30262789 Memory Aid Taxation

8/3/2019 30262789 Memory Aid Taxation

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San Beda College of Law2001 Centralized Bar Operations

Memory AidTaxation Law

TABLE OF CONTENTS

I. GENERAL PRINCIPLES .....................................................................2A. Power of Taxation.............................................................................2B. Situs of Taxation...............................................................................4C. Limitations on the Power of Taxation...............................................4D. Double Taxation...............................................................................6

E. Forms of Escape from Taxation.......................................................6F. Tax Enforcement and Administration................................................7

II. NATIONAL TAXATION........................................................................9A. Income Tax......................................................................................9B. Transfer Taxes..............................................................................14C. Expanded Value Added Tax..........................................................17

III. LOCAL TAXATION...........................................................................19IV. REAL PROPERTY TAXATION........................................................19V. TARIFF AND CUSTOMS LAWS.......................................................20

VI. TAX REMEDIES...............................................................................22A. Under the National Internal Revenue Code..................................22B. Under the Local Government Code..............................................29C. Under the Tariff and Customs Code.............................................30

VII. COURT OF TAX APPEALS............................................................33VIII. ANNEX A: COMPARATIVE TABLE OF TAX REMEDIES............A-1IX. ANNEX B: INCOME TAX TABLES...............................................B-1


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I.GENERAL PRINCIPLES

THE POWER OF TAXATION

Definitions:1. Taxation: Power by which the sovereign

raises revenue to defray the necessaryexpenses of the government from amongthose who in some measure are privilegedto enjoy its benefits and must bear itsburden.

2. Taxes: Enforced proportional contributionfrom properties and persons levied by theState by virtue of its sovereignty for thesupport of government and for publicneeds.

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 TheoryTaxes are the lifeblood of the nation.

Without revenue raised from taxation, thegovernment will not survive, resulting indetriment to society. Without taxes, thegovernment would be paralyzed for lack ofmotive 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 ofcompensation and set-off.

c. A valid tax may result in destruction ofthe taxpayer's property.

2. Necessity TheoryExistence of a government is a

necessity and cannot continue without anymeans to pay for expenses.

a. Marshall Dictum Power to tax is the power todestroy describes the unlimitedness

of the power and the degree of vigorwith which the taxing power may beemployed in order to raise revenue.

b. Oliver Wendell Holmes DictumPower to tax is not the power todestroy while this court (US SupremeCourt) sits power to tax knows no

limits except those expressly stated inthe Constitution.

Marshall and Holmes Dictums Reconciled: Although the power to tax is almost

unlimited, it must not be exercised in an arbitrarymanner. We have courts to which people mayseek redress in case of irregularities.

3. Benefits-Protection TheoryThere exist reciprocal duties of

protection and support between State and itsinhabitants. Inhabitants pay taxes and in returnreceive benefits and protection from the State.

Importance of TaxesTaxes are the lifeblood of the

government and so should be calculated

without unnecessary hindrance; therefore, theirprompt and imperious availability is animperious need.

General Rule: Taxes are personal to thetaxpayer. Illustrations:1. Corporations tax delinquency cannot be

enforced against the stockholder (CorporateEntity Doctrine). Exception: Stockholdersmay be held liable for unpaid taxes of adissolved corporation if the corporate assetshave passed into their hands.

2. Transfer tax on the estate cannot be

assessed against the heirs. Exception: Heirsmay be held liable for the transfer tax on theestate, if prior to the payment of the same,the properties of the decedent have beendistributed to the heirs.

Nature of the Taxing Power1. attribute of sovereignty and emanates from

necessity, relinquishment of which is neverpresumed;

2. legislative in character; and3. subject to inherent and constitutional

limitations.

Purpose and Objectives of Taxation:1. Revenue2. Non-Revenue (still a tax but imposed under

its non-revenue objective) KEY: PR2EPa. Regulation;b. Promotion of general welfare;c. Reduction of social inequity;d. Encouragement of economic growth;

ande. Protectionism.

Scope of legislative taxing power (MSSAPAK):

1. Subject to be taxed, provided it is within itsjurisdiction;

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; and7. Method of collection.


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Aspects of Taxation:1. Levy or imposition of the tax; and2. Enforcement or tax administration

Basic Principles of a sound tax system:A sound tax system must be:

1. sufficient to meet governmentalexpenditures (fiscal adequacy);

2. capable of being effectively enforced(administrative feasibility); and

3. based on the taxpayers ability to pay(theoretical justice).

TAXATION, POLICE POWER ANDEMINENT DOMAIN DISTINGUISHED

TAXATION POLICEPOWER

EMINENTDOMAIN

Purpose:To raiserevenue

To promotepublic welfarethroughregulations

To facilitatethe Statesneed ofproperty forpublic use

Amount ofexaction:

Not limited

Limited No exaction;justcompensationis paid by theGovernment

Benefits:No special or

directbenefits arereceived bythe taxpayer

No directbenefits arereceived;damnumabsque injuriais attained

Direct benefitsresult in theform of justcompensation

Non-impairmentof contracts:

Contracts

may not beimpaired Contracts maybe impaired

Contracts maybe impaired

Effect oftransfer:Taxes paidbecome partof the publicfunds

No transferbut onlyrestrain on theexercise ofproperty rights

Property istaken by theState uponpayment of

justcompensation

Scope:It affects all

persons,property, andexcises

It affects allpersons,property,privileges, andeven rights

It affects onlythe particularpropertycompre-hended

Basis:Publicnecessity

Publicnecessity andright of Stateand of public

Necessity ofthe public forprivateproperty

TAXATION POLICEPOWER

EMINENTDOMAIN

to self-protection andself-

preservation

Impositions not strictly considered astaxes:1. Toll amount charged for the cost and

maintenance of property used;2. Compromise penalty amount collected in

lieu of criminal prosecution in cases of taxviolations;

3. Special assessment levied only on landbased wholly on the benefit accruingthereon as a result of improvements or

public works undertaken by governmentwithin the vicinity;

4. License fee regulatory imposition in theexercise of the police power of the State;

5. Margin fee exaction designed to stabilizethe currency;

6. Custom duties and fees duties chargedupon commodities on their being importedinto or exported from a country;

7. Debt a tax is not a debt but is anobligation imposed by law.

LICENSE FEE VS. TAX

LICENSE FEE TAX

Basis:Police power Power of taxation.

Purpose:To regulate To raise revenue.

Limitation:Limited to costs of (1)issuing the license;and (2) necessaryinspection or policesurveillance

Inherent andconstitutionallimitations.

Effect of non-payment:Makes the businessillegal.

Does not make thebusiness illegal.

Classification of Taxes:As to subject matter1. Personal tax also known as capitalization

or poll tax.2. Property tax assessed on property of a

certain class.

3. Excise tax imposed on the exercise of aprivilege.4. Custom duties duties charged upon

commodities on being imported into orexported from a country;

5. Local taxes taxes levied by localgovernment units pursuant to validlydelegated power to tax;

As to burden


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1. Direct tax incidence and impact oftaxation fall to one person and cannot beshifted to another.

2. Indirect tax incidence and liability for thetax fall to one person but the burden thereof

can be passed on to another.As to purpose1. General taxes taxes levied for ordinary or

general purpose of the government.2. Special taxes levied for a special

purpose.As to measure of application1. Specific tax- tax imposed by the head or

number or by some standard of weight ormeasurement.

2. Ad valorem tax tax imposed upon thevalue of the article.

As to rate:

1. Progressive taxes rate increases as thetax base increases.

2. Regressive taxes rate increases as taxbase decreases.

SITUS OF TAXATION

Situs of Taxation - an inherent mandate thattaxation shall only be exercised on persons,properties and excises within the territory of thetaxing power.

Factors that determine the situs oftaxation:

1. Nature of the tax;2. Subject matter of the tax;3. Citizenship of the taxpayer;4. Residence of the taxpayer; and5. 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 toSec. 104 of CTRP and principle of mobiliasequuntur personam;

8. Income where income is earned orresidence 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 situsin the Philippines:

1. franchise which must be exercised in thePhilippines;

2. shares, obligations or bonds issued by acorporation organized and constituted in thePhilippines in accordance with its laws;

3. shares, obligations or bonds issued by aforeign corporation 85% of its business islocated in the Philippines;

4. shares, obligations or bonds issued by aforeign corporation if such shares,obligations or bonds have acquired abusiness situs in the Philippines; and

5. shares or rights in any partnership, businessor industry established in the Philippines.(Sec. 104, R.A. 8424 or the CTRP)

LIMITATIONS ON THE POWER TO TAXA. Inherent Limitations

The following are the inherent limitationson the power to tax (SPINE):1. Public Purpose of taxes;2. Non-delegability of the taxing power;3. Territoriality orsitus of taxation;4. Tax exemption of government;5. International comityTest in Determining Public Purpose1. whether the thing to be furthered by the

appropriation of public revenue is somethingwhich is the duty of the state, as agovernment, to provide

2. whether the proceeds of the tax will directlypromote the welfare of the community inequal measure.

Non-delegability of the taxing power:- The power of taxation is peculiarly and

exclusively legislative. Consequently, thetaxing power as a general rule may not bedelegated.

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 taxsubject to limitations as may be provided byLocal Government Code (Art. X, Sec. 5,1987 Constitution).

Situs of taxation as a limitation on thepower to tax: (See the subheading on Situs ofTaxation, supra.)

Exemption of the Government from Taxes


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As a matter of public policy, property ofthe State or any of its political subdivisionsdevoted to government uses and purposes aregenerally exempt from taxation.

B. Constitutional Limitations

1. Due Process of Law (Sec.1, Art. III of theConstitution)

Requisites:a. The interests of the public generally

as distinguished from those of aparticular class require theintervention of the State; and

b. The means employed must be

reasonably necessary to theaccomplishment of the purpose andnot unduly oppressive.

In a string of cases, the SC held that in orderthat due process of law will not be violated, theimposition of the tax must not be done in anarbitrary, despotic, capricious, or whimsicalmanner.

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; ande. 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 articlesor kinds of property of the same classshall be taxed at the same rate. A tax isuniform when it operates with the sameforce and effect in every place wherethe subject of it is found.b. Equitability: Taxation is said tobe equitable when its burden falls tothose better able to pay.c. Progressivity: Rate increasesas the tax base increases.

4. Non-impairment of Contracts (Art. III,Sec. 10 of the Constitution)

5. Non-imprisonment for Non-paymentof Poll Tax(Art. III, Sec. 20 of theConstitution)

6. Origin of Appropriation, Revenue,and Tariff Bills (Art. VI, Sec. 24 of theConstitution; Tolentino vs. Sec. of Finance).

7. Non-infringement of ReligiousFreedom and Worship (Art. III, Sec. 24of the Constitution)

American Bible Society vs. City of Manilaand Tolentino vs. Sec. of Finance rulingsreconciled:

The imposition in the former is a licensetax which is intended to regulate the exercise offreedom of religion while in the latter is arevenue 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 tothe 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 forReligious, Charitable and EducationalPurposes (See Art. VI, Sec. 28(3) of theConstitution; Lladoc vs. Commissioner;Province of Abra vs. Hernando). This

provision refers only to property taxes.

10. Majority Vote of all Members ofCongress Required in Case of aLegislative Grant of Tax Exemptions(Art. VI, Sec. 28 (4) of the Constitution)

11. Non-impairment of the SupremeCourts Jurisdiction in Tax Cases [Art.VIII, Sec. 2(1) and Art. VIII, Sec.5(b) of theConstitution]

12. Tax Exemption of Revenues and

Assets of, including Grants,Endowments, Donations, orContributions to, EducationalInstitutions (Art. XIV, Secs. 4(3) and (4) ofthe Constitution)

13. Other Provisions of the ConstitutionWhich are Related to Taxationa. Power of the President to veto item or

items in an Appropriation, Revenue, orTariff Bill (Art. VI, Sec. 27 (2))

b. Necessity of an a Appropriation beforeMoney may be paid out of the PublicTreasury (Art. VI, Sec. 29 (1))

c. Non-appropriation of Public Money orProperty for the benefit of any Church,Sect, or System of religion. (Art. VI,Sec. 29(2)

d. Treatment of Taxes Levied for a SpecialPurpose.(Art.VI, Sec. 29 (3))


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e. Internal Revenue Allotments to LocalGovernment Units. (Art.X, Sec.6)

DOUBLE TAXATION

Definition: Taxing the same subject twicewhen it should be taxed only once. Also knownas duplicate taxation.

Is double taxation prohibited in thePhilippines?

No. There is no constitutional prohibitionagainst double taxation in the Philippines. It issomething not favored but permissible (PepsiCola Bottling Co. v. City of Butuan, 1968).

Kinds of Double Taxation (DT)

1. Direct duplicate taxation/obnoxious DTin the objectionable or prohibited sense.REASON: This constitutes a violation ofsubstantive due process. The same propertyis taxed twice when it should be taxed onlyonce.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 samepurpose;

c. imposed by the same taxing authority;d. within the same jurisdictione. during the same taxing period; andf. covering the same kind or character of

tax.

2. Indirect double taxation: Not legallyobjectionable. The absence of one or more ofthe foregoing requisites of obnoxious DT makesthe DT indirect.

Reliefs from Effects of Double Taxation1. Tax deductions

Example: Vanishing deductions intransfer taxes.

2. Tax creditsAn amount allowed as a reduction of the

Phil. Income tax on account of incometax(es) paid or incurred to foreign countries.It is given to a taxpayer in order to provide arelief from too onerous a burden of taxationin case where the same income is subject toa foreign and Phil. Income tax. This may beclaimed by (1) citizens of the Philippines and(2) domestic corporations.

3. Exemptions4. Treaties with other states

5. Principle of reciprocity

FORMS OF ESCAPE FROM TAXATION

The following are the forms of escapefrom taxation:1. Shifting S

2. Capitalization C3. Transformation T4. Avoidance A5. Exemption E6. evasion-unlawful E

Key: ESCATE

A. Shifting

Definition: Process by which tax burden istransferred from statutory taxpayer to anotherwithout violating the law.

Impact of taxation point on which tax isoriginally imposed.

Incidents of taxation point on which thetax burden finally rests or settles down.

B. Capitalization

Definition: Reduction in the price of thetaxed object equal to the capitalized value offuture taxes which the purchaser expects to becalled upon to pay.

C. Transformation

Definition: The manufacturer or producerupon whom the tax has been imposed, fearingthe loss of his market if he should add the tax to

the price, pays the tax and endeavors to recouphimself by improving his process of production,thereby turning out his units at a lower cost.

D. Tax Avoidance

Definition: exploitation by the taxpayer oflegally permissible alternative tax rates ormethods of assessing taxable property orincome, in order to avoid or reduce tax liability.

E. Tax Evasion

Definition: Used by the taxpayer throughillegal or fraudulent means to defeat or lessenthe payment of the tax.

Indicia of Fraud in Tax Evasion:1. failure to declare for taxation purposes true

and actual income derived from business fortwo consecutive years; or

2. substantial underdeclaration of income taxreturns of the taxpayer for four consecutiveyears coupled with intentional overstatementof deductions.

F. Tax exemption

Definition: A grant of immunity, express orimplied, to particular persons or corporationsfrom the obligation to pay taxes.

Kinds of Tax ExemptionsAs to basis:


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1. Constitutional: Immunities from taxationwhich originate from the constitution

2. Statutory: Those which emanate fromlegislation

As to form:

1. Express: Expressly granted by organic orstatute law

2. Implied: When particular persons,properties, or excises are deemed exemptas they fall outside the scope of the taxingprovision itself.

As to extent:1. Total: Connotes absolute immunity.2. Partial: One where a collection of a part of

the tax is dispensed with.

Principles Governing Tax Exemptions1. Exemptions from taxation are highly

disfavored in law.2. He who claims an exemption must be able

to justify his claim by the clearest grant oforganic or statute law. If ambiguous, thereis no tax exemption. Taxation is the rule, taxexemption is the exception.

3. He who claims an exemption must justifythat the legislature intended to exempthim by words too plain to be mistaken.

4. He who claims exemption shouldconvincingly prove that he is exempted.

5. Tax exemption must be strictly construed.6. Tax exemptions are not presumed.7. Constitutional grants of tax exemptions are

self-executing.8. Tax exemptions are personal.9. Deductions for income tax purposes

partake of the nature of tax exemptions;hence, they are also to be strictly construedagainst the taxpayer.

TAX ENFORCEMENT ANDADMINISTRATION

Sources of Tax Laws(Key: SPEC2TRA BLT)

1. Statutes2. Presidential Decrees3. Executive Orders4. Constitution5. Court Decisions6. Tax Codes7. Revenue Regulations8. Administrative issuances9. BIR Rulings10. Local Tax Ordinances11. Tax treaties and conventions with foreign

countries

Requisites of Tax Regulations1. Reasonable2. Within the authority conferred3. Not contrary to law4. Must be published

Retroactivity of BIR Rulings:General Rule: Prospective.Exceptions:

1. Where no vested right will be impaired;2. Where the law allows retroactive application;

and3. If there is bad faith on the part of the

taxpayer.

Agencies Involved in Tax Administration:1. BIR2. Bureau of Customs3. Provincial, city, and municipal assessors

and treasurers

Powers and Duties of the BIR (Sec. 2,CTRP): (AGEE)

1. Assessment and collection of all nationalinternal revenue taxes, fees, and charges

2. Give effect to and administer thesupervisory and police power conferred to

it by the Tax Code or other laws3. Enforcement of all forfeitures, penalties

and fines in connection therewith4. Execution of judgments in all cases

decided in its favor by the Court of TaxAppeals and the ordinary courts

Assessment Defined:It is a finding by the taxing agency that

the taxpayer has not paid his correct taxes. It isalso a written notice to a taxpayer to the effectthat the amount stated therein is due as a tax,and containing a demand for the paymentthereof.

Burden of proof in pre-assessmentproceedings:

There is a presumption of correctnesson the part of the CIR, thus the burden of proofis on the taxpayer. Otherwise, the finding of theCIR will be conclusive and the CIR will assessthe taxpayer. Such finding is conclusive even ifCIR is wrong if the taxpayer does not controvert.

Principles Governing Tax Assessments:(PADDD)

1. Assessments are prima facie presumed

correct and made in good faith2. Assessments should be based on actual

facts3. Assessment is discretionary on the part of

the Commissioner4. The authority vested in the Commissioner

to assess taxes may be delegated.5. Assessments must be directed to the right

party.

Means Employed in the Assessment ofTaxes (Sec. 6, CTRP): (BETI-PPEA)

1. Examination of tax returns

2. Use of the best evidence obtainable3. Inventory taking, surveillance and use of

presumptive gross sales and receipts4. Termination of taxable period5. Prescription of real property values6. Examination of bank deposits to determine

the correct amount of the gross estate7. Accreditation and registration of tax agents


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8. Prescription of additional procedural ordocumentary 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 thePhilippines;

2. under Finance Regulations no. 33 of theSecretary of Finance;

3. when the production of the tax return ismaterial evidence in a criminal casewherein the Government is interested inthe result;

4. by the taxpayer himself;

Cases when Commissioner may AssessTaxes on the Basis of the Best EvidenceObtainable:

1. a person fails to file a return or otherdocument at the time prescribed by law

2. he willfully or otherwise files a false orfraudulent return or other document

Grounds for Termination of TaxablePeriod: (CRIP)

1. the taxpayer is retiring from businesssubject to tax

2. he intends to leave the Philippines orremove his property therefrom

3. he hides or conceals his property4. he performs any act tending to obstruct

the proceedings for the collection of thetax for the past or current quarter or yearor renders the same totally or partlyineffective unless such proceedings arebegan immediately.

Instances when the Commissioner mayinquire 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 financialinability in which case he must submit awaiver.

Inspection and Examination of Books andRecords, When MadeGeneral Rule:Shall be made once in a taxableyear.Exceptions:

1. in cases of fraud, irregularity, or mistakes2. when taxpayer requests a reinvestigation3. to verify compliance with withholding tax

laws and regulations

4. to verify capital gains tax liabilities5. upon order of the Commissioner

25% Surcharge on the Amount of the TaxDue is imposed in the Following Cases:

1. failure to file any return required under TaxCode or regulations on the date prescribed

2. filing a return with the wrong internalrevenue officer

3. failure to pay the tax within the timeprescribed for its payment

4. failure to pay the full amount of tax shownon any return required to be filed under theTax Code or regulations or the full amount

of tax due for which no return is required tobe filed, on or before the date prescribedfor its payment

II. NATIONAL TAXATION

INCOME TAX

DEFINITIONS

1. Income Tax - tax on income, whether grossor net. (27 Am. Jur. 308)

2. Income - all wealth which flows into thetaxpayer other than as a mere return of capital.

3. Capital - resource of person which can beused in producing goods and services.

Requisites for Income to be Taxable:1. gain or profit

2. realized or received3. not excluded by law or treaty

TESTS ON TAXABILITY OF INCOME

1. Flow of Wealth Test - whether any gain orthe flow of wealth profit was derived from thetransaction.

2. Realization Test - unless the income isdeemed "realized," there is no taxable income.

3. Economic-Benefit Principle - flow of wealthrealized is taxable only to the extent that thetaxpayer is economically benefited.

CLASSIFICATION OF TAXPAYERS:

a. Individuals1) citizens1 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 businesswithin the Phils. (NRAETB)

3 2.2.2.Not engaged in trade orbusiness within the Philippines(NRANETB)

b. Corporations


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1) Domestic (DC)2) Foreign

2.1 resident foreign corporation (RFC)2.2 non-resident foreign corporation

(NRFC)

c. Estatesd. Trusts

Under R.A. 8424 or the CTRP:

A. A non-resident citizen means, a Filipinocitizen:

1. who establishes to the satisfaction of theCommissioner the fact of their physicalpresence abroad with a definite intention toreside therein;

2. who leave the Philippines during the taxableyear to reside abroad, either as animmigrant or for employment on apermanent basis;

3. who work and derive income from abroadand whose employment thereat requiresthem to be physically present abroad mostof the time during the taxable year;

4. who are previously considered as a non-resident and who arrive in the Philippines atanytime during the taxable year to residethereat permanently shall be considerednon-resident for the taxable year in which hearrives in the Philippines with respect to hisincome derived from sources abroad untilthe date of his arrival (Sec.22e, CTRP.)

B. A resident alien means an individual whoseresidence is within the Philippines and whois not a citizen thereof. [Sec.22f]

C. A non-resident alien means an individualwhose residence is not within the Philippinesand who is not a citizen thereof. [Sec.22G]

D. The term trade or business includes theperformance of the functions of as a public

office. [Sec. 22S]

E. The term trade, business or professionshall not include performance of services bythe taxpayer as an employee. [Sec. 22 CC]

F. A non-resident alien individual who shallcome to the Philippines and stay therein foran aggregate period of more than 180 daysduring any calendar year shall be deemed anon-resident alien doing business in thePhilippines Section 22(G) notwithstanding[Sec. 25(A)(1)]

G. The term corporation shall include:

1. Partnerships, no matter how formed orcreated, except (i) general professionalpartnerships and (ii) a joint venture orconsortium formed for the purpose ofundertaking construction projects orengaging in petroleum, coal, geothermal and

other energy operations pursuant to anoperating or consortium agreement under aservice contract with the Government;

2. joint-stock companies;3. joint accounts (cuentas en participacion)

4. associations; or5. insurance companies [Sec. 22(B)].

H. A General Professional Partnershipmeans:

a) a partnership formed by personsfor the sole purpose of exercising theircommon profession; andb) no part of the income of which isderived from engaging in any trade orbusiness [Sec. 22(B)].

- if the requirements are met, it is exemptfrom income taxation.

I. Domestic Corporation created ororganized in the Phils. or under its law [ Sec.22(C)]

J. Foreign corporation a corporation whichis not domestic [Sec. 22(D)]

K. Resident Foreign Corporation engagedin trade or business within the Philippines[Sec. 22(H)]

L. Non-resident Foreign Corp. not engagedin trade or business within the Philippines[Sec. 22(I)]

The income of taxable estates and trustsshall be taxed in the same manner as any otherindividual taxpayer. [Sec. 60 (A)]

ONLY RESIDENT CITIZENS andDOMESTIC CORPORATIONS are taxable forincome derived from sources within andwithout the Philippines. All other incometaxpayers are taxable only for incomederived from sources within the Philippines.

KINDS OF INCOME TAXES UNDERR.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 lessdeductions and/or personal and additionalexemptions (Sec. 31, RA 8424)


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NET INCOME TAX FORMULA

Entire IncomeLess: Exclusions and Income subject to Final

Tax(e.g. Passive Income)

Gross IncomeLess: Deductions (and/or addl exemptions, if

applicable)

Net Taxable Income X Tax Rates

Net Income Tax DueLess: Tax Credit, if any

Tax Still due, if any

GROSS INCOME

Definition: Includes but not limited to thefollowing :

1. compensation;2. business income;3. gains form dealings in property;4. interests;5. rents;6. royalties;7. dividends;8. annuities;9. prizes and winnings;10. pensions;11. partners share in the net income

of the general professionalpartnership (Sec. 32, CTRP)

KEY: D BIG CARP

Exclusions from Gross Income:1. proceeds of life insurance

NOTE: if the proceeds are retained by theinsurer, the interest thereon is taxable;

2. Return of premium;3. Gift, bequest or devise;

NOTE: income therefrom is taxable

4. Compensation for injuries or sickness;5. Income exempt under Treaty;6. Retirement benefits, pension, gratuities, etc.7. Miscellaneous items

Retirement Benefits, Pension, Gratuities,Etc.:

1. those derived under R.A. 7641 (pertains toprivate firms without retirement trust fund);

2. those received by officials and employees ofprivate employers in accordance with areasonable private benefit plan;Requisites:

a) in the service of the sameemployer for at least 10 years;b) at least 50 years old;c) must be availed of only onced) plan approved by the BIR (R.R.2-98);

3. separation pay because of death, sickness,or other physical disability or for any cause

beyond the control of the official oremployee;

4. social security benefits, retirement gratuities,pensions and other similar benefits receivedby citizens and aliens who come to reside

permanently here from foreign sourcesprivate or public;

5. benefits due to residents under the laws ofthe U.S. administered by the U.S. VeteransAdministration

6. SSS benefits; and7. GSIS benefits.

Miscellaneous Items

1. Passive income derived by foreigngovernment in the Philippines;

2. Income derived from any public utility orfrom the exercise of any governmentalfunction;

3. Prizes and awards made primarily inrecognition of religious, charitable, scientific,educational, artistic, literary, or civicachievement (C2LARES):Requisites:a. recipient selected without any action on

his part;b. recipient not required to render

substantial future services.4. Prizes and awards granted to athletes in

sports competitions and sanctioned by theirnational sports association ;

5. 13th month pay and other benefits up toP30,000.00;

6. GSIS,SSS, Medicare and union dues ofindividuals;

7. Gains derived from debt securities with amaturity of more than 5 years;

8. Gains from redemption of shares in MutualFund

DEDUCTIONS

Definition: Items or amounts which the lawallows to be deducted from gross income inorder to arrive at the taxable income.

Kinds of Deductions:

1. Optional standard deductions 10% of thegross income.

2. Itemized deductions(a) ordinary AND necessary

expenses(b) interests(c) taxes(d) losses(e) bad debts(f) depreciation of property;(g) depletion of oil and gas wellsand mines;


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(h) charitable and other contributions;(i) research and development;(j) pension trust contributions of employees; and

(k) premium payments on healthand/or hospitalization insurance

3. Personaland additionalexemptions

4. Special deductions applicable only toInsurance companies, whether domestic orforeign. (Sec. 37, CTRP).

a. ORDINARY AND NECESSARYEXPENSES:

Necessary Expense - appropriate andhelpful in the development of taxpayer'sbusiness.

Ordinary Expense - normal or usual in theline of business.

Requisites of Business Expense to beDeductible:

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 notdeductible but depreciable, EXCEPT, if thetaxpayer is a non-profit proprietary educationalinstitution which may elect either to deduct thecapital 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-exemptobligations;

4. dividend payments cannot be deducted asinterest; and

5. interest paid in advance thru discount orotherwise, EXCEPT that it is deductible inthe 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 , andpayable 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 taxcredit; and

6. final taxes, being in the nature of income tax.

-Taxes allowed as deductions, whenrefunded or credited, shall be included aspart of gross income in the year of receipt tothe extent of the income tax benefit of saiddeduction (Tax Benefit Rule).

- For NRAETB and RFC, taxes paid orincurred are allowed as deductions only ifand to the extent that they are connectedfrom income within the Philippines.

d. LOSSES:

Requisites to be deductible:

1. actually sustained;2. connected with the business, trade or

profession; and3. not compensated by insurance or otherwise.

The following losses are subject to specialrules under the CTRP (take note of thepertinent provisions):

1. Capital losses2. Securities becoming worthless3. Wash sales4. Wagering losses5. Abandonment losses

6. Losses of mines other than oil andgas wells

e. BAD DEBTS

Requisites to be deductible:1. Valid and subsisting debt;2. Debt must be actually ascertained to beworthless 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, tradeor business.

Equitable Doctrine of Tax BenefitA recovery of bad debts previously

deducted from gross income constitutes taxableincome if in the year the account was writtenoff, the deduction resulted in a tax benefit.


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f. DEPRECIATION:

Requisites to be deductible:1. Must be reasonable;

2. Must be on property used in the conductof the business;3. Must be expensed during the taxableyear;

g. DEPLETION OF OIL AND GAS WELLSAND MINES

- same requisites as depreciation

h. CHARITABLE AND OTHERCONTRIBUTIONS

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 government2. Donation to certain foreign institutions or

international organizations.3. Donations to certain accredited NGOs .

PERSONAL EXEMPTIONS

Amounts of Personal Exemptions (Sec. 35of CTRP):1. Single individual or married individual

judicially decreed as legally separated withno qualified dependents: P20,000

2. Head of the family: P25,0003. Each married person: P32,000

Head of the Family:1. Unmarried or legally separated person with

one or both parents, or one or more brothersor sisters, or one or more legitimate,recognized natural or legally adoptedchildren living with and dependent upon thetaxpayer for their chief support; and

2. Where such brother / sister or children arenot more than 21 years of age, unmarriedand not gainfully employed, or where suchdependents regardless of age, are incapableof self support because of mental orphysical 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 taxpayer2. chiefly dependent upon and living with the

taxpayer

3. not more than 21 years old, unmarried ANDnot gainfully employed or where suchdependents regardless of age are incapableof self-support because of mental of physicaldefect.

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 expresslyfavors the taxpayer.

5. For a NRAETB, only to the extent allowedby his country to Filipinos not residing

therein, but not to exceed the aboveamounts. Additionally, he must file a trueand accurate return of the total incomereceived by such NRAETB from all sourceswithin the Philippines.

OTHER INCOME TAXES AS DEFINED

1. Final Income Tax is derived bymultiplying the tax rate on the particularincome subject to a final income tax. Thus,

the income subject to final income tax is nolonger subject to the net income tax;otherwise, there would be a violation ofprohibited double taxation. Applicable topassive income and from sources derivedfrom within the Philippines as determinedunder Sec. 42 of the CTRP. Deductionsand/or personal and additional exemptionsare not allowed.

2. Income subject to Preferential or SpecialRates here, the income derived by aparticular individual or corporation belongingto a class of income taxpayer is subject toeither a preferential or special rate.

3. Improperly Accumulated Earnings Taxa tax equivalent to 10% of the improperlyaccumulated taxable income of everycorporation formed or availed of for thepurpose of avoiding the income tax withrespect to its shareholders or theshareholders of any other corporation, bypermitting earnings and profits toaccumulate instead of being divided ordistributed.

4. Minimum Corporate Income Tax A tax atthe rate of 2% based on gross incomeimposed on domestic and resident foreigncorporations not covered by a specialincome tax system, beginning the 4th taxableyear in which such corporation commencedits business operations. It is imposedwhenever such corporation has (a) zeroor negative net taxable income; or (b) the


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amount of minimum corporate income tax isgreater than the normal income tax due fromsuch corporation.

5. Optional Corporate Income Tax - The

President, upon recommendation of theSecretary of Finance may, effective Jan. 1,2000, allow corporations the option to betaxed at 15% of gross income subject to thefollowing conditions:

1) A tax effort ratio of 20% of GNP;2) A ratio of 40% of income tax tototal tax revenue;3) A VAT tax effort of 4% of GNP4) A O.9% ratio of ConsolidatedPublic Sector Financial Position toGNP.

N.B.: Available only to firms whose ratio of

cost of sales to gross sales or receipts fromall sources does not exceed 55%.

INCOME TAX INCIDENCEON SALES OR EXCHANGES OF

PROPERTY

Sale on Exchange of Ordinary AssetsGeneral rules of income taxation apply

to both as to the gain and as to the loss.

Transaction Resulting in Taxable Gainsbut Non-Recognition of Lossesa. Sale or exchange between related parties;b. Wash sales by non-dealers of securities and

when not subject to the stock transfer tax;c. Exchanges not solely in kind in merger and

consolidation; andd. Sales or exchanges that are not at arms

length.

Sale or Exchange of Real Property, andShares of Stocks of Domestic CorporationHeld as Capital Assets Subject to Capital

Gains TaxAs to individuals and domestic corporations1. On real property each independent

transaction is subject to the final tax of 6%on the gross selling price or the fair marketvalue at the time of sale, whichever ishigher, regardless of gain or loss

2. Shares of stock of domestic corporation nottraded thru a local exchange taxed at therate of 5% for net capital gains not overP100T, and 10% in excess of P100T.

Tax Exempt Exchanges:a. Exchange solely in kind in mergers and

consolidation;b. Exchange of property for stocks resulting in

a change in corporate control

FILING OF TAX RETURN ANDPAYMENT OF THE TAX

Tax Return It is the sole declaration oftaxpayer that incorporates all the data/factsnecessary for government to determine theamount of tax. There is pain of perjury if notcorrect.

Persons Required to File Income TaxReturn:

A. Individual1. Resident citizen;2. Non-resident citizen on income from

within the Phil.;3. Resident alien on income from within

the Phil.;4. NRAETB on income from within the Phil.5. An individual (citizens / aliens) engaged

in business or practice of a profession

within the Phil. regardless of the amountof gross income;

6. Individual deriving compensationincome concurrently from two or moreemployers at any time during thetaxable year;

7. Individual whose pure compensationincome derived from sources within thePhil. exceeds P60,000.

B. Taxable Estate and TrustC. General Professional PartnershipD. Corporation

1. Not exempt from income tax;

2. Exempt from income tax under Sec. 30of NIRC but has not shown proof ofexemption.

Individuals Exempt From Filing IncomeTax Return:1. Individual whose gross income does not

exceed total personal and additionalexemptions;

2. Individual with respect to pure compensationincome derived from sources within thePhils., the income tax on which has beencorrectly withheld;

3. Individual whose sole income has been

subjected to final withholding income tax;4. Individual who is exempt from income tax.

TRANSFER TAXES

TRANSFER TAX INCOME TAX

1. Tax on transfer ofproperty.

1. Tax on income

2. Rates are lower--5% to 20% -estate tax-- 2% to 15 % -donors tax

2. Rates are higher-- 5% to 32%

3. Lesser exemptions 3. More exemptions

ESTATE TAX

ESTATE TAX FORMULA


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Gross Estate (Sec. 85)Less: (1) Deductions (Sec. 86)

(2) Net share of the SS in the CP

Net EstateLess: Exemptions (first P200,000 exemption,

Sec. 84)

Net Taxable EstateX Tax rate (Sec. 84)

Estate Tax dueLess: 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, intangiblepersonal property whereversituated.

A. 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 exemptedon the basis of reciprocity.

Inclusions in the Gross Estate (Sec. 85,CTRP):

a. Decedents interestb. Transfer in contemplation of deathc. Revocable transfer d. Transfer under general power of

appointmente. Proceeds of life insurancef. Transfers for insufficientconsiderationg. 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, inaccordance with the will of the predecessor;

and4. All bequests, devices, legacies or transfers

to social welfare, cultural and charitableinstitutions no part of the net income ofwhich inures to the benefit of any individual;Provided, that not more than 30% of the saidbequests, legacies or transfers shall be usedby such institutions for administrationpurposes.

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 expensesb. judicial expensesc. claims against the estated. claims against insolventperson

e. unpaid mortgagesf. taxesg. losses

2. Transfer for public use3. Vanishing deduction4. Family home5. Standard deduction6. Medical expenses7. Amounts received by heirsunder RA 4917 (Retirement Benefits)

B. For non-resident aliens (ELIT-TV)1. Expenses, losses, indebtedness,

taxes, etc. (FJCCULT)2. Transfer for public use3. Vanishing deduction

DEDUCTIONS ONESTATE 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 estate3. P200,000

Claims against the Estate:Requisitesto be deductible:1. The debt instrument must be notarized2. If loan was contracted within 3 years before

the death of the decedent, the administratoror executor shall submit a statementshowing the disposition of the proceeds ofthe loan.

N.B.: These requisites do not apply if the claimdid not arise from contractual obligations.

Taxes:The following are not deductible:1. income tax on income received after death2. property taxes not accrued before death3. 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 theestate; and

5. Occurring before the last day for thepayment 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


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2. To take effect after death3. In favor of the government of the Phil., or

any political subdivision thereof4. 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 priordecedent 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 thetaxable gift of the donor.

4. The estate tax or donors tax on the gift musthave been finally determined and paid.

5. The property must be identified as the onereceived 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 islocated.

3. Maximum of P1,000,000

Medical Expenses:Requisites to be deductible:1. incurred within one year prior to his death2. Substantiated with receipts3. Maximum of P500,000

DEDUCTIONS ONESTATE TAX APPLICABLE TO

NON-RESIDENT ALIENS

1. Expenses, losses, indebtedness andtaxes (ELIT)Formula:

Phil. Gross Estate X World ELITWorld 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 lowerbetween:

1. Estate tax paid to the foreigncountry2. 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 loweramount between Limit A and Limit B

Limit A. Whichever is lower between:1. Estate tax paid to foreign country2. NTE, foreign country X Phil. estate tax

NTE, world

Limit B. Whichever is lower between:1. total of estate taxes paid to all foreign

countries2. NTE outside Phil. X Phil. estate tax

NTE, world

DONORS TAX

Requisites: (ADIC)1. capacity of the donor2. donative intent3. delivery, whether actual or constructive, of

the subject gift4. 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 collateralwithin the 4th civil degree.

FORMULA:

a. On the 1st donation of a year:

Gross gifts xxxLess: Deductions from gross gifts xxx

Net giftsX Tax Rate

xxxxxx

Donors tax on the net gifts

b. On donation of a subsequent date during theyear:

Gross gifts made on this date xxxLess: Deductions from gross gifts xxx

Net gifts xxxAdd: All prior net gifts within the year xxx

Aggregate net giftsX Tax Rate

xxxxxx

Donors tax on aggregate net gifts xxxLess: 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 ofmarriage and before its celebration orwithin one year thereafter by parents toeach of their legitimate, illegitimate oradopted children to the extent of thefirst P10,000.


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b. Gifts made to or for the use of theNational Government or any entitycreated by any of its agencies which isnot conducted for profit, or to anypolitical subdivision of the said

government.c. Gifts in favor of educational,

charitable, religious, cultural or social welfarecorporation, institutions, foundations, trust orphilanthropic organization, research institution ororganization, accredited non-governmentorganization (NGO). Provided, that no morethan 30% of said gifts shall be used by suchdonee for administration purposes.

2. Gifts made by a non-resident not a citizen ofthe Phil.

a. same as (b)

b. same as (c) except accredited non-government organization (NGO)

Tax credit for donors taxes paid to aforeign country:

1. Donor was a Filipino citizen orresident alien2. At time of foreign donation3. Donors taxes of any character anddescription4. Are imposed and paid by theauthority 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 thesame proportion of the tax against whichsuch credit is taken, which the decedentsnet gifts situated within such country taxableunder the NIRC bears to his entire net gift;and

2. The total amount of the credit shall notexceed the same proportion of the taxagainst which such credit is taken, which thedecedents net gift situated outside thePhilippines taxable under the NIRC bears to

his entire net gift.

FORMULA:

a. For donors taxes paid to one foreigncountry

NG situated in a foreign country X PDTEntire net gifts

= Tax credit limit

(NG - Net Gifts; PDT - Phil. Donor's Tax)

b. For donors taxes paid to two or moreforeign country

NG outside the Phil. X PDTEntire net gifts

=Tax credit limit

The allowable tax credit is the lower amountbetween the tax credit limit under (a) and (b).

EXPANDED VALUE ADDEDTAX

Persons liable to Pay the VAT: ( S B EL S I )1. Any person whether natural of juridical who,

in the course of trade or business, sells,barters, exchanges, or leases goods orproperties, or renders services;

2. Any person who imports goods whether forbusiness or non-business purpose; andprovided, gross receipts is more thanP550,000.00, otherwise,

more than P100T but less than P550T 3%percentage taxless than P100T no business tax liability

Transactions Subject to VAT: (S I T S)

1. every sale, barter, or exchange, leasesgoods or properties made in the course oftrade or business;2. transactions deemed sale for VATpurposes;3. importation of goods; and4. every sale ofservice made in the courseof trade or business other than servicesrendered by persons subject to otherpercentage 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 thecourse 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 andzero-rated sales of services; and2. 10% for all other articles and transactionscovered by the VAT.

Input Tax tax on purchase price of goodswhich is passed on or shifted to a buyer /purchaser /lessee by the supplier / seller /lessor. It is the VAT paid by a VAT-registeredperson in the course of his trade or business.

Output Tax-- VAT due on the sale oftaxable goods or services by any personregistered or required to register for VATpurposes.


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Transitional Input Tax Credit person whobecomes liable to VAT or any person who electsto be a VAT-registered person shall, subject tothe filing of an inventory of goods, material and

supplies equivalent to 8% of value of suchinventory or the actual VAT paid on such goods,materials and supplies, whichever is higher,which shall be creditable against the output tax.

Export Sales sale and shipment orexportation of goods from the Philippines to aforeign Country irrespective of any shippingarrangement that may be agreed upon whichmay influence or determine the transfer ofownership of the goods so exported, or foreign-currency denominated sales.

Foreign Currency Denominated Salessales to non-residents of goods assembled ormanufactured in the Philippines for delivery toresidents in the Philippines and paid for inconvertible foreign currency remitted through thebanking system in the Philippines.

ZERO-RATED VS. EXEMPTTRANSACTIONS

ZERO-RATED EXEMPTTRANSACTIONS

Extent:All value added tax isremoved

Only removes thevalue added tax atthe exempt stage

Claim for refund:Taxpayer can claimthe refund of inputtaxes passed on tohim by the supplier,etc. or credit suchinput taxes against hisliabilities for output

taxes on his other non-zero rated transactions

Taxpayer is notentitled to credit orrefund of the input taxpassed on to him bythe supplier, etc.

Scope:Generally, taxablesales, and taken intoaccount in determiningturn-over or sales forsales for VAT-registration purposes.

Not taxable sales andtherefore not taken intoaccount in determiningturn-over or VAT-registration purposes

Registrationrequirement:Zero-rated person maystill register for VAT.

Exempt person maynot register for VAT.

Registration Requirements:

1. Mandatory every person who in thecourse of trade or business, sells, barters,exchanges, leases goods or services forothers, if the aggregate amount of actual orexpected gross sales and / or gross receipts

exceeds P550T for any 12-month period.

2. Optional -- any of the following personsmay, at their option, apply for VATregistration:

a. seller of goods or services whosetaxable sale or gross receipts do notexceed P550T for any 12-monthperiod;

b. seller of agricultural or marine foodproducts in their original state;

c. seller of fertilizer, seeds, seedlingsand fingerlings, fish live stock and

poultry feeds,including ingredients whether locallyproduced or imported, used in themanufactureof finished foods;

d. seller of non-food agricultural,marine and forest products in theiroriginal state;

e. seller of cotton and cotton seeds inthe original state, and copra.( 550 FANC )

N.B.: Items b to e, refer to export sales only

Transactions deemed sales for VATpurposes (Sec. 106B)

1. Transfer, use or consumption not inthe course of trade or business ofgoods originally intended for saleor for use in the course of business;

2. Distribution or transfer to share-holders or investors as share in theprofits of the VAT -registeredpersons;

3. Consignment of goods if actual sale is notmade within 60 days following the date ofconsignment;

4. Distribution or transfer to creditors inpayment of debt;

5. Retirement from or cessation of business,with respect to inventories of taxable goodsexisting as of such retirement or cessation.

III. LOCAL TAXATION

Definition:The power of local government unit to

(1) create its own sources of revenue and (2) tolevy taxes, fees, and charges. (See Sec. 5, Art.

X, 1987 Constitution and Sec. 129, LGC)

Nature of the Taxing Power of LocalGovernments1. Not inherent;2. Exercised only if delegated to them by law

or Constitution.


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3. Not absolute; subject to limitations providedby law.

Aspects of Local Taxing Power1. Local taxation, and2. Real property taxationN.B.: Both aspects are governed by the LocalGovernment Code (LGC).

Doctrine of preemption or exclusionWhere the National Government elects

to tax a particular area, it impliedly withholdsfrom the local government the delegated powerto tax the same field. This doctrine principallyrests upon the intention of Congress.

Excluded impositions (pursuant to thedoctrine of preemption):

1. Taxes which are levied under the NIRC,unless otherwise provided by LGC of 1991;

2. Taxes, fees, etc. which are imposed underthe Tariffs and Customs Code;

3. Taxes, fees, etc., the imposition of whichcontravenes existing governmental policiesor which violates the fundamental principlesof taxation; and

4. Taxes, fees and other charges imposedunder special law.

Situs of Municipal Taxation (Sec. 150,1991 LGC)

1. Place of sale( with branch or sales outlettherein): Municipality or city where thebranch or outlet is located.

2. Place of sale (no branch or sales outlet):Municipality or city of principal office (not inthe place of sale).

3. If manufacturer, assembler, contractor,producer or exporter (MACPE) with factory,project office, plant or plantation (FPPP):a. 30% of recorded sales in the principal

office: city or municipality where theprincipal office is located;

b. 70% of recorded sales in the principaloffice: city or municipality where theFPPP is located (pro rata if FPPP arelocated in different municipalities orcities).

c. If plantation is located in some otherplace than that where the factory islocated, the foregoing 70% shall besubdivided as follows:- 60% to the city or municipality

where the factory is located,- 40% to the city or municipality

where the plantation is located.

Fundamental Principles GoverningLocal Taxation:1. Shall be uniform in each local sub-unit2. Shall be equitable and based as much as

possible on the taxpayers ability to pay3. Levied for public purposes4. Shall not be unjust, excessive, oppressive,

or confiscatory

5. Shall not be contrary to law, public policy,national economic policy, or in restraint oftrade

6. Collection of local taxes and other impositions shall not be let to any person

7. The revenues collected under the Codeshall inure solely to the benefit of, andsubject to disposition by, the LGU levyingthe tax or other imposition unless otherwisespecifically provided therein

8. Each LGU shall, as far as practicable,evolve a progressive system of taxation.

IV. REAL PROPERTYTAXATION

Definitions:1. Real Property Taxation: A direct tax on

ownership of lands and buildings or otherimprovements thereon payable regardless ofwhether the property is used or not.

2. Real property subject to the definitiongiven byArt. 415 of the Civil Code.

3. Improvement valuable addition made to aproperty or an amelioration in its conditionamounting to more than a mere replacementof parts.

Characteristics:1. Direct on ownership; O2. ad valorem tax A3. proportionate P4. creates a single indivisible obligation S

5. local tax LKey: SAPOL

Taxing Authorities:1. Province, at the rate of not > 1% of

assessed value;2. City at the rate of not > 2%; and3. Municipality within Metro Manila at the rate

of not > 2%.

Extent of the power to levy:1. Basic real property tax;2. 1% additional real estate tax to finance the

Special Education Fund;3. 5% additional tax on idle lands; and4. Special levy or special assessments (may

be imposed even by municipalities outsideMetro Manila).

Fundamental Principles GoverningReal Property TaxationF 1. Real property shall be appraised at itscurrent and fair market value;U 2. Real property shall be classified forassessment purposes on the basis of actualuse.U 3. Real property shall be assessed onthe basis of uniform classificationwithin each LGU


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P 4. The appraisal, assessment, levy andcollection of RPTax shall not be letto any private person.E 5. The appraisal and assessment of realproperty shall be equitable.

Key: FEU-UP

Properties Exempt from Real PropertyTax (Sec. 193, 1991 LGC):1. Real property owned by the government

except when the beneficial use thereof hasbeen granted to a taxable person;

2. charitable institutions, churches, personagesor convents appurtenant thereto, mosques,non-profit or religious cemeteries and alllands, 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 bylocal water utilities and GOCCs engaged inthe supply and distribution of water and/orelectric power;

4. real property owned by duly registeredcooperatives as provided for in RA 6938;and

5. machinery and equipment used for pollutioncontrol and environmental protection.

Duty of Real Property Ownersbeginning 1991:

Real property owner must file withAssessors Office a sworn statement of realproperty value whether exempt or non-exempt.

Every buyer of real property must makea new declaration thereof. (Failure to do so shallmake the assessment in the name of theprevious owner binding).

IV. TARIFF ANDCUSTOMS CODE

DEFINITIONS:

1. Tariff: Customs duties, toll or tributepayable upon merchandise to the Govt.

2. Custom Duties: Tax assessed uponmerchandise from or exported to, a foreigncountry. (Garcia v. Executive Sec., 211SCRA 227 [1992])

N.B.: Customs and tariffs are synonymous withone another. They both refer to the taxesimposed 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 revenuesfrom imported articles and all otherimpositions under the tariff and customs

laws;b. Control smuggling and related frauds;c. Supervision and control over the

entrance and clearance of vessels andaircraft engaged in foreign commerce;

d. Enforcement of TCC and related laws;e. Supervision and control over the

handling of foreign mails arriving in thePhilippines;

f. Supervise and control all import andexport cargoes for the protection ofgovernment revenue;

g. Exclusive original jurisdiction over

seizure and forfeiture cases under thetariff and customs laws.

Jurisdiction of Collector of Customs overimportation of articles1. 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, and4. Hold possession of all imported articles until

the duties, taxes and other charges are paidthereon. (Sec. 1206, TCC)

Territorial jurisdiction of the BOC:1. All seas within the jurisdiction of the

Philippines2. All coasts, ports, airports, harbors, bays,

rivers and inland waters whether navigableor not from the sea. (1st par, Sec. 603, TCC)

When tariff and customs applied:Only after importation has begun but beforeimportation is terminated.

Importation begins:a. when the conveying vessel or

aircraftb. 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 thearticles. (ii) and legal permit forwithdrawal shall have been granted.

b. In case the articles are free ofduties, taxes and other charges,until they have legally left the

jurisdiction of the customs (Sec.1202, TCC)

ARTICLES UNDER TCCMAY EITHER BE:

a. Subject to dutyb. Prohibited from being imported

(Prohibited importation)


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c. Conditionally-free from tariff andcustoms duties (conditionally-freeimportation)

d. Free from TC duties (duty-free)

Imported goods must be entered in acustomhouse at their port of entry otherwisethey shall be considered as contraband and theimporter is liable for smuggling (See Sec. 101,TCC).

LIABILITY FOR CUSTOMS DUTIES

General Rule:All importations / exportationsof 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 existingcontracts, commitments, agreements, orobligations with foreign countries;

c. Exemptions of internationalorganizations pursuant to agreements orspecial laws; and

d. Exemptions granted by the Pres. of thePhil. upon recommendation of NEDA(Sec. 105, TCC).

Liability of importer for custom duties:

a. A personal debt which can bedischarged only by payment in fullthereof;

b. A lien upon the imported articles whilethey are in custody or subject to thecontrol of the govt (Sec. 1204, TCC).

DrawbackA device resorted to for enabling a

commodity affected by taxes to be exported andsold in foreign markets upon the same terms asif it had not been taxed at all (Uy Chiaco Sonsvs. Collector of Customs, 24 Phil 562)

Import Entry

It is a declaration to the BOC showingparticulars of the imported article that will enablethe customs authorities to determine the correctduties. An importer is required to file an importentry. It must be accomplished from

disembarking of last cargo from vessel.

Transaction value under RA 8181It is the invoice value of the goods plus

freight, insurance, costs, expenses and othernecessary expenses. This replaces the HomeConsumption Value as basis of valuation ofgoods.

CLASSIFICATION OF CUSTOMDUTIES:

Regular Duties:

1. Ad valorem duty: This is a duty based onthe value of the imported article.

2. Specific duty: This is a duty based on thedutiable weight of goods (either the grossweight, legal weight, or net weight).

3. Alternating duties: This is a duty whichalternates ad valorem and specific.

4. Compound Duty: This is a duty consistingof ad valorem and specific duties.

Special dutiesa. Dumping duty

b. Countervailing dutyc. Marking dutyd. Discriminatory duty

Nature of special customs duties:Special customs duties are additional

import duties imposed on specific kinds ofimported articles under certain conditions.

Purpose of special customs duties:The special customs duties are imposed

for the protection of consumers andmanufacturers, as well as Phil. products fromundue competition posed by foreign-madeproducts.

SPECIAL DUTIES COMPARED

DUMPING DUTY COUNTERVAILINGDUTY

MARKING DUTY DISCRIMINATORYDUTY

NATURE

Imposed uponforeign products withvalue lower thantheir fair marketvalue to the

detriment of localproducts.

Imposed uponforeign goodsenjoying subsidythus allowing themto sell at lower

prices to thedetriment of localproducts similarlysituated.

Imposed uponthose not properlymarked as to placeof origin of thegoods.

Imposed upongoods coming fromcountries thatdiscriminatesagainst Philippine

products.

AMOUNT/RATE

Differencebetween the actualprice and the normalvalue of the article.

Equivalent to thebounty, subsidy, orsubvention.

5% ad valoremof articles

Any amount notexceeding 100% advalorem of thesubject articles


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IMPOS-ING

AUTHO-RITY

SpecialCommittee on Anti-Dumping (composedof the Sec. of

Finance asChairman;Members: the Sec.of DTI; and eitherthe Sec. of Agriculture if articlein question is agri.product or the Sec.of Labor if non-agri.)

Sec. of Finance Commissionerof Customs

President of thePhilippines

Flexible Tariff ClauseThe 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 REMEDIESUNDER THE NATIONAL INTERNAL

REVENUE CODE

I. TAX REMEDIES OF THE GOVERNMENT

Importance1. They enhance and support the

governments tax collection.2. They are safeguards of taxpayers

rights against arbitrary action.

Tax collection cannot be restrainedby court injunction (Sec. 219, CTRP)

Justification: Lifeblood Theory.

Exception: Injunction may be issued by theCTA in aid of its appellate jurisdiction under RA1125 (see requisites thereof, under thesubheading Court of Tax Appeals, infra.).

The following are generally the taxremedies 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, and229)

H. Suspension of business operations inviolation of VAT (Sec. 115)

I. Enforcement of Administrative Fine

A. Tax Lien

Definition: It is a legal claim or charge onproperty, either real or personal, established bylaw as a security in default of the payment oftaxes (51 AmJur 881). Generally, it attaches tothe property irrespective of ownership or transferthereof.

Extent and nature:The tax, together with interests, penalties,

and costs that may accrue in addition thereto isa lien upon all property and rights toproperty belonging to thetaxpayer.

The lien shall not be valid against anymortgagee, purchaser, or judgment creditoruntil notice of such lien shall be filed by theCommissioner of Internal Revenue in the Officeof the Register of Deeds of the province or citywhere the property of the taxpayer is situated orlocated (Sec. 219, CTRP).

B. Compromise

Definition: A contract whereby the parties,by reciprocal concessions, avoid a litigation orput 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 maybe) of the offer in the settlement of theoriginal claim.

Officers authorized to compromise:1. The Commissioner of Internal Revenue

(CIR) is the only official vested with powerand discretion to compromise criminal and


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civil cases arising from violations of the TaxCode (Secs. 7C and 204, CTRP).

2. Subordinate officials may preliminarilyenter into a compromise. The effects are:

i. Acceptance of an offer of compromise: not final and may bereviewed by the Commissioner.

ii. Rejection of an offer of compromise: final and bindingunless revoked or set aside by theCommissioner. (Gibbs vs. Collector,17 Phil. 232)

Commissioner may compromise anyinternal revenue tax when

1. A reasonable doubt as to the validity of theclaim against the taxpayer exists; or

2. The financial position of the taxpayerdemonstrates a clear inability to pay theassessed tax [Sec. 204(A), CTRP]. In suchcase, the taxpayer should waive theconfidentiality privilege on bank depositsunder RA 1405 (See Sec. 6F2, CTRP).

Minimum compromise rates (MCR) of anytax liabilities:

1. In case of financial incapacity: MCR = 10%of the basic assessed tax

2. Other cases: MCR = 40% of the basicassessed tax[Sec. 204(A), CTRP]

Approval of the compromise by theEvaluation Board is required when:

1. the basic tax involved exceedsP1,000,000.00, or

2. the settlement offered is less than theminimum compromise rates (MCR).

N.B.: The MCR may be less than the prescribedrates 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 becompromised.Exceptions:1. Those already filed in court2. Those involving fraud [Sec. 204(A), CTRP].

Extent of the Commissioners discretionto compromise criminal violations:

1. Before the complaint is filed with theProsecutors Office: The CIR has fulldiscretion to compromise except thoseinvolving fraud.

2. After the complaint is filed with the

Prosecutors Office but before theinformation is filed with the court: The CIRcan still compromise provided theprosecutor must give consent.

3. After information is filed with the court: TheCIR is no longer permitted to compromisewith or without the consent of the Prosecutor(People vs. Magdaluyo, April 20, 1961).

Remedy in case the taxpayer refuses orfails to abide the tax compromise:

1. Enforce the compromisea. If it is a judicial compromise, it can be

enforced by mere execution. A judicialcompromise is one where a decisionbased on the compromise agreement isrendered by the court on request of theparties.

b. Any other compromise is extrajudicialand like any other contract can only beenforced by court action.

2. Regard it as rescinded and insist uponoriginal demand (Art. 2041, Civil Code).

Compromise PenaltyIt is an amount of money which the

taxpayer pays to compromise a tax violation.This is paid in lieu of criminal prosecution. Ataxpayer cannot be compelled to pay acompromise penalty. If he does not want to pay,the CIR must institute a criminal action.

C. Distraint

Definition: It is the seizure by thegovernment of personal property, tangible orintangible, to enforce the payment of taxes. Theproperty may be offered in a public sale, if taxesare 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 thegovernment. Physical transfer of possessionis not always required. This is true in thecase of intangible property such as stocksand credits.

2. Constructive: the owner is merelyprohibited from disposing of his property.

Requisites for the exercise of the remedyof distraint:

1. The taxpayer must be delinquent (except inconstructive distraint) in the payment of tax;

2. There must be a subsequent demand for itspayment (assessment);

3. The taxpayer must fail to pay the tax at thetime required; and

4. The period within which to assess or collectthe tax has not yetprescribed.

Nature of the warrant of distraint or levyThe warrant is a summary procedure

forcing the taxpayer to pay. The receipt of awarrant may or may not partake the character ofa final decision. If it is an indication of a finaldecision, the taxpayer may appeal to the CTAwithin 30 days from service of the warrant.

Duties of the officer serving the warrant ofdistraint:


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1. Make an account of the personal propertiesdistrained;

2. Sign the list of personal propertiesdistrained to which shall be added, astatement of the sum demanded and note ofthe time and place of sale;

3. Leave either with the owner or person fromwhose possession such personal propertieswere taken, or at the dwelling or place ofbusiness of such person with someone ofsuitable age and discretion (Sec. 208,CTRP)

Procedures for the actual distraint orgarnishment:

1. Personal Property

IService of the warrant ofdistraint upon the person inpossession of the taxpayersproperty (Sec. 208, CTRP).

IIPosting of notice in not lessthan two (2) public places in themunicipality or city (Sec. 209,CTRP)

III

Notice to the taxpayer specifying the time and placeof sale and the articlesdistrained.

IVDisposition of proceeds ofsale (Sec. 209, CTRP).

3. Stocks and other securities: By serving acopy of the warrant of distraint upon the

a. taxpayerandb. upon the president, manager, treasurer

or other responsible officer of thecorporation, company or associationwhich issued the said stock andsecurities (Sec. 208, CTRP).

4. Bank accounts: They shall be garnished byserving a warrant of distraint upon the

a. taxpayerandb. upon the president, manager, treasurer,

or other responsible officer of the bank.NB: Upon receipt of the warrant of distraint,the bank shall turn over to theCommissioner so much of the bankaccounts as may be sufficient to satisfy theclaim of the government (Sec. 208, CTRP).

5. Debts and credits: By serving a copy of thewarrant of distraint upon the

a. person owing the debts orb. having in his possession or under his

control such credits orc. upon his agent.NB: The warrant of distraint shall besufficient authority to the person owing thedebts or having in his possession or underhis control any credits belonging to thetaxpayer to pay to the Commissioner theamount of such debts or credits (Sec. 208,CTRP).

The taxpayers property may be placedunder constructive distraint when he:

1. is retiring from any businesssubject to tax; or

2. is intending to

a. leave the Philippines, orb. remove his property therefrom,or

c. hide or conceal his property, or

3. is performing any act tending toobstruct the proceeding forcollecting the tax due or which maybe due from him (Sec. 206, NIRC).

Procedure for the constructive distraint ofpersonal property:

CIR shall require the taxpayer orany person having possession

or control of such property to (a)sign a receipt covering theproperty distrained and

(b) obligate himself to

1. preserve the same intactand unaltered and

2. not to dispose of the samein any manner whatsoeverwithout the expressauthority of theCommissioner of InternalRevenue.

If the taxpayer or person inpossession of the propertyrefuses or fails to sign thereceipt referred to, the revenueofficer effecting the constructivedistraint shall (a) proceed toprepare a list of such propertyand (b) in the presence of two(2) witnesses leave a copythereof in the premises wherethe property distrained islocated, after wh9ch the saidproperty shall be deemed tohave been placed underconstructive distraint.

ACTUAL VS. CONSTRUCTIVEDISTRAINT

ACTUAL DISTRAINT CONSTRUCTIVEDISTRAINT

Made only on the Made on the

Service ofWarrant ofDistraint

Posting ofNotice

Notice ofTime andPlace of

Sale

Disposition

Taxpayermust sign

receipt

Taxpayersoblig. topreserve

Remedywhen

taxpayerdidnt sign

receipt


24/33

property of adelinquent taxpayer

property of anytaxpayer, whetherdelinquent or not

There is taking ofpossession

The taxpayer ismerely prohibitedfrom disposing of hisproperty

Effected by leavinga list of distrainedproperty or by serviceof a warrant of distraintor garnishment

Effected byrequiring the taxpayerto sign a receipt of theproperty or by therevenue officer preparing and leavinga list of such property

An immediate stepfor collection of taxes

Not necessarily soBoth

Are summary remedies for the collection oftaxes;

Refer only to personal property; and

Cannot be availed of where the amount of thetax involved is not more than P100

D. Levy

Definition: It refers to the act of seizure ofreal property in order to enforce the payment of

taxes. The property may be offered in a publicsale, if after seizure, the taxes are not voluntarilypaid.

Requisites for the exercise of the remedyof levy: Same as in the remedy of distraint.

When may levy be effected?Real property may be levied upon

before, simultaneously, or after the distraintof personal property belonging to the delinquent(Sec. 207B, CTRP); and the remedy by distraintand levy may be repeated if necessary until thefull amount, including all expenses, is collected(Sec. 217, CTRP).

Procedure of levy on real property:

IPreparation of a dulyauthenticated certificatecontaining: (a) description ofthe property levied(b) name ofthe taxpayer, and (c) theamounts of tax and penaltydue from him. This certificate

shall operate with the force of alegal execution throughout thePhilippines (Sec. 207B, CTRP).

IIService of written notice to thedelinquent taxpayer or occupantof the property. The properRegister of Deeds shall also be

notified of the levy (Sec. 207B,CTRP).

IIIAdvertisementof the time and

place of sale of the taxpayersproperty or so much thereof asmay be necessary to satisfy theclaim within 20 days after levy,and it shall cover a period of atleast 30 days (Sec. 213,CTRP).

IVSale at public auction to thehighest bidder (Sec. 213,CTRP).

VDisposition of proceeds ofsale. In case the proceeds ofthe sale exceed the claim(taxes, penalties and interest)and cost of the sale, the excessshall be turned over to theowner of the property (Sec. 213,CTRP).

DISTRAINT VS. LEVY

DISTRAINT LEVY

Refers to personalproperty

Refers to realproperty

Forfeiture by thegovernment is notprovided

Forfeiture isauthorized

The taxpayer is notgiven the right of redemption withrespect to distrainedpersonal property.

The right of redemption is grantedin case of real propertylevied upon and sold,or forfeited to thegovernment.

Both

Are summary remedies for the collection oftaxes; and

Cannot be availed of where the amount of thetax involved is not more than P100

E. Forfeiture

Definition: divestiture of property withoutcompensation, in consequence of a default oroffense.

Enforcement of the remedy of forfeiture:

1. In case of personal property Theforfeiture of chattels and removable fixturesof any sort is enforced by seizure and saleor destruction of the specific forfeitedproperty.

PrepareCertificateof Levy

Service ofNotice

Time andPlace of

Sale

Sale

Disposition


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2. In case of real property The forfeiture ofreal property is enforced by a judgment ofcondemnation and sale in a legal action orproceeding, civil or criminal, as the casemay require.

Effect of the forfeiture of property withrespect to title thereto: The effect is to transferthe title to the specific thing from the owner tothe government.

F. Civil Actions

Def

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