art.VI).
general welfare and protection of its citizens
Progressive Scheme of Taxation
Municipality of Makati vs. CA, October 01, 1990 This refers to or covers the entire tax structure of the
Revenues derived from taxes are intended primarily to finance country in all its stages or aspects. It requires that
the government and its activities and are thus exempt from revenue laws place emphasis on direct rather than
execution. indirect taxes, the Ability-to-Pay principle as the
principal criterion. Thus, this system is primarily based
2. Non-revenue/Special or Regulatory on TPs ability to pay; it implies that as the income,
gain or proceeds of a TP increase, he pays more
taxes. As applied to income taxation, he who earns
1.Promotion Taxation may be used as an implement of more shall pay more and he who earns less, pays
of General police power in order to promote the general less.
Welfare welfare of the people
G. THEORY AND BASIS OF TAXATION
2.Regulation As in the case of taxes levied on excises
and privileges like those imposed in tobacco 1. Lifeblood Theory
or alcoholic products or amusement places. It maintains that the payment of taxes is compulsory
because without money, the government cannot pay
3.Reduction This is made possible through the its expenses, it would be paralyzed for lack of motive
of Social progressive system of taxation where the power to activate and operate and therefore, it ceases
Inequality objective is to prevent the under-concentration to exist. So it is required of its citizens and residents to
of wealth in the hands of few individuals. take the monetary burden of taxes in order that it can
perform its functions and services.
4.Encourage In the realm of tax exemptions and tax reliefs, Taxes are indispensable to state existence, without
Economic for instance, the purpose is to grant taxation the State cannot raise revenue to support
Growth incentives or exemptions in order to itself, to pay for governmental services and deliver
encourage investments and thereby promote basic services to the people. Neither can the inherent
the countrys economic growth. powers of police power and eminent power be
effectively and permanently exercised without the
5. In case of foreign importations, protective power of taxation
Protectionis tariffs and customs are imposed for the
m benefit of local industries. 2. Necessity Theory
Taxes proceed upon the theory that the existence of
the government is a necessity; that it cannot continue
without the means to pay its expenses; and that for
those means, it has the right to compel all citizens and
properties within its limits to contribute.

Phil. Guaranty Co., Inc. vs. CIR, 13 SCRA 775

Taxation is a power emanating from necessity. It is a necessary
burden to preserve the States sovereignty and a means to

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give the citizenry an army to resist aggression, a navy to defend
its shores from invasion, a corps of civil servants to serve, public
improvements designed for the enjoyment of the citizenry and
those which come with the States territory and facilities, and
protection which a government is supposed to provide.
3. Benefits-Protection Theory (Symbiotic
Relationship)
The basis of taxation is the reciprocal duty of
protection between the state and its inhabitants. In
return for the contributions, the TP receives the
general advantages and protection which the
government affords the TP and his property.
Note:
1. The TP cannot question the validity of the tax law on
the ground that payment of such tax will render him
impoverished, or lessen his financial or social standing,
because the obligation to pay taxes is involuntary and
compulsory, in exchange for the protection and benefits
he receives from the government.
2. Special benefits to TPs are not required. A person
cannot object to or resist the payment of taxes solely
because no personal benefit to him can be pointed out
arising from the tax.
4. Jurisdiction over Subject and Objects
Rules:
a. Tax laws cannot operate beyond a States territorial
limits.
b. The govt cannot tax a particular object of taxation which is
not within its territorial jurisdiction.
c. Property outside ones jurisdiction does not receive any
protection of the State.
d. If a law is passed by Congress, it must always see to it
that the object or subject of taxation is within the
territorial jurisdiction of the taxing authority.
H. DOCTRINES IN TAXATION
1.Prospectivity of tax laws
Taxes must only be imposed prospectively except
when the language of the statute clearly demands of
express that it shall have a retroactive effect.
Lorenzo vs. Posadas, June 18, 1937
The legislative intent evidencing that a tax statute should
operate retroactively should be explicit and perfectly clear. Thus,
a statute should be considered as prospective in its operation,
whether it enacts, amends ore repeals, unless the language of
the statute clearly demands or express that is shall have a
retroactive effect.
2. Imprescriptibility
Taxes are imprescriptible except when provided
otherwise by the tax law itself.
e.g. NIRC provides for statutes of limitation in the
assessment and collection of taxes therein imposed.
3. Double Taxation
a. Strict sense
referred to as direct duplicate taxation, it means:
1. Taxing twice;
2. by the same taxing authority;
3. within the same jurisdiction or taxing district;
4. for the same purpose;
5. in the same year or taxing period;
6. some of the property in the territory
b. Broad sense
referred to as indirect double taxation, it is taxation
other than direct duplicate taxation. It extends to all
cases in which there is a burden of two or more
impositions.
c. Constitutionality of double taxation
Unlike in the United States Constitution, our
Constitution does not prohibit double taxation.
However, while it is not forbidden, it is something not
favored. Such taxation should, whenever possible, be
avoided and prevented.
In addition, where there is direct double taxation, there
may be a violation of the constitutional precepts of
equal protection and uniformity in taxation.
City of Baguio vs. De Leon, 25 SCRA 938
The argument against double taxation may not be invoked
where one tax is imposed by the State and the other is imposed
by the city, it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling,
or activity by both the State and a political subdivision thereof.
And where the statute or ordinance in question, there is no
infringement of the rule on equality.
d. Modes of eliminating double taxation
Two methods of relief:
Exemption Method Credit Method
The income or capital which is Although the income or capital
taxable at the state of source or which is taxed in the state of
situs is exempted at the state of source is still taxable in the state
residence, although in some of residence, the tax paid in the
instances it may be taken into former is credited against the tax
account in determining the rate levied in the latter. The basic
of tax applicable to the TPs difference between the two
remaining income or capital. methods is that in the exemption
method, the focus is on the
income or capital, whereas the
credit method focuses upon the
tax.
4. Escapes from taxation
a. Shifting of tax burden
The process by which the tax burdens are transferred
from the statutory taxpayer to another without violating
the law. This is the basic attribute of indirect taxes.
Note:
What is transferred is not the payment of tax but the burden of
payment.
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1) Ways of shifting the tax burden
Ways Definition
a) When the burden of the
Forward tax is transferred from a
Shifting factor of production
through the factors of
distribution until it finally
settles on the ultimate
purchaser or consumer.
b) When the burden of tax
Backward is transferred from the
Shifting consumer or purchaser
through the factors
distribution to the factors
of production.
c) When the tax is shifted
Onward two or more times either
Shifting forward or backward.
Example
Manufacturer or producer
may shift tax assessed to
wholesaler, who in turn
shifts it to the retailer, who
also shifts it to the final
purchaser or consumer.
Consumer or purchaser
may shift tax imposed on
him to retailer by
purchasing only after the
price is reduced, and from
the latter to the wholesaler,
or finally to the
manufacturer or producer.
Thus, a transfer from the
seller to the purchaser
involves one shift; from the
producer to the
wholesaler, then to retailer,
we have two shifts; and if
the tax is transferred again
to the purchaser by the
retailer, we have three
shifts in all.
A taxpayer has legal right to decrease the amount of what would
otherwise be his taxes or avoid them by means which the law
permits.
c. Tax Evasion (Tax Dodging)
It is resorting to acts and devices that illegally reduce
or totally escape payment of taxes that are due from a
taxpayer; they are prohibited and therefore subject to
civil and/or criminal penalties.
Elements:
1. The end to be achieved
e.g. payment of less than that known by the taxpayer to be
legally due, or paying no tax when it is shown that tax
is due.
2. An accompanying state of mind which is described as
being evil, in bad faith, willful, or deliberate and
not accidental.
3. A course of action (or failure of action) which is unlawful
Indicia of fraud in tax evasion:
1. Failure to declare for taxation purposes true and actual
income derived from business for 2 consecutive
years; or
2. Substantial under-declaration of income tax returns
of the taxpayer for 4 consecutive years coupled with
unintentional overstatement of deductions.
Evidence to prove tax evasion:
Since fraud is a state of mind, it need not be proved
by direct evidence but may be proved from the
circumstances of the case.

2) Taxes that can be shifted Cases:

Only indirect taxes may be shifted; direct taxes Republic vs. Gonzales, April 30, 1965
cannot be shifted. Failure of the taxpayer to declare for taxation purposes his true
and actual income derived from his business for 2 consecutive
3) Meaning of impact and incidence of taxation years is an indication of his fraudulent intent to cheat the
government of its due taxes.
Impact of Taxation Incidence of Taxation
CIR vs. Reyes, November 25, 1958
-The point on which a tax is -The point on which the tax Substantial under-declaration of income in the tax returns of the
originally imposed. burden finally rests or settles taxpayer for 4 consecutive years coupled with intentional
-In so far as the law is down. overstatement of deductions.
concerned, the TP is the person - It takes place when shifting has
who must pay the tax to the been effected from the statutory 5. Exemption from taxation
government. TP to another. a. Meaning of exemption from taxation
-He is also termed as the It is the grant of immunity to particular persons or corporations
statutory TP-the one on whom or to persons or corporations of a particular class from a tax
the tax is formally assessed. which persons and corporations generally within the same state
-He is the subject of the tax. or taxing district are obliged to pay. It is an immunity or privilege;
it is freedom from a financial charge or burden to which others
are subjected.
b. Tax Avoidance (Tax Minimization Scheme)
It is the reduction or totally escaping payment of taxes Rationale:
thru legally permissible means they are nor The inherent power of the state to impose taxes
prohibited and therefore are not subject to penalties. It naturally carries with it the power to grant tax
is a tax saving device within the means sanctioned by exemptions. The power to exempt from taxation, as
law, if used by the taxpayer in good faith and at arms well as the power to tax, is an essential attribute of
length, then, it is valid. sovereignty and may be exercised in the Constitution
expressly or by implication prohibits action by the
Delpher Trades vs. IAC, January 26, 1988 legislature on the subject. It may arise through pardon

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 by the government, reciprocity between states,
necessity, and convenience, contractual agreement or
mere generosity.
b. Nature of Tax exemption
1. It is a mere personal privilege of the grantee.
2. It is generally revocable by the government unless the
exemption is founded on a contract which is
contract which is protected from impairment.
3. It implies a waiver on the part of the government of
its right to collect what otherwise would be due to it,
and so is prejudicial thereto.
4. It is not necessarily discriminatory so long as the
exemption has a reasonable foundation or rational
basis.
5. It is not transferable except if the law expressly
provides so.
c. Kinds of Tax exemption
1. Express (affirmative exemption)- The exemption from
the taxation is one that is categorically stated by the
Constitution, statutes, treaties, ordinance, franchise,
contract or law.
2. Implied(Exemption by Omission)-when the legislature
omits TPs from the list of those subject to certain
tax.
Restrictions on revocation
a. Non-impairment clause- where the exemption was granted
to private parties based on material consideration of a mutual
nature, it then becomes contractual and is covered by the non-
impairment clause of the Constitution.
b. Adherence to form- if the tax exemption is granted by the
Constitution, its revocation may be effected through
constitutional amendment only.
c. Where the tax exemption grant is in the form of a special law
and not by a general law even if the terms of the general act are
broad enough to include the codes in the general law unless
there is manifest intent to repeal or alter the special law
(Province of Misamis Oriental vs. Cagayan Electric Power and
Light Co. Inc., January 12, 1990).
6. Compensation and Set-off
Domingo vs. Garlitos, June 29, 1963
Requisites of Compensation:
1. The tax assessed and the claim against the govt be fully
liquidated.
2. The tax assessed and the claim against the govt is due
and demandable, and
3. The govt had already appropriated funds for the
payment of the claim

3. Contractual- those agreed upon by the taxing General Rule:

authority in contracts lawfully entered into by them
under enabling laws, in so doing the government
performs a non-governmental function.
d. Rationale/Grounds for exemption
Taxes cannot be the subject of legal compensation or set-off
because the government and the taxpayer are not mutually
creditor and debtor of each other and a claim for taxes is not
such debt, demand, contract or judgment as is allowed to be
set-off (Doctrine of Legal Compensation of Set-off).

Rationale for granting tax Grounds for granting tax Exception:

exemptions exemptions Where both the claims of the government and the taxpayer
. against each other have already become due and demandable
Its avowed purpose is some May be based on: as well as fully liquated.
public benefit or interests which 1. contract.
the law-making body considers 7. Compromise
sufficient to offset the monetary 2. some ground of public policy. A contract whereby the parties, by reciprocal concessions, avoid
loss entailed in the grant of the litigation or put an end to one already commenced.
exemption. 3. grounds of reciprocity or to
lessen the rigors of international Requisites:
The theory behind the grant of double or multiple taxation. 1. Taxpayer must have a tax liability.
tax exemptions is that such act 2. There must be an offer by the TP or the CIR, of an
will benefit the body of the amount to be paid by TP.
people. It is not based on the 3. There must be acceptance of the offer in settlement
idea of lessening the burden of of the original claim.
the individual owners of property.
Persons allowed to compromise:
1. CIR(Sec. 204, NIRC)
e. Revocation of Tax exemption 2. Collector of Customs with respect to customs duties
It is an act of liberality which could be taken back by limited to cases where legitimate authority is specifically
the government unless there are restrictions. granted, such as in the remission of duties (Sec. 709, TCC)
3. Customs Commissioner- subject to the approval of the
MCIAA vs. Marcos, 261 SCRA 667 Secretary of Finance, on cases involving the imposition of
Since Taxation is the rule and exemption is the exception, the fines, surcharges and forfeitures (Sec. 2316, TCC)
exemption thus may be withdrawn at the pleasure of the taxing 4. Local Government Code- no provision regarding
authority. compromise; however, tax (not criminal) liability is not

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 prohibited from being compromised (Arts. 2034 and 2035, a. Tax Laws
NCC) General rule:
Tax laws are liberally interpreted in favor of the TP and strictly
against the government.
8. Tax Amnesty
It is a general pardon or intentional overlooking by the State of Exception:
its authority to impose penalties on persons otherwise guilty of Liberal interpretation does not apply to tax exemptions which
tax evasion or violation of a revenue tax law. It partakes an should be construed in strictissimi juris against the taxpayer.
absolute forgiveness or waiver by the government of its right
to collect what otherwise could be due it, to give tax evaders a b. Tax Exempt and Exclusion
chance to reform and become part of the new society with a General Rule:
clean slate. ---In the construction of tax statutes, exemptions are not favored
and are construed strictissimi juris against the taxpayer. The
Note: fundamental theory is that all taxable property should bear its
1. Tax amnesty, like tax exemption, is never favored nor share in the cost and expense of the government.
presumed in law and if granted by statute must be Taxation is the rule and exemption. He who claims exemption
construed strictly against the taxpayer, who must show must be able to justify his claim or right thereto by a grant
compliance with the law. express in terms too plain to be mistaken and too categorical to
2. The government is not estopped from questioning the be misinterpreted. If not expressly mentioned in the law, it must
tax liability even if amnesty tax payments were already be at least within its purview by clear legislative intent.
received.
Exceptions:
a. Tax Amnesty vs. Tax exemption 1. The law itself expressly provides for a liberal construction
thereof.
2. In cases of exemptions granted to religious, charitable and
Tax Amnesty Tax exemption educational institutions or to the government or its agencies or
to public property because the general rule is that they are
Partakes of an absolute The grant of immunity to exempted from tax.
forgiveness or waiver by the particular persons or
Government of its right to collect corporations of a particular class c. Tax rules and regulations
what otherwise would be due it from a tax of which persons and General Rule:
and, in this sense, prejudicial corporations generally within the They shall not be given retroactive application if the revocation,
thereto, particularly to tax same state or taxing district are modification or reversal will be prejudicial to the taxpayers.
evaders who wish to relent and obliged to pay.
are willing to reform are given a d. Penal provisions of tax laws
chance to do so and therefore Tax laws are civil and not penal in nature, although there are
become a part of the society with penalties provided for their violation.
a clean slate.
Purpose of imposing penalties:
Immunity from all criminal, civil Immunity from civil liability To compel the timely payment of taxes or to punish evasion or
and administrative liabilities only neglect of duty in respect thereof.
arising from non-payment of
taxes e. Non-retroactive application to taxpayers
Exceptions:
A statute may operate retroactively provided it is expressly
Applies only to past tax periods, Prospective application declared or is clearly the legislative intent. But a tax law should
hence retroactive application not be given retroactive application when it would be harsh and
oppressive.

There is revenue loss since None, because there was no I. SCOPE AND LIMITATION OF TAXATION
there was actually taxes due but actual taxes due as the person 1. Inherent limitations
collection was waived by the or transaction is protected by tax a. Public Purpose
government. exemption. The term public purpose is synonymous with
governmental purpose; a purpose affecting the
Never favored nor presumed in law inhabitants of the state or taxing district as a
granted by statute community and not merely as individuals.
The terms of the amnesty or exemption must be strictly
construed against the TP and liberally in favor of the The tax must be used:
government 1. for the support of the state or
2. for some recognized objects of governments or
3. directly to promote the welfare of the community
9. Construction and Interpretation of:

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Test in determining Public Purposes in tax:
a. Duty Test whether the thing to be threatened by the
appropriation of public revenue is something which is
the duty of the State, as a govt.
b. Promotion of General Welfare Test whether the law
providing the tax directly promotes the welfare of the
community in equal measure.
Note:
- A tax levied for a private purpose constitutes a taking
of property without due process of law.
- The purposes to be accomplished by taxation need
not be exclusively public. Although private individuals
are directly benefited, the tax would still be valid
provided such benefit is only incidental.
- The test is not as to who receives the money, but the
character of the purpose for which it is expended; not
the immediate result of the expenditure but rather the
ultimate.
- In the imposition of taxes, public purpose is presumed.
b. Inherently Legislative
General Rule:
Taxation is purely legislative, Congress cannot delegate the
power to others. This limitation arises from the doctrine of
separation of powers among the three branches of government.
Exceptions:
1. Delegation to local governments (Sec. 5,Art. X, 1987
Consti)
- The power of LGUs to impose taxes and fees is
always subject to the limitations which the Congress
may provide, the former having no inherent power to
tax.
The power to tax is primarily vested in the Congress,
however, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely by virtue of a valid
delegation but pursuant to direct authority conferred by
Section 5, Article X of the1987 Constitution, subject to
guidelines and limitations which Congress may provide
which must be consistent with the basic policy of local
autonomy.
2. Delegation to the President
The power granted to Congress under this constitutional
provision to authorize the President to fix within specified limits
and subject to such limitations and restrictions as it may impose,
tariff rates and other duties and imposts include tariffs rates
even for revenue purposes only. Customs duties which are
assessed at the prescribed tariff rates are very much like taxes
which are frequently imposed for both revenue-raising and
regulatory purposes (Sec. 28(2), Art. VI, 1987 Consti.).
3. Delegation to administrative agencies
With respect to aspects of taxation not legislative in
character
e.g.
a. power to value property
b. power to assess and collect taxes
c. power to perform details of computation,
appraisement or adjustments.
Note:
For the delegation to be constitutionally valid, the law must be
complete in itself and must set forth sufficient standards.
1. Completeness Test the law must be complete in all
essential terms and conditions when it leaves the
legislature so that there will be nothing left for the delegate
to do when it reaches him except to enforce it.
2. Sufficient Standard Test- the law must offer a sufficient
standard to specify the limit of the delegates authority,
announce legislative policy, and specify conditions under
which it is to be implemented.
c. Territorial
1. Situs of Taxation
Literally means the place of taxation.
The place or the authority that has the right to impose
and collect taxes. It is premised upon the symbiotic
relation between the TP and the State.
a. Situs of Income Tax
1. From sources within the Philippines
2. From sources without the Philippines
Determined by the nationality, residence of the
TP and source of income.
Theories:
1. Domicillary theory - the location where the income
earner resides is the situs of taxation
2. Nationality theory - the country where the income
earner is a citizen is the situs of taxation
3. Source rule - the country which is the source of the
income or where the activity that produced the
income took place is the situs of taxation.
3. Income partly within and partly without the
Philippines
Allocated or apportioned to sources within or without
the Philippines.
b. Situs of Property Taxes
1. Taxes on Real Property
The place where the property is located. The
applicable concept is lex situs or lex rei sitae.
2. Taxes on Personal Property
Tangible personal property Intangible personal property
Where the property is physically The place where the owner is
located although the owner located. The applicable concept
resides in another jurisdiction. is mobilia sequuntur personam
Mobilia sequuntur presonam
- movables follow the owner or domicile of the owner
Exceptions:
1. When the property has acquired a business situs in
another jurisdiction;
2. When an express provision of the statute provide for
another rule.
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c. Situs of Excise Tax
1.Estate Tax
2. Donors Tax
Determined by the nationality and residence of the TP and the
place where the property is located.
d. Situs of Business Tax
The place where the act or business is performed or occupation
is engaged in or where the transaction is performed because it
is that place that gives protection
Note:
The power to levy an excise upon the performance of an act or
the engaging in an occupation does not depend upon the
domicile of the person subject to the exercise, nor upon the
physical location of the property or in connection with the act or
occupation taxed, but depends upon the place on which the act
is performed or occupation engaged in.
Transaction Situs of Transaction
1.Sale of Real Property Place or location of the real property
2.Sale of Personal Property Place of sale
3.VAT Where the goods, property or
services are destined, used or
consumed.
d. International Comity
Comity is the respect accorded to other sovereign
nations.
The property of a foreign state or government may not
be taxed by another.
Basis: Sec. 2, Art. II, 1987 Constitution- Doctrine of
Incorporation Clause
The Philippines renounces war as an instrument of
national policy, adopt the generally accepted principles of
international law as part of the law of the land and adheres
to the policy of peace, equality, justice, freedom,
cooperation, and amity with all nations.
Bases of the rule
1. Doctrine of Sovereign equality(In par parem non
habet imperium)
- as between equals, there is no sovereign
2. Usage among states that when one enter into the
territory of another, there is an implied understanding
that the power does not intend to degrade its dignity
by placing itself under the jurisdiction of the latter
3. The rule of international law that a foreign government
may not be sued without its consent. Thus it would be
useless to assess the tax since it cannot be collected
4. Reciprocity among states
e. Exemption of Government Entities, Agencies, and
Instrumentalities
Agencies performing:
1. governmental functions - tax exempt
2. proprietary functions - subject to tax.
Note:
The exemption applies only to governmental entities
through which the government immediately and
directly exercises its sovereign powers.
Tax exemption of property owned by the Republic of
the Philippines refers to the property owned by the
government and its agencies which do not have
separate and distinct personality (NDC vs. Cebu City)
Those created by special charter (incorporated
agencies) are not covered by the exemption.
2. Constitutional Limitations
a. Provisions Directly Affecting Taxation
1. Prohibition against imprisonment for non-payment of poll
tax (Sec. 20, Art. III)
The prohibition is against imprisonment for non-
payment of poll tax. Thus, a person is subject to
imprisonment for violation of the community tax law
other than for non-payment of the tax and for non-
payment of other taxes as prescribed by law.
The non-imprisonment rule applies to non-payment of
poll tax which is punishable only by a surcharge, but
not to other violations like falsification of community
tax certificate or non-payment of other taxes.
The only penalty for delinquency in payment is the
payment of surcharge in the form of interest at the rate
of 24% per annum which shall be added to the unpaid
amount from due date until it is paid(Sec. 161, LGC)
2. Uniformity and equality of taxation
(Sec. 28(1), Art. VI)
Uniformity (equality or equal protection of the laws) means
all taxable articles or kinds or property of the same
class shall be taxed at the same rate. A tax is uniform
when the same force and effect in every place where
the subject of it is found.
Equitable means fair, just, reasonable and
proportionate to ones ability to pay.
3. Grant by Congress of authority to the President to
impose tariff rates (Art. 28 (2), Art. VI)
4. Prohibition against taxation of religious, charitable entities,
and educational entities (Sec. 4(4), Art. XIV)
The exemption granted to non-stock, non-profit
educational institution covers:
income,
property, and
donors taxes, and
custom duties.
To be exempt from tax or duty, the revenue, assets,
property or donation must be used
ADE for educational purpose.
In the case of religious and charitable entities and
non-profit cemeteries, the exemption is limited to
property tax.
Page 8 of 104
 The said constitutional provision granting tax
exemption to non-stock, non-profit educational
institution is self-executing.
Tax exemptions, however, of proprietary educational
institutions require prior legislative implementation.
Their tax exemption is not self-executing.
Lands, Buildings, and improvements ADE used for
educational purposed are exempt from property tax,
whether the educational institution is proprietary or
non-profit.
5. Prohibition against taxation of non-stock, non-profit
institutions (Sec. 4 (3), Art. XIV)
All revenues and assets of non-stock, non-profit
educational institutions used ADE for educational
purposes shall be exempt from taxes and duties
Note:
Where the educational institution is private and non-profit (but a
stock corporation), it is subject to income tax but at the
preferential rate of 10%
6. Majority vote of Congress for grant of tax exemption (Sec.
28(4), Art. VI)
The provision requires the concurrence of a majority,
not of attendees constituting a quorum, but of all
members of the Congress.
7. Prohibition on use of tax levied for special purpose (Sec.
29(3), Art. VI)
All money collected or any tax levied for a special
purpose shall be treated as a special fund and paid
out for such purpose only. If the purpose for which a
special fund was created has been fulfilled or
abandoned the balance, if any, shall be transferred to
the general funds of the government.
8. Presidents veto power on appropriation, revenue, tariff bills
(Sec. 27(2), Art. VI)
The President shall have the power to veto any
particular item or items in an Appropriation, Revenue
or Tariff bill but the veto shall not affect the item or
items to which he does not object.
9. Non-impairment of jurisdiction of the Supreme Court
The Congress shall have the power to define,
prescribe, and apportion the jurisdiction of the various
courts but may not deprive the Supreme Court of its
jurisdiction over cases enumerated in Sec. 5,Art. VIII.
10. Grant of power to the local government units to create its
own sources of revenue (Sec 5, Art. X)
Note:
LGUs have no power to further delegate said
constitutional grant to raise revenue, because
what is delegated is not the enactment or the
imposition of a tax, it is the administrative
implementation.
11. Flexible Tariff Clause (Sec. 401 of the Tariff Code)
In the interest of national economy, general
welfare and/or national security, the President
upon the recommendation of the NEDA is
empowered:
1. To increase, reduce or remove existing protective
rates of import duty, provided that the increase should
not be higher than 100% ad valorem.
2. To establish import quota or to ban imports of any
commodity.
3. To impose additional duty on all imports not
exceeding10% ad valorem
12. Exemption from real property taxes
(Sec. 28(3), Art. VI)
13. No appropriation or use of public money for religious
purposes (Sec. 29(2), Art. VI)
Congress is without power to appropriate funds for
a private purpose.
b. Provisions Indirectly Affecting Taxation
1. Due process (Sec. 1, Art. III)
No person shall be deprived of life, liberty or
property without due process of law.
2. Equal protection (Sec. 1, Art. III)
3. Religious freedom (Sec. 5 Art. III)
Note:
License fees/taxes would constitute a restraint on the
freedom of worship as they are actually in the nature
of a condition or permit of the exercise of the right.
However, the Constitution or the Free Exercise of
Religion clause does not prohibit imposing a generally
applicable sales and use tax on the sale of religious
materials by a religious organization.
4. Non-impairment of obligations of contracts
(Sec. 10, Art. III)
A law which changes the terms of the contract by
making new conditions, or changing those in the
contract, or dispenses with those expressed, impairs
the obligation.
The non-impairment rule, however, does not apply to
public utility franchise since a franchise is subject to
amendment, alteration or repeal by the Congress
when the public interest so requires.
J. STAGES OF TAXATION
1. Levy
It refers to the enactment of a law by Congress
authorizing the imposition of tax on person, property
or excises. It includes:
a. determination of the subject of taxation;
b. determination of the purposes for which taxes
shall be levied;
c. fixing the rate of taxation; and
d. rules of taxation in general (manner, means, and
agencies of collection)
2. Tax administration
the act of administration and implementation of the tax
law by executive through its administrative agencies. It
includes:
Page 9 of 104
 a. Assessment; and
b. Collection 4. It is proportionate in character.
- It is ordinarily based on the TPs ability to pay

5. It is levied on persons or property.

3. Payment - A tax may also be imposed on acts, transactions, rights or
It is the act of compliance by the TP, including such privileges.
options, schemes or remedies as may be legally
available to him 6. It is levied for public purpose or purposes.

4. Refund L. REQUISITES OF A VALID TAX

It the recovery of any tax alleged to have been 1. It should be for a public purpose
erroneously or illegally assessed or collected, or of 2. The rule of taxation should be uniform
any penalty claimed to have been collected without 3. Either the person or property taxed be within the
authority, or of any sum alleged to have been jurisdiction of the taxing authority
excessively, or in any manner wrongfully collected. 4. The assessment and collection be in consonance with
the due process clause
Note: 5. The tax must not infringe on the inherent and
If what is delegated is tax legislation, the delegation is invalid. If constitutional limitations of the power of taxation.
what is delegated is tax administration, the delegation is valid.
M. TAX AS DISTINGUISHED FROM OTHER
K. DEFINITION, NATURE AND FORMS OF EXACTION
CHARACTERISTICS OF TAXES 1. Tariff synonymous with custom duties
May be used in three senses:
Definition a A book of rates drawn usually in alphabetical order
It is an enforced proportionate contribution imposed upon: containing the names of several kinds of merchandise
- persons, b Duties payable on goods imported or exported (PD.
- properties, No. 230)
c The system or principle of imposing duties on the
- businesses,
importation/exportation of goods.
- rights,
- interests,
- privileges, 2. Toll it is an amount paid for the use of someone elses
- transactions and property. It may either imposed by private individual or by the
- acts within the territorial jurisdiction of the taxing government.
authority exercise by the legislature for public purpose
Example: toll fee for the use of canal, bridge, hi-way, or any
and generally payable in money
of public nature
Nature
Tax Toll
They are not arbitrary exactions but contributions levied by
authority of law, and by some rule of proportion which is
It is a demand of sovereignty of proprietorship
intended to ensure uniformity of contribution and a just
apportionment of the burdens of government.
It is paid for the support of the for the use of anothers
government property
Characteristics
1. It is levied by the law-making body of the State.
Generally, no limit as to amount amount depends on the cost of
- The power to tax is a legislative power which under the
imposed the construction and
Constitution only Congress can exercise through the
maintenance of the public
enactment of laws. Accordingly, the obligation to pay taxes is
improvement used
a statutory liability.

2. It is an enforced contribution. Imposed only by the the government or

- A tax is not a voluntary payment or donation. It is not government private individuals or
dependent on the will or contractual assent, express or entities
implied, of the person taxed. Taxes are not contracts but
positive acts of the government. 3. License fee
A charge imposed under the police power for the
3. It is generally payable in money. purposes of regulation.
- Tax is a pecuniary burden an exaction to be discharged
alone in the form of money which must be in legal tender, Tax License/Permit Fee
unless qualified by law, such as RA304 which allows
backpay certificates as payment of taxes. Enforced contribution Legal compensation or reward

Page 10 of 104
assessed by the sovereign
authority to defray public
expenses
For revenue purposes
An exercise of the taxing power
of an officer for specific purposes
regulation
of the Police Power
Generally, cannot be assigned Assignable
Generally, payable in money May be paid in kind
Generally, not subject to set-off May be subject to set-off or
or compensation compensation

Generally, no limit as to the limited to the necessary Imprisonment is a sanction for No imprisonment for non-
amount of tax to be paid expenses of inspection and non-payment except poll tax payment
regulation
Governed by special prescriptive by ordinary prescriptive periods
Imposed also on persons and on the right to exercise privilege periods provided in the Tax Code
properties
Does not draw interest except Draw interest when so
Three kinds of licenses are recognized in the law: only when delinquent stipulated, or in case of default
1. Licenses for the regulation of useful occupations.
2. Licenses for the regulation or restriction of non- N. KINDS OF TAXES
useful occupations or enterprises 1. As to object
3. Licenses for revenue only a. Personal, capitation, or poll tax
Tax of a fixed amount imposed on persons residing
4. Special assessment within a specified territory, whether citizens or not,
An enforced proportional contribution from owners of without regard to their property or the occupation or
lands especially or peculiarly benefited by public business in which they may be engaged.
improvements. b. Property tax
Since special assessments are not taxes within the Tax imposed on property, real or personal, in
constitutional or statutory provisions on tax proportion to its value or in accordance with some
exemptions, it follows that the exemption under Sec. other reasonable method of apportionment.
28(3), Art. VI of the Constitution does not apply to c. Privilege tax
special assessments. A charge imposed upon the performance of an act, the
However, in view of the exempting proviso in Sec. 234 enjoyment of privilege, or the engaging in an
of the LGC, properties which are ADE used for occupation.
religious, charitable and educational purposes are not
exactly exempt from real property taxes but are 2. As to burden or incidence
exempt from the imposition of special assessments as a. Direct
well. Demanded from the person who also shoulders the
burden of the tax. It is a tax which the taxpayer is
Tax Special Assessment directly or primarily liable and which he or she cannot
shift to another.
Imposed on persons, properties, Levied only on land b. Indirect
and rights Demanded from a person in the expectation and
intention that he or she shall indemnify himself or
Personal liability of the person Not a personal liability of the herself at the expense of another, falling finally upon
assessed person assessed, his liability is the ultimate purchaser or consumer. A tax which the
limited only to the land involved. taxpayer can shift to another.
Based on necessity as well as Based wholly on benefits 3. As to tax rates
the benefits received a. Specific
The computation of the tax or the rates of the tax is
General application Exceptional both as time and
already provided for by law.
place
b. Advalorem
Tax upon the value of the article or thing subject to
5. Debt taxation; the intervention of another party is needed
Debt is based upon juridical tie, created by law, for the computation of the tax.
contracts, delicts or quasi-delicts between parties for c. Mixed
their private interest or resulting from their own acts or Tax rates are partly progressive and partly regressive
omissions.
4. As to purposes
Tax Debt
a. General or fiscal
Based on Law on contracts (express or implied)

Page 11 of 104
 imposed for the purpose of raising public funds for the
service of the government.

b. Special, regulatory, or sumptuary

Imposed primarily for the regulation of useful or non-
useful occupation or enterprises and secondarily only
for the purpose of raising public funds.

5. As to scope or authority to impose

a. National internal revenue taxes
Imposed by the National Government.
b. Local real property tax, municipal tax
Imposed by the municipal corporations or local
government units.

6. As to graduation
a. Progressive
Rate or amount of tax increases as the amount of the
income or earning to be taxed increases.
b. Regressive
Tax rate decreases as the amount of income to be
taxed increases.
c. Proportionate
Tax based on a fixed percentage of the amount of the
property receipts or other basis to be taxed.

Page 12 of 104
 are imposed on passive income.
c. Comprehensive The Philippine Income tax law adopted
the so-called comprehensive tax situs:
- comprehensive in the sense that it practically applies
II. NATIONAL INTERNAL REVENUE CODE all possible rules of tax situs.
d. Semi-schedular or semi-global tax system.
(NIRC) OF 1997
3. Criteria in imposing Philippine Income Tax
A. INCOME TAXATION a. Citizenship Principle
Income Tax A citizen of the Philippines is subject to Philippine
It is a tax on all yearly profits arising from property, income tax on his worldwide income, if he resides in
professions, trades or offices, or as a tax on a the Philippine, or only on his income from sources
persons income, emoluments, profits and the like within the Philippines, if he qualifies as NRC.
(Fisher vs. Trinidad, October 30,1922).
b. Residence Principle
1. Income tax system A RA is liable to pay income tax on his income from
a. Global Tax System sources within the Philippines but exempt from tax on
All income received by the taxpayer are grouped together, his income from sources outside the Philippines.
without any distinction as to the type or nature of the income,
and after deducting therefrom expenses and other allowance c. Source Principle
deductions, are subjected to tax at a fixed rate. An alien is subject to Philippine income tax because
he derives income from sources within the Philippines.
b. Schedular Tax System Thus, a NRA is liable to pay Philippine income tax on
The various types or items of income are classified accordingly his income from sources within the Philippines despite
and are accorded different tax treatments, in accordance with the fact that he has not set foot in the Philippines.
schedules characterized by graduated tax rates. Since these
types of income are treated separately, the allowance Taxable Source of
deductions shall likewise vary for each type of income. Taxpayer Income
(Philippines)
Schedular System Global System
RC Within & without
There are different tax rates Single tax rate
NRC Within
There are different categories No need for classification as all
of taxable income TPs are subjected to a single tax OCW/Seaman in International Vessel Within
rate
Alien Individual Resident or Non Within
Usually used in the income Usually applied to corporations Resident
taxation of individuals
DC Within & Without
c. Semi-schedular or semi-global tax system (mixed income)
It is a system where: FC(engaged or not in trade or business in Within
the compensation, the Philippines)
business or professional income,
capital gain and passive income(not subject to final tax), 4. Types of Philippine Income Tax
and other income are added together to arrive at the
a. Graduated Income Tax on individuals;
gross income,
b. NCIT on corporations;
and after deducting the sum of allowable deductions
c. MCIT on corporations;
from business or professional income,
d. Special Income Tax on certain corporations
capital gain and passive income (not subject to final tax),
e.g.
and other income,in the case of corporations,
1. private educational institutions
as well as personal and additional exemptions in case
2. foreign currency deposits
of individual taxpayer,
3. international carriers
the taxable income is subjected to one set of graduated
e. CGT on sale or exchange of unlisted shares of stock
tax rates;
of domestic corporation classified as capital assets;
method of taxation under the law.
f. CGT on sale or exchange or real property located in
the Philippines classified as capital assets
2. Features of the Philippines Income Tax Law g. FWT on income payment made to non-residents
a. Direct Tax One assessed upon the property, person, (individual or corporation);
business income, etc. of those who pay. h. FBT;
b. Progressive The tax rates increase as the tax base i. Branch profit remittance tax;
increases. In certain cases, however, final taxes

Page 13 of 104
 j. IAET; and
k. GIT
5. Taxable Period
a. Calendar Period
A period of 12 mos. commencing from January 1 and
ending December 31.
b. Fiscal Period
An accounting period of 12 mos. ending on the last
day of any month other than December.
c. Short Period
A period of less than 12 mos.
6. Kinds of Taxpayers
A) Individual Taxpayers
1. Citizen:
a. RC Citizen and resident of the
Philippines
b. NRC Sec.22(e):
A citizen of the Philippines who:
- establishes to the satisfaction of the CIR the fact of his
physical presence abroad with a definite intention to
reside therein.
- leaves the country during the taxable year to reside
abroad, either as immigrant or for employment or on
permanent basis.
- has been previously considered as NRC and two
arrives in the Philippines at any time during the
taxable year to reside permanently in the country.
- shall have stayed outside the Philippines for 183 days
or more by the end of the year.
2. Aliens:
a. RA
Resident of the Philippines but not citizen thereof
b. NRA
Not a resident and a citizen of the Philippines
a. NRAETB in the Philippines (Sec. 25[A][1])
- An alien who stays in the Philippines for
more than 180 days.
b. NRANETB in the Philippines
- An alien who stays in the Philippines for 180
days or less.
3. Special Class of individual employees
a. MWE - (Sec.22[HH])
A worker in the private sector paid the statutory minimum wage,
or to an employee in the public sector with compensation
income of not more than the statutory minimum wage in the
non-agricultural sector where he/she is assigned.
Note:
By virtue of the passage of R.A. 9504, MWEs are
exempted from the payment of the income tax on their
compensation income.
The SMW applies to all MWEs in the private sector in
the Region, regardless of their position, designation or
status of employment and irrespective of the method
by which they are paid.
MWEs shall NOT cover :
a. household or domestic helpers;
b. persons in the personal service of another, including
family drivers, and
c. workers of duly registered Barangay Micro Business
Enterprises (BMBs) with Certificate of Authority
pursuant to RA 9178 (Sec. 2, Wage Order No. NCR -15,
providing an increase in the minimum wage in the NCR).
Taxation of Income of MWEs
Compensation income of MWEs being paid the SMW,
as fixed by the RTWPB or NWPC, applicable to the
place where he/she is assigned shall be exempted
form income tax.
For this purpose, a senior citizen whose salary is
equivalent to the SMW shall also be considered as a
MWE entitled to exemption from income tax.
Said exemption covers:
Holiday pay,
overtime pay,
night shift differential pay and
hazard pay
However, an employee who receives/earns additional
compensation such as:
a. commissions,
b. honoraria,
c. fringe benefits,
d. benefits in excess of the allowable statutory amount
of P30,000 taxable allowances and other taxable
income other than those covered by the exemption
shall not enjoy the privilege of being a MWE.
Implication: the entire earnings are not exempt from income
tax and, consequently, from withholding tax.
MWEs receiving other income, such as income from:
a. the conduct of trade, business, or
b. practice of profession, except income subject to final
tax,
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 be exempt from withholding tax only, but said
income shall be included in the gross income for purposes of
computing his income tax, wherein he is required to file his
income tax return (BIR Form No. 1701).
B) Corporations
1. DC created or organized in the Philippines or under its laws.
2. FC created, organized or existing under any laws other than
those of the Philippines.
a) RFC engage in trade or business within the
Philippines.
b) NRFC Not engaged in the trade or business within
the Philippines.
3. JV and consortium
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 The legal concept of a JV is of common law origin. It
has no precise legal definition but it has been
generally understood to mean an organization formed
for some temporary purpose (Philippine Mining
Corporation vs. CIR, April 16, 2008). It is in fact hardly
distinguishable from the partnership, since their
elements are similar community of interest in the
business, sharing of profits and losses, and a mutual
right of control.
The main distinction cited by most opinions in
common law jurisdictions is that the partnership
contemplates a general business with some degree of
continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a
temporary nature. This observation is not entirely
accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal,
and a particular partnership may have for its object a
specific undertaking. It would seem therefore that
under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of
partnerships. The Supreme Court has, however,
recognized a distinction between these 2 business
forms, and has held that although a corporation
cannot enter into a partnership contract, it may,
however, engage in a joint venture with others.
What are the requisites of a joint venture?
1. Each party to the JV must make a contribution (capital,
services, skill, knowledge, material or money);
2. Profits which must be shared among the parties;
3. Profits must be a joint proprietary interest
4. There must be a right of mutual control over the subject
matter of the enterprise; and
5. Usually, there is a single business transaction.
When is a joint venture or consortium NOT taxable as a
corporation?
GENERAL RULE:
A joint venture is not taxed as a corporation and is taxed just like
a GPP which means that the co-venturers are taxed only on
their individual companys share in the profits.
In order that a JV or consortium will not be considered as a
taxable corporation under Sec. 22, it should be:
1. For the undertaking of a construction project;
2. Involve joining or pooling of resources by licensed
local contractors, that is, licensed as general
contractor by the
3. PCAB of the DTI:
4. These local contractors are engaged in construction
business; and
5. The JV itself must likewise be duly licensed as such
by the PCAB of the DTI.
JVs involving foreign contractors may also be treated
as a non-taxable corporation only if:
a. the member foreign contractor is covered by a special
license as contractor by the PCAB of the DTI; and
b. and the construction project is certified by the
appropriate Tendering Agency (government office) that
the project is a foreign financed/internationally-funded
project and that international bidding is allowed under
the Bilateral Agreement entered into by and between
the Philippine Government and the
foreign/international financing institution pursuant to
the implementing rules and regulations of RA 4566,
otherwise known as Contractors License Law.
In addition, the tax-exempt JV or consortium shall not
include those who are mere supplier of goods,
services, or capital to a construction project.
The member to a JV not taxable as corporation shall
each be responsible in reporting and paying
appropriate income taxes on their respective share to
the JVs profit.
Note: The tax exemption of the JV is valid only up to
the completion of the construction project and does
not extend to the subsequent sale or lease of the
developed condominium floors or units to customers
(Mamalateo, Reviewer on Taxation, 2008,ed.,p.94)
EXCEPTION:
1. Absent any one of the aforesaid requirements, the JV or
consortium formed for the purpose of undertaking construction
projects shall be considered as taxable corporation.
2. If the JV is engaged in any other line of business other than
construction or petroleum and other energy operations with
operating contract or consortium agreement under a service
contract with the government, the same will be treated as a
taxable corporation.
3. When two corporations shall be separately taxable as a
corporation.
C) Partnerships
Partnership is a contract whereby two or more persons bind
themselves to contribute money, property, or industry to a
common fund with the intention or dividing the profits among
themselves (Art.1767 NCC)
In general, partnerships are taxable just like a
corporation.
For tax purposes, partnerships, no matter how created
or organized (except a general professional partnership)
are taxed like a corporation.
They are taxable as an entity subject to the ordinary
corporate income tax.
The partners are considered as stockholders, hence,
the distributive shares are taxed as dividends subject
to the final withholding tax of 10%.
General co-partnerships.
General co-partnerships are partnerships, which by
law are assimilated to be within the context of, and so
legally contemplated as corporations.
The partnership itself is subject to the corporate
income tax, while the individual partners are
Page 15 of 104
 considered stockholders and therefore, profits
distributed to them by the partnership are taxable as
dividends. The taxable income of a general co-
partnership for a taxable year, after deducting the
corporate income tax imposed therein, shall be
deemed to have been actually or constructively
received by the partners in the same taxable year and
shall be taxed to them in their individual capacity
whether actually distributed or not.
D) General Professional Partnerships (GPPs)
What are general professional partnerships?
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 (Sec.
22[B]).
General Professional partnerships NOT subject to
income tax.
thus, income payments made to the GPPs are not
subject to the expanded withholding tax. But they are
required to file returns of their income.
Reason: for the purpose of furnishing information as to the
share in the gains or profits which each partner shall include in
his individual return.
Individuals carrying on business in GPPs are,
however, taxable upon their distributive shares of the
net income of such partnership, whether distributed or
not, and are required to include such distributive
shares in their individual returns.
For administrative purposes, GPPs are required to
render, in duplicate, a return of their earnings, profits
and income, setting forth the items of gross income
and the deductions allowable, and the names and
addresses of the individuals who would be entitled to
the net earnings, profits, and income, if distributed.
But distributive shares of partners in the net profit of a
GPP are taxable in the hands of the partners.
Income payments made to a GPP in consideration for
its professional services are not subject to income tax
and consequently to withholding tax.
It is the individual partners who shall be subject to
income tax, and consequently, to withholding tax, in
their separate and individual capacities pursuant to
Section 26 of the Tax code. Furthermore, each partner
shall report as gross income his distributive shares,
actually or constructively received, in the net income
of the partnership.
HOWEVER, it is worth mentioning that income
payments made periodically or at the end of the
taxable year by GPP to the partners, such as
drawings, advances, sharings, allowances, stipends
and the like, are subject to the 15%, if the payment to
the partner for the current year exceeds P 720,000;
and 10% FWT, if otherwise.
E) Estate and Trusts
Estate the mass of property, rights, and obligations left behind
by the decedents upon his death.
The status of the estate is determined by the status
of the decedent at the time of his death; so an estate
as an income TP can be a citizen or an alien
Trust An arrangement created by will or co-agreement under
which title to property is passed to another for conservation or
investment with the income therefrom and ultimately the
corpus to be distributed in accordance with the directions of the
creator as expressed in the governing instrument.
F) Co-ownership
Co-ownership occurs when:
1. two or more heirs inherit an undivided property
from a decedent, or
2. a donor makes a gift of an undivided property in
favour of two or more donees.
Before Partition of the property:
It is not taxable when the activities are limited to the
preservation of the co-owned property and the
collection of the income therefrom.
Each co-owner is taxed individually on his
distributive share.
Before partition and distribution, all the income
belongs to all the heirs.
After Partition
Should the co-owners invest the income of the co-
ownership in any income producing properties after
partition, they would be constituting themselves into
an unregistered partnership which is subject to income
tax as corporation
A co-ownership may become an unregistered general
partnership and therefore becomes a taxable
corporation if the co-owners appoint an administrator
who manages the affairs of the co-ownership by
making investments therein from which profits are
realized. This applies even if there was already a
partition ordered by the court should the joint
management be given to one of the co-owners.
A co-ownership is automatically converted into an
unregistered partnership the moment the said
common properties and/or income derived therefrom
are used as a common fund with intent to make profits
for the heirs in proportion to their respective shares in
the inheritance as determined in a project partition
either respective shares in the inheritance as
determined in a project partition either duly executed
in an extrajudicial settlement or approved by the court
in the corresponding testate or intestate proceeding.
Judicial partition of property will not preclude the
treatment of a co-ownership as a taxable corporation
where the property is not actually divided and where
the co-owners place the inherited property in
business.
Page 16 of 104
 HOWEVER, when the co-ownerships activities are
limited merely to the preservation of the co-owned
property, the co-owners shall be liable only for income
tax in their separate and individual capacities, and the
co-ownership itself is not considered as a separate
taxable entity.
essence of the test is that in order for income to be
taxed, it is to be severed from the property from which
it was derived.
Eisner vs. Macomber, 252 US 189, March 08, 1920
The Court analogized capital as being separate from income
in the way that a tree is separate from its fruit. It requires the
presence of a tax event which is an event which triggers a
transfer of ownership of property.

7. Income Taxation
A. Definition Mandarin Hotels, Inc. vs. CIR, March 24, 1997
A tax on all yearly profits arising from property, profession, trade There are two conditions in the realization of income:
or business, or a tax on persons income, emoluments, profits 1. The earning process is complete or virtually complete;
and the like. 2. An exchange has taken place.

B. Nature b. Actual vs. constructive receipt:

It is generally regarded as an excise tax.
It is not levied upon persons, property, funds or profits Actual receipt Constructive receipt
but on the privilege of receiving said income or profit.
-Income may be actual -When money consideration or its
receipt or Physical receipt. equivalent is place at the control of the
8. Income
person who rendered the service
A. Definition
without restriction by the payor.
It is an amount of money coming to a person or
corporation within a specified time whether as
Limpan Investment Corp vs. Commissioner, 17 SCRA 703
payment for services, interest or profits from
The term constructive receipt closely refers to availability of the
investment. It is a gain derived from capital, from
income to the TP but, by his own and exclusive choosing, he
labor, or from both combined, provided it be
prefers not to actually receive the income. Hence, a landlord
understood to include profit or gain, resulting from the
must consider as constructively received such rentals he
sale or conversion of real/personal property, ordinary
unjustifiably refused to accept from his tenant.
or capital assets.
(iii)Recognition of income
B. Nature
a. There is income, gain or profit.
All wealth which flows to the taxpayer other than a mere return
b. The income, gain or profit is received or realized during
of capital.
the taxable year.
Unless otherwise specified, it means cash or its equivalent.
The income gain or profit is not exempt from income
Income can also be thought of as a flow of the fruits of ones
labor. tax
Income includes earnings, lawfully or unlawfully acquired,
without consensual recognition, express or implied, of an (iv) Methods of accounting
obligation to repay and without restriction as their disposition. a. Cash method vs. Accrual method

C. When income is taxable Cash Method Accrual Method

1. There must be a closed and completed transaction;
- the income of the TP is reported in - Income of the TP is reported in the
2. A gain or profit is derived therefrom; and the year it is paid, actually or year which it is earned and the
3. It is not tax exempt constructively expenses are deducted in the year
4. An income to be taxable must be realized and in which it is incurred.
recognized. - expenses are deducted in the year
it is paid. - The income, gain, and profits are
(i)Existence of income included in gross income when
There must be gain a value received in the form of cash or earned, whether received or not and
its equivalent as a result of rendition of service or earnings in expenses are allowed as deductions
when incurred, although not yet
excess of capital invested.
paid.
(ii) Realization of income - It is the right to receive and not the
a. Tests of Realization actual receipt that determines the
Also called Severance Test or Macomber Test inclusion of the amount in gross
There is no taxable income until there is a separation income.
from capital of something of exchangeable value,
thereby supplying the realization or transmutation b. Instalment payment vs. Deferred payment vs. Percentage
which would result in the receipt of income. The completion

Page 17 of 104
 A. Definition (Sec. 32)
Installment Deferred payment Percentage The term gross income is understood to mean all
payment completion income from whatever source derived, including ,
but not limited to the following items:
Appropriate when Initial payments Persons whose gross 1. Compensation for services in whatever form paid;
collections extend exceed 25% of the income is derived 2. Gross income derived from business;
over relatively long gross selling price from long-term 3. Gains derived from dealings in property;
periods of time and and such transaction contracts shall report
there is a strong shall be treated as such income upon
4. Interest;
possibility that full cash sale which the basis of 5. Rents;
collection will be makes the entire percentage of 6. Royalties;
made. selling price taxable completion. 7. Dividends;
in the month of sale. 8. Annuities;
9. Prizes and winnings;
D. Tests in determining whether income is earned for tax 10. Pensions; and
purposes 11. Partners distributive share of the gross income of the
GPP.
1. Realization test
No taxable income until there is a separation from The definition is broad enough to include all passive
capital of something of exchangeable value, thereby income subject to specific rates or final taxes.
supplying the realization or transmutation which would However, since these passive incomes are already
result in the receipt of income. subject to different rates and taxed finally at source,
they are no longer included in the computation of
2. Claim of right doctrine or Doctrine of ownership, command, or grass income, which determines taxable income.
control
A taxable gain is conditioned upon the presence of a B. Concept of income from whatever source derived
claim of right to the alleged gain and the absence of a Implies the inclusion of all income under the law,
definite unconditional obligation to return or repay. irrespective of the voluntary or involuntary action of
The power to dispose of income is the equivalent of the TP in producing the gains.
ownership of it. The exercise of that power to procure All income not expressly excluded or exempted
the payment of income to another is the enjoyment from the class of taxable income, irrespective of the
and hence, the realization of the income by him who voluntary or involuntary action of the TP in producing
exercises it. The dominant purpose of the revenue the income.
laws is the taxation of income to those who earn or
otherwise create the right to receive it and enjoy the C. Gross Income vs. Net Income or Taxable Income
benefit of it when paid.

3. Economic benefit test or Doctrine of proprietary interest Gross Income Net Income or
Income realized is taxable only to the extent that the Taxable Income
taxpayer is economically benefited. As to
Any economic benefit to the employee that increases deductions: allows no deduction Allows deduction
his net worth is taxable.
As to
exemptions: grants no exemptions Grants exemptions
4. Severance test
There is no taxable income until there is a separation As to tax base:
from capital of something which is of exchangeable Gross Income Net Income
value thereby supplying the realization or
transmutation which would result in the receipt of
income. Thus, income is not taxable unless separated Advantages or Disadvantages
or severed from the capital or labor that bore it.
Simplifies the income tax system Confusing and complex process of
5. All events test filing income tax return
For income or expense to accrue, it requires:
Substantial reduction in corruption Vulnerable to corruption on account of
1. the fixing of a right to income or liability to pay; and and tax evasion as the exercise of margin of discretion in the grant of
2. the availability of the reasonable accurate discretion, to allow or disallow deductions
determination of such income or liability deductions is dispensed with

CIR vs. Isabela Cultural Corporation, February 12, 2007 More Administratively feasible Provides equitable reliefs in the form
The amount of liability does not have to be determined exactly. It of deductions, exemptions and Tax
must be determined with reasonable accuracy credit

9. Gross Income Does away with wastage of Tax Audit minimizes fraud

Page 18 of 104
manpower and supplies taxable year preceding the declaration of such dividends, or for
such part of such period as the corporation within the
Philippines has been in existence, was derived from sources. It
must be only in an amount which bears the same ratio 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) Compensation for labor or personal services performed in

GROSS INCOME FROM BUSINESS OR the Philippines.
PROFESSION
4) Rentals and Royalties from property located in the Phils. or
Formula: from any interest in such property, including rentals or royalties
for:
Total Sales/Revenue/Receipts/Fees a. The use of, or the right or privilege to use in the Phils.
Add: Gross sales not subject to withholding tax any copyright, patent, design or model, plan,
Total Sales secret formula or process, goodwill, trademark,
Less: Sales Returns Allowances & Discounts trade brand or other like property or night;
Net Sales/ Revenue /Receipt & Fees
Add: Other Taxable income from operations not subject to b. The use of, or the right to use in the Philippines any
Final Tax. industrial, commercial or scientific equipment;
Total Sales/Revenues/Receipts/Fees
Less: Cost of Sales /Service___________________ c. The supply of scientific technical, industrial or
Gross Income from Business/Prof. commercial knowledge or information;
Add: Non-operating income__________________ The supply of any assistance that is ancillary and subsidiary to,
Gross Income and is furnished as a means of enabling the application or
enjoyment of, any such property or right as is mentioned in
paragraph (a), any such equipment as is mentioned in
paragraph (b) or any such knowledge or information as is
NET INCOME mentioned in paragraph (c);

Gross Income d. The supply of services by a nonresident person or his

Less: Deductions___ employee in connection with the use of
Net Income property or rights belonging to, or the installation or
operation of any brand, machinery or other apparatus
purchased from such nonresident person;
TAXABLE INCOME
e. Technical advice, assistance or services rendered in
Net Income connection with technical management or
Add: Non-allowable Deduction administration of any scientific , industrial or
Taxable Income commercial undertaking, venture, project or scheme;
and
OR

Gross Income ii) Gross income and taxable income from sources
Less: Allowable deductions without the Philippines.
Add: Compensation Income 1. Interest other than those derived from sources within the
Taxable Income Philippines.
2. Dividends other than those derived from sources within the
D. Classification of Income as to Source Philippines.
i) Gross income and taxable income from sources a. Dividends from foreign corporations in general;
within the Philippines and
1) Interests b. Dividends derived from foreign corporations, 50%
a. Interests derived from sources within the Philippines. or more of the gross income of which for the 3 rd
Interests on bonds, notes or other interest- period preceding the declaration of dividends.
bearing obligations of residents, corporate 3. Compensation for labor or personal services performed
or otherwise. outside the Philippines.
4. Rentals or royalties from property located outside the Phils.
2) Dividends Or from any interest in such property including rentals or
a. From a domestic corporation, and royalties for the use of or for the privilege of using outside the
b. From a foreign corporation 50% or more of the gross income Philippines patents, etc.
of which for the 3- year period ending with the close of the

Page 19 of 104
5. Gains, profits and income from the sale real property located
outside the Philippines.
6. Gains, profits and income from the sale of personal property
located outside the Philippines, and Income derived from the
purchase of personal property within and its sale outside the
Philippines.
iii) Income partly within or partly without the Philippines
Income from transportation such as foreign steamship
companies whose vessel touch the Philippine ports
and other services rendered partly within and partly
outside the Philippines such as foreign corporations
carrying on the business of transmission of telegraph
and cable messages between points outside the
Philippines.
Income from the sale of personal property produced in
whole or in part by the TP within and sold outside the
Philippines or produced by the TP outside and sold
within the Philippines.
E. Sources of income subject to tax
1. Compensation income
All remuneration for services rendered by an
employee for his employer unless specifically
excluded under the NIRC.
2. Fringe Benefits
a. Special treatment of fringe benefits
Applied to fringe benefits given or furnished to
managerial or supervising employees and not to
the rank and file.
Special treatment of FBT
The tax imposed on the fringe benefits received by
managerial or supervisory employees shall be treated
as a final income tax on the employee, but shall be
withheld and paid by the employer on a calendar
quarterly basis as provided under Sections 57 (A)
(Withholding of Final Tax on certain incomes) and 58
(Quarterly Returns and Payments of Taxes Withheld
of the Tax Code)
Who is legally required to pay the FBT?
It is the employer who is legally required to pay the fringe
benefits tax.
The FBT is imposed as a final withholding tax placing the
legal obligation to the employer to remit the tax, such that, if the
tax is not paid, the legal recourse of the BIR is to go after the
employer.
Any amount or value received by the employee as a fringe
benefit is considered tax paid hence, net of the income tax due
thereon. The person who is legally required to pay (same as
statutory incidence as distinguished from economic incidence) is that
person who , in case of non-payment, can be legally
demanded to pay the tax.
Fringe benefits subject to FBT are only those given to
managerial or supervisory employees.
The employee referred to as subject to FBT is either a
managerial or supervisory employee.
Sec. 218 [m] of PD 442
Managerial employee- one who is vested with powers or
prerogatives to lay down and execute management policies
and/or to:
hire,
transfer,
suspend,
lay-off,
recall,
discharge,
assign or
discipline employees.
Supervisory employees- are those who, in the interest of the
employer (ER), effectively recommend such managerial actions
if the exercise of such authority is not merely routinary or clerical
in nature but requires the use of independent judgment.
b. Definition Sec. 33 [B] of the NIRC
Any good, service or other benefit furnished or
granted in cash or in kind by an ER to an individual
employee (EE), except rank and file employee.
c. Taxable and non-taxable fringe benefits
Taxable fringe benefits (Sec. 33[B])
1. Housing Privileges
a. Lease of residential property for the use of the ER as
his usual place of resident.
b. Residential Property owned by ER and assigned to
EE as his usual place of residence.
c. Residential property purchased by ER on instalment
basis for the use of ER as his usual
place of residence.
d. Residential property purchased by ER and ownership
is transferred to EE as his usual place of residence.
e. Residential property transferred to EE at less than
ERs acquisition cost.
2. Household Expenses
Refer to expenses of the EE paid by the ER for household
personnel or other personal expenses, which shall include:
a. salaries of household helper
b. personal driver of the EE
c. payment for homeowner association ,etc.
3. Interest on loan at less than the market rate
4. Expenses for Foreign Travel
General rule:
Page 20 of 104
Expenses for foreign travel insured by the EE and/or family
members of the EE borne by the ER shall be treated as taxable
fringe benefits of the EE.
Exception:
Where the expenses for foreign travel paid by the ER for the EE
are for the purpose of attending business meeting or
convention.
The exemption covers only the following expenses:
a. Inland travel expenses except lodging cost in hotel
averaging US$ 300 or less/day; and
b. Cost of economy or business class airline ticket.
5. Membership fees, dues and other expenses borne by the ER
for his EE, in social or athletic clubs or other similar
organizations.
6. Life or Health Insurance
General rule:
Borne by the ER for his EE shall be treated as taxable fringe
benefits.
Exception:
a. Contribution of the ER for the benefits of the EE
pursuant to existing laws.
b. The cost of premium borne by the ER for the group
insurance of his EEs.
The cost of life or health insurance and other non-life
insurance premiums or similar amounts in excess of
what the law allows
7. Holiday and Vacation Expenses
8. Motor Vehicle
9. Expense Account
a. Expenses incurred by the employee but paid by his
employer.
b. Expenses paid by the employee but reimbursed by his
employer.
10.Educational Assistance
None-Taxable Fringe Benefits:
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:
a. retirement,
b. insurance and
c. hospitalization benefit plans;
3. Benefits given to the rank and file EEs, whether
granted under a collective bargaining agreement or
not;
4. De minimis benefits;
These are benefits received by an EE from his
ER which are exempt from FBT and withholding
tax on the compensation of managerial,
supervisory, rank and file EEs
In general, they are limited to facilities or
privileges furnished or offered by an ER to his
EEs that are relatively of small value and are
offered or furnished by the ER merely as a mean
of promoting the:
a health,
b goodwill,
c contentment, or
d efficiency of his EEs.
5. When the fringe benefit is required by the nature of, or
necessary to the trade, business or profession of the
employer;
6. When the fringe benefit is for the convenience of the
ER. This is known as Employers Convenience Rule.
Convenience of the Employer Rule:
A final withholding tax of 32% is imposed on the
grossed-up monetary value of fringe benefit furnished,
granted or paid by the employer to the employee,
except rank and file employees, whether such
employer is an individual , professional partnership or
a corporation, regardless of whether the corporation is
taxable or not, or the government and its
instrumentalities, except when:
1. The fringe benefit is required by the nature of or
necessary to the trade, business or profession of the
ER; or
2. When the fringe benefit is for the convenience or
advantage of the ER.
3. Professional income
refers to the fees received by a professional from the
practice of his profession, provided that there is no
employer employee relationship between him and his
clients.
4. Income from Business
refers to the income derive from merchandising,
mining, manufacturing and farming operations.
5. Income from Dealings in Property
A. Types of Properties
1. Ordinary assets
Properties held by a taxpayer in the pursuit of his
profession, trade or business:
a. Stock in Trade;
b. real property of a kind which would properly be
included in the inventory if on hand at the close
of the taxable year;
c. real property held by the taxpayer primarily for sale to
customers in the ordinary course of trade
or business;
d. real property used in trade or business which in
subject to the allowance for depreciation; and
e. Real property used in trade or business.
2. Capital assets (Sec.39 [A][1])
refers to all real properties held by a taxpayer whether
or not such properties are connected with the
taxpayers trade or business and which are not
included among the real properties considered as
ordinary assets above
capital assets of property used in the trade
or business of a taxpayer are subject to
depreciation allowance
Page 21 of 104
 the normal tax of 32% applies if the capital a. Capital loss limitation rule (applicable to both corporations and
assets are located outside the Philippines individuals)
and sold. Capital losses are deductible only to the extent of
Reason: CGT of 6% applies only when the real property is capital gains.
situated within the Philippines.
b. Net loss carry-over rule (applicable only to individuals)
B. Types of gains from dealings in property If any individual taxpayer sustains in any taxable
year a net capital loss, it shall be treated in the
1. Ordinary gain vs. Capital gain succeeding taxable year as a loss from the sale or
exchange of a capital asset held not more than 12
Ordinary Gain Capital Gain mos.

-any gain derived from the sale
or exchange or ordinary assets
- It includes all gains other than
capital gains (such as those
derived from the performance of
services, whether personal or
professional, and those accruing
from business)
2. Actual gain vs. Presumed gain
Actual gain
Excess of the cost from a
sale of asset.
-Any gain realized by the TP
from the sale, exchange or other
disposition of capital asset.
Presumed gain
Presumption of law that the seller
realized gains, which is taxed at 6%
of the selling price or FMV,
whichever is higher.
7. Dealings in real property situated in the Philippines
6% final tax shall be imposed on the gross selling
price, or the current FMV at the time of the sale,
whichever is higher.
8. Dealings in shares of stock of Philippine corporations
a. Shares listed and traded in Stock exchange
b. Shares not listed and traded in Stock exchange
Passive income of domestic corporations which are
subject to Final Withholding Tax.
The tax treatment of the passive incomes of
domestic corporations derived from within the
Philippines shall also be subject to the final
withholding tax just like the passive incomes of a
resident citizen derived within the Philippines:
Interest income from any currency bank deposit in regular banking units.

3. Long term capital gain vs. Short term capital gain Yield or any monetary benefit from deposit substitutes.

Long term capital gain Short term capital gain Interest income and yield from trust funds and similar arrangements.

The profit realized from selling or
exchanging a capital asset held
for more than a specified period
of 1 year.
4. Net capital gain vs. Net capital loss
Net capital gain
The excess of the gains from
sales or exchange of capital
assets over the losses from such
sales or exchanges.
The profit realized from selling or
exchanging a capital asset held
for less than a specified period of
1 year.
Net capital loss
The excess of the losses from
sales or exchanges of capital
assets over the gains from such
sales or exchanges.
Royalties derived from sources within the Philippines.
Interest income derived from a depository bank under the FCDU.
Interest income from foreign currency loans granted by depository bank under the e
currency deposit system to residents other than OBUs in the Philippines or other de
under the expanded depository system.
On net capital gains from sale of shares of stock of a domestic corporation not listed
stock exchange not over 100,000
On any amount in excess of P100,000

5. Computation of the amount of gain or loss
The gain from the sale or other disposition of property
shall be the excess of the amount realized therefrom
over the basis or adjusted basis for determining gain,
and the loss shall be the excess of the basis or
adjusted basis for determining loss over the amount
realized. The amount realized from the sale or other
disposition of property shall be the sum of money
received plus the fair market value of the property
received.
6. Income tax treatment of capital loss
On presumed capital gains from sale of lands and/or buildings located in the Philipp
capital assets.
Gross income derived from contracts by sub-contractors from service contractor en
operations as defined under PD 87 (also known as the Oil Exploration and Develop
Philippines), as imposed under PD 1354.
9. Sale of principal residence
Not liable for CGT when:
a. Sold or disposed of by natural persons.
b. The proceeds of the sale are fully utilized in
acquiring or constructing a new principal residence

Page 22 of 104
 within 18 calendar months from the date of sale or
disposition.
c. The Commissioner is duly notified by the TP within 30
days from the date of sale or disposition through a
prescribed return of his intention to avail of the tax
exemption.
d. A deposit is made of the 6% CGT otherwise due, in
cash or managers check, in an interest-bearing
account with an Authorized Agent Bank (AAB), under
an Escrow Agreement between the TP and the BIR
that the same shall be released to the TP when the
proceeds of the sale shall have been utilized as
intended.
e. The tax exemption can only be availed of ONCE every
10 years.
regular rent income.
b. VAT added to rental/paid by the lessee
Any additional amount paid, directly or indirectly, by
the lessee in consideration for the lease is considered
rental. Therefore, taxes paid by the lessee on leased
property are part of rental income of the landlord.
c. Advance rental/long term lease
Advanced rental is a Security Advanced rental is prepaid rental
Deposit which restricts the received without restriction as to its
lessor as to its use. use.

6. Passive Investment Income The amount shall be The entire amount is taxable in
A. Interest Income excluded in the the year it is received.
An earning derived from depositing or lending of determination of rental
money, goods or credits. income.
B. Dividend Income
1. Cash dividend 7. Annuities, proceeds from life insurance or other types of
It is a dividend paid in cash and taxable to the extent insurance.
of the cash received.
Annuities Proceeds of life insurance
2. Stock Dividend
It is a transfer of a portion of retained earnings to Amounts payable yearly or at Paid by reasons of the death of
capital stock by action of stockholders. It simply other regular intervals for a the insured to his estate or to
means the capitalization of retained earnings. certain or uncertain period. They any beneficiary, directly or in
also represent as installment trust.
3. Property Dividend payments for life insurance sold
It is a dividend paid in property held by the corporation by insurance companies.
and to the extent of the FMV of the distribution. Return of insurance premium

4. Liquidating dividend When annuities are income to the annuitant:

A dividend distributed to the shareholders upon The aleatory contract of life annuity binds the debtor to pay an
dissolution of the corporation. annual pension or income during the life of one or more
determinate persons in consideration of a capital consisting of
C. Royalty Income money or other property, whose ownership is transferred to him
Compensation or payment for the use of property and at once with the burden of the income.
is paid to the owner of a right.
What is Annuity?
D. Rental Income It refers to annuity policies sold by insurance.
1. Lease of personal property
2. Lease of real property 8. Prizes and awards
Earnings derived from leasing of real estate as well as Contest prizes and awards received are generally
personal property. It includes all other obligations taxable. Such payment constitutes derived from labor.
assumed to be paid by the lessee to the third party in
behalf of the lessor. When prizes and awards considered taxable income:
1. Contest awards or prizes received from an employer or
3. Tax treatment of another are generally taxable. Thus, amounts received as an
a. Leasehold improvements by lessee award for special services, such as an award for suggestions to
employer or a reward for the prevention of a bank robbery, are
Outright Method Spread Out Method taxable; so also are prizes won in a competitive contest
conducted for non-commercial or commercial purposes. Such
The FMV of the building or Allocate the depreciated value payments are for services rendered.
improvement shall be reported over the remaining term of the
as additional rent income. lease contract. Every year, an However, amounts received as prizes and awards made primary
aliquot part of the depreciated in recognition of religious, charitable, scientific, educational,
value should be reported as artistic, literary, or civic achievement are not taxable and are
additional rent in addition to the considered as exclusions from gross income but only if:

Page 23 of 104
 a. The recipient was selected without any action on his
part to enter the contest or proceeding; and
b. The recipient is not required to render substantial
future services as a condition to receiving the prize
or award.
2. All prizes and awards granted to athletes in local and
international sports competitions and tournaments whether held
in the Philippines or abroad and sanctioned by their national
sports associations shall be excluded from gross income.
Prizes derived from sources without the Philippines
considered taxable income.
If the prizes are derived from sources without the
Philippines, the same shall be included in the
gross income for TPs whose income derived from
within and without the Philippines are taxable in
the Philippines.
9. Pensions, retirement benefit, or separation pay
The following are exclusions from gross income:
a. Pension refers to allowance paid regularly to a person
on his retirement or to his dependents on his death, in
consideration of past services, meritorious work, age,
loss or injury.
b. Retirement benefits received under RA 7641 and
those received by officials and employees of private
firms in accordance with a reasonable private benefit
plan maintained by the employer.
c. Any amount received by an employee or by his heirs
from the employer as a consequence of separation of
such official or employee form the service of the
employer because of death, sickness, other physical
disability or for any cause beyond the control of the
employee.
d. The social security benefits, retirement gratuities,
pensions and other similar benefits received by
resident or NRCs of the Philippines or aliens who
come to reside permanently in the Philippines from
foreign government agencies and other institutions.
e. Payments of benefits due or to become due to any
person residing in the Philippines under the laws of
the United States administered by the United States
Veterans Administration.
f. Benefits received from or enjoyed under the Social
Security System.
g. Benefits received from the GSIS, including retirement
gratuity received by government officials and
employees.
Retirement benefits under RA 7641 received by
officials and employees of private firms from
employers without any retirement plan.
Requisites:
a. The retirement benefits must be received under
existing CBA or other agreements;
b. This is given in the absence of retirement plan or
agreement providing for retirement benefit
c. The retiring employee has served at least 5 years in
the said establishment;
d. That he is not less than 60 years of age but not more
than 65, which is declared as the compulsory
retirement age; and
e. He shall be entitled to retirement pay equivalent to at
least month salary for every year of service, a
fraction of at least 6 mos. being considered as one
whole year.
Bengson vs. Drilon, 208 SCRA 133 (1992).
The grant of retirement benefits is not only an act of generosity
or liberality on the part of the government but is equally a
compensation and reward for satisfactory, faithful, meritorious
and valuable service to the latter. Hence, an officer found guilty
of misconduct in office may be deprived of his retirement
benefits for failure to live up to such requirement (Perez vs.
Abiera, 64 SCRA 302 (1975).
Requisites in order that the separation pay of an
employee may be excluded form gross income:
a. The amount received by an official or employee or by
the heirs from the employer would be due to death,
sickness or other physical disability or employee, such
as retrenchment, redundancy, or cessation of
business. The phrase for any cause beyond the
control of the said official or employee connotes
involuntariness on the part of the official or employee.
b. The separation from the service of the official or
employee must not be asked for or initiated by him.
c. The separation was not of his own making.
d. Whether or not the separation is beyond the control of
the official or employee, being essentially a question
of fact, shall be determined on the basis of prevailing
facts and circumstances and shall be duly established
by the employer by competent evidence which should
be attached to the monthly return for the period in
which should be attached to the monthly return for the
period in which the amount paid due to the involuntary
separation was made.
e. Amounts received by reason of involuntary separation
remain exempt from income tax even if the official or
the employee, at the time of separation, had rendered
less than 10 years of service and/or is below 50 years
of age.
But any payment made by an employer to an
employee on account of DISMISSAL, constitutes
compensation regardless of whether the employer is
legally bound by contract, statute, or otherwise, to
make such payment.
Baguio Country Club vs. NLRC, 213 SCRA 554 (1992)
Eastern Paper Mills, Inc. vs. NLRC, 170 SCRA 595 (1989).
Sickness must be life threatening; it must render taxpayer
incapable of working.
The terminal leave pay of a government employee whose
employment is coterminous is exempt from income tax since
it falls within the meaning of the phrase for any cause beyond
the control of the said employee. Employee should not exercise
choice or option, such that if the employee avails of the optional
early retirement plan, he cannot reason that he was separated
Page 24 of 104
for reasons beyond his control. Hence, he cannot claim
exemption for benefits on this basis although he may be
qualified under RA 76451 or RA 4917.
10. Income from any source whatever
What is the meaning of gross income from whatever source
derived?
The law imposes a tax on income from whatever source which
means that it includes in income whether coming from legal or
illegal sources. The theory underlying the taxability of income
derived from illegal sources is based upon the principle that an
unlawful or prohibited business is not exempt from the payment
of taxes that it would have to pay if it were a lawful business.
The theory underlying the taxability of income derived
from illegal sources is based upon the principle that an
unlawful or prohibited business is not exempt from the
payment of taxes that it would have to pay if it were a
lawful business.
While it has been held that the phrase income from whatever
source derived indicates a legislative policy to include all
income not expressly exempted within the class of taxable
income under our laws, the term income has been variously
interpreted to mean cash received or its equivalent, the
amount of money coming to a person within a specific time or
something distinct form principal or capital.
All income not expressly excluded or exempted from
the class of taxable income, irrespective of the
voluntary or involuntary action of the taxpayer in
producing the income.
A. Forgiveness of indebtedness
Dependent upon the circumstances, may amount to:
a. Income;
b. A gift; or
c. A capital transaction.
B. Recovery of accounts previously written off
Recovery of bad debts previously charged off is
taxable to the extent of income tax benefit of said
deduction.
The general rule is that recovery of amounts deducted
in prior years would result to income. However, where
the deduction did not result in tax benefit, the
subsequent recovery is not taxable income. This is
the so-called Tax Benefit Rule.
C. Receipt of tax refunds or credit
General rule: a refund of a tax related to the business or the
practice of profession is taxable income in the year of receipt to
the extent of the income tax benefit of said deduction.
Taxes paid and subsequently refunded, taxable.
Taxes paid which are allowed as deduction from
gross income are taxable when subsequently
refunded but only to the extent of the income tax
benefit of said deduction. It flows that taxes paid
which are not allowed as deduction form gross
income, i.e., income tax donors tax and estate
tax, are not taxable even if refunded.
D. Source rules in determining income from within and without
income from sources within the Philippines :
1. Interest
Derived from sources within the Philippines, and interests on
bonds, notes or other interest-bearing obligation or 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 50% of
the gross income of
such foreign corporation for the 3-year period ending with the
close of its taxable year preceding the declaration of such
dividends or for such parts 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.
4. Rentals
Rentals and royalties from property located in the Philippines or
from any interest in such property, including rentals or royalties
for:
a. The use of or the right or privilege to use in the
Philippines any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
b. The use of, or the right to use in the Philippines any
industrial, commercial or scientific equipment;
c. The supply of scientific, technical, industrial or
commercial knowledge or information;
d. The supply of any assistance that is ancillary and
subsidiary to, and is furnished as a means of
enabling the application or enjoyment of, any such property or
right as is mentioned in paragraph (a), any such equipment as is
mentioned in paragraph (b) or any such knowledge or
information as is mentioned in paragraph (c));
e. The supply of services by a non-resident person or his
employee in connection with the use of
Page 25 of 104
property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such
non-resident person;
f. Technical advice, assistance or services rendered in
connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme; and
g. The use of or the right to use:
i. Motion picture films;
ii. Films or video tapes for use in connection with
television; and
iii. Tapes for use in connection with radio
broadcasting.
5. Royalties
It is a form of payment of any kind received as a consideration
for the use of, or the right to use, any copyright of literary, artistic
or scientific work, including cinematographic films, or films or
tapes used for radio or television broadcasting, any patent, trade
mark, design or model, plan, secret formula or process, or for
use of, or the right to use, industrial, commercial or scientific
equipment, or for information concerning industrial, commercial
or scientific experience.
The definition covers both payments made under a
license and compensation which a person would be
obliged to pay for fraudulently copying or infringing the
right.
When royalty considered as active business income; when
considered as passive income?
Royalty is a valuable property that can be
developed and sold on a regular basis for a
consideration. Thus, any gain derived therefrom is
considered as an active business income subject to
the normal income tax. It is a special form of rental
income for the use of intangible property.
However, when a person pays royalty to another for
the use of its intellectual property, such as copyrights ,
patents, trademark, such royalty is a passive income
of the owner thereof subject to withholding tax.
6. Sale of real property
Gains Derived from Dealings in Property:
Income from dealings in property, such as sales or exchanged
of property, may result in gain or loss, depending on the nature
of the property as to whether said property is a capital asset or
an ordinary asset.
7. Sales of personal property
Items of gross income treated as income from sources
without the Philippines:
1. Interests other than those derived from sources
within the Philippines
2. Dividends other than those derived from sources
within the Philippines ;
3. Compensation for labor or personal services
performed without the Philippines, and
4. Rentals or royalties from property located without the
Philippines or from any interest in such property
including rentals or royalties for the use of or for the
privilege of using without the Philippines, patents,
copyrights, secret processes and formulas, goodwill,
trademarks, trade brands, franchise and other like
properties; and
5. Gains, profits and income from the sale of real
property located without the Philippines.
8. Shares of stock of DC
Gain from the sale of shares of stock in a DC shall be treated as
derived entirely from sources within the Philippines regardless of
where the said shares are sold.
Dealings in shares of stock of domestic corporations.
a. Net Capital gains from the sale, barter,
exchange or other disposition of shares of stock
of a domestic corporation held as capital assets
NOT LISTED AND TRADED IN THE LOCAL
STOCK EXCHANGE shall be subject to the CGT
of 5% on the net capital gains not over P100,000
plus 10% on any amount in excess of P 100,00.
b. In the case, however, of sale, barter or exchange
of shares of stock held as capital assets of a
domestic corporation which are TRADED AND
LISTED IN THE LOCAL STOCK EXCHANGE,
the same shall not be subject to the CGT but to
the of 1 % STOCK TRANSACTION TAX under
Section 127 of the Tax Code, which is in lieu of
the CGT, based on the gross selling price or
gross value in money of the shares of stock sold
or transferred.
F. Situs of Income Taxation:
It literally means place of taxation. The basic rule is that the
state where the subject to be taxed has a situs may rightfully
levy and collect the tax. The situs is necessarily in the state
which has jurisdiction or which exercises dominion over the
subject in question. Thus, the person may be subject to taxation
in several taxing jurisdictions.
What are the subjects of taxation?
1. Persons poll tax may be properly levied upon persons
who are inhabitants or residents of the state,
whether citizens or not.
2. Real Property with respect to real property taxes, real
estate is subject to taxation in the state in which
it is located, whether the owner is a resident or a non-
resident.
*** Lex Rei Situs or where the property is located ***
Reasons:
The taxing authority has control because of the
stationary and fixed character of the property;
The place where the real property is situated gives
protection to the real property hence the property or its
owner should support the government of that place.
3. Personal Property (Mobilia Sequntur Personam)
Generally, the place where the owner is found is that situs of
taxation under the rule that movables follow the person.
Generally, this is where the owner resides:
a. Tangible personal property- usually located where the
owner is domiciled.
Page 26 of 104
Reason: The place where the tangible personal property is
found gives protection. Hence, the property or its owners
should support the government of that place.
b. Intangible personal property usually the domicile of
the owner. This includes credit, bills, receivable, bank
deposits, bonds, promissory notes, mortgage loans,
judgments and corporate stock, which does not admit
of actual location.
Reason: The place where the tangible personal property is
found gives protection. Hence, the property or its owners
should support the government of that place.
EXCEPTION:
The situs is not the owners domicile as where the intangible
personal property has acquired a business situs in another
jurisdiction.
Example:
Taxes imposed in sales of Philippine Stocks (stocks in
domestic corporation) are payable in the Philippines
no matter where they may be found, or where the
owners domicile is.
G. Exclusions from gross income
Income received or earned but is not taxable as income
because it is exempted by law or by treaty. Receipts which
are not in fact income are also excluded from Gross income.
1. Rationale for the exclusion:
Exclusions from gross income merely represent
return of capital and are not treated as income, gain
or profit;
Some items of exclusions from gross income may be
subject to another kind of internal revenue tax;
Some items of exclusions are income, gain or profits
that are expressly exempt from income tax under
the:
Constitution,
tax treaties,
the Tax Code itself, or
under special tax laws.
2. TPs who may avail of the exclusions
All kinds of TPs- individuals, estates, trusts and corporations,
whether citizens, aliens, whether residents or non-residents.
3. Exclusions distinguished from deductions and tax credit
Exclusions - are actually income received or earned by the
taxpayer but is not taxable as income because of the exemption
provided for by law or by tax treaties.
Deductions - are the expenses and other allowable deductions
as provided for by law which are incurred for engaging in trade
or business or exercise of profession.
Tax credits - are amount of tax previously paid by the taxpayer,
whether erroneously, illegally or excessively paid, or thru the
withholding tax system, but which later on can be claimed as tax
credit deductible from the tax liability of the taxpayer.
4. Under the Constitution
Income derived by the government or its political
subdivisions from the exercise of any essential
governmental function from:
a. any public utility; and
b. the exercise of any essential governmental
function.
Income derived by Foreign Government.
- Income derived from investments in the Philippines in loans,
stocks, bonds or other domestic securities, or from interest on
deposits in banks in the Philippines by:
a. Foreign governments;
b. Financing institutions owned, controlled, or enjoying
refinancing from foreign governments; and
c. International or regional financial institutions
established by foreign governments are excluded form
gross income, and therefore except form income tax
5. Under the Tax Code
a. Proceeds of life insurance policies
Paid to the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise.
b. Return of premium paid
Paid by the insured under life insurance, endowment,
or annuity contracts, either during the term or at the
maturity of the term of the contract or upon surrender.
Amount received by the insured as return of premium
paid.
Amounts received by the insured under a life
insurance, endowment, or annuity contract either
during the term or at the maturity of the term
mentioned in the contract or upon surrender of the
contract are excluded from gross income. But, if such
amounts (when added to amounts received before the
taxable year under such contract) exceed the
aggregate premiums or consideration paid (whether
or not paid during the taxable year) then the excess
shall be included in gross income. However, in the
case of a transfer for a valuable consideration, by
assignment or otherwise, of a life insurance,
endowment, or annuity contract, or any interest
therein, only the actual value of such consideration
and the amount of the premiums and other sums
subsequently paid by the transferee are exempt from
taxation.
c. Amounts received under life insurance, endowment or annuity
contracts
If the insured dies, and the beneficiary receives the life
insurance proceeds, these are not taxable income
because they are excluded from gross income.
If the insured does not die and survives the
designated period, the amount pertaining to the
premiums he paid are excluded from gross income,
but the excess shall be considered part of his gross
income.
d. Value of property acquired by gift, bequest, devise or descent.
Page 27 of 104
 The income from such property, as well as gift,
bequest, devise, or descent of income from property,
in cases of transfers of divided interest, shall be
included in gross income.
The estate of the testator or the decedent is subject to
estate tax, while the heirs or beneficiary/ies are not
required to pay donees tax as the same was already
abolished. The value of the bequest and/or the devise
received by the heirs or beneficiary/ies is not included
in the computation of their gross income since gifts,
bequest and devises are excluded from gross income.
e. Amount received through accident or health insurance
As compensation for personal injuries or sickness,
plus the amount of any damages received, whether
by suit or agreement , on the account of such injuries
or sickness
f. Income exempt under tax treaty
Income of any kind, to the extent required by any
treaty obligation binding upon the Government of the
Philippines.
g. Retirement benefits, pensions, gratuities, etc.
Retirements benefits under RA7641 received by
officials and EEs of private firms under a reasonable
private retirement plan.
RA 4917 exempts from all taxes the retirement
benefits received by officials and EEs of private firms
under a reasonable private benefit plan maintained
by the ER and all amounts received by such officials
and EEs from their ERs on account of involuntary
separation, such as death, sickness, or physical
disability, or any other cause beyond the control of
said officials and EEs.
Requisites:
a. The plan must be reasonable;
b. The benefit plan must be approved by the
BIR;
c. The retiring official or EE must have been in
the service of the same ER for at least
10 years and at least 50 years old at the
time of retirement; and
d. The retiring official or EE should not have
previously availed of the privilege
under the retirement benefit plan of the
same or another ER.
h. Winnings, prizes and awards, including those in sports
competition.
1. Contest awards or prizes received from an employer or
another are taxable.
Example:
amounts received as an award for special services,
such as:
a. an award for suggestions to employer or
b. a reward for the prevention of a bank
robbery,
c. prizes won in a competitive contest
conducted for non-commercial or
commercial purposes.
Such payments are for services rendered.
However, amounts received as prizes and awards made
primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement are not
taxable and are considered as exclusions from gross income
but only if:
a. The recipient was selected without any action on his
part to enter the contest or proceeding; and
b. is not required to render substantial future services as
a condition to receiving the prize or award.
2. All prizes and awards granted to athletes in local and
international sports competitions and tournaments whether held
in the Philippines or abroad and sanctioned by their national
sports associations shall be excluded from gross income.
6.Under special laws
a. Personal Equity and Retirement Account
H. Deductions from gross income
TPs NOT allowed to claim the allowable deductions:
1. TPs earning compensation income arising from
personal services rendered under an employer-
employee relationship (except for the deduction on
premium payments on health and/or hospitalization
insurance under Section 34 (M), if applicable);
2. NRANETB within the Philippines;
3. Alien individual employed by RHQs or ROHQs of
MNCs;
4. Alien individuals employed by OBUs;
5. Alien individuals employed by petroleum service
contractors and subcontractors;
6. International carriers;
7. OBUs;
8. Branches of foreign corporations on the profits
remitted to their head offices;
9. RHQs;
10. ROHQs; and
11. NRFC
1. General rules for the deductibility of certain transactions from
gross income.
a. Deductions must be paid or incurred in connection
with the taxpayers trade, business or exercise of
profession;
b. Deductions must be paid or incurred during the
taxable year;
c. Deductions must be supported by adequate receipts
or invoices; and
d. Deductible expenses must have been subjected to
withholding tax.
2. Return of capital
Return of capital which may be deducted from this gross sales
or gross revenue.
Page 28 of 104
 Income tax is levied by law only on income, hence, the
amount representing return of capital should be
deducted from proceeds from sales and should not be
subject to income tax. Return of capital are in the
form of cost of sales or cost of service paid or incurred
by the taxpayer in the conduct of his business or
exercise of profession.
Sale of inventory of goods by manufacturers and dealer
properties
- In sales of goods representing inventory, the amount received
by the seller consists of return of capital and gain from sale of
goods or properties. That portion of the receipt representing
return of capital is not subject to income tax.
Sale of stock in trade by a real estate dealer and dealer in
securities
Real estate dealers and dealers in securities are ordinarily not
allowed to compute the amount representing return of capital
through cost of sales. Rather, they are required to deduct the
total cost specifically identifiable to the real property or shares of
stock sold or exchanged.
Substantiation Rule
It provides that no allowable deduction from gross income shall
be allowed unless the taxpayer shall substantiate with sufficient
evidence (official receipts and/or adequate records) the amount of
the expense being deducted including the amount of the
expense being deducted to the development, management,
operation and /or conduct of the trade, business or profession of
the taxpayer.
Cohan Rule (Approximation of expenses)
The BIR has the power to disallow 50% of the expenses claimed
on the condition that there was really an expense paid or
incurred but there was no document showing that this expense
was indeed paid or incurred. Belief by the BIR as to such
expense is sufficient (RMC No. 23-2000).
If the payment is on:
a. Cash receipt basis- expenses are deductible in the
year they are paid.
b. Accrual basis - expenses are deductible in the year
they are incurred, whether paid or not.

Sale of services 1. Salaries, wages and other forms of compensation for

In the sale of service, the portion of the cost of service
representing the return of capital is not subject to income tax.
3. Itemized deductions
A. Expenses
Requisites for deductibility:
1. It must be ordinary and necessary.
2. It must be paid or incurred during the taxable year.
3. It must be paid or incurred in carrying on or which are
directly attributable to the development, management,
operation and/or conduct of the trade, business or
exercise of a profession.
4. The amount must be reasonable (not lavish,
extravagant, or excessive under the circumstances)
5. It must be substantiated with sufficient evidence
personal services actually rendered, including the grossed-up
monetary value of the fringe benefit subjected to fringe benefit
tax which tax should have been paid.
2. Travel/Transportation expenses.
Requisites:
a. Expense must be reasonable and necessary.
b. It must be paid or incurred while away from home.
c. It must be paid or incurred in the conduct of trade or
business or exercise of profession.
3. Cost of materials
Materials and suppliers are deductible only to the amount
actually consumed or used in the operation during the taxable
year.

4. Rentals and/or other payments

Ordinary Necessary Capital Requisites:
Expenses expenses expenditures a. Rental must be ordinary and necessary ;
b. It must have been paid or incurred during the taxable
- commonly -these expenses -expenditures that year;
incurred in the trade are intended to result in obtaining c. It must be paid or incurred in carrying trade or
or business of the TP realize a profit or benefits of a business of the taxpayer or practice of profession;
as distinguished from to minimize a permanent nature d. It must be supported by official receipts, record or
capital expenditures. loss, or those that or character such as other pertinent papers;
are appropriate those spent on e. It is required as a condition for the continued use or
-usually incurred and helpful to a lands, buildings and possession of the property being leased;
during a taxable year TPs business, machineries. f. The taxpayer has not taken or is not taking title to the
and benefits such trade or profession property or has no equity other than that of a lessee,
taxable year -incurred to user , or possessor; and
improve assets g. Rentals should be subject to the expanded
and benefits for withholding tax of 5% of the rental charge, net of VAT,
more than 1 taxable if any.
year.
5. Incidental, minor or Repairs and maintenance.
-not deductible from The cost of incidental repairs which neither materially add to the
gross income in the value of the property nor appreciably prolong its life, but keep it
year it was paid in an ordinarily efficient operating condition may be deducted as

Page 29 of 104
expenses, provided that plant or property account is not
increased by the amount of such expenditure.
Repairs in the nature of replacement, to the extent that they
arrest deterioration and appreciably prolong the life of the
property or increase its value are capital expenditures and
should be charred /debited against the depreciation reserves if
such account is kept.
6. Expenses under lease agreements
7. Expenses for professionals
8. Entertainment, amusement and recreation expenses
Requisites:
a. It must be paid or incurred during the taxable year;
b. The amount must be reasonable;
c. It must be:
i. directly connected to the development,
management and operation of the trade,
business or profession of the taxpayer; and
ii. directly related to or in furtherance of the
conduct of his or its trade, business or
exercise of a profession;
d. It must not be contrary to law, morals, good customs,
public policy, or public order;
e. It must not have been paid, directly or indirectly, if it
constitutes a bribe, kickback or other similar
payment;
f. It must not exceed the ceiling of 0.05% of net sales for
sellers of goods or properties or 1% net
revenues for sellers of services;
g. It must be duly substantiated by adequate proof.
h. The appropriate amount of withholding tax, if
applicable, should have been withheld therefrom and
paid to the BIR.
9. Political campaign expenses
10. Training expenses.
B. Interest
Requisites for deductibility:
a. There must be a valid and existing indebtedness;
b. The indebtedness must be that of the taxpayer;
c. The interest must be legally due and stipulated in
writing;
d. The interest expense must be paid or incurred during
the taxable year;
e. The indebtedness must be connected with the
taxpayers trade, business or exercise of profession;
f. The interest payment arrangement must not be
between related taxpayers;
g. The interest is not expressly disallowed by law to be
deducted from the taxpayers gross income, and
h. The amount of interest deducted from gross income
does not exceed the limit set forth in the law
Non-deductible interest expense:
1. Interest on preferred stock(which in reality is dividend)
2. Interest on unpaid salaries and bonuses
3. Interest calculated for cost keeping
4. Interest paid where parties provide no stipulation in
writing to pay interest
5. If the indebtedness is incurred to finance petroleum
exploration
6. Interest paid on indebtedness between related
taxpayer
7. Interest on indebtedness paid in advance through
discount or otherwise and the taxpayer reports income
on cash basis.
Interest subject to special rules:
a. Interest paid in advance
- If the indebtedness is payable in periodic amortizations, the
amount of interest which corresponds to the amount of the
principal amortized or paid during the year shall be allowed as
deduction in such taxable year.
b. Interest periodically amortized
c. Interest expense incurred to acquire property for use
in trade/business/profession.
*At the option of the taxpayer, may be allowed as a deduction or
treated as a capital expenditure.
C. Taxes
1. Requisites for deductibility:
a. It must be paid or incurred within the taxable year.
b. It must be paid or incurred in connection with the TPs
trade, profession or business.
c. It must be imposed directly on the TP.
d. It must not be specifically excluded by law from being
deducted from the TPs gross income.
2. Non-deductible taxes
Taxes not allowed provided under the NIRC
a. Income tax provided under the NIRC
b. Income taxes imposed by authority of any foreign
country
3. Treatment of surcharges/interests/fines/for delinquency.
No deductions should be allowed for amounts
representing interest, surcharge, or penalties incident
to delinquency in the payment of taxes.
4. Treatment of special assessment.
Deductible as taxes where these are made for the
purpose of:
a. Maintenance or repair of local benefits, if the payment
of such assessment is ordinary and necessary in the
conduct of trade, business or profession.
b. Constructing local benefits tending to increase the
value of the property assessed, the payments
are in the nature of capital expenditures.
5. Tax credit vs. Tax deduction.
Tax Credit: Tax Deduction:
Page 30 of 104

Deducted from Philippine Income Tax. Deducted from the gross
income.
All taxes are allowed to be deducted
with the exception of the taxes Only foreign income
expressly excluded. taxes may be claimed as
credits.
D. Losses
Losses actually sustained during the taxable year and
not compensated for by insurance or other forms of
indemnity.
1. Requisites for deductibility:
a. The loss must be that of the taxpayer.
b. There must be an actual loss suffered in a closed and
completed transaction.
c. The loss must be connected with the taxpayers trade,
business or profession.
d. The loss must not be compensated for by insurance or
otherwise.
e. The loss must be actually sustained and charge off
during the taxable year.
f. In the case of casualty loss, declaration of loss must
be filed within 45 days from the occurrence of the
casualty loss.
g. The loss must not be claimed as deduction for estate
tax purposes in the estate tax return.
2. Other types of losses.
a) Capital losses
Losses from sale or exchange of capital assets.
Deductible to the extent of capital gains only.
b) Securities becoming worthless.
The loss resulting therefrom to the taxpayer is not
considered as a bad debt but as a capital loss
c) Losses on wash sales of stocks or securities.
Wash sales
A pre-arranged fictitious sale of stocks or securities
with no change in ownership that is made to influence
the marker or to establish a loss for tax purposes.
Not deductible when:
1. A TP who is not a dealer of stocks in trade has
disposed shares and
2. Within the period of 60 days beginning 30 days
before the date of such sale and ending 30 days
after such date, the TP has acquired substantially
identical stocks or securities.
d) Wagering losses
Deductible only to the extent of the gains from such wagering
transaction. If there is no gain from the wagering transaction, the
loss therefrom cannot be deducted from gross income.
e) Net Operating Loss Carry-Over (NOLCO)- Sec. 34(D)(3)
Net Operating Loss
shall mean the excess of allowable deduction over gross
income of the business in a taxable year.
Net Operating loss of a business for any taxable year
can be carried over as deduction for the next 3
consecutive taxable years immediately following the
year of such loss
Note:
MARCELO DOCTRINE: Loss in one line of business is not
deductible from gain in another line of business, if the loss is
sustained from a tax exempt business activity belonging to the
same taxpayer.
E. Bad debts
debts due to the taxpayer which are actually
ascertained to be worthless and charged off within a
taxable year
Bad-Debt Theory
This is applied to losses occasioned by theft or embezzlement
of known person(s). Thus, creating a debtor-creditor
relationship. The loss sustained is not deductible on the year it
was committed or on the period of discovery but in the year
when the right of recovery becomes worthless
Requisites for deductibility:
1. existence of indebtedness due to the taxpayer(must
be valid and legally demandable);
2. it must be connected with the taxpayers trade,
business or practice of profession;
3. it must not be sustained in a transaction entered into
between related parties under Sec. 36 (B);
4. it must be actually charged off in the books of
accounts of the taxpayer as of the end of the taxable
year;
5. it must be actually ascertained to be worthless and
uncollectible as of the end of the taxable year
andeven in the future.
Tax benefit rule or the equitable doctrine of tax benefit
in case of recovery of bad debts.
The recovery of bad debts previously allowed as deduction in
the preceding year or years shall be included as part of the
taxpayers gross income in the year of such recovery to the
extent of the income tax benefit of said deduction.
Example:
If in the year the taxpayer claimed deduction of bad debts
written-off, he realized a reduction of the income tax due from
him on account of the said deduction, his subsequent recovery
thereof from his debtor shall be treated as a receipt of realized
taxable income. Conversely, if the said taxpayer did not benefit
from the deduction of the said bad debt written-off because it
did not result to any reduction of his income tax in the year of
such deduction (i.e., where the result of his business operation
was a net loss even without deduction of the bad debts written-
off), then his subsequent recovery thereof shall be treated as a
mere recovery or a return of capital, hence, not treated as
receipt of realized taxable income.
Thus, bad debts claimed as deduction in the preceding year(s)
but subsequently recovered shall be included as part of the
taxpayers gross income in the year of such recovery to the
extent of the income tax benefit of said deduction.
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F. Depreciation
It is a gradual diminution in the useful value of
tangible property resulting from:
- wear and tear,
- exhaustion and
- normal obsolescence.
Nth Period x cost-Salvage value Allowance for
Sum of all the years digits depreciation
It is a reasonable allowance for the deterioration of
property arising out of its use or employment in the
trade or business, or out of its non-used.
The term is also applied to amortization of the value of
intangible assets the use of which in the trade or
business is definitely limited in duration
Requisites for deductibility of allowance for depreciation:
1. It must be sustained by the person who owns or who
has a capital investment in the property;
2. It must be reasonable in that the amount of
depreciation must be in accordance with the
depreciation method being adopted by the company;
3. It must be charged off during the taxable year;
4. It should not exceed the cost of the property;
5. The schedule of the allowable must be attached to the
return;
6. The property being depreciated is being used in the
trade or business;
7. The property must have a limited useful life;
Methods of Computing allowance for
depreciation
1. Straight-line method
The straight line method is to the effect that the rate
and the base (the cost) are constant. Under this
method, the cost or other basis of the property less its
estimated salvage value is deductible in equal annual
amounts over the period of the estimated useful life of
the property.
applying changing factions to the cost or other basis of
the property reduced by estimated salvage. The
numerator of the fraction changes each year to a
number which corresponds to the remaining useful life
of the asset (including the year for which the
allowance is being computed), and the denominator
(which remains constant) is the sum of all the years
digits corresponding to the estimated useful life of the
asset.
4. Any other method which may be prescribed by the Secretary
of Finance upon recommendation of the
CIR.
Note:
Whatever plan or method of apportionment is adopted
must be reasonable and must have due regard to
operating conditions during the taxable period.
The burden of proof must rest upon taxpayer to
sustain the deduction taken by him, such deductions
must not be disallowed unless shown by clear and
convincing evidence to be unreasonable.
G. Charitable and other contributions
Requisites for deductibility:
1. Must actually be paid or made to the Philippine
Government or any of its agencies or political
subdivision or to any domestic corporations or
associations;
2. Must be made within the taxable year;
3. Must not exceed 10% of the individuals taxable
income and 5% of the corporations taxable
income before deducting the contribution; and
4. Must be evidenced by adequate records or receipts.
Amount that may be deducted Deductible in full

Cost- Salvage value Allowance for

Useful life depreciation

2. Declining-balance method
The fixed percentage of diminishing book value
method is to the effect that the rate of yearly
depreciation remains the same but the base (the
book value) upon which the rate is applied diminishes
from year to year.

Cost-Depreciation x rate
Estimated Useful life Allowance for depreciation

3. Sum-of-the-years-digit method
The capital sum to be replaced should be charged off
over the useful life of the property, either in equal
annual instalments or in accordance with any other
recognized trade practice, such as an apportionment
of the capital sum over units of production. The
annual allowance for depreciation is computed by

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 5. Personal and additional exemption (Sec. 35)
Donations to: a) Basic personal exemptions (BPEs)-(Sec. 35 [A]
1. The Philippine government or 1. Philippine government or to P50,000 each individual TP.
any of its agencies or any political any of its agencies or political
subdivision thereof exclusively subdivisions, including fully- Note: In the case of married individuals, where only
for public purposes; owned government one of the spouse is deriving gross income, only one
corporations exclusively to spouse shall be allowed the personal exemption
2. Accredited domestic finance, to provide for, or to
corporations or associations be used in undertaking priority b) Additional exemptions (AEs) for TP with dependents (Sec.
organized and operated activities in: 35[B])
exclusively for: a. Education; P25,000 each dependent not exceeding 4
a. Religious; b. Health;
b. Charitable; c. Youth and sports
dependent means:
c. Scientific; development;
d. Human settlements; 1. A legitimate, illegitimate or legally adopted child of the
a. Scientific; TP;
e. Science and culture; and
b. Youth and sports f. Economic development. 2. Chiefly dependent upon and living with the TP;
development; Chiefly dependent- means principal or main support. It means
c. Cultural; or 2. Foreign institutions or more than one half of the support required by the dependent.
d. Educational purposes; or international organizations in
for the pursuance or compliance with 3. If such dependent is:
e. Rehabilitations of agreements, treaties, or a. not more than 21 years of age
veterans; and commitments entered into by b. unmarried and not gainfully employed; or
the government and of the 4. If such dependent,
3. Social welfare institutions or to foreign laws or international a. regardless of age,
NGOs provided no part of the net organizations or in pursuance b. is incapable of self-support because of
income of which inures to the of special laws. mental or physical defect
benefit of any private stockholders
or individual. 3. Accredited NGOs. c) Status-at-theend-of-the-year rule.
1. TP marries during taxable year-may claim the
corresponding BPE in full for such year.
2. TP should have additional dependent(s) during
H. Contributions to pension trusts taxable year-may claim corresponding AE in full for
Requisites for deductibility: such year.
1. The ER must have established a pension or 3. TP dies during taxable year-his estate may still claim
retirement plan to provide for the payment of BPE and AE for himself and his dependent(s) as if he
reasonable pensions to its EEs; died at the close of such year.
2. The pension plan is reasonable and actuarially sound; 4. If during the taxable year.
3. It must be funded by the ER; a) spouse dies, or
4. The amount contributed must no longer be subject to b) any of the dependents:
its control or disposition. dies or marries,
The payment has not therefore been allowed as turns 21 years old or becomes gainfully
a deduction. employed , TP may still claim same
exemptions as if the spouse or any of the
dependents died, or married, turned 21
years old or became gainfully employed at
4. Optional Standard Deduction (OSD) the close of such year.
a) Individual (except NRA) 6. Items not deductible
A maximum of 40% of gross sales or gross receipts a. General rule:
during the taxable year. These items are not related to the trade, business or
profession of the TP.
The cost of sales or the cost of services is not b. Personal, living or profession of the TP.
allowed to be deducted for purposes of determining These are personal expenses and not related to the
the basis of the OSD inasmuch as the law is specific conduct of trade or business.
as to the basis thereof which states that for
individuals, the basis of the 40% OSD shall be the c. Amount paid for new buildings or for permanent
gross sales or gross receipts and not gross improvements.
income. These are capital expenditures added to the cost of
the property and the periodic depreciation is the
b) Corporations (except NRFC) amount that is considered as deductible expense.
Not exceeding 40% of their gross income.
d. Amount expended in restoring property.

Page 33 of 104
 they are capital expenditures or those expenditures
that result in obtaining benefits of a permanent nature.
e. Premiums paid on life insurance policy covering life or any
other officer or employer financially interested.
When the taxpayer is directly or indirectly a
beneficiary under such policy.
f. Interest expense, bad debts, and losses from sales of property
between related parties.
Interest Expenses:
In general, the amount of interest paid or incurred
within a taxable year on indebtedness in connection
with the taxpayers profession, trade or business.
Bad Debts:
In general, debts due to the TP actually ascertained to
be worthless and charged off within the taxable year
except those not connected with profession, trade or
business and those sustained in a transaction entered
into between parties. Recovery of bad debts
previously allowed as deduction in the preceding
years shall be included as part of the gross income in
the year of recovery to the extent of the income tax
benefit of said deduction.
Losses from sales of property between related
parties.
1. Between members of a family
2. Except in the case of distributions in liquidation,
between an individual and corporation more than
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 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.
g. Losses from sales or exchange or property.
In general, losses actually sustained during the taxable year and
not compensated for by insurance or other forms of indemnity;
1. If incurred in trade, profession or business;
2. Of property connected with the trade, business or
profession, if the loss arises from fires, storms,
shipwreck, or other casualties, or from robbery, theft
or embezzlement.
h. Non-deductible interest.
i. Non-deductible taxes.
j. Non-deductible losses.
1. Losses from illegal transactions.
2. Losses from sales or exchanges of property between
related TPs
but the gains are taxable.
k. Losses from wash sales of stock or securities.
l. Exempt Corporations
1. GPPs;
2. JV under a service contract with the government;
3. GOCCs
i. GSIS
ii. SSS
iii. PHIC
iv. PCSO
Other exempt corporations:
The following organizations shall not be taxed in respect to
income received by them as such:
A. Labor, agricultural or horticultural organization not
organized principally for profit;
B. Mutual savings bank not having a capital stock
represented by shares, and cooperative bank without
capital stock organized and operated for mutual
purposes and without profit;
C. A beneficiary society, order or association, operating
for the exclusive benefit of the members such as a
fraternal organization operation under the lodge
system, or mutual aid association or a non-stock
corporation organized by employees providing for the
payment of life, sickness, accident, or other benefits
exclusively to the members of such society, order, or
association, or non-stock corporation or their
dependents;
D. Cemetery company owned and operated exclusively
for the benefit of its members;
E. Non-stock corporation or association organized and
operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall
belong to or inures to the benefit of any member,
organizer, officer or any specific person;
F. Business league chamber of commerce, or board of
trade, not organized for profit and no part of the net
income of which injures to the benefit of any private
stockholder, or individual;
G. Civic league or organization not organized for profit
but operated exclusively for the promotion of social
welfare;
H. A non-stock and non-profit educational institution;
I. Government educational institutions;
J. Farmers or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company, mutual
or cooperative telephone company, or like
organization of a purely local character, the income of
which consists solely of assessments, dues, and fees
collected from members for the sole purpose of
meeting its expenses; and
K. Farmers, fruit growers, or like association organized
and operated as a sales agent for the purpose of
marketing the products of its members and turning
Page 34 of 104
 back to them the proceeds of sales, less the
necessary selling expenses on the basis of the
quantify of produce finished by them;
Note:
The income of whatever kind and character from any of their
properties, or from any of their activities conducted for profit
regardless of the disposition made of such income, shall be
subject to tax.
10. Taxation of Resident Citizens, Non-resident Citizens,
and Resident Aliens within and without the Philippines.
A. General rule:
A Resident citizen is taxable on all income derived
from sources within and without the Philippines.
B. Taxation on Compensation Income
(i) Inclusions
a. Monetary compensation
1. Regular salary/wage
Compensation income derived from an employer-
employee relationship in consideration of services
rendered, except in the case of a MWE.
2. Separation pay/retirement benefit not otherwise
exempt.
Separation pay received by an employee who
voluntarily resigns is subject to income tax.
Retirements benefits may be subject to tax if it does
not comply with the provision of sec. 32 (B)(6)(a).
3. Bonuses, 13th month pay, and other benefits not
exempt.
Amount in excess of P30,000
4. Directors fees
b. Non-monetary compensation
1. Fringe benefit NOT subject tax.
a. Fringe benefits which are authorized and exempted
from tax under special laws;
b. Contributions of the ER for the benefit of the EE to:
- retirement,
- insurance and
- hospitalization benefit plans;
c. Benefits given to the rank and file EEs, whether
granted under a CBA or not; and
d. De minimis benefits.
e. If the grant of the fringe benefits is for the
convenience of the ER.
(ii) Exclusions
a. Fringe benefit subject to tax.
Any good, service or other benefit furnished or
granted in cash or in kind by an employer to an
individual employee such as, but not limited to , the
following:
1. Housing ;
2. Expense account;
3. Vehicle of any kind;
4. Household personnel, such as maid, driver and
others;
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. Holiday and vacation expenses;
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.
b. De minimis benefits
1. Monetized unused leave credits of employees not
exceeding 10 days during the year;
2. Monetized value of vacation and sick leave credits
paid to government officials and employees;
3. Medical cash allowance to dependents of employees
not exceeding :
a. P750 per employee per semester or
b. P125per month;
4. Rice subsidy of:
a. P1,500 or
b. one sack of 50 kg. of rice/ month amounting
to not more than P1,500;
5. Uniform and clothing allowance Not exceeding P4,000
per annum;
6. Actual Medical Assistance (e.g., medical allowance to
cover medical and healthcare needs , annual
medical/executive check-up, maternity assistance
and routine consultations) not exceeding P10,000 per
annum;
7. Laundry allowance not exceeding P300/month;
8. EEs achievement awards (10,000) received by the EE
under an established written plan which does not
discriminate in favor of highly paid employees;
9. Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000 per employee per
annum; and
10. Daily meal allowance for overtime work and night
/graveyard shift Not Exceeding 25% of the
basic minimum wage on a per region basis.
Note: All other benefits given by ERs which are not
included in the above-enumeration shall not be
considered as de minimis benefits, and hence, shall
be subject to income tax as well as withholding tax on
compensation income.
c. 13th month pay and other benefits and payments specifically
excluded from taxable compensation income.
Gross benefits received by officials and employees of
public and private entities, the total exclusion of which
shall not exceed P30,000 which shall cover:
a. Benefits received by officials and employees of the
national and local government.
b. Benefits received by employees.
c. Benefits received by officials and employees not
covered by (b).
d. Other benefits.
(iii) Deductions
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a. Personal exemptions and additional exemptions.
Basic Personal exemption Additional exemption
P50,000 for each individual P25,000 for each
taxpayer. dependent not exceeding 4.
b. Health and hospitalization insurance.
The amount of premiums not to exceed P2,400 per
family or P200 a month paid during the taxable year
taken by the taxpayer for himself, including his family
who has a gross income of not more than P250,000
for the taxable year.
Note: In the case of married taxpayers, only the
spouse claiming the additional exemption for
dependents shall be entitled to this deduction.
c. Taxation of compensation income of a MWE.
1. Statutory Minimum Wage.
The rate fixed by the RTWPB, as defined by the
Bureau of Labor and Employment Statistics (BLES) of
the DOLE.
2. Minimum Wage Earner.
3. Income also subject to tax exemption:
a. holiday pay,
b. overtime pay,
c. night shift differential, and
d. hazard pay.
C. Taxation of business income/income from practice of
profession.
OSD or Itemized deductions.
OSDs 10% of the gross income. May be availed
only by individuals who are not purely compensation
income earners. This is in lieu of the itemized
deductions.
D. Taxation of Passive Income.
(i) Passive income subject to final tax
a. Interest income
Interest income derived by a resident individual from a
depositary bank under the expanded foreign service
deposit system 7.5%.
Interest income from long term deposit or investment
evidenced by certificates prescribed by BSP.
Exempt, if investment is held for more than
5 years.
If investment is pre-terminated, interest
income on such investment shall be subject
to the following rates:
If pre-terminated in less than 3
years 20%.
If pre-terminated after 3 years to
less than 4 years-12%
If pre-terminated after 4 years to
less than 5 years-5%
b. Royalties.
Royalties, except on books, as well as other literary
works and musical compositions.
Royalties on books literary works and musical
compositions 10%
c. Dividends from DC
Cash and or property dividend actually or
constructively received from a domestic corporation or
form a joint stock company, insurance or mutual fund
companies and regional operating headquarters of
multinational companies. 10%
d. Prizes and other winnings.
Prizes over P10,000 20%
Prizes less than P10,000 are included in the income
tax of the individual subject to the scheduler rate of
5% up to P125,000+32% of excess of P500,000.
Other winnings, except PCSO and Lotto, derived from
sources within the Philippines 20%.
(ii) Passive income NOT subject to final tax.
Interest income from long-term deposit or investment
in the form of savings, common or individual trust
funds, deposit substitutes, investment management
accounts and other investments evidenced by
certificates-exempt from final tax.
E. Taxation of capital gains.
1) Income from sale of shares of stock of a Philippine
corporation.
a. Shares traded and listed in the stock exchange.
The gains are not subject to income tax. The tax
applicable will be a business tax known as percentage
tax.
A tax at the rate of of 1% of the gross selling price
or gross value in money of the shares of stock sold,
bartered, exchanged or otherwise disposed which
shall be paid by the seller or transferor.
b. Shares not listed and traded in the stock exchange.
A final tax as follows:
Not over P100, 000 - 5%
Amount in excess of P100, 000 10%
2) Income from the sale of real property situated in the
Philippines.
A final tax of 6% based on the gross selling price or
current FMV, whichever is higher, upon capital gains
presumed to have been realized from the sale,
exchange, or other disposition of real property
classified as capital assets, including pacto de retro
sales and other forms of conditional sales, by
individuals, including estates and trusts.
3) Income from the sale, exchange, or other disposition of other
capital assets.
A final tax of :
6% on the gross selling price, or
the current FMV at the time of the sale,
whichever is higher.
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11. Taxation of NRAETB.
a. General rule
A NRAETB in the Philippines shall be subject to an
income tax in the same manner as an individual
citizen and a resident alien individual, on taxable
income received from all sources within the
Philippines.
b. Cash and/or property dividends.
10% final tax, on cash and or property dividend
actually or constructively received from a domestic
corporation or from a joint stock company, insurance
or mutual fund companies and regional operating
headquarters of multinational companies.
c. Capital gains.
It is generally an income tax on sale of real property
and shares of stocks classified as capital assets.
12. Individual Taxpayers Exempt from Income Tax
a. Senior citizens
A senior Citizen is:
1. any resident citizen of the Philippines
2. at least 60 years old, including those who have retired
from both government offices and private enterprises,
and
3. has an income of not more than P60,000 per annum
subject to the review of the NEDA every 3 years.
b. Minimum Wage Earners
Who is a Minimum Wage Earner?
Worker in the private sector who is paid the statutory
minimum wage.
Employee in public sector with compensation income
of not more than the statutory minimum wage in the
non-agricultural sector where he is assigned.
Rule on MWE Receiving Additional Compensation Income
An employee who receives/earns additional
compensation such as commissions, honoraria, fringe
benefits, benefits in excess of the allowable statutory
amount of P30, 000, 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.
c. Exemptions granted under international agreement
NRAETB may deduct personal exemption but only to
the extent allowed by his country to Filipinos not
residing therein, and shall not exceed the
aforementioned amounts. NRANETB cannot claim
any personal or additional exemption.
13. Taxation of Domestic Corporations (Sec. 27 of the NIRC)
A. Tax payable
(i) Regular Tax
Except as otherwise provided in the Tax Code, an
income tax of 30% based on their gross income
derived from the sources within and without the
Philippines shall be imposed on Domestic
corporations duly organized and existing under the
Philippine laws.
(ii) MCIT-Sec. 27 (E)
a. Imposition of MCIT
A MCIT of 2 % of the gross income as of the end of
the taxable year is imposed beginning the 4th taxable
year immediately following the year in which such
corporation commenced its business operations,
which the year when the corporation registers with
the BIR and NOT when the corporation started
commercial operation.
b. Carry forward of excess minimum tax - Sec.27 (E)(2)
any excess of the MCIT over the normal income tax
shall be carried forward on an annual basis and
credited against the normal income tax for the 3
immediately succeeding taxable years.
c. Relief from the MCIT under certain conditions Sec.27 (E)
(3)
the Secretary of Finance may suspend the
imposition of the MCIT on any corporation which
suffers losses on any of the following instances:
1. Prolonged labor dispute (e.g. strikes for more
than 6 months)
2. Force majeure (e.g. war)
3. Legitimate business reverses (e.g. theft)
d. Corporations exempt from the MCIT
1. Proprietary Educational Institution if enjoys
preferential tax rate
2. Non-profit hospitals
3. Depository banks under expended FCDU
4. International carriers
5. OBUs
6. ROHQs of resident foreign corp.
7. Other corporations not subject to the normal tax rate
e. Applicability of the MCIT where a corporation is governed
both under the regular tax system and a special income tax
system
Only one may be imposed.
B. Allowable deductions
(i) Itemized deductions
Business expenses which are ordinary and necessary
in the conduct of business.
(ii) Optional standard deduction (Sec. 34[L])
May be taken by an individual, in lieu of itemized
deductions.
C. Taxation of passive income
(i) Passive income subject to tax
a. Interest from deposits and yield, or any other
monetary benefit from deposit substitutes and from
trust funds and similar arrangements and royalties-
20% final tax
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 b. Capital gains from the sale of shares of stock not
traded in the stock exchange
On the net capital gain:
Not over P100,000
Final Tax of 5%
On any amount in excess of P100,000 plus
10% Final tax on the excess
c. Income derived under the expanded foreign currency
deposit system- 10% final tax
Exempt:
any income of nonresidents, whether
individuals or corporations, from
transactions with depository banks.
d. Inter-corporate dividends-not subject to tax.
e. Capital gains realized from the sale, exchange, or
disposition of lands and/or buildings 6% final
tax- on the gross selling price, or the current FMV at
the time of the sale, whichever is higher.
(ii) Passive income not subject to tax
D. Taxation of capital gains
(i) Income from sale of shares of stock
(ii) Income from the sale of real property situated in
the Philippines
(iii) Income from the sale, exchange, or other
disposition of other capital assets
E. Tax on proprietary educational institutions and hospitals- 10%
on their taxable income
F. Tax on GOCCs, agencies or instrumentalities
Such rate of tax imposed upon corporations or associations
engaged in similar business, industry, or activity, except:
1. GSIS,
2. SSS,
3. PHIC,
4. PCSO
14. Taxation of resident foreign corporations (RFCs)
Sec. 28 (A)
A. General rule:
RFCs are subject to any or some of the following:
1. Capital Gains Tax
2. Final Tax on Passive Income
3. Normal Tax [or] MCIT [or] Gross Income Tax (GIT)
4. Branch Profit Remittance Tax
Exception:
-when it opted to be taxed at the rate of 15% on gross income
under the same conditions as provided in Section 27 (A)
B. With respect to their income from sources within the
Philippines
C. Minimum Corporate Income Tax
D. Tax on certain income
(i) Interest from deposits and yield, or any other monetary
benefit from deposit substitutes, trust funds and similar
arrangements and royalties
(ii) Income derived under the expanded foreign currency deposit
system
(iii) Capital gains from sale of shares of stock not traded in the
stock exchange
(iv) Inter-corporate dividends
Exclude:
(i) International carrier
(ii) Offshore banking units
(iii) Branch profits remittances
(iv) Regional or area headquarters and regional operating
headquarters of multinational companies
15. Taxation of non-resident foreign corporations (NRFCs)
A. General rule
Non-resident foreign corporations are subject to any or some of
the following:
1. Capital Gains Tax
2. Final Tax on Passive Income
3. Final Tax on [Other] Gross Income from sources
within the Philippines
B. Tax on certain income
(i) Interest on foreign loans-20% final withholding tax
(ii) Inter-corporate dividends:
15% - as long as the country in which the NRFC is
domiciled allows a tax credit for taxes deemed paid
in the Philippines equivalent to 15%.
30% withholding tax - if the country within which the
NRFC is domiciled does not allow a tax credit.
(iii) Capital gains from sale of shares of stock not traded in
the stock exchange
Exclude:
1. Non-resident cinematographic film-owner, lessor or
distributor
2. Non-resident owner or lessor of vessels chartered by
Philippine nationals
3. Non-resident owner or lessor of aircraft machineries
and other equipment
16. Improperly accumulated earnings of corporation
Every corporation formed or availed for the purpose of
avoiding the income tax with respect to its
shareholders or the shareholders of any other
corporation, by permitting earnings and profits to
accumulate instead of being divided or distributed.
17. Exemption from tax on corporations
18. Taxation of Partnerships
Rules:
1. Subject to the same rules on corporations, but is not
subject to the improperly accumulated earnings
tax [IAET].The partnership must file quarterly and
year-end income tax returns.
2. The taxable income of the partnership, less the normal
corporate income tax thereon, is the distributable net
income of the partnership.
3. 10% final tax - the share of a partner in the
partnerships distributable net income of a year
Page 38 of 104
 deemed to have been actually or constructively
received by the partners in the same taxable year
taxed to them in their individual capacity, whether
actually distributed or not, withheld by the partnership.
19. Taxation of General Professional Partnerships (GPPs)
Rules:
1. Not subject to income tax.
2. The partners shall only be liable for income tax only in
their separate and individual capacities.
3. For purposes of computing the distributive share of
the partners, the net income of the GPP shall be
computed in the same manner as a corporation.
4. Each partner shall report as gross income his
distributive share, actually or constructively received,
in the net income of the partnership.
5. The share of a partner shall be subject to a creditable
withholding income tax of 15%.
20. Withholding tax
A. Concept
The requirement that taxes imposed or prescribed by
the NIRC are to be deducted and withheld by the
payor-corporations and/or persons from payments
made to payees-corporations and/or persons for the
former to pay the same directly to the BIR. Hence, the
taxes are collected practically at the same time the
transaction is made or when the taxable transaction
occurs. It is taxation at source.
The remaining 7% effectively accounts for the
standard input VAT for sales of goods or services to
government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, in lieu
of the actual Input VAT directly attributable or ratably
apportioned to such sales.
Should actual input VAT attributable to sale to
government exceed 7% of gross payments, the
excess may form part of the sellers expense or cost
If actual input VAT attributable to sale to government
is less than 7% of gross payment, the difference must
be closed to expense or cost.
2. The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, as well as
private corporations, individuals, estates and trusts, whether
large or non-large taxpayers, shall withhold 12% VAT, starting
February 1, 2006, with respect to the following payments:
1. Lease or use of properties or property rights owned by
non-residents; and
2. Other services rendered in the Philippines by non-
residents (RR 16-2005, as amended by RR 4-2007)
D. Filing of return and payment of taxes withheld
(i) Return and payment in case of government employees
The return of the amount deducted and withheld upon
any wage shall be made by the officer or employee
having control of the payment of such wage, or by any
officer or employee duly designated for the purpose.

B. Kinds (ii) Statements and returns

Withholding of final tax of certain income (A) Requirements Every employer re

As to income subject of the system respect of his em
succeeding year,
1. Passive incomes 1. Compensation Income on the same day
2. Fringe benefits 2. Professional/talent fees confirming the wa
3. Rentals the amount of tax
4. Cinematographic film rentals and other payments statement require
5.Income payments to certain contractors other information,
As to whether income should be reported as part of the gross income Secretary of Fina
regulation, prescr
The recipient may not report the said income in his gross The employee is required to include the income in his gross income
income because the tax withheld constitutes final and full (B) Annual Information Returns. Every employer re
settlement of the tax liability employees shall,
As to the effect of the tax withheld Commissioner an
of compensation
The tax withheld cannot be claimed as tax credit during
The tax withheld can be claimed as a tax credit or may be deducted from the
the year,
tax dua
or payable paragraph, and su
As to filing of ITR
E. Final withholding tax at source
If the only source of income is subject to final tax, no need to There is F. Creditabletowithholding
a necessity tax
file on the earner
file an ITR on the part of the earner (i) Expanded withholding tax
(ii) Withholding tax on compensation
C. Withholding of VAT Every employer must withhold from compensation
1. The Government or any of its political subdivisions, paid, an amount computed in accordance with the
instrumentalities or agencies, including GOCCs shall, before regulations.
making payment on account of its purchase of goods and/or Elements of Withholding on compensation:
services taxed at 12% shall deduct and withhold a final VAT of 1. There must be an employer-employee relationship
5% of the gross payment. 2. There must be payment of compensation or wages for
The 5% final VAT withholding rate shall represent the services rendered
net VAT payable to the seller 3. There must be a payroll period

Page 39 of 104
Exception:
Where such compensation income of an individual:
1. Does not exceed the statutory minimum wages; or
2. P5,000 monthly- whichever is higher
G. Timing of withholding
B. ESTATE TAX
1. Basic principles
The estate tax accrues as of the death of the
decedent and the accrual of the tax is distinct from the
obligation to pay the same. Upon the death of the
decedent, succession takes place and the right of the
State to tax the privilege to transmit the estate vests
instantly upon death (Sec.3, RR 2-2003).
Not a direct tax on the property transmitted or
transferred although its amount is based thereon.
A transfer tax NOT a property tax
the transfer of the NET ESTATE of every decedent
(resident or non-resident) is subject to tax..
2. Definition
A graduated tax imposed on the privilege of the decedent to
transmit property at death and is based on the entire net estate,
regardless of the number heirs and relations to the decedent.
3. Nature
A tax imposed on the privilege of transmitting
property upon the death of the owner. The liability for
estate tax is generated by death and accrues at the
time of death. It is governed by the law in force at the
time of death notwithstanding the postponement of the
actual possession or enjoyment of the estate by the
beneficiary. Consequently, all properties that are
included in the taxable estate should be valued at the
moment of death of a decedent.
Reciprocity
There is reciprocity if the foreign country of which the decedent
was a citizen or resident at the time of his death:
1. Did not impose an estate tax; or
2. Allowed a similar exemption from estate tax with
respect to intangible personal property owned by
Filipino citizens residing in that foreign country.
Note:
1. Reciprocity applies only when:
a. The property is an intangible; and
b. The decedent is a NRA
Inter Vivos Transfers Subject to Estate Tax
The gross estate extends to gratuitous transfers made
by the decedent during his lifetime which are treated
by the law as substitutes for testamentary
dispositions. They are transfers inter vivos in form but
mortis causa in substance.
Rationale for taxability:
To reach such transfers which are really substitutes for
testamentary dispositions and thus prevent the
evasion of the estate tax.
These transfers are:
a. transfers in contemplation of death (Sec.85 b);
b. transfers with retention or reservation of certain rights
(Sec.85 b);
c. revocable transfers (Sec.85 c)
d. transfers of property arising under a general power of
appointment (Sec.85 d); and
e. transfers for insufficient consideration (Sec.85 g)
Note:
Transfers by virtue of a bona fide sale of property for
an adequate and full consideration in money or
moneys worth are excluded and not taxable.
4. Purpose and justification or object
A. Benefit-Received Theory
The tax is the return for the services the
government renders in the distribution of the estate of
the decedent, either by law or in accordance with his
wishes, for the performance of these services and
other benefits that accrue to the estate and the heirs,
the state collects the tax.
B. Redistribution of Wealth Theory
According to this theory, the receipt of inheritance is a
contributing factor to the inequalities in wealth and
income. The imposition of estate tax reduces the
property received by the successor, thus helping
bring about a more equitable distribution of wealth
in society. The tax base is the value of the property
and the progressive scheme of taxation is precisely
motivated by the desire to mitigate the evils of
inheritance in its original form.
C. Ability to pay theory
This theory asserts that the receipt of inheritance
which is in the nature of unearned wealth or a windfall,
places assets in the hands of the heirs and
beneficiaries thereby creating an ability to pay the
tax and thus to contribute to governmental income.
D. Privilege theory or State Partnership Theory
Inheritance is not a right but a privilege granted by
the state and large estates have been acquired only
with the protection of the state. The State, as a
passive and silent partner in the accumulation of
property has the right to collect the share which is
properly due to it.
5. Time and transfer of properties (Sec.85)
At the time of death
6. Classification of decedent
a. resident decedent
b. non-resident citizen
c. non-resident alien decedent
7. Gross estate vs. net estate
Gross estate (Sec.85)
Page 40 of 104
 b. To save inco
The total value of all property (real or personal, Determined by deducting taxes;
tangible or intangible) belonging to the decedent c. To settle fam
at the time of his death, situated within or 1. Expenses, losses indebtedness, and taxes. unlitigated dispute
outside the Philippines, where such decedent 2. Property previously taxed. d. To provide in
was a resident or citizen of the Philippines. 3. Transfers for public use. income for depen
4. The Family Home e. To see the ch
In the case of a NRA decedent, it shall include 5. Standard Deductions property while the
only property situated in the Philippines. 6. Medical Expenses alive;
7. Amount received by heirs under R.A. 4917 f. To protect th
8. Net share of the surviving spouse in the conjugal partnership or community
hazardsproperty.
of busine
g. To reward se

8. Determination of gross estate and net estate c. Revocable transfer A transfer by trust
death to any chan
Decedent is a RC, NRC, & RA Decedent is a NRA such transfer by:

All properties, real or personal, Only properties situated in the a. Decedent alone
tangible or intangible, wherever Philippines provided that, b. By the deceden
situated. intangible personal property is without regard to w
subject to the rule of reciprocity amend, revoke or
provided for under Section 104 decedents death o
of the NIRC. or moneys worth.

Note:
9. Composition of gross estate 1. the decedent ha
2. even if the cont

Decedent is a RC,NRC, & RA d. Property passing under GENERAL POWER OF A transfer where th
APPOINTMENT designate any per
Value at the time of death of all:
1. Real property(wherever The transferee ma
situated)
2. Personal property(tangible Note: A power is GENE
or intangible, wherever situated) the decedent is the transferee in this provision pleases including
3. To the extent of the interest therein of the decedent at the time of his Tax implication: m
death. (includible in his e
Effect: DONEE ho
concept of owner
10. Items to be INCLUDED in gross estate
It is SPECIAL whe
persons other than
a. Decedent's interest It includes any interest having value or capable of being valued, transferredTax
by implication:
the decedentNo
his death. Effect: Donee hold

b. Transfer in contemplation of death A transfer motivatede. Proceeds of life

by the thought of insurance
impending death although death mayProceeds of life in
not be imminent:
estate if the benef
-in contemplation of death 1. When the decedent has, at any time, made a transfer in contemplation of ora.intended
Is the estate
to
means that the impelling or controlling motive is the take effect in possession or enjoyment at or after death; or designation is revo
thought of death, regardless of whether the transferor b. third person
is near the possibility of death or not, which induces 2. When decedent has, at any time, made a transfer under which he has retainedbeneficiary is revo
for his life o
the disposition of the property for the purpose of for a period not ascertainable without reference to his death or any period which does not in p
PRESUMPTION:
avoiding the tax. fact end before his death:
f. Prior interests All transfers, trusts
a. Possession, enjoyment or right to income from the property; or created, arising, e
Code
b. The right alone or in conjunction with any other person to designate the person who will
possess or enjoy the property or income there from. Note:
In most of these tr
Examples of motives precluding the category of a transfer in contemplationlifetime
of death:notwithsta
a. To relieve the donor from the naked title to the
burden of management;

Page 41 of 104
g. Transfers of insufficient consideration
consideration received shallduring
11. Deductions from estate
Granted by mere legislative grace
Construed strictly against the taxpayer
Requisites:
a. Substantiate the claim for deduction
b. Identify the provision granting the deduction.
*The provision must be clear and definite.
A. Decedent is a RC, NRC and RA
1. Ordinary Deductions (Expenses, Losses, Indebtedness,
and Taxes-ELIT)
a. Funeral Expenses Sec. 86 (A)(1)(a)
- Actual funeral expenses are those which were actually
incurred in connection with the interment or burial of the
deceased and paid for from the estate of said deceased.
The amount deductible is the lowest among the following:
1. actual funeral expenses
2. 5% of the gross estate
3. P200, 000
It includes:
1. Costs of coffin, tombstone, mausoleum, and burial lot;
2. Funeral parlor fees;
3. Mourning clothing of the surviving spouse
and the unmarried minor children;
4. Costs of obituary notices; and
5. Expenses during the wake.
The following cannot be deducted under funeral expenses:
1. Cash advances of the surviving spouse and the
heirs;
2. Expenses paid by the relatives and friends; and
3. Expenses after burial
Requisites:
1. The expenses must be due to the interment,
wake and burial; hence, expenses on the
death anniversary are not included
2. The expenses must have been shouldered by
the estate and not by other people
b. Medical Expenses
Requisites:
1. Must be incurred by the decedent within
1 year prior to his death
2. Must be duly substantiated by receipts; and
3. Must not exceed P500, 000
c. Judicial expense of the testamentary or intestate
proceedings
Expenses allowed as deduction under this category
are those:
1. incurred in the inventory-taking of assets
comprising the gross estate,
2. administration,
3. payment of debts of the estate, as well as the
distribution of the estate among the heirs.
Only the excess In short, these deductible items are expenses incurred
be included in the grossofestate.
the settlement the estate but not beyond
the last day prescribed by law, or the extension
thereof, for the filing of the estate tax return.
Include administration expenses to those actually
incurred in the administration of the estate
Examples:
1. fees of the executor or administrator;
2. attorneys fees;
3. accountants fees;
4. court fees;
5. salaries of employees; and
6. all other expense related to the administration of the
estate.
Note:
This includes all expenses necessary to settle or
preserve the estate hence, extrajudicial expenses
are included.
Expenses not essential to the proper settlement of the
estate but incurred for the individual benefit of the
heirs, legatees, or devisees are not allowed as
deductions.
e.g.: expenses to be declared as administrator vs. an
oppositor is a personal expense
d. Claims against decedents estate
The word "claims" is generally construed to mean
debts or demands of a pecuniary nature which could
have been enforced against the deceased in his
lifetime and could have been reduced to simple
money judgments.
Debts or obligations of the decedent that is
enforceable against the estate.
They may arise out of:
1. Contract;
2. Tort; or
3. Operation of Law.
Requisites:
1. contracted in good faith and for an adequate and full
consideration
2. existing against the estate.
3. legally enforceable obligations of the decedent and
ought to be enforced by the claimants.
4. They must be reasonably certain in amount; and;
5. At the time the indebtedness was incurred, the debt
instrument was duly notarized
Note: If the loan was contracted within 3 years before
the death of the decedent, the administrator or
executor shall submit a statement showing the
disposition of the proceeds of the loan.
e. Claims against insolvent persons
Requisites:
1. claims has been initially included as part of the gross
estate; and
2. incapacity of the debtors to pay is proven
Page 42 of 104
 f. Unpaid Mortgage
Requisites:
1. The FMV of the property mortgaged without deducting
the mortgage indebtedness has been initially
included as part of his gross estate; and
2. The mortgage indebtedness was contracted in good faith
and for an adequate and full consideration in money
or moneys worth.
g. Casualty Losses
They include all losses incurred during the settlement of the
estate arising from:
- fires,
- storms,
- shipwreck or
- other casualties or from
- robbery, theft or embezzlement.
Requisites:
1. not compensated by an insurance
2. not claimed as a deduction for income tax
purposes; and
3. incurred not later than the last day for payment of the
estate tax (6 months from death).
4. Include the worth of the property in the gross estate
5. File a sworn declaration of the fact of loss within 45 days
from its occurrence
h. Unpaid Taxes
Unpaid income tax on income due or received before death of
the decedent, and real property taxes, which have accrued prior
to the death of the decedent (real property taxes accrued at the
beginning of the year but may be paid before or at the end of
each quarter) are deductible.
Income taxes upon income received after the death of the
decedent, or property taxes not accrued before his death, or any
estate tax cannot be deducted because they are chargeable to
the income of the estate.
Except: estate tax because estate tax liability is
determined at the time of death
2. Vanishing/Alternating Deductions or Property Previously
Taxed
an amount allowed to reduce the taxable estate of a
decedent where the property was:
a. received by him from prior decedent by gift, bequest,
devise or inheritance, or
b. transferred to him by gift, has been the object of
previous transfer deduction.
VANISHING DEDUCTION: because the rate of deduction
gradually diminishes and entirely vanishes depending upon the
time interval between the 2 successive transfers.
ALTERNATING DEDUCTION: because the present decedents
estate cannot claim it if the prior decedents estate claimed it.
Factors necessary in vanishing deduction:
a. There are 2 deceased persons and the first is the
donor; and
b. The second decedent dies within 5 years after the
deathof the prior decedent or in the case of gifts the
decedent donee dies within the same period after
the date of the gift.
Rationale:
The deduction operates to ease the harshness of
successive taxation of the same property within a
relatively short period of time.
Requisites:
1. The present decedent must have acquired the
property by inheritance or by donation.
2. The property must have been acquired within 5 years
prior to the death of the present decedent
3. The property must have formed part of the gross
estate of the prior decedent if acquired by inheritance,
or the taxable gift of the donor if acquired by donation.
4. The estate tax or the donors tax, as the case may be,
must have been paid on the previous transfer.
5. The property must be identified as the one received
from the prior decedent or from the donor, as the case
may be.
6. The estate of the prior decedent must not have
previously availed of the vanishing deduction on the
subject property.
3. Transfer for Public Use
Requisites:
a. The disposition must be testamentary in character.
b. To take effect after death.
c. In favor of the government of the Philippines, or any
political subdivision thereof.
d. Exclusively for public purpose.
Q: If in a will the property was bequeathed to a city and an
NGO, are the tax effects the same? No.
City - included in the gross estate and claimed as
Deduction
NGO excluded from the gross estate and subject to the
limitation that not more than 30% must be used for
administrative purposes
4. Family Home
It is the dwelling house, including the land on which it is situated,
where the husband and wife, or an unmarried person who is the
head of the family and members of their immediate family
resides as certified by the Barangay Captain of the locality.
For the purpose of availing of a family home deduction
to the extent provided by law, a person may constitute
only one family home.
The amount deductible is equivalent to the current
FMV of the decedents family home if said current
FMV value exceeds P1, 000,000, the excess shall be
subject to estate tax.
Requisites:
a. The family home must be the actual residential home of
thedecedent and his family at the time of his death.
b. Such fact must be certified by the Barangay Captain of
thelocality where the family is situated.
Page 43 of 104
c.The total value must be included in the gross estate
d. The allowable deduction must be in an amount
equivalent to the current FMV as declared or
included in the gross estate not exceeding P1M
5. Standard Deduction
on top of other deductions, unlike the optional
standard deduction which is in lieu of other
deductions; hence, it does not include the
P 200,000 exemption
it is an additional deduction without need of
substantiation.
6. Amounts Received by Heirs Under R.A. No. 4917 from the
decedents employer as a consequence of the death of the
decedent employee provided that such amount is included in
the gross estate of the decedent.
- retirement benefits
- Requisite: include in gross estate
7. Net Share of the Surviving Spouse in the Conjugal
Partnership or Community Property.
Include the entire amount in the gross estate then deduct the
share of the surviving spouse
8. Tax Credit for Estate Tax Paid to a Foreign Country
The estate tax imposed by the tax code shall be
credited with the amount of any estate tax paid to a
foreign country.
Concept: if a property located in the Philippines was already
subjected to estate tax abroad and the same property is also
subjected to estate tax in the Philippines, the foreign tax paid is
allowed to reduce his Philippine estate tax
Purpose: minimize the effect of international double taxation
applicable only to residents and citizens, not to
NRA since he is taxed only on his properties within the
Philippines; hence, the NRA will not be made to pay
estate taxes twice for his property located abroad = no
international double taxation = no tax credit. (Sec. 86
(E)(2))
Requisites:
1. Prove that the foreign estate tax has been paid
2. Prove reciprocity: that in the decedents foreign country, a
similar tax credit is given to Filipinos
Limitations on tax credit:
a. The tax credit limit for estate taxes paid to one foreign country
is determined by the following:
TAX CREDIT LIMIT=
Decedents Net Estate situated in a foreign country x Phil.
Estate tax of the Entire net estate
b. The tax credit limit for estate taxes paid to two or more
countries is determined as follows:
TAX CREDIT LIMIT =
Decedents net estate situated outside of the Phil x Phil. Estate
tax of Entire net Estate
Note:
1. Under limitation A the allowable tax credit is the lower amount
between the tax credit limit and the estate tax paid to the foreign
country.
2. Under limitation B the allowable tax credit is the lower
amount between the tax credit limit computed under (a) and that
computed under (b)
B. Decedent is a NRA
The deductions allowed to citizens or residents of the
Philippines are also extended to a NRA decedent with
respect to his estates situated in the Philippines at the
time of his death.
In case of deductions for ELITs, the amount of the
allowable deduction is limited only to the proportion of
such deductions with the value of such part of his
gross estate which at the time of his death, is situated
in the Philippines, bears to the value of his entire
gross estate wherever situated.
12. Exclusions from estate
In the determination of the gross estate, the nature of
the property, whether common property of the
spouses, separate or exclusive property either of the
deceased or of the surviving spouse, becomes of vital
importance.
A. Proceeds of insurance not includible in the gross estate of
the decedent
1. Amount receivable by any beneficiary irrevocably
designated in the policy of insurance by the
insured.
2. Proceeds of a group insurance policy taken out by a
company for its employees.
3. Proceeds of insurance policies issued by the GSIS to
government officials and employees.
4. Benefits accruing under the Social Security Act.
5. Proceeds of life insurance payable to the heirs of
deceased members of the military personnel of
the United States Army or Philippine Army under laws
administered by the United State veterans
Administration.
6. Accident insurance proceeds.
B. Separate property of the surviving spouse.
What regime of property relations shall govern the spouses?
Under the Civil Code, the husband and wife who got
married before August 3, 1988 are governed by the
Conjugal Partnership of Gains, while those who got
married on or after August 3, 1988 are governed by
the Absolute Community of Property, unless a different
regime was agreed upon in the marriage settlement.
13. Tax credit for estate taxes paid in a foreign
country
Page 44 of 104
 The estate tax imposed by the tax code shall be
credited with the amount of any estate tax paid to a
foreign country.
14. Exemption of certain acquisitions and
transmissions
a. The first P200, 000 value of the estate (Sec. 84)
b. Fideicommissary substitution (Sec. 87)
c. The merger of the usufruct in the owner of the naked
title (Sec. 87)
d. The transmission from the first heir, legatee, or donee
in favor of another beneficiary in accordance with the
desire of the predecessor (Sec.87)
e. transfers to social welfare, cultural and charitable
institutions (Sec.87)
Requisites:
1. Qualified organization
2. Not more than 30% will be used for
administrative purposes
Reason: to encourage such transfers
f. Intangible personal property of NRAs under the
principle of reciprocity.
g. Retirement benefits of employees of private firms from
private pension plans approved by the BIR.
h. Amount received for war damages.
i. Grants and donations to the Intramuros
administration.
15. Filing of notice of death (Sec.89)
When to file: Within 2 mos. after the decedents death
to the CIR where the gross value of the estate exceeds
P 20, 000.
Contents of the letter:
1. The fact that the decedent died
2. Residence of the decedent
3. Date of death
16. Filing of Return and Payment of Tax (Sections 90
and 91)
A By whom?
An estate tax under oath is required by law to be filed by the
executor, administrator, or any of the legal heirs in cases of:
1. Transfers subject to tax
2. Where gross value of estate exceeds P200,000
3. Where estate consists of registered or registrable
property, regardless of amount.
When the gross estate exceeds P2M:
The Return shall be accompanied by a Statement which is
certified by an independent Certified Public Accountant stating:
1. the itemized assets of the decedent with its
corresponding gross value at the time of his death;
or in the case of a NRA, that part of his gross estate
situated in the Philippines;
2. the itemized deductions from the gross estate;
3. the amount of tax due, whether paid or still due and
outstanding.
B. When to file?
The return shall be filed within 6 months from the decedents
death.
The Commissioner shall have the authority to grant, in
meritorious cases, a reasonable extension not exceeding 30
days for filing the return.
C. Where to file?
Except in cases where the Commissioner otherwise permits, the
return shall be filed with:
* if the decedent is a resident citizen
a. an authorized agent bank or
b. Revenue District Officer or
c. Revenue Collection Officer or
d. duly authorized treasurer of the city or municipality
where the decedent was domiciled at the time of his
death, or
* if the decedent is a non-resident (citizen or alien)
a. with the Revenue District Office where his
executor/administrator is registered
b. with the Revenue District Office having jurisdiction
over the residence of the executor/administrator
c. with the Office of the Commissioner if the decedent
has no executor or administrator
D. Copies
The return shall be filed in triplicate, 2 for the BIR and 1 copy for
the TP.
E. When to pay?
Pay the estate tax at the time you will file your estate tax return
(Pay as you file system).
F. Extensions for Payment
Reason: The payment of the tax may cause undue
hardship on the heirs specifically for non-liquid properties which
requires time to be sold first to be converted into cash for
payment of the estate tax.
allowed in meritorious cases when the Commissioner
finds that the payment of the estate tax on the due
date would impose undue hardships upon the estate
or any heir :
At most 2 years if estate extrajudicially settled
At most 5 years if estate judicially settled
In case the available cash is not sufficient to pay its total estate
tax liability, the estate may be allowed to pay tax by instalment.
(Sec. 9F, Rev. Reg. 2-2003)
Note: The TP must not be guilty of
1. negligence
2. intentional disregard of the rules and regulations, or
3. fraud
the TP may also be required to pay a bond not
exceeding double the amount of tax and with such
sureties, as the Commissioner deems necessary
The filing of the estate tax return is not sufficient to
obtain a tax clearance, the
administrator/executor/heir must submit additional
documents to determine the correctness of the
values stated by him in the estate tax return such as
the title of the land, tax declaration of the land and its
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 improvements or Certificate of No-improvement,
vicinity map to fix the exact location and zonal value,
etc.
(Read: Revenue Memorandum Order 15-2003)
G. Who are liable for the payment of Estate Tax?
Primarily Liable : Executor or administrator - before delivery to
any beneficiary of his distributive shares. After due payment, the
executor or administrator shall be discharged from personal
liability.
Subsidiarily Liable: Beneficiary - to the extent of his distributive
share, liable for the portion of the estate tax as his distributive
share bears to the value of the total net estate.
CIR vs. PINEDA, September 15, 1967
Two ways by which the government may enforce collection of
estate taxes from the heirs:
1. It can collect from all the heirs the amount of the
estate tax proportionate to the inheritance they
received.
2. It can subject properties of the estate which are in the
hands of the heirs/transferees to the payment of tax.
The heirs have a solidary obligation to settle the
estate. Hence, the BIR can collect from or sue any of
the heirs, but only up to the amount of that heirs
share in the hereditary estate. This is without
prejudice to such heirs right of reimbursement from
his co-heirs of their share in the payment of the estate
tax.
Is the approval of the probate court required before estate taxes
may be collected?
No. The enforcement and collection of taxes are executive in
nature. There is nothing in the Tax Code and in the pertinent
remedial law that implies the necessity of the probate court or
estate settlement of courts approval of the States claim for
estate taxes before the same can be enforced and collected by
the BIR. On the contrary, under Section 94, it is the probate or
settlement court which is bidden not to authorize the delivery of
the distributive share to any interested party without a
certification from the CIR showing the payment of the estate tax
(MARCOS II vs. CA, GR No. 120880, June 5, 1997).
H. What are the measures to insure the payment of
Estate Tax?
1. No judge shall authorize the distribution of the estate
unless a certification from the CIR that tax has been
paid is shown (Sec. 94).
2. Registers of Deeds shall not register any document
transferring real property or real right unless a similar
certification by the CIR is shown and shall immediately
notify the CIR, Regional Director, Revenue District
Officer, or Revenue collection Officer or treasurer of
the city or municipality where their offices are located,
of the non-payment of the tax discovered by them
(Sec. 95).
3. Any lawyer, notary public, or any Government
Officer who, by reason of his official duties,
intervenes in the preparation or acknowledgement of
documents regarding partition or disposal of donation,
legacy or inheritance, shall have the duty of furnishing
the CIR, etc., with copies of such documents and any
information which may facilitate the collection of the
aforementioned tax (Sec. 95).
4. Neither shall a debtor of a deceased pay his debts to
the heirs, legatees, executor or administrator of his
creditor, unless a similar certification by the CIR is
shown; but he may pay the executor or judicial
administrator without said certification if the credit is
included in the inventory of the estate of the
deceased(Sec. 95).
5. Corporations, sociedad anonima, partnerships,
business or industry organized in the Philippines
shall not transfer in their books any shares or other
forms of securities to the new owner unless a similar
certification by the CIR is shown (Sec. 97).
6. When a bank has knowledge of the death of a person
who maintained a joint account, it shall not allow any
withdrawal by the surviving depositor without the
above certification (Sec. 97).
Provided: that the administrator of the estate or
any one of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an
amount not exceeding P20,000 without the said
certification.
all withdrawal slips shall contain a statement to
the effect that all of the joint depositors are still
living at the time of withdrawal by any one of the
joint depositors and such statement shall be
under oath. Otherwise, the joint depositor will be
liable for perjury (Sec. 267).
Distinction between Donors and Estate Tax
Donors Tax
Tax on the privilege to transmit property during the lifetime of Tax on t
the donor
Tax rates: 2% - 15% (lower) 5% - 20
Except donations made to
strangers (30%)
Tax exemption: P100,000 P200,00
Notice of donation: generally not required Notice o
Extension of payment: not provided may be
Payable within 30 days from the date of gift Within 6
Imposed on the net gift Net esta
C. DONORS TAX (Sec. 98)
1. Basic principles
It is levied, assessed, collected and paid upon the
transfer of any person, resident or non-resident, of the
property by gift inter vivos. It applies whether the
transfer is in trust or otherwise, whether the gift is
direct or indirect, and whether the property is real or
personal, tangible or intangible.
It is imposed whether the transfer is in trust or
otherwise, whether the gift is direct or indirect and
whether the property is real or personal, tangible or
intangible.
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2. Definition
A tax on the privilege of transmitting ones property or property
rights to another or others without adequate and full valuable
consideration.
Donation/Gift
1. an act of liberality whereby a person disposes gratuitously of
a thing or right in favor of another who accepts it (Art.
725,NCC).
2. For tax purposes, it includes:
a. any transfer in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible
or intangible (Sec. 98).
b. any transfer of property by gift, except in forced sales and in
the sale of real property which is a capital asset, for less than
an adequate and full consideration in money or moneys
worth (Sec. 100).
c. Condonation or remission of debt, where the creditor
merely desires to benefit a debtor and without any consideration
therefore cancels the debt.
3. Nature
It is an excise tax on the privilege of the donor to give
or on the transfer of property by way of gift inter vivos.
It is NOT a property tax.
It is imposed without reference to the death of the
donor unlike in the case of estate tax.
4. Purpose or object
To:
a. Raise revenues
b. Tax the wealthy and to reduce certain other excise taxes
c. Discourage inter vivos transfers of property which could
reduce mortis causa transfers on which a higher
tax (estate tax) can be collected
d. Prevent avoidance of income tax through the device of
splitting income among numerous donees who are
usually members of a family or into many trusts, with
the donor thereby escaping the effect of the
progressive rates of income taxation.
5. Requisites of valid donation
a. The donor must have capacity to donate
b. There must be intent to donate
c. There must be delivery, either actual or constructive
d. The donee must accept the donation
Note:
1. Donors capacity shall be determined as of the time of
the making of the donation.
2. The donee, unlike the donor need not be capacitated
3. Donors tax applies now to both natural and juridical
persons
4. Donative intent is necessary only in cases of direct
gift. If the gift is indirectly taking place by way of sale,
exchange or other transfer of property as
contemplated in cases of transfers for less than
adequate and full consideration (Sec. 100, NIRC), not
always essential to constitute a gift.
In ABELLO vs. CIR (February 25, 2005), donative intent is
evidenced by a reduction of patrimony of one and an increase in
patrimony to the other.
6. Transfers which may be constituted as donation
a) Sale/exchange/transfer of property for insufficient
consideration
If bona fide sale No value shall be included in the gross
estate.
If not a bona fide sale The excess of the FMV at the time of
death over the value of the
consideration received by the decedent
shall form part of his gross estate.
If inter vivos transfer Total value of the property at the time
is proven fictitious of death included in the gross estate.
b) Condonation/remission of debt
It is where the creditor merely desires to benefit a
debtor and without any consideration therefore
cancels the debt.
If the creditor condones the indebtedness of the
debtor the following rules apply:
1. On account of debtors services to the creditor the
same is in taxable income to the debtor.
2. If no services were rendered but the creditor simply
condones the debt, it is taxable gift and not a taxable
income.
7. Transfer for less than adequate and full
consideration (Sec. 100)
General Rule: The amount by which the FMV of the property
exceeded the value of the consideration shall be deemed a gift
Exception: Real properties classified as capital assets (not used
in business) as there were already subjected to CGT
8. Classification of donor
Taxable within and without the Philippines
a. RC a. NRA
b. NRC b. FC
c. RA
d. DC
9. Determination of gross gift
All property, real or personal, tangible or intangible, that was
given by the donor to the donee by way of gift, without the
benefit of any deduction (Sec. 104).
10. Composition of gross gift (Sec. 104)
RC, NRC, and RA
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a. Real property (wherever
situated);
b. Personal property
(wherever situated), tangible or intangible.
11. Valuation of gifts made in property
Personal Property
The FMV of the property given at the time of the gift.
12. Tax credit for donors taxes paid in a foreign
country (Sec. 101[c])
1. Donor was a Filipino citizen or resident alien
2. At time of foreign donation
3. Donors taxes of any character and description
4. Are imposed and paid by the authority of a foreign country.
TAX CREDIT LIMIT
A. For donors tax paid to one foreign country;
The amount of tax credit in respect to the tax paid to
any country shall not exceed the same proportion of
the tax against which credit is taken which the net gifts
situated within such country taxable under the NIRC
bears to his entire net gift.
FORMULA:
NG situated Tax
in a foreign country x PDT = Credit
Entire net gifts Limit
(NG - Net Gifts; PDT - Phil. Donor's Tax)
B. For donors tax paid to two or more foreign countries:
The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the donors net gift situated outside the
Philippines taxable under the National Internal
Revenue Code bears to his entire net gift.
FORMULA:
Tax
NG outside the Phil. x PDT = Credit
Entire net gifts Limit
The allowable tax credit is the lower amount between
the tax credit limit under (A) and (B).
13. Exemptions of gifts from donors tax
1. Donation for political campaign purposes (Sec. 99 [c])
2. Certain gifts made by residents (Sec. 101 [A])
a. Dowries or gifts to the extent of the first P10, 000.
Requisites:
a. Real property situated
within the Philippines; 1. The donation must be given on account of
b. Personal property: marriage.
i. Tangible property2.situated
The parent must give it to his child.
ii. Intangible personal3. The child must be either the legitimate,
property with recognized natural or legally adopted child of the
the Philippines unless donor, and;
exempted on the basis 4. It must be given before or one year after the
of reciprocity. celebration of the marriage.
b. Gifts made to or for the use of the National
Government or any of its agencies which is not
conducted for profit, or to any political subdivision of
the said government.
c. Gifts in favor of educational, charitable, religious,
The cultural or social welfare corporation, institutions,
assessor, whicheverfoundations,
is higher. trust or philanthropic organization,
research institution or organization, or accredited
NGO. Provided, that no more than 30% of said gifts
shall be used by such donee for administration
purposes.
Note:
1. Only donations made to non-stock, non-profit
educational institutions are exempt from gift taxes as
although Article 14 of the Constitution states that
proprietary educational institutions may be given the
same privileges subject to a guideline; a guideline, the
NIRC does not provide for such exemption to them.
2. A Non-Profit Educational and/or Charitable Corporation,
Institution, Accredited NGO, Trust or Philanthropic
Organization, Research Institution or Organization is:
1. one incorporated as a non-stock entity
2. paying no dividends
3. governed by trustees who receive no
compensation, and
4. devoting all its income whether students fees or
gifts, donations, subsidies or other forms of
philanthropy to the accomplishment and promotion of
the purposes enumerated in its Articles of
Incorporation.
3. Certain gifts made by non-resident alien (Sec. 101 [B])
a. same as (b)
b. same as (c) except accredited NGO
Note:
1. Intangible personal property in the gross gift of a NRA
donor shall be taxable in the Philippines, if the
PRINCIPLE OF RECIPROCITY is not cognizable.
2. Intangible personal properties considered situated in the
Philippines.
Franchise which must be exercised in the Philippines
Shares of stocks issued by any corporation or
sociedad anonima organized or constituted in the
Philippines in accordance with its laws.
Shares of stocks issued by any foreign corporation
85% of the business of which is situated in the
Philippines.
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 Shares of stock issued by a foreign corporation, if
such shares, obligations, or bonds, have acquired a
business situs in the Philippines; and
Shares or rights in any partnership, business or
industry established in the Philippines.
4. Donation of intangibles subject to reciprocity (Sec. 104)
5. Donation for athletes prizes and awards
The donation must be prizes and awards given to
athletes in local and international tournaments and
competitions;
held in the Philippines or abroad; and
sanctioned by their respective sports association
(Sec. 1, R.A. 7549).
6. Donation under the Adopt-a-School Program
Any aid, help, contribution or donation provided by an
adopting private entity to a government school,
whether elementary, secondary or tertiary are exempt
from donors taxes.
The assistance may be in the form of, but not limited
to infrastructure, teaching, and skills development,
learning, support, computer and science laboratories
and food and nutrition(R.A. 8525).
7. Exemption under other special laws.
Donations to:
International Rice Research Institute (IRRI)
Ramon Magsaysay Award Foundation
Philippines Inventors Convention (PIC)
Integrated Bar of the Philippines (IBP)
Development Academy of the Philippines
Social Welfare, Cultural or Charitable Institution, no part of
the net income of which inures to the benefit of any
individual, if not more than 30% of the donation shall be
used by the done for administration purposes
Aquaculture Department of the Southeast Asian Fisheries
Development Center of the Philippines
National Museum
National Library
National Social Action Council
Philippine American Cultural Foundation
Task Force on Human Settlement on the donation of
equipment, materials, and services
14. Person liable
Any person, resident or nonresident, of the property
transferred by gift.
Note: Any person making a donation unless the
donation is specifically exempted under NIRC or other
special laws, is required for every donation to
accomplish under oath a donors tax return in
duplicate.
15. Tax basis
The total net gifts made during the calendar year
(Sec. 99 [A]).
16. Factors affecting the liability for Donors Tax
a. Relationship of the donor and the donee
When the donee is:
1 considered a stranger to the donor the tax rate shall
be 30% of the net gifts
2 a relative of the donor the tax rate shall be based
on the 2-15% table under Sec. 99 [A]
Who is a Stranger?
one who is not a :
1 brother/sister (whole or half-blood), spouse, ancestor
and lineal descendant
2 relative by consanguinity in the collateral line within
the fourth degree of relationship (Sec. 99[B])
Note:
Donations made between individuals and business
organizations are considered donations to strangers
Donations made between business organizations
are considered donations made to strangers (RR 2-
2003)
Donees that have no blood relation to the donor are
considered strangers to the donor, such as those
made to ones in-laws or to juridical persons.
b. Value of the Gift
the higher the value of the gift, the higher the gift taxes
17. Filing of Donors Tax Return (Sec. 103[A])
a. By Whom?
-any individual who makes any transfer by gift
b. When?
-within 30 days after the completion of the gift
donation is completed for tax purposes at the time the
donee accepts the gift
c. Contents:
1. Gifts made during the calendar year
2. Deductions claimed and allowed
3. Previous net gifts made during the year
4. Name of the donee
5. Relationship of the donor and the donee
6. Other information as may be required
Note: The return must be under oath in duplicate.
d. Where to file?
Except in cases where the Commissioner otherwise permits, the
return shall be filed and the tax paid to:
* if the decedent is a resident citizen
a. an authorized agent bank
b. Revenue District Officer
c. Revenue Collection Officer
duly authorized treasurer of the city or municipality where the
decedent was domiciled at the time of the transfer
* if the decedent is a non-resident (citizen or alien)
a. the Philippine Embassy or Consulate in the country
where he is domiciled at the time of the transfer, or
b. directly with the Office of the Commissioner
18. Payment of Donors Tax (Sec. 103 [B])
a. When?
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Pay As You File the tax return.
b. Extensions for Payment
the NIRC does not provide for any extension
Reason: It is presumed that if you can donate, you still have
sufficient properties to pay for the tax.
Note:
If the donors tax was paid for the transfer, there is no
more need to subject the transfer again to estate tax.
Applying the Back Tax Theory, there is no tax that
remained unpaid regarding this transfer.
Void Donations are not subject to Donors Tax
Such as:
a Between husband and wife (even if the relationship
has not been solemnized)
b Between persons guilty of adultery or concubinage.
c Between those found guilty of the same criminal
offenses.
d Between those made to a public officer or his wife,
descendants, ascendants by reason of his office.
Effects of General and Specific Renunciation
An heirs general renunciation of inheritance in favor
of a co-heir is not subject to donors tax, but if it is
specifically renounced in favor of a co-heir to the
exclusion of others, it shall be subject to donors tax.
Renunciation of a surviving spouse of his/her share in the
conjugal partnership or absolute community after dissolution of
marriage
whether made in favor of the heirs of the deceased
spouse or in favor of a third person, the same is
subject to donors tax
D. VALUE-ADDED TAX (VAT) Sec. 105
1. Concept
It is a percentage tax imposed at every stage of the distribution
process on:
- the sale, barter, or exchange, or lease of goods or
properties, and on the performance of service in the
course of trade or business, or
- on the importation of goods, whether for business or
non-business purposes.
It is not the tax itself which is shifted or passes but it is the
burden to pay the tax
Reason: Tax is personal. Seller is still liable, only that the
economic burden is shouldered by the buyer.
2. Transactions Subject to VAT
a. Importation(whether or not in the course of trade or business)
Reason:
To protect our local or domestic goods or articles and to regulate
the entry or introduction of foreign articles to our local market.
Regulation is one of the purposes of Taxation.
When does importation begin and deemed terminated?
Importation begins when the carrying vessel or aircraft
enters the jurisdiction of the Philippines with the
intention to unlade therein.
Importation is deemed terminated:
a. upon payment of the duties, taxes and other
charges due upon the articles, or secured to
be paid, at the port of entry and
b. the legal permit for withdrawal shall have
been granted, or
c. in case said articles are free of duties, taxes
and other charges, until they have legally
left the jurisdiction of Customs.
Note: On importation of goods, there are no zero-
rated transactions. Only Vatable and Exempt
transactions.
b. Sale
c. Barter
d. Exchange
e. Lease
Note: letters b-e must be conducted in the course of
trade or business.
in the course of trade or business (Sec. 105)
-means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged
therein is a non-stock, non-profit private organization
(irrespective of the disposition of its net income and whether or
not it sells exclusively to members or their guests), or
government entity.
3. Characteristics/Elements of a VAT-Taxable
transaction
a. It is an indirect tax
b. It is equitable
c. VAT by its very nature, is regressive
Other characteristics:
a. It is consumption-based.
b. It is imposed on the value-added in each stage of
distribution.
c. It is a credit-invoice method value-added tax.
d. It is not a cascading tax.
4. Impact of tax
The point on which a tax is originally imposed. In so
far as the law is concerned, the taxpayer is the person
who must pay the tax to the government. He is also
termed as the statutory taxpayer-the one on whom
the tax is formally assessed. He is the subject of the
tax
the seller upon whom the tax has been imposed.
5. Incidence of tax
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 That point on which the tax burden finally rests or
settles down. It takes place when shifting has been
effected from the statutory taxpayer to another.
It is on the final consumer, the place at which the tax
comes to rest. The tax is shifted to the buyer of the
goods, properties, or services.
6. Tax credit method
The input tax shifted by the seller to the buyer is
credited against the buyers output taxes when he in
turn sells the taxable goods, properties or services.
Also called invoice method
Formula:
Output
Less: Input__
=VAT Due
If the output taxes are equal to the input taxes, no
payment is required
When the output taxes exceeds the input taxes, the
excess has to be paid
If input is greater than output, tax credit is available
7. Destination principle
Under this doctrine, goods and services are taxed only
in the country where they are consumed. No VAT shall
be imposed to form part of the cost of goods destined
outside the territorial border of the taxing authority.
Thus, exports are zero-rated, while imports are taxed.
Cross-border Principle
Goods going out of the Philippines shall not
be subjected to tax since these goods are
not destined to be consumed in the
Philippines
8. Persons liable
A. any person who, in the regular course of trade or business
1. sells, barters, exchanges goods or properties,
2. leases goods or properties,
3. renders services; and
B. any person who imports goods
Note: Absence of any of the above requisites
exempts the transaction from VAT. However,
percentage taxes may apply (Section 116, NIRC).
10. Zero-rated sales of goods or properties, and
effectively zero-rated sales of goods or properties
Sales which are zero-rated shall result to zero output
tax since the tax rate applied to the tax base is 0%.
Since the output tax is zero, the seller shall pay NO
VAT.
Advantage: the seller shall be entitled to an input tax which he
may credit against his zero output tax giving rise to an excess
input tax.
Note: The seller must be a VAT-registered person to
make his export sales zero-rate
If he is a not VAT-registered person (i.e., he registered as VAT-
exempt), then his export sales shall be merely VAT-exempt
under Sec.109 (1)(O) of the NIRC, disallowing him to claim his
unused creditable input taxes attributable to export sales in the
form of refund or tax credit.
However, the input tax on the purchases of goods, or properties
related to such zero-rated sale shall be available as tax credit or
refund.
Zero-rated sales of goods by a VAT-registered person:
a. Export Sales Sec. 106(A)(2)(a)
b. Foreign Currency Denominated Sale- Sec. 106(A)(2)
(b)
c. Sale to persons or entities which is VAT exempt under
special laws or international agreements to
which the Philippines is a signatory- Sec. 106(A)(2)(c)
d. Transactions subject to 0% - Sec. 108(B)
Zero Rated Transactions
refers to transactions, either sales by a VAT-registered
persons or services performed in thePhilippines by
VAT-registered persons that are subject to 0%.
these are taxable transactions for the purpose of VAT
but the seller is not liable to pay output tax. However,
he is allowed to credit/deduct input tax from his other
tax liabilities.

Note: The importer, whether an individual or
corporation and whether or not made in the course of
his trade or business, shall be liable to pay VAT. (RR
16-2005)
9. VAT on sale of goods or properties
A. Requisites of taxability of sale of goods or properties
1. There is an actual or deemed sale, barter or exchange
of goods or personal properties for valuable
consideration;
2. The sale is in the course of trade or business in the
Philippines;
3. The goods or properties are located in the Philippines
and are for use or consumption therein
4. The sale is not exempt from VAT.
As to how the transaction shall be subject to zero-rating.
A. Automatically Zero Rated Sales
refers to a sale of goods, properties and services by a
VAT registered seller/supplier that is regarded as
either an export sale or a foreign currency
denominated sale under Sec. 106 of the NIRC (RMC
No. 50-07 dated July 30, 2007).
B. Effectively Zero-rated sale of goods and properties
refers to the local sale of goods, properties, and
services by a VAT-registered person to a person or
entity that was granted indirect tax exemption under
special laws or international agreements.
Since the buyer is exempt from indirect tax, the seller
cannot pass on the VAT and therefore, the exemption

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 enjoyed by the buyer shall extend to the seller, making
the sale effectively zero-rated
(RMC No. 50-07 dated July 30, 2007).
Zero Rated vs. Exempt transactions
1. A zero-rated scale is taxable transaction, but does not
result in an output tax while an exempted transaction
is not subject to the output tax;
2. In zero-rated transactions, tax credit is available.
However, in exempt transactions, tax credit is not
available.
3. Persons engaged in transactions which are zero-
rated, being subject to VAT, are required to register
while registration is option for VAT-exempt persons.
Input tax attributable to zero-rated sales, at the option of
the taxpayer, may be:
a. Carried over to the succeeding quarters; OR
b. Refund against other INTERNAL REVENUE taxes
(Sec.110 [B], NIRC).
11. Transactions deemed sale - Sec. 106 (B)
a. Transfer, use or consumption not in the course of business of
goods/properties originally intended for sale or use in the course
of business
e.g. when a VAT-registered person withdraws goods
from his business for his personal use.
b. Distribution or transfer to shareholders, investors or creditors
c. Consignment of goods if actual sale not made within 60 days
from date of consignment
Consigned goods returned by the consignee within the
60-day period are not deemed sold (RR 16-2005)
d. Retirement from or cessation of business with respect to
inventories on hand
12. Change or cessation of status as VAT-registered
person
VAT shall apply to goods disposed of or existing as of
a certain date if under the circumstances, the status of
a person as a VAT-registered person changes or is
terminated.
a) Subject to VAT
Subject to output tax - applicable to goods/properties
originally intended for sale or use in business and
capital goods which are existing as of the occurrence
of the following:
1 Change of business activity from VAT taxable status to
VAT-exempt status
2 Approval of request for cancellation of a registration
due to reversion to exempt status
3 Approval of request for cancellation of registration due
to desire to revert to exempt status after lapse of 3
consecutive years
b) Not subject to VAT
1. Change of control of a corporation
By the acquisition of the controlling interest of such
corporation by another stockholder or group of
stockholders.
The goods or properties used in the business or those
comprising the stock-in trade of the corporation will
not be considered sold, bartered or exchanged
despite the change in the ownership interest.
However, exchange of property by corporation
acquiring control for the shares of stocks of the target
corporation is subject to VAT.
2. Change in the trade or corporate name of the business
3. Merger or consolidation of corporations
The unused input tax of the dissolved corporation, as
of the date of merger or consolidation, shall be
absorbed by the surviving or new corp.
13. VAT on importation of goods
VAT shall be assessed and collected upon goods
brought into the Philippines, whether or not goods are
for use in business.
a) Transfer of goods by tax exempt persons- Sec. 107 (B)
The subsequent purchasers, transferees or
recipients of such imported goods shall be considered
as importers who shall be liable for the tax on
importation.
14. VAT on sale of service and use or lease of
properties Sec. 108
Requisites for taxability
1. There is a sale or exchange of service or lease or use
of property enumerated in the law or other
similar services;
2. The service is:
a. performed or to be performed in the Philippines;
b. in the course of trade of taxpayers trade or
business or profession;
c. for a valuable consideration actually or
constructively received; and
d. not exempt under the Tax Code, special law or
international agreement.
15. Zero-rated sale of services Sec.108 (B)
16. VAT exempt transactions
a) VAT exempt transactions, in general
It involves goods or services which, by their nature,
are specifically listed in and expressly exempted from
VAT under the Tax Code, without regard to the tax
status of the party to the transaction.
b) Exempt transactions- Sec. 109
17. Input tax and output tax, defined (Sec. 110)
Input Tax
means the value-added tax due from or paid by a
VAT-registered person in the course of his trade or
business on importation of goods or local purchase of
goods or services, including lease or use of property,
from a VAT-registered person. It shall also include the
transitional input tax determined in accordance with
Sec. 111
Output Tax
means the value-added tax due on the sale or lease of
taxable goods or properties or services by any person
registered or required to register under Section 236.
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18. Sources of input tax
a. Purchase or importation of goods
b. Purchase of real properties for which a VAT has actually
been paid
c. Purchase of services in which VAT has actually been paid
d. Transactions deemed sale
e. Presumptive input tax
It is an input tax credit allowed to persons or firms
engaged in the:
1. processing of:
a. sardines
b. mackerel
c. milk
2. manufacturing of:
a. refined sugar
b. cooking oil
c. packed noodle based instant meals
The allowed input tax shall be equivalent to 4% of the
gross value in money of their purchases of primary
agricultural products which are used as inputs to their
production.
f. Transitional input tax
It is an input tax credit allowed to person who
becomes liable to value-added tax or any person who
elects to be a VAT-registered person. The allowed
input tax shall be whichever is higher between:
1. 2% of the value of the taxpayers beginning
inventory of goods, materials and supplies; or
2. The actual value-added tax paid on such goods.
19. Persons who can avail of input tax credit
Purchaser
- upon consummation of sale and on importation of goods or
properties; and
Importer
- upon payment of the VAT prior to the release of the goods from
the custody of the Bureau of Customs.
However, in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee.
20. Determination of output/input tax; VAT payable;
excess input tax credits
a) Determination of output tax
Sellers of goods or properties:
Gross selling price x VAT rate
Sellers of service:
Gross receipts x VAT rate
b) Determination of input tax creditable
The sum of the excess input tax carried over from the
preceding month or quarter and the input tax
creditable to a VAT-registered person during the
taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for value-
added tax and other adjustments, such as purchase
returns or allowances and input tax attributable to
exempt sale.
The claim for tax credit shall include not only those
filed with the Bureau of Internal Revenue but also
those filed with other government agencies.
c) Allocation of input tax on mixed transactions
A VAT-registered person who is also engaged in
transactions not subject to Vat shall be allowed to
recognize input tax credit on transactions subject to
VAT as follows:
1. All the input taxes that can be directly attributed to
transactions subject to VAT may be recognized for
input tax credit. Input taxes that can be directly
attributable to VAT taxable sales of goods and
services to the Government or any of its political
subdivisions, instrumentalities or agencies, including
GOCCs shall not be credited against output taxes
arising from sales to non-Government entities; and
2. If any input tax cannot be directly attributed to either
a VAT taxable or VAT-exempt transaction, the input tax
shall be pro-rated to the VAT taxable and VAT-exempt
transactions and only the ratable portion pertaining to
transactions subject to VAT may be recognized for
input tax credit.
d) Determination of the output tax and VAT payable and
computation of VAT payable or excess tax credits
Formula:
Output tax
Less: Input tax________________
VAT payable/ excess tax credits
21. Substantiation of input tax credits- RR 16-2005
Transactions
1. Input taxes on domestic purchases of goods or VAT invoice
properties made in the course of trade or business
2. Input tax on purchases of real property
a. Cash/deferred
basis -Public instrume
-VAT invoice for
-non-VAT Officia
-Public instrume
-VAT Official Re
b. Instalment basis
3. Input tax on domestic purchases of service VAT Official Rec
4. Input tax on importation of goods Import entry or
VAT on the impo
5. Transitional input tax Inventory of goo
BIR
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 or for use in the course of business for personal use
6. Input tax on deemed sale transaction Required invoices
2. Distribution or transfer to Invoice, at the time of the
7. Input tax from payments made to non-residents Monthly Remittance
shareholders/investors
Return of VAT Withheld
or creditors
filed by the resident
transaction, which should
payor in behalf of the non-resident evidencing remittance include
of VAT due
all the information
which was withheld by the payor. of goods if actual
3. Consignment prescribed in Sec. 113 (B)
sale is not made within 60 days
8. Advance VAT on sugar Payment order showing payment of the advance VAT
4. Retirement from or cessation of An inventory shall be
22. Refund or tax credit of excess input tax business with respect to all goods in prepared and submitted to
a. Who may claim for refund/apply for issuance of tax credit hand the RDO who has
certificate (TCC)? jurisdiction over the
Any VAT-registered person, whose sales are zero- taxpayers principal place
rated or effectively zero-rated may apply for the of business not later than
issuance of a tax credit certificate or refund of 30 days after retirement or
creditable input tax due or paid attributable to such cessation from the
sales, except transitional input tax, to the extent that business. An invoice shall
such input tax has not been applied against output tax be prepared for the entire
(Sec.112 [A]). inventory, which shall be
the basis of the entry into
b. Period to file claim/apply for issuance of TCC the subsidiary sales
Within 2 years after the close of the taxable quarter journal. The invoice need
when the sales were made. not enumerate the specific
items appearing in the
c. Manner of giving refund Sec.112 (D) inventory regarding the
description of the goods. If
Upon warrants drawn by the Commissioner or by his
the business is to be
duly authorized representative without the necessity of
continued by the new
being countersigned by the Chairman, Commission on
owners or successors, the
audit, subject to post audit by the Commission on
entire amount of output tax
Audit.
on the amount deemed
sold shall be allowed as
d. Destination principle or cross-border doctrine
input taxes.
Destination Principle Cross-border doctrine
c. Consequences of issuing erroneous VAT invoice or VAT
Goods and services are Mandates that no VAT shall be
official receipt Sec. 113 (D)
taxed only in the country imposed to form part of the cost of
In case of:
where these are the goods destined for consumption
1. Non-VAT registered person who issues a VAT invoice/receipt
consumed outside the territorial border of the
shall be held liable to:
taxing authority.
a. payment of percentage tax if applicable;
b. payment of VAT without input tax;
23. Invoicing requirements Sec.113 c. 50% surcharge on tax due; and
a. Invoicing requirements in general d. the purchaser shall be allowed to recognize an input
For every sale, a VAT-registered person shall issue an tax credit provided that the invoice/official receipt
invoice or receipt. contains the required information.
Aside from the information required under Sec. 237, the 2. VAT-registered who issues a VAT invoice/official receipt for a
following information shall be indicated in the invoice or VAT exempt sale without the words VAT Exempt Sale shall
receipt: be held liable to pay 12% VAT.
1. A statement that the seller is a VAT-registered person, 24. Filing of return and payment- Sec. 114
followed by his taxpayer's identification number a. Who are required to file VAT Return?
(TIN); and 1. Every person or entity who in the course of trade or
2. The total amount which the purchaser pays or is business, sells or leases goods, properties, and
obligated to pay to the seller with the indication that services subject to VAT, if the aggregate amount of
such amount includes the VAT. actual gross sales or receipts exceed P1,919,500
for any 12 - month period (RR 16-2011)
b. Invoicing and recording deemed sale transactions 2. A person required to register as VAT taxpayer but
failed to register
Transaction Invoicing Requirement 3. Any person who imports goods
4. Professional practitioners (RR 16-2005)
1. Transfer, use or consumption not Memorandum entry in the
in the course of business of goods or subsidiary sales journal to b. Where to File the return and pay the tax?
properties originally intended for sale record withdrawal of goods To any of the following:

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 1 Authorized Agent Bank
2 Revenue Collection Officer
3 Duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where
the taxpayer is registered or required to register.
c. When to File?
The monthly return shall be filed not later than the 20 th
day following the end of each month
VAT-registered shall pay the VAT on a monthly basis.
25. Withholding of final VAT on sales to government
Sec.114 (C)
The Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall,
before making payment on account of its purchase of
goods and/or services taxed at 12% shall deduct and
withhold a final VAT of 5% of the gross payment.
The 5% final VAT withholding rate shall represent the
net VAT payable to the seller
The remaining 7% effectively accounts for the
standard input VAT for sales of goods or services to
government or any of its political subdivisions,
instrumentalities or agencies including GOCCs, in lieu
of the actual Input VAT directly attributable or ratably
apportioned to such sales.
Should actual input VAT attributable to sale to
government exceed 7% of gross payments, the
excess may form part of the sellers expense or cost
If actual input VAT attributable to sale to government is
less than 7% of gross payment, the difference must be
closed to expense or cost.
E. TAX REMEDIES UNDER THE NIRC
Importance:
They enhance and support the governments
collection of taxes
They are safeguard of taxpayers rights against
arbitrary action
1. Taxpayers remedies
A. Assessment
(i) Concept of assessment
It fixes and determines the tax liability of a taxpayer,
it is also a demand made on the taxpayer concerned
to settle the amount indicted in it. It also signals the
time when the penalties and interests begin to accrue
against the taxpayer. It is a step preliminary but
essential to warrant of distraint and levy, if still
feasible, and also to establish a cause for judicial
action against the taxpayer.
a Requisites for valid assessment (Sec.228)
1. It must be in writing and signed by the BIR;
2. It must contain the law and the facts on which the
assessment is made;
3. It must contain a demand for payment within the
prescribed period.
(b) Constructive methods of income determination:
1. Bank Expenditure Method
- bank records of the TP are analysed and the BIR estimates
income on the basis of the total bank deposits after eliminating
non-income items.
This method stands on the premise that deposits represent
taxable income unless otherwise explained as being non-
taxable items.
It may be used only where the BIR has been legally allowed
access to the taxpayers bank records.
2. Cash Expenditure Method
- assumes that the excess of a TPs expenditures during the tax
period over his reported income for that period is taxable to the
extent not disproved otherwise.
3. Net Worth Method
(also called Inventory Method for income determination)
- A method of reconstructing income which is based on the
theory that if the taxpayers net worth has increased in a given
year in an amount larger than his reported income, he has
understated his income for that year.
The net worth on a fixed starting date is compared with the net
worth on a fixed ending date. Any increase in net worth is
presumed to be income not declared for tax purposes.
4. Percentage Method
The computed amount of revenues based on the percentage
computation is compared to the amount of revenues reflected
on the return.
The percentages used may be obtained from the TP, industry
publication, prior years audit results, or third parties. The
comparison will provide an indication on the possibility of
revenue being understated.
5. Surveillance and Assessment Method
A letter sent by the BIR to a taxpayer asking him to explain
within a period of 15 days from receipt why he should not be the
subject of an assessment notice. It is part of the due process
rights of a taxpayer
6. Third party information or access to records method-
Sec. 5 (B)
The BIR may require third parties, public or private to supply
information to the BIR.
7. Unit and value method
The determination or verification of gross receipts may be
computed by applying price and profit figures to the known
ascertainable quality of business of the taxpayer
(c) Jeopardy assessment
It is a tax assessment made by an authorized Revenue Officer
(RO) without the benefit of complete or partial audit, in the
light of the said officials belief that the assessment and
collection of a deficiency tax will be jeopardized by delay caused
by the TPs failure to:
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 1. Comply with audit investigation requirements to Civil Action
present his books of accounts and/or pertinent
records, or The filing of a civil action for the The filling of a civil action at the
2. Substantiate all or any of the deductions, exemptions collection of the delinquent tax ordinary court for collection
or credits claimed in his return. in the ordinary court is a during the pendency of protest
proper remedy may be the subject of a motion
An assessment made demanding immediate payment of the tax to dismiss.
due without the usual formalities in instances when the CIR
believes that if the tax will be collected under normal In addition to a motion to
procedures, the collection of such tax is at risk which might dismiss, the taxpayer must file a
result in loss to the government. petition for review with the CTA.
Reason: to toll the running of
How to prevent the issuance of a jeopardy assessment? the prescriptive period
The taxpayer may be required to execute a waiver of the statute Penalties
of limitations. A delinquent tax is subject to A deficiency tax is generally not
administrative penalties such subject to the 25% surcharge,
Instances when jeopardy assessment may be issued: as 25% surcharge, interest, although subject to interest and
When it shall come to the knowledge of the Commissioner that a and compromise penalty. compromise penalty.
taxpayer is:
1. retiring from business subject to tax; or (ii) Power of the Commissioner to make assessments and
2. intending prescribe additional requirements for tax administration
a. to leave the Philippines or remove his property and enforcement (Sec.6)
therefrom; or
b. to hide or conceal his property; or (a) Power of the Commissioner to obtain information,
3. performing any act tending: and to summon/examine, and take testimony of persons (Sec.5)
a. to obstruct the proceedings for the collection of The Commissioner is authorized:
the tax for the past or current quarter or year; or 1. To examine any book, paper, record, or other data which may
b. to render the same totally or partly ineffective be relevant or material to such inquiry;
unless such proceedings are begun immediately
(Sec. 6 (D), R.A. 8424) 2. To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
Note: Jeopardy assessment is an indication of the investigation, or from any office or officer of the national and
doubtful validity of the assessment, hence it may be local governments, government agencies and instrumentalities,
subject to a compromise [Sec. 3.1 (a), Rev. Regs. No. including the BSP and GOCCs, any information such as, but
6-2000]. not limited to:
a. costs and volume of production,
(d) Tax delinquency and tax deficiency b. receipts or sales and gross incomes of TPs, and
c. the names, addresses, and financial statements of
Tax delinquency Tax deficiency corporations, mutual fund companies, insurance
companies, regional operating headquarters of
A TP is considered delinquent in a. The amount by which the tax multinational companies, joint accounts, associations,
the payment of taxes when: imposed by law as determined joint ventures of consortia and registered partnerships,
by the CIR or his authorized and their members;
a. Self-assessed tax per return representative exceeds the
filed by the TP on the prescribed amount shown as tax by the TP 3. To summon:
date was not paid at all or only upon his return; or a. the person liable for tax or required to file a return, or
partially paid; or b. any officer or employee of such person, or
b. If no amount is shown as tax c. any person having possession, custody, or care of the
b. Deficiency tax assessed by by the TP upon his return is books of accounts and other accounting records
the BIR becomes final and made by the TP, then the containing entries relating to the business of the
executory. amount by which the tax person liable for tax, or
exceeds the amounts d. any other person,
previously assessed or to appear before the Commissioner or his
collected without assessment duly authorized representative at a time and
as deficiency place specified in the summons and
Collection to produce such books, papers, records, or
other data, and
It can immediately be collected to give testimony;
administratively through :
1.the issuance of a warrant of 4. To take such testimony of the person concerned, under
distraint and levy, and/or oath, as may be relevant or material to such inquiry; and
2. judicial action.

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5. To cause revenue officers and employees to make a
canvass from time to time of any revenue district or region and
inquire after and concerning all persons therein who may be
liable to pay any internal revenue tax, and all persons owning or
having the care, management or possession of any object with
respect to which a tax is imposed.
Note: The Commissioner has no authority to inquire
bank deposits except:
1. To determine the gross estate of a decedent; and
2. To inquire into the bank deposits of any taxpayer who
has filed an application for compromise (Sec.6F)
(v) Assessment process
(iii) When assessment is made
When it is released, mailed or sent by the collector of internal
revenue to the taxpayer within the 3-year or 10-year period, as
the case may be (CIR vs. Pascor, June 29,1999).
(a) Prescriptive period for assessment
1. False, fraudulent, and non-filing of returns (Sec.222)
10 years from the discovery of the falsity, fraud or
omission to file the return.
2. Except as provided in (1) Sec. 203
3 years after the last day prescribed by law for the
filing of the return
What if the return was filed beyond the period prescribed by
law?
The 3-year period shall be counted from the day the return was
filed.
(b) Suspension of running of statute of limitations
1. Periods suspended:
a. periods for assessment
b. beginning of distraint or levy
c. proceeding in court for collection
2. Grounds for suspension of prescriptive periods (Sec. 223)
a. Commissioner is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court and for 60 days thereafter
b. TP requests for Reinvestigation which is granted
c. TP cannot be located in the address given in the
return filed
Except: if the TP informs the CIR of a change in address
d. When the warrant is duly served upon the TP and no
property could be located
e. When the TP is out of the Phils.
f. When there is an Answer filed by the BIR to the
petition for review in the CTA where the court justified
this by saying that in the answer filed by the BIR, it
prayed for the collection of taxes.
(iv) General provisions on additions to the tax
(a) Civil penalties
otherwise known as surcharge, which may either be 25% or 50
% of the tax depending upon the nature of the violation;
(b) Interest
interest either for a deficiency tax or delinquency as to payment
(Sec.249)
(c) Compromise penalties
1. It is a certain amount of money which the TP pays to
compromise a tax violation.
2. It is paid in lieu of a criminal prosecution
3. Since it is voluntary in character, the same may be
collected only if the TP is willing to pay them.
(d) other civil penalties or administrative fines such as for:
1. failure to file certain information returns (Sec.250)
2. violations committed by withholding agents (Secs.
251 and 252)
(a) Tax Audit
It is the process of examining, going over, or
scrutinizing the books and records of the taxpayer to
ascertain the correctness of the tax declared and paid
by the taxpayer.
It can only be performed upon a Letter of Authority
issued by the Commissioner or Regional Director.
(b) Notice of Informal Conference
A written notice informing a taxpayer that the findings
of the audit conducted on his books of accounts and
accounting records indicate that additional taxes or
deficiency assessments have to be paid.
If, after the culmination of an audit, a Revenue Officer
recommends the imposition of deficiency tax
assessments, this recommendation is communicated
by the Bureau to the taxpayer concerned during an
informal conference called for this purpose, the
taxpayer shall have 15 days from receipt of the notice
of informal conference to explain his side.
(c) Issuance of Preliminary Assessment notice (PAN)
Communication issued by the Regional Assessment
Division or any other concerned BIR office, informing
a taxpayer who has been audited of the findings of the
Revenue Officer, following the review of these
findings. The assessment shall be in writing, and
should inform the taxpayer of the law and the facts on
which the assessment is made; otherwise, the
assessment is void.
(d) Exceptions to issuance of PAN (Sec.228)
1. 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. A discrepancy has been determined between the tax
withheld and the amount actually remitted by the
withholding agent; or
3. 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
againstthe estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or
4. The excise tax due on excisable articles has not been
paid; or
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 5. The article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt
persons.
(e) Reply to PAN
Within 15 days, the TP has to file a written reply
contesting the proposed assessment if he disagrees
with the findings of the PAN.
Failure of the taxpayer to file a reply would now
enable the RO to issue a Final Assessment Notice
(FAN). However no liability for additional or deficiency
tax arises from such failure.
(f) Issuance of Formal Letter of Demand and Assessment
Notice or FAN
Notice of Assessment is a formal letter of demand
where a declaration of deficiency taxes is issued to a
taxpayer who fails to respond to a pre-assessment
notice within the prescribed period of time, or whose
reply to the PAN was found to be without merit.
(g) Disputed assessment
When the taxpayer, indicates its protest against the
delinquent assessment of the RO and requests for
reconsideration, through a letter. After the request is
filed and received by the BIR, the assessment
becomes a disputed assessment.
(h) Administrative decision on a disputed assessment
The taxpayer may elevate the protest to the CIR within
30 days from receipt of the decision for a request for
reconsideration and that his case is referred to the
Bureaus Appellate Division. Otherwise, it becomes
final and appeal to the CTA may be taken.
(vi) Protesting assessment
(a) protest of assessment by TP(Sec.228)
It is the act by the taxpayer of questioning the validity
of the imposition of the corresponding delinquency
increments for internal revenue taxes as shown in the
notice of assessment and letter of demand.
Protest
A vital document which is a formal declaration of
resistance of the TP. It is a repository of all arguments.
It can be used in court in case of administrative
remedies have been exhausted. It is also the formal
act of the taxpayer questioning the official actuations
of the CIR. This is equivalent to a pleading.
1. Protested assessment
The TP files an administrative protest against the
assessment. Such protest may either be a:
a. request for reconsideration or
b. for reinvestigation.
Prescriptive period provided by law to make collection
by distraint or levy or by a proceeding in court is
interrupted once a TP protests the assessment and
requests for its cancellation.
2. When to file a protest
within 30 days from receipt of assessment.
3. Forms of protest
Request for Reconsideration Request for Reinvestigation
- it is a claim for re-evaluation of - it is a claim for re-evaluation of
the assessment. the assessment.
Basis: existing records without Basis: newly-discovered or
need of additional evidence. additional evidence.
- it may involve a question of fact
or law or both. - it may also involve a question
of fact or law or both.
-it does not toll the statute of - it tolls the statute of limitations
limitations.
4. Content and validity of protest
Requirements of a valid protest:
1. In writing;
2. Addressed to the CIR;
3. Must be accompanied by a waiver of the Statute of
Limitations in favor of the government;
4. States the facts, applicable law, rules and regulations and
jurisprudence on which his protest is based.
Reason: Failure to state such shall render his protest
void and without force and effect on the event the
letter of protest submitted by the taxpayer is accepted.
Contents of a protest:
1. Name of the TP and address for the immediate past 3
taxable years;
2. Nature of request(reinvestigation or reconsideration)
specifying newly discovered evidence that he
intends to present if it is a request for reinvestigation;
3. Taxable periods covered by the assessment;
4. Amounts and kind/s of tax involved, and Assessment
Notice Number;
5. Date of receipt of Assessment notice or letter of
demand;
6. Itemized statement of the findings to which the TP agrees,
if any, as a basis for computing the tax due, which
amount should be paid immediately upon filing of the
protest. For this purpose, the protest shall not be
deemed validly filed unless payment of the agreed
portion of the tax is paid first;
7. Itemized schedule of the adjustments with which the
TP does not agree;
8. Statement of facts and/or law in support of the protest;
and
9. Documentary evidence as it may deem necessary and
relevant to support its protest to be submitted within
60 days from the filing of the protest. If the taxpayer
fails to comply with this requirement, the assessment
shall become final
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(b) Submission of documents within 60 days from filing of When are assessments deemed final?
protest (Sec.228) 1. when the TP failed to file a protest 30 days from
All relevant documents should be filed, otherwise receipt of the assessment
assessment becomes final and cannot be appealed. 2. after the 180 day period and the CIR has not yet acted
on the protest the TP fails to appeal it
(c) Effect of failure to protest 3. after 30 days from the receipt of the decision of the
It makes the preliminary assessment notice final and CIR the TP fails to appeal.
executory and the taxpayer losses his right to contest
the assessment at the administrative and judicial (ii) Prescriptive periods
levels.
Assessment was made False or fraudulent return or
(d) Period provided for the protest to be acted upon failure to file a return
the CIR shall act upon the protest within 180 days
from submission of documents. By distraint or levy or by a A proceeding in court for the
proceeding in court collection of such tax may be filed
(vii) Rendition of decision by Commissioner without assessment
(a) Denial of protest
1. Commissioners actions equivalent to denial of protest within 3 years following the at any time within 10 years after
a. Filing of criminal action against taxpayer assessment released, the discovery of the falsity, fraud or
b. Issuing a warrant of distraint and levy mailed, or sent. omission.
*these actions of the CIR serves as bases for appeal to the
CTA.
(iii) Distraint of personal property including garnishment
2. Inaction by Commissioner Distraint
the protest is not acted upon by the CIR within 180 -seizure by the government of personal property, tangible or
days from the submission of the documents. intangible, to enforce the payment of taxes, to be followed by its
public sale, if the taxes are not voluntarily paid
(viii) Remedies of taxpayer to action by Commissioner
a. In case of denial of protest KINDS:
- appeal the decision to the CTA within 30 days from receipt 1. Actual
of decision denying the protest. -there is taking of possession of personal property out of the
b. In case of inaction by Commissioner within 180 days from taxpayer into that of the government. In case of intangible
submission of documents property, taxpayer is also diverted of the power to control over
2 alternative options: the property.
1. File a petition for review with the CTA within 30 days
after the expiration of the 180-day period; or 2. Constructive
2. Wait for the final decision of the CIR on the disputed -the owner is merely prohibited from disposing of his personal
assessment and appeal the final decision to the CTA property.
within 30 days from the receipt of the decision.
Difference between Actual and Constructive Distraint
c. Effect of failure to appeal:
1. The decision or assessment becomes final and Actual Constructive
executory.
2. In an action for the collection of the tax by the -made on the property only of a -property of any taxpayer
government, the TP is barred from re-opening the delinquent taxpayer whether delinquent or not
question already decided.
3. The assessment is considered correct which may be -there is actual taking or -TP is merely prohibited from
enforced by summary or judicial remedies. possession of the property disposing of his property
4. In a proceeding for collection of tax by judicial action,
the TPs defenses are similar to those of the effected by: having a list of the - by requiring the taxpayer to
defendant in a case for the enforcement of a judgment distraint property or by service or sign a receipt of the property or
by judicial action. warrant of distraint or by leaving a list of same
5. The assessment which has become final and garnishment.
executory cannot be superseded by a new
assessment. -an immediate step for collection -such immediate step is not
of taxes where the amount due necessary; tax due may not be
B. Collection is definite definite or it is being questioned
(i) Requisites
collection is only allowed when there is already a final Requisites of Actual Distraint:
assessment made for the determination of the tax 1. TP is delinquent in the payment of tax
due. 2. subsequent demand for its payment
3. TP failed to pay delinquent tax at time required

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 4. period with in to assess or collect has not yet
prescribed
Who may effect distraint
1. CIR or his duly authorized representative- when the
amount involved exceeds P1M.
2. Revenue District Officer (RDO)- P1M or less
When remedy may not be available:
where the amount involved does not exceed P100.
Reason
In keeping with the provision on the abatement of the
collection of tax as the cost of same might even be
more than P100.
Summary remedy of distraint of personal property
1. Procedure for distraint and garnishment (Sec. 208)
How Actual Distraint Effected
a. In case of Tangible property:
Copy of an account of the property distrained, signed
by the officer, left either with the owner or person from
whom the property was taken, at the dwelling or place
of business and with someone of suitable age and
discretion
statement of the sum demanded,
Time and place of the sale
a In case Intangible property:
Stocks and other securities
Serving a copy of the warrant upon taxpayer and
upon president, manager, treasurer or other
responsible officer of the issuing corporation,
company or association.
Debts and Credits
Leaving a copy of the warrant with the person owing
the debts of having in his possession such credits or
his agent.
Warrant shall be sufficient authority for such person to
pay CIR his credits or debts.
Bank Accounts-garnishment
Serve warrant upon TP and president, manager,
treasurer or responsible officer of the bank
Bank shall turn over to CIR so much of the bank
accounts as may be sufficient to satisfy the claim.
2. Sale of property distrained and disposition of proceeds
(Sec.209)
a. Notice of the sale must specify the time and place of
sale and the articles distrained;
b. Notice must be exhibited in not less than 2 public
places;
c. The time of sale shall not be less than 20 days after
notice to the owner or possessor of the property and
the publication or posting of such notice.
d. The sale shall be at public auction to the highest
bidder for cash or with the approval of the CIR,
through duly licensed commodity or stock exchanges.
e. In case of stocks or securities, the officer making the
sale shall execute a bill of sale which shall deliver to
the buyer and a copy thereof furnished the corporation
or entity which issued the stocks or other securities.
f. Residue shall be returned to the owner of the property
sold.
3. Purchase by the government at sale upon distraint (Sec.212)
a. When the amount for the bid property under distraint
is not equal to the amount of the tax;
b. When the amount for the bid is very much less than
the actual market value of the articles for sale;
Note: The property purchased may be
resold by the Commissioner or his deputy.
4. Report of sale to the BIR (Sec.211)
Within 2 days after the sale, the officer making the
same shall make a report of his proceedings in writing
to the CIR and shall himself preserve a copy of such
report as an official record.
5. Constructive distraint to protect the interest of the
Government (Sec. 206)
Grounds of Constructive Distraint
When the taxpayer is:
1. retiring from any business subject to tax;
2. intending to
a. leave the Philippines,
b. remove his property therefrom,
c. hide or conceal his property,
3. performing any act tending to obstruct the collection
of the tax due or which may be due from him.
How constructive distraint effected
Require taxpayer or person in possession to:
a. Sign a receipt covering property distrained
b. Obligate him to preserve the same properties
c. Prohibit him from disposing the property in any
manner, without the authority of the CIR.
Where taxpayer or person in possession refuses to sign:
a. Officer shall prepare a list of the property distrained
b. In the presence of 2 witnesses of sufficient age and
discretion, leave a copy in the premises where
property is located.
Note:
Bank accounts may be distrained without violating the
confidential nature of bank accounts for no inquiry is
made. BIR simply seize so much of the deposit
without having to know how much the deposit s are or
where the money or any part of it came from.
If at any time prior to the consummation of the sale, all
proper charges are paid to the officer conducting the
same, the goods distrained shall be restored to the
owner (Sec.210).
When the amount of the bid for the property under
distraint is not equal to the amount of the tax or is very
much less than the actual market value of articles, the
CIR or his deputy may purchase the distrained
property on behalf of the national government.
(iv) Summary remedy of levy on real property
Levy on real property
Page 60 of 104
 an act of seizure of real property in order to enforce a. Be posted at the main entrance of the
the payment of taxes. The property may be sold at municipal building; and
public sale, if after seizure the taxes are not voluntarily b. public and conspicuous place in the barrio
paid. or district; and
Note: The requisites are the same as that of distraint. c. be published once a week for 3 consecutive
weeks in a newspaper of general circulation.
Procedure: 3. Right of Pre-emption At any time before the day
1. Internal Revenue officer shall prepare a duly authenticated fixed for the sale, the taxpayer may discontinue all
certificate showing: proceedings by paying the taxes, penalties, and
a. name of the taxpayer interest.
b. amount of tax and 4. 5 days after the sale, a return by the distraining or
c. penalty due levying officer of the proceedings shall be entered
*enforceable throughout the Philippines upon the records of the Revenue Collection Officer
2. Officer shall write upon the certificate a description of the (RCO), the RDO and Revenue Regional Director.
property upon which levy is made. 5. A certificate of sale shall be delivered to the
3. Service of written notice to: purchaser.
a. the TP, and 6. Excess of the proceeds of the sale shall be delivered
b. ROD where the property is located to the TP
4. Advertisement of the time and place of sale
5.Sale at public auction to the highest bidder b. Redemption of property sold (Sec.214)
6. Disposition of proceeds of sale Person entitled: Taxpayer or anyone for him
Time to redeem: 1 year from the date of sale
Note: The excess shall be turned over to the owner. Begins from the registration of the deed of sale
Cannot be extended by the courts
Difference and Similarities between Distraint and Levy Possession pending redemption: owner not deprived of
Distraint Levy possession
Price: Amount of :
Personal property Real property
taxes,
Forfeiture by the Forfeiture by the government is penalties and
government, not provided authorized where: interest thereon (from date of delinquency to the date
1 there is no bidder of sale) together with
2 the highest bid is not interest on said purchase price at 15% per annum
sufficient to pay the taxes, (from date of purchase to date of redemption)
penalties and costs.
c. Final deed of purchaser (Sec.202)
TP is not given the right of TP can redeem properties levied In case the TP shall not redeem the property, the RDO
redemption upon and sold/forfeited to the shall, as grantor, execute a deed conveying to the
govt purchaser so much of the property as has been sold,
Similarities: free from all liens of any kind whatsoever, and the
-both are summary remedies for collection of taxes deed shall succinctly recite all the proceedings upon
-both cannot be availed of where amount involved is not more than which the validity of the sale depends.
P100.
(v) Forfeiture to government for want of bidder (Sec.215)
a. Remedy of enforcement of forfeitures
Action to contest forfeiture of chattel (Sec.231)
The owner desiring to contest the validity of the
Note: forfeiture may, at any time before sale or destruction
It is the duty of the ROD concerned upon registration of the property, bring an action against the person
of the declaration of forfeiture to transfer the title to the seizing the property or having possession thereof to
property without an order from a competent court recover the same, and upon giving proper bond, may
enjoin the sale; or after the sale and within 6 months,
The remedy of distraint or levy may be repeated if
he may bring an action to recover the net proceeds
necessary until the full amount, including all expenses, realized at the sale.
is collected (Sec.217)
b. Resale of real estate taken for taxes (Sec.216)
a. Advertisement and sale (Sec. 213)
The Commissioner shall have charge of any real
1. 20 days after levy, the officer conducting the
estate obtained by the Government of the Philippines
proceedings shall proceed to advertise the property or
in payment or satisfaction of taxes, penalties or costs
a usable portion thereof as may be necessary to
or in compromise or adjustment of any claim
satisfy the claim and cost of the sale and such
therefore, and said Commissioner may, upon the
advertisement shall be for a period of at least 30 days.
2. The notice of sale shall:

Page 61 of 104
 giving of not less than 20 days notice, sell and
dispose of the same:
1. At public auction or
2. At private sale(with the prior approval of the
Secretary of Finance)
In either case, the proceeds of the sale shall
be deposited with the National Treasury, and
an accounting of the same shall be rendered
to the Chairman of the Commission on
Audit.
c. When property to be sold or destroyed (Sec.225)
To be destroyed by order of the CIR when the sale
for consumption or use of the following would be
injurious to the public health or prejudicial to the
enforcement of the law (at least 20 days after seizure)
1. distilled spirits
2. liquors
3. cigars
4. cigarettes, and other manufactured products of
tobacco
5. playing cards
6. all apparatus used in or about the illicit
production of such articles
To be sold or destroyed- depends upon the
discretion of CIR:
1. All other articles subject to excise tax, (wine,
automobile, manufactured oils, mineral oils,
miscellaneous products), manufactured or removed in
violation of the Tax Code.
2. Dies for printing or making IR stamps, labels and tags,
in imitation of or purport to be lawful stamps, labels or
tags.
d. Disposition of funds recovered in legal proceedings or
obtained from forfeiture (Sec.226)
All judgments and monies recovered and received for
taxes, costs, forfeitures, fines and penalties shall be
paid to the Commissioner or his authorized deputies
as the taxes themselves are required to be paid and
shall be accounted for and dealt with the same way.
(vi) Further distraint or levy (Sec.217)
The remedy by distraint of personal property and levy
on realty may be repeated if necessary until the full
amount due, including all expenses, is collected.
(vii) Tax lien (Sec.219)
It is a legal claim or charge on property, either real or
personal, established by law as a security in default of
the payment of taxes.
Nature: A lien in favor of the government of the
Philippines when a person liable to pay a tax
neglects or fails to do so upon demand.
Duration: Exists from time assessment is made by the
CIR until paid, with interests, penalties and
costs.
Extent: Upon all property and rights to property
belonging to the taxpayer.
Effectivity
against third
persons: Only when notice of such lien is filed by the
CIR in the Register of Deeds concerned.
Extinguishment of Tax lien:
1. Payment or remission of the tax
2. Prescription of the right of the government to assess
or collect
3. Failure to file notice of such lien in the office of
Register of Deeds, purchases or judgment creditor
4. Destruction of the property subject to the lien
NOTE: In Nos. 1 and 2, there is no more tax
liability while under nos. 3 and 4,the
taxpayer is still liable.
(viii) Compromise (Sec.204)
A. Compromise
a contract whereby the parties by reciprocal
concessions avoid litigation or put an end to one
already commenced.
Grounds:
1. A reasonable doubt as to the validity of the claim
against the taxpayer exist; or
2. The financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax.
Requisites:
1. The taxpayer must have a tax liability
2. There must be an offer by the taxpayer of an amount to be
paid by the taxpayer
3. There must be an acceptance by the CIR or the
authorized representative as the case may be of the
offer in the settlement of the original claim.
Limitations:
1. Minimum compromise rate
a) 10% of the basic tax assessed-in case of financial
incapacity
b) 40% of the basic tax assessed-in other cases.
2. Subject to approval of the Evaluation Board
a) when the basic tax involved exceeds 1 Million or
b) where the settlement offered is less than the
prescribe minimum rates
Cases that MAY be compromised(RR 30-2002):
1. Delinquent accounts
2. Cases under administrative protest
3. Cases disputed before the courts
4. Cases for collection already filed in courts
5. Criminal violations except those already filed in court
and those involving fraud
Cases which CANNOT be compromised(RR 30-2002):
1. Withholding tax cases
2. Criminal tax fraud cases
3. Criminal cases already filed in court
4. Delinquent accounts with duly approved schedule of
Instalment payments
Page 62 of 104
5. Cases where reduction of payments had already been
granted
6. Cases already decided and are final and executory
B. Abatement
It is the cancellation of a tax liability by the CIR
Grounds:
1. The tax appears to have been unjustly or excessively
assessed, or
2. The administrative and collection costs do not justify the
collection of the amount due.
Note: The power to compromise or abate shall not be
delegated by the CIR except in the following cases:
1. Assessments issued by the Regional Offices
involving basic tax of P 500,000 or less;
2. Minor criminal violations
(ix) Civil and criminal actions
Suit to recover tax based on false or fraudulent returns
If tax is collected under an assessment that the list,
statement or return is false/fraudulently made, it
cannot be recovered by any suit unless it is proved
that the said list, statement or return was neither false
nor fraudulent & did not contain any understatement
or undervaluation.
C. Refund (Sec.229)
(i) Grounds for refund:
1. Tax erroneously or illegally assessed or collected
2. Penalty claimed to have been collected without
authority
3. any sum alleged to have been excessively or in any
manner wrongfully collected
4. 4.Value of internal revenue stamps when they are
returned to be in good condition
5. Unused stamps that have been rendered unfit for use
(Engtek Phils. vs. CIR,26 January 1995)
(ii) Requirements for refund as laid down by cases:
1. There must be a written claim for refund
2. The claim must contain a categorical demand for
reimbursement
3. The claim must be filed before the CTA within 2 years
from date of payment regardless of any
supervening cause
4. Present proof of payment of the tax
(iii) Legal basis of tax refunds:
1. Legal principle of quasi-contracts or solutio indebiti
(Art.2142 and 2154 of the NCC)
2. The Government is within the scope of the principle of
solutio indebiti (CIR vs. Firemans Fund Insurance
Co).
(iv) Statutory basis for tax refund under the tax code (Sec.229)
a Scope of claims for refund:
1 Erroneously or illegally assessed or
collected internal revenue taxes
2 Penalties imposed without authority
3 Any sum alleged to have been excessive or
in any manner wrongfully collected
(b) Necessity of proof for claim or refund (mandatory)
Reasons:
1. to afford the CIR an opportunity to correct
the action of subordinate officer and
2. to notify the government that such taxes
have been questioned, and the notice be
borne in mind in estimating the revenue
available for expenditure (CIR vs. ACOSTA,
3 August 2007)
Exception:
Where on the face of the return upon which
payment is made, such payment appears
clearly to have been erroneous (Sec.229).
(c)Burden of proof for claim of refund
(d) Nature of erroneously-paid tax/illegally assessed
collected
TP pays under the mistake of fact, as for
instance in a case where he is not aware of
the existing exemption in his favor at the
time payments were made.
A tax is illegally collected if payments are
made under duress
(e) Tax refund vs. tax credit
Tax Refund
- a claim for refund where the TP asks for the restitution of the -a
money he paid as tax. fro
-it
-it requires a physical return of the sum erroneously paid by the liab
taxpayer.
-re
de
-the TP to whom the tax is refunded would have the option,
among others, to invest for profit the returned sum, an option not
proximately available if the TP chooses instead to receive a tax
credit
(v) Who may claim/apply for tax refund/tax credit:
1. Taxpayer
2. withholding agents of non-resident foreign corporation
CIR vs. Procter and Gamble PMC, 204 SCRA 377
A person liable for tax has been held to be a person subject to
tax and properly considered a taxpayer. By any reasonable
standard, such a person should be regarded as a party in
interest, or as a person having sufficient legal interest, to bring a
suit for refund of taxes.
Sikair vs. CIR, February 06, 2008
The proper party to question or seek a refund of an indirect tax
is the statutory taxpayer, the person whom the tax is imposed
by laws and who paid the same even if he shifts the burden to
another.
Page 63 of 104

(vi) Prescriptive period for recovery of tax erroneously or illegally
collected
2 years from the date of payment of tax or penalty.
(vii) Other consideration affecting tax refunds
1. TP may file an action for refund in the CTA even
before the CIR decides his pending claim in the BIR
2. Suspension of the 2-year prescriptive period may be
had when:
a. there is a pending litigation between the two
parties (government and TP) as to the
proper tax to be paid and of the proper
interpretation of the taxpayers charter in
relation to the disputed tax; and
b. the CIR in that litigated case agreed to abide
by the decision of the SC as to the collection
of taxes relative thereto.
3. Even if the 2-year period has lapsed, the same is not
jurisdictional and may be suspended for reasons of
equity and other special circumstances.
4. 2-year prescriptive period for filing of tax refund or
credit claim computed from date of payment of tax or
penalty except in the following:
a) Corporations
2-year prescriptive period for overpaid quarterly income tax is
counted not from the date the corporation files its quarterly
income tax return, but from the date the final adjusted return is
filed after the taxable year
b) Taxes payable in instalment
2-years from the payment of the last instalment
c) Withholding Taxes
Prescriptive period counted not from the date the tax is withheld
and remitted to the BIR, but from the end of the taxable year
d) VAT Registered Person whose sales are zero-rated
or effectively zero-rated
2-years from the end of the taxable quarter when the sales
transactions were made
5. Interest on Tax Refund
The Government cannot be required to pay interest on
taxes refunded to the taxpayer unless:
a. The Commissioner acted with patent arbitrariness
b. In case of Income Tax withheld on the wages of
employees.
2. Government remedies
A. Administrative remedies
(i) Tax lien
(ii) Levy and sale of real property
(iii) Forfeiture of real property to the government for want
of bidder (Sec.215)
(iv) Further distraint and levy (Sec. 217)
(v) Suspension of business operation
(vi)Non-availability of injunction to restrain collection of
Tax(Sec. 218)
No court shall have the authority to grant an injunction
to restrain the collection of any national internal
revenue tax, fee or charge imposed by the Code
Exception: Injunction may be issued by the CTA in aid of its
appellate Jurisdiction
Requisites:
1. There is a pending case before the CTA (ancillary remedy,
not a main cause of action)
2. Identify that the collection of tax is prejudicial to the
interest of either the TP or government.
B. Judicial remedies
Civil Action
1. By filing a civil case to collect internal revenue taxes in regular
courts
2. By filing an answer to the petition for review filed by the TP with the
CTA
1 Brought in the name of the Government of the Philippines
2 Conducted by Legal Officer of the BIR
3 Must be with the approval of the CIR, in cases of:
a action for recovery of taxes or
b enforcement of fine, penalty or forfeiture.
1. Period within which the action may be filed
A. Civil Cases (Secs. 203,222)
3 years from the following whichever comes later:
- the last day prescribed by law for filing the return
-the day when the return was actually filed
10 years from the discovery of the fraud, falsity or
omission in case of:
-false or fraudulent with intent to evade tax, or
-failure to file a return
Within the period agreed upon, when both the TP and
the CIR have agreed in writing, before the expiration
of the period in Sec. 203 for the assessment of the
tax.
Where to File:
1. CTA
where the principal amount of taxes and fees
exclusive of charges and penalties claimed is P1M
and above
2. RTC,MTC, MeTC
where the basic tax claimed is less than P1M (Sec.
7[c],RA 9282)
Note:
The approval of the CIR is essential in civil
cases (Sec.220). However under Sec. 7 of
the NIRC, the CIR may delegate such power
to a Regional Director.
Actions instituted by the government to collect internal
revenue taxes in regular courts (RTC or MTCs,
depending on the amount involved). It includes filing
by the government with the probate court claims
against the deceased taxpayer.
Page 64 of 104
MARCOS II vs. CA, June 05,1997
The BIR is authorized to collect estate tax deficiency
through the summary remedy of the levying upon and
sale of properties of a decedent, without the cognition
and authority of the court sitting in probate over the
supposed will of the deceased, because the collection
of estate tax is executive in character. As such, estate
tax is exempted from the application of the statute of
the non- claims and this is justified by the necessity of
the government finding, immortalized in the maxim
that taxes are the lifeblood of the government.
B. Criminal Case (Sec. 281)
All violations of any provision of the tax code shall prescribe
after 5 years.
When should it commence?
The 5-year prescriptive period shall begin to run from the
a. the day of the commission of the violation(if known), or
b. from the time of discovery and the institution of judicial
proceeding for its investigation and punishment (if not
known)
When is it interrupted?
a. when a proceeding is instituted against the guilty
person
b. when the offender is absent from the Philippines
When should it run again?
-When the proceeding is dismissed for reason not constituting
jeopardy
Where to file
1. CTA on criminal offenses arising from violations of the:
a. NIRC
b. TCC
c. other laws administered by the BIR and the BOC,
where the basic tax claimed is P1M and above.
2. RTC, MTC, MeTC where:
a. the basic tax claimed is less than P1M or
b. where there is no specified amount claimed
(Sec 7[b],RA 9282).
CIR vs. LA SUERTE CIGAR, July 04, 1992
The institution or commencement before a proper
court of civil and criminal actions and proceedings
arising under the Tax Reform Act which shall be
conducted by legal officers of the BIR is not in
dispute. An appeal from such court, however, is not a
matter of right. Section 220 of the Tax Reform Act
must not be understood as overturning the long
established procedure before this Court in requiring
the Solicitor General to represent the interest of the
Republic. The Court continues to maintain that it is the
Solicitor General who has the primary responsibility to
appear for the government in appellate proceedings.
3. Statutory offenses and penalties
Civil penalties (Sec.248)
they are imposed in addition to the tax required to be
paid.
(i) Surcharge
A civil penalty imposed by law as an addition to the
main tax required to be paid. It is not a criminal
penalty but a civil administrative sanction provided
primarily as safeguard for the protection of the State
revenue and to reimburse the government for the
expenses of investigation and the loss resulting from
the taxpayers fraud
Note: A surcharge added to the main tax is
subject to interest.
(ii) Interest (Sec.249)
This is an increment on any unpaid amount of tax
assessed at the rate of 20% per annum or such higher
rate as may be prescribed by the regulations from the
date prescribed for the payment until the amount is
fully paid.
a. In general
There shall be assessed and collected on
any unpaid amount of tax at the rate of 20%
per annum from the date prescribed for
payment until the amount is fully paid.
b. Deficiency interest
The interest due on any amount of tax due
or instalment thereof which is not paid on or
before the date prescribed for its payment
computed at the rate of 20% per annum,
from the date prescribed for its payment
until it is fully paid
c. Delinquency interest
The interest of 20% per annum required to
be paid in case of failure to pay:
1. The amount of the tax due on any return
to be filed, or
2. The amount of the tax due for which no
return is required, or
3. A deficiency tax, or any surcharge or
interest thereon on the due date appearing
in the notice and demand of the CIR.
d. Interest on extended payment
1. any person who is qualified and elects to pay the tax
on instalment but fails to pay the tax, or any
instalment, or any part on or before the date
prescribed; or
2. where the CIR has authorized an extension of time
within which to pay a tax or a deficiency tax or any
part thereof, from the date of notice and demand until
it is paid.
4. Compromise and abatement of taxes (Sec. 204)
F. ORGANIZATION AND FUNCTION OF THE
BUREAU OF INTERNAL REVENUE
1. Rule-making authority of the Secretary of Finance
Page 65 of 104
a) Authority of Secretary of Finance to promulgate rules and
regulations (Sec. 244)
The Secretary, upon the recommendation of the
Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the
provisions of the Tax Code.
b) Specific provisions to be contained in rules and regulations
(Sec.245)
c) Non-retroactivity of rulings (Sec.246)
If the revocation, modification or reversal will be
prejudicial to the TPs, any of the rules and regulations
promulgated in accordance with the Tax Code shall
not be given retroactive application
except:
1. Where the TP deliberately misstates or omits material
facts from his return or any
document required of him by the BIR;
2. Where the facts subsequently gathered by the BIR
are materially different from the facts on
which the ruling is based; or
3. Where the TP acted in bad faith
2. Power of the Commissioner to suspend the
business operation of a taxpayer (Sec.115)
a) In the case of VAT-registered person
1. failure to issue receipts or invoices
2. failure to file a VAT returns as required under Sec.114
or
3. understatement of taxable sales or receipts by 30% or
more of his correct taxable sales or
receipts for the taxable quarter.
b) failure of any person to register as required under Sec.236
the CIR may temporarily close the establishment for
the duration of not less than 5 days and shall be lifted
only upon compliance with whatever requirements
prescribed by the CIR in the closure order.
III. LOCAL GOVERNMENT CODE OF 1991
A. LOCAL GOVERNMENT TAXATION
Mactan Cebu International Airport Authority vs. Marcos,
September 11, 1996
The power to tax which may be exercised by local legislative
bodies is no longer merely by nature of a valid delegation as
before but pursuant to direct authority conferred by Sec. 5, Art.
X of the Constitution
City of San Pablo Laguna vs. Reyes, March 25, 1999
The power to tax is primarily vested in Congress. However, in
our jurisdiction, it may be exercised by local legislative bodies,
no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of
the Constitution. The important legal effect of Section 5 is that
henceforth, in interpreting statutory provisions on municipal
fiscal powers, doubts will have to resolved in favor of municipal
corporations.
NAPOCOR vs. City of Cabanatuan, April 9, 2003
The power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5 of
the 1987 Constitution. This paradigm shift results from the
realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of
governance. To achieve this goal, section 5 of Article X of the
1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of
local autonomy, set the guidelines and limitations to this grant of
taxing powers.
1. Fundamental Principles (Sec. 130 of the LGC)
a Taxation shall be uniform in each LGU
b. TFCs and other impositions shall be:
1. Equitable and based on the taxpayers ability
to pay.
2. for public purpose.
3. Not unjust, excessive, oppressive or
confiscatory.
4. not contrary to law, public policy, national
economic policy, or in restraint of trade.
c The collection of local TFC and other impositions shall
in no case be let to any private person;
d The revenue collected pursuant to the provisions of
the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the local government unit
levying the TFC or other imposition unless otherwise
specifically provided; and
e Each LGU shall, as far as practicable, evolve a
progressive system of taxation.
2. Nature and Source of Taxing Power
A. Grant of local taxing power under the Local Government
Code (Sec. 129)
Each LGU shall exercise its power to create its own
sources of revenue and to levy TFC subject to the
provisions of the LGC, consistent with the basic policy
of local autonomy. Such TFC shall accrue exclusively
to the LGUs.
Nature of the taxing power:
1. not inherent;
2. exercised only if delegated to them by law or
Constitution;
3. not absolute; subject to limitations provided for by law.
Q: Considering the provisions of Article X, Section 5 of the
1987 Constitution, can we now say that in the Philippines,
local government units have the inherent power to tax?
A: No. While the power of LGUs to tax is a power that is
expressly granted, vested, and guaranteed by the 1987
Constitution, still, the power of local government units to tax
could not be considered as inherent. Inherent taxing power
belongs only to the State, not to its political subdivisions. It is
only the State which may exercise the power of taxation even
absent any Constitutional grant.
Manila Electric Co. vs. Province of Laguna, G.R. No. 131359
Under the present constitutional rule, where there is neither a
grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current
Page 66 of 104
rule is to safeguard the viability and self-sufficiency of LGUs by
directly granting them general and broad tax powers.
B. Authority to prescribe penalties for tax violations (Sec.516)
1. The sanggunian of a LGU
authorized to prescribe fines or other penalties for
violation of tax ordinances:
a. Fine- P1,000 to P5,000
b. Imprisonment- 1 month to 6 months
c. Such fine or other penalty, or both, shall be imposed at the
discretion of the court.
2. The sangguniang barangay
may prescribe a fine of not less than P100 nor more
than P1,000
C. Authority to grant local tax exemptions (Sec. 192)
LGUs may, through ordinances duly approved, grant
tax exemptions, incentives or reliefs under such terms
and conditions as they may deem necessary.
Note:
1. The power to grant tax exemptions, tax
incentives and tax reliefs shall not apply to
regulatory fees which are levied under the police
power of the LGU.
2. Tax exemptions shall be conferred through the
issuance of a non-transferable tax exemption
certificate.
D. Withdrawal of exemptions (Sec. 193)
Tax exemptions or incentives granted to, or presently
enjoyed by all persons (natural or juridical), including
GOCCs are withdrawn, except:
1. LWDs, cooperatives duly registered under R.A. No. 6938,
2. non-stock and non-profit hospitals and educational
institutions.
E. Authority to adjust local tax rates (Sec. 191)
LGUs are given authority to adjust the tax rates, but
the adjustment should be made not oftener than once
every 5 years but in no case shall the adjustment
exceed 10% of the rates fixed under the LGC.
F. Residual taxing power of LGUs (Sec.186)
LGUs may exercise the power to levy TFC on any
base or subject not otherwise specifically enumerated
herein or taxed under the:
1. LGC (provided there is no express prohibition);
2. NIRC; or
3. Other applicable laws.
G. Authority to issue local tax ordinances (Sec. 132)
The power to impose a TFC or to generate revenue
shall be exercised by the sanggunian of the local
government unit concerned through an appropriate
ordinance.
3. Local Taxing Authority (Sec. 132)
A. Power to create revenues exercised thru LGUs
Local governments are authorized to impose and
collect the following charges:
1. Reasonable fees and charges for services rendered.
2. Public Utility Charges if:
a. Owned, operated and maintained
b. Within their jurisdiction (Sec.154)
3. Toll Fees or Charges for:
a. Use of public road, pier or wharf, Waterway Bridge,
ferry or telecommunication system
b. Funded and constructed by the local government
(Sec.155)
B. Procedure for approval and effectivity of tax ordinances
(Secs. 188 &189)
1. The procedure applicable to local government
ordinances in general should be observed.
The following procedural details must be complied
with:
a. Necessity of quorum
b. Submission for approval by the local chief
executive
c. The matter of veto and overriding the same
d. Publication and effectivity
2. Public hearings are required before any local tax
ordinance is enacted.
3. Within 10 days after their approval, publication in full
for 3 consecutive days in a newspaper of general
circulation. In the absence of such newspaper in the
province, city or municipality, then the ordinance may
be posted in at least two conspicuous and publicly
accessible places.
4. Scope of Taxing Power
a. Each LGU shall exercise its power to create its own sources
of revenue and to levy TFCs, consistent with the basic policy of
local autonomy. Such TFCs shall exclusively accrue to it.
b. All LGUs are granted general powers to levy TF/Cs on any
base or subject not otherwise specifically enumerated herein or
taxed under the provisions of the NIRC, as amended, or other
applicable laws. The levy must not be unjust, excessive,
oppressive, confiscatory or contrary to a declared national
economic policy.
c. No such TFCs shall be imposed without a public hearing
having been held prior to the enactment of the ordinance.
d. Copies of the provincial, city, and municipal tax ordinances or
revenue measures shall be published in full for three
consecutive days in a newspaper of local circulation or posted in
at least two conspicuous and publicly accessible places.
5. Specific Taxing Power of LGUs
A. Taxing powers of provinces
1. Tax on transfer of real property ownership (Sec. 135)
Page 67 of 104
Taxable transaction Sale, barter, or any otherTaxable
mode oftransaction
transferring ownership of, or
Extraction
title to, real
of quarry
property
resources as defin

Tax rate At not more than of 1%

Tax rate Not more than 10%

Tax base 1. total consideration

Tax base
or FMV in the locality per cubic meter of
2. FMV, whichever is higher
Who issues permit Exclusively issued by the provincial go
Tax exempt Transfers or dispositions pursuant to RA 6697 Sangguniang panlalawigan

Persons liable to pay Seller, donor, transferor, Distribution

executor, or administrator
of tax proceeds 1.Province-30%
2.component city or municipality where
When Within 60 days from the: resources were extracted-30%
1.date of execution of the deed or 3.Barangay where resources were
2. date of the decedents death extracted- 40%

Note: Pre-emption Rule is not applicable 5. Professional tax (Sec. 139)

2. Tax on business of printing and publication (Sec. 136)

Taxable transaction Exercise or practice of profess

Taxable Transaction printing and publication of books, cards,

Tax rate
posters, leaflets, handbills, certificates, receipts,
Not to exceed
pamphlets,
P300 and
other similar nature.
Tax base Reasonable classification by th
Tax rate 1.At not more than of 1% or
2. 1/20 of 1% for newly started business
Tax exempt Professionals exclusively empl

Tax base Time of payment

1.gross annual receipts for the preceding Payable annually on or before
year or Before beginning the practice o
2. capital investment for a newly started
Business Place of payment Province where:
1.the TP practice his profession
Tax exempt Printing of DepEd/CHED/TESDA prescribed texts or references 2.the TPs principal office is loc

Capital investment (Sec.131[f]) Note:

The capital which a person employs in any
undertaking, or which he contributes to the capital of a
partnership, corporation, or any other juridical entity or
association in a particular taxing jurisdiction.
3. Franchise tax (Sec. 137)
Franchise (Sec. 131 [m]
a right or privilege, affected with public interest which
is conferred upon private persons or corporations,
under such terms and conditions as the government
and its political subdivisions may impose in the
interest of public welfare, security, and safety.
1. Professional tax applies only to natural or
physical persons. Said tax is fixed on the
privilege of exercising or engaging in a
profession. The tax is not based on the amount of
earnings of the taxpayer.
6. Amusement tax (Sec.140)
Taxable Ownership, lease or operation of theatres,
transaction cinemas, concert halls, circuses, boxing
stadium and other places of amusement

Tax rate Not more than10%

Taxable Enjoyment of a Franchise Tax base Gross receipts from admission fees
Transaction
Tax exempt Operas, concerts, dramas, recitals, painting
Tax rate 1.not more than of 1%; or and art exhibitions, flower shows, musical
2.1/20 of 1% programs, literary and oratorical presentation
except pop, rock, or similar concerts
Tax base 1.gross annual receipts for the preceding year or
2.capital investment for a newly started business Distribution of Tax shall be shared equally by the province
proceeds and municipality where such amusement
4. Tax on sand, gravel and other quarry resources places are located
(Sec. 138)
PBA vs. CA, August 08, 2000 (Principle of ejusdem generis)

Page 68 of 104
Professional basketball games are not subject to Amusement f. Banks and other financial not exceeding of 1 %
Tax. They do not fall on the meaning of other places of institutions
amusement under the same category as theatres,
cinematographs, concert halls and circuses which basically g. Peddlers not exceeding P50 per
belong to artistic forms of entertainment, while the former cater peddler annually
sports and gaming.
h. Any business not otherwise As the Sanggunian may deem
7. Tax on delivery truck/van (Sec. 141) specified proper. When subject to excise,
VAT or percentage tax, it shall
not exceed 2%
Taxable transaction Use of truck, van vehicle in the delivery or distribution of distilled spirits, fermented liquors,
Softdrinks, cigar and cigarettes and other products, as may be determined by the
Definitions:
Sanggunian to sales outlets or consumers.
1. Wholesale
Tax rate Not to exceed P500 a sale where the purchaser buys or imports
Tax base Every truck, van, or any vehicle used the commodities for resale to persons other
than the end user regardless of the quantity
Note: manufacturers, producers, wholesalers and of the transaction (Sec. 131 [z]).
retailers referred to in this section shall be shall be 2. Dealers
exempt from the tax on peddlers one whose business is to buy and sell
merchandise, goods, and chattels as a
B. Taxing powers of cities (Sec. 151) merchant. He stands immediately between
Cities are authorized specifically to impose TFC that the producer or manufacturer and the
provinces and municipalities may levy. consumer and depends for his profit not
Tax rate: May be above the maximum established for provinces upon the labor he bestows upon his
and municipalities but not exceeding 50% commodities but upon the skill and foresight
of such maximum rates except the rates of professional and with which he watches the market (Sec. 131
amusement taxes [k]).
3. Retail
C. Taxing powers of municipalities (Sec. 142) a sale where the purchaser buys the
Municipality may levy TFC not otherwise levied by commodity for his own consumption,
provinces and cities. irrespective of the quantity of the commodity
sold (Sec. 131[w]).
1. Tax on various types of businesses (Sec. 143) 4. Contractor
includes persons (natural/juridical) whose
Tax base: activity consists essentially of the sale of all
Gross sales or receipts for the preceding calendar year(except kinds of services for a fee, regardless of
letter g) whether the performance of the service calls
for the exercise or use of the physical or
Persons liable to tax Tax Rate mental faculties of such contractor or his
employees (Sec. 131[h])
a. Manufacturers, assemblers, Graduated scale (GS) of P165- Note: They are not subject to professional tax under
repackers of liquors, distilled P24,375 /yr. or Sec. 139
spirits and wines a rate not exceeding 37 .5% of
1% 5. Peddler
Any person who either for himself or on
b. Wholesalers, distributors, or GS of P18-P10,000 /yr. or commission, travels from place to place and
dealers in any article of a rate not exceeding of 1% sells his goods or offers to sell and deliver
commerce the same (Sec. 131[t]).

c. Exporters, manufacturers,
millers, producers of essential
commodities
d. Retailers
e. Contractors and other
independent contractors
not exceeding of the rates
prescribed under (a,b, and
d)
2% for the first P400,000;
1% for the excess over
P400,000
GS of P27.50-P11,500/yr
or a rate not exceeding
of 1 %
2. Ceiling on business tax impossible on municipalities within
Metro Manila (Sec. 144)
The municipalities within the Metropolitan Manila Area
may levy taxes at rates which shall not exceed by
50% the maximum rates prescribed for other
municipalities.
3. Tax on retirement on business (Sec. 145)
A business subject to tax shall, upon termination
thereof, submit a sworn statement of its gross sales or
receipts for the current year.

Page 69 of 104
 If the tax paid during the year be less than the tax due
on said gross sales or receipts of the current year, the Where there is a factory, project office, plant or Of all sales recorded in
difference shall be paid before the business is plantation (FPPP) in pursuit of business
considered officially retired. 1. 30% taxable to the c
where the principal off
4. Rules on payment of business tax (Sec. 146)
a. It shall be payable for every separate or distinct 2. 70% taxable to the c
establishment or place where the business subject to where the FPPP is loc
the tax is conducted and one line of business does not
become exempt by being conducted with some other
business for which such tax has been paid.
b. The tax on a business must be paid by the person
conducting the same.
c. In cases where a person conducts or operates 2 or
If plantation is at a place other than where the The 70% (above) shal
more of the businesses:
factory is located
1.subject to the same rate of tax - the tax
1. 60% to the city or m
shall be computed on the combined total gross sales
factory is.
or receipts of the said 2 or more related businesses.
2. subject to different rates of tax - the gross
2. 40% to the city or m
sales or receipts of each business shall be separately
plantation is located
reported for the purpose of computing the tax due
from each business.
If manufacturer, contractor, assembler, exporter The 70% (above) shal
5. Fees and charges for regulation & licensing (Sec. 147)
has 2 or more FPPPs located in different the localities where the
The municipality may impose and collect such
localities. proportion to their resp
reasonable fees and charges on business and production during the p
occupation is due
except: Professional taxes reserved for provinces
Definitions
a. Fees for Sealing and Licensing of Weights and
1.Branch office (Art.243 [a][2],IRR of the LGC)
Measures (Sec. 148)
a fixed place in a locality which conducts operations of the busine
b. Fishery Rentals, Fees and Charges, including the
authority to grant fishery privileges within municipal
waters, as well as issue licenses for the operation of 2. Principal office (Art.243 [a][1],IRR of the LGC)
fishing vessels of three tons or less (Sec. 149) head or main office of the business appearing in pertinent docum
c. The sanggunian may penalize the use of explosives, Incorporation.
noxious or poisonous substances, electricity, muro
ami, and other deleterious methods of fishing and 3. Plantation (Art.243 [a][1],IRR of the LGC)
prescribe a criminal penalty therefore (Sec. 149) a tract of agricultural land planted of trees or seedlings whether fr
normally arranged to allow higher production. Inland fishing groun
6. Situs of tax collected (Sec. 150)
D. Taxing powers of barangays (Sec. 152)
Situation Payment of tax
Tax rate
With branch or sales office or warehouse Taxes on stores
payable to the city or municipality whereortheretailers with fixed Not exceeding 1% on
same is located. business establishment such gross sales or
a. with gross sales or receipts of the receipts
Where there is no branch or sales Office or preceding
payable to the city or municipality wherecalendar
the year of
warehouse. principal office is located P50,000 or less in the cities and;
b. P30,000 or less in the case of
municipalities

Service Fees/ Charges for services reasonable fees or

rendered in connection with regulations or charges as may be
the use of barangay-owned properties imposed by the
Sanggunian
reasonable fees as
Barangay Clearance may be imposed by the
Sanggunian
Other fees & charges
1.On commercial breeding of reasonable fees or
fighting cocks & cockpits; charges as may be

Page 70 of 104
 2. On places of recreation w/c imposed by the
charge admission fees; and Sanggunian. Distribution of proceeds: Collected by the city or
3. On billboards, signs boards, neon - entire proceeds shall a
signs and outdoor advertisement
Collected through the b
E. Common revenue raising powers of LGUs (Article V) - 50% shall accrue to th
1. Service fees and charges (Sec. 153) - 50% shall accrue to th
2. Public utility charges (Sec. 154)
3. Toll fees or charges (Sec. 155) Community Tax Certificate: Issued to every person
to any person or corpor
F. Community tax (Sec. 156)
used to be referred to as Residence Tax or Cedula 6. Common Limitations on the Taxing Power of the
a fixed tax for being a resident and member of a LGUs (Sec. 133)
community, essentially a poll or capitalization tax
collectible by the city or municipal treasurer who can A. The Principle of Pre-emption or Exlusionary Rule
deputize the barangay treasurers in the collection Where the National Government elects to tax a
thereof in their respective territorial jurisdiction particular area, it impliedly withholds from the local
without regard to their property or the occupation in government the delegated power to tax the same field.
which they may be engaged (Lim, Dictionary of Terms This doctrine principally rests on the intention of the
and Phrases in Taxation,2012,p.126). Congress.

B. LGUs cannot levy:

Taxing Authority: Cities or Municipalities 1. Income tax, except on banks and other financial
institutions;
Person liable: 1. Individuals who are: 2. Documentary stamp tax;
3. Estate tax, inheritance, gifts, legacies and other
a. inhabitant of the Philippines;
(Sec.157 and 158) b. at least 18) years of age; acquisitions mortis causa except as otherwise
provided
c. under any of the following instances:
who has been regularly4. Customs
employedduties, registration
on a wage feesbasis
or salary of vessels and 30 consecutive
for at least
working days during anywharfage
calendaronyear;wharves,
or tonnage dues and all other
is engaged in business kinds of customs
or occupation; or fees, charges and dues except
wharfage on
owns real property with an aggregate assessedwharves constructed and maintained
value of P1,000 or more; orby
theLGU concerned;
is required by law to file an income tax return
5. TFCs and other impositions upon goods carried into or
out of, or passing through, the territorial
Tax Rate: P5.00 and an annual additional tax of
jurisdictions of P1.00
LGUs in forthe
every P1,000
guise of income
of charges for which in no
case shall exceed P5,000. wharfage, tolls for bridges or
Place of Payment: otherwise.
6. TF/Cs on agricultural and aquatic products when sold
In case of husband and wife by marginal farmers or fishermen;
property owned by them and7.the total
Taxesgross receipts enterprises
on business or earnings certified
derived byby them.
the Board
of Investments as pioneer or non-pioneer for a period
2. Juridical Persons of 6 and 4 years, respectively, from the date of
a. domestic or resident foreign, registration;
b. engaged in or doing business
8. inExcise
the Philippines
taxes on articles enumerated under the NIRC,
as amended, and TF/C on petroleum products;
Tax Rate :P500 and an annual 9. additional
Percentage tax which in no casetax
or value-added shall exceed
(VAT) P10,000
on sales, barters
or exchanges or similar transactions on goods or
Place of Payment: services except as otherwise provided herein;
10. Taxes on the gross receipts of transportation
Dividends received by a corporation shall, forand
contractors the persons
purpose engaged
of the additional tax, be considered as
in the transportation
part of the gross receipts or earnings of said corporation.
of passengers or freight by hire and common carriers
by air, land or water, except as provided in the Code;
Tax Exempt: 1. Diplomatic and consular representatives; and
11. Taxes on premiums paid by way of Reinsurance or
(Sec.159) 2. Transient visitors when their stay in the Philippines
retrocession; does not exceed 3 mos.
12. TF/C for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the
Time for Payment: accrues on the 1st day of Januarydriving
of each year which
thereof, exceptshall be paid not later than the last day of
tricycle;
(Sec. 161) February of each year. 13. TF/C on Philippine products actually exported, except
as otherwise provided in the Code;
Penalties for Delinquency: an interest of 24% per annum 14.from the on
TF/C dueCountryside
date until it and
is paid shall bebusiness
barangay added to the amount due.
enterprises and cooperatives duly registered under

Page 71 of 104
 R.A. 6810 and R.A. 6938, (Cooperatives Code of the Province of Bulacan vs. CA, November 27, 1998
Philippines) ; and A province has no authority to impose taxes on stones, sand,
15. TF/C of any kind on the National Government, its gravel, earth and other quarry resources extracted from private
agencies and instrumentalities, and LGUs. lands. The tax imposed by the Province of Bulacan is an excise
tax, being a tax under the performance, carrying on, or exercise
C. Classification of Common Limitations: of an activity. The province can however, impose tax on stones,
1. Taxes which are levied under the NIRC unless otherwise sand, gravel, earth and other quarry resources extracted from
provided by the LGC public lands because it is expressly empowered to do so under
Nos. 1, 2, 3, 8, 9, 10 the LGC
2. Taxes, fees, etc. which are imposed under the Tariffs and
Customs Code 7. Collection of Business Tax
Number 4
3. TFC where the imposition of which contravenes existing
governmental policies or which are violative of the Tax period Calendar year
fundamental principles of taxation (Sec. 165):
Numbers 5, 6, 7, 11, 13, 14, 15
4. TFC imposed under special laws. Manner of may be paid in quarterly instalments
Number 12 payment(Sec.
165):

Accrual of tax: 1st day of January

(Sec. 166) new or changes in the rates of TF/C
first day of the quarter next
following the effectivity of the
D. Cases ordinance
Batangas Power Corp. vs. Batangas City, April 28, 2004 (Sec. Time of payment: 1. within the 1st 20 days of January or
133g) No. 7 above (Sec. 167) of each subsequent quarter as the
Sec. 133 (g) of the LGC, which proscribes LGUs from levying case may be.
taxes on BOI-certified pioneer enterprises for a period of 6 years 2. may be extended without
from the date of registration, applies specifically to taxes surcharges or penalties, but only for
imposed by the local government, like the business tax imposed a period not exceeding 6 mos.
by Batangas City on BPC in the case at bar. Reliance of BPC
on the provision of Executive Order No. 226, [18] specifically Surcharges and Surcharge not exceeding 25% of the amount
Section 1, Article 39, Title III, is clearly misplaced as the 6-year Penalties on including surcharges, until such amount is
tax holiday provided therein which commences from the date of Unpaid TF/Cs: fully paid.
commercial operation refers to income taxes imposed by the (Sec. 168)
national government on BOI-registered pioneer firms. Clearly, it Limit: the total interest on the unpaid amount
is the provision of the LGC that should apply to the tax claim of or portion thereof shall in no case exceed 36
Batangas City against the BPC. The 6-year tax exemption of mos.
BPC should thus commence from the date of BPCs registration
with the BOI on July 16, 1993 and end on July 15, 1999. Interest on An interest rate not exceeding 2% per month
other unpaid from the date it is due until it is paid.
LTO vs. Butuan, January 20,2000 (Sec. 133[l]) No.12 above revenues:
Congress has no intention to delegate issuance of permits to (Sec. 169) Limit: the total interest on the unpaid amount
LGUs. The intention of the law is to centralize issuance of or portion thereof shall in no case exceed 36
permits to drive motor vehicles including tricycles is to monitor mos.
the operation of the same. Section 133(l) is only for franchise
where to grant the same is within the discretion of LGUs. The
Collecting 1. Shall be made by local treasurer
permit to drive is issued by LTO.
authority: (provincial, city, municipality, or barangay
(Sec. 170) treasurer as the case may be), or
First Philippine Industrial Corp vs. CA, December 9, 1998
2. his duly authorized deputies
(Sec.133[j]) No. 10 above
It is clear that the legislative intent in excluding from the taxing
Examination Shall be made by the local treasurer or his
power of the LGU the imposition of business tax against
or inspection deputies duly authorized in writing.
common carriers is to prevent a duplication of the so called
of books:
Common Carriers Tax. Petitioner is already paying 3%
(Sec. 171) Such examination shall:
common carriers tax on its gross sales/earnings under the
be made during regular business
NIRC. To tax the petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose hours
of the LGC. ONCE for every tax period
certified to by the examining official

Page 72 of 104
 2. deny (wholly or partially) the protest if not
Note: records of the revenue meritorious, with notice to the TP
district officer of the BIR shall be d. 1. In case of denial: TP appeals within 30 days after
made available to the examining receipt of denial to the court of competent jurisdiction
officer for such purpose. (RTC)
2. Inaction by the treasurer: TP appeals within 30
days from the lapse of 60 days
8. Taxpayers Remedies
Note: The Assessment shall become final an
A. ADMINISTRATIVE executory should the TP failed to file a protest
Before assessment 2. Claim for refund tax credit (Sec. 196)
1. Question the constitutionality or legality of tax A written claim for refund or credit must be filed
ordinance or revenue measures on appeal within 30 Ground: any TF/C erroneously or illegally collected
days from effectivity thereof to Secretary of Justice
(Sec. 187 LGC) Period to claim: within 2 years from
a. the date of payment or
Drilon vs. Lim, August 4, 1994 b. the date the taxpayer is entitled to a refund or
Section 187 authorizes the Secretary of Justice to review only credit
the constitutionality or legality of the tax ordinance and, if The supervening cause applies(unlike in Internal
warranted, to revoke it on either or both of these grounds. revenue taxes [Sec.229,NIRC]) because the period for
the filing of claims for refund or credit of local taxes is
counted not necessarily from the date of payment but
Jardine vs. Judge Alipose, February 27, 2003 from the date the taxpayer is entitled to a refund or
The TP may file a complaint assailing the validity of the credit.
ordinance and praying for a refund of its perceived
overpayments without first filing a protest to the payment of 3. Right of Redemption (Sec. 179)
taxes due under the ordinance. 1 year from the date of sale or forfeiture
2. Declaratory Relief whenever applicable The owner still enjoys the possession and the fruits of
the property until the expiration of the time allowed for
After assessment its redemption
Periods of assessment and collection of local TF/Cs (Sec. 194)
Assessment B. JUDICIAL
1. Court action
Period of: - within 5 years from the date they become
Filedue an appropriate action with a court of competent
- within 10 years from the discovery in case of fraud within 30 days after receipt of decision or
jurisdiction
or intent to evade payment lapse of 60 days of Secretary of Justices inaction
(Sec. 187)
Prescriptive periods: -5 years from the date they became due Appeal with a court of competent jurisdiction within 30
-10 years from discovery of the fraud or intent
days tofrom receipt of notice of denial
evade the payment (Sec. 195)
if no action is taken by the treasurer in refund cases
Grounds for suspension of the running of the prescriptive period:
and the two year period is about to lapse (Sec. 196)
1. Treasurer is legally prevented from the making the assessment or collection
if remedies available does not provide plain, speedy
2. TP requests for reinvestigation and executes waiver in writing
3. TP is out of the country and adequate remedy.
4. TP cannot be located
Note: Court of competent jurisdiction refers to the
Note: RTC (Domondon, Bar Reviewer in Taxation, Vol 1,
1. TF/Cs which have become accrued before the effectivity of the LGC may be2006,7th ed.,p.729)
assessed within a period of 3 years from the date they
become due
2. 2. within
TF/Cs assessed before the effectivity of the LGC may be collected Actionaforperiod
declaratory relieffrom the date of assessment
of 3 years
3. Date of Effectivity of the LGC- January 1, 1992 3. Injunction
if irreparable damage would be caused to the taxpayer
1. Protest of assessment (Sec. 195) and no adequate remedy is available.
a. Assessment made by the local Treasurer
b. TP has 60 days from receipt to file written protest with 9. Civil Remedies by the LGU for the collection of
Treasurer, otherwise it shall become final and revenues
executor A. Local governments lien for delinquent TF/C(Sec.173)
c. Treasurer has 10 days within which either to: Superior to all items, charges or encumbrances in
1. cancel (wholly or partially) the assessment favor of any person,
in meritorious cases enforceable by the administrative of judicial action
enforceable on:

Page 73 of 104
 a. property or rights therein which may be subject to the
lien
b. property used in business, occupation, practice of
profession or calling
c. exercise or privilege with respect to which the lien is
imposed.
extinguished upon full payment of the delinquent local
TF/C including related surcharges and interest
Angeles City vs. Angeles City Electric Corporation,
June 29, 2010
Unlike the NIRC, the LGC does not contain any specific
provision prohibiting courts from enjoining the collection of local
taxes. Such statutory lapse or intent, however may be viewed,
may have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural requirements under
Rule 58 of the Rules of Court.
B. Civil remedies, in general (Sec. 174)
1. Administrative action
a. Distraint of goods, chattels or effects and other
personal property of whatever character
b. Levy upon real property and interest in or rights to real
property
2. Judicial action
Note: Either of these remedies or all may be pursued
concurrently or simultaneously at the discretion of
LGU concerned.
Procedure for administrative action
1. Distraint of personal property (Sec. 175)
Procedure:
1. Delinquency
2. Assessment (Sec. 194)
3. Issuance of a duly authenticated certificate
4. Seizure or confiscation of assets sufficient to satisfy
the liability
5. Accounting of distraint goods
6. Publication/Posting of the notice of sale
7. Sale at Public Auction
8. Report of the proceedings to the Local Chief
Executive
9. Disposition of the proceeds
10. Further distraint if necessary (Sec. 184)
11. Return of balance to the TP
a. Seizure 1. The TP must be delinquent.
2. Local treasurer or his deputy may
seize or confiscate any personal
property:
a. belonging to the delinquent TP or
b. subject to the lien in sufficient
quantity to satisfy the:
aa. TF/C in question together with
bb. any increment thereto incident
to delinquency and
cc. the expenses of the seizure.
3. In such case, the local treasurer or his
deputy shall issue a duly authenticated
certificate showing:
a. the fact of delinquency
b. the amounts of TF/C and
c. penalty due.
4. Distrained personal property shall be
sold at public auction.
Note:
1.Such certificate shall serve as sufficient
arrant for the distraint of personal property, subject
to the taxpayer's right to claim exemption under the
provisions of existing laws.
b. The officer executing the distraint shall make an
Accounting account of the goods, chattels or effects (GCEs)
of distrained distrained, a copy of which signed by himself shall
goods be left either with the:
a. owner or
b. person from whose possession the GCEs
are taken, or
c. at the dwelling or
d. place or business of that person and with
someone of suitable age and discretion,
to which list shall be added a:
aa. statement of the sum demanded and
bb. a note of the time and place of sale.
c. The officer shall forthwith cause a notification to be
Publication exhibited in not less than 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: not less than 20 days after:
a. the notice to the owner or possessor of
the property and
b. the publication or posting of the notice.
Note:
1.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 If at any time prior to the consummation of the sale,
of distrained all the proper charges are paid to the officer
property conducting the sale, the goods or effects distrained
upon shall be restored to the owner.
payment
prior to Also called Right of Pre-emption
sale
e. Procedure At the time and place fixed in the notice, the officer
of sale conducting the sale shall sell the goods or effects
so distrained at public auction to the highest bidder
for cash.
Within 5 days after the sale, the local treasurer shall
make a report of the proceedings in writing to the
Page 74 of 104
 local chief executive concerned.
Note:
1. Should the property be not disposed of within
120 days from the date of distraint, the same shall
be considered as sold to the LGU concerned.
f. Disposition The proceeds shall be applied to satisfy the
of proceeds following:
a. tax
b. surcharges
c. interest
d. penalties incident to delinquency
e. expenses of the distraint and sale.
Note:
1. The balance shall be returned to the
owner of the property sold.
2. The expenses chargeable upon the seizure
and sale shall embrace only the
actual expenses of seizure and
preservation of the property pending the
sale.
3. No charge shall be imposed for the
services of the local officer or his deputy.
4. Where the proceeds are insufficient to
satisfy the claim, other property may, in
like manner, be distrained until the full
amount due, including all expenses,
is collected (Sec. 184).
2. Levy of real property (Sec. 176)
Procedure:
a. Delinquency
b. Assessment (Sec. 194)
c. The local treasurer concerned shall prepare a duly
authenticated certificate showing the:
1. name of the TP
2. amount of the TF/C and
3. penalty due.
Note: Said certificate shall operate with the force of a
legal execution throughout the Philippines.
d. written notice of the levy shall be mailed to or served
upon the:
1. assessor
2. Registrar of Deeds (for annotation)
3. taxpayer or,
a. to his agent or
b. the manager of the business or
c. to the occupant of the property in
question as the case may be
e. Levy of real property (before, simultaneously or after
distraint of personal property)within 5 years from
assessment
f. Advertisement for sale or auction of the property
levied for 30 days (Posting and Publication)
g. Sale
h. Report of the sale by the levying officer to the
Sanggunian
i. Delivery to the purchaser of the certificates of sale
j. Disposition of the proceeds of the sale
k. Return of the balance to the TP
l. Execution of the final deed to the purchaser after
lapse of the redemption period in case there is failure
to redeem
3. Further distraint or levy (Sec. 184)
Properties exempt from distraint or levy (Sec. 185)
a. Tools and implements necessarily used by the
delinquent TP in his trade or employment;
b. One horse, cow, carabao, or other beast of burden,
such as the delinquent TP may select, and necessarily
used by him in his ordinary occupation;
c. TPs necessary clothing, and that of all his family;
d. Household furniture and utensils necessary for
housekeeping and used for that purpose by the
delinquent TP, such as he may select, of a value not
exceeding P10,000;
e. Provisions, including crops, actually provided for
individual or family use sufficient for 4 mos.;
f. The professional libraries of :
1. doctors,
2. engineers,
3. lawyers and
4. judges;
g. One fishing boat and net, not exceeding the total
value of P10, 000 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.
Penalty on local treasurer for failure to issue and execute
warrant of distraint or levy (Sec. 177)
Any local treasurer who:
a. fails to issue or execute the warrant of distraint or levy
after the expiration of the time prescribed, or
b. is found guilty of abusing the exercise thereof by
competent authority shall be automatically dismissed
from the service after due notice and hearing.
Without prejudice to criminal prosecution under RPC
and other applicable laws
D. Procedure for judicial action
(Sec. 183 in relation to Sec.194)
The LGU concerned may enforce the collection of
delinquent TF/Cs or other revenues by civil action in
any court of competent jurisdiction.
The civil action shall be filed by the local treasurer
within the period prescribed for assessment and
collection of TF/Cs
The LGU files an ordinary suit for the collection of sum
of money before the:
a. MTC,
b. RTC or
c. CTA Division depending upon the jurisdictional
amount.
Jurisdiction
Court Jurisdiction Jurisdictional Amount
MTC Original If the principal amount of taxes, fees
exclusive of:
Page 75 of 104
 1. charges and
2. penalties does not exceed:
a. P300,000 or
b. P400,000 in Metro Manila
RTC Original If the principal amount of taxes, fees
exclusive of:
1. charges and
2. penalties does not exceed:
a. P300,000 or
b. P400,000 in Metro Manila
Provided: the amount is < P1M
Appellate Jurisdiction over all cases decided by
the courts of limited jurisdiction in
their respective territorial jurisdiction.
CTA Original If the principal amount of taxes, fees
Division exclusive of:
1. charges and
2. penalties is P1M or above
Appellate Jurisdiction over appeals from the
judgement or orders of the RTC in
tax collection cases originally
decided by them in their respective
jurisdiction
CTA En Appellate 1. Decisions or resolutions over
Banc petitions for review of the Court in
Divisions in the exercise of its
exclusive appellate jurisdiction over
local tax cases decided by the RTC
in the exercise of their original
jurisdiction;
2. Over petitions for review of the
judgements, resolutions or orders of
the RTC in the exercise of their
appellate jurisdiction over tax
collection cases originally decided by
the courts of limited jurisdiction in
their respective territorial jurisdiction.
3. Compromise (Sec. 148[b] in relation to Sec. 151)
The Sanggunian concerned may authorize the city or
municipal treasurer to settle an offense not involving
the commission of fraud before a case therefor is filed
in court, upon the payment of a compromise penalty of
not less than P200.
B. REAL PROPERTY TAXATION
Real Property Tax (RPT)
It is a direct tax on the ownership of lands and
buildings or other improvements thereon not
specifically exempted. It is payable regardless of
whether the property is used or not, although the
value may vary in accordance with such factors. It is
usually single and indivisible although the land and
building or improvements erected thereon are
assessed separately except when the land and
building or improvements belong to separate owners
(Lim, Dictionary of Terms and Phrases in Taxation,
2012,p.137)
Real Property (RP)
subject to the definition given by Art. 415 of the NCC
Improvement
Sec. 199[m]
1. Fundamental Principles (Sec. 198)
a. RP shall be appraised at its current and FMV;
b. RP shall be classified for assessment purposes on the
basis of its actual use;
c. RP shall be assessed on the basis of a uniform
standard within each LGU;
d. The appraisal, assessment and collection of RPT shall
not be let to any private person; and
e. The appraisal and assessment of RP shall be
equitable.
Fair Market Value (FMV)- Sec.199 [l]
The price at which a property may be sold by a seller
who is not compelled to sell and bought by a buyer
who is not compelled to buy.
Assessment (Sec. 199 [f])
The act or process of determining the value of the
property, or proportion thereof subject to tax including
the:
a. discovery,
b. listing,
c. classification, and
d. appraisal of properties.
Appraisal (Sec. 199[e])
the act or process of determining the value of the
property as of a specific date for a specific purpose.
Allied Banking Corp. vs. Quezon City, September 15, 2006
Appraisal of Real Property is at current FMV and based on
actual use not on the actual amount reflected in the Deed of
Conveyance or the current approved zonal valuation of the BIR
prevailing at the time of the sale.
2. Nature of Real Property Tax
Hybrid of national and local tax
The provisions of the LGC are applied nationwide but
rates imposed are different per LGU ordinance
Characteristics of RPT
1. Progressive/Proportionate in character depending on
the:
a. use and
b. value of the property (Domondon, Bar
Reviewer in Taxation Vol.1,2006 7th
ed.,p.743)
2. Ad valorem tax
3. Direct tax
Page 76 of 104
 4. Local tax
5. Imposed on the Use and not on the ownership
Province of Nueva Ecija vs. Imperial Mining Co., Inc., November
19,1982
RPT taxes are direct taxes on the privilege to use real property
such as land, building, machinery and other improvements,
unless specifically exempted.
PD No. 464 (Real Property Tax Code) changed the basis of real
property taxation (from ownership) adopting the policy of taxing
real property on the basis of actual use, even if the user is not
the owner.
Meralco Securities Industrial Corp v. CBAA, 114 SCRA 260
The real property tax has been considered and held to be a
national, not a local tax. The Court said that realty tax has
always been imposed by the national law-making body. The real
estate tax is enforced throughout the Philippines and not in a
particular political subdivision, although the bulk of the tax
proceeds accrue to the various LGUs where the property is
located.
3. Imposition of Real Property Tax
A. Power to levy real property tax (Sec. 232)
LGUs may levy an annual ad valorem tax on real
property not specifically exempted
B. Exemption from real property tax
1. Exemption under Sec. 234
a. those owned by the State or any of its political
subdivisions
Except: when the beneficial use thereof has been
granted to a taxable person;
b. Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques,
non-profit or religious cemeteries, and all the lands,
buildings, and improvements actually,
directly, and exclusively (ADE) used for religious,
charitable, or educational purposes;
c. All pieces of machinery and equipment that are ADE
used by local water districts (LWDs), and
GOCCs engaged in the supply and distribution of
water and/or generation and transmission of
electric power;
d. those owned by duly registered cooperatives under
RA 6938; and
e. Machinery and equipment used for pollution control
and environmental protection.
2. Idle lands (Sec. 238)
3. Constitutional Exemptions
(Art. VI, Sec.28 [3]letter [b] above)
4. Condonation or reduction of RPT and interest by the:
a. Sanggunian upon recommendation of the Local
Disaster Coordinating Council in case of a:
1. general failure of crops, or
2. substantial decrease in the price of agricultural
or agri-based products, or
3. calamity in any LGU
b. President of the Philippines when public interest so
requires
MIAA vs. Paranaque, July 20, 2006
Under Art. 20 of the NCC, the airport lands and buildings of
MIAA, being devoted to public use are properties of public
dominion and thus owned by the state. As properties of public
dominion owned by the Republic, there is no doubt that the
airport land and buildings are expressly exempt from real estate
tax under Sec. 243[a] of the LGC.under 1[a] above
Lung Center of the Philippines vs. Quezon City, June 29, 2004
the Court held that Lung Center of the Philipines, a charitable
institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object
which it is intended to achieve; and no money inures to the
private benefit of the persons managing or operating the
institution. However, those portions of its real property that are
leased to private entities are not exempt from real property
taxes as these are not actually, directly and exclusively used for
charitable purposes.
NAPOCOR vs. Province of Quezon, July 15, 2005
2 elements to successfully claim exemption under Sec. 234[c]:
a. Machines and equipment are ADE used by LWDs and
GOCCs
b. The LWDs and GOCCs claiming exemption must be
engaged in the supply and distribution of water
and/or the generation and transmission of electric
power.
Test of exemption: Use and not the ownership
Sta. Lucia Realty and Development, Inc. vs. City of Pasig,
June 15, 2011
While a local government unit is authorized under several laws
to collect real estate tax on the properties falling under its
territorial jurisdiction, it is imperative to first show that these
properties are unquestionable within its geographical
boundaries.
2001 BAR QUESTION: Under Article 415 of the Civil Code, in
order for machinery and equipment to be considered real
property, they must be placed by the owner of the land and, in
addition, must tend to directly meet the needs of the industry or
works carried on by the owner. Oil companies, such as Caltex
and Shell, install underground tanks in the gasoline stations
located in land leased by the oil companies from others. Are
those underground tanks, which were not placed there by the
owner of the land but by the lessee, considered real property for
purposes of real property taxation under the LGC?
SUGGESTED ANSWER FROM UP LAW CENTER: Yes. The
underground tanks although installed by the lessee, Shell and
Caltex, are considered as real property for purposes of the
imposition of real property taxes. It is only for purposes of
executing a final judgment that these machinery and equipment,
installed by the lessee on a leased land, would not be
considered as real property. But in the imposition of real
property tax, the underground tanks are taxable as necessary
fixtures of the gasoline station without which the gasoline station
would not be operational (Caltex vs. CBAA, May 31, 1982).
Page 77 of 104
 c. occupancy of make a
the declaration
improvement, within the
4. Appraisal and Assessment of Real Property Tax whichever prescribed
A. Rule on appraisal of real property (Sec. 201) comes earlier time.
Real properties (taxable or exempt), shall be
appraised at the current and FMV prevailing in the C. Listing of real property in assessment rolls (Sec. 205)
locality where the property is situated. Real property shall be listed, valued, and assessed in the name
of the:
Distinguish FMV from assessed value for purposes of real a. owner,
property taxation b. administrator or
FMV Assessed Value c. anyone having legal interest in the property.
-refers to the price at which a - it is the value placed on Exceptions:
property may be sold taxable property 1. Undivided real property
-determined by the local assessor - in the name of the estate or heirs or devisees without
designating them individually;
Basis: Basis: 2. In case of undivided real property other than that owned by
- location of the property -Actual Use which may be: the deceased
-transactions involving properties residential, agricultural, - in the name of one or more co-owners;
in the said area commercial, industrial, 3. Corporation, partnership, and association
-other similar considerations mineral, timberland, or special - same as individuals;
Expressed in Mathematical Formula: 4. Owned by the Republic of the Philippines, its
FMV x Assessment Level = Assessed Value instrumentalities, political subdivision, beneficial use is
transferred to taxable person
Assessment level (Sec. 199[g]) - in the name of the possessor.
-is the percentage applied to the FMV to determine the taxable
value of the property Note: All declarations shall be kept and filed under a
uniform classification system to be established by the
B. Declaration of real property local assessor (Sec.207)
Declaration of Real Property
D. Preparation of schedules of FMV (Sec. 212)
By the Owner By the Person By the Before any general revision of property assessment is
or Acquiring Real Assessor made, there shall be prepared a schedule of fair
Administrator Property or (Sec. 204) market values by the provincial, city and municipal
(Sec.202) Making assessor of the municipalities within the Metropolitan
Improvements Manila Area for the different classes of real property
Thereon situated in their respective local government units for
(Sec.203) enactment by ordinance of the sanggunian concerned.
The schedule of fair market values shall be published
Form Sworn -same- Declaration in a newspaper of general circulation in the province,
statement *no oath city or municipality concerned or in the absence
required thereof, shall be posted in the provincial capitol, city or
municipal hall and in two other conspicuous public
Content of 1. True Value 1. True Value of 1. True Value places therein.
the Sworn (current and the subject of the
statement or FMV) of the property property 1. Authority of assessor to take evidence (Sec.213)
Declaration property the assessor or his deputy may summon:
as the case 2. Description a. the owners of the properties to be affected
may be 2. Description of the or
of the property b. persons having legal interest therein and
property c. witnesses
Purpose: To obtain information on which to base the
Where to file Assessor -same- market value of the property
concerned
2. Amendment of schedule of FMV (Sec.214)
When Once every 3 Within 60 days When the assessor may recommend to the sanggunian
years during after: person under concerned
the period Sec. 202: The sanggunian concerned shall, by ordinance, act
from January a. acquisition or upon the recommendation within 90 days
1-June 30 b. upon a. refuses or from receipt thereof.
completion or b. fails to

Page 78 of 104
E. Classes of real property for assessment purposes (Sec.215)
1. Agricultural land devoted principally to the planting
of trees, raising of crops, livestock and poultry,
dairying, salt making, inland fishing and similar aqua
cultural activities, and other agricultural activities.
2. Residential land principally devoted to habitation
3. Timberland
4. Mineral- land in which minerals, metallic or non-
metallic, exists in sufficient quantity or grade to justify
the necessary expenditures to extract and utilize such
materials
5. Industrial- land devoted principally to industrial activity
as capital investment
6. Commercial- land devoted principally for the object of
profit
7. Special
Note: The city or municipality within the Metropolitan
Manila Area through their respective Sanggunian is
empowered to classify lands in accordance with their
zoning ordinance (Sec.215)
F. Actual use of property as basis of assessment (Sec.217)
G. Assessment of real property
1. Assessment levels (Sec.218)
is the percentage applied to the market value of a
property to determine the taxable or assessed value of
the property for purposes of real property tax
it is fixed by ordinances of the sangguniang
panlalawigan, sangguniang panlungsod or
sangguniang bayan of a municipality within the
Metropolitan Manila Area at rates not to exceed as
provided by Sec. 218
2. General revisions of assessments and property
classification (Sec.219)
Within 2 years after the effectivity of this Code and
every 3 years thereafter, the assessor shall undertake
a general revision of real property assessments.
3. Date of effectivity of assessment or reassessment
(Sec.221)
Made after the 1st day of January of any year - shall
take effect on the 1st day of January of the
succeeding year
4. Assessment of property subject to back taxes
(Sec.222)
Real property declared for the first time shall be
assessed for back taxes for not more than 10 years
prior to the date of initial assessment. Such taxes shall
be computed on the basis of the applicable schedule
of values in force during the corresponding period.
5. Notification of new or revised assessment (Sec.223)
When:
a. real property is assessed for the first time or
b. when an existing assessment is increased or
decreased, assessor shall within 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:
i. personally or
ii. by registered mail or
iii. through the assistance of the
punong barangay to the last
known address of the person to
be served.
H. Appraisal and assessment of machinery (Sec.224)
a. brand-new machinery FMV shall be the acquisition
cost.
b. imported machinery - the acquisition cost includes
freight, bank and other charges, brokerage, arrastre
and handling, duties and taxes, plus charges at the
present site.
c. other cases- the FMV shall be determined by dividing
the remaining economic life of the machinery by its
estimated economic life and multiplied by the
replacement or reproduction cost.
Note: The cost in foreign currency of imported
machinery shall be converted to peso cost on the
basis of foreign currency exchange rates as fixed by
the Central Bank.
5. Collection of Real Property Tax
A. Date of accrual of real property tax (Sec. 246)
1st day of January
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
B. Collection of tax (Sec. 247)
1. Collecting authority
It is 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, the barangay
treasurer is properly bonded for the purpose and the
premium on the bond shall be paid by the city or
municipal government concerned.
Provincial treasurers are obviously relieved of the authority to
collect RPT; however, it appears that such omission is only a
typographical error:
1. Sec. 170 of the LGC provides that all local TFCs shall
be collected by the provincial, city, municipal or
barangay treasurer;
2. Sec. 470 (d)(6) of the LGC provides that the provincial
treasurer shall exercise technical supervision over all
treasury officials of component cities and
municipalities;
3. RPT is a shared tax where the proceeds thereof are
distributed:
a. 35% to the province which shall accrue to
the general fund ;
b. 40% to the general fund of the municipality
where the property is located; and
Page 79 of 104
 c. 25% to the barangay where the property is
located
2. Duty of assessor to furnish local treasurer with assessment
rolls (Sec. 248)
The assessor shall prepare and submit to the
treasurer of the LGU,
What: assessment roll
Contents:
1. list of all persons whose real properties have
been newly assessed or reassessed and
2. values of such properties
When: on or before the 31st day of December each
year
3. Notice of time for collection of tax (Sec.249)
The notice of the dates when the basic RPT and
additional tax for Special Education Fund (SEF)
may be paid without interest shall be posted by
Who: city or municipal treasurer
When:
a. On or before the 31st day of January each
year or
b. any other date as may be prescribed by the
Sanggunian concerned
Where: 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 2
consecutive weeks.
C. Periods within which to collect real property tax (Sec.270)
1. Within 5 years from the date they become due or
2. Within 10 years from discovery of fraud or intent to
evade payment of the tax.
Grounds for suspension of the running of the prescriptive
period:
a. Treasurer is legally prevented from collecting the tax
b. TP requests for reinvestigation and executes waiver in
writing before the expiration of the period within which
to collect
c. TP is out of the country
d. TP cannot be located
No action for the collection of the tax, whether
administrative or judicial, shall be instituted after the
expiration of such period.
D. Special rules on payment
1. Payment of real property tax in instalments (Sec. 250)
a. basic RPT and additional tax for SEF may be paid
without interest in 4 equal instalments:
1st instalment- on or before March 31st
2nd instalment- on or before June 30
3rd instalment- on or before September 30
4th instalment- on or before December 31st
b. other special levies- governed by the ordinance of the
sanggunian concerned
2. Interests on unpaid RPT (Sec. 255)
2 % per month, until the delinquent tax shall have
been fully paid
In no case shall the total interest on the unpaid tax or
portion thereof exceed 36 mos.
Note: The Sanggunian concerned may grant a
discount not exceeding 20% of the annual tax due for
advance payment of basic RPT and SEF
(Sec. 251).
3. Condonation of RPT (Sec. 276)
Condonation or reduction of RPT and interest by the:
a. Sanggunian upon recommendation of the Local
Disaster Coordinating Council in case of a:
1. general failure of crops, or
2. substantial decrease in the price of
agricultural or agri-based products, or
3. calamity in any LGU
b. President of the Philippines when public interest so
requires.
E. Remedies of LGUs for collection of real property tax
1. Issuance of notice of delinquency for RPT payment
(Sec. 254)
A notice shall be issued by the local treasurer
concerned
To be posted at:
a. the main entrance of the provincial capitol,
or city or municipal hall and
b. in a publicly accessible and conspicuous
place in each barangay of the LGU
concerned
the notice shall also be published once a week for 2
consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality.
The notice shall:
a. specify the date of delinquency
b. state that personal property may be
distrained to effect payment
2. Local governments lien (Sec. 257)
The basic RPT and any other tax levied constitutes a
lien on the property subject to tax, superior to all liens,
charges or encumbrances in favor of any person,
irrespective of the owner or possessor thereof,
enforceable by administrative or judicial action.
may only be extinguished upon payment of the tax
and the related interests and expenses.
3. Remedies in general (Sec. 256)
The LGU concerned may avail of the remedies by:
a. administrative action thru levy on real property or
b. by judicial action.
4. Resale of real estate taken for TF/C (Sec. 264)
The sanggunian concerned may, by ordinance duly
approved, and upon notice of not less than 20 days,
sell and dispose of the real property acquired at public
auction.
The proceeds of the sale shall accrue to the general
fund of the LGU concerned.
Page 80 of 104

5. Further levy until full payment of amount due (Sec. 265)
Levy may be repeated if necessary until the full
amount due, including all expenses, is collected.
6. Refund or Credit of Real Property Tax
A. Payment under protest (Sec.252)
No protest shall be entertained unless the TP first
pays the tax.
The words paid under protest shall be annotated on
the tax receipts
The protest must be:
a. in writing
b. filed within 30 days from the payment of the
tax
c. filed with the provincial, city or municipal
treasurer
the protest shall be decided within 60 days from
receipt
The tax or a portion thereof paid under protest shall be
held in trust by the treasurer concerned.
In the event that the protest is finally decided in favor
of the taxpayer, the amount or portion of the tax
protested shall be:
a. refunded to the protestant, or
b. applied as tax credit against his existing or
future tax liability.
In the event that the protest is denied or upon the
lapse of the 60- day period the TP may appeal.
B. Repayment of excessive collections (Sec. 253)
When an assessment of basic RPT or any other tax
levied is found to be illegal or erroneous and the tax is
accordingly reduced or adjusted, the TP may file a
written claim for refund or credit for taxes and interests
with the provincial or city treasurer within 2 years from
the date the taxpayer is entitled to such reduction or
adjustment.
The provincial or city treasurer shall decide the claim
within 60 days from receipt thereof.
In case the claim for tax refund or credit is denied, the
TP may appeal.
7. Taxpayers Remedies
A. Contesting an assessment of value of real property
1. Appeal to the LBAA- Sec. 226
When to appeal: Within 60 days from the date of receipt
of the written notice of assessment,
Who may appeal:
a. owner or
b. person having legal interest in the property
How: 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.
2. Appeal to the CBAA-Sec. 229 [c]
When: Within 30 days after receipt of the decision of the
LBAA
Who may appeal:
a. owner or
b. person having legal interest in the property or
c. the assessor who is not satisfied with the decision of
the LBAA.
The decision of the CBAA shall be final and executory.
3. Effect of Appeal on the payment of RPT (Sec. 231)
Appeal on assessments shall not suspend the
collection without prejudice to subsequent adjustment
depending upon the final outcome of the appeal.
Justification: Lifeblood Theory
Q: A non-stock non-profit educational institution applied for
real property tax exemption for the properties that it claims
to be actually, directly and exclusively used for educational
purposes. The local government denied such application.
The school filed a case for mandamus with the Regional
Trial Court. Should the suit prosper?
The suit will not prosper. Mandamus will lie only if there is no
other plain, speedy, and adequate remedy in the ordinary
course of law. Where administrative remedies are available, a
petition for mandamus does not lie. Under Sec. 226 of RA 7160,
the remedy of appeal to the LBAA is available from an adverse
ruling or action of the provincial, city or municipal assessor in
the assessment of property.
Petitioner also argues that it is seeking to enforce, through the
petition for mandamus, a clear legal right under the Constitution
and the pertinent provisions of the LGC granting tax exemption
on properties actually, directly and exclusively used for
educational purposes. But petitioner is taking an unwarranted
shortcut. The argument gratuitously presumes the existence of
the fact which it must first prove by competent and sufficient
evidence before the City Assessor. It must be stressed that the
authority to receive evidence, as basis for classification of
properties for taxation, is legally vested on the respondent City
Assessor whose action is appealable to the LBAA and the
CBAA, if necessary (Systems Plus Computer College v.
Caloocan City, August 7, 2003).
B. Payment of real property under protest
1. File protest with local treasurer
2. Appeal to the LBAA
3. Appeal to the CBAA
4. Appeal to the CTA
5. Appeal to the SC
Q: X, a TP who believes that an ordinance passed by the
City Council of Pasay is unconstitutional for being
discriminatory against him, wants to know from you, his
tax lawyer, whether or not he can file an appeal. In the
affirmative, he asks you where such appeal should be
made: the Secretary of Finance, or the Secretary of Justice,
or the Court of Tax Appeals, or the regular courts. What
would your advice be to your client, X? [2003 Bar Exams]
The appeal should be made with the Secretary of Justice. Any
question on the constitutionality or legality of a tax ordinance
may be raised on appeal with the Secretary of Justice within 30
Page 81 of 104
days from the effectivity thereof(Section 187, LGC; Hagonoy
Market Vendor Association vs. Municipality of Hagonoy,
February 06, 2002).

IV. TARIFF AND CUSTOMS CODE (TCC)

A. TARIFF AND DUTIES, defined
Tariff
list or schedule of articles on which a duty is
imposed upon the importation into the country with
the rates at which they are severally taxed.
Derivatively, it is the system of imposing duties or
taxes on the importation of foreign merchandise.

Customs duties
the name given to taxes on the importation and
exportation of commodities, the tariff or tax assessed
upon merchandise imported from or exported to, a
foreign country (Nestle v. CA, July 6, 2001).

Note: Tariff and customs duties are used

interchangeably.

B. GENERAL RULE: all imported articles are subject to

duty.

1. Importation by government taxable (Sec.100)

What is the rule on imported articles?

As a general rule, all imported articles shall be subject to
duty even though previously exported from the Philippines
(Sec. 1205)

What is the rule on government importations?

All importations of the government for its own use or that of its
subordinate branches or instrumentalities, or corporations,
agencies or instrumentalities owned or controlled by the
government shall be subject to duties.

C. PURPOSE FOR IMPOSITION

They are imposed to:
1. Raise government revenues
2. Protect consumers and manufacturers, as well as,
Philippine products.

D. FLEXIBLE TARIFF CLAUSE (Sec. 401)

The flexible tariff clause is a provision in the
TCC which implements the constitutionally
delegated power to the Congress to further
delegate to the President of the Philippines, in the
interest of national economy, general welfare,
and/or national security upon recommendation of the
NEDA:
a. Increase, reduce or remove existing
protective rates of import duty, provided that
the increase should not be higher than
100% ad valorem

Page 82 of 104
 b. Establish import quota or to ban imports
of any commodity
c. To impose additional duty on all imports not
exceeding 10% ad valorem, whenever
necessary
E. REQUIREMENTS OF IMPORTATION
1. Beginning and ending of importation (Sec 1201 and 1202)
When does importation begin and when does it end?
Importation begins:
when the conveying vessel or aircraft enters the
jurisdiction of the Philippines with intention to unlade
therein.
Importation is deemed terminated:
1. upon payment of the duties, taxes, and other
charges due upon the agencies or
2. Secured to be paid at the port of entry and legal
permit for withdrawal shall have been granted
3. Articles have legally left the jurisdiction of customs
Why is it important to know when importation begins and
ends?
The jurisdiction of the BoC to enforce the
provisions of the TCC including seizure and forfeiture
also begins from the beginning of importation.
Thus, the BoC obtains jurisdiction over imported
articles only after importation has begun. On the
other hand, the BoC loses jurisdiction to enforce the
TCC and to make seizures and forfeitures after
importation is deemed terminated.
When does the BoC acquire exclusive jurisdiction over
imported goods for the purpose of enforcing customs
laws?
From the moment imported goods are actually in the
possession or control of the Customs authorities,
even if no warrant for seizure or detention had
previously been issued by the Collector of Customs in
connection with the seizure and forfeiture
proceedings. (see Subic Bay Metropolitan Authority
vs. Rodriquez, April 23, 2010) and Sec. 205
When are imported articles deemed to have entered
the PH for consumption?
Imported articles shall be deemed "entered" in the
Philippines for consumption when the specified entry
form is properly filed and accepted, together with
any related documents required by the provisions of
this Code and/or regulations to be filed with such
form at the time of entry, at the port or station by the
customs official designated to receive such entry
papers and any duties, taxes, fees and/or other
lawful charges required to be paid at the time of
making such entry have been paid or secured to be
paid with the customs official designated to receive
such monies, provided that the article has previously
arrived within the limits of the port of entry (Sec.
205).
When are imported articles deemed have been withdrawn
from the warehouse in the PH for consumption?
Imported articles shall be deemed "withdrawn" from
the warehouse in the Philippines for consumption
when the specified form is properly filed and
accepted, together with any related documents
required by any provisions of this Code and/or
regulations to be filed with such form at the time of
withdrawal, by the customs official designated to
receive the withdrawal entry and any duties,
taxes, fees and/or other lawful charges required to be
paid at the time of withdrawal have been deposited
with the customs official designated to receive
such payment. (Sec. 205)
What is meant by entry in relation to the TCC?
Entry has a three-fold meaning:
a. The documents filed at the customs house
b. The submission and acceptance of the documents;
and
c. Customs declaration forms or customs entry forms
required to be accomplished by passengers of
incoming vessels or passenger planes as
envisaged under Sec. 2505.
Q: A flight attendant arrived from Singapore. Upon her
arrival she was asked whether she has anything to
declare. She answered none, and she submitted her
Customs Baggage Declaration Form which she
accomplished and signed with nothing or written on
the space for items to be declared. When her bag was
examined some pieces of jewelry were found concealed
within the lining of the bag. She was then convicted of
violating Section 3601 for unlawful importation. She
now appeals claiming that the lower court erred in
convicting her under Section 3601 when the facts alleged
both in the information and those shown by the
prosecution constitute the offense under Section 2505
Failure to Declare Baggage of which she was
acquitted. Is she correct?
No. Section 2505 does not define a crime. It merely provides
the administrative remedies which can be resorted to by the
BoC when seizing dutiable articles found in the baggage of
any person arriving in the Philippines which is not included
in the accomplished baggage declaration submitted to the
customs authorities and he administrative penalties that
such person must pay for the release of such goods if not
imported contrary to law. Such administrative penalties are
independent of any criminal liability for smuggling that may be
imposed under Section 3601. (Jardeleza v. People, February
6, 2006)
2. Obligations of importer
a. Cargo manifest (Sec. 1105)
It is the document used in shipping, containing the list
of the contents, value, origin and destination of the
goods to be shipped.
Every vessel from FOREIGN PORT must have on
board a complete MANIFEST of all the cargo
Page 83 of 104
 All the cargo intended to be landed at a port in the
Philippines must be described in separate manifests
for each port of call shall include:
1. Port of departure
2. Port of delivery
3. Marks, numbers, quantity and description of the
packages
4. Names of the consignees
CANNOT be changed or altered after entry of vessel
except:
1. amendment by the master,
consignee or agent
2. attached to the original manifest
CANNOT amend the manifest after the invoice and/or
entry covering the importation have been received
and recorded in the office of the appraiser except:
1. Obvious clerical error or any other
discrepancy is committed in the
preparation
2. Without fraudulent intent
3. Discovery would not have been made
until after examination of the
importation is completed
Translated into the official language, if written in
another language
Master shall deliver and mail the cargo manifest to:
(endorsed by boarding officer)
1. Chairman
2. COA
3. Collector (Present original)
b. Import entry (Sec. 1301 to 1307)
a declaration to the BoC showing particulars of the
imported articles that will enable the customs
authorities to determine the correct duties and
internal revenue taxes due on the importation.
It is also known as Marine Entry and Internal
Revenue Declaration.
Imported articles must be entered in the customhouse
at the port of entry within 15 days from date of
discharge of the last package from the vessel either:
a. by the importer, being holder of the bill of
lading,
b. by any other holder of the bill of lading in
due course,
c. by a customs broker acting under authority
from a holder of the bill, or
d. by a person duly empowered to act as agent
or attorney-in-fact for such holder. The
Collector may grant an extension of not
more than 15 days (Sec. 1301)
All imported articles, except importation admitted
free of duty, shall be subject to a formal or informal
entry.
Articles of a commercial nature intended for sale,
barter or hire, the dutiable value of which is five
hundred pesos or less, and personal and household
effects or articles, regardless of value, imported in
passenger's baggage mail, or otherwise, for personal
use, may be cleared on an informal entry whenever
duty, tax or other charges are collectible.
The Collector may, when he deems it necessary for
the protection of the revenue, require a formal entry
regardless of value.
A formal entry may be for immediate consumption, or
under bond for:
a. Placing the articles in warehouse;
b. Constructive warehousing and immediate
transportation to other ports of the
Philippines withoutappraisement; or
c. Constructive warehousing and immediate
exportation (Sec. 1302)
c. Declaration of Correct Weight Value - Sec. 1402 and 2523
Classification:
When article not specifically classified in the Code, the
interested party, importer or foreign exporter may
submit a sample with full description of component
materials in a written request.
Value:
Upon written application, Collector shall furnish
importer within 30 days the latest information as to the
DV of articles to be imported.
Importer must present all pertinent papers and
documents, act in good faith and unable to obtain
information due to unusual conditions
Information given is not an appraisal nor is it binding
upon the Collectors right of appraisal.
The declaration, ascertainment or verification of the
correct weight of the cargo at the port of loading is the
duty or obligation of the master, pilot, owner, officer or
employee of the vessel.
If he omits or disregards this duty and a punishable
discrepancy between the declared weight and actual
weight of the cargo exists, the inevitable conclusion is
that he is negligent or careless. Similarly, if in the
exercise or performance of this duty, he is negligent or
careless resulting in the commission of excessive
discrepancy in the weight of the ship's cargo
penalized under the law, carelessness or
incompetency is, nonetheless, imputable to him.
d. Liability for payment of duties.(Sec. 1204)
Unless relieved by laws or regulations, the liability for
duties, taxes, fees and other charges attaching on
importation constitutes a personal debt due from the
importer to the government which can be discharged
only by payment in full of all duties, taxes, fees and
other charges legally accruing. It also constitutes a
lien upon the articles imported which may be enforced
while such articles are in custody or subject to the
control of the government.
e. Liquidation of duties (Sec. 1601)
Upon approval by the Collector of the returns of the
appraiser and reports of the weights, gauge or
quantity, the liquidation shall be made on the face of
the entry showing the particulars thereof, initiated by
Page 84 of 104
 the liquidating clerk, approved by the chief liquidator,
and recorded in the record of liquidations.
A daily record of all entries liquidated shall be posted
in the public corridor of the customhouse, stating the
name of the vessel or aircraft, the port from which she
arrived, the date of her arrival, the name of the
importer, and the serial number and date of the entry.
A daily record must also be kept by the Collector of all
additional duties, taxes and other charges found upon
liquidation, and notice shall promptly be sent to the
interested parties.
Tentative and Final Liquidation
1. Tentative Liquidation(Sec. 1602)
If to determine the exact amount due under the law in
whole or in part some future action is required, the
liquidation shall be deemed to be tentative as to the
item or items affected and shall to that extent be
subject to future and final readjustment and
settlement. The entry in such case shall be stamped
"Tentative liquidation".
2. Final Liquidation (Sec. 1603)
When articles have been entered and passed free of
duty or final adjustment of duties made, with
subsequent delivery, such entry and passage free of
duty or settlement of duties will, after the expiration of
one year, from the date of the final payment of duties,
in the absence of fraud or protest, be final and
conclusive upon all parties, unless the liquidation of
the import entry was merely tentative.
Fractions in the Liquidation(Sec. 1604)
A fraction of a peso less than fifty centavos shall be
disregarded, and a fraction of a peso amounting to
fifty centavos or more shall be considered as one
peso. In case of overpayment or underpayment of
duties, taxes, surcharges, wharfage and/or other
charges paid on entries, where the amount involved is
less than five pesos, no refund or collection shall be
made.
f. Keeping of records
1. all importers are required to keep at their principal
place of business, in the manner prescribed by
regulations to be issued by the Commissioner of
Customs and for a period of 3 years from the date of
importation, all records of their importations and/or
books of accounts, business and computer systems
and all customs commercial data including payment
records relevant to the verification of the accuracy of
the transactions value declared by the
importer/customs brokers on the import duty
2. all brokers are required to keep at their principal place
of business for a period of 3 years from date of
importation copies
custom officer authorized by BOC may enter during
office hours any premises or place where the records
are kept to conduct an audit examination, inspection,
verification or investigation
officer may make copies or take extracts from any of
such documents
certified copy may be evidence admissible in all courts
as if original.
Note: Liquidation means the final computation
or ascertainment of the duties to be imposed on
the imported articles. It is akin to an assessment
of internal revenue taxes under the NIRC where the
tax liability of the taxpayer is definitely determined
(Pilipinas Shell v. CoC ,June 18, 2009), (Sec. 1601 to
1604).
F. IMPORTATION IN VIOLATION OF TAX CREDIT
CERTIFICATE (tCC)
1. Smuggling (Sec. 3519 and 3601)
an act of any person who shall fraudulently
import or bring into the Philippines or assist in so
doing, any article, contrary to law or shall receive,
conceal, buy or sell or in any manner facilitate
the transportation, concealment or sale of such
article after importation knowing the same to have
been imported contrary to law. It includes the
exportation of articles in a manner contrary to
law.
Rodriguez vs. CA, September 18, 1995
Smuggling is committed by any person who:
a. Fraudulently imports or brings into the country any
article contrary to law
b. Assists in so doing any article contrary to law
c. Receives, conceals, buys, sells, or in any manner
facilitates the transportation, concealment, or sale
of such goods after importation knowing the same to
have been imported contrary to law.
Note:
1.The commission of smuggling through the first type transpired
when the shipments of 3x40 container vans were declared
to contain Used Truck Replacement Parts, when in truth
and in fact, the shipment contained fifteen units of
Sportage and Galloper (People of the Philippines vs. Sayson,
December 12, 2012)
2. Mere possession of alleged smuggled goods is prima
facie evidence of guilt of the smuggling unless the defendant
could explain that his possession is lawful.
Is payment a defense in smuggling?
No. The law expressly provides that payment of the tax due
after apprehension shall not constitute a valid defense in any
prosecution under this section.
2. Other fraudulent practices (Sec. 3602)
Other fraudulent practices against customs revenue aside
from unlawful importation:
1. Entry of imported articles or exported article by
means of any false or fraudulent practices,
invoice, declaration, affidavit, or other documents
Page 85 of 104
 2. Entry of goods at less than their true weights or
measures or upon a classification as to quality or
value
3. Payment of less than the amount due
4. Filing any false or fraudulent claim for the
payment of drawback or refund of duties upon the
exportation of merchandise
5. Filing any affidavit, certificate or other document ot
secure to him or to others the payment of any
drawback, allowance or refund of duties on the
exportation of merchandise greater than that legally
due thereon
Note:
People of the Philippines vs. Marivic Briones, July 23, 2012
The CTA held that in the prosecution for violation of Section
3602 of the Tariff and Customs of the Philippines, in relation
to Article 172 of the Revised Penal Code, it must prove
beyond reasonable doubt that the accused in conspiracy with
the other accused, made or attempted to make an entry of
the alleged imported article through the filing of the said
Import Entry at the Bureau of Customs.
G. CLASSIFICATION OF GOODS
1. Taxable importation
2. Prohibited importation
3. Conditionally-free importation
Q: What are the classes of importation under the TCC?
1. Dutiable Importation (Sec. 100)
They refer to those imported articles subject to duty
and not otherwise exempted by the TCC or other
special laws.
2. Prohibited Importations (Sec.101 and 1207)
They refer to those articles that are cannot be
imported into the PH because they are contrary
to policy, morals, laws, etc.
Examples:
1. Dynamite, gunpowder, ammunition and explosives,
other weapons (except when authorized by law);
2. Written or printed articles advocating or inciting
treason, rebellion, or insurrection;
3. Written or printed articles, etc of an obscene or
immoral character;
4. Articles, instruments, drugs and substances designed
for unlawful abortion;
5. Devices used in gambling or the distribution of
money, cigarettes, or other articles when such
distribution is dependent on chance;
6. Lottery and sweepstakes tickets (Except those
authorized);
7. Any article manufactured in gold, silver or other
precious metals when there is no indication of the
actual fineness of quality;
8. Adulterated or misbranded articles of food and
drugs;
9. Marijuana, opium and other narcotics;
10. Opium pipes and parts thereof;
11. All other articles and parts prohibited by law or rules
and regulations (Sec. 101)
3.Conditionally-Free Importations (Sec. 105)
They refer to those articles which are allowed to be
imported into the PH but subject to conditions.
Examples:
1. Articles for repair, re-conditioning to be re exported
within 6 months (requires a bond)
2. Personal effects for balikbayans excluding cars,
and must not be commercial quantity and no
exceeding P2,000 (can be brought in 90 days after
arrival)
3. Articles to be donated to relief organizations (must be
certified by DSWD, DepEd)
4. Samples not for commercial sales, including
medicines (but must not be available in PH)
5. Economical, technical, vocational, scientific,
philosophical, historical, cultural books/publications
and bibles.
Problems:
Q: Jacob after serving a 5-year tour of duty as military
attach in Jakarta, Indonesia returned to the Philippines
bringing with him his personal effects, including a
personal computer and a car. Would Jacob be liable for
taxes on these items?
No. Jacob will be exempted provided he complies with the
requirements under Section 105 of the TCC.
The requirements are:
a. The car must have been ordered or purchased
prior to the receipt by the Philippine mission or
consulate of the recall order
b. The car is registered in his name
c. The exemption shall apply only to the value of the
car
d. The exemption shall apply to the aggregate value of
his personal and household effects not exceeding
30% of the total amount received by him as
salary and allowances during his assignment but
not to exceed 4 years
e. He must not have availed of the exemption more
oftener than once every four years (Sec.105)
Q: X and his wife Y, Filipino living in the Philippines
went on a 3-month pleasure trip around the world during
the months of June, July, and August 2002. In the
course of their trip, they accumulated some personal
effects which were necessary, appropriate and normally
used in leisure trips as well as souvenirs in
noncommercial quantities. Are they returning residents
for purposes of Section 105 of the TCC?
No. The term returning residents refers to nationals who have
stayed in a foreign country for a period of at least 6 months (see
Sec. 105[f]). Due to their limited duration of stay abroad, X and
Y are not considered as returning residents but they are
merely considered as travelers or tourists who likewise
enjoy the benefit of conditionally-free importation (Sec.
105[g]).
4. Drawbacks (Sec. 106)
Page 86 of 104
 They refer to refunds or tax credits of duties paid on
goods that are being exported or used in the
production of manufactured exports
Examples:
1. Fuel used for propulsion of vessels engaged in trade
with foreign countries or coastwise trade
2. Petroleum Oils or Oils obtained from bituminous
minerals, crude eventually used for generation of
electric power and manufacture of city gas
Problem:
Q: What are freely importable commodities?
A: Under Section 7(1) of Central Bank Circular no. 1389,
freely importable commodities are those importations which
are neither regulated nor prohibited and may be effected
without the prior approval of or clearance from any
government agency(UNIMEX MICRO-ELECTRONICS GMBH
VS.REPUBLIC OF THE PHILIPPINES, NOVEMBER 14,
2012).
Note: Section 106(e), TCC provides that
Claims for refund or tax credit eligible for such
benefits shall be paid or granted by the Bureau of
Customs to claimants within 60 days.
H. CLASSIFICATION OF DUTIES
1. Ordinary/Regular duties
These are axes that are imposed or assessed upon
merchandise from or exported to a foreign country
for the purpose of raising revenue. They may
also be imposed to serve as protective barriers
which would prevent the entry of merchandise that
would compete with locally manufactured items.
They are also referred to as tariff barriers.
a. Ad valorem
These are customs duties that are computed on the
basis of value (Sec. 201)
Q: What are the methods of determining dutiable
values? (Sec. 201-205, 1313 )
The methods of determining the dutiable value are as
follows (by order of preference):
1. Transaction value
an ad valorem rate of duty equivalent to the price actually
paid or payable for the goods when sold for
export to the Philippines, as adjusted;
2. Transaction value of identical goods
the transaction value of identical goods sold for export to the
Philippines and exported at or about the
same time as the goods being valued; identical goods shall
mean goods which are the same in all
respects, including physical characteristics, quality and
reputation, discounting minor differences in
appearances;
3. Transaction value of similar goods
the transaction value of similar goods sold for export to
the Philippines and exported at or about the
same time as the goods being valued; similar goods shall
mean goods which, although not alike in
all respects, have like characteristics and like component
materials which enable them to perform the
same functions and to be commercially interchangeable;
4. Deductive value
an amount based on the unit price at which the imported
gods or identical or similar imported goods
are sold in the Philippines, in the same condition as when
imported, in the greatest aggregate quantity, at
or about the time of importation of the goods being valued, to
persons not related to the persons from
whom they buy such goods, as adjusted; Methods four and five
may be reversed.
5. Computed value
the aggregate value of the cost or value of materials and
fabrication or other processing employed in
producing the imported goods, amount for profit and general
expenses, freight, insurance fees and
other transportation expenses for the importation of the goods,
among others; and
6. Fallback value
an amount determined by using other reasonable means
and on the basis of data available in the
Philippines.
Note: The transaction value is the primary
method of determining dutiable value. If the
transaction value of the imported article could not be
determined using the above, the alternative methods
should be used one after the other.
Q: Define transaction value
A: It is the price actually paid/payable when exported to PH
adjusted by adding the following:
1. Commissions, cost of containers, packing cost,
cost of tools, engineering, artwork if supplied free
of charge, royalties;
2. Value of subsequent resale accruing to the seller;
3. Cost of transport & loading/unloading charges from
port of exportation to port of entry in PH (costs
within PH already excluded);
4. Insurance.
Q: When is transaction value (method one) not used?
1. Buyer imposes restrictions on sale or use of goods
(except if imposed by law, geographical limits, not
affect value of goods);
2. Sale is subject to some condition/consideration
which cannot be valued;
3. Part of subsequent resale accrues to seller and
amount undeterminable;
4. Buyer and seller are related:
a. business partners;
b. holds 5% equity;
c. common control;
d. relatives up to 4th degree.
Page 87 of 104

b. Specific
Rates are based on unit of weight number or
measurement
2. Special duties
These are additional import duties imposed on
specific kinds of imported articles under certain
conditions. It cannot be applied without the
regular customs duties. It can only be applied in
the presence of a special order from government
officers.
Q: What are the kinds of special duties?
A: The following are special duties:
1. Anti-Dumping (Sec. 301)
2. Countervailing (Sec.302)
3. Marking (Sec. 303)
4. Discriminatory (Sec. 304)
5. Safeguard Duties (RA 8800). ( Sec. 301)
Q: What is an anti-dumping duty?
A: It is a special duty imposed on the importation of a product,
commodity or article of commerce into the Philippines at less
than its normal value when destined for domestic
consumption in the exporting country which is the difference
between the export price and the normal value of such
product, commodity or article. (Sec. 301[s][1])
Requisites for the imposition of anti-dumpingduty:
a. Where the product, commodity or article of commerce,
i. Is exported into the Philippines, Normal
value for purposes of imposing the anti-
dumping duty is the comparable price at
the date of sale of like product,
commodity or article in the ordinary course
of trade when destined for consumption in
the country of export (Sec. 301(s)(3), as
amended by RA 8752);
ii. At a price less than its normal value; and
iii. When destined for domestic consumption.
b. And such exportation
i. Is causing; or
ii. Is threatening to cause material injury to a
domestic industry; or
iii. Materially retards the establishment of a
domestic industry producing like product
Note:
1. The imposing authority for the anti-dumping duty is
the DTI Secretary in the case of non -
agricultural product, commodity, or article or the DA
Secretary in the case of agricultural product,
commodity or article.
2. Even when all the requirements for the imposition
have been fulfilled, the decision on whether or not to
impose a definitive anti-dumping duty remains the
prerogative of the Tariff Commission
3. In the determination of whether to impose the
anti dumping duty, the Tariff Commission may
consider among others, the effect of imposing an anti-
dumping duty on the welfare of the
consumers and/or the general public, and other
related local industries
4. The amount of anti-dumping duty that may be
imposed is the difference between the export price
and the normal value of such product, commodity, or
article (Sec. 302)
Q: What is a countervailing duty?
A: It is a special duty imposed on the importation of a product,
commodity or article of commerce into the Philippines when
the same is granted directly or indirectly by the government
in the country of origin or exportation any kind or form of
specific subsidy upon the production, manufacture or
exportation of such product, commodity or article, and the
importation of such subsidized product, commodity or article
has caused or threatens to cause material injury to a domestic
industry or has materially retarded the growth or prevents the
establishment of a domestic industry as determined by the
Tariff Commission ( Sec.302)
Note:
1. The countervailing duty shall be in addition to any
ordinary duties, taxes, and charges imposed bylaw
on such imported product or article
2. The countervailing duty is equivalent to the
bounty (cash award paid to an exporter),
subsidy(fiscal incentives, not in the form of cash
award, to encourage manufacturers or exporters) or
subvention (any assistance other than bounty or
subsidy).
3. The imposing authority for the countervailing duties is
the DTI Secretary in the case of non-agricultural
product, commodity, or article or the DA Secretary
in the case of agricultural product, commodity or
article (Sec. 303)
Q: What is a marking duty?
A: A marking duty are the additional customs duties
imposed on foreign articles (or its containers if the article
itself cannot be marked) not marked in any official language
in the Philippines in a conspicuous place as legibly, indelibly
and permanently in such manner as to indicate to an ultimate
purchaser in the Philippines the name of the country of
origin (Sec.303)
Q: What are the exceptions to marking of articles?
1. The article is incapable of being marked;
2. The article cannot be marked prior to importation to
the Philippines without injury;
3. The article cannot be marked prior to importation to
the Philippines except at an expense economically
prohibitive of its importation;
4. The marking of the container of such article will
reasonably indicate the origin of such article;
5. The article is of a crude substance;
6. Such article is for the use of the importer and not
intended for sale in its imported or other form;
7. Such article is to be processed in the Philippines by
the importer or for his own account and not for the
purpose of concealing the origin of such article;
Page 88 of 104
 8. The ultimate purchaser by the Character of the
article necessarily know the country of origin of
such article;
9. Such article was produced more than 20 years
prior to its importation into the Philippines; and
10. Such article cannot be marked after importation
except at an expense economically prohibitive and
the failure to mark the article before importation
was not due to any purpose of the importer,
producer, seller or shipper to avoid compliance.
Note:
1. Only the CoC may impose marking duties
2. The marking duty is equivalent to 5% ad valorem
(Sec. 304)
Q: What is a discriminatory duty?
A: It is an additional customs duty imposed upon articles
wholly or in part, the growth or product of, or imported in a
vessel of any foreign country whenever the President shall
find as a fact that such country:
a. Directly or indirectly upon any Philippine product
unreasonable charge, exaction, regulation or
limitation which is not equally enforced upon like
articles of other foreign countries
b. Discriminates in fact against the commerce of the
Philippines as o place the Philippines at a
disadvantage compared with the commerce of any
foreign country (Sec 304)
Note: It is the President who imposes the
discriminatory duties.
Q: What are safeguard measures?
A: Safeguard measures are emergency measures including
tariffs to protect domestic industries and producers from
increased imports which inflict or could inflict serious injury on
them.
Note:
1. The CTA is vested with jurisdiction to review
decisions of the DTI Secretary imposing safeguard
measures as provided under RA 8800, the
Safeguard Measures Act (see Southern Cross
Cement Corporation v. Philippine Cement
Manufacturers Corp, July 8, 2004)
2. The imposing authority for the safeguard measures is
the DTI Secretary in the case of non-agricultural
product, commodity, or article or the DA Secretary
in the case of agricultural product, commodity or
article.
3. The DTI Secretary cannot impose the safeguard
measures if the Tariff Commission does not
favorably recommend its imposition.
I. REMEDIES
1. Government
a) Administrative/extrajudicial
(i) Search, seizure, forfeiture, arrest
b) Judicial
(i) Rules on appeal including jurisdiction
When does the BoC normally avail itself of the
administrative remedy instead of the judicial remedy and
vice versa?
a. Administrative Remedy
when the goods to which the tax lien attaches,
regardless of ownership is still in the custody or
control of the government. In the case, however, of
importations which are prohibited or undeclared,
the remedy of seizure and forfeiture may still be
exercised even if the goods are no longer in its
custody
b. Judicial Remedy
when the goods are properly released and thus
beyond the reach of a tax lien, the government can
seek payment of the tax liability through judicial
action since the tax liability of the importer
constitutes a personal debt to the government,
therefore, enforceable by action.
Q: What are the extrajudicial (or administrative
remedies) available to the government?
1. Enforcement of tax lien (Sec. 1204 and 1508)
2. Seizure and forfeiture (Sec. 2201-2212, 2301-2317, 2530-
2536,), (Sec. 1024, 1058, NCC)
Q: What is a tax lien in relation to the TCC?
The liability for duties, taxes, fees and other charges of an
importer constitutes a lien upon the articles imported which
may be enforced while such articles are in custody or subject
to the control of the government.
Note: The Collector shall hold the delivery of
any article imported or consigned to an importer
whenever such importer has an outstanding and
demandable account with the BoC. If subsequently
authorized by the Commissioner and upon notice,
the Collector may sell such importation or a
portion thereof to cover the outstanding account of
the importer.
Search, seizure, forfeiture, arrest
Note: This is how seizure and forfeiture works:
1. The articles are seized by the customs authorities. A warrant
of seizure is used for -said purpose. In the case of a search in a
dwelling, a search warrant from the regular courts would have to
be procured.
2. The Collector upon making any seizure shall issue a
Warrant of Detention. The articles may be released if a bond is
filed except if there is prima facie evidence of fraud in their
importation in which case the seized articles may not be
released by a bond.
3. Forfeiture proceedings take place. The only issue is whether
the seized goods should be forfeited. The case can be
compromised or be subject of a settlement. The Collector
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may either issue a Declaration of Forfeiture or rule that the
seized articles are not subject to forfeiture.
Thus, either the importer or the government can be aggrieved
by said decision. If the importer is aggrieved, he may file an
administrative protest to the CoC and if denied, he can proceed
to the CTA and so on. If the government is aggrieved, there is
automatic review by the CoC and then by the DOF Secretary. If
said bodies decide in favor of the government, the importer may
proceed to the CTA and so on (Sec. 2201-2212)
Q: Who has the power to seize and arrest?
Customs officers may seize any vessel, aircraft, cargo,
article, animal or other movable property when the same is
subject to forfeiture or liable for any time as imposed under
the TCC and related rules and regulations (Sec. 2205)
Note: The BoC may conduct search and seizures
even without the benefit of a warrant issued by a
judge upon probable cause except if the search is to
be conducted in a dwelling.
Q: When is a warrant of seizure may be issued by the
CoC?
The CoC upon probable cause that the articles are imported or
exported or are attempted to be imported or exported, in
violation of the TCC shall issue a warrant of seizure.
Note:
1. If the search and seizure is to be conducted in a
dwelling place, then a search warrant should be
issued by the regular courts and not the BoC.
2. The rules on warrantless search and seizures
also apply such as in search and seizures of
motor vehicles and vessels. In such cases, no
warrants issued by the BoC or regulars is required.
3. If the smuggled goods are seized by virtue of a court
warrant, they should be surrendered to the court
that issued the warrant not to the BoC because the
goods are in custodia legis.
4. The payment of customs duties, taxes does not
necessarily render as irregular and improper the
issuance of a warrant of seizure (Sec. 2530-2536)
Q: What are the requisites for forfeiture of imported
goods?
a. Wrongful making by the owner, importer, exporter
or consignee of any declaration or affidavit or the
wrongful making or delivery by the same person of
any invoice, letter or paper all touching on the
importation or exportation of merchandise
b. The falsity of such declaration, affidavit, invoice,
letter or paper
c. An intention on the part of the importer/consignee
to evade the payment of the duties due (Republic vs.
CA, October 2, 2001), (Sec 2530 to 2536)
Q: What properties are subject to forfeiture under the
TCC?
Under Section 2530(a), it is not necessary that the vessel or
aircraft must itself carry the contraband. The complementary
if collateral use of the vessel or aircraft for the smuggling
operation is sufficient for it to be deemed to have been used in
smuggling.
Q: What properties are not subject to forfeiture?
See Section 2531, TCC.
Q: Are common carriers subject to forfeiture?
As a general rule, they are not subject to forfeiture. However, if
the owner has knowledge of its use in smuggling and was
a consenting party, it may be forfeited.
Note: Pursuant to Section 2530 of the Tariff and
Customs Code of the Philippines, the mere carrying or
holding on board of smuggled articles shall subject
the vessel to forfeiture. However, the vessel is not
subject to forfeiture if it is engaged as duly
authorized common carrier and as such carrier it is not
chartered or leased (The Commissioner of Customs
and the Undersecretary of Finance vs. Gold Mark Sea
Carriers Inc., December 24, 2012).
Q: When is there prima facie knowledge by the owner of the
common carrier?
There is prima facie knowledge by the owner of the common
carrier of its use in smuggling:
a. If the conveyance was used for smuggling at least
twice before;
b. If the owner is not in the business for which the
conveyance is generally used;
c. If the owner is not in a position to own such
conveyance.
Q: In smuggling a shipment of garlic, the smugglers
used an eight-wheeler truck which they hired for the
purpose of taking out the shipment from the customs
zone. Danny, the truck owner, did not have a certificate
of public convenience to operate his trucking business.
Danny did not know that the shipment of garlic was
illegally imported. Can the CoC of the port seize and forfeit
the truck as an instrument in the smuggling?
Yes, the CoC of the port can seize and forfeit the truck
as an instrument of the smuggling since the same was
used unlawfully in the importation of smuggled articles. The
mere carrying of such articles on board the truck in
commercial quantities shall subject the truck to forfeiture, since
it was no being used as a duly authorized common carrier,
which was chartered or leased as such (Sec. 2530[a])
Further, although forfeiture of the vehicle will not be affected if
it is established that the owner thereof had no knowledge of
or participation in the unlawful act, there arises a prima facie
presumption of knowledge or participation if the owner is not in
the business for which the conveyance is generally used.
Thus, not having a certificate of public convenience to
operate a trucking business, he is legally deemed no to
have been engaged in the trucking business (Sec. 2531,
2301-2317);
Q: Discuss the administrative proceeding of forfeiture from
issuance of warrant of detention to declaration of
forfeiture.
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 1. Collector issues warrant for detention of property
(if owner or importer desires to secure release of
property for legitimate use, Collector may surrender
subject property upon filing of sufficient bond);
2. Collector immediately reports seizure to COC and
Chairman of COA;
3. Collector gives owner or importer or his agent
written notice of seizure and opportunity to be
heard;
4. Collector causes preparation of list and particular
description of property seized, as well as appraisal
and classification of the same;
5. Collector, after hearing and in writing, makes a
declaration of forfeiture or fixes amount of fine or
takes such action as may be proper.
Note: As a result of (5), the aggrieved owner or
imported may file what is called an administrative
protest. In said protest, he is essentially
questioning the decision of the Collector before
CoC. In some cases, instead of a declaration of
forfeiture, it is the government who is aggrieved. In
such case, automatic review shall apply.
Q: Who has jurisdiction to hear and determine questions
touching on the seizure and forfeiture of dutiable goods?
The CoC sitting in seizure and forfeiture proceedings has
exclusive jurisdiction to hear and determine all questions
touching on the seizure and forfeiture of dutiable goods. As
held in Subic Bay Metropolitan Authority vs. Rodriguez, April
23, 2010, the Collector of Customs has exclusive jurisdiction
over seizure and forfeiture proceedings and the regular courts
cannot interfere with his exercise thereof or enjoin or
interfere with it. The regular courts are precluded from
assuming cognizance over such matters even through
petitions for certiorari, prohibition, or mandamus.
Note: The RTC must defer to the exclusive
original jurisdiction of the BOC in such proceedings.
This is known as the doctrine of primary jurisdiction.
Q: What is the rationale for the exclusive customs
jurisdiction doctrine?
1. RTCs have no jurisdiction to replevin a property
which is subject to seizure or forfeiture
proceedings for violation of the TCC. Otherwise,
actions for forfeiture of property for violation of the
Customs laws could easily be undermined by the
simple device of replevin (Dela Fuente v. De Veyra,
120 SCRA 455);
2. The doctrine of exclusive customs jurisdiction over
customs cases to the exclusion of the RTC is
anchored upon the policy of placing no unnecessary
hindrance on the governments drive, not only to
prevent smuggling and other frauds upon customs;
3. To render effective and efficient the collection of
import and export duties due he State which enables
the government to carry out its functions;
4. The issuance by regular courts of preliminary
injunction in seizure and forfeiture proceedings
before the BoC may arouse suspicion that the
issuance or grant was for consideration other than
the strict merits of the case (Zuno v. Cabredo,
402 SCRA 75);
5. Under the doctrine of primary jurisdiction, the BoC
has exclusive administrative jurisdiction to
conduct searches and seizures and forfeitures of
contraband without interference from the courts. It
could conduct search and seizures without need of a
judicial warrant except if the search is to be
conducted in a dwelling place.
Q: What is the nature of customs seizure and forfeiture
cases?
They are administrative and civil in nature and are directed
against the res or the imported articles and entail the
determination of the legality of the importation. These are
actions in rem. Thus, it is of no defense that the owner of the
vessel sought to be forfeited had no actual knowledge that
his property is used illegally. The absence or lack of actual
knowledge of such use is a defense personal to the owner
himself, which cannot in any way absolve the vessel from the
liability of forfeiture (CoC v. Manila Star Ferry ,October 21,
1993)
Cornelio Q. Casido vs. Republic of the Philippines, February 08,
2012
The CTA held that forfeiture of seized goods by the BOC is an
action in rem against the goods and not against the owner.
Absence of knowledge or participation of the owner in the
unlawful act does not absolve the vessel/goods from
forfeiture.
Note:
1. The issue is limited to whether the imported
goods should be forfeited and disposed of in
accordance with law for violation of the TCC
(Transglobe International v. CA, January 25, 1999 ).
2. Forfeiture of seized goods in the BoC is a proceeding
against the goods and not against the owner
(Asian Terminals v. Bautista-Ricafort ,October 27,
2006)
Q: May forfeiture cases be compromised?
Yes. Subject to the approval of the Secretary of Finance,
the CoC may compromise any case arising under the TCC or
other laws or part of laws enforced by the BoC involving the
imposition of fines, surcharges, and forfeitures (Sec. 2306).
Q: May forfeiture cases be settled?
Yes. Settlement of cases by payment of fine or redemption
of forfeited property is allowed. There are, however,
exceptions:
a. The importation is absolutely prohibited
b. The surrender of the property to the person offering to
redeem would be contrary to law
c. When there is fraud
Note: The above enumeration are also the
instances where there is no right of redemption of
seized and forfeited articles (Transglobe
International v. CA, January 25, 1999).
Page 91 of 104
Q: What are the judicial remedies that may be availed
of by the Government?
a. Civil Action
b. Criminal Action
Note: Such actions shall be brought in the name amount due has first been made and the corresponding
of the Government of the Philippines and shall be
conducted by customs officers but no action shall
be filed in court without the approval of the CoC.
Rules on appeal including jurisdiction(Sec. 2042)
The party aggrieved by a ruling of the Commissioner
in any matter brought before him upon protest or by
his action or ruling in any case of seizure may appeal
to the Court of Tax Appeals, in the manner and within
the period prescribed by law and regulations.
Unless an appeal is made to the Court of Tax Appeals
in the manner and within the period prescribed by
laws and regulations, the action or ruling of the
Commissioner shall be final and conclusive (Sec.
2402)
Note:
1. The Decision of the CoC in cases involving liability for
customs duties, fees, or other money charges,
that must be appealed to the CTA in Division
within 30 days from receipt refers to his decisions
on administrative tax protests. Unless an appeal is
made to the CTA in the manner and within the period
prescribed by law, the action or ruling of the CoC shall
be final and conclusive (Pilipinas Shell v. CoC, June
18, 2009).
2. The CTA has jurisdiction only over decisions of the
CoC in cases involving seizures, detention or release
ofproperty affected, not the decision of the Collector
2. Taxpayer
a) Protest(Sec. 2308 to 2315)
written protest
payment before protest is necessary
(amount due + docket fee)
When: at the time payment of the amount claimed to be
due is made within 15 days thereafter
Form: filed according to RR; point out the particular
decision or ruling grounds used as basis for the
protest
Scope: limited to the subject matter of a single adjustment
(refers to the entire content of one liquidation
including duties, fees, surcharges and fines) or other
independent transaction
Note:
Failure to protest will render the action of the Collector final and
conclusive except for manifest error
upon demand of Collector, the importer shall furnish samples of
the articles which are the subject of the protest.
What is an administrative tax protest?
A tax protest case, under the TCC, involves a protest of
the liquidation of import entries. In other words, it is a protest
which questions the legality or correctness of assessed customs
duties.
Is payment prior to protest required?
Yes. No protest shall be considered unless payment of the
docket fee (Sec. 2308).
Discuss the procedure for customs protest from
issuance of warrant of detention to appeal to the
Supreme Court.
1. Collector issues warrant for detention of property
(if owner or importer desires to secure release of
property for legitimate use, Collector may surrender
subject property upon filing of sufficient bond)
2. Collector immediately reports seizure to COC and
Chairman of COA
3. Collector gives owner or importer or his agent
written notice of seizure and opportunity to be heard
4. Collector causes preparation of list and particular
description of property seized, as well as appraisal
and classification of the same
5. The Collector, after hearing and in writing, can
either make a declaration of forfeiture (owner or
importer is aggrieved) or rule otherwise
(government is aggrieved).
If the owner or importer is aggrieved by the decision of the
Collector:
1. Protest to the Collector within 15 days
2. If aggrieved by the decision or action of the
collector upon protest, appeal to the Commissioner
within 15days after notification in writing by the
Collector of his action or decision
3. Appeal to CTA Division within 30 days from notice
4. Appeal to CTA En Banc
5. Appeal to SC by certiorari within 15 days
If the government is aggrieved by the decision of the Collector:
1. Automatic review by COC
2. Automatic review by DOF Secretary
3. If owner or importer is aggrieved by decision of COC
or DOF Secretary
4. Appeal to CTA Division within 30 days from notice
5. Appeal to CTA En Banc
6. Appeal to SC by certiorari within 15 days
Note:
1. Automatic review is intended to protect the interests of
the Government in the collection of taxes and
customs duties in seizure and protest cases.
Without such automatic review, nether the CoC or
the DOF Secretary would know about the decision of
the Collector of Customs favoring the taxpayer. The
power to decide seizure and protest cases may be
abused if no checks are instituted. Automatic review
is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the
taxpayer and adverse to the government (Yaokasin v.
CoC,180 SCRA 591).
2. The CTA does not have jurisdiction on rulings of
the Secretary of Finance over seizure and
Page 92 of 104
 forfeiture proceedings which do not involve
assessment of any duties (3-D Industries, Inc. vs.
Secretary of Finance, June 06, 2012).
b) Abandonment (Sec.1801-1802)
What is abandonment?
Abandonment is the renunciation by an importer of all his
interests and property rights in imported articles (Sec. 1801)
When is an article deemed abandoned?
1. Importer expressly signifies in writing to the Collector
his intention to abandon (express abandonment)
2. When the importer fails to file an entry within 30
days (not extendible) from the date of discharge
of the last package or having filed such entry, fails
to claim the imported articles within 15 days (not
extendible) from the date of posting of the notice
to claim such importation (implied abandonment)
Note: Both the Import Entry Declaration (IED) and
Import Entry and Internal Revenue Declaration
(IEIRD) should be filed within 30- days from he date
of discharge of the last package from the vessel or
aircraft. When the importer fails to file the entry
within the said period, he shall be deemed to
have renounced all his interest and property rights
to the importations and these should be considered
impliedly abandoned in favor of the government
(Chevron Philippines v. CoC, August 11, 2008)
What are the effects of abandonment?
a. Any person who abandons an article shall be
deemed to have renounced all his interests and
property rights therein.
b. An abandoned article shall ipso facto be deemed
the property of the Government.
c. It does not relieve the owner from any criminal
liability
d. If the abandoned articles are transferred to a customs
bonded warehouse, he operator shall be liable for
the payment of duties and taxes in the case of
losses of the stored abandoned imported articles
(R.V. Marzan vs. CA, March 4, 2004)
c) Abatement and Refund (Sec. 1701-1708)
What is abatement?
Abatement is the reduction or non-imposition of customs
duties on certain imported materials as a result of damage
incurred during voyage; deficiency in contents of packages;
loss or destruction of articles after arrival; or death or injury of
animals.
Note: The general rule is that no abatement of
duties shall be made on account of damage incurred
or deterioration suffered during voyage of
importation and duties will be assessed on the
actual quantity imported (Sec. 1701).
What are the instances where the Collector may abate or
refund the amount of duties accruing or paid by the
importer? (exceptions to the general rule)
1. Damage incurred during voyage
2. Missing package
3. Deficiency in contents of packages
4. Articles lost or destroyed after arrival
5. Dead or injured animals
6. Refund of Excess payments (made due to manifest
clerical errors)
What is the procedure for claiming refund?
1. The taxpayer shall make his claim for refund of duties
in writing and forward it to the Collector for
verification
2. If the Collector found the claim to be correct, he shall
certify it to the CoC with his recommendation
3. If found correct by the CoC, he shall cause the same
to be paid (Sec. 1708)
V. JUDICIAL REMEDIES (CTA)
Note: The rules here are those found in R.A.
1125, as amended by RA 9282. Some sources and
answers to past bar questions may still contain
rules applicable to R.A. 1125 before its
amendment. So make sure you have an updated
codal and reference material.
A. JURISDICTION OF THE CTA
Note: The CTA is composed of a Presiding Justice
and 8 associate justices organized into three divisions.
1. Exclusive Appellate Jurisdiction
a. Cases within the jurisdiction of the court en banc
b. Cases within the jurisdiction of the court in divisions
Note: This refers to the exclusive jurisdiction to
review by appeal of the CTA en banc and CTA in
division. (Sec. 2, Rule 4, RRCTA)
What are the cases within the exclusive appellate
jurisdiction to review by appeal of the CTA en banc?
a. Decisions or resolutions on MRs or MNTs of the Court
in Division in the exercise of its exclusive
appellate jurisdiction over:
i. Cases arising from administrative agencies
ii. Local tax cases decided by the RTCs in the
exercise of their original jurisdiction
iii. Tax collection cases decided by RTCs in
the exercise of their original jurisdiction
involving final and executory assessments
for taxes, fees, charges, and penalties,
where the principal amount of taxes and
penalties claimed is less than P1M
iv. Criminal offenses arising from violations
of the NIRC or TCC and other laws
administered by the BIR
or BOC
b. Decisions, resolutions or orders on MRs or MNTs of
the Court in Division in the exercise of its
exclusive original jurisdiction over:
i. Tax Collection cases
Page 93 of 104
 ii. Cases involving criminal offenses
arising from violations of the NIRC
or TCC and other laws administered
by the BIR or BOC
c. Decisions, resolutions or orders of the RTCs in
the exercise of its appellate jurisdiction over:
i. Local tax cases
ii. Tax Collection cases
iii. Criminal offenses arising from violations
of the NIRC or TCC and other laws
administered by the BIR
or BOC
d. Decisions of the CBAA in the exercise of its
appellate jurisdiction over cases involving
assessment and taxation of real property originally
decided by the provincial or city board of
assessment appeals (Sec. 2, Rule 4, A.M. No. 05-11-
07-CTA), Sec 3(a), Rule 4, RRCTA
What are the cases within the exclusive appellate
jurisdiction to review by appeal of the CTA in division?
a. Decisions of the CIR
i. In cases involving disputed assessments,
refunds of internal revenue taxes, fees
or other charges,
penalties in relation thereto; or
ii. Other maters arising under the NIRC or
other laws administered by the BIR
b. Inaction by the CIR where the NIRC provides a
specific period of action
i. In cases involving disputed assessments,
refunds of internal revenue taxes, fees
or other charges,
penalties in relation thereto; or
ii. Other matters arising under the NIRC or
other laws administered by the BIR
c. Decisions, orders or resolutions of the RTCs in
local tax cases decided or resolved by them in
the exercise of their original jurisdiction
d. Decisions of the Commissioner of Customs
i. In cases involving liability for customs
duties, fees, or other money charges,
seizure, detention or release of property
affected, fines, forfeitures of other penalties
in relation thereto; or
ii. Other matters arising under the Customs
Law or other laws administered by the
BoC
e. Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review from
decisions of the Commissioner of Customs which
are adverse to the Government under Sec. 2315.
f. Decisions of the DTI Secretary in the case of
non-agricultural product, commodity or article and the
DA Secretary in case of agricultural product,
commodity or article, involving dumping and
countervailing duties under Sections 301 and 302 of
the TCC and safeguard measures under the
Safeguard Measures Act (RA 8800) where either party
may appeal the decision to impose or not to impose
said duties(Sec. 3(a),
Rule 4, A.M. No. 05-11-07-CTA)
Note: Any dispute or controversy involving
national internal revenue taxes or customs duties not
falling within the purview of the exclusive appellate
jurisdiction of the CTA must fall within the jurisdiction
of the regular courts. A taxpayers suit impugning he
constitutionality of a tax statute, for example, even
if involving the NIRC or TCC would fall within the
jurisdiction of the regular courts.
When is a decision of the CIR appealable to the CTA?
First view: The appealable decision is the one which
categorically stated that the CIRs action on the disputed
assessment is final (CIR vs. Union Shipping Corporation, May
21, 1990)
Second view: There is no need for a categorical statement.
So long as the tenor of the decision is that the dispute of
the taxpayer is denied, it is appealable (Surigao Electric vs.
CTA, June 28, 1974).
A survey of cases would indicate that the second view is
followed. There is no need for a categorical statement that the
action is final. The rationale is that to let the taxpayer defer
the period is to unduly put in his hand the collection of taxes.
Q: A taxpayer received on 15 Jan 1996 an assessment
for internal revenue tax deficiency. On 10 Feb 1996, the
taxpayer filed a petition for review with the CTA. Should
the CTA entertain the appeal?
No. Before the taxpayer can avail of a judicial remedy, he
must first exhaust administrative remedies by filing a protest
within 30 days from receipt of the assessment. An
assessment by the BIR is not the CIRs decision from
which a petition for review may be filed with the CTA. Rather, it
is the action taken by the CIR in response to the taxpayers
protest on the assessment that would constitute the
appealable decision.
Q: ABC Corp. received an income tax deficiency from
the BIR. ABC filed a protest and submitted to the BIR all
relevant supporting documents. The CIR did not
formally rule on the protest. Thereafter, ABC was served
summons and a copy of the complaint for collection of
the tax deficiency filed by the BIR with the RTC. ABC
filed a petition for review before the CTA. The BIR
contends that the petition is premature since there was
no formal denial of the protest of ABC. Is the BIRs
contention correct?
No. The CTA has jurisdiction because the action of the CIR
qualifies as an appeal from the CIRs decision on the
disputed assessment. When the CIR decided to collect the
tax assessed without first deciding on the taxpayers
protest, the effect of his action of filing a judicial action for
collection is a decision of denial of the protest, in which event
the taxpayer may file an appeal with the CTA (Republic v. Lim
Tian Teng & Sons, 16 SCRA 584).
Q: Name some communications sent by the CIR to
taxpayers that are deemed appealable to the CTA.
Page 94 of 104
Surigao Electric vs. CTA, June 28,1974:
1. a letter which stated the result of the investigation
requested by the taxpayer and the
consequentmodification of the assessment;
2. letter which denied the request of the taxpayer for
the reconsideration cancellation, or withdrawal of
the original assessment;
3. a letter which contained a demand on the
taxpayer for the payment of the revised or
reduced assessment; and
4. a letter which notified the taxpayer of a revision of
previous assessments.
Is the final demand letter issued by the BIR reiterating
the demand for immediate payment considered a final
decision appealable to the CTA?
Yes. The letter is deemed as the CIRs final act since
failure to comply therewith exposes the property to distraint
and levy. The Supreme Court stated that a final demand
letter from BIR, reiterating to the taxpayer the immediate
payment of a tax deficiency assessment previously made, is
tantamount to a denial of the taxpayers request for
reconsideration. Such letter amounts to a final decision on
a disputed assessment and is thus appealable to the CTA
(CIR vs. Isabela Cultural Corp.,July 11, 2001).
Oceanic Wireless Network vs. CIR, December 09, 2005
The Supreme Court reiterated that a demand letter for
payment of delinquent taxes may be considered a decision
on a disputed or protested assessment. The determination
on whether or not a demand letter is final is conditioned upon
the language used or the tenor of the letter being sent to the
taxpayer.
In this case, the letter of demand dated January 24, 1991,
unquestionably constitutes the final action taken by the BIR
on petitioners request for reconsideration when it reiterated
the tax deficiency assessments due from petitioner, and
requested its payment. Failure to do so would result in the
issuance of a warrant of distraint and levy to enforce its
collection without further notice. In addition, the letter
contained a notation indicating that petitioners request for
reconsideration had been denied for lack of supporting
documents.
Q: AA Corp received a FAN for contractors tax. It
protested the assessments. Thereafter, AA requested for
the cancellation of the assessments. 4 years passed
and nothing happened. CIR then issued 2 warrants of
distraint to collect the taxes. One year later, CIR
answered and denied AAs request for cancellation. The
CIR, in its answer to AAs request for the cancellation
of the assessments, requested the taxpayer to pay the
deficiency taxes within ten days from receipt of the
demand; otherwise, the Bureau would enforce the
warrants of distraint. He closed his demand letter with this
paragraph: This constitutes our final decision on the
matter. If you are not agreeable, you may appeal to the
Court of Tax Appeals within 30 days from receipt of this
letter. What is the reckoning point of the appeal period to
the CTA the issuance of the warrant of distraint or
the letter embodying the final demand of payment?
A: The reviewable decision is the latter letter where the CIR
clearly directed the taxpayer to appeal to the CTA and not
the warrants of levy and distraint. No amount of quibbling
or sophistry can blink the fact that said letter, as its tenor
shows, embodies the Commissioner's final decision. He even
directed the taxpayer to appeal it to the Tax Court. The directive
is in consonance with this Court's dictum that the
Commissioner should always indicate to the taxpayer in
clear and unequivocal language what constitutes his final
determination of the disputed assessment. That procedure is
demanded by the pressing need for fair play, regularity and
orderliness in administrative action (Advertising Associates,
Inc. vs. CA, December 26, 1984).
Q: U Corp was assessed deficiency income taxes (FAN).
U Corp protested the assessment. BIR, without ruling
on the protest, issued a warrant of distraint and levy. U
Corp requested reinvestigation and reconsideration of
issuance of the warrant. Thereafter, BIR filed a
collection suit to collect the taxes. U Corp then filed a
petition for review with the CTA, on the theory that its
period to appeal only began to run from its receipt of
summons in the civil collection case. BIR argued the
appeal was filed out of time, as the period began to run
when the warrant of distrant and levy was issued. Who
is correct?
U Corp is correct. Under the circumstances, the CIR didnt
clearly signify his final action on the disputed assessment.
Thus, it was only when U Corp received the summons on
the civil suit for collection of deficiency income that the period
to appeal commenced to run. The request for
reinvestigation and reconsideration was in effect considered
denied by the CIR when the latter filed a civil suit for
collection of deficiency income (CIR vs. Union Shipping
Corporation, May 21, 1990).
Q: The City of Makati received assessment notices
imposing deficiency taxes. Makati protested. The BIR
stated that the assessments were already final and
executory. Nonetheless, Makati requested for another
reinvestigation. The Revenue officer and deputy
Commissioner granted this request. Did the
reinvestigation of the case reversed the finality of the
assessments?
No. Only the Commissioner of Internal Revenue has the power
to reverse, revoke or modify any existing ruling of the Bureau
of Internal Revenue (BIR), which power cannot be
delegated. In assessment cases, a reopening/reinvestigation
after a final decision on disputed assessment has been
issued must be initiated by the commissioner. Otherwise, the
reopening / reinvestigation is without authority and failure to
appeal the final decision on disputed assessment to CTA
would render the assessment final and executory. Here, the
reinvestigation was merely granted by a revenue officer and
a deputy commissioner (City of Makati vs. CIR, September 16,
2011).
Q: The CIR filed a Motion to Dismiss the Petition for
Review commenced by Festo Holdings on the ground
of lack of jurisdiction. The CIR argued that the Revenue
District Officer who signed the letter which became the
basis of the instant petition, cannot be deemed an alter
Page 95 of 104
ego of the CIR for purposes of issuing a final decision
on Festos protest under a delegated authority. As
such, the subject letter is not the CIR's final decision
on Festos protest; thus, the 30 day period to file an
appeal was yet to commence, rendering the instant
petition premature. Is the contention of the CIR correct?
Yes, the appeal to the CTA was premature. The Revenue
District Officer who issued the letter cannot be considered
as the CIR's decision appealable to this Court, in the
absence of any proof that the former was authorized to decide
and act in behalf of the latter on the protest of a taxpayer.
Nowhere is it provided that a Revenue District Officer can
issue decisions that are appealable to this Court. Therefore,
there being no decision of the CIR in the present case,
this Court cannot take cognizance of the present case (Festo
Holdings, Inc. vs. CIR, September 2, 2011).
Is the denial by the BIR of the protest on the PAN (not the
FAN) appealable to the CTA?
No, the denial of the CIR must be on the protest of the FAN.
The Supreme Court ruled that it is the Formal Letter of Demand
and Assessment Notice (FAN) that must be administratively
protested or disputed within 30 days, and not the PAN (Allied
Banking Corporation vs. CIR, February 5,2010).
Q: BIR issued a PAN to AB Corp for deficiency DST.
AB protested the PAN. Thereafter, BIR sent a FAN to AB
Corp. The letter provided: It is requested that the
above deficiency tax be paid immediately upon receipt
hereof, inclusive of penalties incident to delinquency.
This is our final decision based on investigation. If you
disagree, you may appeal the final decision within 30 days
from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and
demandable. Thereafter, AB immediately filed a petition
for review with the CTA. Should the petition be
dismissed?
No. Ordinarily, the procedure is that its the FAN that must be
administratively protested, as a prerequisite to subsequently
filing a PFR with the CTA. However, the SC ruled in this case
that the CIR was estopped from claiming the need for a protest.
AB Corp cant be blamed for not filing a protest against the
FAN since the language used and the tenor of the PAN
indicate that it is the final decision of the CIR on the matter.
The CIR is required to indicate, in a clear and unequivocal
language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to
appeal to the tax court accrues. Thus, CIR is now
estopped from claiming that he did not intend the PAN to
be a final decision. Moreover in the Formal Letter of Demand
with Assessment Notices, CIR used the word appeal
instead of protest, reinvestigation, or reconsideration. sales and similar purposes). Thus, the petition should have
Although there was no direct reference for petitioner to bring
the matter directly to the CTA, it cannot be denied that the
word appeal under prevailing tax laws refers to the filing
of a Petition for Review with the CTA (Allied Banking
Corporation vs. CIR, February 5,2010).
Q: What other matters are cognizable by the CTA?
The other matters cognizable by the CTA should be of the
same nature, kind or class as the matters specifically
enumerated as within its jurisdiction.
Q: Sec 7(a)(1) of RA 1125 as amended by RA 9262 provides
that the CTA has exclusive appellate jurisdiction to review
by appeal the decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the
Bureau of Internal Revenue. Does the CTA also have
jurisdiction to determine the validity of warrants of
distraint/levy and the waiver of statute of limitations?
Yes. The appellate jurisdiction of the CTA is not limited to
cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or
refunds. The second part of the provision covers other cases
that arise out of the NIRC or related laws administered by
the Bureau of Internal Revenue. The wording of the
provision is clear and simple. It gives the CTA the
jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the Waiver of Statute of
Limitations was validly effected. This is not the first case where
the CTA validly ruled on issues that did not relate directly to
a disputed assessment or a claim for refund. In Pantoja v.
David, we upheld the jurisdiction of the CTA to act on a
petition to invalidate and annul the distraint orders of the
Commissioner of Internal Revenue.
Also, in Commissioner of Internal Revenue v. Court of Appeals,
the decision of the CTA declaring several waivers executed
by the taxpayer as null and void, thus invalidating the
assessments issued by the BIR, was upheld by this Court
(Philippine Journalists Inc. vs. CIR, December 16, 2004).
Q: The CIR, pursuant to the NIRC, issued a RMO imposing
a 5% lending investors tax on pawnshops. The RMO
identified pawnshops as a lending investor due to the
nature of its activities. Leal, a pawnshop owner, filed with
the RTC a petition for prohibition that sought to stop the
CIR from implementing the RMO. CIR filed a motion to
dismiss. CIR alleged RTC had no jurisdiction over the
matter. Did the RTC have jurisdiction over the action to
nullify the RMO?
No, the CTA had exclusive jurisdiction. The questioned is
actually a ruling or opinion of the CIR in implementing the Tax
Code with regard taxability of pawnshops. The RMO was
issued pursuant to CIRs powers under Section 244 of the
NIRC (providing for the power of the Commissioner of
Internal Revenue to make rulings or opinions in connection
with the implementation of the provisions of internal revenue
laws, including ruling on the classification of articles of
been filed with the CTA (CIR vs. Leal , November 18, 2002).
Similarly, in the case of Asia International Auctioneers, Inc.
vs. Parayno (December 18,2007), several RRs and RMOs
were also considered as rulings/opinions of the CIR on the tax
treatment of motor vehicles sold at public auction within the
SSEZ. They were deemed issued pursuant to the power of
the CIR to interpret provisions of the NIRC. Thus, when an
action to annul such RRs/RMOs was filed with the RTC, SC
Page 96 of 104
held that such was improper, as it was the CTA that had
exclusive jurisdiction.
Q: A was assessed for income tax deficiency. The
taxpayer failed to file a protest and thus the said
assessment has become final and unappealable.
Thereafter, the taxpayer filed a petition for review to the
CTA arguing that the right of the CIR to collect the
assessed tax has prescribed. The CIR contends that the
CTA has no jurisdiction because when the law says that
the CTA has jurisdiction over other matters it
presupposes that the tax assessment has not become
final and unappealable. Is the CIRs contention correct?
No. The fact that an assessment has become final for
failure of the taxpayer to file a protest within the time allowed
only means that the validity or correctness of the
assessment may no longer be questioned on appeal.
However, the validity of the assessment itself is a separate
and distinct issue from the issue of whether the right of
the CIR to collect the validly assessed tax has prescribed. This
issue of prescription, being a matter provided for by the NIRC, is
well within the jurisdiction of the CTA to decide (CIR vs.
Hambrecht & Quist Philippines, Inc., November 17, 2010).
Q: Does the CTA have jurisdiction relative to matters
involving the constitutionality of regulations issued by
the BIR?
No. The doctrine in Asia International Auctioneers vs.
Parayno, December 18, 2007 which ruled that the CTA has
such jurisdiction has been reversed in British American
Tobacco vs. Camacho , August 20, 2008. The regular courts
have jurisdiction to rule upon the constitutionality of a tax law or
a regulation issued by the BIR.
Note:
See also Egis Projects S.A. vs. The Secretary Of Finance,
January 29, 2013 where the CTA held that the issue on
the constitutionality or validity of RMO Nos. 72-2010 and 1-
2000 or its relevant provisions is beyond the jurisdiction of
the CTA, but of the regular courts.
Smart Communications, Inc. vs. Municipality Of
Malvar,Batangas, CTA Eb No. 767 (CTA Ac No. 58), June
26,2012, where the CTA held that the issue on the validity or
constitutionality of Ordinance is not within the jurisdiction of the
CTA, but with the regular courts. However, in Negros
Consolidated Farmers Association Multi-Purpose Cooperative
Vs. Commissioner Of Internal Revenue [CTA Case No.
7994; February 17,2012], the CTA held that it has jurisdiction
to rule on the validity of a rule or regulation issued by the
Bureau of Internal Revenue. This case should not be
controlling in light of the SC ruling in British American Tobacco.
2. Criminal Cases
a) Exclusive original jurisdiction
b) Exclusive appellate jurisdiction in criminal cases
Note: This applies to CTA in Divisions. Note that,
with regard to criminal cases, the CTA en banc has
exclusive appellate jurisdiction over the decisions or
resolutions on MRs or MNTs of the Court in Division in
the exercise of its exclusive appellate jurisdiction or
in the exercise of its exclusive original jurisdiction
over criminal offenses arising from violations of the
NIRC or TCC and other Tax Laws (Sec. 3[b] and 3[a],
Rule 4, RRCTA
Q: What are the criminal cases within the exclusive
original jurisdiction of the CTA?
The CTA shall exercise exclusive original jurisdiction over all
criminal cases where the principal amount involved of taxes
and fees is P1,000,000 or more, exclusive of charges and
penalties, arising from violations of the NIRC, TCC and
other laws administered by the BOC or the BIR.
Q: What are the criminal cases within the exclusive
original jurisdiction of the regular courts?
The regular courts have original jurisdiction in offenses and
felonies where:
a. The principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than
P1M
b. There is no specified amount claimed
Q: What are the criminal cases within the exclusive
appellate jurisdiction of the CTA?
a. Appeals from judgments, resolutions or orders of the
RTCs in tax cases originally decided by them in
their respective territorial jurisdiction; and
b. Petitions for review of the judgments, resolutions or
orders of the RTCs in the exercise of their
appellate jurisdiction over tax cases originally
decided by the MeTCs, MTCs or MCTCs.
Note:
1. The same rules apply with regard to the exclusive
jurisdiction of the CTA in division over tax
collection cases.
2. The Supreme Court held that the lower courts can
acquire jurisdiction over a claim for collection of
deficiency taxes only after the assessment made by
the CIR has become final and unappealable, not
where there is still a pending CTA case (Yabes vs.
Flojo ,July 20, 1982).
B. JUDICIAL PROCEDURES
1. Judicial action for collection of taxes
a) Internal revenue taxes
The remedies for the collection of internal revenue
taxes, fees or charges, and any increment thereto
resulting from delinquency can be through the
institution of a civil or criminal action.
The judgment in the criminal case shall not only
impose the penalty but shall also order payment of the
taxes subject of the criminal case as finally decided by
the Commissioner.
The Bureau of Internal Revenue shall advance the
amounts needed to defray costs of collection by
means of civil or criminal action, including the
preservation or transportation of personal property
distrained and the advertisement and sale thereof, as
well as of real property and improvements thereon.
(Sec. 205, NIRC)
Page 97 of 104
The Court of Tax Appeals has: copy of such Rules of Court).
EXCLUSIVE ORIGINAL JURISDICTION in tax collection cases 1. Decision, decision or ruling,
involving final and 185xecutor assessments for taxes, fees, ruling; or or expiration of the The Court in
charges and penalties. period fixed by law Division shall act
Exception: Collection cases where the principal amount of 2. The inaction for the CIR to act on the appeal.
taxes and fees, exclusive of charges and penalties, claimed is of the CIR on on the disputed
less than P1Mshall be tried by the proper Municipal Trial disputed assessments
Court, Metropolitan Trial Court and Regional Trial Court. assessments or
claims for refund of In case of inaction
EXCLUSIVE APPELLATE JURISDICTION in tax collection internal revenue of the CIR on
cases: taxes; or claims for refund
a. Over appeals from the judgments, resolutions or of internal revenue
orders of the Regional Trial Courts in tax collection 3. By a decision taxes erroneously
cases originally decided by them, in their respective or ruling of the or illegally
territorial jurisdiction. CoC, the Secretary collected - within
b. Over petitions for review of the judgments, resolutions of Finance, the the 2-year period
or orders of the Regional Trial Courts in the exercise Secretary of Trade prescribed by law
of their appellate jurisdiction over tax collection cases and Industry, the from payment or
originally decided by the Metropolitan Trial Courts, Secretary of collection of the
Municipal Trial Courts and Municipal Circuit Trial Agriculture, or a taxes.
Courts, in their respective jurisdiction. RTC in the
exercise of its
b) Local taxes original jurisdiction
The LGU concerned may enforce the collection of
delinquent taxes, fees, charges or other revenues by
civil action in any court of competent jurisdiction. The A party adversely within 15 days Petition for review
civil action shall be filed by the local treasurer (Sec. affected by a from receipt of a (Rule 43 of the
183, LGC). decision or copy of the Rules of Court).
resolution of a questioned
Prescriptive period Division of the decision or The Court en
Local TF/Cs may be collected within 5 years from the date Court on a MR or resolution banc shall act on
of assessment by: MNT The Court may the appeal.
1. administrative or grant an additional
2. judicial action. period not
a. Local TF/Cs shall be assessed within 5 years from the exceeding 15 days
date they became due. No action for the collection of from the expiration
such TF/Cs whether administrative or judicial, shall be of the original
instituted after the expiration of such period. period within which
b. In case of fraud or intent to evade the collection- to file the petition
within 10 years from discovery of the fraud or intent to for review
evade payment.

Grounds for suspension of the prescriptive period: A party adversely within 30 days Petition for review
1. The treasurer is legally prevented from making the affected by a from receipt of a (Rule 43 of the
assessment or collection; decision or ruling copy of the Rules of Court).
2. The TP requests for a reinvestigation and executes a of the CBAA and questioned
waiver in writing before expiration of the period within the RTC in the decision or ruling The Court en banc
which to assess or collect; an exercise of their shall act on the
3. The TP is out of the country or otherwise cannot be appellate appeal.
located(Sec. 194, LGC) jurisdiction
Note: Please refer to Remedies and Local
Government Taxation.
i. Suspension of collection of tax
2. Civil Cases
General Rule
a) Who may appeal, mode of appeal, effect of appeal No appeal taken to the Court shall suspend the payment, levy,
distraint, or sale of any property of the taxpayer for the
Who may appeal Period to appeal Mode of appeal satisfaction of his tax liability as provided under existing laws.

A party adversely within 30 days Petition for review Exception

affected by: after receipt of a (Rule 42 of the Where the collection of the amount of the taxpayers liability,
sought by means of a demand for payment, by levy, distraint or

Page 98 of 104
sale of any property of the taxpayer, or by whatever means, as
provided under existing laws, may jeopardize the interest of the
Government or the taxpayer, an interested party may file a
motion for the suspension of the collection of the tax liability.
Injunction not available to restrain collection
No court shall have authority to grant an injunction to restrain
the collection of any national internal revenue tax, fee or charge
imposed by the Code (Sec. 217, NIRC)
Q: Does the perfection of an appeal suspend the collection
of taxes? (effect of an appeal)
No appeal taken to the CTA shall suspend the payment,
levy, distraint and/or sale of any of the taxpayers property
for the satisfaction of his tax liability. However, when in the
opinion of the CTA the collection of the tax may jeopardize the
interest of the Government and/or the taxpayer, the Court at any
stage of the proceedings may suspend or restrain the
collection of the tax and require the taxpayer either to
deposit the amount claimed or to file a surety bond for no
more than double the amount with the Court.
Note: Nonetheless, during the pendency of the
appeal, the taxpayer may still enter into a
compromise settlement of his tax liability for as
long as any of the grounds for a compromise is
present. A compromise of a tax liability is possible
at any stage of litigation even during appeal
(Pampanga Sugar Co. v. CIR [114 SCRA 496])
Q: May the CTA issue an injunction to enjoin the collection
of taxes by the BIR?
Yes. When a decision of the CIR on a tax protest is appealed to
the CTA, such appeal does not suspend the payment, levy,
distraint and/or sale of any of the taxpayers property. However,
when in the opinion of the CTA the collection of the tax may
jeopardize the interest of the Government and/or the TP, the
Court at any stage of the proceedings may suspend or restrain
the collection of the tax and require the TP either to deposit
the amount claimed or to file a surety bond for no more than
double the amount with the Court.
Note:
1. The CTA may issue injunction only in
the exercise of its appellate jurisdiction
(CIR vs. J.C. Yuseco [G.R. No. L-12518,
October 28, 1961])
2. The prohibition on the issuance of a writ of
injunction to enjoin the collection of taxes
is applied only to national internal revenue
taxes, not to local taxes (ANGELES CITY
V.ANGELES ELECTRIC CORPORATION
[JUNE 29, 2010])
3. TROs and injunctions issued by courts other
than the CTA against the BIR should be
annulled and cancelled for lack of
jurisdiction (see RMO 042-10 [MAY 4,
2010])
ii. Taking of evidence
The Court may receive evidence in the following
cases:
a. In all cases falling within the original
jurisdiction of the Court in Division pursuant
to Section 3, Rule 4 of these Rules; and
b. In appeals in both civil and criminal cases
where the Court grants a new trial pursuant
to Section 2, Rule 53 and Section 12, Rule
124 of the Rules of Court (Sec. 2, Rule 12,
A.M. No. 05-11-07)
Q: Who are authorized to take evidence? (Sec. 3-4, Rule 12,
RRCTA)
The following are authorized:
a. Any justice of the court when:
i. The determination of a
question of fact arises at
any stage of the proceedings;
or
ii. The taking of an account is
necessary; or
iii. The determination of an
issue of fact requires the
examination of a long
account.
b. Any court official for the sole purpose
of marking comparison with the original
and identification by witnesses of the
received documentary evidence.
iii. Motion for reconsideration or new
trial. (Rule 15, A.M. No. 05-11-07)
Q: Who may file a MR or MNT?
Any aggrieved party may seek a reconsideration or new trial of
any decision, resolution or order of the court.
- Maybe opposed by: The adverse party may file an opposition
to the motion for reconsideration or new trial within ten days
after his receipt of a copy of the motion for reconsideration or
new trial of a decision, resolution or order of the Court
Q: What is the effect of the filing of the MR or MNT?
The filing of the MR or MNT shall suspend the running of
the period within which an appeal may be perfected.
Q: What are the grounds for the filing of a MR or
MNT?
a. Fraud, accident, mistake or excusable negligence (FAME)
which ordinary prudence could not have guarded against
and by reason of which such aggrieved party has
probably been impaired in his rights; or
b. Newly discovered evidence which he could not, with
reasonable diligence, have discovered and produced at
the trial and which, if presented, would probably alter
the result.
How: The motion shall be in writing stating the grounds, a
written notice of which shall be served by the movant on the
adverse party.
A MNT shall include all grounds then available and those not
included shall be deemed waived.
Note:
Page 99 of 104
1. The period to file the MR or MNT is 15 days.
2. No second MR or MNT is allowed (see Section 7, Rule
15, RRCTA)
Note, however, that a Motion for Reconsideration filed on the
Amended Decision of the Court in Division is not a second
motion for reconsideration, which is a proscribed under
Section 7, Rule 15 of the CTA Rules, in relation to Section 2,
Rule 52 of the 1997 Rules of Civil Procedure, as amended.
(Mirant Corporation vs. CIR, CTA EB CASE NO.783, July 18,
2012)
b) Appeal to the CTA, en banc(Sec. 18, RA 1125)
No civil proceeding involving matter arising under the
NIRC, the TCC or the LGC shall be maintained,
except as provided, until and unless an appeal has
been previously filed with the CTA and disposed of in
accordance with the provisions of this Act.
A party adversely affected by a resolution of a
Division of the CTA on a motion for reconsideration or
new trial, may file a petition for review with the CTA
en banc
Q: Who may file an appeal to the CTA en banc?
a. A party adversely affected by a resolution of a
Division of the CTA on a MR or MNT may file a
petition for review with the CTA en banc; and
b. A party adversely affected by a decision or
ruling of the CBAA or the RTC in the
exercise of their appellate jurisdiction.
Note: You cannot directly appeal a decision or order
of a Division to the CTA en banc. You must first
file a timely MR or MNT (Sec. 1, Rule 8, RRCTA)
Q: Is a prior MR required before filing a Petition for
Review of a decision of a CTA division?
Yes. The mandatory provisions of Rule 8, Section 1 of the
Revised Rules of the Court of Tax Appeals requiring that
the petition for review of a decision or resolution of the
Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division.
The word "must" clearly indicates the mandatory -- not
merely directory -- nature of a requirement. The rules are
clear. Before the CTA En Banc could take cognizance of
the petition for review concerning a case falling under its
exclusive appellate jurisdiction, the litigant must sufficiently
show that it sought prior reconsideration or moved for a new
trial with the concerned CTA division (Commissioner Of
Customs vs. Marina Sales, Inc., November 22, 2010)
Q: Juday was criminally charged in the CTA for filing a
fraudulent income tax return. Thereafter, she filed a
motion to quash in the CTA 1st division. The MTQ was
denied. MR was also denied. She then filed a motion for
extension of time to file her petition for review in CTA
en banc. Thereafter, she filed her petition for review with
CTA en banc. CTA en banc denied both the petition for
extension, and the petition for review, on the theory that the
denial of the motion to quash was an interlocutory order,
and therefore, unappealable. Was the dismissal by CTA en
banc proper?
Yes. CTA en banc did not err in denying petitioners Motion for
Extension of Time to File Petition for Review. Petitioner
cannot file a Petition for Review with the CTA en banc to
appeal the Resolution of the CTA First Division denying her
Motion to Quash. The Resolution is interlocutory and, thus,
unappealable. Even if her Petition for Review is to be
treated as a petition for certiorari, it is dismissible for lack of
merit (Judy Anne L. Santos vs. People Of The Philippines
And Bureau Of Internal Revenue , August 26, 2008).
c)Petition for review on certiorari to the Supreme Court
(Sec. 19, RA 1125 and Sec. 1, Rule 16, RRCTA)
A party adversely affected by a decision or ruling of
the Court en banc may appeal by filing with the
Supreme Court a verified petition for review on
certiorari within 15 days from receipt of a copy of the
decision or resolution, as provided in Rule 45 of the
Rules of Court. If such party has filed a motion for
reconsideration or for new trial, the period herein
fixed shall run from the partys receipt of a copy of the
resolution denying the motion for reconsideration or
for new trial.
The motion for reconsideration or for new trial filed
before the Court shall be deemed abandoned if,
during its pendency, the movant shall appeal to the
Supreme Court.
Q: Who may file an appeal to the Supreme Court?
Any party adversely affected by a decision or ruling of the CTA
en banc may appeal to the Supreme Court.
Q: What is the mode of appeal from the CTA en banc to the
Supreme Court?
Petition for review on certiorari under Rule 45.
Q: ABC Corporation, engaged in the retail of medicines
and other pharmaceutical drugs filed a claim for TCC
pertaining to the 20% sales discounts granted to senior
citizens. The CTA denied the claim for insufficiency of
evidence. Thus, ABC filed its petition for review before
the SC. Instead of filing a reply to the comments of
respondent, ABC filed a motion to withdraw praying
that the case be dismissed without prejudice. According
to ABC, the amount of tax credit being claimed would
just be included in its future claims for issuance of TCC.
The CIR argues that the decision of the CTA became
final and executory and thus the tax credit could no longer
be claimed in the future. Is the contention of the CIR
correct?
Yes. By withdrawing the appeal the taxpayer is deemed to
have accepted the decision of the CTA. And since the CTA
had already denied taxpayers request for the issuance of
TCC for insufficiency of evidence, it may no longer be included
in taxpayers future claim. (Central Luzon Drug Corporation vs.
CIR , March 2, 201).
Q: CC Corp filed a petition in the RTC to nullify an
ordinance enacted by the City of Manila. RTC dismissed
the petition. CC Corp filed a petition for review with
CTA. It was argued that the petition for review was filed
out of time. Can the 30 day period to file a petition for
review to the CTA of an adverse decision or ruling of the
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RTC (in the exercise of its original jurisdiction) be - The prosecution may be conducted by their respective duly
extended? deputized legal officers.
Yes. As held in City Of Manila vs. Coca-Cola Bottlers
Philippines, Inc. [August 4, 2009], it is clear from the Institution of civil action in criminal action (Sec. 2, Rule 9,
Section 3 of the Revised Rules of the CTA that to appeal an RRCTA)
adverse decision or ruling of the RTC to the CTA, the taxpayer - In cases within the jurisdiction of the Court, the criminal action
must file a Petition for Review with the CTA within 30 days from and the corresponding civil action for the recovery of civil liability
receipt of said adverse decision or ruling of the RTC. It must be for taxes and penalties shall be deemed jointly instituted in
pointed out that the rule is silent as to whether the 30 day the same proceeding. The filing of the criminal action shall
period can be extended or not. However, Section 11 of Republic necessarily carry with it the filing of the civil action. No right to
Act No. 9282 does state that the Petition for Review shall be reserve the filing of such civil action separately from the criminal
filed with the CTA following the procedure analogous to Rule action shall be allowed or recognized.
42 of the Revised Rules of Civil Procedure. Following by
analogy Section 1, Rule 42 of the Revised Rules of Civil Note:
Procedure, the 30-day original period for filing a Petition for 1. The institution of the criminal action shall interrupt the
Review with the CTA under Section 11 of Republic Act No. running of the period of prescription.
9282, as implemented by Section 3(a), Rule 8 of the Revised
Rules of the CTA, may be extended for a period of 15 b) Appeal and period to appeal
days. No further extension shall be allowed thereafter,
except only for the most compelling reasons, in which case Criminal Case Period to appeal Mode of Appeal
the extended period shall not exceed 15 days. The Court in
Division must be preceded by the filing of a timely MR or MNT cases decided by a Within 15 days Notice of Appeal
with the Division. (Section 1, Rule 8, RRCTA), (SM Land vs. RTC in the from receipt of a pursuant to Sec.
City of Manila, G.R. No. 197151, October 22, 2012) exercise of its copy of the 3(a) and 6, Rule
DOCTRINE: The 30-day period to appeal decisions of the RTC original jurisdiction decision or final 122 of the Rules of
to the CTA is extendible order with the court Court.
which rendered the
Municipality of Cainta, Rizal vs. Brillante Realty Corporation final judgment or The Court in
[CTA AcCNo. 88, January 02,2013] order appealed division shall act
The CTA held that the thirty-day period to appeal an from and by on the appeal.
adverse decision of the Regional Trial Court to the Court of serving a copy
Tax Appeals may be extended for a period of 15 days, subject to upon the adverse
filing of motion for extension before the CTA and payment party
of appropriate fees.
cases decided by Within 15 days Petition for review
Q: Does a Motion for Reconsideration of the decision of the Court in from receipt of a (Rule 43 of the
the CIR toll the 30 day period to appeal the denial of the Division copy of the Rules of Court)
protest of the FAN to the CTA? decision or
No (Fishwealth Canning Corporation vs. CIR, January 21, resolution The Court en banc
2010) appealed from. shall act on the
appeal.
3. Criminal Cases The Court may, for
good cause,
a) Institution and prosecution of criminal actions extend the time for
filing of the petition
Institution of criminal action for review for an
-Instituted by the filing an information in the name of the additional period
People of the Philippines not exceeding 15
* Those involving violations of the NIRC and other laws enforced days.
by the BIR
- Must be approved by the CIR
cases decided by Within 15 days Petition for review
* Those involving violations of the TCC and other laws enforced the RTCs in the from receipt of a (Rule 43 of the
by the BoC exercise of their copy of the Rules of Court).
- Must be approved by the COC appellate decision or final
jurisdiction order appealed The Court in
Prosecution of criminal action from. Division shall act
- Conducted and prosecuted under the direction and control of on the appeal.
the public prosecutor
* Those involving violations of the NIRC and other laws enforced i. Solicitor General as counsel for the
by the BIR or violations of the tariff and Customs Code and people and government officials
other laws enforced by the Bureau of Customs

Page 101 of 104

 sued in their official capacity (Sec. 9,
Rule 9, RRCTA)
The Solicitor General shall represent the People of
the Philippines and government officials sued in their
official capacity in all cases brought to the Court in the
exercise of its appellate jurisdiction. He may deputize
the legal officers of the BIR in cases brought under the
NIRC or other laws enforced by the BIR, or the legal
officers of the BoC in cases brought under the TCC of
the Philippines or other laws enforced by the BoC, to
appear in behalf of the officials of said agencies sued
in their official capacity: Provided, however, such duly
deputized legal officers shall remain at all times under
the direct control and supervision of the Solicitor
General.
c. Petition for review on certiorari to the Supreme Court
- A party adversely affected by a decision or ruling of the CTA en
banc may file with the Supreme Court a verified petition for
review on certiorari pursuant to Rule 45 of the 1997 Rules of
Civil Procedure(Sec.19, R.A. No. 1125 as amended) .
C. TAXPAYERS SUIT IMPUGNING THE VALIDITY
OF TAX MEASURES OR ACTS OF TAXING
AUTHORITIES
Q: Distinguish a Taxpayers suit from a Citizens suit
Taxpayers suit
A case where the act complained of directly involves the illegal
disbursement of public funds derived from taxation.
The plaintiff is affected by the expenditure of public funds
Constantino, Jr vs. Cuisia, October 13, 2005
A TP is allowed to sue where there is a claim that:
a. public funds are illegally disbursed or
b. that the public money is being directed to any
improper purpose, or that
c. there is wastage of public funds through the
enforcement of an invalid or unconstitutional law.
Q: How is the concept of locus standi applied in a
Taxpayers Suit?
Locus standi is a right of appearance in a court of justice
on a given question. It is the personal and substantial
interest in the case, such that the party has sustained or will
sustain direct injury as a result of a challenged act. In order
to challenge the constitutionality of tax measures or illegal
expenditures of public money, the taxpayer must have locus
standi.
Q: What are the requisites of a Taxpayers Suit?
1. Public funds are disbursed by a political
subdivision or instrumentality and in doing so, a law is
violated or some irregularity is committed; and
2. Petitioner is directly affected by the alleged ultravires
act(Anti-Graft League vs. San Juan, 260 SCRA
251).
Lozada vs. Comelec , 120 SCRA 337
Petitioners action for mandamus to compel the COMELEC to
hold a special collection is not considered a taxpayers suit
because it does not involve public expenditure. Further, there
is no allegation that tax money is spent illegally.
Q: Must a taxpayer be a party to a government
contract so that it can challenge the validity of a
disbursement of public funds?
No. The prevailing doctrine in taxpayers suit is to allow
taxpayers to question contracts entered into by the national
government or GOCCs allegedly in contravention of law. A
taxpayer need not be a party to the contract to challenge its
validity ( ABAYA vs. EBDANE [515 SCRA 720])
Q: How is the Doctrine of Transcendental Importance
applied to a taxpayers suit?
As a general rule, only those with locus standi may impugn the
tax measure or illegal imbursement of public funds.
However, the Supreme Court has discretion to entertain a
taxpayers suit and brush aside lack of locus standi where
the issues are of such transcendental importance in keeping
with the courts duty to determine if public officers have not
abused the discretion given to them (Kilosbayan vs. Guingona,
May 5, 1994)
Q: What determines the Principle of
Transcendental Importance?
1. The character of the funds or other
assets involved in the case;
2. The presence of a clear case of
disregard of a constitutional or statutory
prohibition by the public respondent
agency or instrumentality of the
government;
3. The lack of any other party with a more
direct and specific interest in raising the
questions being raised (Francisco, Jr.
vs. House of Representatives,
November 10, 2003).
Note: However, while the taxpayer need
not suffer personal damage if matter is of
transcendental important, he must prove
damage to others (Jumamil vs. Caf,
September 1, 2005).
DEFINITIONRipeness for judicial determination means
that litigation is inevitable or there is no adequate relief
available in any other form or proceeding.
Q: How is ripeness for judicial determination applied
in a taxpayers suit?
Page 102 of 104
A constitutional question is ripe for adjudication when the
government act being challenged has a direct adverse effect
on the individual challenging it. As a general rule, a taxpayer
must show that he would be prejudiced or benefited by the
suit which questions the validity of the collection of taxes or the
manner of expenditure of funds collected from taxation.
Personal injury or benefit must be shown for judicial
controversy to be ripe for judicial determination.

Note: However, it must be noted that

where the public interest requires the
resolution of the constitutional issues raised
by the taxpayer, the doctrine of ripe for
judicial determination is within the Courts
discretion to set aside (Abakada Guro
Party-List vs. Purisima G.R. No.166715,
August 14, 2008).

REFERENCES

Co Untian, Cresencio P. (2009). Tax Digest. Manila, Rex Book Store

De Leon, Hector S. and De Leon, Jr. Hector M. (2009) The Law on Transfer and Business Taxation. Manila, Rex Book Store

Dimaampao, Japar B. (2008). Tax Principles and Remedies. Manila, Rex Book Store.

Dimaampao, Japar B. (2008). The Essentials of Local Government and Real Property Taxation. Mandaluyong City, National Book Store

Dizon, Efren Vincent M. (2006). Q & A in Taxation. Manila, Rex Book Store.

Lim, Virginia Jeannie P. (2012). Dictionary of Terns and Phrases in Taxation. Manila, Central Book Supply, Inc.

Local Government Code of 1991 (2005).

Mamalateo, Victorino C. (2010). Reviewer on Taxation. Manila, Rex Book Store.

National Internal Revenue Code of 1997 (2009).

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Sababan, Francisco J. (2010). Taxation Law Review. Manila, Rex Printing Company, Inc.

Vitug, Jose C. and Acosta, Ernesto D. (2006). Tax Law and Jurisprudence. Manila, Rex Printing Company, Inc.

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