LAST MINUTE TIPS 2018 – TAXATION LAW

GENERAL PRINCIPLES OF TAXATION

Basic Theories and Doctrines in Taxation

Lifeblood Theory Necessity Theory Benefits-Protection Theory

Taxes are the lifeblood of the The existence of
government and so should be collected government is a and receive taxes based on the
without unnecessary hindrance. necessity; it cannot
Without taxes, the government would continue without means
be paralyzed for lack of the motive to pay its expenses; and
power to activate and operate it. that for these means, it has
a right to compel all its
If taxpayer and BIR are equally at fault, citizens and property
validity of BIR’s acts are sustained within its limits to
based on the lifeblood theory. contribute.
The power of the State to demand
reciprocal duties of support and
protection between the State and its
citizens. Taxes are what we pay for a
civilized society. (also known as
Doctrine of Symbiotic
Relationship)

Characteristics of Taxation (CUPS): Comprehensive, Unlimited, Plenary, and Supreme

Principles of a Sound Tax System (FAT):
a. Fiscal Adequacy (sufficiency to meet public expenditures),
b. Administrative Feasibility (capable of being effectively administered; least inconvenience to taxpayer),
and
c. Theoretical Justice (taxpayer’s ability to pay)
Congress has the power to determine coverage, object, nature, extent, and situs (CONES) of tax.

P For a public purpose.

Requisites U Uniform.
of a Valid J The person or property being taxed should be within the jurisdiction of the taxing
Tax authority.
CO The tax must not impinge on the constitutional and inherent limitations.

Construction of Tax Laws Prospectivity of Tax Marshall and Holmes Doctrine

Laws
Tax statutes must be construed GR: Tax laws must
strictly against the government only be imposed
and liberally in favor of the taxpayer prospectively.
Tax exemptions are construed in XPN: If the law
strictissimi juris against the expressly provides for
taxpayers and liberally in favor of retroactive
the taxing authority application. Such may
XPN: If taxpayer is government be allowed if it will not
political subdivision or amount to denial of
instrumentality, tax exemptions are due process
construed liberally.
The power to tax involves the power to
destroy (Marshall Doctrine) since the
power to tax includes the power to
regulate even to the extent of prohibition
or destruction, when it is used validly as
an implement of police power.
If it is employed solely to raise revenues,
taxes cannot be allowed to confiscate or
destroy “as long as the court sits”.
(Holmes’ Doctrine)

Imposition of 20% senior citizen’s discount is a valid exercise of police power. The 20% discount is
intended to improve the welfare of senior citizens who, at their age, are less likely to be gainfully employed,
more prone to illnesses and other disabilities, and thus, in need of subsidy in purchasing basic commodities. It
is a price regulatory measure(Manila Memorial Park v. DSWD)

Coconut levy funds are considered as taxes. Market stall fees, universal charges under EPIRA Law, and
socialized housing tax do not constitute taxes. They are regulatory charges; these are imposed in the exercise
of police power.

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Summary of Limitations on the Power to Tax

Inherent Limitations Direct Constitutional Limitations Indirect Constitutional

Limitations
Public Purpose - used (a) for the - No imprisonment for non- - Due Process
support of the State or (b) for some payment of poll tax. Substantive Procedural
recognized objective of the government - Uniformity and equality rule in DP - public DP – not
or to directly promote the welfare of the taxation purpose, arbitrary
community. - Prohibition against taxation of within in
religious, charitable entities, and territorial assessment
Inherently Legislative – cannot be educational entities. (Covers only jurisdiction or
delegated. RPT) collection.
XPN: can be delegated to LGU (on local - Prohibition against taxation of - Equal Protection Clause
taxes), President (on tariffs), admin non-stock, nonprofit educational Requisites [SAGA]
agencies (on administrative institutions (Covers income tax, 1. Substantial distinction
implementations) VAT, and local business tax) 2. Applies to present and
- Absolute majority vote of future conditions
Territorial - exercised only within the Congress for grant of tax 3. Germane to the purpose
territorial jurisdiction of the taxing exemption of the law
authority - Power of item veto of the 4. Applies equally to all
President in revenue and tariff members of the same
International Comity - respect bills. class
accorded by nations to each other - Revenue and tariff bills must - Religious Freedom
because they are sovereign equals originate in the House of - Non-Impairment Clause
Note: Tax treaties prevail over NIRC. Representatives; Note: Senate - Freedom of the Press
Ratio: Special law prevails over may introduce amendments.
general law, and pacta sunt servanda - No appropriation or use of public
money for religious purposes
Exemption of Government – XPN:
When the government chooses to tax
itself in its proprietary activities.

Double Taxation

Direct double taxation – When is it direct? (PAPS-JK) Remedies against double

Unconstitutional (violative of It is imposed on taxation (CREDIT)
equal protection clause and a. on the same subject matter, •Apply for Tax Credit
uniformity clause) b. for the same purpose, •Principle of Reciprocity
c. by the same taxing authority, • Tax Exemption
Indirect double taxation – d. within the same jurisdiction, •Apply for Tax Deduction
Constitutional e. during the same taxing period; •Apply for Tax Incentive
and •Apply for Tax Treaty
Note: If one element is missing, such f. taxes must be of the same kind
is only indirect double taxation. or character

The Revenue Code of Manila imposed on a Tax on Wholesalers, Distributors, or Dealers and Tax on Retailers.
At the same time, the City of Manila imposed additional taxes on a person who sold goods and services in the
course of trade or business based on a certain percentage of his gross sales or receipts in the preceding
calendar year. Such is direct double taxation. (Nursery Care Corporation v. Acevedo)

The imposition of local business tax based on gross revenue will result in direct double taxation inasmuch
as the revenue or income for a taxable year will definitely include its gross receipts already reported during
the previous year and for which local business tax has already been paid. (Ericsson Telecommunications vs. City
of Pasig)

There is no direct double taxation on FWT on interest income and the 5% gross receipts tax paid by banks.

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Tax Amnesty vs. Tax Exemption; Tax Evasion vs. Tax Avoidance; Taxpayer’s Suit vs. Citizen’s
Suit

TAX AMNESTY TAX EXEMPTION

Immunity from all criminal, civil and Immunity from civil liability only
Scope of
administrative obligations arising from
immunity
non-payment of taxes
General pardon given to all erring A freedom from a charge or burden to
Grantee
taxpayers which others are subjected
How applied Applied retroactively Applied prospectively

Note: BIR cannot grant tax exemption. It is within the province of the Congress.
Can tax exemptions be revoked? GR: YES. Tax exemption is a mere privilege. (e.g., Franchise) XPN: If
exemption is contractual because it may violate the non-impairment clause.

Tax exemptions are personal and non-transferable.

He who claims an exemption must justify that the legislature intended to exempt him by
Principles
words too plain to be mistaken. He must convincingly prove that he is exempted.
on Tax
It must be strictly construed against the taxpayer
Exemptions
Tax exemption is generally revocable. XPN: (1) founded on contracts which are protected
by the Non-impairment clause. (2) constitutionally-granted exemptions

U - Course of action is unlawful;

Elements
S - Accompanying state of mind: evil, in bad faith, willful or deliberate and not accidental
of Tax
E - End to be achieved, i.e., payment of less than that known by the taxpayer to be legally
Evasion
due, or non-payment of tax when it is shown that the tax is due.
Note: Tax avoidance is legal and does not result to criminal penalties. Tax evasion is illegal and results to
criminal penalties.
An estate planning scheme, e.g., transfer of assets to a family corporation, is a form of tax avoidance.

Q: Is prior assessment a condition sine qua non for a criminal case of tax evasion?
A: NO. (1) The crime is complete when the taxpayer willfully and fraudulently files his tax return or
underpays his taxes.
(2) Section 205, NIRC, provides that civil and criminal actions may be filed simultaneously
(3) They differ as to purpose. The assessment seeks to determine tax liability while the criminal action seeks
to penalize the taxpayer.

A taxpayer’s suit requires that there be illegal or irregular disbursement of public funds derived from
taxation. In a citizen’s suit, the plaintiff/petitioner is but the mere instrument of the public concern.

ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE

R To Recommend promulgation of rules and regulations by the Secretary of Finance;

R To Reverse, revoke or modify any existing rule of the BIR;
Non- I To Issue rulings of first impression
delegable Note: If the rulings are based on established precedents, such power can be delegated.
powers C To Compromise or abate any tax liability;
of the XPN: The Regional Evaluation Board may compromise assessments involving deficiency
BIR taxes of P500,000 or less and minor crime violations.
A To Assign or reassign internal revenue officers to establishments where articles subject
to excise tax are kept.

BIR Ruling Revenue Regulations

Purpose Answers to queries of taxpayers Implementing guidelines of tax laws
“of First “Established Should not be bigger than the tax law it
Impression” Precedent” seeks to implement. Must not modify the
Limitations
-non-delegable -delegable authority law.
authority Not delegable

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BIR Ruling Revenue Regulations

Force and Persuasive, but does not have the force and Has the force and effect of tax laws
effect effect of laws
Does not require publication Requires publication in a newspaper of
Publication general circulation for validity.
Otherwise, void.
Issued by BIR Issued by Secretary of Finance (SOF).
Who issues
CIR’s power is merely recommendatory.

INCOME TAX

General Principles of Income Taxation

Basic Principles
 Only resident citizens (RC) and domestic corporations (DC) are subject to income tax on their
worldwide income.
 Tax base:
 Taxable income = Gross income – allowable deductions
 XPN: NRANETBs and NRFCs – Taxed on gross income
 Income vs. Capital: Income is any wealth which flows into the taxpayer other than a mere return of capital
while capital constitutes the investment which is the source of income.

P 1. There must be a profit or When is income realized?

gain.
N 2. The income is not
excluded or exempted
by law.
Requisites R 3. The income must be
of Income realized actually or
constructively.
It must not be a return of
capital.
a. The earning process is complete or virtually complete;
and
b. An exchange has taken place.
All-Events Test (RRD) [also applicable for claiming
deductions]
a. Fixing of an unconditional, valid, and enforceable right to
income or liability to pay; and
b. Availability of the reasonable accurate determination of
such income or liability.
c. Amount will be paid in due course

TAXABLE NOT TAXABLE

Bad debt recovery Condonation/cancellation  Advanced  Liquidating dividends
to the extent of of debt for services payments/deposits  Moral and exemplary
income tax benefit rendered.  Money borrowed damages
derived from the Income from theft (even  Increments from  Compensation for
write-off (tax- though the law imposes revaluation of injuries and sickness
benefit rule) an obligation to return property  Stock dividends
Gain on sale of since it is the intention of  Proceeds from life  Gifts, bequests, and
personal asset the thief to appropriate it insurance, regardless devises
Income from [James Doctrine] of designation  Income derived by
illegal sources  Return of premiums foreign governments
(e.g., drugs,
gambling)

Situs of Income

KIND OF INCOME TAX SITUS KIND OF INCOME TAX SITUS

Interest Residence of the Dividend income from:
debtor a. Domestic Corporation Income within
Service or Place of performance b. Foreign Corporation –
compensation income of service If for the 3-year period
Rent Location of property preceding the
(real or personal) declaration of
Royalties Place of use of dividend, the ratio of
intangibles such corporation’s Phil

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Merchandising Place of sale income to the world

Gain on sale of personal Place of sale (total) was:
property purchased - Less than 50% Entirely without
Gain on sale of personal Place of sale and/or - 50% to 85% Proportionate
property produced production - More than 85% Entirely within
Gain on sale of real Location of property Gain on sale of domestic Income within the
property stock Philippines
Mining income Location of the Farming income Place of farming
mines activities
Final Income Tax

Income Summary of Rules Tax sparing rule: the dividends received

Interest GR: Basic income tax by NRFC from DC shall be subject to 15%
XPN: Subject to final tax if FWT if the country in which the corporation
(1) Interest income from currency bank deposits, is domiciled either (i) allows a tax credit of
(2) Interest income from expanded foreign 15% against the taxes due from the foreign
currency deposit system (EFCDS) corporation for taxes deemed paid or (ii)
XPN to XPN: Exempt if does not impose income tax on such
(1) If income from EFCDS is earned by non- dividends.
resident.
(2) For individuals, if bank deposit is long-term Summary of tax treatment of dividend
(more than 5 years) received from domestic corporation
Dividends GR: Final tax
XPN: (1) If earned from foreign corporation, RECIPIENT TAXABILITY
subject to basic income tax
DC / RFC Tax exempt
(2) If it is an intercorporate dividend (DC to
RC, NRC, 10%
DC/RFC) or a stock dividend, exempt
RA
Royalties Final tax if from Philippine sources
NRA – ETB 20%
Prizes Prizes not exceeding P10,000 – basic tax
NRA – 25%
and Prizes exceeding P10,000 – final tax
NETB
winnings Winnings – final tax
PCSO winnings – exempt (under TRAIN, PCSO NRFC 30% (XPN: Tax sparing
winnings above P10,000 are subject to final tax) rule applies, 15%;
preferential rate under tax
treaty)

Share of a partner in a
commercial/business partnership is
subject to final tax. Share of a partner in a
general professional partnership is
subject to basic income tax.

Capital Gains and Losses

Transactions involving capital Taxation of Capital Rules on Basic Income Tax Treatment
assets give rise to capital gains or Gains and Losses 1. Holding Period Rule
losses. GR: Subject to basic Long-term capital gains and losses
income tax (capital asset has been held for >1 year)
Two kinds of assets under NIRC: XPN: are only 50% recognized.
1. Ordinary Asset [SOUR]: Subject to final tax if gain (only for individuals)
- Stock in trade of the arose from:
taxpayer/inventory 1. Real property held as 2. Capital Loss Limitation Rule
- Property held for sale to capital asset in the Capital loss may only be deducted against
customers in the ordinary course Philippines (6% CGT) capital gain, not ordinary gain.
of trade or business; 2. Shares of stock of
- Property used in the trade or domestic corporations 3. Net Capital Loss Carryover Rule
business of character subject to sold directly through Net capital loss may be carried over to the
depreciation the buyer, not traded succeeding taxable year.
- Real property used in trade or through the LSE Note: Only 1 year for carryover. (Note:
business of the taxpayer. (5%/10% CGT, 15% Compare this with NOLCO which
2. Capital Asset – those that are under TRAIN) generally can be carried over for 3 years)
not ordinary assets (only for individuals)

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Rules on Final Tax Treatment

CGT on real property
 Tax base: FMV or selling price, whichever is higher.
 Applies whether sale is voluntary or forced, i.e.,
expropriation or foreclosure. However, foreclosure is
only taxable upon the expiration of period to redeem.
 For sale to the government of a real property held as
capital asset, individual taxpayer has the option to (1)
subject the gain to regular income tax or (2) pay 6% CGT.
 6% CGT applies to real property for individuals but for
land and buildings only for domestic corporations.
 NOTE: If what is sold is the principal residence of the
taxpayer, it may be exempted from CGT, provided:
a. Proceeds are used to acquire/construct new principal
residence within 18 months. (Note: The sale must
precede the acquisition/construction)
b. Availed once every 10 years
c. CIR is notified within 30 days of sale
d. 6% CGT is deposited in an escrow account
CGT on shares of stock
 Tax base is net capital gain: 5% on the
first P100,000, and 10% on the gain
above P100,000. (now a flat rate of 15%
under TRAIN)
 If traded through the LSE - subject to
stock transaction tax of ½ of 1% of
gross selling price (6/10 of 1% under
TRAIN)
 If sold by a dealer in securities, the
shares are ordinary assets, and the gain
is therefore subject to basic income tax.
 If corporation sells its own stocks, it is
not subject to income tax. Excess of
price above par is not considered as an
income.

In cases of expropriation, it is the seller who should shoulder the tax. The person whose property is
expropriated pays since it is a tax on the seller’s gain from the sale of the real estate. (Republic vs. Soriano)

Exclusions from Gross Income

Exclusion Summary of Rules

Retirement 1. The Reasonable Private Benefit Plan (RPBP) must be approved by the BIR;
Benefits 2. The retiree must have been in the service of same employer for at least 10 years at the time
of retirement;
3. Must be at least 50 years old at the time of his retirement; and
4. Must have been availed of only once.
Separation Must be due to death, sickness or other physical disability; or for any cause beyond the control
Pay of the official or employee (e.g., retrenchment, cessation of business, redundancy, installation
of labor saving device, automation of business operations, severe business losses)
Prizes and 1. Received primarily in recognition of Scientific, Civic, Artistic, Religious, Educational, Literary,
awards or Charitable achievement [SCAR-CEL]
2. The recipient was selected without any action on his part to enter the contest or proceeding;
and
3. He is not required to render substantial future services as condition to receiving the prize
or award.
Exemption for athletes: (1) local and international sports tournaments and competitions (2)
sanctioned by their national sports associations

Deductions from Gross Income

Requisites for Deductibility of Itemized Deductions

Summary of Rules
Adver- GR: Deductible
tising XPN: If intended to benefit future periods, it must be spread over a reasonable time.
Interest There must be an indebtedness
The interest must be legally due, stipulated in writing, paid or incurred during the taxable year
The indebtedness must be connected with the taxpayer’s trade, business, or profession
The interest arrangement must not be between related taxpayers
The allowable deduction has been reduced by 33% of the interest income subject to tax
Note: Theoretical interest not deductible, and CIR has no authority to impute theoretical interest.
Losses Actually sustained and charged off during the taxable year
Evidenced by a closed and completed transaction
Not compensated by insurance
Not claimed as a deduction for estate tax purposes in case of individual taxpayers
Must be connected with taxpayer’s trade, business or profession
If it is casualty loss, it is evidenced by a declaration of loss filed within 45 days with the BIR

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Bad The debts are actually ascertained to be worthless or uncollectible despite diligent or earnest
Debts effort exerted by the taxpayer: [SCRA]
a. Sending of statement of accounts;
b. Sending of collection letters;
c. Referral to a lawyer for collection; and
d. Filing an action for collection in court.

Optional Standard Deduction

Amount:
1. 40% of the gross sales or
gross receipts - individual
taxpayer; or
2. 40% of the gross income - a
corporation
Principles:
- OSD does not require proof of substantiation as opposed to itemized
deductions.
- Choice of OSD in the first quarter is irrevocable for the entire taxable
year.
- If no choice is made, it is assumed that the taxpayer availed of the
itemized deductions.
- NRAs, NRFCs, and taxpayers subject to special tax rates cannot claim
OSD.

Net Capital Loss Carry Over (NCLCO) vs Net Operating Loss Carry Over (NOLCO)
BASIS NCLCO NOLCO
Source Transactions involving capital asset Transactions involving ordinary asset
Who can avail Individual Individual and corporate taxpayer
Carryover of operating loss in 3 succeeding
Period of carry-
In the next succeeding taxable year taxable years or 5 years, in the case of mining
over
companies
Holding Period May apply Does not apply

Taxation of Compensation Income

De Minimis Benefits Fringe Benefits Tax

These are facilities or privileges furnished or offered Nature: Final tax
that are of relatively small value as a means of Base: Grossed-up monetary value
promoting the health, goodwill, contentment and Rate: 32% (TRAIN: 35%)
efficiency [CHEG] of his employees. Who pays: Employer
Subject: Fringe benefits provided to supervisory
Tax Treatment: Exempt. If in excess of threshold, it and managerial employees
will form part of 13th month pay and other benefits Note: Fringe benefits to rank-and-file are subject
subject to the P82,000 threshold (P90,000 under to regular income tax paid by the employee.
TRAIN)
Convenience of the Employer Rule: An
[CUTE SMALL CRIME] exemption from taxation is granted to benefits
1. Clothing and uniform allowance (P5,000/year) which are given to the employee for the exclusive
(P6,000 under TRAIN) benefit or convenience of the employer.
2. Tangible property as employee achievement award
(P10,000/year) The ff. are other exempt fringe benefits:
3. Night shift or overtime meals (25% of minimum  Housing benefits to AFP
wage)  Use of aircraft or helicopters (Note: Use of land
4. Major anniversary and Christmas gifts and sea vehicles are subject to FBT)
(P5,000/year)  Scholarship grant to employee
5. Leaves: Monetized vacation leaves of private Requisites:
employees (up to 10 days) 1. directly connected with the employer’s
6. Monetized vacation and sick leaves of gov’t business
employees (no limit) 2. written contract between them that the
7. Laundry allowance (P300/month) employee is under obligation to remain in
8. Benefits by virtue of CBA/productivity incentive the employ of the employer for a period of
scheme (P10,000/year) time
9. Rice subsidy (P1,500 or 1 sack/month) (P2,000
under TRAIN)
10. Medical cash allowance to dependents
(P750/semester) (P1,500 under TRAIN)
11. Actual medical assistance (P10,000/year)

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Note: Minimum wage earners are exempt from income tax on their basic pay and HONHA (Holiday, overtime,
night shift differential, and hazard pay)

Corporate Income Tax

Offline International Carrier

An offline international air carrier selling passage tickets in the Philippines, through a general sales agent, is a
RFC doing business in the Philippines. Pursuant to the RP-Canada Tax Treaty, Air Canada may only be imposed
a maximum tax of 1 ½% of its gross revenues earned from the sale of its tickets in the Philippines. The treaty
prevails over our domestic tax laws based on the principle of pacta sunt servanda. (Air Canada v. CIR)

Branch Profit Remittance Tax (BPRT)

Rate: 15%; Nature: Final tax
Base: total profits applied or earmarked for remittance (note: actual remittance
immaterial)

Minimum Corporate Income Tax (MCIT)

Rate: 2% Not applicable to NRFCs.
Base: Gross income Not applicable to DCs and RFCs not subject to 30% regular
Paid only when: MCIT is higher than 30% CIT, e.g.:
Regular CIT  Proprietary educational institutions – 10%
Coverage: DCs and RFCs  Non-profit hospital – 10%
Applicability: beginning on the 4th taxable  Foreign international carrier – 2 ½% GPB
year following the year of commencement of  Those enjoying incentives under special investment laws,
business operation e.g., PEZA

Improperly Accumulated Earnings Tax (IAET)

Rate: 10%
Base: Improperly accumulated earnings:
Earnings in excess of “reasonable needs”.
Immediacy Test: construed the words
“reasonable needs of the business” to mean
the immediate needs of the business
Example of reasonable needs: corporate
expansion, loan covenants, building or plant
acquisition, 100% of paid-up capital.
Not applicable: [PIPE JoB]
 Publicly-held corporations
 Insurance companies
 Partnerships
 Enterprises duly registered with PEZA/BCDA
 Exempt joint ventures
 Banks and other financial intermediaries

Exempt and Special Corporations

Exception clause of Sec. 30, NIRC: Requisites of exemption of charitable
The income of whatever kind and character of the institutions [NOON]
[exempt] organizations from any of their properties, real CIR v. St. Luke’s Medical Center, Inc.
or personal, or from any of their activities conducted 1. Organized as non-stock corporation
for profit regardless of the disposition made of such 2. Operated exclusively for charitable
income, shall be subject to [tax]. purposes
3. Organized exclusively for charitable
Inapplicability of exception clause to non-stock, non- purposes
profit educational institutions 4. No part of income/assets shall inure to the
CIR v. De la Salle University benefit of particular individuals
Article XIV, Section 4(3) of the 1987 Constitution provides
that the assets of a non-stock, non-profit educational Services rendered to paying patients are
institution shall be exempt from taxes and duties only if the considered activities conducted for profit
same are used actually, directly, and exclusively for which are subject to income tax, regardless
educational purposes. The test of exemption from taxation of the disposition of said income. The hospital
is the use of the property/income and not the source of the is subject to income tax of 10%.
property/income. A statutory clause cannot overcome a
constitutional exemption.

Taxability of PAGCOR

Exempt from income tax on income on gaming NOT exempt: income derived from other related
Extends to its lessees and contractees services
Exempt from VAT on receipts from gaming NOT exempt: legal obligation of withholding agent
operations

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Administrative Provisions

Within 3 years from the filing of the ITR, the ITR may be amended provided that the taxpayer has not received
any letter of authority to investigate

Irrevocability Rule - applies only to the option of carry-over. A taxpayer is still free to change its choice after
electing a refund of its excess tax credit. But once it opts to carry over such excess creditable tax, after electing
refund or issuance of tax credit certificate, the carry-over option becomes irrevocable. Accordingly, the
previous choice of a claim for refund, even if subsequently pursued, may no longer be granted. Choice of refund
or tax credit certificate is not irrevocable. (University Physicians Services, Inc. v. CIR 2018).

TRANSFER TAX (ESTATE and DONOR’S TAX)

Requisites for deductibility of vanishing Exemption of Certain Acquisitions and Transmissions

deduction :[VIPED]
1. Present decedent died within 5 years from
receipt of property from a prior decedent or
donor
2. The property formed part of the gross estate
situated in the Philippines of the prior
decedent or was a taxable gift of the donor
3. The estate tax on the prior succession or
donor’s tax must have been paid
4. The property must be identified as the one
received or acquired
5. No vanishing deduction was claimed on the
same property of the prior decedent’s estate
1. The merger of usufruct in the owner of the naked
title;
2. The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary;
3. The transmission from the first heir, legatee or donee
in favor of another beneficiary, in accordance with the
desire of the predecessor; and
4. All bequests, devises, 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:
Condition: Not more than 30% shall be used for
administration purposes.

When the donor makes his will within a short time of, or simultaneously with, the making of gifts, the gifts are
considered as having been made in contemplation of death subject to estate tax. (Roces v. Posadas)

Exempted Proceeds from Life Insurance

a. Proceeds from a life insurance policy is receivable by a 3rd person (NOT the decedent’s estate, executor or
administrator) AND that the said beneficiary is designated as irrevocable;
b. Where the life insurance was not taken by the decedent upon his own life even though the beneficiary is the
decedent’s estate, executor, or administrator;
c. Accident insurance proceeds. NIRC specifically mentions only life insurance policies;
d. Proceeds of a group insurance policy taken out by a company for its employees;
e. Proceeds of insurance policies from GSIS and SSS

Note: In estate taxation, the concept of revocability or irrevocability in the designation of the beneficiary is
necessary to determine whether the life insurance proceeds are included in the gross estate or not. However,
if the appointed beneficiary is the estate, executor or administrator, the proceeds shall be included from the
gross estate.

On the other hand, in income taxation, there is no need for the determination of revocability or irrevocability
of the beneficiary for purposes of exclusion of such proceeds from the gross income. They are non-taxable
regardless of who the recipient is.

Renunciation by an Heir of inheritance

1. Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in favor of the heirs or any other person/s is subject to
donor’s tax;
2. However, general renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent is not subject to donor’s tax, unless specifically and categorically
done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary
estate. In general renunciation, there is no donation since the renouncer has never become the owner of
the property/share renounced.

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Rule regarding transfer for less than adequate and full consideration:
GR: Where a property is transferred for less than adequate and full consideration in money or money’s worth,
the amount by which the FMV exceeds the consideration shall be deemed a gift and be included in
computing the amount of gifts made during the calendar year. Donative intent is not necessary.

XPN: Where property transferred is real property located in the Philippines considered as capital asset,
the transfer is not subject to donor’s tax but to a capital gains tax, which is a final income tax of 6% of the fair
market value or gross selling price, whichever is higher, and therefore, there can be no instance where the
seller can avoid any tax by selling his capital assets below its FMV.

Q: Are donations for political campaign purposes exempted from donor’s tax?
A: YES. Any contribution in cash or in kind to any candidate, political party, or coalition of parties for campaign
purposes, reported to COMELEC shall not be subject to payment of any gift tax.

Under the date-of-death valuation rule, claims existing at the time of death should be made the basis of
the determination of allowable deductions. Thus, post-death developments, such as condonotion in this
case, are not material in determining the amount of the deduction (Dizon, et. al v. CA)

VALUE-ADDED TAX

Transactions Deemed Sale [CORD]

O Transfer, use or consumption not in the course of business of goods or properties Originally intended
for sale or for use in the course of business.
D Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons
b. Creditors in payment of debt
C Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned.
NOTE: Consigned good returned by the consignee within the 60-day period are not deemed sold.
R Retirement from or cessation of business with respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the
business is continued by the new owner or successor.

Zero-rated sales vs. VAT-exempt transactions

Zero Rated Sale VAT-Exempt Transaction
Generally refers to the export sale of goods and The goods are not subject to VAT at a particular
services. stage.

The seller of such transactions charges no output tax In VAT-exempt sales, the taxpayer/seller shall not
but can claim a refund or tax credit certificate for the bill any output tax on his sales to his customers and
input VAT attributable to zero-rated sales. corollarily, is not allowed any credit or refund of the
No VAT shall be shifted or passed-on by VAT- input taxes he paid on his purchases.
registered sellers or suppliers from the Customs
Territory on their sale, barter or exchange of goods,
properties or services to the subject registered
Freeport Zone enterprises.

VAT on Real Properties

Summary Rules on Sales of Real Properties

Sale not in the ordinary course of trade or business VAT exempt
Sale of residential lot by a real estate dealer
 Selling price < P1,919,500* VAT exempt
 Selling price > P1,919,500 VAT
Sale of residential lot by a non-dealer
 Use in business (incidental transaction) VAT
 Not use in business (regardless of amount) 6% CGT
Sale of residential house & lot and other residential dwellings by a real estate dealer
 Selling price < P3,199,200** VAT exempt
 Selling price > P3,199,200 VAT

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Sale of residential house & lot and other residential dwellings by a non-dealer
 Use in business (incidental transaction) VAT
 Not use in business (regardless of amount) 6% CGT
Sale of real property classified as low cost housing VAT exempt
Sale of real property classified as socialized housing VAT exempt
* Apply rules on adjacent lots
** Apply rules on adjacent house and lots and other residential dwellings
Note: Parking lot is always subject to VAT, regardless of amount.

Summary Rules on Lease of Residential Units

Monthly rental P12,800 or less regardless of annual VAT exempt and no percentage tax
gross sales (P15,000 under TRAIN)
Monthly rental above P12,800 but annual gross sales do VAT-exempt under Sec. 109 (W) but shall pay 3%
not exceed P1,919,500 percentage tax under Section 116 of NIRC
Monthly rental above P12,800 and annual gross sales Subject to VAT
exceed P1,919,500
Monthly rental P12,800 or less regardless of annual VAT exempt and no percentage tax
gross sales
Threshold is now P3,000,000 annual gross sales and P15,000 monthly rental under TRAIN

Transitional Input VAT

Prior payment is not necessary before a taxpayer could avail of the 2% transitional input VAT. Transitional
input VAT is based on the value of the inventory, which are products which the VAT-registered business offers
for sale. It is not limited to improvements. (Fort Bonifacio Development Corporation v. CIR)

Q: Are gross receipts derived from sales of admission tickets in showing motion pictures subject to
VAT?
A: NO. The legislative intent is not to impose VAT on persons already covered by the amusement tax

PERCENTAGE TAX, EXCISE TAX, AND DOCUMENTARY STAMP TAX

Percentage Tax
Any person whose sales or receipts are exempt from the payment of 3% of gross quarterly sales or
value-added tax for not exceeding the VAT threshold and who is not a receipts
VAT-registered person
Sale, barter, exchange, or other disposition of shares of stock listed ½ of 1% of gross selling price
and traded through the local stock exchange other than the sale by a (now 60% of 1% under TRAIN)
dealer in securities

Documentary Stamp Tax (DST)

GR: The party primarily liable on the payment of DST is the the person making, signing, issuing, accepting, or
transferring the document or facility evidencing the aforesaid transactions.
XPN: Whenever one of the parties is exempt from the DST, the other party thereto who is not exempt shall be
the one directly liable for the tax

The fact that the Savings Account Plus (SAP) is evidenced by a passbook cannot remove its coverage from DST
on certificates of deposit. A document to be considered a certificate of deposit need not be in a specific form.
Thus, a passbook issued by a bank qualifies as a certificate of deposit drawing interest because it is considered
a written acknowledgement by a bank that it has accepted a deposit of a sum of money from a depositor.
(Prudential Bank v. CIR)

Excise Tax
- Sale to international carriers
Sale of Petroleum is
- Exempt entities under treaties
Exempt
- Clark Development Authority

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TAX REMEDIES

Assessment

Requisites of a valid assessment (BaD SAWS) Not an assessment:

1. In writing and signed by the BIR; - The revenue officers’ Affidavit-
2. Contains the law and the facts on which the assessment is Report, which was attached to the
based (basis must be provided); criminal Complaint filed with the
3. Contains a demand for payment within the prescribed period; DOJ.
(must contain a due date to pay) - A written communication by a
4. Must be addressed to, served on and received by the taxpayer. revenue officer of tax liability of the
taxpayer, giving him an
Jeopardy assessment is a delinquency tax assessment made opportunity to contest or disprove
without the benefit of a complete or partial investigation by an the BIR examiner’s findings is not
authorized revenue officer who has a reason to believe that the an assessment since it is yet
assessment and collection of a deficiency tax will be jeopardized by indefinite
delay caused by the taxpayer’s failure to (a) comply with audit and
investigation requirements to present his books of accounts Principles on Tax Assessment
and/or pertinent records, (b) substantiate all or any of the 1. Prima facie presumed correct and
deductions, exemptions or credits claimed in his return made in good faith (Ratio:
Lifeblood doctrine, presumption
Prescriptive Periods of regularity)
Date of filing Prescriptive period of Assessment 2. Should be based on actual facts
3. Discretionary on the part of
Before due date 3 years from due date Commissioner (therefore, not
On due date 3 years from due date compellable by mandamus)
Beyond due date 3 years from actual filing 4. Power to assess is delegable
Fraudulent filing 10 years from discovery of bad
faith/fraud The decision of the CIR or his duly
Non-filing 10 years from discovery of non-filing authorized representative on a
LGC/local taxes 5 years from due date, except in fraud, disputed assessment to state the facts,
period is 10 years law and rules and regulations, or
Prescriptive period for collection is 3 years. jurisprudence on which the decision
is based. Failure to do so will
invalidate the FDDA.

A final decision on disputed assessment that is declared void does not necessarily result in a void assessment.
The nullification of the FDDA does not extend to the nullification of the entire assessment. An FDDA that does
not inform the taxpayer in writing of the facts and law on which it is based renders the decision void. It is as if
there was no decision rendered. It is tantamount to a denial by inaction, which may still be appealed before
the CTA.

Tax lien, Distraint, and Levy

Tax lien is is a legal claim or charge on property, personal or Applicability

real, established by law as a sort of security for the payment of NIRC Local RPT CMTA
tax obligations. It attaches when the taxpayer neglects or Lien YES YES YES X
refuses to pay tax after demand. Distraint YES YES X YES
Levy YES YES YES YES
Distraint is a summary remedy in which the collection of tax
is enforced on the taxpayer’s personal property. When Notes:
enforced to taxpayer’s personal property not in his possession, - Distraint may be actual or constructive.
it is called garnishment. Meanwhile, levy is enforced on real - Warrant of constructive distraint may
property. be issued when taxpayer retires from
business or has a record of leaving the
- The BIR is authorized to issue a warrant of garnishment Philippines.
against the bank account of a taxpayer despite the pendency - Under CMTA, publication will not suffice
of protest because levy is not a proceeding in rem;
- Under NIRC, notice by publication is not enough there must it is a proceeding in personam.
be a personal notice to the registered owner of the property
for cases involving an auction sale of land for the collection of
delinquent taxes are in personam.

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Compromise

Cases which may be compromised [DANC3] Applicability

1. Delinquent accounts NIRC Local RPT CMTA
2. Cases under Administrative protest after issuance of FAN to the YES X X YES
taxpayer which are still pending with the BIR
3. Cases covered by pre-assessment notices but taxpayer is Not Notes:
agreeable to the findings of the audit office - Under CMTA, the Commissioner
4. Civil tax cases disputed before the courts may compromise any
5. Collection cases filed in courts administrative case involving the
6. Criminal violations except: imposition of fines and
a. Those already filed in courts; and surcharges.
b. Those involving criminal tax fraud - Cases involving forfeiture
proceedings shall however not be
Cases which cannot be compromised [AFP CREW] subject to any compromise under
1. Criminal violations already filed in courts. CMTA.
2. Cases which become Final and executory after final judgment of a - Compromise is different from
court, where compromise is requested on the ground of doubtful compromise penalty.
validity of the assessment. Compromise as amount of paid by
3. Payment in installment of delinquent accounts the taxpayer to settle his tax
4. Criminal tax fraud cases liability is different from
5. Final Reports of reinvestigation or reconsideration have been compromise penalty which is the
issued amount paid by the taxpayer to
6. Estate tax cases where compromise is requested on the ground of compromise tax violation and paid
financial incapacity of the taxpayer. in lieu of criminal prosecution.
7. Withholding tax cases, unless the applicant – taxpayer invokes - Any taxpayer who has filed an
provisions of law that cast doubt on the taxpayer’s obligation to application for compromise of his
withhold. tax liability by means of financial
incapacity waives his right under
Grounds for Compromise RA 1405 (Secrecy of Bank
1. A reasonable doubt as to the validity of the claim against the Deposits)
taxpayer exists (Doubtful Validity);
2. The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax (Financial Incapacity)

Protest
NIRC Local taxes RPT CMTA
FLD/FAN. Protest may Notice of assessment Notice of Ruling or
be a request for issued by local treasurer. assessment decision of
Subject of
reinvestigation or issued by local Customs
protest
reconsideration. treasurer collector

30 days from receipt of 60 days from receipt of 30 days from 15 days from
Period to file FLD/FAN NOA. payment under payment
protest. under protest.
Not required Not required GR: Payment Required
under protest is
required.
XPN: [LIM]
Requirement - Lack of authority
of payment to collect
under protest - Illegality of
assessment
- Payment by
mistake (solutio
indebiti)
Before whom CIR or duly authorized Local Treasurer Local Treasurer Commissioner
filed representative (DAR)
Request for 60 days 60 days. 30 days.
reconsideration - 180
Period to
days from filing
decide
Request for
reinvestigation – 180
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NIRC Local taxes RPT CMTA

days from submission
of relevant documents
If decided by DAR, to RTC/MTC/MeTC/MCTC LBAA then to CTA Division
CIR or CTA Division (court of competent CBAA. Decision of if aggrieved
If decided by CIR, CTA jurisdiction) depending CBAA appealable party is
Decision on Division on amount. to CTA Division. taxpayer.
protest Automatic
appealable to review by the
whom SOF if
aggrieved
party is the
government.
Period to 30 days from adverse decision or inaction
appeal

Motions for Reconsideration Automatic Reviews under CMTA

Prohibited – decision of BIR, no effect, does 1. Automatic review of Commissioner of Customs if
not toll the period to file an appeal to CTA decision of Collector of Customs is adverse to the
Division government.
Mandatory – decision of CTA Division before 2. Automatic review of the Secretary of Finance (SOF) if
appealing to CTA en banc decision of Commissioner of Customs is adverse to the
Optional – decision of CTA en banc before government.
appealing to SC
Note: If decision of SOF is still adverse of the government,
such is already final.

Refund
NIRC Local taxes RPT CMTA
2 years from payment, which is 2 years from the date of the 12 months from
the filing of the final adjustment payment of such tax, fee, or charge, the date of
return. (Sec. 229) or from the date the taxpayer is payment of
entitled to a refund or credit duties and taxes.
Period to file Note: For refund of unutilized
input VAT, period is 2 years
from the close of the taxable
quarter when the zero-rated
sale was made. (Sec. 112)
Doctrine of Not applicable Applicable
supervening
cause

Supervening causes refer to facts that transpire after judgment has become final and executory or to new
circumstances which developed after the judgment has acquired finality, including matters which the parties
were not aware of prior to or during the trial as they were not yet in existence at that time.

The proper party is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the
tax even when he shifts the burden thereof to another.

Note: The withholding agent has the authority to file a claim for refund. Reason: “It is very difficult, indeed
conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax.”
(CIR v. Smart Communications, Inc., J. Del Castillo)

Period for BIR to decide on a protest is 180 days. There is no period provided for BIR to decide on a claim for
tax refund. However, the taxpayer must file a judicial claim within two years from payment or filing of final
adjustment return. For filing of tax refund under Sec. 112 (refund of unutilized input VAT attributable to zero-
rated sales, the period for BIR to decide is 120 days. (90 days under TRAIN.)

Jurisprudential Rules under Sec. 229

1. Corporation – the 2-year period commences to run from the filing of the Final Adjustment Return (FAR).
2. Leap year - the leap day (February 29) is ignored because what is applicable is the provision in the 1987
Revised Administrative Code which defines 1 year as consisting of 12 months.
3. Supervening causes

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GR: The non-payment cannot be excused by supervening causes arising after the payment
XPN:
a. Assurance from the BIR that the suit or proceeding filed beyond the 2-year period shall still be accepted
by the BIR.
b. Agreement with the BIR to await the decision of the court.
4. Dissolved Corporation (BPI v. CIR) – Prescriptive period shall run 30 days after the approval by the SEC of
its plan for dissolution

Notes on VAT refund (CIR v. Aichi Forging Company)

- Admin claim (claim with BIR) must be filed within 2
years from the close of the taxable quarter when the
zero-rated sale was made.
- The CIR has 120 days from the date of submission of
complete documents within which to decide.
- Judicial claim (with CTA Division) must be filed
within 30 days after denial or expiration of 30-day
period.
XPN: Judicial claim was filed between December
10, 2003 and October 6, 2010: the taxpayer
would not be required to wait for the lapse of 120-
day period.
Reason: Effectivity of BIR Ruling No. DA-489-03.
Such BIR Ruling constitutes estoppel.

Requisities for filing of refund under Sec. 112 [PRICE] (CIR v. Toledo Power Company)
1. Prescriptive period must be complied with
2. Registration – Taxpayer must be VAT-registered
3. Input tax must be the source of refund
4. Creditable input tax must not be applied against output VAT
5. Engaged in zero-rated transactions

Comparison of Section 112 and 229

Section 112 Section 229
Unutilized creditable input VAT related to Internal revenue taxes other than VAT
Subject
zero-rated sale
2 years from the close of the taxable 2 years from payment, which is the filing of
Prescriptive
quarter where the zero-rated sale was the final adjustment return
period
made
30 days from the lapse of 120-day period 30 days after the receipt of adverse
Appeal to CTA or from receipt of decision of denial, decision but must be within the 2-year
Division whichever comes first period from payment or filing of the final
adjusted return.

Note: Under Section 112, upon the lapse of 120-day period, there is a deemed denial, and the taxpayer must
appeal within 30 days. Under the TRAIN Law, the period is shortened to 90 days, and it is silent as to whether
it is a deemed denial.

Summary of Important Tax Deadlines

Tax
Income tax (individual, pure
compensation income earner)
Income tax (individual with business
or professional income, or mixed
income; estates and trusts)
Income tax (corporations and
partnerships)
Estate tax
Donor’s tax
Value-added tax
a. On sale of goods, services of
properties
b. On importation
Deadline
April 15 of the succeeding year
First quarter – April 15 same year (May 15 under TRAIN)
Second quarter – August 15 same year
Third quarter –November 15, same year
Final return – April 15, succeeding year
First to third quarter – 60th day after close of quarter
Final/adjustment return – 15th day of the 4th month after close
of the taxable year (April 15 for calendar year)
Notice of death – 2 months after death (Notice of death not
applicable under TRAIN)
Estate tax return – 6 months after death (1 year under TRAIN)
30th day after date of donation
Monthly declaration – 20th day after the end of the month (25th
day under EFPS)
Quarterly return – 25th day after end of quarter
Before the goods are released from Bureau of Customs
Persons retiring from business - 25th after closing business

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Capital gains tax

a. Sale of shares not through the Per transaction return – 30th day after date of sale
local stock exchange Final/consolidated return – 15th day of the 4th month after close
of taxable year
b. Sale of real property (capital asset) 30th day after date of sale
Note: No return under local taxes and CMTA.

Other Matters

- CTA (not CA) has jurisdiction now on petitions of certiorari assailing interlocutory orders involving tax.
e.g., exclusive appellate jurisdiction over decision of Secretary of Justice on findings by the fiscal of
probable cause on criminal violations of CMTA is appealable to CTA, and not CA.
- Simultaneous running of delinquency and deficiency interest is allowed before TRAIN Law. Such has
been disallowed under TRAIN Law.
- CTA en banc cannot entertain a petition for annulment of judgment of CTA division. The divisions are
not considered separate and distinct courts but are divisions of one and the same court. The petition is
cognizable by SC.
- Dispute solely between BIR and another government agency, including GOCCs, is cognizable by Secretary of
Justice, Solicitor General, or Government Corporate Counsel, depending on the issues and the government
agencies involved. (PSALM v CIR)

Jurisdiction Taxes under NIRC: Less than or equal to P300K: MTC (P400K if Metro Manila)
for Tax P300K to P1M: RTC; P1M above: CTA
Collection Taxes under LGC: Less than or equal to P300K: MTC (P400K if Metro Manila)
Cases Above P300K, RTC

False Return Fraudulent Returns The Waiver of the Statute of Limitations should
Contains wrong Intentional and deceitful not be construed as a waiver of the right to invoke
information due to with the sole aim of the defense of prescription but rather an
mistake, carelessness or evading the correct tax agreement between the taxpayer and the BIR to
ignorance due extend the period to a date certain, within which
Does not make the Will make the taxpayer the latter could still assess or collect taxes due.
taxpayer criminally criminally liable The waiver does not mean that the taxpayer
liable relinquishes the right to invoke prescription
Not subject to 50% Subject to 50% penalty unequivocally. It must be strictly construed.
penalty surcharge surcharge
Prescriptive period for Prescriptive period is 10 The CIR cannot validly agree to reduce the
assessment is 3 years years from discovery of prescriptive period to less than that granted by
the filing of the falsified law because it would result to the detriment of the
or fraudulent return State. Such reduction diminishes the
Government’s opportunity to collect taxes
CTA has ample authority to issue injunctive writs to (Republic v. Lopez).
restrain the collection of tax and to even dispense with
the deposit of the amount claimed or the filing of the The taxpayer’s waiver of statute of limitation does
required bond, whenever the method employed by the not cover taxes already prescribed (Republic v.
CIR in the collection of tax jeopardizes the interests of Lim De Yu).
a taxpayer for being patently in violation of the law
GR: Compliance with RMO No. 20-90 or RDAO No.
05-01 is mandatory for validity of the waiver
XPN: Estoppel, in pari delicto doctrine

Requisites of a valid waiver of statute of limitations

RMO 20-90 and RDAO 05-01 laid down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. Expiry date should be indicated.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and
agreed to the waiver. The date of such acceptance by the BIR should be indicated.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is
executed.

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6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second
copy for the taxpayer and the third copy for the Office accepting the waiver.

Q: Does the CTA have jurisdiction over a special civil action for certiorari assailing an interlocutory
order issued by the RTC in a local tax case?
A: YES. A court may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to
review, by appeal or writ of error, the final orders or decisions of the lower court (The City Of Manila v. Hon.
Grecia-Cuerdo, G.R. No. 175723, February 4, 2014).

The CTA may take cognizance of cases directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance. RA 9282, a special and later law than BP Blg. 129 provides an exception
to the original jurisdiction of the RTC over actions questioning the constitutionality or validity of tax laws or
regulations. Except for local tax cases, actions directly challenging the constitutionality or validity of a tax law
or regulation or administrative issuance may be filed directly before the CTA (BDO v. Secretary of Finance).

LOCAL TAXATION

Local Taxation

Fundamental Principles [UE-LIP] Real Property (RP) Exempt from RPT

1. Taxation shall be Uniform in each LGU;
2. Taxes, fees, charges and other impositions shall:
[EPU]
a. be equitable and based as much as possible on
the taxpayer's ability to pay;
b. be levied and collected only for public
purposes;
c. shall not be unjust, excessive, oppressive, or
confiscatory;
3. The collection of local taxes, fees, charges and other
impositions shall in no case be Let to any private
person;
4. The revenues collected pursuant to the provisions
of the LGC shall Inure solely to the benefit of, and
be subject to the disposition by, the LGU levying the
tax, fee, charge or other imposition unless
otherwise specifically provided herein; and
1. Each LGU shall, as far as practicable, evolve a
Progressive system of taxation
a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
XPN: when the beneficial use thereof has been
granted, for consideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages
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;
(c) All machineries and equipment that are
actually, directly and exclusively used by local
water districts and GOCCs engaged in the
supply and distribution of water and/or
generation and transmission of electric
power;
(d) All real property owned by duly registered
cooperatives
(e) Machinery and equipment used for pollution
control and environmental protection.

Common Limitations in Taxing Power of LGUs [IDE-C3AP3-MENT]

1. Income tax, except when levied on banks and other financial institutions;
2. Documentary stamp tax;
3. GR: Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise
provided under the LGC;
XPN: Tax on transfer of real property (Sec. 135, LGC)
4. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed and maintained by the LGU
concerned;
5. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through, the
territorial jurisdictions of LGUs in the guise of charges for wharfage, tolls for bridges or otherwise, or other
taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
6. Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
7. Taxes on business enterprises certified to by the BOI as pioneer or non-pioneer for a period of six (6) and
four (4) years, respectively from the date of registration;
8. Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees, or charges on petroleum
products;
NOTE: LGUs are devoid of taxing power over the manufacturing and distribution of petroleum products per se
or even the activity or privilege related to the petroleum products, it is covered by the limitation under Sec.

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133(h), LGC and thus, no levy can be imposed. Sec. 143(h) defines the general power of LGUs to tax businesses
within its jurisdiction. Thus, the omnibus grant of power to LGUs under Sec. 143(h) of the LGC cannot overcome
the specific exception or exemption in Sec. 133(h) of the same Code. (Batangas City v. Pilipinas Shell Petroleum
Corporation)
9. Percentage or VAT on sales, barters, or exchanges or similar transactions on goods or services except as
otherwise provided herein;
10. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land, or water, except as provided in this Code;
11. Taxes on premiums paid by way or reinsurance or retrocession;
12. Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
13. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided in the
LGC (i.e. Sec. 143(c), LGC- municipalities may impose taxes on exporters);
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and duly registered
cooperatives
15. Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and
LGUs

Professional Tax

Exercise or practice of At such amount and Not to Professionals exclusively

profession requiring reasonable classification as exceed employed in the government
government licensure the sanggunian P300 shall be exempt from the
examination panlalawigan may impose payment of this tax.
Date of Payment: Payable annually on or before Jan 31 or before beginning the practice of the profession.
Place of Payment: Province where he practices his profession or where the principal office is located.

NOTE: TAX TO BE PAID ONLY ONCE. Person who has paid the corresponding professional tax shall be
entitled to practice his profession in any part of the Philippines without being subjected to any other
national or local tax, license, or fee for the practice of such profession.

Real Property Tax

Fundamental Principles of Appraisal, Real Property (RP) Exempt from RPT

Assessment, Levy, and Collection of Real
Property Taxes[CAULE] a) Real property owned by the Republic of the Philippines
or any of its political subdivisions XPN: when the
2. Real property shall be appraised at its beneficial use thereof has been granted, for consideration
Current and fair market value; or otherwise, to a taxable person;
3. Real property shall be classified for (b) Charitable institutions, churches, parsonages or
assessment purposes on the basis of its convents appurtenant thereto, mosques, non-profit or
Actual use; religious cemeteries and all lands, buildings, and
4. Real property shall be assessed on the basis improvements actually, directly, and exclusively used
of a Uniform classification within each LGU; for religious, charitable or educational purposes;
5. The appraisal, assessment, levy and (c) All machineries and equipment that are actually,
collection of real property tax shall not be directly and exclusively used by local water districts and
Let to any private person; and GOCCs engaged in the supply and distribution of
6. The appraisal and assessment of real water and/or generation and transmission of electric
property shall be Equitable power;
(d) All real property owned by duly registered
cooperatives
(e) Machinery and equipment used for pollution control
and environmental protection.

Q: Quezon City passed an ordinance which contains a proviso: “The parcels of land sold after the
effectivity of this revision shall be subject to RPT based on the actual amount reflected in the deed of
conveyance or the current approved zonal valuation of the BIR prevailing at the time of the sale,
cession, transfer, and conveyance, whoever is higher, as evidenced by the certificate of payment of the
capital gains tax issued therefore.” Is the said proviso valid?
A: NO. The said proviso mandates an exclusive rule in determining the fair market value and departs from the
established procedures such as sales analysis approach, the income capitalization approach and reproduction
cost approach under the rules implementing the statute. It unduly interferes with the duties statutorily placed

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upon the local assessor by completely dispensing with his analysis and discretion which the LGC and the
regulations require to be exercised. (Allied Banking Corporation v Quezon City)

Government Instrumentalities Exempt from RPT

MIAA Philippine Reclamation Authority GSIS
MCIAA BCDA Cebu Port Authority
PEZA BSP Cagayan Port Authority

TARIFFS AND CUSTOMS

Doctrine of Hot Pursuit Balikbayan boxes Flexible Tariff Clause

Customs laws may be enforced
within the contiguous zone (24
nautical miles within the
baseline).
If customs laws of PH was
violated within the contiguous
zone, under the Doctrine of Hot
Pursuit, law enforcement may
pursue the violator even in the
high seas but not within the EEZ
(200 nautical miles) of another
country.
Balikbayan boxes are
conditionally free importations.
Requisites
a. Shall contain personal and
household effects only
b. Shall not be in commercial
quantities nor intended for
barter, sale or for hire
c. Value of which shall not
exceed P150,000
d. Privilege may be availed up
to 3 times in a calendar year
In the interest of the general welfare
and national security, the President,
upon recommendation of NEDA:
a) Increase, reduce or remove
existing protective tariff rates of
import duty, but in no case shall be
higher than 100% ad valorem;
b) Establish import quota or
ban importation of any commodity as
may be necessary; and
c) Impose additional duty on all
imports not exceeding 10% ad
valorem, whenever necessary.

Importation

The carrying vessel or aircraft enters the Philippine territory with the intention to unload
Begins
therein.

(a) The duties, taxes and other charges due upon the goods have been paid or secured to be
paid at the port of entry unless the goods are free from duties, taxes and other charges and
Terminated legal permit for withdrawal has been granted; or
(b) In case the goods are deemed free of duties, taxes and other charges, the goods have
legally left the jurisdiction of the Bureau.

Exemption of Personal and Household Effects

- Personal and household effects belonging to Requisites for exemption:

returning residents which were formally declared 1. It shall not be in commercial quantities;
and listed before departure and identified under 2. It is not intended for barter, sale or for
oath before the District Collector when exported hire;
from the Philippines by such returning residents 3. Limited to the FCA or FOB value of:
upon their departure therefrom or during their stay Value Length of stay abroad
abroad (including jewelry) P150,000 Less than 5 years
- Returning residents are nationals who have stayed P250,000 At least 5 years, less than 10
in a foreign country for a period of at least 6 years
months. P350,000 More than 10 years

Abandonment

Abandonment - renunciation by an importer of all his interests and property rights in the importer article.
Goods are forfeited in favor of the government.

Express Abandonment - When the owner, importer, or consignee of the imported goods expressly signifies
in writing to the District Collector the intention to abandon the same

Implied Abandonment
1. When the owner, importer, consignee, or interested party after due notice, fails to file the goods
declaration within 15 days (subject to extension of 15 days)

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2. Having filed such goods declaration, the owner, importer, consignee or interested party after due notice,
fails to pay the assessed duties, taxes and other charges thereon within 15 days from the date of final
assessment; or
3. Having paid the assessed duties, taxes and other charges, the owner, importer or consignee or interested
party after due notice, fails to claim the goods within 30 days from payment

Smuggling

a. Fraudulent act of importing any goods into the Philippines; or

b. The act of assisting in receiving, concealing, buying, selling, disposing or transporting such goods, with full
knowledge that the same has been fraudulently imported; or
c. The fraudulent exportation of goods

OUTRIGHT TECHNICAL Elements of smuggling or illegal importation

SMUGGLING SMUGGLING [MRS]
An act of importing Act of importing goods 1. That the Merchandise must have been
goods into the country into the country by fraudulently or knowingly imported contrary
without complete means of fraudulent, to law;
customs prescribed falsified or erroneous 2. That the defendant, if he is not the importer
importation documents, declaration of the goods himself, must have Received, concealed,
or without being cleared to its nature, land, bought, sold or in any manner facilitated the
by customs or other quality, quantity or transportation, concealment or sale of the
regulatory government weight, for the purpose merchandise; and
agencies, for the of reducing or avoiding 3. That the defendant must be Shown to have
purpose of evading payment of prescribed knowledge that the merchandise has been
payment of prescribed taxes, duties and other illegally imported.
taxes, duties and other charges
government charges
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