Professional Documents
Culture Documents
TAXATION LAW
Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The courts power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. Power to tax is the power to
destroy (Marshall Dictum) refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy sufficiency to
meet government expenditures and
2. Power to tax is not the power to other public needs.
destroy while the Supreme Court sits 2. Administrative Feasibility/
(Holmes Dictum) the power to tax Convenience capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice based on the
taxpayers ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the States
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
As long as the legislature, in received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
a. Constitutional immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. c. He who claims exemption should
b. Statutory those which emanate prove by convincing proof that he
from legislation is exempted.
Examples of Statutory Exemptions d. Taxation is the rule; tax exemption
Sec. 27, NIRC is the exception.
Sec. 105 Tariff and Customs e. Tax exemption must be strictly
Code construed against the taxpayer and
Sec. 234 Local Government Code liberally in favor of the taxing
Special Laws, such as the authority.
Omnibus Investment Code of 1987 f. Tax exemptions are not presumed.
(EO 226), Philippine Overseas g. Constitutional grants of tax
Shipping Act (RA 1407 as amended), exemption are self-executing.
Fertilizer Industry Act (RA 3050, as h. Tax exemptions are personal.
amended), Mineral Resources
Development Decree of 1974 (PD 463 THE FOLLOWING PARTAKE THE NATURE OF
as amended), Cottage Industry Act TAX EXEMPTION
(RA 318, as amended) and 1. Deductions for income tax purposes
exemptions in Housing for Low 2. Claims for refund
Income Group (PD 1205, as 3. Tax amnesty
amended) 4. Condonation of unpaid tax liabilities
c. Contractual- agreed to by the NOTE: must be strictly construed
taxing authority in contracts against the taxpayer
lawfully entered into by them
under enabling laws WHEN EXEMPTIONS ARE CONSTRUED
d. Treaty LIBERALLY IN FAVOR OF GRANTEE
e. Licensing Ordinance 1. When the law so provides for such
2. As to form liberal construction.
(1) Express expressly granted by 2. Exemptions from certain taxes,
organic or statute law granted under special circumstances
(2) Implied when particular to special classes of persons.
persons, property or excises are
deemed exempt as they fall
provided however that the ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
regional evaluation board may TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
compromise: THE PARTICIPATION OF THE SOLICITOR
1. assessments issued by GENERAL?
regional offices involving NO. The institution or
deficiency taxes of P500,000 commencement before a proper court of
or less and civil and criminal actions and
2. minor criminal violations as proceedings arising under the Tax
may be determined by the Reform Act which shall be conducted by
rules and regulations legal officers of the BIR is not in dispute.
3. discovered by regional and An appeal from such court, however, is
district officials not a matter of right. It is still the
Solicitor General who has the primary
Regional Evaluation Board is responsibility to appear for the
composed of: government in appellate proceedings.
i. Regional Director as Chairman (Commissioner vs. La Suerte Cigar and
ii. Asst. Regional Director
SOURCES OF REVENUE
The following taxes, fees and
charges are deemed to be national
internal revenue taxes. (Sec. 21, NIRC)
1. Income tax
2. Estate and donor's taxes
3. Value-added tax
4. Other percentage taxes
5. Excise taxes
6. Documentary stamp taxes
7. Such other taxes as are or hereafter
may be imposed and collected by
the Bureau of Internal Revenue.
within the Philippines [Sec. 22(I), other corporate income taxpayers are
NIRC] taxable only for income derived from
A Corporation Includes: sources within the Philippines.
1. Partnerships, no matter how
created or organized; Tax Rates: Please refer to Annex B.
2. Joint-stock companies;
3. Joint accounts (cuentas en C. ESTATES AND TRUSTS
participacion)
4. Associations; or ESTATE refers to the mass of properties
5. Insurance companies [Sec. 22(B), left by a deceased person.
NIRC].
RULES ON TAXABILITY OF ESTATE
Excludes: When a person who owns property
1. General professional dies, the following taxes are payable
partnerships; under the provisions of the income tax
2. Joint venture or consortium law:
formed for the purpose of 1. Income tax for individual under Sec.
undertaking construction projects or 24 and 25 (to cover the period
engaging in petroleum, coal, beginning January to the time of
geothermal and other energy death);
operations pursuant to an operating 2. Estate income tax under Sec. 60 if
or consortium agreement under a the estate is under administration or
service contract with the judicial settlement.
Government.
the same, was not treated as a 2. Deposit account in DEF Bank and
capital expenditure. derived interest income thereof
11. The interest is not expressly amounting to P200,000 on which the
disallowed by law to be deducted final tax of P40,000 has been
from gross income of the taxpayer. withheld.
Assume that Company Xs net
RULES ON DEDUCTIBILITY OF INTEREST income before the deduction of
EXPENSE interest expense is P500,000.
General Rule - In general, the amount of
interest expense paid or incurred within The deductible expense shall be
a taxable year of indebtedness in computed as follows:
connection with the taxpayer's trade
business or exercise of profession, shall Year 2000
be allowed as a deduction from the
taxpayer's gross income. Net Income before
interest expense P500,000
Limitation - The amount of interest Less: Interest Expense P120,000
expense paid incurred by a taxpayer in Less: 38% of interest
connection with his trade, business or income from deposit
exercise of a profession from an existing (38% x P200,000) 76,000
indebtedness shall be reduced by an Deductible Interest
amount equal the following percentages Expense 44,000
of interest income earned which had Taxable Income P456,000
been subjected to final withholding
depending on the year when the interest
income earned, viz: Deductible Interest Expense
38% - beginning January 1, 2000 and 1. Interest on taxes, such as those paid
thereafter for deficiency or delinquency, since
taxes are considered indebtedness
Aim of Limitation: To discourage so- (provided that the tax is a
called back-to-back loans where a deductible tax, except in the case of
taxpayer secures a loan from a bank, income tax). However, fines,
turns around and invests the loan penalties, and surcharges on account
proceeds in money market placements. of taxes are not deductible. The
By imposing a limit as to the amount of interest on unpaid business tax shall
interest expense that can be deducted not be subjected to the limitation
from gross income, the previous practice on deduction.
of tax arbitrage was absolutely nullified. 2. Interest paid by a corporation on
scrip dividends
Tax Arbitrage is a method of 3. Interest-on deposits paid by
borrowing without entering into a authorized banks of the Bangko
debtor/creditor relationship, often to Sentral ng Pilipinas to depositors,
resolve financing and exchange control if it is shown that the tax on such
problems. In tax cases, back-to-back interest was withheld.
loan is used to take advantage of the 4. Interest paid by a corporate taxpayer
lower of tax on interest income and a who is liable on a mortgage upon real
higher rate of tax on interest expense property of which the said
deduction. corporation is the legal or equitable
owner, even though it is not directly
Illustration: liable for the indebtedness.
On June 1, 2000 Company X has:
1. Obtained a loan from ABC Financing NON-DEDUCTIBLE INTEREST EXPENSE
Corporation in connection with the 1. An individual taxpayer reporting
operation of its business and its income on the cash basis incurs an
interest expense on the loan indebtedness on which an interest is
amounted to P 120,000.
WHO ARE NOT ENTITLED TO TAX CREDIT (Income Tax) bears to his entire net
1. non-resident citizens income for the same taxable year.
2. resident aliens, if without
reciprocity D. LOSSES
3. resident aliens whose income is
derived solely from sources within LOSSES refer to such losses which do
the Philippines not come under the category of bad
4. foreign corporations (resident and debts, inventory losses, depreciation,
non-resident) etc., and which arise in taxpayer's
profession, trade or business.
FORMULA FOR COMPUTING LIMITATION
1. Per country limitation REQUISITES FOR DEDUCTIBILITY
Taxable 1. Actually sustained during the taxable
income from year
foreign country X Phil. = Tax Credit
2. Connected with the trade, business
Taxable income income tax Limit
or profession
from all sources
3. Evidenced by a close and completed
transaction
2. Over-all limitation
4. Not compensated for by insurance or
Taxable
income from other form of indemnity
outside sources X Phil. = Tax Credit 5. Not claimed as a deduction for
Taxable income income tax Limit estate tax purposes
from all sources 6. Notice of loss must be filed with the
Bureau of Internal Revenue within
The allowable tax credit is the lower 45 days from the date of discovery
amount between the tax credit of the casualty or robbery, theft or
computed under No. 1 and No. 2. embezzlement.
WHEN CREDIT FOR TAXES MAY BE TAKEN NOTE: The taxpayers failure to record
The credit for taxes provided by in his books the alleged loss proves that
Section 30(C)(3) to (9) may ordinarily be the loss had not been suffered, hence,
taken either in the return for the year in not deductible. (City Lumber vs.
which the taxes accrued or on which the Domingo and Court of Tax Appeals, GR
taxes were paid, dependent upon No. L-18611, January 30, 1964)
whether the accounts of the taxpayer
CATEGORY AND TYPES OF LOSSES
are kept and his returns filed upon the
1. ORDINARY LOSSES
accrual basis or upon cash receipts and
a. Incurred in trade or business, or
disbursements basis.
practice of profession
Net operating loss carry-over
LIMITATIONS ON CREDIT FOR FOREIGN TAXES (NOLCO)
1) The amount of credit in respect to Refers to the excess of
the taxes paid or accrued to any allowable deductions over gross
country shall not exceed the same income of the business for any
proportion of the tax against which taxable year, which had not
such credit is taken, which the been previously offset as
taxpayers net income from sources deduction from gross income.
within such country taxable under Can be carried over as a
Title II (income Tax) bears to his deduction from gross income for
entire net income for the same the next 3 consecutive years
taxable year; and immediately following the year
2) The total amount of the credit shall of such loss.
not exceed the same proportion of For mines, other that oil and
the tax against which such credit is gas well, net operating loss
taken, which the taxpayers net incurred in any of the first ten
income from sources without the years of operation may be
Philippines taxable under Title II
carried over for the next 5 The excess over the net
years. book value immediately
before the casualty should
be capitalized, subject to
Requirements: depreciation over the
(1) The taxpayer was not remaining useful life of the
exempt from income tax in property.
the year of such net
operating loss; 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
(2) The loss was not incurred in ONLY TO THE EXTENT OF CAPITAL
a taxable year during the GAINS)
taxpayer was exempt from a. Losses from sale or exchange of
income tax; and capital assets
(3) There has been no b. Losses resulting from securities
substantial change in the becoming worthless and which
ownership of the business or are capital assets.
enterprise. c. Losses from short sales of
There is no substantial property.
change in the ownership of d. Losses due to failure to exercise
the business when: privilege or option to buy or sell
(a) not less than 75% in property.
nominal value of the
outstanding issued shares 3. SPECIAL KINDS OF LOSSES
is held by or on behalf of a. Wagering losses - deductible only to
the same persons; or the extent of gain or winnings. [Sec.
(b) not less than 75% of the 34 (D)(6)]; deemed to apply only to
paid up capital is held by individuals
or on behalf of the same b. Losses on wash sales of stocks - not
person. deductible because these are
considered to be artificial loss.
NOTE: The 3 year period shall
continue to run notwithstanding Wash sales a sale or other
that the corporation paid its taxes disposition of stock or securities
under MCIT, or that the individual where substantially identical
availed the 10% OSD. securities are acquired or purchased
within 61-day period, beginning 30
See Annex S for illustration. days before the sale and ending 30
days after the sale. [Sec. 38]
b. Of property connected, with the
trade, business or profession, if General rule: Losses from wash sales
the loss arises from fires, are not deductible.
storms, shipwreck or other Exception: When the sale is made by
casualties, or from robbery, a dealer in stock or securities and
theft, or embezzlement. with respect to a transaction made in
(1) Total destruction the ordinary course of the business of
The replacement cost to such dealer, losses from such sale is
restore the property to its deductible.
normal operating condition, Elements of Wash Sales:
but in no case shall the (1) The sale or other disposition of
deductible loss be more than stock resulted to a loss;
the net book value of the (2) There was an acquisition or
property as a whole, contract or option for acquisition
immediately before of stock or securities within 30
casualty. days before the sale or 30 days
(2) Partial Destruction after the sale; and
(3) The stock or securities sold were in the market or otherwise cannot be
substantially the same as those deducted from gross income.
acquired within the 61-day
period. E. BAD DEBTS
quent year 3,000 2, 000 6, 000 accordance with the pertinent provisions
TAXABLE
of the instrument creating or in the
INCOME
upon the absence of such provisions, on the basis
bad debt of the trust income allowable to each.
recovery P3,000 P -0- P5,000
METHODS OF DEPRECIATION
ASCERTAINMENT OF WORTHLESSNESS The term "reasonable allowance"
Proof of Two Facts: shall include (but not limited to) an
1. taxpayer did in fact ascertain the allowance computed in accordance,
debt to be worthless, in the year with the regulations prescribed by the
for which deduction is sought, Department of Finance, under any of the
2. that in so doing, he acted in good following methods.
faith. (Collector vs. Goodrich 1. Straight-line method
International Rubber, GR No. L- 2. Declining-balance method
22265, Dec. 22, 1967) 3. Sum of the years-digit method
Depends upon the particular facts and 4. Any other method which may be
the circumstances of the case. prescribed by the Department of
Good faith does not require that the Finance upon recommendation of
taxpayer be an incorrigible optimist the Commissioner of Internal
but on the other hand, he may not be Revenue.
unduly pessimistic.
METHODS OF DEPRECIATION
F. DEPRECIATION Kind Formula
1)Straight-line cost- salvage value
estimated life
DEPRECIATION the gradual diminution in
2)Declining cost depreciation x Rate
the service or useful value of tangible balance estimated life
property due from exhaustion, wear and 3)Sum of the years nth period x cost- salvage
tear and normal obsolescence. digits (SYD) SYD
The term also applies to
amortization of intangible assets, the Illustration: A machine is used in the
use of which in trade or business i s of manufacturing department of
limited duration. Corporation A, compute the depreciation
per annum with the following facts:
REQUISITES FOR DEDUCTIBILITY Cost = P15,000 Salvage
1. The allowance for depreciation Value= P5,000
must be reasonable.
2. It must be for property use or
employment in trade or business or
out of its not being used 1. Straight Line Method with estimated
temporarily during the year. life = 5 years
3. The allowance must be charged off 15,000 5,000 = P2,000
within the taxable, year. 5 years
4. Schedule on the allowance must be
attached to the return. 2. Declining balance with rate of 200%
Year 1: 15,000 0 x 200% = P6,000
PROPERTY HELD BY ONE PERSON FOR LIFE 5
WITH THE REMAINDER TO ANOTHER PERSON Year 2:15,0006,000 x 200% =P3,600
The deduction shall be computed as 5
if the life tenant was the absolute owner
of the property and, as such the expense 3. Sum of the years digits
shall accrue to him. SYD for 5 years = 5+4+3+2+1 or 15
Year 1: 5/15 x (15,000 5,000)
PROPERTY HELD IN TRUST = P3,333.33
Allowable deduction shall be Year 2: 4/15 x (15,000 5,000)
apportioned between the income = P2,666.67
beneficiaries, and the trustees in
3) Recipient is an 3) Recipient is an
accredited non- accredited domestic REQUISITES FOR DEDUCTIBILITY
government corporation or 1. The contribution or gift must be
organization, association actually paid.
organized/ operated organized/operated 2. It must be given to the organizations
for (purposes): for (purposes): specified in the code.
3. The net income of the institution
must not inure to the benefit of any
private stockholder or individual.
VALUATION
Charitable contribution of property
other than money shall be based on the
acquisition cost of said property.
1. Publicly held corporations (Sec. 29) 2. The fact that the earnings or profits
2. Banks and other non-banks Financial of a corporation are permitted to
intermediaries (Sec. 29) accumulate beyond the reasonable
3. Insurance companies (Sec. 29) needs of the business shall be
4. Taxable partnerships (deemed to determinative of the purpose to
have actually or constructively avoid the tax upon its shareholders
received the taxable income under or members unless the corporation,
Sec. 73D) by the clear preponderance of
5. General professional partnerships evidence, shall prove the contrary.
(exempt; taxable against the
partners) Reasonable needs of the
6. Non- taxable joint ventures and business includes the reasonably
7. Enterprises duly registered with the anticipated needs of the business
Philippine Economic Zone Authority such as:
(PEZA) under R.A. 7916, and a. Allowance for the increase in the
enterprises registered pursuant to accumulation of earnings up to
the Bases Conversion and 100% of the paid-up capital of
Development Act of 1992 under R.A. the corporation as of Balance
7227, as well as other enterprises Sheet date, inclusive of
duly registered under special accumulations taken from other
economic zones declared by law years;
which enjoy payment of special tax b. Earnings reserved for definite
rate on their registered operations corporate expansion projects or
or activities in lieu of other taxes, programs as approved by the
national or local. Board of Directors or equivalent
8. Foreign corporations [RR No. 02- body;
2001] c. Reserved for building, plants or
equipment acquisition as
EVIDENCE OF PURPOSE TO AVOID approved by the Board of
INCOME TAX Directors or equivalent body;
d. Reserved for compliance with
1. The fact that any corporation is a any loan covenant or pre-
mere holding company or investment existing obligation established
company shall be prima facie under a legitimate business
evidence of a purpose to avoid the agreement;
tax upon its shareholders or e. Earnings required by law or
members. applicable regulations to be
retained by the corporation or in
Instances indicative of purpose to respect of which there is legal
avoid income tax upon prohibition against its
shareholders: distribution;
1. Investment of substantial f. In the case of subsidiaries of
earnings and profits of the foreign corporations in the
corporation in unrelated Philippines, all undistributed
business or in stock or earnings intended or reserved
securities of unrelated for investments within the
business; Philippines as can be proven by
2. Investment in bonds and other corporate records and/or
long-term securities; relevant documentary evidence.
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.
= 50,000/200,000 = 25%
Collections in 2000=P100,000 taxpayer must be
Income for 2000 entitled to benefits
= P100,000 x 25% = P25,000 under (1) hereof sales of
dealers in personal
(2) Sales of realty and casual property
sales of Personalty in computing income for
In cases of: the year of change or
a. casual sale or other any subsequent year:
casual disposition of amounts actually
personal property received during any such
(other than year on account of sales
inventory on hand of or other dispositions of
the taxpayer at the property made in any
close of the taxable prior year shall not be
year) for a price > excluded.
P1,000, or
b. sale or other 4. Allocation of
disposition of real income and deductions
property, if in either Applicable to: cases of 2 or
case the initial more organizations, trades
payments do not or businesses (incorporated
exceed 25% of the and organized within the
selling price Philippines) owned or
How may income be controlled directly
returned: same as in /indirectly by the same
sales of dealer in interest
personal property above Commissioner is authorized
Initial payments: to distribute, apportion or
payments received in allocate gross income or
cash or property other deductions between or
than evidences of among such organization,
indebtedness of the trade or business, if he
purchaser during the determines that such
taxable period in which distribution, apportionment
the sale or other or allocation is necessary in
disposition is made. order to prevent evasion of
taxes or to clearly reflect
(3) Sales of real the income of any such
property considered as organization, trade or
capital asset by individuals business.
Individual who sells of
disposes of real FILING OF TAX RETURN AND PAYMENT OF TAX
property, considered as
capital asset and is TAX RETURN This is a report made by
otherwise qualified to the taxpayer to the BIR of all gross
report the gain under (2) income received during the taxable
above may pay the year, the allowable deductions including
capital gains tax in exemptions, the net taxable income, the
installments under rules income tax rate, the income tax due,
and regulations to be the income tax withheld, if any, and the
promulgated by the Sec. income tax still to be paid or
of Finance. refundable.
6. The employer issues BIR Form 2316 REQUIREMENT OF BANKS FOR SUBMISSION OF
(Oct 2002 ENCS) version to each AN ITR FOR LOAN O R CREDIT CARD
employee APPLICATIONS
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED Banks may require the submission of
FILING (STILL REQUIRED TO FILE) BIR Form No. 1700 (for employees not
entitled to substituted filing of ITR).
1. Individuals deriving compensation However, for employees entitled to
from two or more employers substituted filing of ITR, the submission
concurrently or successively during of the Joint Certification will suffice.
the taxable year.
2. Employees deriving compensation JOINT CERTIFICATION - It is a sworn
income, regardless of the amount, statement made by the employer and
whether from a single or several employee, which serve the following
employers during the calendar year, purposes:
the income tax of which has not 1. It contains the employee's consent
been withheld correctly (i.e. tax due that BIR Form No. 1604CF may be
is not equal to the tax withheld) considered his substituted return, in
resulting to collectible or refundable lieu of BIR Form No. 1700, which the
return. employee no longer filed.
3. Employees whose monthly gross 2. It contains the employer's
compensation income does not certification that he has reported
exceed P5,000 or the statutory the employee's income to the BIR
minimum wage, whichever is higher, and that he has remitted the taxes
and opted for non-withholding of tax on the employee's income, as
on said income. indicated in BIR Form No. 1604-CF.
4. Individuals deriving other non- 3. It serves as proof of financial
business, non-profession-related capacity in case the employee
income in addition to compensation decides to apply for a bank loan or a
income not otherwise subject to credit-card, or for any other
final tax. purpose, as if he had in fact filed a
5. Individuals receiving purely BIR Form No. 1700.
compensation income from a single
employer although the income tax of INDIVIDUALS REQUIRED TO FILE AN
which has been correctly withheld, INFORMATION RETURN
but whose spouse falls under 1 to 4
above. Individuals not required to file an
6. Non-resident aliens engaged in trade income tax return may nevertheless be
or business in the Philippines required to file an information return
deriving purely compensation pursuant to rules and, regulations
income, or compensation income prescribed by the Secretary of Finance
and other non-business, non- upon recommendation of the
profession-related income. Commissioner.
Time For Filing (Pay as you file system) parent shall be included in the
return of the parent, except:
April 15 for those earning sole a. when donors tax has been paid
compensation income or solely business, on such property, or
practice of profession or combination of b. when transfer of such property is
business and compensation. exempt from donors tax
Multiply by: Tax rate (Sec. 84) 3. Shares, obligations or bonds issued
Estate Tax due by any foreign corporation eighty-
Less: Tax Credit [if any] (Sec. 86[E] or five per centum (85%) of the
110[B] business of which is located in the
Philippines;
Estate Tax Due, if any
4. Shares, obligations or bonds issued
by any foreign corporation, if such
shares, obligations or bonds have
GROSS ESTATE acquired a business situs in the
Philippines;
A decedents gross estate includes 5. Shares or rights in any partnership,
(Sec. 85) business or industry established in
the Philippines.
RESIDENT & NON-
RESIDENT CITIZEN, NON-RESIDENT
RESIDENT ALIEN ALIEN DECEDENT Intangible personal property, with a
DECEDENT situs in the Philippines, of a decedent
who is a non-resident alien shall not
1. Real property 1. Real property
wherever situated situated in the form part of the gross estate if
Philippines. (reciprocity clause) (Sec. 104)
included in the gross estate if the 3. The transmission from the first heir,
beneficiary is: legatee or donee in favor of another
a. the estate of the decedent, his beneficiary, in accordance with the
executor or administrator will of the predecessor; and
(regardless whether the designation All bequests, devices, legacies or
is revocable or irrevocable); or transfers to social welfare, cultural and
b. a third person other than the estate, charitable institutions no part of the net
executor or administrator where the income of which inures to the benefit of
designation of the beneficiary is any individual; Provided, that not more
revocable. than 30% of the said bequests, legacies
or transfers shall be used by such
6. TRANSFERS FOR INSUFFICIENT institutions for administration purposes.
CONSIDERATION
The value to be included in the gross DEDUCTIONS ON GROSS ESTATE
estate is the excess of the fair market APPLICABLE TO
value of the property at the time of the RESIDENT ALIENS AND CITIZENS
decedents death over the consideration (REVENUE REGULATIONS 2-2003)
received. This is applicable in cases of
transfer in contemplation of death,
The following are deductible from
revocable transfer and transfer under
the gross estate of citizens and resident
general power of appointment made for
aliens:
a consideration but is not a bona fide
1. Expenses, losses, indebtedness,
sale for an adequate and full
taxes, etc. (ordinary deductions)
consideration in money or moneys
2. Transfer for public use
worth.
3. Vanishing deduction
4. Family home
7. PRIOR INTERESTS
5. Standard deduction equivalent to
All transfers, trusts, estates,
one million pesos (P1,000,000)
interests, rights, powers and
6. Medical expenses
relinquishment of powers made,
7. Amounts received by heirs under RA
created, arising, existing, exercised or
4917 (Retirement Benefits)
relinquished before or after the
8. Net share of the surviving spouse in
effectivity of the NIRC.
the conjugal or community property
Property relations between Husband
and Wife 1. ORDINARY DEDUCTIONS
The property relations between the
spouses shall be governed by contract A. Funeral Expenses
(marriage settlement) executed before The amount deductible is the lowest
the marriage. among the following:
1. actual funeral expenses
In the absence of such contract, or if 2. 5% of the gross estate
the contract is void: 3. P200,000.
On marriages contracted before August
3, 1988, the system of conjugal It includes the following:
partnership of gains shall govern; 1. Mourning apparel of the surviving
On marriages contracted on or after spouse and unmarried minor children
August 3, 1988 (effectivity of the of the deceased, bought and used in
Family Code of the Philippines), the the occasion of the burial.
system of absolute community of 2. Expenses of the wake preceding the
property shall govern. burial including food and drinks.
3. Publication charges for death
Exempt Transmissions (Sec. 87) notices.
1. The merger of usufruct in the owner 4. Telecommunication expenses in
of the naked title; informing relatives of the deceased.
2. Fideicommisary substitution;
2. The total amount of the credit shall NOTE: The filing of a notice of donation
not exceed the same proportion of is not required, unlike in estate tax
the tax against which such credit is where notice of death is required.
taken, which the decedents net gift
situated outside the Philippines Place for Filing of Return and payment
taxable under the NIRC bears to his of the Donors Tax
entire net gift.
1. Resident
Formula of Tax Credit Limit With an authorized agent bank, the
Revenue District Officer, Revenue
1. For donors taxes paid to one Collection Officer or duly
foreign country authorized Treasurer of the city or
municipality where the donor was
NG situated Tax domiciled at the time of the
in a foreign country X PDT = Credit transfer, or if there be no legal
Entire net gift Limit residence in the Philippines, with
the Office of the Commissioner.
(NG - Net Gifts; PDT - Phil. Donor's Tax) 2. Non-resident
Filed with the Philippine Embassy
2. For donors taxes paid to two or or Consulate in the country where
more foreign country he is domiciled at the time of the
transfer, or directly with the
NG outside the Phil. X PDT = Tax Office of the Commissioner.
Entire net gifts Credit
Limit Tax rate
The allowable tax credit is the If the donee is a stranger, the rate of
lower amount between the tax credit tax shall be 30% of the net gifts.
limit under (a) and (b). If the donee is not a stranger,
the rate shall be from 2% to 15% of the
net gifts.
SETTLEMENT OF THE DONORS TAX
See Annex W - Donors Tax
Time for Filing of Return and payment
of the Donors Tax
The donors tax return is filed and C. TAX REMEDIES
the donors tax due is paid within thirty UNDER THE NIRC
(30) days after the date the gift is made.
The return shall be under oath in
duplicate setting forth: I. TAX REMEDIES OF THE
1. Each gift made during the calendar GOVERNMENT
year which is to be included in
computing net gifts;
Importance
2. The deductions claimed and
allowable;
1. They enhance and support the
3. Any previous net gifts made during
governments tax collection.
the same calendar year;
2. They are safeguards of taxpayers
4. The name of the donee;
rights against arbitrary action.
5. Relationship of the donor to the
donee; and
Tax collection cannot be restrained by
6. Such further information as may be
court injunction (Sec. 218, 1997 NIRC)
required by rules and regulations
made pursuant to law.
Justification: Lifeblood Theory
a. Abatement of penalties on
Compromise involves a reduction of assessment confirmed by the
the taxpayers liability, while lower court but appealed by the
abatement means that the entire tax taxpayer to a higher court
liability of the taxpayer is cancelled. b. Abatement of penalties on
ABATEMENT withholding tax assessment under
meritorious circumstances
The Commissioner may abate or cancel c. Abatement of penalties on
a tax liability when delayed installment payment
under meritorious circumstances
1. The tax or any portion thereof d. Abatement of penalties on
appears to be unjustly or assessment reduced after
excessively assessed; [Sec. 204(B), reinvestigation but taxpayer is
1997 NIRC]. still contesting reduced
a. When the filing of the assessment; and
return/payment is made at the e. Such other circumstances which
wrong venue; the Commissioner may deem
b. When the taxpayers mistake in analogous to the enumeration
payment of his tax is due to above. (Sec. 3, Rev. Reg. 13-2001)
erroneous written official advice
of a revenue officer; 3. The Commissioner may also, even
c. When the taxpayer fails to file the without a claim therefor, refund or
return and pay the tax on time credit any tax where on the face of
due to substantial losses from the return upon which payment was
prolonged labor dispute, force made such payment appears clearly
majeure, legitimate business to have been erroneously paid
reverses, provided, however, the (Sec. 229, 1997 NIRC)).
abatement shall only cover the
surcharge and the compromise
penalty and not the interest (2) DISTRAINT
imposed under Sec. 249 of the
Code; DEFINITION: It is the seizure by the
d. When the assessment is brought government of personal property,
about or the result of taxpayers tangible or intangible, to enforce the
non-compliance with the law due payment of taxes. The property may be
to a difficult interpretation of said offered in a public sale, if taxes are not
law. voluntarily paid. It is a summary remedy.
e. When the taxpayer fails to file the
return and pay the correct tax on Nature of the Warrant of Distraint or
time due to circumstances beyond Levy
his control, provided, however,
the abatement shall only cover The warrant is a summary procedure
the surcharge and the compromise forcing the taxpayer to pay. The
penalty and not the interest receipt of a warrant may or may not
imposed under Sec. 249 of the partake the character of a final decision.
Code; If it is an indication of a final decision,
f. Late payment of the tax under the taxpayer may appeal to the CTA
meritorious circumstances (ex. within 30 days from service of the
Failure to beat bank cut-off time, warrant.
surcharge erroneously imposed,
etc.) (Sec. 2, Rev. Reg. 13-2001) Duties of the officer serving the
warrant of distraint:
2. The administration and collection 1. Make an account of the personal
costs involved do not justify the properties distrained;
collection of the amount due [Sec. 2. Sign the list of personal
204(B), 1997 NIRC]. properties distrained to which
II
Service of Warrant of Distraint
(Sec. 208) III
Posting of Notice
(Sec. 209, NIRC)
With respect to:
1. Personal property Notice specifying the time and place
(a) upon the owner of the goods, of sale and the articles distrained. The
chattels, or other personal posting shall be made in not less than
property; or two (2) public places in the city or muni-
(b) upon the person from whose cipality where the distraint is made.
possession such properties are One place for posting of such notice is at
taken. the Office of the Mayor of such city or
2. Stocks and other securities municipality.
(a) upon the taxpayer; and
(b) upon the president, manager,
treasurer or other responsible
officer of the corporation,
company or association which IV
issued the said stock and Sale of Property Distrained
securities.
3. Bank accounts shall be garnished by
serving a warrant of distraint
(a) upon the taxpayer; and The taxpayers property may be placed
(b) upon the president, manager, under constructive distraint when he
treasurer, or other responsible
officer of the bank. 1. is retiring from any business subject
Note: Upon receipt of the warrant of to tax;
distraint, the bank shall turn over to the 2. is intending to
Commissioner so much of the bank a. leave the Philippines,
accounts as may be sufficient to satisfy b. remove his property therefrom,
the claim of the government. c. hide or conceal his property,
4. Debts and credits 3. is performing any act tending to
(a) persons owing or having in his obstruct the proceeding for
possession the debts; collecting the tax due or which may
(b) or under his control such credits; be due from him (Sec. 223, 1997
or NIRC).
(c) upon his agent.
DEFINITION: For tax remedy purposes, Defenses which are precluded by final
these are actions instituted by the and executory assessments
government to collect internal revenue
taxes. It includes filing by the 1. Invalidity or illegality of the
government with the probate court assessment; and
claims against the deceased taxpayer. 2. Prescription of the governments
right to assess.
When resorted to?
(6) CRIMINAL ACTIONS
1. When a tax is assessed but the
assessment becomes final and The judgment in the criminal case
unappealable because the taxpayer shall not only impose the penalty but
fails to file an administrative shall also order the payment of taxes
protest with the CIR within 30 days subject of the criminal case as finally
from receipt; or decided by the Commissioner (Sec. 205,
2. When a protest against assessment is NIRC).
filed and a decision of the CIR was
rendered but the said decision Where to file
becomes final, executory, and
demandable for failure of the 1. Court of Tax Appeals on criminal
taxpayer to appeal the decision to offenses arising from violations of
the CTA within 30 days from the NIRC or TCC and other laws
receipt of the decision. administered by the BIR and the
BOC, where the principal amount of
NOTE: Judicial action may be resorted taxes and fees, exclusive of charges
to even before assessment although and penalties claimed is One million
impractical, as stated in Sec. 203, 1997 pesos and above.
NIRC, and no proceeding in court 2. Regional Trial Court, Municipal
without assessment for the collection of Trial Court, Metropolitan Trial
such taxes shall be begun after the Court on criminal offenses arising
expiration of such (3year) period. from violations of the NIRC or TCC
It should be noted that no civil and other laws administered by the
or criminal action for the recovery of BIR and the BOC, where the principal
taxes shall be filed in court without the amount of taxes and fees, exclusive
approval of the Commissioner. of charges and penalties claimed is
less than One million pesos or where
The city may levy the taxes, fees, SITUS OF LOCAL TAXATION
and charges which the province or
municipality may impose. A. Situs According to the Cases
The tax rates that the city may levy With respect to excise tax, the
may exceed the maximum rates tax is upon the performance of an act,
allowed for the province or enjoyment of a privilege or the engaging
municipality by not more than 50% in an occupation. The power to levy such
except the rates of professional and tax is not dependent on the domicile of
amusement taxes. the taxpayer, but on the place in which
the act is performed or the occupation is
(D) BARANGAYS engaged in; not upon the location of the
(SEC. 152, LGC) office, but the place where the sale is
perfected. (Allied Thread Co., Inc. v.
Barangays may levy the following taxes, City Mayor of Manila, L-40296)
fees, and charges which shall accrue
exclusively to them: With respect to sale, it is the
place of the consummation of the sale,
associated with the delivery of the
a. Taxes On stores or retailers things which are the subject matter of
with fixed business the contract that determines the situs of
establishments with the gross the contract for purposes of taxation,
sales or receipts for the and not merely the place of the
preceding calendar year of perfection of the contract. (Shell Co.,
P50,000 or less (for barangays in Inc. v. Municipality of Sipocot,
the cities) and P30,000 or less Camarines Sur 105 Phil 1263)
(for barangays in municipalities)
b. Rate = not exceeding 1% of such B. Situs According to Sec. 150, LGC
gross sales or receipts.
50% accrues to the general fund date it is due until it is paid, but in no
of the city or municipality case shall the total interest on the
concerned; and unpaid amount or portion thereof
50% accrues to the barangay exceed thirty-six (36) months.
where the tax is collected.
Collection of Local Revenues by the
Collection Of Local Taxes Treasurer (Sec. 170 LGC)
All local taxes, fees and charges
Tax Period and Manner of Payment shall be collected by the provincial, city,
(Sec. 165, LGC) municipal or barangay treasurer, or their
Unless otherwise provided, the duly authorized deputies.
tax period shall be the calendar The provincial, city or municipal
year. treasurer may designate the barangay
Such taxes, fees, and charges treasurer or his deputy to collect local
may be paid in quarterly taxes, fees or charges.
installments. In case a bond is required for the
purpose, the provincial, city or
Accrual of Tax (Sec. 166, LGC) municipal government shall pay the
Unless otherwise provided, shall premiums thereon in addition to the
accrue on the first day of January of premiums of the bond that may be
each year. required under the Code.
However, new taxes, fees or
charges, or changes in the rates
thereof, shall accrue on the first LOCAL TAX REMEDIES
day of the quarter next following
UNDER THE LGC
the effectivity of the ordinance
imposing such new levies or rates.
Unpaid realty taxes attach to the Claim for exemption must be filed
property and is chargeable against the with the assessor together with
person who had actual or beneficial use sufficient documentary evidence to
and possession of it regardless of support claim
whether or not he is the owner. To
impose the real property tax on the WHEN: within 30 days from the date of
subsequent owner which was neither the declaration of property.
owner nor the beneficial user of the
property during the designated periods IF PROPERTY IS DECLARED FOR THE FIRST
would not only be contrary to law but TIME (SEC.222)
also unjust. (Estate of Lim vs. City of If Declared for the first time, real
Manila, GR No. 90639, February 21, property shall be assessed for back
1990) taxes:
For not more than 10 years prior to
date of initial assessment
PROCEDURE Taxes shall be computed on the basis
of applicable schedule of values in force
STEP 1: DECLARATION OF REAL during the corresponding period.
PROPERTY
STEP 2: LISTING OF REAL
DECLARATION BY OWNER OR ADMINISTRATOR PROPERTY IN THE ASSESSMENT
(SEC. 202-203) ROLLS (SECS. 205, 207)
File a sworn declaration with the
assessor
All declarations shall be kept and
- once every 3 years during
filed under a uniform
the period from January 1
classification system to be
to June 30.
established by the provincial, city
For newly acquired property
or municipal assessor.
WHEN: Must file with the assessor within
60 days from date of transfer
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
For improvement on property
WHEN: Must file within 60 days upon Determination of fair market value
completion or occupation (whichever (FMV)
comes earlier) For land
WHAT: Sworn statement containing the Assessor of the province/city or
fair market value and description of the municipality may summon the
property. owners of the properties to be
affected and may take depositions
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY