SAN BEDA COLLEGE OF LAW, 2000-2001

MEMORY AID IN TAXATION LAW

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San Beda College of Law

2001 Centralized Bar Operations

Memory Aid
Taxation Law
TABLE OF CONTENTS

I. GENERAL PRINCIPLES ......................................................................2

A. Power of Taxation.............................................................................2
B. Situs of Taxation...............................................................................4
C. Limitations on the Power of Taxation................................................4
D. Double Taxation................................................................................6
E. Forms of Escape from Taxation........................................................6
F. Tax Enforcement and Administration.................................................7
II. NATIONAL TAXATION.........................................................................9
A. Income Tax......................................................................................9
B. Transfer Taxes...............................................................................14
C. Expanded Value Added Tax...........................................................17
III. LOCAL TAXATION............................................................................19
IV. REAL PROPERTY TAXATION..........................................................19
V. TARIFF AND CUSTOMS LAWS........................................................20
VI. TAX REMEDIES...............................................................................22
A. Under the National Internal Revenue Code..................................22
B. Under the Local Government Code..............................................29
C. Under the Tariff and Customs Code.............................................30
VII. COURT OF TAX APPEALS.............................................................33
VIII. ANNEX A: COMPARATIVE TABLE OF TAX REMEDIES..............A-1
IX. ANNEX B: INCOME TAX TABLES................................................B-1

I.GENERAL PRINCIPLES
THE POWER OF TAXATION
Definitions:
1. Taxation: Power by which the sovereign
raises revenue to defray the necessary
expenses of the government from among
those who in some measure are privileged
to enjoy its benefits and must bear its
burden.
2. Taxes: Enforced proportional contribution
from properties and persons levied by the
State by virtue of its sovereignty for the
support of government and for public
needs.
Characteristics of Taxes:
1. forced charge;
2. generally payable in money;
3. levied by the legislature;
4. assessed with some reasonable rule of
apportionment;
5. imposed by the State within its jurisdiction;
6. levied for public purpose.
Theories or bases of taxation:
1. Lifeblood Theory
Taxes are the lifeblood of the nation.
Without revenue raised from taxation, the
government will not survive, resulting in
detriment to society. Without taxes, the
government would be paralyzed for lack of
motive power to activate and operate it. (CIR vs
Algue, Inc., et. al.)
Illustrations of Lifeblood Theory:
a. Collection of taxes may not be enjoined
by injunction.
b. Taxes could not be the subject of
compensation and set-off.
c. A valid tax may result in destruction of
the taxpayer's property.
2. Necessity Theory
Existence of a government is a
necessity and cannot continue without any
means to pay for expenses.
a. Marshall Dictum
Power to tax is the power to
destroy describes the unlimitedness
of the power and the degree of vigor
with which the taxing power may be
employed in order to raise revenue.
b. Oliver Wendell Holmes Dictum
Power to tax is not the power to
destroy while this court (US Supreme
Court) sits power to tax knows no
limits except those expressly stated in
the Constitution.
Marshall and Holmes Dictums Reconciled:
Although the power to tax is almost
unlimited, it must not be exercised in an arbitrary
manner. We have courts to which people may
seek redress in case of irregularities.
3. Benefits-Protection Theory
There exist reciprocal duties of
protection and support between State and its
inhabitants. Inhabitants pay taxes and in return
receive benefits and protection from the State.
Importance of Taxes
Taxes are the lifeblood of the
government and so should be calculated
without unnecessary hindrance; therefore, their
prompt and imperious availability is an
imperious need.
General Rule: Taxes are personal to the
taxpayer. Illustrations:
1. Corporations tax delinquency cannot be
enforced against the stockholder (Corporate
Entity Doctrine). Exception: Stockholders
may be held liable for unpaid taxes of a
dissolved corporation if the corporate assets
have passed into their hands.
2. Transfer tax on the estate cannot be
assessed against the heirs. Exception: Heirs
may be held liable for the transfer tax on the
estate, if prior to the payment of the same,
the properties of the decedent have been
distributed to the heirs.
Nature of the Taxing Power
1. attribute of sovereignty and emanates from
necessity, relinquishment of which is never
presumed;
2. legislative in character; and
3. subject to inherent and constitutional
limitations.
Purpose and Objectives of Taxation:
1. Revenue
2. Non-Revenue (still a tax but imposed under
its non-revenue objective) KEY: PR2EP
a. Regulation;
b. Promotion of general welfare;
c. Reduction of social inequity;
d. Encouragement of economic growth;
and
e. Protectionism.
Scope of legislative taxing power (MS
SAPAK):
1. Subject to be taxed, provided it is within its
jurisdiction;
2. Amount or rate of the tax;
3. Purposes for its levy, provided it be for
public purpose;
4. Kind of tax to be collected;
5. Apportionment of the tax;
6. Situs of taxation; and
7. Method of collection.
 TAXATION POLICE EMINENT
Aspects of Taxation: POWER DOMAIN
1. Levy or imposition of the tax; and to self-
2. Enforcement or tax administration protection and
self-
Basic Principles of a sound tax system: preservation
A sound tax system must be:
1. sufficient to meet governmental
expenditures (fiscal adequacy); Impositions not strictly considered as
2. capable of being effectively enforced taxes:
(administrative feasibility); and 1. Toll amount charged for the cost and
3. based on the taxpayers ability to pay maintenance of property used;
(theoretical justice). 2. Compromise penalty amount collected in
lieu of criminal prosecution in cases of tax
TAXATION, POLICE POWER AND violations;
EMINENT DOMAIN DISTINGUISHED 3. Special assessment levied only on land
TAXATION POLICE EMINENT based wholly on the benefit accruing
POWER DOMAIN thereon as a result of improvements or
Purpose: public works undertaken by government
To raise To promote To facilitate within the vicinity;
revenue public welfare the States 4. License fee regulatory imposition in the
through need of exercise of the police power of the State;
regulations property for 5. Margin fee exaction designed to stabilize
public use the currency;
6. Custom duties and fees duties charged
Amount of
upon commodities on their being imported
exaction:
into or exported from a country;
Not limited Limited No exaction; 7. Debt a tax is not a debt but is an
just obligation imposed by law.
compensation
is paid by the
Government LICENSE FEE VS. TAX
Benefits:
No special or No direct Direct benefits LICENSE FEE TAX
direct benefits are result in the
form of just Basis:
benefits are received; Power of taxation.
compensation Police power
received by damnum
the taxpayer absque injuria Purpose:
To regulate To raise revenue.
is attained
Limitation:
Inherent and
Non- Limited to costs of (1)
issuing the license; constitutional
impairment
and (2) necessary limitations.
of contracts:
Contracts inspection or police
may not be surveillance
Contracts may Contracts may
impaired
be impaired be impaired
Effect of non-
payment:
Effect of Makes the business Does not make the
transfer: illegal. business illegal.
Taxes paid No transfer Property is
become part but only taken by the
of the public restrain on the State upon Classification of Taxes:
funds exercise of payment of As to subject matter
property rights just 1. Personal tax also known as capitalization
compensation or poll tax.
Scope: 2. Property tax assessed on property of a
It affects all It affects all It affects only certain class.
persons, persons, the particular 3. Excise tax imposed on the exercise of a
property, and property, property privilege.
excises privileges, and compre- 4. Custom duties duties charged upon
even rights hended commodities on being imported into or
Basis: exported from a country;
Public Public Necessity of 5. Local taxes taxes levied by local
necessity necessity and the public for government units pursuant to validly
right of State private delegated power to tax;
and of public property As to burden
1. Direct tax incidence and impact of
taxation fall to one person and cannot be
shifted to another.
2. Indirect tax incidence and liability for the
tax fall to one person but the burden thereof
can be passed on to another.
As to purpose
1. General taxes taxes levied for ordinary or
general purpose of the government.
2. Special taxes levied for a special
purpose.
As to measure of application
1. Specific tax- tax imposed by the head or
number or by some standard of weight or
measurement.
2. Ad valorem tax tax imposed upon the
value of the article.
As to rate:
1. Progressive taxes rate increases as the
tax base increases.
2. Regressive taxes rate increases as tax
base decreases.
SITUS OF TAXATION
Situs of Taxation - an inherent mandate that
taxation shall only be exercised on persons,
properties and excises within the territory of the
taxing power.
Factors that determine the situs of
taxation:
1. Nature of the tax;
2. Subject matter of the tax;
3. Citizenship of the taxpayer;
4. Residence of the taxpayer; and
5. Source of income
Application of Situs of Taxation:
1. Tax on persons residence of the
taxpayer;
2. Community tax residence or domicile of
the person taxed;
3. Business tax where business is
conducted;
4. Privilege or occupation tax where
occupation is pursued;
5. Sales tax where transaction takes place;
6. Real property tax where property is
located;
7. Personal property tax tangible; where it
is physically located; intangible: subject to
Sec. 104 of CTRP and principle of mobilia
sequuntur personam;
8. Income where income is earned or
residence or citizenship of the taxpayer;
9. Transfer tax residence or citizenship of
the taxpayer or location of the property;
10. Franchise tax State which granted the
franchise;
11. Tax on corporations and other judicial
entities law of incorporation.
Intangible properties deemed with a situs
in the Philippines:
1. franchise which must be exercised in the
Philippines;
2. shares, obligations or bonds issued by a
corporation organized and constituted in the
Philippines in accordance with its laws;
3. shares, obligations or bonds issued by a
foreign corporation 85% of its business is
located in the Philippines;
4. shares, obligations or bonds issued by a
foreign corporation if such shares,
obligations or bonds have acquired a
business situs in the Philippines; and
5. shares or rights in any partnership, business
or industry established in the Philippines.
(Sec. 104, R.A. 8424 or the CTRP)
LIMITATIONS ON THE POWER TO TAX
A. Inherent Limitations
The following are the inherent limitations
on the power to tax (SPINE):
1. Public Purpose of taxes;
2. Non-delegability of the taxing power;
3. Territoriality or situs of taxation;
4. Tax exemption of government;
5. International comity
Test in Determining Public Purpose
1. whether the thing to be furthered by the
appropriation of public revenue is something
which is the duty of the state, as a
government, to provide
2. whether the proceeds of the tax will directly
promote the welfare of the community in
equal measure.
Non-delegability of the taxing power:
- The power of taxation is peculiarly and
exclusively legislative. Consequently, the
taxing power as a general rule may not be
delegated.
Non-delegable Legislative Power:
1. selection of property to be taxed;
2. determination of the purposes for which
taxes shall be levied;
3. fixing of the rate of taxation;
4. rules of taxation in general
Delegable Legislative Power:
1. Authority of the President to fix tariff rates,
import and export quotas (Art. VI, Sec.
28[2], 1987 Constitution).
2. Power of local government units to tax
subject to limitations as may be provided by
Local Government Code (Art. X, Sec. 5,
1987 Constitution).
Situs of taxation as a limitation on the
power to tax: (See the subheading on Situs of
Taxation, supra.)
Exemption of the Government from Taxes
 As a matter of public policy, property of
the State or any of its political subdivisions
devoted to government uses and purposes are
generally exempt from taxation.
B. Constitutional Limitations
1. Due Process of Law (Sec.1, Art. III of the
Constitution)
Requisites:
a. The interests of the public generally
as distinguished from those of a
particular class require the
intervention of the State; and
b. The means employed must be
reasonably necessary to the
accomplishment of the purpose and
not unduly oppressive.
In a string of cases, the SC held that in order
that due process of law will not be violated, the
imposition of the tax must not be done in an
arbitrary, despotic, capricious, or whimsical
manner.
2. Equal Protection of the Law (Sec. 1,
Art. III of the Constitution)
Requisites for a valid classification:
a. Must not be arbitrary;
b. Must be based upon substantial
distinctions;
c. Must be germane to the purposes of
law;
d. Must not be limited to existing
conditions only; and
e. Must apply equally to all members
of a class.
3. Uniformity, Equitability, and
Progressivity of Taxation (Art. VI, Sec.
28 (1) of the Constitution)
Definitions:
a. Uniformity: All taxable articles or kinds
of property of the same class shall be
taxed at the same rate. A tax is uniform
when it operates with the same force
and effect in every place where the
subject of it is found.
b. Equitability: Taxation is said to be
equitable when its burden falls to those
better able to pay.
c. Progressivity: Rate increases as the
tax base increases.
4. Non-impairment of Contracts (Art. III,
Sec. 10 of the Constitution)
5. Non-imprisonment for Non-payment
of Poll Tax(Art. III, Sec. 20 of the
Constitution)
6. Origin of Appropriation, Revenue,
and Tariff Bills (Art. VI, Sec. 24 of the
Constitution; Tolentino vs. Sec. of Finance).
7. Non-infringement of Religious
Freedom and Worship (Art. III, Sec. 24
of the Constitution)
American Bible Society vs. City of Manila
and Tolentino vs. Sec. of Finance rulings
reconciled:
The imposition in the former is a license
tax which is intended to regulate the exercise of
freedom of religion while in the latter is a
revenue tax. With respect to revenue tax,
Congress can choose anyone who will be taxed.
Its imposition is a political question.
8. Delegation of Legislative Authority to
the President to Fix Tariff Rates,
Import and Export Quotas (Art. VIII,
Sec. 28(2) of the Constitution)
9. Tax Exemption of Properties Actually,
Directly, and Exclusively Used for
Religious, Charitable and Educational
Purposes (See Art. VI, Sec. 28(3) of the
Constitution; Lladoc vs. Commissioner;
Province of Abra vs. Hernando). This
provision refers only to property taxes.
10. Majority Vote of all Members of
Congress Required in Case of a
Legislative Grant of Tax Exemptions
(Art. VI, Sec. 28 (4) of the Constitution)
11. Non-impairment of the Supreme
Courts Jurisdiction in Tax Cases [Art.
VIII, Sec. 2(1) and Art. VIII, Sec.5(b) of the
Constitution]
12. Tax Exemption of Revenues and
Assets of, including Grants,
Endowments, Donations, or
Contributions to, Educational
Institutions (Art. XIV, Secs. 4(3) and (4) of
the Constitution)
13. Other Provisions of the Constitution
Which are Related to Taxation
a. Power of the President to veto item or
items in an Appropriation, Revenue, or
Tariff Bill (Art. VI, Sec. 27 (2))
b. Necessity of an a Appropriation before
Money may be paid out of the Public
Treasury (Art. VI, Sec. 29 (1))
c. Non-appropriation of Public Money or
Property for the benefit of any Church,
Sect, or System of religion. (Art. VI,
Sec. 29(2)
d. Treatment of Taxes Levied for a Special
Purpose.(Art.VI, Sec. 29 (3))
 e. Internal Revenue Allotments to Local
Government Units. (Art.X, Sec.6)
DOUBLE TAXATION
Definition: Taxing the same subject twice
when it should be taxed only once. Also known
as duplicate taxation.
Is double taxation prohibited in the
Philippines?
No. There is no constitutional prohibition
against double taxation in the Philippines. It is
something not favored but permissible (Pepsi
Cola Bottling Co. v. City of Butuan, 1968).
Kinds of Double Taxation (DT)
1. Direct duplicate taxation/obnoxious DT
in the objectionable or prohibited sense.
REASON: This constitutes a violation of
substantive due process. The same property
is taxed twice when it should be taxed only
once.
Requisites:
a. the same property is taxed twice when it
should only be taxed once;
b. both taxes are imposed on the same
property or subject matter for the same
purpose;
c. imposed by the same taxing authority;
d. within the same jurisdiction
e. during the same taxing period; and
f. covering the same kind or character of
tax.
2. Indirect double taxation: Not legally
objectionable. The absence of one or more of
the foregoing requisites of obnoxious DT makes
the DT indirect.
Reliefs from Effects of Double Taxation
1. Tax deductions
Example: Vanishing deductions in
transfer taxes.
2. Tax credits
An amount allowed as a reduction of the
Phil. Income tax on account of income
tax(es) paid or incurred to foreign countries.
It is given to a taxpayer in order to provide a
relief from too onerous a burden of taxation
in case where the same income is subject to
a foreign and Phil. Income tax. This may be
claimed by (1) citizens of the Philippines and
(2) domestic corporations.
3. Exemptions
4. Treaties with other states
5. Principle of reciprocity
FORMS OF ESCAPE FROM TAXATION
The following are the forms of escape
from taxation:
1. Shifting S
2. Capitalization C
3. Transformation T
4. Avoidance A
5. Exemption E
6. evasion-unlawful E
Key: ESCATE
A. Shifting
Definition: Process by which tax burden is
transferred from statutory taxpayer to another
without violating the law.
Impact of taxation point on which tax is
originally imposed.
Incidents of taxation point on which the
tax burden finally rests or settles down.
B. Capitalization
Definition: Reduction in the price of the
taxed object equal to the capitalized value of
future taxes which the purchaser expects to be
called upon to pay.
C. Transformation
Definition: The manufacturer or producer
upon whom the tax has been imposed, fearing
the loss of his market if he should add the tax to
the price, pays the tax and endeavors to recoup
himself by improving his process of production,
thereby turning out his units at a lower cost.
D. Tax Avoidance
Definition: exploitation by the taxpayer of
legally permissible alternative tax rates or
methods of assessing taxable property or
income, in order to avoid or reduce tax liability.
E. Tax Evasion
Definition: Used by the taxpayer through
illegal or fraudulent means to defeat or lessen
the payment of the tax.
Indicia of Fraud in Tax Evasion:
1. failure to declare for taxation purposes true
and actual income derived from business for
two consecutive years; or
2. substantial underdeclaration of income tax
returns of the taxpayer for four consecutive
years coupled with intentional overstatement
of deductions.
F. Tax exemption
Definition: A grant of immunity, express or
implied, to particular persons or corporations
from the obligation to pay taxes.
Kinds of Tax Exemptions
As to basis:
1. Constitutional: Immunities from taxation 1. Where no vested right will be impaired;
which originate from the constitution 2. Where the law allows retroactive application;
2. Statutory: Those which emanate from and
legislation 3. If there is bad faith on the part of the
As to form: taxpayer.
1. Express: Expressly granted by organic or
statute law Agencies Involved in Tax Administration:
2. Implied: When particular persons, 1. BIR
properties, or excises are deemed exempt 2. Bureau of Customs
as they fall outside the scope of the taxing 3. Provincial, city, and municipal assessors
provision itself. and treasurers
As to extent:
1. Total: Connotes absolute immunity. Powers and Duties of the BIR (Sec. 2,
2. Partial: One where a collection of a part of CTRP): (AGEE)
the tax is dispensed with. 1. Assessment and collection of all national
internal revenue taxes, fees, and charges
Principles Governing Tax Exemptions 2. Give effect to and administer the
1. Exemptions from taxation are highly supervisory and police power conferred to
disfavored in law. it by the Tax Code or other laws
2. He who claims an exemption must be able 3. Enforcement of all forfeitures, penalties
to justify his claim by the clearest grant of and fines in connection therewith
organic or statute law. If ambiguous, there 4. Execution of judgments in all cases
is no tax exemption. Taxation is the rule, tax decided in its favor by the Court of Tax
exemption is the exception. Appeals and the ordinary courts
3. He who claims an exemption must justify
that the legislature intended to exempt Assessment Defined:
him by words too plain to be mistaken. It is a finding by the taxing agency that
4. He who claims exemption should the taxpayer has not paid his correct taxes. It is
convincingly prove that he is exempted. also a written notice to a taxpayer to the effect
5. Tax exemption must be strictly construed. that the amount stated therein is due as a tax,
6. Tax exemptions are not presumed. and containing a demand for the payment
7. Constitutional grants of tax exemptions are thereof.
self-executing.
8. Tax exemptions are personal. Burden of proof in pre-assessment
9. Deductions for income tax purposes proceedings:
partake of the nature of tax exemptions; There is a presumption of correctness
hence, they are also to be strictly construed on the part of the CIR, thus the burden of proof
against the taxpayer. is on the taxpayer. Otherwise, the finding of the
CIR will be conclusive and the CIR will assess
the taxpayer. Such finding is conclusive even if
TAX ENFORCEMENT AND CIR is wrong if the taxpayer does not controvert.
ADMINISTRATION
Principles Governing Tax Assessments:
Sources of Tax Laws (PADDD)
(Key: SPEC2TRA BLT) 1. Assessments are prima facie presumed
1. Statutes correct and made in good faith
2. Presidential Decrees 2. Assessments should be based on actual
3. Executive Orders facts
4. Constitution 3. Assessment is discretionary on the part of
5. Court Decisions the Commissioner
6. Tax Codes 4. The authority vested in the Commissioner
7. Revenue Regulations to assess taxes may be delegated.
8. Administrative issuances 5. Assessments must be directed to the right
9. BIR Rulings party.
10. Local Tax Ordinances
11. Tax treaties and conventions with foreign Means Employed in the Assessment of
countries Taxes (Sec. 6, CTRP): (BETI-PPEA)
1. Examination of tax returns
Requisites of Tax Regulations 2. Use of the best evidence obtainable
1. Reasonable 3. Inventory taking, surveillance and use of
2. Within the authority conferred presumptive gross sales and receipts
3. Not contrary to law 4. Termination of taxable period
4. Must be published 5. Prescription of real property values
6. Examination of bank deposits to determine
Retroactivity of BIR Rulings: the correct amount of the gross estate
General Rule: Prospective. 7. Accreditation and registration of tax agents
Exceptions:
 8. Prescription of additional procedural or
documentary requirements.
Examination of Income Tax Returns:
General Rule: Income tax returns are
confidential.
Exceptions:
Inspection of the return may be authorized:
1. upon written order of the President of the
Philippines;
2. under Finance Regulations no. 33 of the
Secretary of Finance;
3. when the production of the tax return is
material evidence in a criminal case
wherein the Government is interested in
the result;
4. by the taxpayer himself;
Cases when Commissioner may Assess
Taxes on the Basis of the Best Evidence
Obtainable:
1. a person fails to file a return or other
document at the time prescribed by law
2. he willfully or otherwise files a false or
fraudulent return or other document
Grounds for Termination of Taxable
Period: (CRIP)
1. the taxpayer is retiring from business
subject to tax
2. he intends to leave the Philippines or
remove his property therefrom
3. he hides or conceals his property
4. he performs any act tending to obstruct
the proceedings for the collection of the
tax for the past or current quarter or year
or renders the same totally or partly
ineffective unless such proceedings are
began immediately.
Instances when the Commissioner may
inquire into Bank Deposits:
1. When determining the gross estate of a
decedent;
2. Where a taxpayer offers to compromise his
tax liability on the ground of financial
inability in which case he must submit a
waiver.
Inspection and Examination of Books and
Records, When Made
General Rule: Shall be made once in a taxable
year.
Exceptions:
1. in cases of fraud, irregularity, or mistakes
2. when taxpayer requests a reinvestigation
3. to verify compliance with withholding tax
laws and regulations
4. to verify capital gains tax liabilities
5. upon order of the Commissioner
25% Surcharge on the Amount of the Tax
Due is imposed in the Following Cases:
1. failure to file any return required under Tax
Code or regulations on the date prescribed
2. filing a return with the wrong internal
revenue officer
3. failure to pay the tax within the time
prescribed for its payment
4. failure to pay the full amount of tax shown
on any return required to be filed under the
Tax Code or regulations or the full amount
of tax due for which no return is required to
be filed, on or before the date prescribed
for its payment
II. NATIONAL TAXATION
INCOME TAX
DEFINITIONS
1. Income Tax - tax on income, whether gross
or net. (27 Am. Jur. 308)
2. Income - all wealth which flows into the
taxpayer other than as a mere return of capital.
3. Capital - resource of person which can be
used in producing goods and services.
Requisites for Income to be Taxable:
1. gain or profit
2. realized or received
3. not excluded by law or treaty
TESTS ON TAXABILITY OF INCOME
1. Flow of Wealth Test - whether any gain or
the flow of wealth profit was derived from the
transaction.
2. Realization Test - unless the income is
deemed "realized," there is no taxable income.
3. Economic-Benefit Principle - flow of wealth
realized is taxable only to the extent that the
taxpayer is economically benefited.
CLASSIFICATION OF TAXPAYERS:
a. Individuals
1) citizens
1 1.1. resident citizens (RC)
2 1.2. non-resident citizens (NRC)
1.3 OCW*
2) aliens
I.1 resident aliens (RA)
I.2 non-resident aliens
2.2.1.engaged in trade or business
within the Phils. (NRAETB)
3 2.2.2.Not engaged in trade or
business within the Philippines
(NRANETB)
b. Corporations
1) Domestic (DC)
2) Foreign
2.1 resident foreign corporation (RFC)
2.2 non-resident foreign corporation
(NRFC)
c. Estates
d. Trusts
Under R.A. 8424 or the CTRP:
A. A non-resident citizen means, a Filipino
citizen:
1. who establishes to the satisfaction of the
Commissioner the fact of their physical
presence abroad with a definite intention to
reside therein;
2. who leave the Philippines during the
taxable year to reside abroad, either as an
immigrant or for employment on a
permanent basis;
3. who work and derive income from
abroad and whose employment thereat
requires them to be physically present
abroad most of the time during the taxable
year;
4. who are previously considered as a non-
resident and who arrive in the Philippines at
anytime during the taxable year to reside
thereat permanently shall be considered
non-resident for the taxable year in which he
arrives in the Philippines with respect to his
income derived from sources abroad until
the date of his arrival (Sec.22e, CTRP.)
B. A resident alien means an individual whose
residence is within the Philippines and who
is not a citizen thereof. [Sec.22f]
C. A non-resident alien means an individual
whose residence is not within the Philippines
and who is not a citizen thereof. [Sec.22G]
D. The term trade or business includes the
performance of the functions of as a public
office. [Sec. 22S]
E. The term trade, business or profession
shall not include performance of services by
the taxpayer as an employee. [Sec. 22 CC]
F. A non-resident alien individual who shall
come to the Philippines and stay therein for
an aggregate period of more than 180 days
during any calendar year shall be deemed a
non-resident alien doing business in the
Philippines Section 22(G) notwithstanding
[Sec. 25(A)(1)]
G. The term corporation shall include:
1. Partnerships, no matter how formed or
created, except (i) general professional
partnerships and (ii) a joint venture or
consortium formed for the purpose of
undertaking construction projects or
engaging in petroleum, coal, geothermal and
other energy operations pursuant to an
operating or consortium agreement under a
service contract with the Government;
2. joint-stock companies;
3. joint accounts (cuentas en participacion)
4. associations; or
5. insurance companies [Sec. 22(B)].
H. A General Professional Partnership
means:
a) a partnership formed by persons for the
sole purpose of exercising their common
profession; and
b) no part of the income of which is derived
from engaging in any trade or business
[Sec. 22(B)].
- if the requirements are met, it is exempt
from income taxation.
I. Domestic Corporation created or
organized in the Phils. or under its law [ Sec.
22(C)]
J. Foreign corporation a corporation which
is not domestic [Sec. 22(D)]
K. Resident Foreign Corporation engaged
in trade or business within the Philippines
[Sec. 22(H)]
L. Non-resident Foreign Corp. not engaged
in trade or business within the Philippines
[Sec. 22(I)]
The income of taxable estates and trusts
shall be taxed in the same manner as any other
individual taxpayer. [Sec. 60 (A)]
ONLY RESIDENT CITIZENS and
DOMESTIC CORPORATIONS are taxable for
income derived from sources within and
without the Philippines. All other income
taxpayers are taxable only for income
derived from sources within the Philippines.
KINDS OF INCOME TAXES UNDER
R.A. 8424:
(1) Net Income Tax
(2) Gross Income Tax
(3) Final Income Tax
(4) Preferential Rates or Special Rates of
Income Tax
(5) Improperly Accumulated Earnings Tax
(6) Minimum Corporate Income Tax
(7) Optional corporate Income tax
NET INCOME TAX
Definition: Means gross income less
deductions and/or personal and additional
exemptions (Sec. 31, RA 8424)
 3. separation pay because of death, sickness,
or other physical disability or for any cause
NET INCOME TAX FORMULA beyond the control of the official or
employee;
Entire Income 4. social security benefits, retirement gratuities,
Less: Exclusions and Income subject to Final pensions and other similar benefits received
Tax(e.g. Passive Income) by citizens and aliens who come to reside
Gross Income permanently here from foreign sources
Less: Deductions (and/or addl exemptions, if private or public;
applicable) 5. benefits due to residents under the laws of
Net Taxable Income the U.S. administered by the U.S. Veterans
X Tax Rates Administration
Net Income Tax Due 6. SSS benefits; and
Less: Tax Credit, if any 7. GSIS benefits.
Tax Still due, if any
Miscellaneous Items

1. Passive income derived by foreign

GROSS INCOME
government in the Philippines;
2. Income derived from any public utility or
Definition: Includes but not limited to the from the exercise of any governmental
following : function;
1. compensation; 3. Prizes and awards made primarily in
2. business income; recognition of religious, charitable, scientific,
3. gains form dealings in property; educational, artistic, literary, or civic
4. interests; achievement (C2LARES):
5. rents; Requisites:
6. royalties; a. recipient selected without any action on
7. dividends; his part;
8. annuities; b. recipient not required to render
9. prizes and winnings; substantial future services.
10. pensions; 4. Prizes and awards granted to athletes in
11. partners share in the net income sports competitions and sanctioned by their
of the general professional national sports association ;
partnership (Sec. 32, CTRP) 5. 13th month pay and other benefits up to
P30,000.00;
KEY: D BIG CARP 6. GSIS,SSS, Medicare and union dues of
individuals;
Exclusions from Gross Income: 7. Gains derived from debt securities with a
1. proceeds of life insurance maturity of more than 5 years;
NOTE: if the proceeds are retained by the 8. Gains from redemption of shares in Mutual
insurer, the interest thereon is taxable; Fund
2. Return of premium;
3. Gift, bequest or devise;
NOTE: income therefrom is taxable DEDUCTIONS
4. Compensation for injuries or sickness;
5. Income exempt under Treaty; Definition: Items or amounts which the law
6. Retirement benefits, pension, gratuities, etc. allows to be deducted from gross income in
7. Miscellaneous items order to arrive at the taxable income.

Retirement Benefits, Pension, Gratuities,

Etc.: Kinds of Deductions:
1. those derived under R.A. 7641 (pertains to
private firms without retirement trust fund); 1. Optional standard deductions 10% of the
2. those received by officials and employees of gross income.
private employers in accordance with a
reasonable private benefit plan; 2. Itemized deductions
Requisites: (a) ordinary AND necessary expenses
a) in the service of the same employer (b) interests
for at least 10 years; (c) taxes
b) at least 50 years old; (d) losses
c) must be availed of only once (e) bad debts
d) plan approved by the BIR (R.R. 2- (f) depreciation of property;
98); (g) depletion of oil and gas wells and mines;
(h) charitable and other contributions;
 (i) research and development;
(j) pension trust contributions of
employees; and
(k) premium payments on health and/or
hospitalization insurance
3. Personal and additional exemptions
4. Special deductions applicable only to
Insurance companies, whether domestic or
foreign. (Sec. 37, CTRP).
a. ORDINARY AND NECESSARY
EXPENSES:
Necessary Expense - appropriate and
helpful in the development of taxpayer's
business.
Ordinary Expense - normal or usual in the
line of business.
Requisites of Business Expense to be
Deductible:
1. ordinary and necessary;
2. paid or incurred w/in the taxable year;
3. paid or incurred in carrying on a trade or
business;
4. substantiated with official receipts or
other adequate records.
Capital Expenditure:
An expenditure that benefits not only the
current period but also future periods. It is not
deductible but depreciable, EXCEPT, if the
taxpayer is a non-profit proprietary educational
institution which may elect either to deduct the
capital expense or depreciate it.
b. INTEREST:
Requisites to be deductible:
1. debt belongs to the taxpayer;
2. debt must be related to the business or
profession of the taxpayer;
3. interest should be legally due;
4. interest paid or accrued during the
taxable year.
Interest Payments not Deductible:
1. interest paid on indebtedness to finance
petroleum explorations;
2. interest on transactions by related parties
(transactions-at-arms-length):
3. interest to purchase or carry tax-exempt
obligations;
4. dividend payments cannot be deducted as
interest; and
5. interest paid in advance thru discount or
otherwise, EXCEPT that it is deductible in
the year indebtedness is paid.
c. TAXES:
Requisites to be deductible:
1. must be in connection with taxpayers
business;
2. tax must be imposed by law on , and
payable by, taxpayer; and
3. paid or incurred during the taxable year.
Exceptions:
1. income tax;
2. estate and donors tax;
3. special assessments;
4. excess electric consumption tax;
5. foreign income tax, war profits and excess
profits tax, if the taxpayer makes use of tax
credit; and
6. final taxes, being in the nature of income tax.
- Taxes allowed as deductions, when
refunded or credited, shall be included as
part of gross income in the year of receipt to
the extent of the income tax benefit of said
deduction (Tax Benefit Rule).
- For NRAETB and RFC, taxes paid or
incurred are allowed as deductions only if
and to the extent that they are connected
from income within the Philippines.
d. LOSSES:
Requisites to be deductible:
1. actually sustained;
2. connected with the business, trade or
profession; and
3. not compensated by insurance or otherwise.
The following losses are subject to special
rules under the CTRP (take note of the
pertinent provisions):
1. Capital losses
2. Securities becoming worthless
3. Wash sales
4. Wagering losses
5. Abandonment losses
6. Losses of mines other than oil and
gas wells
e. BAD DEBTS
Requisites to be deductible:
1. Valid and subsisting debt;
2. Debt must be actually ascertained to be
worthless and uncollectible;
3. Obligation is not between related parties
(Sec. 36 b CTRP);
4. Debt is expensed within the year; and
5. Debt is connected with profession, trade or
business.
Equitable Doctrine of Tax Benefit
A recovery of bad debts previously
deducted from gross income constitutes taxable
income if in the year the account was written
off, the deduction resulted in a tax benefit.
f. DEPRECIATION:
Requisites to be deductible:
1. Must be reasonable;
2. Must be on property used in the conduct of
the business;
3. Must be expensed during the taxable year;
g. DEPLETION OF OIL AND GAS WELLS AND
MINES
- same requisites as depreciation
h. CHARITABLE AND OTHER
CONTRIBUTIONS
Partial Deduction:
- not in excess of 5% of taxable income in
case of a corporation
- not in excess of 10% of the taxable income
in case of an individual
Deductible in Full:
1. Donations to the government
2. Donation to certain foreign institutions or
international organizations.
3. Donations to certain accredited NGOs .
PERSONAL EXEMPTIONS
Amounts of Personal Exemptions (Sec. 35
of CTRP):
1. Single individual or married individual
judicially decreed as legally separated with
no qualified dependents: P20,000
2. Head of the family: P25,000
3. Each married person: P32,000
Head of the Family:
1. Unmarried or legally separated person with
one or both parents, or one or more brothers
or sisters, or one or more legitimate,
recognized natural or legally adopted
children living with and dependent upon the
taxpayer for their chief support; and
2. Where such brother / sister or children are
not more than 21 years of age, unmarried
and not gainfully employed, or where such
dependents regardless of age, are incapable
of self support because of mental or
physical defect.
Additional Exemption for Dependents:
P8,000 for each dependent not to
exceed 4.
Qualifications of a dependent:
1. legitimate, illegitimate or legally adopted
child of the taxpayer
2. chiefly dependent upon and living with the
taxpayer
3. not more than 21 years old, unmarried AND
not gainfully employed or where such
dependents regardless of age are incapable
of self-support because of mental of physical
defect.
Clarificatory Illustrations:
1. If only 19 years old but married, not qualified
as a dependent.
2. Even if 25 years old but physically
incapacitated, qualified as a dependent.
3. Dependent does not include the parents,
brothers and sisters of the taxpayer.
4. If there is any change of status at any time
during the taxable year, the law expressly
favors the taxpayer.
5. For a NRAETB, only to the extent allowed
by his country to Filipinos not residing
therein, but not to exceed the above
amounts. Additionally, he must file a true
and accurate return of the total income
received by such NRAETB from all sources
within the Philippines.
OTHER INCOME TAXES AS DEFINED
1. Final Income Tax is derived by multiplying
the tax rate on the particular income subject
to a final income tax. Thus, the income
subject to final income tax is no longer
subject to the net income tax; otherwise,
there would be a violation of prohibited
double taxation. Applicable to passive
income and from sources derived from
within the Philippines as determined under
Sec. 42 of the CTRP. Deductions and/or
personal and additional exemptions are not
allowed.
2. Income subject to Preferential or Special
Rates here, the income derived by a
particular individual or corporation belonging
to a class of income taxpayer is subject to
either a preferential or special rate.
3. Improperly Accumulated Earnings Tax
a tax equivalent to 10% of the improperly
accumulated taxable income of every
corporation formed or availed of 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.
4. Minimum Corporate Income Tax A tax at
the rate of 2% based on gross income
imposed on domestic and resident foreign
corporations not covered by a special
income tax system, beginning the 4th taxable
year in which such corporation commenced
its business operations. It is imposed
whenever such corporation has (a) zero
or negative net taxable income; or (b) the
amount of minimum corporate income tax is
greater than the normal income tax due from
such corporation.
 amount of tax. There is pain of perjury if not
5. Optional Corporate Income Tax - The correct.
President, upon recommendation of the
Secretary of Finance may, effective Jan. 1, Persons Required to File Income Tax
2000, allow corporations the option to be Return:
taxed at 15% of gross income subject to the
following conditions: A. Individual
1) A tax effort ratio of 20% of GNP; 1. Resident citizen;
2) A ratio of 40% of income tax to total 2. Non-resident citizen on income from
tax revenue; within the Phil.;
3) A VAT tax effort of 4% of GNP 3. Resident alien on income from within
4) A O.9% ratio of Consolidated Public the Phil.;
Sector Financial Position to GNP. 4. NRAETB on income from within the Phil.
N.B.: Available only to firms whose ratio of 5. An individual (citizens / aliens) engaged
cost of sales to gross sales or receipts from in business or practice of a profession
all sources does not exceed 55%. within the Phil. regardless of the amount
of gross income;
6. Individual deriving compensation
income concurrently from two or more
INCOME TAX INCIDENCE employers at any time during the
ON SALES OR EXCHANGES OF taxable year;
PROPERTY 7. Individual whose pure compensation
income derived from sources within the
Sale on Exchange of Ordinary Assets Phil. exceeds P60,000.
General rules of income taxation apply B. Taxable Estate and Trust
to both as to the gain and as to the loss. C. General Professional Partnership
D. Corporation
Transaction Resulting in Taxable Gains 1. Not exempt from income tax;
but Non-Recognition of Losses 2. Exempt from income tax under Sec. 30
a. Sale or exchange between related parties; of NIRC but has not shown proof of
b. Wash sales by non-dealers of securities and exemption.
when not subject to the stock transfer tax;
c. Exchanges not solely in kind in merger and Individuals Exempt From Filing Income
consolidation; and Tax Return:
d. Sales or exchanges that are not at arms 1. Individual whose gross income does not
length. exceed total personal and additional
exemptions;
Sale or Exchange of Real Property, and 2. Individual with respect to pure compensation
Shares of Stocks of Domestic Corporation income derived from sources within the
Held as Capital Assets Subject to Capital Phils., the income tax on which has been
Gains Tax correctly withheld;
As to individuals and domestic corporations 3. Individual whose sole income has been
1. On real property each independent subjected to final withholding income tax;
transaction is subject to the final tax of 6% 4. Individual who is exempt from income tax.
on the gross selling price or the fair market
value at the time of sale, whichever is
higher, regardless of gain or loss TRANSFER TAXES
2. Shares of stock of domestic corporation not
traded thru a local exchange taxed at the TRANSFER TAX INCOME TAX
rate of 5% for net capital gains not over 1. Tax on transfer of 1. Tax on income
P100T, and 10% in excess of P100T. property.
2. Rates are lower 2. Rates are higher
Tax Exempt Exchanges: --5% to 20% - -- 5% to 32%
a. Exchange solely in kind in mergers and estate tax
consolidation; -- 2% to 15 % -
b. Exchange of property for stocks resulting in donors tax
a change in corporate control 3. Lesser exemptions 3. More exemptions

FILING OF TAX RETURN AND ESTATE TAX

PAYMENT OF THE TAX
ESTATE TAX FORMULA
Tax Return It is the sole declaration of
taxpayer that incorporates all the data/facts Gross Estate (Sec. 85)
necessary for government to determine the Less: (1) Deductions (Sec. 86)
(2) Net share of the SS in the CP
 Net Estate
Less: Exemptions (first P200,000 exemption,
Sec. 84)
Net Taxable Estate
X Tax rate (Sec. 84)
Estate Tax due
Less: Tax Credit [if any] (Sec. 86[E] or 110[B]
Estate Tax Due, if any
GROSS ESTATE (Sec. 85, CTRP)
A. As to resident alien or Filipino decedent
- all real, tangible personal, intangible
personal property wherever
situated.
B. As to non-resident alien decedent
- all real and tangible personal
property situated in the Phil.
- Intangible personal property with a
situs in the Phil. Unless exempted
on the basis of reciprocity.
Inclusions in the Gross Estate (Sec. 85,
CTRP):
a. Decedents interest
b. Transfer in contemplation of death
c. Revocable transfer
d. Transfer under general power
appointment
e. Proceeds of life insurance
f. Transfers for insufficient consideration
g. Prior interests
Exempt Transmissions (Sec. 87, CTRP):
1. The merger of usufruct in the owner of the
naked title;
2. Fideicommisary substitution;
3. The transmission from the first heir, legatee
or donee in favor of another beneficiary, in
accordance with the will of the predecessor;
and
4. All bequests, devices, legacies or transfers
to social welfare, cultural and charitable
institutions no part of the net income of
which inures to the benefit of any individual;
Provided, that not more than 30% of the said
bequests, legacies or transfers shall be used
by such institutions for administration
purposes.
Value of Gross Estate:
The gross estate shall be valued at its
fair market value at the time of death of the
decedent.
Deductions from the Gross Estate
A. For resident aliens and citizens (ELIT,
TVFSAM)
1. Expenses, losses, indebtedness, taxes,
etc. (ELIT-FJCCULT)
a. funeral expenses
b. judicial expenses
c. claims against the estate
d. claims against insolvent person
e. unpaid mortgages
f. taxes
g. losses
2. Transfer for public use
3. Vanishing deduction
4. Family home
5. Standard deduction
6. Medical expenses
7. Amounts received by heirs under RA
4917 (Retirement Benefits)
B. For non-resident aliens (ELIT-TV)
1. Expenses, losses, indebtedness, taxes,
etc. (FJCCULT)
2. Transfer for public use
3. Vanishing deduction
DEDUCTIONS ON
ESTATE TAX APPLICABLE TO
RESIDENT ALIENS AND CITIZENS:
Funeral Expenses:
The amount deductible is the lowest among
the following:
1. actual funeral expenses
2. 5% of the gross estate
3. P200,000
of Claims against the Estate:
Requisites to be deductible:
1. The debt instrument must be notarized
2. If 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.
N.B.: These requisites do not apply if the claim
did not arise from contractual obligations.
Taxes:
The following are not deductible:
1. income tax on income received after death
2. property taxes not accrued before death
3. estate tax
Losses:
Requisites to be deductible:
1. arising from fire, storm, shipwreck, or other
casualty, robbery, theft or embezzlement;
2. Not compensated by insurance or otherwise;
3. Not claimed as deduction in an income tax
return of the taxable estate;
4. Occurring during the settlement of the
estate; and
5. Occurring before the last day for the
payment of the estate tax (last day to pay:
six months after the decedents death).
Transfer for Public Use:
Requisites to be deductible:
1. The disposition is in a last will and testament
2. To take effect after death
3. In favor of the government of the Phil., or
any political subdivision thereof
4. For exclusive public purposes.
 Vanishing Deduction:
Requisites to be deductible:
1. the present decedent died within 5 years
from transfer of the property from a prior
decedent or donor.
2. The property must be located in the Phils.
3. The property formed part of the taxable
estate of the prior decedent, or of the
taxable gift of the donor.
4. The estate tax or donors tax on the gift must
have been finally determined and paid.
5. The property must be identified as the one
received from the prior decedent, or
something acquired in exchange therefor.
6. No vanishing deduction on the property was
allowable to the estate of the prior decedent.
Family Home:
Requisites to be deductible:
1. Said family home must have been the
decedents family home.
2. Said fact must be certified to by the
barangay captain of the locality where it is
located.
3. Maximum of P1,000,000
Medical Expenses:
Requisites to be deductible:
1. incurred within one year prior to his death
2. Substantiated with receipts
3. Maximum of P500,000
DEDUCTIONS ON
ESTATE TAX APPLICABLE TO
NON-RESIDENT ALIENS
1. Expenses, losses, indebtedness and
taxes (ELIT)
Formula:
Phil. Gross Estate X World ELIT
World Gross Estate
2. Transfer for public use.
3. Vanishing deduction on property in the
Philippines.
Estate Tax Credit
FORMULA:
a. One foreign country only:
4 - The tax credit is whichever is lower
between:
1. Estate tax paid to the foreign country
2. NTE, foreign country X Phil. estate tax
NTE, world
(NTE - Net Taxable Estate)
b. More than one foreign country
- The credit shall be that which is the lower
amount between Limit A and Limit B
Limit A. Whichever is lower between:
1. Estate tax paid to foreign country
2. NTE, foreign country X Phil. estate tax
NTE, world
Limit B. Whichever is lower between:
1. total of estate taxes paid to all foreign
countries
2. NTE outside Phil. X Phil. estate tax
NTE, world
DONORS TAX
Requisites: (ADIC)
1. capacity of the donor
2. donative intent
3. delivery, whether actual or constructive, of
the subject gift
4. acceptance by the donee
Stranger - a person who is not a brother,
sister, spouse, ancestor and lineal descendant,
or of a relative by consanguinity in the collateral
within the 4th civil degree.
FORMULA:
a. On the 1st donation of a year:
Gross gifts xxx
Less: Deductions from gross gifts xxx
Net gifts xxx
X Tax Rate xxx
Donors tax on the net gifts
b. On donation of a subsequent date during the
year:
Gross gifts made on this date xxx
Less: Deductions from gross gifts xxx
Net gifts xxx
Add: All prior net gifts within the year xxx
Aggregate net gifts xxx
X Tax Rate xxx
Donors tax on aggregate net gifts xxx
Less: Donors tax on all prior net gifts xxx
Donors tax on the net gifts on this date xxx
Exemption of certain gifts:
1. Gifts made by a resident
a. dowries or gifts made on account of
marriage and before its celebration or
within one year thereafter by parents to
each of their legitimate, illegitimate or
adopted children to the extent of the
first P10,000.
b. Gifts made to or for the use of the
National Government or any entity
created by 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, cultural or
social welfare corporation,
institutions, foundations, trust or
philanthropic organization,
research institution
organization, accredited non-
government organization (NGO).
Provided, that no more than 30%
of said gifts shall be used by such
donee for administration purposes.
2. Gifts made by a non-resident not a citizen of
the Phil.
a. same as (b)
b. same as (c) except accredited non-
government organization (NGO)
Tax credit for donors taxes paid to a
foreign country:
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.
Limitations on tax credit:
1. The amount of the credit in respect to the
tax paid to any country shall not exceed the
same proportion of the tax against which
such credit is taken, which the decedents
net gifts situated within such country taxable
under the NIRC bears to his entire net gift;
and
2. The total amount of the credit shall not
exceed the same proportion of the tax
against which such credit is taken, which the
decedents net gift situated outside the
Philippines taxable under the NIRC bears to
his entire net gift.
FORMULA:
a. For donors taxes paid to one foreign
country
NG situated in a foreign country X PDT
Entire net gifts
= Tax credit limit
(NG - Net Gifts; PDT - Phil. Donor's Tax)
b. For donors taxes paid to two or more
foreign country
NG outside the Phil. X PDT
Entire net gifts
=Tax credit limit
The allowable tax credit is the lower amount
between the tax credit limit under (a) and (b).
EXPANDED VALUE ADDED
TAX
or
Persons liable to Pay the VAT: ( S B E
LSI)
1. Any person whether natural of juridical who,
in the course of trade or business, sells,
barters, exchanges, or leases goods or
properties, or renders services;
2. Any person who imports goods whether for
business or non-business purpose; and
provided, gross receipts is more than
P550,000.00, otherwise,
more than P100T but less than P550T 3%
percentage tax
less than P100T no business tax liability
Transactions Subject to VAT: (S I T S )
1. every sale, barter, or exchange, leases
goods or properties made in the course of
trade or business;
2. transactions deemed sale for VAT
purposes;
3. importation of goods; and
4. every sale of service made in the course
of trade or business other than services
rendered by persons subject to other
percentage taxes.
Elements of VAT :
1. sale must be made in the Philippines;
2. sale must be of taxable goods, properties or
services; and
3. sale must be made by a taxable person in the
course or furtherance of his business.
Rate Structure under the VAT System:
1 1. 0% rate for export sales and persons
whose sales are effectively zero-rated and
zero-rated sales of services; and
2. 10% for all other articles and transactions
covered by the VAT.
Input Tax tax on purchase price of goods
which is passed on or shifted to a buyer /
purchaser /lessee by the supplier / seller /
lessor. It is the VAT paid by a VAT-registered
person in the course of his trade or business.
Output Tax-- VAT due on the sale of taxable
goods or services by any person registered or
required to register for VAT purposes.
Transitional Input Tax Credit person who
becomes liable to VAT or any person who elects
to be a VAT-registered person shall, subject to
the filing of an inventory of goods, material and expected gross sales and / or gross receipts
supplies equivalent to 8% of value of such exceeds P550T for any 12-month period.
inventory or the actual VAT paid on such goods,
materials and supplies, whichever is higher, 2. Optional -- any of the following persons
which shall be creditable against the output tax. may, at their option, apply for VAT
registration:
Export Sales sale and shipment or a. seller of goods or services whose
exportation of goods from the Philippines to a taxable sale or gross receipts do not
foreign Country irrespective of any shipping exceed P550T for any 12-month
arrangement that may be agreed upon which period;
may influence or determine the transfer of b. seller of agricultural or marine food
ownership of the goods so exported, or foreign- products in their original state;
currency denominated sales. c. seller of fertilizer, seeds, seedlings
and fingerlings, fish live stock and
Foreign Currency Denominated Sales poultry feeds,
sales to non-residents of goods assembled or including ingredients whether locally
manufactured in the Philippines for delivery to produced or imported, used in the
residents in the Philippines and paid for in manufacture
convertible foreign currency remitted through the of finished foods;
banking system in the Philippines. d. seller of non-food agricultural,
marine and forest products in their
original state;
ZERO-RATED VS. EXEMPT e. seller of cotton and cotton seeds in
TRANSACTIONS the original state, and copra.
ZERO-RATED EXEMPT ( 550 FANC )
TRANSACTIONS
N.B.: Items b to e, refer to export sales only
Extent: Only removes the
All value added tax is
value added tax at Transactions deemed sales for VAT
removed
the exempt stage purposes (Sec. 106B)
1. Transfer, use or consumption not in
the course of trade or business of
Claim for refund: Taxpayer is not entitled
goods originally intended for sale
Taxpayer can claim the or for use in the course of business;
to credit or refund of 2. Distribution or transfer to share-
refund of input taxes
the input tax passed holders or investors as share in the
passed on to him by
on to him by the profits of the VAT -registered
the supplier, etc. or
supplier, etc. persons;
credit such input taxes
against his liabilities 3. Consignment of goods if actual sale is not
for output taxes on his made within 60 days following the date of
other non-zero rated consignment;
transactions 4. Distribution or transfer to creditors in
payment of debt;
5. Retirement from or cessation of business,
Scope: Not taxable sales and
with respect to inventories of taxable goods
Generally, taxable existing as of such retirement or cessation.
therefore not taken into
sales, and taken into
account in determining
account in determining
turn-over or VAT-
turn-over or sales for
registration purposes
sales for VAT-
registration purposes. III. LOCAL TAXATION
Registration Definition:
requirement: The power of local government unit to
Exempt person may
Zero-rated person may (1) create its own sources of revenue and (2) to
not register for VAT.
still register for VAT. levy taxes, fees, and charges. (See Sec. 5, Art.
X, 1987 Constitution and Sec. 129, LGC)

Nature of the Taxing Power of Local

Registration Requirements: Governments
1. Not inherent;
1. Mandatory every person who in the 2. Exercised only if delegated to them by law
course of trade or business, sells, barters, or Constitution.
exchanges, leases goods or services for 3. Not absolute; subject to limitations provided
others, if the aggregate amount of actual or by law.
 Aspects of Local Taxing Power
1. Local taxation, and
2. Real property taxation
N.B.: Both aspects are governed by the Local
Government Code (LGC).
Doctrine of preemption or exclusion
Where the National Government elects
to tax a particular area, it impliedly withholds
from the local government the delegated power
to tax the same field. This doctrine principally
rests upon the intention of Congress.
6. Collection of local taxes and other
impositions shall not be let to any person
7. The revenues collected under the Code
shall inure solely to the benefit of, and
subject to disposition by, the LGU levying
the tax or other imposition unless otherwise
specifically provided therein
8. Each LGU shall, as far as practicable,
evolve a progressive system of taxation.

Excluded impositions (pursuant to the

IV. REAL PROPERTY
doctrine of preemption):
1. Taxes which are levied under the NIRC,
TAXATION
unless otherwise provided by LGC of 1991;
Definitions:
2. Taxes, fees, etc. which are imposed under
1. Real Property Taxation: A direct tax on
the Tariffs and Customs Code;
ownership of lands and buildings or other
3. Taxes, fees, etc., the imposition of which
improvements thereon payable regardless of
contravenes existing governmental policies
whether the property is used or not.
or which violates the fundamental principles
2. Real property subject to the definition
of taxation; and
given by Art. 415 of the Civil Code.
4. Taxes, fees and other charges imposed
3. Improvement valuable addition made to a
under special law.
property or an amelioration in its condition
amounting to more than a mere replacement
Situs of Municipal Taxation (Sec. 150, of parts.
1991 LGC)
Characteristics:
1. Place of sale( with branch or sales outlet 1. Direct on ownership; O
therein): Municipality or city where the 2. ad valorem tax A
branch or outlet is located. 3. proportionate P
2. Place of sale (no branch or sales outlet): 4. creates a single indivisible obligation S
Municipality or city of principal office (not in 5. local tax L
the place of sale). Key: SAPOL
3. If manufacturer, assembler, contractor,
producer or exporter (MACPE) with factory, Taxing Authorities:
project office, plant or plantation (FPPP): 1. Province, at the rate of not > 1% of
a. 30% of recorded sales in the principal assessed value;
office: city or municipality where the 2. City at the rate of not > 2%; and
principal office is located; 3. Municipality within Metro Manila at the rate
b. 70% of recorded sales in the principal of not > 2%.
office: city or municipality where the
FPPP is located (pro rata if FPPP are
Extent of the power to levy:
located in different municipalities or
1. Basic real property tax;
cities).
2. 1% additional real estate tax to finance the
c. If plantation is located in some other
Special Education Fund;
place than that where the factory is
3. 5% additional tax on idle lands; and
located, the foregoing 70% shall be
4. Special levy or special assessments (may
subdivided as follows:
be imposed even by municipalities outside
- 60% to the city or municipality
Metro Manila).
where the factory is located,
- 40% to the city or municipality
where the plantation is located.
Fundamental Principles Governing
Real Property Taxation
Fundamental Principles Governing F 1. Real property shall be appraised at its
current and fair market value;
Local Taxation:
U 2. Real property shall be classified for
1. Shall be uniform in each local sub-unit
assessment purposes on the basis of actual
2. Shall be equitable and based as much as
use.
possible on the taxpayers ability to pay
U 3. Real property shall be assessed on
3. Levied for public purposes
the basis of uniform classification
4. Shall not be unjust, excessive, oppressive,
within each LGU
or confiscatory
P 4. The appraisal, assessment, levy and
5. Shall not be contrary to law, public policy,
collection of RPTax shall not be let
national economic policy, or in restraint of
to any private person.
trade
E 5. The appraisal and assessment of real
property shall be equitable.
Key: FEU-UP
Properties Exempt from Real Property
Tax (Sec. 193, 1991 LGC):
1. Real property owned by the government
except when the beneficial use thereof has
been granted to a taxable person;
2. charitable institutions, churches, personages
or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all
lands, buildings and improvements actually,
directly and exclusively used for religious,
charitable or educational purposes (Art. VI,
Sec. 28, Constitution);
3. machineries and equipment that are
actually, directly and exclusively used by
local water utilities and GOCCs engaged in
the supply and distribution of water and/or
electric power;
4. real property owned by duly registered
cooperatives as provided for in RA 6938;
and
5. machinery and equipment used for pollution
control and environmental protection.
Duty of Real Property Owners
beginning 1991:
Real property owner must file with
Assessors Office a sworn statement of real
property value whether exempt or non-exempt.
Every buyer of real property must make
a new declaration thereof. (Failure to do so shall
make the assessment in the name of the
previous owner binding).
IV. TARIFF AND
CUSTOMS CODE
DEFINITIONS:
1. Tariff: Customs duties, toll or tribute payable
upon merchandise to the Govt.
2. Custom Duties: Tax assessed upon
merchandise from or exported to, a foreign
country. (Garcia v. Executive Sec., 211
SCRA 227 [1992])
N.B.: Customs and tariffs are synonymous with
one another. They both refer to the taxes
imposed on imported or exported wares,
articles, or merchandise.
THE BUREAU OF CUSTOMS (BOC)
Functions of the Bureau of Customs
(ACE2S3):
a. Assessment and collection of revenues
from imported articles and all other
impositions under the tariff and customs
laws;
b. Control smuggling and related frauds;
c. Supervision and control over the
entrance and clearance of vessels and
aircraft engaged in foreign commerce;
d. Enforcement of TCC and related laws;
e. Supervision and control over the
handling of foreign mails arriving in the
Philippines;
f. Supervise and control all import and
export cargoes for the protection of
government revenue;
g. Exclusive original jurisdiction over
seizure and forfeiture cases under the
tariff and customs laws.
Jurisdiction of Collector of Customs over
importation of articles
1. Cause all articles for importation to be
entered in the customhouse,
2. Cause all such articles to be appraised and
classified,
3. Assess and collect the duties, taxes and
other charges thereon, and
4. Hold possession of all imported articles until
the duties, taxes and other charges are paid
thereon. (Sec. 1206, TCC)
Territorial jurisdiction of the BOC:
1. All seas within the jurisdiction of the
Philippines
2. All coasts, ports, airports, harbors, bays,
rivers and inland waters whether navigable
or not from the sea. (1st par, Sec. 603, TCC)
When tariff and customs applied:
Only after importation has begun but before
importation is terminated.
Importation begins:
a. when the conveying vessel or
aircraft
b. enters the jurisdiction of the Phil.
c. with intention to unload therein
Importation is deemed terminated:
a. (i) upon payment of the duties, taxes
and other charges due upon the
articles. (ii) and legal permit for
withdrawal shall have been granted.
b. In case the articles are free of
duties, taxes and other charges,
until they have legally left the
jurisdiction of the customs (Sec.
1202, TCC)
ARTICLES UNDER TCC
MAY EITHER BE:
a. Subject to duty
b. Prohibited from being imported
(Prohibited importation)
 c. Conditionally-free from tariff and
customs duties (conditionally-free
importation)
d. Free from TC duties (duty-free)
Imported goods must be entered in a
customhouse at their port of entry otherwise
they shall be considered as contraband and the
importer is liable for smuggling (See Sec. 101,
TCC).
LIABILITY FOR CUSTOMS DUTIES
General Rule: All importations / exportations
of goods are subject to customs duties (Sec.
105, TCC).
Exceptions:
a. Exemptions under the TCC;
b. Exemptions granted to govt agencies,
instrumentalities or GOCCs with existing
contracts, commitments, agreements, or
obligations with foreign countries;
c. Exemptions of international
organizations pursuant to agreements or
special laws; and
d. Exemptions granted by the Pres. of the
Phil. upon recommendation of NEDA
(Sec. 105, TCC).
Liability of importer for custom duties:
a. A personal debt which can be
discharged only by payment in full
thereof;
b. A lien upon the imported articles while
they are in custody or subject to the
control of the govt (Sec. 1204, TCC).
Drawback
A device resorted to for enabling a
commodity affected by taxes to be exported and
sold in foreign markets upon the same terms as
if it had not been taxed at all (Uy Chiaco Sons
vs. Collector of Customs, 24 Phil 562)
Import Entry
It is a declaration to the BOC showing
particulars of the imported article that will enable
the customs authorities to determine the correct
duties. An importer is required to file an import
entry. It must be accomplished from
disembarking of last cargo from vessel.
Transaction value under RA 8181
It is the invoice value of the goods plus
freight, insurance, costs, expenses and other
necessary expenses. This replaces the Home
Consumption Value as basis of valuation of
goods.
CLASSIFICATION OF CUSTOM
DUTIES:
Regular Duties:
1. Ad valorem duty: This is a duty based on
the value of the imported article.
2. Specific duty: This is a duty based on the
dutiable weight of goods (either the gross
weight, legal weight, or net weight).
3. Alternating duties: This is a duty which
alternates ad valorem and specific.
4. Compound Duty: This is a duty consisting
of ad valorem and specific duties.
Special duties
a. Dumping duty
b. Countervailing duty
c. Marking duty
d. Discriminatory duty
Nature of special customs duties:
Special customs duties are additional
import duties imposed on specific kinds of
imported articles under certain conditions.
Purpose of special customs duties:
The special customs duties are imposed
for the protection of consumers and
manufacturers, as well as Phil. products from
undue competition posed by foreign-made
products.
 SPECIAL DUTIES COMPARED

DUMPING DUTY COUNTERVAILING MARKING DUTY DISCRIMINATORY

DUTY DUTY
Imposed upon Imposed upon Imposed upon Imposed upon
foreign products with foreign goods those not properly goods coming from
value lower than enjoying subsidy marked as to place countries that
NATURE their fair market thus allowing them of origin of the discriminates
value to the to sell at lower goods. against Philippine
detriment of local prices to the products.
products. detriment of local
products similarly
situated.
Difference Equivalent to the 5% ad valorem of Any amount not
between the actual bounty, subsidy, or articles exceeding 100% ad
AMOUNT/
price and the normal subvention. valorem of the
RATE
value of the article. subject articles

IMPOS-
Special Sec. of Finance Commissioner of President of the
Committee on Anti- Customs Philippines
ING
Dumping (composed
AUTHO-
of the Sec. of
RITY
Finance as
Chairman;
Members: the Sec.
of DTI; and either
the Sec. of
Agriculture if article
in question is agri.
product or the Sec.
of Labor if non-agri.)
 Flexible Tariff Clause
The President may fix tariff rates, import
and export quotas, etc. under TCC (See Sec.
28, Art. VI, Constitution and Sec. 401, TCC)
V. TAX REMEDIES
TAX REMEDIES
UNDER THE NATIONAL INTERNAL
REVENUE CODE
I. TAX REMEDIES OF THE
GOVERNMENT
Importance
1. They enhance and support the
governments tax collection.
2. They are safeguards of taxpayers
rights against arbitrary action.
Tax collection cannot be restrained by
court injunction (Sec. 219, CTRP)
Justification: Lifeblood Theory.
Exception: Injunction may be issued by the
CTA in aid of its appellate jurisdiction under RA
1125 (see requisites thereof, under the
subheading Court of Tax Appeals, infra.).
The following are generally the tax
remedies of the government to effect
collection of taxes:
A. Tax Lien (Sec. 219)
B. Compromise (Sec. 204)
C. Distraint (Actual and Constructive)
(Secs. 205-208)
D. Levy (Sec. 207B)
E. Forfeiture of Property (Sec. 215)
F. Civil Action (Sec. 220)
G. Criminal Action (Secs. 220, 221, and
229)
H. Suspension of business operations in
violation of VAT (Sec. 115)
I. Enforcement of Administrative Fine
A. Tax Lien
Definition: 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 (51 AmJur 881). Generally, it attaches to
the property irrespective of ownership or transfer
thereof.
Extent and nature:
The tax, together with interests, penalties,
and costs that may accrue in addition thereto is
a lien upon all property and rights to
property belonging to the taxpayer.
The lien shall not be valid against any
mortgagee, purchaser, or judgment creditor until
notice of such lien shall be filed by the
Commissioner of Internal Revenue in the Office
of the Register of Deeds of the province or city
where the property of the taxpayer is situated or
located (Sec. 219, CTRP).
B. Compromise
Definition: A contract whereby the parties,
by reciprocal concessions, avoid a litigation or
put an end to one already commenced (Art.
2028, New Civil Code).
Requisites (TAO):
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
Commissioner or taxpayer as the case may
be) of the offer in the settlement of the
original claim.
Officers authorized to compromise:
1. The Commissioner of Internal Revenue
(CIR) is the only official vested with power
and discretion to compromise criminal and
civil cases arising from violations of the Tax
Code (Secs. 7C and 204, CTRP).
2. Subordinate officials may preliminarily
enter into a compromise. The effects are:
i. Acceptance of an offer of
compromise: not final and may be
reviewed by the Commissioner.
ii. Rejection of an offer of
compromise: final and binding
unless revoked or set aside by the
Commissioner. (Gibbs vs. Collector,
17 Phil. 232)
Commissioner may compromise any
internal revenue tax when
1. A reasonable doubt as to the validity of the
claim against the taxpayer exists; or
2. The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax [Sec. 204(A), CTRP]. In such
case, the taxpayer should waive the
confidentiality privilege on bank deposits
under RA 1405 (See Sec. 6F2, CTRP).
Minimum compromise rates (MCR) of any
tax liabilities:
1. In case of financial incapacity: MCR = 10%
of the basic assessed tax
2. Other cases: MCR = 40% of the basic
assessed tax [Sec. 204(A), CTRP]
Approval of the compromise by the
Evaluation Board is required when:
1. the basic tax involved exceeds
P1,000,000.00, or
2. the settlement offered is less than the
minimum compromise rates (MCR).
N.B.: The MCR may be less than the prescribed
rates of 10% or 40%, as the case may be,
provided it is approved by the Evaluation Board.
Compromise of Criminal Violations
General Rule: Criminal violations may be
compromised.
Exceptions:
1. Those already filed in court
2. Those involving fraud [Sec. 204(A), CTRP].
Extent of the Commissioners discretion
to compromise criminal violations:
1. Before the complaint is filed with the
Prosecutors Office: The CIR has full
discretion to compromise except those
involving fraud.
2. After the complaint is filed with the
Prosecutors Office but before the
information is filed with the court: The CIR
can still compromise provided the
prosecutor must give consent.
3. After information is filed with the court: The
CIR is no longer permitted to compromise
with or without the consent of the Prosecutor
(People vs. Magdaluyo, April 20, 1961).
Remedy in case the taxpayer refuses or
fails to abide the tax compromise:
1. Enforce the compromise
a. If it is a judicial compromise, it can be
enforced by mere execution. A judicial
compromise is one where a decision
based on the compromise agreement is
rendered by the court on request of the
parties.
b. Any other compromise is extrajudicial
and like any other contract can only be
enforced by court action.
2. Regard it as rescinded and insist upon
original demand (Art. 2041, Civil Code).
Compromise Penalty
It is an amount of money which the
taxpayer pays to compromise a tax violation.
This is paid in lieu of criminal prosecution. A
taxpayer cannot be compelled to pay a
compromise penalty. If he does not want to pay,
the CIR must institute a criminal action.
C. Distraint
Definition: It is the seizure by the
government of personal property, tangible or
intangible, to enforce the payment of taxes. The
property may be offered in a public sale, if taxes
are not voluntarily paid. It is a summary remedy.
Two types of distraint:
1. Actual: there is taking of possession of the
personal property from the taxpayer by the
government. Physical transfer of possession
is not always required. This is true in the
case of intangible property such as stocks
and credits.
2. Constructive: the owner is merely
prohibited from disposing of his property.
Requisites for the exercise of the remedy
of distraint:
1. The taxpayer must be delinquent (except in
constructive distraint) in the payment of tax;
2. There must be a subsequent demand for its
payment (assessment);
3. The taxpayer must fail to pay the tax at the
time required; and
4. The period within which to assess or collect
the tax has not yet prescribed.
Nature of the warrant of distraint or levy
The warrant is a summary procedure
forcing the taxpayer to pay. The receipt of a
warrant may or may not partake the character of
a final decision. If it is an indication of a final
decision, the taxpayer may appeal to the CTA
within 30 days from service of the warrant.
Duties of the officer serving the warrant of
distraint:
1. Make an account of the personal properties
distrained;
2. Sign the list of personal properties
distrained to which shall be added, a
statement of the sum demanded and note of
the time and place of sale;
3. Leave either with the owner or person from
whose possession such personal properties
were taken, or at the dwelling or place of
business of such person with someone of
suitable age and discretion (Sec. 208,
CTRP)
Procedures for the actual distraint or
garnishment:
1. Personal Property
I
Service of
Service of the warrant of
Warrant of
distraint upon the person in
Distraint
possession of the taxpayers
property (Sec. 208, CTRP).
Posting of II
Notice Posting of notice in not less
than two (2) public places in the
municipality or city (Sec. 209,
CTRP)
Notice of III
Time and Notice to the taxpayer
Place of specifying the time and place
Sale of sale and the articles
distrained.
Disposition IV
 Disposition of proceeds of without the express
sale (Sec. 209, CTRP). authority of the
Commissioner of Internal
Revenue.
3. Stocks and other securities: By serving a
copy of the warrant of distraint upon the Remedy If the taxpayer or person in
a. taxpayer and when possession of the property
b. upon the president, manager, treasurer taxpayer refuses or fails to sign the
or other responsible officer of the didnt sign receipt referred to, the revenue
corporation, company or association receipt officer effecting the constructive
which issued the said stock and distraint shall (a) proceed to
securities (Sec. 208, CTRP). prepare a list of such property
and (b) in the presence of two
(2) witnesses leave a copy
4. Bank accounts: They shall be garnished by thereof in the premises where
serving a warrant of distraint upon the the property distrained is
a. taxpayer and located, after wh9ch the said
b. upon the president, manager, treasurer, property shall be deemed to
or other responsible officer of the bank. have been placed under
NB: Upon receipt of the warrant of distraint, constructive distraint.
the bank shall turn over to the
Commissioner so much of the bank ACTUAL VS. CONSTRUCTIVE
accounts as may be sufficient to satisfy the DISTRAINT
claim of the government (Sec. 208, CTRP). ACTUAL DISTRAINT CONSTRUCTIVE
DISTRAINT
5. Debts and credits: By serving a copy of the
warrant of distraint upon the
Made only on the Made on the property
property of a of any taxpayer,
a. person owing the debts or delinquent taxpayer whether delinquent or
b. having in his possession or under his not
control such credits or
There is taking of The taxpayer is
c. upon his agent.
possession merely prohibited
NB: The warrant of distraint shall be
from disposing of his
sufficient authority to the person owing the
property
debts or having in his possession or under
his control any credits belonging to the Effected by leaving a Effected by requiring
taxpayer to pay to the Commissioner the list of distrained the taxpayer to sign a
amount of such debts or credits (Sec. 208, property or by service receipt of the property
CTRP). of a warrant of distraint or by the revenue
or garnishment officer preparing and
The taxpayers property may be placed leaving a list of such
under constructive distraint when he: property
1. is retiring from any business An immediate step Not necessarily so
subject to tax; or for collection of taxes
2. is intending to Both
a. leave the Philippines, or Are summary remedies for the collection of
b. remove his property therefrom,
taxes;
or
c. hide or conceal his property, or Refer only to personal property; and
3. is performing any act tending to Cannot be availed of where the amount of the
obstruct the proceeding for tax involved is not more than P100
collecting the tax due or which may
be due from him (Sec. 206, NIRC).

Procedure for the constructive distraint of D. Levy

personal property:
CIR shall require the taxpayer or
Taxpayer any person having possession
must sign
or control of such property to (a)
receipt sign a receipt covering the
property distrained and
Definition: It refers to the act of seizure of
real property in order to enforce the payment of
taxes. The property may be offered in a public
sale, if after seizure, the taxes are not voluntarily
paid.

Taxpayers (b) obligate himself to
oblig. to 1. preserve the same intact
preserve and unaltered and
2. not to dispose of the same
in any manner whatsoever
Requisites for the exercise of the remedy
of levy: Same as in the remedy of distraint.
When may levy be effected?
 Real property may be levied upon
before, simultaneously, or after the distraint
of personal property belonging to the delinquent
(Sec. 207B, CTRP); and the remedy by distraint
and levy may be repeated if necessary until the
full amount, including all expenses, is collected
(Sec. 217, CTRP).
Procedure of levy on real property:
I tax involved is not more than P100
Prepare
Certificate Preparation of a duly
of Levy authenticated certificate
containing: (a) description of
the property levied (b) name of
the taxpayer, and (c) the
amounts of tax and penalty
due from him. This certificate
shall operate with the force of a
legal execution throughout the
Philippines (Sec. 207B, CTRP).
II
Service of
Service of written notice to the
Notice
delinquent taxpayer or occupant
of the property. The proper
Register of Deeds shall also be
notified of the levy (Sec. 207B,
CTRP).
Time and III
Place of Advertisement of the time and
Sale place of sale of the taxpayers
property or so much thereof as
may be necessary to satisfy the
claim within 20 days after levy,
and it shall cover a period of at
least 30 days (Sec. 213,
CTRP).
Sale IV
Sale at public auction to the
highest bidder (Sec. 213,
CTRP).
given the right of redemption is granted
redemption with in case of real property
respect to distrained levied upon and sold,
personal property. or forfeited to the
government.
Both
Are summary remedies for the collection of
taxes; and
Cannot be availed of where the amount of the
E. Forfeiture
Definition: divestiture of property without
compensation, in consequence of a default or
offense.
Enforcement of the remedy of forfeiture:
1. In case of personal property The
forfeiture of chattels and removable fixtures
of any sort is enforced by seizure and sale
or destruction of the specific forfeited
property.
2. In case of real property The forfeiture of
real property is enforced by a judgment of
condemnation and sale in a legal action or
proceeding, civil or criminal, as the case
may require.
Effect of the forfeiture of property with
respect to title thereto: The effect is to transfer
the title to the specific thing from the owner to
the government.
F. Civil Actions
Definition: For tax remedy purposes, these
are actions instituted by the government to
collect internal revenue taxes. It includes filing
by the government with the probate court claims
against the deceased taxpayer.

Disposition V
When resorted to?
Disposition of proceeds of
1. When a tax is assessed but the assessment
sale. In case the proceeds of
becomes final and unappealable because
the sale exceed the claim
the taxpayer fails to file an administrative
(taxes, penalties and interest)
protest with the CIR within 30 days from
and cost of the sale, the excess
receipt; or
shall be turned over to the
2. When a protest against assessment is filed
owner of the property (Sec. 213,
and a decision of the CIR was rendered but
CTRP).
the said decision becomes final, executory,
and demandable for failure of the taxpayer
to appeal the decision to the CTA within
30 days from receipt of the decision.
DISTRAINT VS. LEVY
Where to file: Civil actions for the collection
DISTRAINT LEVY
of delinquent taxes are filed in the regular courts
Refers to personal Refers to real and not before the CTA.
property property
Forfeiture by the Forfeiture is Defenses which are precluded by final
government is not authorized and executory assessments:
provided 1. Invalidity or illegality of the assessment; and
The taxpayer is not The right of
2. Prescription of the governments right to
assess.
Abatement
The Commissioner may abate or cancel a
tax liability when:
1. The tax or any portion thereof appears to be
unjustly or excessively assessed; or
2. The administration and collection costs
involved do not justify the collection of the
amount due [Sec. 204(A), CTRP].
Prescriptive Periods
for the Assessment and
Collection of Taxes
Rationale of herein prescriptive periods:
Such periods are designated to secure
the taxpayers against unreasonable
investigation after the lapse of the period
prescribed. They are also beneficial to the
government because tax officers will be obliged
to act promptly.
Rules on Prescription:
1. When the tax law itself is silent on
prescription, the tax is imprescriptible;
2. When no return is required, tax is
imprescriptible; NB: Remedy of taxpayer is
to file a return.
3. Defense of prescription is waivable;
4. Provisions on prescription, being remedial in
nature, should be liberally interpreted to
carry out its intent.
Prescriptive Period for the assessment of
taxes:
General Rule:
THREE (3) YEARS after the date the
return is due or filed, whichever is later (Sec.
203, CTRP).
Exceptions:
1. FAILURE TO FILE A RETURN: TEN (10)
YEARS from the date of the discovery of the
omission to file the return (Sec.222[a]);
2. FALSE OR FRADULENT RETURN with
INTENTION TO EVADE THE TAX: TEN (10)
YEARS from the date of the discovery of the
falsity or fraud (Sec.222);
3. AGREEMENT IN WRITING to the extension
(not reduction) of the period to assess
between the CIR and the taxpayer before
the expiration of the 3-year period. NB: The
extended period agreed upon can further be
extended by a subsequent written
agreement made before the expiration of the
extended period previously agreed upon
(Sec. 222[b]).
4. WRITTEN WAIVER or RENUNCIATION of
the original three (3) year limitation, signed
by the taxpayer (Sambrano vs. CTA 101
Phil. 1).
Prescriptive Period for the Collection of
Taxes:
General Periods for the Collection of Taxes:
5 years from assessment or within
period for collection agreed upon in writing
before expiration of the 5-year period (Sec. 222,
CTRP).
10 years without assessment in case
of false or fraudulent return with intent to evade
or failure to file return (Sec. 222, CTRP).
Grounds for suspension of the running of
the statute of limitations:
1. When the CIR is prohibited from making
the assessment or beginning the distraint or
levy or a proceeding in court, and for sixty
(60) days thereafter;
2. When the taxpayer requests for a
reconsideration which is granted by the
CIR;
3. When the taxpayer cannot be located in
the address given by him in the return,
unless he informs the CIR of any change in
his address.
4. When the warrant of distraint or levy is duly
served, and no property is located; and
5. When the taxpayer is out of the
Philippines (Sec. 223, CTRP).
A tax return is considered FILED for
purposes of starting the running of the
period of limitations if:
1. The return is valid it has complied
substantially with the requirements of the
law; and
2. The return is appropriate it is a
return for the particular tax required by law.
A defective tax return is the same as if no
return was filed at all.
II. TAX REMEDIES OF THE TAXPAYER
General Remedies of a Taxpayer
Administrative
1. Before Payment
a. Protest filing a petition for
reconsideration or reinvestigation within
30 days from receipt of assessment
(Sec. 228, CTRP); A protest is a vital
document which is a formal declaration
of resistance of the taxpayer. It is a
repository of all arguments. It can be
used in court in case administrative
remedies have been exhausted. It is
also the formal act of the taxpayer
questioning the official actuation of the
CIR. This is equivalent to a pleading.
 b. Entering into a compromise (Sec.
204, CTRP).
2. After Payment Reglementary Periods in Income Tax
Filing of claim for refund or tax credit Imposed by Law upon the Taxpayer
within 2 years from date of payment (pursuant to Rev. Reg. No. 12-99, Sec.
regardless of any supervening cause (Sec. 228 of the CTRP, and Rules of Court)
229, CTRP).
BIR makes a tax assessment
Judicial
1. Civil Action
a. Appeal to the Court of Tax Appeals If taxpayer is not satisfied with the assessment
within 30 days from receipt of decision file a protest within 30 days from receipt thereof
on the protest or from the lapse of 180
days due to inaction of the Submit supporting documents within 60 days
Commissioner (Sec. 228, CTRP). from date of the filing of the protest
b. Action to contest forfeiture of chattel
(Sec. 231, CTRP); and

If protest is denied, elevate the matter to the
c. Action for damages (Sec. 227, CTRP).
Commissioner of Internal Revenue (CIR) within
2. Criminal Action
30 days from receipt of the decision of the CIRs
a. Filing of criminal complaint against
duly authorized representative officer
erring BIR officials and employees.
b. Injunction when the CTA in its opinion
the collection by the BIR may jeopardize Appeal to the Court of Tax Appeals (CTA)
taxpayer. within 30 days from receipt of final decision of
CIR or his duly authorized representative (the
taxpayer has the option to appeal straight to the
Filing of claim for CTA upon receipt of the decision of the CIRs
Tax Refund or Tax Credit duly authorized representative)

Grounds for filing a claim for tax refund or If the CIR or his duly authorized representative
tax credit: fails to act on the protest within 180 days
1. Tax is collected erroneously or illegally. from date of submission by taxpayer, the latter
2. Penalty is collected without authority. may appeal within 30 days from lapse of the
3. Sum collected is excessive. 180 day period

TAX REFUND VS. TAX CREDIT Appeal to the Court of Appeals (CA) within 15
days from receipt of the CTAs decision
TAX REFUND TAX CREDIT

The taxpayer asks The taxpayer asks Appeal to the Supreme Court within 15 days
for restitution of the that the money so paid from receipt of the CAs decision
money paid as tax be applied to his
existing tax liability As a general rule, payment under protest
Two-year period to Two-year period is not required under the NIRC, except when
file claim with the CIR starts from the date partial payment of uncontroverted taxes is
starts after the such credit was required as provided under RR 12-99.
payment of the tax or allowed (in case credit
penalty is wrongly made).

Requisites of Tax Refund or Tax Credit TAX REMEDIES

1. Claim must be in writing; UNDER THE LOCAL GOVERNMENT
2. It must be filed with the CIR within TWO (2)
YEARS after the payment of the tax or
CODE (LGC)
penalty. Where the payment was made by
wrongly crediting a prior over payment, the LOCAL TAXATION REMEDIES
two year period should start from the date
such credit was allowed. I. TAX REMEDIES OF THE LOCAL
3. Show proof of payment. GOVERNMENT UNITS
Suspension of the Two-year Prescriptive The following are the Civil Remedies
Period: of the Local Government Units (LGU) to
1. There is a pending litigation between the
effect collection of taxes:
Government and the taxpayer; and
1. Tax Lien (Sec. 173, LGC)
2. CIR in that litigated case agreed to abide by
2. Distraint (Sec. 175, LGC)
the decision of the SC as to the collection of
3. Levy (Sec. 175, LGC)
taxes relative thereto (Panay Electric Co.
4. Civil Action (Sec. 183, LGC)
vs. Collector, May 28, 1958).
5. Purchase of property by LGUs for want of
bidder (Sec. 181, LGC); Property distrained
not disposed within 120 days from date of
distraint considered sold to the LGU (Sec.
175, LGC).
Jurisdiction of courts over local
taxation cases:
1. The Court of Tax Appeals has no jurisdiction
over local taxation cases.
2. Regular judicial courts are not prohibited
from enjoining the collection of local taxes,
subject to Rule 58 (Preliminary Injunction) of
the Rules of Court.
Prescriptive Periods in the
Assessment and Collection of
Local Taxes
Prescriptive Periods of Assessment
1. Local taxes, fees, or charges FIVE (5)
YEARS from the date they became due.
(Sec. 194, LGC).
2. When there is fraud or intent to evade the
payment of taxes, fees or charges TEN
(10) YEARS from discovery of the fraud or
intent to evade the payment (Sec. 194,
LGC).
Prescriptive Period of Collection
Local taxes, fees, or charges may be
collected WITHIN FIVE (5) YEARS from the date
of assessment by administrative or judicial
action. No such action shall be instituted after
the expiration of such period (Sec. 194, LGC).
Grounds for the Suspension of the
Running of the Prescriptive Periods:
1. The treasurer is legally prevented from the
assessment or collection of the tax;
2. The taxpayer requests for a reinvestigation
and executes a waiver in writing before the
expiration of the period within which to
assess or collect; and
3. The taxpayer is out of the country or
otherwise cannot be located (Sec. 194,
LGC).
II. TAX REMEDIES OF THE
TAXPAYER
The following are the remedies of the
taxpayer in local taxation:
I. Administrative
A. Protest within 60 days from receipt of
assessment (Sec. 195 LGC). Payment
under protest not necessary
B. Payment & subsequent refund or tax
credit within 2 yrs. from payment of tax
to local treasurer (Sec. 196 LGC) It is to
be noted that, unlike in internal revenue
taxes, the supervening cause applies in
local taxation 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 from the date the
taxpayer is entitled to a refund or credit.
C. Right of redemption 1 yr. From the date
of sale or from the date of forfeiture (Sec.
181 LGC)
II. Judicial
A. Appeal any question on constitutionality
or legality of tax ordinance within 30 days
from effectivity thereof to Secretary of
Justice (Sec. 187 LGC)
B. Court action within 30 days after receipt
of decision or lapse of 60 days of
Secretary of Justices inaction (Sec. 187
LGC)
- within 30 days from receipt when
protest of assessment is denied (Sec.
195 LGC)
- if no action is taken by the treasurer
in refund cases and the two year period
is about to lapse (Sec. 195 LGC)
- if remedies available does not provide
plain, speedy and adequate remedy.
C. Action for declaratory relief
D. Injunction if irreparable damage would
be caused to the taxpayer and no
adequate remedy is available.
REAL PROPERTY TAX REMEDIES
I. TAX REMEDIES OF THE LOCAL
GOVERNMENT TO EFFECT
COLLECTION OF TAXES
1. Real Property tax lien (Secs. 246 and 251,
LGC);
2. Distraint (Sec. 254, LGC);
3. Levy (Sec. 254, LGC);
4. Civil Action formal demand not required
(Sec. 266, LGC);
5. Purchase of property by local treasurer for
want of bidder (Sec. 263, LGC).
Property Discovered for the First Time
Property that for so many years had not
been declared and when discovered owner must
pay back taxes plus incremental penalties.
Assessed taxes shall cover not more than ten
(10) years prior to the date of the initial
assessment.
II. TAX REMEDIES OF THE TAXPAYER
I. Administrative
A. Protest payment under protest is required
within 30 days to provincial, city, or municipal
treasurer
 B. Refund or tax credit within 2 years from
the date the tax payer is entitled thereto (Sec.
253 LGC)
C. Redemption of real property (Sec. 261
LGC)
II. Judicial
A. Appeal within 60 days from assessment
of provincial, city or municipal assessor to
LBAA (Sec. 226 LGC)
- within 30 days from receipt of decision
of LBAA to CBAA (Sec. 230 LGC)
- in case of denial of refund or credit, appeal
to BAA as in protest case (Sec. 253
LGC)
B. Court Action appeal of CBAAs decision
to Supreme Court by certiorari.
C. Suit assailing validity of tax; recovery of
refund of taxes paid (Sec. 64 PD 464).
D. Suit to declare invalidity of tax due to
irregularity in assessment and collection
(Sec. 64 PD 464).
E. Suit assailing the validity of tax sale (Sec.
83 PD 464)
Condonation of Real Property Taxes
a. Real property taxes may be condoned
wholly or partially in a given local
government unit when
i. There is general failure of crops;
ii. There is substantial decrease in
the price of agricultural or
agribased products; or
iii. There is calamity.
b. By the President of the Philippines when
public interest so requires.
TAX REMEDIES
UNDER THE TARIFF AND CUSTOMS
CODE (TCC)
Remedies of the Government to effect
collection of taxes:
1. Tax Lien (Sec. 1204 TCC)
2. Reduction of customs
duties/compromise subject to
approval of Sec. of Finance (Sec.
709, 2316 TCC)
3. Civil Action (Sec. 1204 TCC)
4. Criminal Action
5. Seizure, Search, Arrest (Sec. 2205,
2210, 2211 TCC)/ forfeiture (Sec.
2530 TCC)
Remedies of the taxpayer:
I. Administrative
A. Protest
a. Any importer or interested party if
dissatisfied with published value within
15 days from date of publication
b. Taxpayer within 15 days from
assessment. Payment under protest is
necessary (Sec. 2308, 2210 TCC)
B. Refund abatement or drawback (Sec.
1701-1708 TCC)
C. Settlement of any seizure by payment
of fine or redemption BUT this shall
not be allowed in any case where
importation is absolutely prohibited or
the release would be contrary to law
(Sec. 2307 TCC)
II. Judicial
2 A. Appeal within 15 days to Commissioner
3 after notification by collector of his
decision (Sec. 2313 TCC) within 30 days
from receipt of decision of the
Commissioner or Secretary of Finance to
the CTA (Sec. 2403 TCC, Sec. 7 RA 1125)
B. Action to question the legality of seizure
C. Abandonment (Sec. 1801 TCC)
Two kinds of proceedings in the
Bureau of Customs (BOC):
1. Customs protest cases
2. Customs seizure and forfeiture cases
A. Customs Protest Cases
Definition: These are cases which deal
solely with liability for customs duties, fees, and
other charges.
When customs protest applicable:
The customs protest is required to be
filed only in case the liability of the taxpayer for
duties, taxes, fees and other charges is
determined and the taxpayer disputes said
liability.
When Customs protest NOT required
Where there is no dispute, but the claim for
refund arises by reason of the happening of
supervening events such as when the raw
material imported is utilized in the production of
finished products subsequently exported and a
duty drawback is claimed.
Requirements for making a protest:
a. must be in writing
b. must point out the particular decision or
ruling of the Collector of Customs to
which exception is taken or objection
made;
c. must state the grounds relied upon for
relief;
d. must be limited to the subject matter of
a single adjustment;
e. must be filed when the amount claimed
is paid or within 15 days after the
payment;
f. protestant must furnish samples of
goods under protest when required.
Procedure on Customs Protest Cases:
 The Collector acting within his jurisdiction shall
cause the imported goods to be entered at the
customhouse
10
The Collector shall assess, liquidate, and collect
the duties thereon, or detain the said goods if
the party liable does not pay the same
The party adversely affected (the protestant)
may file a written protest on his foregoing liability
with the Collector within 15 days after paying the
liquidated amount (the payment under protest
rule applies)
court (Sec. 3601, TCC). Payment of the tax due
Hearing within 15 days from receipt of the duly
presented protest. Upon termination of the
hearing, the Collector shall decide on the same
within 30 days
7 3. Receive, conceal, buy, sell, facilitate,
8 transport, conceal or sell such article
9 knowing its illegal importation (Sec. 3601,
TCC)
4. Export contrary to law. (Sec. 3514, TCC)
B. The Philippines is divided into various ports
of entry entry other than port of entry, will
be SMUGGLING.
Evidence for conviction in smuggling
cases.
Mere possession of the article in question -
UNLESS defendant could explain that his
possession is lawful to the satisfaction of the
after apprehension is not a valid defense
(Rodriguez v. CA, 248 SCRA 288)
Contraband: Articles of prohibited
importations or exportations. (Sec. 3514, TCC)

Things subject to confiscation in

If decision is adverse If decision is adverse smuggling cases:
to the protestant to the Government Anything that was used for smuggling is
subject to confiscation, like the vessel, plane,
etc. (Llamado vs. Comm. of Customs, 1983).
Appeal with the Automatic review by
EXCEPTION: Common carriers that are not
Commissioner within Commissioner
privately chartered cannot be confiscated.
15 days from notice
Automatic review by Right of customs officers to effect seizure
Appeal with the the Sec. of Finance & arrest
a. May seize any vessel, aircraft, cargo,
Court of Tax Appeals article, animal or other movable property
within 30 days from notice If decision of
when the same is subject to forfeiture or
Commissioner or liable for any time as imposed under
Appeal with the Court of Sec. of Finance is tariff and customs laws, rules &
Appeals within 15 days adverse to the regulations
from notice protestant, he may b. May exercise such powers only in
appeal to the CTA, conformity with the laws and provisions
Appeal by certiorari with CA, and SC under of the TCC (Sec. 2205)
the Supreme Court within the same procedure
15 days from notice on the left Doctrine of Hot Pursuit
Requisites:
Reasons for the automatic review of 1. Over Vessels
decisions adverse to the Government a. An act is done in Phil. Waters which
1. To protect the interest of the Government constitutes a violation of the tariff
2. A favorable decision will not be appealed by and customs laws
the taxpayer and certainly a Collector will b. a pursuit of such vessel began
not appeal his own decision. within the jurisdictional waters which
3. Lifeblood Theory i. may continue beyond the
maritime zone, and
ii. the vessel may be seized on the
B. Seizure and Forfeiture Cases high seas.
2. Over Imported Articles
Definition: These refer to matters involving a. There is a violation of the tariff and
smuggling. It is administrative and civil in nature customs laws
and is directed against the res or imported b. As a consequence they may be
articles and entails a determination of the pursued in the Phils.
legality of their importation. These are actions in c. With jurisdiction over them at any
rem. place therein for the enforcement of
the law. ( 2nd par. Sec. 603, TCC)
Smuggling
A. An act of any person who shall: RTC vs. BOC
4 1. Fraudulently import any article contrary to The RTCs do not have jurisdiction over
seizure and forfeiture proceedings conducted by
5 law, or
the BOC and to interfere with these
6 2. Assist in so doing, or
proceedings. The Collector of Customs has
exclusive jurisdiction over all questions touching
on the seizure and forfeiture of dutiable goods.
No petitions for certiorari, prohibition or
mandamus filed with the RTC will lie because
these are in reality attempts to review the
Commissioner's actuations. Neither replevin filed
with the RTC will issue. Rationale: Doctrine of
Primary Jurisdiction.
Persons having police authority to
enforce the Tariff & Customs Laws and effect
searches, seizures and arrests:
a. officials of the BOC, district collectors,
police officers, agents, inspectors, and
guests of the BOC;
b. officers of the Phil. Navy and other
members of the AFP and national law
enforcement agencies when authorized
by the Commissioner of Customs
c. officials of the BIR on all cases falling
within the regular performances of their
duties, when the payment of internal
taxes are involved;
d. officers generally empowered by law to
effect arrests and execute processes of
courts, when acting under the direction
of the Collector. (Sec. 2203, TCC)
Administrative and Judicial Procedures
relative to Customs Seizures and Forfeitures
Determination of probable cause and
issuance of warrant
Actual seizure of the articles
Listing of description, appraisal and
classification of seized property
Report of seizure to the Comm. of Customs
and the Chairman, Comm. on Audit
Issuance by the Collector of a warrant of
detention
Notification to owner or importer
Formal hearing
District collector renders his decisions
3. Provisions: Those necessary for the
If decision is not If decision is not
favorable to the favorable to the
aggrieved owner Government
or importer
Automatic review by
Appeal by the aggrieved the Commissioner
owner or importer
Requirements for customs forfeiture
1. The wrongful making by the owner,
importer, exporter or consignee of any
declaration or affidavit, or the wrongful
making or delivery by the same persons of
any invoice, letter or paper - all touching on
the importation or exportation of
merchandise.; and
2. That such declaration, affidavit, invoice,
letter or paper is false. (Farolan, Jr. v. CTA,
217 SCRA 298)
Places where searches & seizures may be
conducted:
a. enclosures
b. dwelling house (there must be search
warrant issued by a judge)
c. vessels or aircrafts and persons or
articles conveyed therein
d. vehicles, beasts and persons
e. persons arriving from foreign countries.
Burden of proof in seizure or forfeiture:
claimant (Sec. 2535, TCC).
Requirements for manifest
A manifest in coastwise trade for cargo
and passengers transported from one place or
port in the Philippines to another is required
when one or both of such places is a port of
entry (Sec. 906, TCC). Manifests are also
required of vessel from a foreign port (Sec.
1005, TCC).
Query: Is manifest required only for
imported goods?
No. Articles subject to seizure do not
have to be imported goods. Manifests are also
required for articles found on vessels or aircraft
engaged in coastwise trade (Rigor vs. Rosales,
117 SCRA 780).
Unmanifested Cargo is subject to
Forfeiture whether the act of smuggling is
established or not under the principle of res ipsa
loquitur. It is enough that the cargo was
unmanifested and that there was no showing
that payment of duties thereon had been made
for it to be subject to forfeiture.
Cargo, sea store, and provisions
distinguished:
1. Cargo: Article of value (including foreign
currencies), usually movables, other than
those as part of sea stores or provisions.
2. Sea Store: It is where the passengers can
buy their necessities.
subsistence of the crew.
Settlement of Forfeiture Cases
General Rule: Settlement of cases by payment
of fine or redemption of forfeited property is
allowed.
Exceptions:
1. the importation is absolutely prohibited or
2. the surrender of the property to the person
offering to redeem would be contrary to
law, or
3. when there is fraud. (Sec. 2307, TCC)
 Acquittal in Criminal Charge NOT Res
Judicata in Seizure or Forfeiture Proceedings
Reasons:
1. Criminal proceedings are actions in
personam while seizure or forfeiture
proceedings are actions in rem.
2. Customs compromise does not extinguish
criminal liability (People vs. Desiderio, Nov.
26, 1965).
At any time prior to the sale, the delinquent
importer may settle his obligations with the
Bureau of Customs, in which case the aforesaid
articles may be delivered upon payment of the
corresponding duties and taxes and compliance
with all other legal requirements (Sec. 1508,
TCC)
Abatement
The reduction or non-imposition of
customs duties on certain imported materials as
a result of:
1. Damage incurred during voyage;
2. Deficiency in contents packages
3. Loss or destruction of articles after arrival
4. Death or injury of animals
Fraudulent Practices considered as
Criminal Offenses against Customs Revenue
Laws:
a. Unlawful importation;
b. Entry of imported or exported article by
means of any false or fraudulent
practices, invoice, declaration, affidavit,
or other documents;
c. Entry of goods at less than their true
weights or measures or upon a
classification as to quality or value;
d. Payment of less than the amount due;
e. Filing any false or fraudulent claim for
the payment of drawback or refund of
duties upon the exportation of
merchandise; or
f. Filing any affidavit, certificate or other
document to secure to himself or others
the payment of any drawback,
allowance or refund of duties on the
exportation of mdse. greater than that
legally due thereon. (Sec. 3602, TCC)
VI. COURT OF TAX
APPEALS (RA 1125)
Salient features of the CTA:
1. It is a judicial body;
2. It is a court of special jurisdiction;
3. It is not governed by technical rules of
evidence.
Powers of the CTA:
The following are the powers of the CTA:
1. to administer oaths;
2. to receive evidence;
3. to summon witnesses by subpoena;
4. to require production or papers or
documents by subpoena duces tecum;
5. to punish contempt;
6. to promulgate rules and regulations for
the conduct of its business;
7. to assess damage against appellant if
appeal to CTA is found to be frivolous or
dilatory;
8. to suspend the collection of the tax
pending appeal; and
9. to render decisions on cases brought
before it.
Requisites for a Valid Suspension of
Collection of the Tax pending Appeal:
There must be a
1. Showing that collection of the tax may
jeopardize the interest of the government
and / or the taxpayer;
2. Deposit of the amount claimed or file a
surety bond for not more than double the
amount of tax with the Court when required;
and
3. Showing by taxpayer that appeal is not
frivolous nor dilatory.
Jurisdiction of the CTA:
Exclusive appellate jurisdiction to review
on appeal:
1. decisions of CIR in
a. disputed assessments, refunds of internal
revenue taxes, fees or other charges;
penalties imposed in relation thereto; or
b. other matters arising under the NIRC, or
other law or part of law administered by
the BIR.
2. decision of Commissioner of Customs in
a. cases involving liability from custom
duties, fees or other money charges;
seizure, detention or release of property
affected; fines, forfeitures or other
penalties imposed in relation thereto; or
b. other matters arising under the Customs
Law, or other law or part of law
administered by the Bureau of Customs
Other matters
Those controversies which can be
considered within the scope of the
function of the BIR / BOC under
ejusdem generis rule (e.g. action for the
nullity of distraint and levy; questioning
the propriety of the assessment;
collection of compromise penalties).
General Rule: New issues cannot be raised
for the first time on appeal.
Exceptions:
1. Defense of prescription
REASON: This is a statutory right (Visayan
Land Transportation vs Collector)
2. Errors of administrative officials
 REASON: State can never be in estoppel
and lifeblood theory. (CIR vs Procter and
Gamble Phils. Mfg. Corp.)

Simultaneous filing of an application for

refund or credit and institution of a case
before the CTA allowed
The law fixes the same period of two (2)
years for filing a claim for refund with the
Commissioner and for filing a case with the CTA.
The two-year period for both starts from the date
after the payment of the tax or penalty, or from
the approval of the application for credit.
Observation: If we are not going to
allow the taxpayer to file a refund before the CTA
and let him wait for the CIRs decision, and the
latter failed to render a decision within the 2-year
period, the said taxpayer can no longer file a
refund before the CTA because his right to
appeal has prescribed.