TAXATION+LAW.doc

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San Beda College of Law1

MEMORY AID IN TAXATION LAW

Note hile taxes are intended forgeneral benefits special benefits totaxpayers are not re5uired. /he4overnment renders no special or

commensurate benefit to any particularperson or property.

IS T#E POWER TO TAX T#E POWER TO

&ESTRO/01. 1Power to tax i+ the ower tode+tro)2 ,!arshall "ictum) # refers tothe unlimitedness and the degree orvigor with which the taxing power maybe employed to raise revenue.- the financial needs of the State mayoutrun any human calculation so thepower to meet those needs by taxation

must not be limited even though taxesbecome burdensome or confiscatory.

2. 1Power to tax i+ ot the ower tode+tro) while the Sure3e Court +it+2($olmes "ictum) 6 the power to taxknows no limit except those expresslystated in the onstitution.

!arshall and $olmes "ictum Reconciled !lthough the power to tax is almost

unlimited it must not be exercised in anarbitrary manner. If the abuse is so

great so as to destroy the natural andfundamental rights of people it is theduty of the judiciary to hold such an actunconstitutional.

P%RPOSES AN& O'4ECTI"ES OF TAXATION

1. Re5eue – basically the purpose of taxation is to provide funds orproperty with which the Statepromotes the general welfare andprotection of its citi0ens.

2. No,Re5eue 67e)8 PR 9EP:a. Promotion of general welfare b. R egulationc. R eduction of social ine5ualityd. Encourage economic growthe. Protectionism

POWER OF 4%&ICIAL R E"IEW IN TAXATION

!s long as the legislature inimposing a tax does not violateapplicable constitutional limitations orrestrictions it is not within the provinceof the courts to in5uire into the wisdomor policy of the exaction the motives

behind it the amount to be raised or the

persons property or other privileges tobe taxed.

/he court7s power in taxation islimited only to the application and

interpretation of the law.

Note /he principle o% &udicial non'inter%erence extends to theadministrative realm.

ASPECTS OF TAXATION

1. 8evy or imposition of the tax ,taxlegislation

2. 9nforcement or tax administration,tax administration

'ASIC PRINCIPLES OF A SO%N& TAX S/STE;

67 E/8 FAT:1. Fi+*al Ade<ua*) – sufficiency to

meet government expenditures andother public needs.

2. Ad3ii+trati5e Fea+i(ilit)-Co5eie*e – capability of beingeffectively enforced.

". Theoreti*al 4u+ti*e – based on thetaxpayer7s ability to pay+ must beprogressive. ,!bility to 'ay /heory

TAXATIONPOLICEPOWER

E;INENT&O;AIN

1. Purpose/o raiserevenue

/o promotepublicpurposethroughregulations

/o facilitatethe State7sneed ofproperty forpublic use

. Amount of ExactionNo limit 8imited to

the cost ofregulationissuance ofthe license orsurveillance

No exaction+but privateproperty istaken by theState forpublicpurpose

. Benefits Received No specialor directbenefit isreceived bythetaxpayer+merelygeneralbenefit ofprotection

No directbenefit isreceived+ ahealthyeconomicstandard ofsociety isattained

! directbenefit resultsin the form ofjustcompensationto thepropertyowner

TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS:

Jemina Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian

Ca)ea, Jh&n!ee*&illemo





4. Non-impairment of Contractsontractsmay not beimpaired

ontractsmay beimpaired

ontracts maybe impaired

5. Transfer of Property Ri!ts/axes paidbecome partof publicfunds

No transferbut onlyrestraint inits exercise

/ransfer iseffected infavor of theState

". #cope!ll personsproperty andexcises

!ll personspropertyrights andprivileges

*nly upon aparticularproperty

S/STE;S OF TAXATION

Glo(al S)+te3 S*hedular S)+te3

! systememployed wherethe tax systemviewsindifferently thetax base andgenerally treats incommon allcategories of taxable income of the individual.

! system employedwhere the income taxtreatment varies andis made to depend onthe kind or categoryof taxable income of the taxpayer.

! system whichtaxes allcategories of

income exceptcertain passiveincomes andcapital gains. Itprescribes aunitary butprogressive ratefor the taxableaggregate incomesand flat rates forcertain passiveincomes derivedby individuals.

! system whichitemi0es the differentincomes and provides

for varied percentagesof taxes to beapplied thereto.

EXA;PLES OF TAXES LE"IE& WIT# AR EG%LATOR/ P%RPOSE= OR CO;'INE&

EXERCISE OF POLICE POWER AN& T#E POWER

OF TAXATION.

a. %otor vehicle registration feesare now considered revenue or taxmeasures.(Pal v. +du, G.R No. '-/,

August 0,1//)/his case reversed the doctrine

previously held in :epublic v. 'hilippine:abbit ;us 8ines Inc. "2 S:! 211 tothe effect that motor vehicle

registration fees are regulatoryexactions and not revenue measures.

(. /he tax imposed on videogram

establishments is not only regulatory buta revenue measure because the earningsof such establishments have not beensubject to tax depriving the governmentof an additional source of income. (2iov. 3ideogram Regulatory 4oard, 05CRA 6/)

*. /he <coconut levy funds= wereall raised under the state7s taxing andpolice powers.

/he state7s concern to make it astrong and secure source not only in the

livelihood of the significant segment of the population but also of exportearnings the sustained growth of whichis one of the imperatives of theeconomic growth.= Philippine CoconutProducers 7ederation, Inc. Coco%ed v.Presidential Commission on Good Government (8/ 5CRA 9, 0) CONSTR%CTION OF TAX LAWS

1. 'ublic purpose is always presumed.2. If the law is clear apply the law in

accordance to its plain and simple

tenor.". ! statute will not be construed as

imposing a tax un$ess it does soclearly expressly andunambiguously.

$. In case of doubt it is construed moststrongly against the 4overnmentand li(erall) in favor of thetaxpayer.

&. 'rovisions of a taxing act are not tobe extended by implication.

). /ax laws operate prospectivelyun$ess the purpose of the legislatureto give retrospective effect isexpressly declared or may beimplied from the language used.

*. /ax laws are +e*ial law+ and prevailover a general law.

NATURE OF TAX LAWS

1. >ot political in character2. ivil in nature not subject to ex

post facto law prohibitions". >ot penal in character








TAXES ARE PERSONAL TO T#E TAXPA/ER

1. ! corporation7s tax delin5uency

cannot be enforced against itsstockholders. 6Cororate Etit)

&o*trie:+:ception Stockholders may beheld liable for unpaid taxes of adissolved corporation?a. if it appears that the corporate

assets have passed into theirhands or

b. when the stockholders haveunpaid subscriptions to thecapital of the corporation

2. 9state taxes are obligations that

must be paid by the executor oradministrator out of the net assetsand cannot be assessed against theheirs.+:ception If prior to the paymentof the estate tax due the propertiesof the deceased are distributed tothe heirs then the latter issubsidiary liable for the payment of such portion of the estate tax as hisdistributive share bears to the totalvalue of the net estate. (5ec. 1,Rev. Regs. No. '66; see CIR vs.

Pineda G.R. No. '8-.5eptember 0, 198))

CLASSIFICATION OF TAXES

1. !s to subject matter?

a. Per+oal Tax – taxes are of fixed

amount upon all persons of acertain class within thejurisdiction without regard toproperty occupation or businessin which they may be engaged.

b. Proert) Tax – assessed on

property of a certain class

c. Ex*i+e Tax – imposed on theexercise of a privilege

d. Cu+to3+ &utie+ – duties charged

upon the commodities on theirbeing imported into or exportedfrom a country.

2. !s to burden?a. &ire*t Tax – both the incidence

of or liability for the payment of the tax as well as the impact orburden of the tax falls on thesame person.

b. Idire*t Tax , /he incidence of or liability for the payment of the tax falls on one person butthe burden thereof can be

shifted or passed on to another.". !s to purpose?

a. Geeral Tax – levied for the

general or ordinary purposes of the 4overnment

b. Se*ial Tax – levied for special

purposes$. !s to manner of computation?

a. Se*ifi* Tax – the computationof the tax or the rates of the taxis already provided for by law.

b. Ad %a$orem Tax – tax upon thevalue of the article or thingsubject to taxation+ theintervention of another party isneeded for the computation of the tax.

&. !s to taxing authority?a. Natioal Tax – levied by the

>ational 4overnmentb. Lo*al Tax – levied by the local

government). !s to rate?

a. Pro!re++i5e Tax – rate oramount of tax increases as the

amount of the income or earningto be taxed increases.b. Re!re++i5e Tax – tax rate

decreases as the amount of income to be taxed increases.

c. Proortioate Tax – based on afixed proportion of the value of the property assessed.

I;POSITIONS NOT STRICTL/ CONSI&ERE& AS

TAXES

1. Toll – amount charged for the cost

and maintenance of the property

used.2. Pealt) – punishment for the

commission of a crime.

3. Co3ro3i+e Pealt) – amount

collected in lieu of criminalprosecution in cases of taxviolations.

4. Se*ial A++e++3et – levied only on

land based wholly on benefitaccruing thereon as a result of improvements or public worksundertaken by government within

the vicinity.








5. Li*e+e or Fee – regulatory

imposition in the exercise of thepolice power.

6. ;ar!i Fee – exaction designed to

stabili0e the currency.7. &e(t – a sum of money due upon

contract or one which is evidencedby judgment.

8. Su(+id) – a legislative grant of

money in aid of a private enterprisedeemed to promote the publicwelfare.

9. Cu+to3+ dutie+ ad fee+ – duties

charged upon commodities on theirbeing transported into or exportedfrom a country.

10. Re5eue – a broad term thatincludes taxes and income fromother sources as well.

11. I3o+t – in its general sense it

signifies any tax tribute or duty. Inits limited sense it means a duty onimported goods and merchandise.

Tax Se*ialA++e++3et

Imposed on personsproperty and excises

8evied only on land

'ersonal liabilityattaches on theperson assessed incase of non-payment

annot be made apersonal liability of the person assessed

>ot based on anyspecial or directbenefit

;ased wholly onbenefit

8evied and paidannually

9xceptional both asto time and locality

9xemption grantedis applicable (Art.3I, 5ec. /() 1/8 Constitution)

9xemption does notapply.>.;. If property isexempt from :eal'roperty /ax it isalso exempt fromSpecial !ssessment.

Tax Li*e+e Fee

;ased on the powerof taxation

9manates frompolice power

/o generaterevenue

:egulatory

!mount is unlimited !mount is limitedto the cost of ,1issuing the licenseand ,2 inspectionand surveillance

>ormally paid afterthe start of abusiness

>ormally paidbeforecommencement of business

/axes being thelifeblood of theState cannot besurrendered exceptfor lawfulconsideration

8icense fee may bewith or withoutconsideration

>on-payment does

not make thebusiness illegal butmaybe a ground forcriminalprosecution

>on-payment

makes the businessillegal

TEST IN &ETER;INING IF T#E I;POSITION IS A

TAX OR A LICENSE FEE

If the purpose is primarily revenueor if revenue is at least one of the realand substantial purposes then theexaction is a tax. If the purpose isregulatory in nature it is a license.

(PA v. +du)

Tax &e(t

!n obligationimposed by law

reated by contract

@ue to thegovernment in itssovereign capacity

%ay be due to thegovernment but inits corporatecapacity

'ayable in money 'ayable in moneyproperty or services

@oes not drawinterest except incase of delin5uency

@raws interest if stipulated ordelayed

Not assignable !ssignable

Not subject tocompensation orset-off

Subject tocompensation orset-off

>on-payment ispunished byimprisonment

No imprisonment incase of non-payment(Art. III, 5ec. 6








e:cept in poll tax 1/8 Constitution)

Imposed only bypublic authority

an be imposed byprivate individual

TEST IN &ETER;INING IF T#E I;POSITION IS A

TAX OR A LICENSE FEE

If the purpose is primarily revenue orif revenue is at least one of the realand substantial purposes then theexaction is a tax. If the purpose isregulatory in nature it is a license.(PA v. +du)

Tax &e(t

!n obligationimposed by law

reated by contract

@ue to thegovernment in itssovereign capacity

%ay be due to thegovernment but inits corporatecapacity

'ayable in money 'ayable in moneyproperty or services

@oes not drawinterest except incase of delin5uency

@raws interest if stipulated ordelayed

Not assignable !ssignable

Not subject tocompensation orset-off

Subject tocompensation orset-off

>on-payment ispunished byimprisonmente:cept in poll tax

No imprisonment incase of non-payment (Art. III,5ec. 6 1/8 Constitution)

Imposed only bypublic authority

an be imposed byprivate individual

CO;PENSATION OR SET,OFFGeneral Rule /axes cannot be thesubject of compensation or set-off.

Reasons1. lifeblood theory2. taxes are not contractual

obligation but arise out of dutyto the government

". the government and thetaxpayer are not mutuallycreditors and debtors of eachother. (7rancia v. IAC)

+:ception hen both obligations are

due and demandable as well as fully

li5uidated and all the re5uisites for avalid compensation are presentcompensation takes place by operationof law. ("omingo v. Garlitos)

&OCTRINE OF E$%ITA'LE R ECO%P;ENT NOT

FOLLOWE& IN T#E P#ILIPPINES

! tax presently being assessedagainst a taxpayer which has prescribedmay not be recouped or set-off againstan overpaid tax the refund of which isalso barred by prescription. It is againstpublic policy since both parties areguilty of negligence.

Tax Toll

9nforcedproportionalcontributions frompersons and property

! sum of money forthe use of something aconsideration whichis paid for the use of a property which isof a public nature+e.g. road bridge

! demand of sovereignty

! demand of proprietorship

>o limit as to theamount of tax

!mount of tolldepends upon thecost of construction

or maintenance of the publicimprovement used

Imposed only by theState

%ay be imposed by?,1 4overnment,2 'rivate

individuals orentities

Tax Pealt)

9nforcedproportional

contributions frompersons andproperty

Sanction imposed asa punishment for

violation of a lawor acts deemedinjurious+ violationof tax laws may giverise to imposition of penalty

Intended to raiserevenue

@esigned to regulateconduct

%ay be imposedonly by thegovernment

%ay be imposed by?,1 4overnment,2 'rivateindividuals or

entities








Tax Tariff

!ll embracing term

to include variouskinds of enforcedcontributions uponpersons for theattainment ofpublic purposes

! kind of tax

imposed on articleswhich are tradedinternationally

TAXPA/ERS> S%IT

! case where the act complained of directly involves the illegal disbursementof public funds derive from taxation(<ustice !elo, dissenting in =ilosbayan,Inc vs Guingona, <r.)

TAXPA/ERS AN& P%'LIC OFFCIALS #A"E &'C(#

#TAN)*

R E$%ISITES FOR TAXPA/ERS> S%IT a. /he tax money is being

extracted and spent in violation of specific constitutional protectionsagainst abuses of legislative power.

b. /hat public money is beingdeflected to any improper purpose(Pascual vs 5ecretary o% Public>or?s)

c. That the petitioner seeks to

restrain respondents from wastingpublic funds through the enforcementof an invalid or unconstitutional law

LI;ITATIONS ON T#E TAXINGPOWER

A. IN#ERENT LI;ITATIONS 67 E/8 SPINE:1. /erritoriality or Situs of taxation2. Public purpose of taxes". International comity$. Non-delegability of the taxing power&. /ax Exemption of the government

6?: TESTS IN &ETER;INING P%'LIC P%RPOSE

a. &ut) Te+t – whether the thing to befurthered by the appropriation of public revenue is something whichis the duty of the State as agovernment to provide.

b. Pro3otio of Geeral Welfare Te+t– whether the proceeds of the taxwill directly promote the welfare of the community in e5ual measure.

69: NON,&ELEGA'ILIT/ OF T#E TAXING

POWER

+enera$ Ru$e, /he power of taxation ispeculiarly and exclusively exercised by

the legislature. ,See Scope of 8egislative /axing 'ower supra- refers to tax legislationExceptions to Non'delegability1. Alexible /ariff lause? !uthority of

the 'resident to fix tariff ratesimport and export 5uotas tonnageand wharfage dues and other dutiesor imposts. (Art. 3I, 5ec./(), 1/8 Constitution)

2. 'ower of local government units tolevy taxes fees and charges. (Art.

@, 5ec. 0, 1/8 Constitution)

". @elegation to administrativeagencies for implementation andcollection.

- merely refers to tax administrationor implementation

(3) SIT%S OR TERRITORIALIT/ OF TAXATION

/he power to tax is limited only topersons property or businesses ithinthe jurisdiction or territory of the taxingpower.

FACTORS T#AT &ETER;INE T#E SIT%S8a. #ind or classification of the tax

being leviedb. Situs of the thing or property

taxedc. iti0enship of the taxpayerd. :esidence of the taxpayere. Source of the income taxedf. Situs o f the excise p rivilege

business or occupation being taxed

APPLICATION OF SIT%S OF TAXATION

7id of Tax Situ+

'ersonal orommunity tax

:esidence ordomicile of thetaxpayer

:eal property tax 8ocation of property(e: rei sitae)

'ersonal propertytax

-tangible? where itis physically locatedor permanently kept(e: rei sitae)-intangible? subjectto 5ec. 6- o% theNIRC and the








principle of mobiliaseBuuntur personam

;usiness tax 'lace of business

9xcise or 'rivilegetax

here the act isperformed or whereoccupation ispursued

Sales tax here the sale isconsummated

Income /ax onsider,1 citi0enship,2 residence and," source of income(5ec. -, 118 NIRC)

/ransfer tax :esidence orciti0enship of thetaxpayer or locationof property

Aranchise /ax State which grantedthe franchise

SIT%S OF TAXATION OF INTANGI'LE PERSONAL

PROPERT/

+enera$ Ru$e, @omicile of the ownerpursuant to the principle of the mobilia

seBuuntur personam or movables followthe person.Exceptions1. hen the property has ac5uired a

business situs in another jurisdiction+2. hen an express provision of the

statute provide for another rule.Illustration Aor purposes of estateand donor7s taxes the followingintangible properties are deemedwith a situs in the 'hilippines?,1 franchise which must be

exercised in the 'hilippines+

,2 shares obligations or bondsissued by any corporationorgani0ed or constituted in the'hilippines in accordance withits laws+

," shares obligations or bonds byany foreign corporation eighty-five percent ,B&C of thebusiness of which is located inthe 'hilippines+

,$ shares obligations or bondsissued by any foreign corporationif such shares obligations or

bonds have ac5uired a businesssitus in the 'hilippines+ and

(5) shares or rights in anypartnership business or industry

established in the 'hilippines.(5ec. 6-, 118 NIRC).

6@: EXE;PTION OF T#E GO"ERN;ENT

!s a matter of public policy propertyof the State and of its municipalsubdivisions devoted to government usesand purposes is deemed to be exemptfrom taxation although no expressprovision in the law is made therefor.

General Rule /he 4overnment is taxexe3t.

- owever it can also tax itself.

R %LES81. !dministrative !gencies

A. 4overnmental function - taxexe3t unless when the lawexpressly provides for tax. (5ec. 48)

B. 'roprietary function 6 taxa(leunless exempted by law. (5ec.8C)

2. 4DsGeneral Rule Income is taxa(le at

the rate imposed upon corporationsor associations engaged in a similarbusiness industry or activity.+:ception 4SIS SSS 'I 'SDand '!4D:. ,Sec. 2*, >I:

". 4overnment 9ducational InstitutionsA. 'roperty or real estate tax 6

property actually directly andexclusively used for educationalpurposes 6 exe3t but incomeof whatever kind and characterfrom any of their propertiesreal or personal regardless of the disposition is taxa(le. (5ec.6, last par., NIRC)

B. Income received by them assuch are exe3t from taxes.owever their income from anyof their activities conducted forprofit regardless of thedisposition is taxa(le. (5ec. 6,last par., NIRC)

4. Income derived from any publicutility or from the exercise of anyessential governmental function

accruing to the 4overnment of the








'hilippines or to any politicalsubdivision thereof is not included ingross income and exe3t fromtaxation. (5ec. (4)(8)(b), NIRC)

5. @onations in favor of governmentalinstitutions are considered as incomeon the part of the donee. oweverit is not considered as taxableincome because it is an e:clusionfrom the computation of grossincome. (5ec. (4)(), NIRC)

6. /he amount of all be5uestslegacies devises or transfers to orfor the use of the 4overnment orany political subdivision forexclusively public purposes isdeductible from the gross estate.

(5ec./9 (A)(), NIRC)7. 4ifts made to or for the use of the

>ational 4overnment or any entitycreated by any of its agencies whichis not conducted for profit or to anypolitical subdivision of the said4overnment are exe3t fromdonor7s tax. (5ec. 6(A)(), NIRC)

8. 8ocal government units areexre++l) rohi(ited by the 84from levying tax upon >ational4overnment its agencies andinstrumentalities and local

government units. 5ec. (o),GCD

9. Enless otherwise provided in the8ocal 4overnment ode ,84 taxexemptions granted to all personswhether natural or juridicalincluding 4D except local waterdistricts cooperatives dulyregistered under :! >o. )F"B non-stock and non-profit institutions arewithdraw upon effectivity of the84. (5ec. 1, GC)

10. :eal property owed by the :epublicof the 'hilippines or any of itspolitical subdivisions except whenthe beneficial use thereof has beengranted for consideration orotherwise to a taxable person shallbe exe3t from payment of realproperty tax. (5ec. -, GC)

6: INTERNATIONAL CO;IT/

/hese principles limit the authorityof the government to effectively imposetaxes on a sovereign state and its

instrumentalities as well as on its

property held and activities undertakenin that capacity. 9ven where one entersthe territory of another there is animplied understanding that the former

does not thereby submit itself to theauthority and jurisdiction of the other.

'. CONSTIT%TIONAL LI;ITATIONS

A. GENERAL OR IN&IRECTCONSTIT%TIONAL LI;ITATIONS

?. &ue Pro*e++ Clau+e Art. *** #ec. 11/0 Constitution2Re<ui+ite+8

a. /he interests of the public asdistinguished from those of aparticular class re5uire the

intervention of the State.(5ubstantive limitation)

b. /he means employed must bereasonably necessary to theaccomplishment of the purposeand not unduly oppressive.(Procedural limitation)

/he constitutionality of a legislativetaxing act 5uestioned on the ground of denial of due process re5uires theexistence of an actual case orcontroversy.

9. E<ual Prote*tio Clau+e 6 Art. ***#ec. 1 1/0 ConstitutionRe<ui+ite+ of a "alid Cla++ifi*atio8

a. based upon substantialdistinctions

b. germane to the purposes of thelaw

c. not limited to existing conditionsonly

d. apply e5ually to all members of the class

B. Freedo3 Of See*h Ad Of ThePre++ Art. *** #ec. 4 1/0 Constitution2

/here is curtailment of pressfreedom and freedom of thought andexpression if a tax is levied in orderto suppress this basic right andimpose a prior restraint. (2olentinovs. 5ecretary o% 7inance, GR No.0-00, August 0, 11-)

@. No,Ifri!e3et Of Reli!iou+Freedo3 Ad Wor+hi 6 Art. *** #ec.

5 1/0 Constitution2








! license tax or fee constitutes acurtailment of religious freedom if imposed as a condition for itsexercise. (American 4ible 5ociety

vs. City o% !anila, GR No. '198, April 6, 108)

. No,I3air3et Of Cotra*t+ 6 Art.*** #ec. 13 1/0 Constitution2

>o law impairing the obligationof contract shall be passed. (5ec.6, Art. III, 1/8 Constitution)

/he rule however does notapply to public utility franchises orright since they are subject toamendment alteration or repeal bythe ongress when the public

interest so re5uires. (Cagayan+lectric E ight Co., Inc. v.Commissioner, GR No. 969,5eptember 0, 1/0)

R %LES8a. hen the exemption is bilaterally

agreed upon between thegovernment and the taxpayer 6 itcannot be withdrawn ithoutviolating the non-impairmentclause.

b. hen it is unilaterally granted by

law and the same is ithdran byvirtue of another law 6 no violation.

c. hen the exemption is grantedunder a franchise 6 it may beithdran at any time thus not aviolation of the non-impairment of contracts

. Pre+idetial ower to !ratrerie5e+= *o33utatio+ adardo+ ad re3it fie+ adforfeiture+ after *o5i*tio 6 ART.%** #EC. 1/ 1/0 C'N#T*T(T*'N2&ue

Pro*e++E<ual

Prote*tio%ifor3it)

/axpayermay notbedeprivedof lifeliberty orpropertywithoutdueprocess of law.>otice

/axpayersshall betreated alikeunder likecircumstancesand conditionsboth in theprivilegesconferred andliabilitiesimposed.

/axablearticles orkinds of property of the sameclass shallbe taxed atthe samerate. /hereshouldthereforebe no direct

musttherefore be givenin case of failure to

pay taxes

doubletaxation

'. SPECIFIC OR &IRECTCONSTIT%TIONAL LI;ITATIONS

?. No,I3ri+o3et For &e(t Or No,Pa)3et Of Poll Tax 6 Art. *** #ec.3 1/0 Constitution2

9. Rule Re<uiri! That Aroriatio+=Re5eue Ad Tariff 'ill+ ShallOri!iate Ex*lu+i5el) Fro3 The

#ou+e Of Rere+etati5e+ 6 Art. %*#ec. 4 1/0 Constitution2

B. %ifor3it)= E<uita(ilit) AdPro!re++i5it) Of Taxatio Art. %*#ec. 012 1/0 Constitution2%ifor3it) – all taxable articles orkinds of property of the same classare taxed at the same rate.E<uita(ilit) – the burden falls tothose who are more capable to pay.Pro!re++i5it) – rate increases as thetax base increases.

$8 Is a tax law adopting a regressivesystem of taxation validG

A8 Hes. /he onstitution does notreally prohibit the imposition of indirecttaxes which like the !/ are regressive./he onstitutional provision meanssimply that indirect taxes shall beminimi0ed. /he mandate to ongress isnot to prescribe but to evolve aprogressive tax system. (+3A2 +n 4ancResolution, 2olentino, et al vs 5ecretary o% 7inance, *ctober 6, 110)

@. Li3itatio+ O The Co!re++ioalPower To &ele!ate To ThePre+idet The Authorit) To FixTariff Rate+= I3ort Ad Exort$uota+= Et*. Art. %* #ec. 021/0 Constitution2

. Tax Exe3tio Of Proertie+A*tuall)= &ire*tl) Ad Ex*lu+i5el)%+ed For Reli!iou+= Charita(le AdEdu*atioal Puro+e+. Art. %*#ec. 02 1/0 Constitution2








/he constitutional provision,above cited which grants taxexemption applies only to propertyor realty taxes assessed on such

properties used actually directlyexclusively for religious charitableand educational purposes. (ladocvs. Commissioner, GR No. '16,

<une 9, 190)/he present onstitution

re5uired that for the exemption of <lands buildings andimprovements= they should not onlybe <exclusively= but also <actually=and <directly= used for religious andcharitable purposes. (Province o%

Abra vs. $ernando, GR No. '-19,

August , 1/)/he test of exemption from

taxation is the use of the propertyfor the purposes mentioned in theonstitution. (Abra 3alley CollegeInc. vs. ABuino, GR No. '16/9,

<une 0, 1//)

EXCL%SI"E '%T NOT A'SOL%TE %SE/he term < exclusively used= does

not necessarily mean total or absoluteuse for religious charitable andeducational purposes. If the property is

incidentally used for said purposes thetax exemption may still subsist. (Abra3alley College Inc. vs. ABuino, Gr No. '16/9, <une 0, 1//)

orollarily if a property althoughactually owned by a religious charitableand educational institution is used for anon- exempt purpose the exemptionfrom tax shall not attach

ART. XI"=SEC @6B:

ART. "I=SEC 9D6B:

4rantee >on- stocknon profiteducationalinstitution

:eligiouseducationalcharitableinstitutions

/axescovered

Income taxustom@uties'roperty tax("+C5 *rder No. 8'/8)

'roperty tax

. "oti! Re<uire3et I Coe*tioWith The Le!i+lati5e Grat Of TaxExe3tio Art. %* #ec. 042

1/0 Constitution2

. No,I3air3et Of The4uri+di*tio Of The Sure3e CourtI Tax Ca+e+ Art. %*** #ec. And 52B2 1/0 Constitution2

D. Exe3tio Fro3 Taxe+ Of TheRe5eue+ Ad A++et+ Of Edu*atioal I+titutio+= I*ludi!Grat+= Edow3et+= &oatio+Ad Cotri(utio+. Art. 6*% #ec.42 And 42 1/0 Constitution2

OT#ER SPECIFIC TAX PRO"ISIONS INT#E CONSTIT%TION1. 'ower of the 'resident to veto any

particular item or items in anappropriation revenue or tariff bill.

(Art 3I, 5ec. 8(), 1/8 Constitution)

2. >ecessity of an appropriation beforemoney may be paid out of the publictreasury. (Art. 3I, 5ec. 1 (), 1/8 Constitution)

". >on-appropriation of public moneyor property for the use benefit orsupport of any sect church orsystem of religion. (Art. 3I, 5ec. 1 (), 1/8 Constitution)

$. /reatment of taxes levied for aspecial purpose. (Art. 3I, 5ec. 1

(), 1/8 Constitution)&. Internal revenue allotments to local

government units. (Art. @, 5ec. 9,1/8 Constitution)

&O%'LE TAXATION

&O%'LE TAXATION – taxing the sameproperty twice when it should be taxedbut once.

IS &O%'LE TAXATION PRO#I'ITE& IN T#E

P#ILIPPINES0No. /here is no constitutional

prohibition against double taxation. It isnot favored but permissible. (Pepsi Cola4ottling Co. v. City o% 4utuan, 19/).

7 IN&S OF &O%'LE TAXATION

6?: &ire*t &uli*ate Taxatio -O(oxiou+ – double taxation in theobjectionable or prohibited sense./his constitutes a violation of substantive due process.








Ele3et+8a. the same property or subject

matter is taxed twice when it shouldbe taxed only once.

b. both taxes are levied for thesame purpose

c. imposed by the same taxingauthority

d. within the same jurisdictione. during the same taxing periodf. covering the same kind or

character of tax.(3illanueva vs. City o% Iloilo)

69: Idire*t &uli*ate Taxatio – notlegally objectionable. /he absenceof one or more of the above-

mentioned elements makes thedouble taxation indirect.

6B: &o3e+ti*, this arises when the taxesare imposed by the local or nationalgovernment ,within the same state

6@: Iteratioal, refers to theimposition of comparable taxes intwo or more states on the sametaxpayer in respect of the samesubject matter and for identicalperiods.

R E;E&IES OF &O%'LE TAXATION

1. Tax Sari! Rule 6 same dividendearned by a >:A within the 'hil. isreduced by imposing a lower rate of 1&C ,in lieu of the "&C on thecondition that the country to whichthe >:A is domiliced shall allow acredit against the tax due from the>:A taxes deemed to have beenpaid in the 'hil. ,Sec.2B ; &b ,I:vs 'rocter J 4amble (GR No.99//, "ec. , 11

2. Tax dedu*tio++:ample? vanishing deduction underSection B),!,2 >I:

". Tax *redit+Instances under the NIRC

• Aor 3A2 purposes the tax on

inputs or items that go into themanufacture of finished products,which are eventually sold may becredited against or deducted fromthe output tax or tax on the finishedproduct.

• 7oreign income ta:es may be

credited against the 'hil. Incometax subject to certain limitationsby citi0ens including members of

general professional partnerships orbeneficiaries of estates or trusts, pro rata as well as domesticcorporations.

• ! tax credit is granted for estate

ta:es paid to a foreign country onthe estate of citi0ens and residentaliens subject to certain limitations.

• /he donorFs ta: imposed upon a

citi0en or a resident shall becredited with the amount of anydonor7s tax imposed by the authorityof a foreign country subject to

certain limitations.$. Tax Exe3tio+&. Pri*ile of Re*iro*it)). Treatie+ with other +tate+

;ET#O&S R ESORTE& TO '/ A TAX TREAT/ IN OR&ER TO ELI;INATE &O%'LE TAXATION

FIRST ;ET#O&8 /he tax treaty sets outthe respective rights to tax by the stateof source or situs and by the state of residence with regard to certain classes

of income or capital. In some cases anexclusive right to tax is conferred in oneof the contracting states+ however forother items of income or capital bothstates are given the right to tax althoughthe amount of tax that may be imposedby the state of source is limited.SECON& ;ET#O&8 /he state of source isgiven a full or limited right to taxtogether with the state of residence. Inthis case the treaty makes it incumbentupon the state of residence to allowrelief in order to avoid double taxation.

TWO ;ET#O&S OF RELIEF ARE %SE& %N&ER T#E

SECON& ;ET#O&8

1. The exe3tio 3ethod- the incomeor capital which is taxable in the stateof source or situs is exempted in thestate of residence although in someinstances it may be taken into accountin determining the rate of tax applicableto the tax payer7s remaining income orcapital.,/his may be done using the taxdeduction method which allows foreign








income taxes to be deducted from grossincome in effect exempting thepayment from being further taxed.2. The *redit 3ethod, although the

income or capital which is taxed in thestate of source is still taxable in thestate of residence. /he tax paid in theformer is credited against the tax leviedin the latter.(Commissioner o% InternalRevenue v. 5.C <ohnson and 5on, Inc. etal., G.R No. 860, <une 0, 111)

Exe3tio;ethod

Credit ;ethod

Aocus is on theincome or capitalitself

Aocus is on the tax

N*2+ ? omputational illustrationbetween a tax deduction and a taxcredit? Tax dedu*tio 3ethod 4ross income

8ess? allowable deductionsi*ludi!

foreign taxes paid Income subject to tax %ultiplied by rate Income tax due

Tax *redit 3ethod 4ross income

8ess? allowable deductionsex*ludi!foreign taxes paid

Income subject to tax %ultiplied by rate

Income tax due 8ess? foreign taxes paid >et income tax due

FOR;S OF ESCAPEFRO; TAXATION

6?: S#IFTING – the process by which thetax burden is transferred from thestatutory taxpayer (impact o% ta:ation)to another (incident o% ta:ation) withoutviolating the law.

I;PACT OF TAXATION 6 point on which tax isoriginally imposed.

INCI&ENCE OF TAXATION 6 point on whichthe tax burden finally rests or settlesdown.Illustration alue added tax. /he

seller is re5uired by law to pay tax butthe burden is actually shifted or passedon to the buyer.

7IN&S OF S#IFTING

a. Forward +hifti!, when burden of tax is transferred from a factor of production through the factors of distribution until it finally settles onthe ultimate purchaser or consumer

(. 'a*ward +hifti!, when burden istransferred from consumer throughfactors of distribution to the factors

of production*. Oward +hifti!, when the tax is

shifted 2 or more times eitherforward or backward

69: CAPITALIATION – a mere increase inthe value of the property is not incomebut merely an unreali0ed increase incapital. >o income until after theactual sale or other disposition of theproperty in excess of its original cost.EXCEPT8 if by reason of appraisal thecost basis of property increased and the

resultant basis is used as the new taxbase for purposes of computing theallowable depreciation expense the netdifference between the original costbasis and new basis is taxable under theeconomic bene%it principle. (4IR RulingNo. 61, !arch 1, 11/)

6B: TRANSFOR;ATION – the manufactureror producer upon whom the tax has beenimposed fearing the loss of his market if he should add the tax to the price paysthe tax and endeavors to recoup himself

by improving his process of productionthereby turning out his units at a lowercost.

6@: TAX A"OI&ANCE – the exploitation bythe taxpayer of legally permissiblealternative tax rates or methods of assessing taxable property or income inorder to avoid or reduce tax liability.9xample? <estate planning=,conveyance of property to a familycorporation for shares ("elpher 2radesCorp. vs. IAC, 08 5CRA -1)








6: TAX E"ASION – use by the taxpayer of illegal or fraudulent means to defeat orlessen the payment of the tax.

FACTORS IN TAX E"ASION1. the end to be achieved i.e. paymentof less than that known by the taxpayerto be legally due or paying no tax whenit is shown that the tax is due+2. an accompanying state of mindwhich is described as being evil in badfaith willful or deliberate and notcoincidental+ and". a course of action which is unlawful.

IN&ICIA OF FRA%& IN TAX E"ASION

1. Aailure to declare for taxation

purposes true and actual income derivedfrom business for 2 consecutive years(Republic vs Gonales, '819)2. Substantial under-declaration of income tax returns of the taxpayer for $consecutive years coupled withintentional overstatement of deductions(CIR vs Reyes, 6- P$I 69)

TAXA"OI&ANCE

TAXE"ASION

alidity 8egal and not

subject tocriminal penalty

Illegal and

subject tocriminalpenalty

9ffect %inimi0ation of taxes

!lmostalwaysresults inabsence of tax payments

6: TAX EXE;PTION – a grant of immunity to particular persons orcorporations from the obligation to paytaxes.

LEGAL 'ASIS8 >o law granting any taxexemption shall be passed without theconcurrence of a majority of all themembers of ongress 6 AR2 3I. 5+C /(-) *7

2$+ 1/8 C*N52I2H2I*N ) 7 IN&S OF TAX EXE;PTION

1. !s to sourceA. Co+titutioal – immunities from

taxation that originate from theconstitution.

B. Statutor) – those which emanatefrom legislation

Exa3le+ of Statutor) Exe3tio+Sec. 2* >I:

Sec. 1K& /ariff and ustoms odeSec. 2"$ 8ocal 4overnment odeSpecial 8aws such as the

Dmnibus Investment ode of 1FB*,9D 22) 'hilippine DverseasShipping !ct ,:! 1$K* as amendedAertili0er Industry !ct ,:! "K&K asamended %ineral :esources@evelopment @ecree of 1F*$ ,'@ $)"as amended ottage Industry !ct,:! "1B as amended andexemptions in <ousing for 8owIncome 4roup= ,'@ 12K& as

amendedC. Cotra*tual, agreed to by the

taxing authority in contractslawfully entered into by themunder enabling laws

d. Treat)e. Li*e+i! Ordia*e

2. !s to form,1 Exre++ – expressly granted by

organic or statute law,2 I3lied – when particular

persons property or excises aredeemed exempt as they fall

outside the scope of the taxingprovision itself.

". !s to extent,1 Total – absolute immunity,2 Partial – one where a collection

of a part of the tax is dispensedwith

$. !s to object,1 Per+oal – granted directly in

favor of certain persons,2 I3er+oal – granted directly in

favor of a certain class of property

PRINCIPLES GO"ERNING TAX EXE;PTION

a. 9xemptions from taxation arehi!hl) di+fa5ored in law and arenot re+u3ed.

b. e who claims as exemption mustbe able to justify his claim by the*leare+t !rat of organic or statutelaw by word+ too lai to bemistaken. If ambiguous there is noexemption.








c. e who claims exemption shouldprove by *o5i*i! roof that heis exempted.

d. /axation is the rule+ tax exemption

is the e:ception.e. /ax exemption must be +tri*tl)

*o+trued against the taxpayer andliberally in favor of the taxingauthority.

f. /ax exemptions are not presumed.g. onstitutional grants of tax

exemption are +elf,exe*uti!.h. /ax exemptions are er+oal.

T#E FOLLOWING PARTA7E T#E NAT%RE OF

TAX EXE;PTION 1. @eductions for income tax purposes

2. laims for refund". /ax amnesty$. ondonation of unpaid tax liabilitiesN*2+ must be +tri*tl) *o+truedagainst the taxpayer

W#EN EXE;PTIONS ARE CONSTR%E& LI'ERALL/

IN FA"OR OF GRANTEE

1. hen the law so provides for suchliberal construction.

2. 9xemptions from certain taxesgranted under special circumstancesto special classes of persons.

". 9xemptions in favor of thegovernment its political subdivisionsor instrumentalities.

$. 9xemptions to traditionalexemptees such as those in favor of religious and charitable institutions.

&. If exemptions refer to the publicproperty

$8 %ay a tax exemption be revokedGA8 Hes. It is an act of liberality whichcould be taken back by the governmentunless there are restrictions. Sincetaxation is the rule and exemptiontherefrom is the exception theexemption may be withdrawn by thetaxing authority. (!actan CebuInternational Airport Authority vs.!arcos, 9 5CRA 998)

R ESTRICTIONS ON R E"OCATION OF TAX

EXE;PTIONS

a. No i3air3et *lau+e. here theexemption was granted to privateparties based on material

consideration of a mutual nature

which then becomes contractual andis covered by the non-impairmentclause of the onstitution.

b. Adhere*e to for3, if the tax

exemption is granted by theonstitution its revocation may beeffected through onstitutionalamendment only

c. here the tax exemption grant is inthe form of a special law and not bya general law even if the terms of the general act are broad enough toinclude the codes in the general lawunless there is manifest intent torepeal or alter the special law(Province o% !isamis *riental vsCagayan +lectric Poer and ight

Co. Inc)

NAT%RE OF TAX A;NEST/

1. 4eneral or intentional overlooking bythe state of its authority to imposepenalties on persons otherwise guiltyof evasion or violation of a revenueor tax law.

2. 'artakes of an absolute forgiveness of waiver of the government of its rightto collect.

". /o give tax evaders who wish torelent and are willing to reform a

chance to do so.

R%LES ON TAX A;NEST/

1. /ax amnestya like tax exemption it is never

favored nor presumedb construed strictly against the

taxpayer ,must show completecompliance with the law

2.4overnment not estopped from5uestioning the tax liability even if amnesty tax payments were already

received.Reason? 9rroneous application and

enforcement of the law by publicofficers do not block subse5uentcorrect application of the statute. /hegovernment is never estopped bymistakes or errors of its agents.4asis? 8ifeblood /heory

".@efense of tax amnesty like insanityis a personal defense.Reason? :elates to the circumstances

of a particular accused and not the








character of the acts charged in theinformation.

Tax a3e+t) Tax exe3tio

Immunity from allcriminal civil andadministrativeliabilities arisingfrom non paymentof taxes

Immunity from civilliability only

!pplies only to pasttax periods henceretroactiveapplication

'rospectiveapplication

&OCTRINE OF I;PRESCRIPTI'ILT/!s a rule taxes are imprescriptible

as they are the lifeblood of thegovernment. owever tax statutes mayprovide for statute of limitations.

/he rules that have been adoptedare as follows?a.2 Nationa$ *nterna$ Revenue Code /he statute of limitation forassessment of tax if a return is filed iswithin three 6B: )ear+ from the last dayprescribed by law for the filling of thereturn or if filed after the last day

within three years from date of actualfilling. If no return is filed or the returnfiled is false or fraudulent the period toassess is within te )ear+ from discoveryof the omission fraud or falsity.

/he period to collect tax is withinthree )ear+ from date of assessment. Inthe case however of omission to file orif the return filed is false or fraudulentthe period to collect is within te )ear+from discovery without need of anassessment.

7.2 Tariff and customs codeIt does not express any general

statute of limitation+ it providedhowever that L7 hen articles haveentered and passed %ree o% duty or %inalad&ustment o% duties made, ithsubseBuent delivery, such entry and

passage %ree o% duty or settlement o% duties ill, a%ter the e:piration o% one12 year , %rom the date o% the %inal

payment o% duties, in the absence o% %raud or protest, be %inal and conclusiveupon all parties, unless the liBuidation

o% import entry as merely tentative.(5ec 96,2CC)

c. &oca$ +overnment Code

ocal 2a:es, %ees, or charges shallbe assessed ithin five 52 years %romthe date they became due. In case o%

%raud or intent to evade the payment o% ta:es, %ees or charges the same may beassessed ithin ten 132 years %romdiscovery o% the %raud or intent toevade payment. 2hey shall also becollected either by administrative or

&udicial action ithin five 52 years %rom date o% assessment (5ec. 1-. GC)

TAX ENFORCE;ENT AN&A&;INISTRATION

SO%RCES OF TAX LAWS 67e)8 SPEC9TRA'LT:1. Statutes2. Presidential @ecrees3. Executive Drders4. Constitution5. Court @ecisions6. Tax odes7. R evenue :egulations8. Administrative Issuances9. 'I: :ulings10. Local /ax Drdinance11. Tax /reaties and onventions

R E$%ISITES OF TAX R EG%LATIONS

1. :easonable2. ithin the authority conferred". Not contrary to law$. %ust be published

N*2+ !dministrative regulations mustalways be in harmony with the

provisions of the law. In case of discrepancy between the basic law andthe implementing rule or regulation theformer prevails.

NON,R ETROACTI"IT/ OF 'IR R %LINGS

General Rule? :ulings are notretroactive if they are prejudicial to thetaxpayer. (5ec. -9, NIRC)+:ceptions1. here the taxpayer deliberately

misstates or omits material factsfrom his return or any document

re5uired of him by the ;I:.








2. here the facts subse5uentlygathered by the ;I: is materiallydifferent from the facts on whichthe ruling is based.

". here the taxpayer acted in badfaith.

PRINCIPLE OF LEGISLATI"E APPRO"AL OF AN

A&;INISTRATI"E INTERPRETATION T#RO%G#

R EENACT;ENT

here a statute is susceptible of themeaning placed upon it by a ruling of the government agency charged with itsenforcement and the legislaturethereafter reenacts the provisionwithout substantial change such actionis to some extent confirmatory that the

ruling carries out the legislativepurpose.

R %LE OF NO ESTOPPEL AGAINST T#E

GO"ERN;ENT

General Rule /he 4overnment is notestopped by the mistakes or errors of itsagents+ erroneous application andenforcement of law by public officers donot bar the subse5uent correctapplication of statutes. (+. Rodrigue,Inc. vs. Collector, '6-, <uly ,191)

+:ception In the interest of justice andfair play as where injustice will result tothe taxpayer. (see CIR vs. CA, GR No.81/, 7eb. 9, 118; CIR vs. CA, GR No.680, 7eb. , 111)

AGENCIES IN"OL"E& IN TAX A&;INISTRATION

1. ;ureau of Internal :evenue6 internal revenue taxes

Agents o% the CIRa. ommissioner of ustoms withrespect to taxes on imported goodsb. head of the appropriategovernment office with respect toenergy taxc. banks duly accredited by the I:

(5ec. , 118 NIRC)2. ;ureau of ustoms 6 customs law

enforcement". 'rovincial city and municipal

assessors and treasurers 6 local andreal property taxes

ORGANIATION AN& F%NCTION OF T#E

'%REA% OF INTERNAL R E"EN%E 6'IR:

;I: shall be under the supervisionand control of the @ept. of Ainance (5ec., NIRC)

POWERS AN& &%TIES OF T#E 'IRA++e++3et and *olle*tio of all

national internal revenue taxes feesand charges1. Efor*e3et of all forfeitures

penalties and fines connectedtherewith

2. Exe*utio of judgments in all casesdecided in its favor by the ourt of /ax !ppeals ,/! and the ordinarycourts

". 4ive effect to and ad3ii+ter thesupervisory and police powers

conferred to it by the ode or otherlaws

ASSESS;ENT – a finding by the taxingauthority that the taxpayer has not paidthe correct taxes. It is also a writtennotice to a taxpayer to the effect thatthe amount stated therein is due as atax and containing a demand for thepayment thereof.Geeral rule8 /axes are self-assessingand thus do not re5uire the issuance of an assessment notice in order to

establish the tax liability of a taxpayer.

Ex*etio+8

1. /ax period of a taxpayer isterminated 5ec. 9("), NIRCD

2. @eficiency tax liability arising from atax audit conducted by the ;I: 5ec.09(4), NIRCD

". /ax lien 5ec. 1, NIRCD $. @issolving corporation 5ec. 0(c),

NIRCD

SIGNIFICANCE OF ASSESS;ENT

a. In the proper pursuit of judicial andextrajudicial remedies to enforcetaxpayer liabilities and certainmatters that relate to it such as theimposition of surcharges andinterests

b. In the application of statute of limitations

c. In the establishment of tax liensand

d. In estimating the revenues that maybe collected by government in the

coming year. (!amalateo,








3ictorino. Revieer on 2a:ation,66-)

7 IN&S?. SELF, ASSESS;ENT, one in which the

tax is assessed by the taxpayerhimself

9. &EFICIENC/ ASSESS;ENT, made by thetax assessor himself whereby thecorrect amount of the tax isdetermined after an examination orinvestigation is conducted. /heliability is determined and assessedfor the following reason?a. amount ascertained exceeds that

which is shown as the tax by the

taxpayer in his returnb. no amount of tax is shown in the

returnc. taxpayer did not file any return

at allB. ILLEGAL AN& "OI& ASSESS;ENT,

assessment wherein tax assessor hasno power to assess at all

@. ERRONEO%S ASSESS;ENT, assessor haspower to assess but errs in theexercise thereof

'%R&EN OF PROOF IN PRE,ASSESS;ENT

PROCEE&INGS

/here is a presumption of correctness and good faith on the part of the I:+ thus the burden lies on thetaxpayer. Dtherwise the finding of theI: will be conclusive and he will assessthe taxpayer. /he same is true even if the I: is wrong if the taxpayer doesnot controvert. (Cagayan Robina 5ugar !illing Co. vs. Court o% Appeals, GR. No.-0, *ctober , 666)Reasons8 a. lifeblood theory b. presumption of regularity in

performance of publicfunctions

N*2+ !ssessments by the ;I: must haveon its face the law and facts upon whichthe presumption is made.

PRINCIPLES GO"ERNING TAX ASSESS;ENTS 1. !ssessments are prima facie

presumed correct and made in goodfaith.

2. It should be based on actual facts.". It is discretionary on the part of the

ommissioner.

$. /he authority of the ommissionerto assess taxes may be delegatedexcept the power to make finalassessments.

&. It must be directed to the rightparty.

Authorit) of a Re5eue Offi*er -pursuant to a 8etter of !uthority issuedby the :egional @irector

a. /o examine taxpayers withinthe jurisdiction of the district inorder to collect the correct

amount of tax+b. /o recommend the assessment of

any deficiency tax due in thesame manner that the said actscould have been performed by the:evenue :egional @irector.

General Rule income tax returns areconfidential.+:ception in5uiry into income taxreturns may be authori0ed-

1. inspection is authori0ed uponwritten order of the 'resident of the

'hilippines+2. inspection is authori0ed under

Ainance :egulations >o. "" of theSecretary of Ainance+

". production of the tax return ismaterial evidence in a criminal casewherein the government isinterested in the result+ or

$. production or inspection thereof isauthori0ed by the taxpayer himself.

Networth ;ethod, inventory method of income tax verification.

• !pplies the accounting principle?

assets 6 liabilities M networthondition for its use?1. taxpayer7s books do not clearly

reflect his income or the taxpayerhas no books or if he has books herefuses to produce them+

2. there is evidence of possible sourceor sources of income to account forincreases in networth+

". there is a fixed starting point or

opening networth+ and








$. there must be proper adjustments toconform with the income tax laws.

POWERS AN& &%TIES OF T#E CO;;ISSIONER I. SECTION @ ,power to interpret tax lawand decide tax cases

?. Iterret ro5i+io+ of thi+ Code adother tax law+ +u(He*t to re5iew of the Se*retar) of Fia*e6$ua+i,le!i+lati5e:

9. &e*ide8 6$ua+i,Hudi*ial:

a disputed assessmentb refunds of internal

revenue taxes fees and chargesc penalties imposed in

relation theretod) other matters arising

from this ode or other laws orportions thereof administered bythe ;I: subject to the exclusiveappellate jurisdiction of the /!(5ec. -)

II. SECTION ,power to obtaininformation summon examine and taketestimony of persons

B. For the Co33i++ioer to a+*ertai8

,a correctness of any return or inmaking a return where none hasbeen made

,b liability of any person for anyinternal revenue tax or incorrecting such liability

,c tax compliance /he ommissioner is authori0ed?1. to 9xamine any relevant ;ook paper

record or other data2. to Dbtain any information ,costs

volume of production receipts salesgross income etc on a regular basisfrom?i. any person other than the person

under investigation orii. any office or officer of the

national(local government gov7tagencies and instrumentalities,;angko Sentral gov7t owned andcontrolled corporations ,e.g. 8/D:egister of @eeds

". to Summoni. the person liable for tax or

re5uired to file a return or

ii. any officer or employee of suchperson or

iii. any person having in hispossession(custody(care

-- the books of accounts-- accounting records of entriesrelating to the business of theperson liable for tax or any otherperson-- to produce such bookspapers records and other dataand to give testimony

$. to take the /estimony of the personconcerned under oath as may berelevant to the in5uiry

&. to cause revenue officers andemployees to make a anvass of any

revenue district or region

>othing in Section & shall beconstrued as granting the ommissionerthe authority to in5uire into bankdeposits other than as provided forunder sec. ) ,A of the ode.

III. SECTION ,power to makeassessments prescribe additionalre5uirements for tax administrationand enforcement

@. Exa3iatio of retur+ addeter3iatio of tax due!. !fter a return has been filed the

ommissioner or hisrepresentative may authori0ei.the 9xamination of any taxpayer

andii.the !ssessment of the correct

amount of tax+;. A

ailure to file a return shall not

prevent the commissioner fromauthori0ing the examination of any taxpayer+N !ny tax or deficiency tax so

assessed shall be paid uponnotice and demand from theommissioner or hisrepresentative

N !ny return statement ordeclaration %iled in anyauthori0ed office shall not bewithdrawn+ but within threeyears from date of filing the








same may be modifiedchanged or amended+provided that no notice foraudit or investigation of such

return has in the meantimebeen actually served upon thetaxpayer.

.Failure to +u(3it re<uired retur+ adother do*u3et+If a person

i. fails to file a re5uired return orreport at the time prescribed or

ii. willfully or otherwise files afalse or fraudulent return

/he ommissioner shall %ake or!mend the return from

i. his own knowledge orii. from such

information as he can obtainthrough testimony or otherwisewhich shall be prima faciecorrect and sufficient for alllegal purposes

.I5etor),tai!= Sur5eilla*e=Pre+u3ti5e Gro++ Sale+!. ommissioner may at any time

during the taxable year,a order the inventory taking of

goods of any taxpayer or,b may place the business

operations of any person,natural(juridical underobservation or Surveillance

if there is reason tobelieve that such is notdeclaring his correct incomesales or receipts for taxpurposes.

/he findings may be usedas basis for assessing thetaxes and shall be deemed

prima facie correct.

;. ommissioner may prescribe a%inimum amount of grossreceipts sales and taxable base,taking into account the sales andincome of other persons engagedin similar business?i. hen a person has failed to

issue receipts as re5uired bysec.11" ,Invoice re5uirementsfor !/-registered personsand Sec. 2"* ,Issuance of

:eceipts or ommercialInvoices or

ii. hen the books of accountsor records do not correctly

reflect the declarations madeor re5uired to be made in areturnSuch minimum amount shallbe considered correct.

. Ter3iate taxa(le eriod

ommissioner shall declare the taxperiod of a taxpayer /erminated andsend notice to the taxpayer of suchdecision with a re5uest for immediatepayment of the tax when it has come tothe knowledge of the ommissioner?

a that a taxpayer is retiring from

business subject to tax orb is intending to leave the 'hils.

orc to remove his property

therefrom ord to hide or conceal his property

ore is performing any act tending to

obstruct the proceedings forthe collection of tax

D. Pre+*ri(e Real Proert) "alue+

/he ommissioner is authori0ed to?

a. @ivide the 'hils. into different0ones or areas and

b. @etermine the fair market valueof real properties located in each0one or area

7or ta: purposes, the value o% the property shall be hichever ishigher o%a) 7air mar?et value as

determined by theCommissioner; or

b) 7air mar?et value as shon inthe schedule o% values o% the

provincial and city assessors.

. Authorit) to I<uire ito 'a&eo+it

>otwithstanding :.!. 1$K& ,;ankSecrecy 8aw the ommissioner isauthori0ed to in5uire into the ;ankdeposits of?,a a decedent to determine his gross

estate,b a taxpayer who has filed an

application to compromise








payment of tax liability by reasonof financial incapacity

2he ta:payerFs application %or

compromise shall not be considered unless he aives in riting his

privilege under RA -60 and other general or special las. 5uch aiver shall authorie the Commissioner toinBuire into his ban? deposits.

?J.Authorit) to Re!i+ter tax a!et+

,a/he ommissioner shall accreditand :egister individuals andgeneral professional partnershipsand their rep. who prepare andfile tax returns and other papersor who appear before the ;I:

,b/he ommissioner shall createnational and regionalaccreditation boards.

2hose ho are denied accreditation may appeal the sameto the 5ec. *% 7inance ho shallrule on the appeal ithin 96 days

%rom receipt o% such appeal. 7ailureto do so ithin the prescribed

period shall be deemed as approval %or accreditation.

??. Authorit) to Pre+*ri(e AdditioalRe<uire3et+

/he ommissioner may prescribethe manner of compliance with anydocumentary or procedural:e5uirement for the submission orpreparation of financial statementsaccompanying tax returns.

IV.SECTION ,!uthority to @elegate'ower

?9.The Co33i++ioer 3a) dele!ate theower+ 5e+ted i hi3 to

- subordinate officials with ranke5uivalent to @ivision hief orhigher subject tolimitations(restrictions imposedunder the rules and regulations

9O9'/ ,the following powersshall >D/ be delegateda power to :ecommend the

promulgation of rules andregulations by the Sec. of Ainance

b power to Issue rulings of firstimpression or to :everse revoke

modify any existing rule of the;I:

c power to ompromise or !bateany tax liability

provided hoever that theregional evaluation board maycompromise?1. assessments issued by

regional offices involvingdeficiency taxes of '&KKKKKor less and

2. minor criminal violations asmay be determined by therules and regulations

". discovered by regional anddistrict officials

Regional +valuation 4oard iscomposed o% ?i. :egional @irector as hairmanii. !sst. :egional @irectoriii. eads of the 8egal !ssessment

and ollection @iv.iv. :evenue @istrict Dfficer having

jurisdiction over the taxpayer

d power to !ssign or reassigninternal revenue officers toestablishments wherearticles subject to excise taxare kept.

". SECTIONS D= ?@= ?= ?= ? ,Dther'owers?B. @uty to ensure the provision and

distribution of forms receiptscertificates and appliances andthe acknowledgment of payment of taxes (5ec. /)

?@. !uthority to administer oaths and totake testimony (5ec. -)

?. !uthority to make arrests andsei0ures (5ec. 0)

?. !uthority to employ assign orreassign internal revenue officersinvolved in excise tax functions to

establishments where articles








subject to excise tax are producedor kept (5ec. 9)

?. !uthority to assign or reassign

internal revenue officers andemployees of the ;I: to other orspecial duties connected with theenforcement or administration of the revenue laws (5ec. 8)

ARE LEGAL OFFICERS OF T#E 'IR A%T#ORIE&

TO INSTIT%TE APPEAL PROCEE&INGS WIT#O%T

T#E PARTICIPATION OF T#E SOLICITOR

GENERAL0>D. /he institution or

commencement before a proper court of civil and criminal actions and

proceedings arising under the /ax:eform !ct which shall be conducted bylegal officers of the ;I: is not in dispute.!n appeal from such court however isnot a matter of right. It is still theSolicitor 4eneral who has the primaryresponsibility to appear for thegovernment in appellate proceedings.(Commissioner vs. a 5uerte Cigar and Cigarette 7actory, GR No. --1-, <uly -, 66)

SO%RCES OF R E"EN%E

/he following taxes fees andcharges are deemed to be nationalinternal revenue taxes. (5ec. , NIRC)1. Income tax2. 9state and donor3s taxes". alue-added tax$. Dther percentage taxes&. 9xcise taxes). @ocumentary stamp taxes*. Such other taxes as are or hereafter

may be imposed and collected bythe ;ureau of Internal :evenue.

II. NATIONAL TAXATION

A. INCO;E TAXATION

&EFINITIONS

INCO;E TAX 6 tax on all yearly profitsarising from property possessionstrade or business or as a tax on aperson7s income emolumentsprofits and the like (9 C<5 001)

6 tax on incomewhether gross or net. (8 Am. <ur.6/)

INCO;E 6 all wealth which flows into thetaxpayer other than as a merereturn of capital.

CAPITAL 6 resource of person which canbe used in producing goods andservices.

I*o3e Caital

!ll wealth whichflows into thetaxpayer other thanas a mere return of

capital.

Aund or propertywhich can be usedin producing goodsor services

Alow of ealth Aund or property

Source of wealth ealth

R E$%ISITES FOR INCO;E TO 'E TAXA'LE

1. /here must be a gain or profit.2. /he gain must be reali0ed or

received.". /he gain must not be excluded by

law or treaty from taxation.

TESTS ON TAXA'ILIT/ OF INCO;E 1. Flow of Wealth Te+t 6 /he

determining factor for theimposition of income tax iswhether any gain was derivedfrom the transaction.

1. RealiKatio Te+t - unless the

income is deemed Preali0edPthere is no taxable income.

2. E*oo3i*,'eefit Pri*ileTe+t -flow of wealth reali0ed istaxable only to the extent thatthe taxpayer is economicallybenefited.

CRITERIA IN I;POSING INCO;E TAX

1. CitiKe+hi Pri*ile 6 ! citi0en of the 'hilippines is subject to 'hilippineincome tax ,a. on his worldwideincome if he resides in the 'hilippinesor ,b. only on his income from sourceswithin the 'hilippines if he 5ualifies asnonresident citi0en.2. Re+ide*e Pri*ile 6 resident alien

is liable to pay income tax on his income








from sources within the 'hilippines butexempt from tax on his income fromsources outside the 'hilippines.". Sour*e Pri*ile 6 !n alien is subject

to 'hilippine income tax because hederives income from sources within the'hilippines. /hus a nonresident alien isliable to pay 'hilippine income tax on hisincome from sources within the'hilippines such as dividend interestrent or royalty despite the fact that hehas not set foot in the 'hilippines.

CLASSIFICATION OF TAXPA/ERS

Idi5idual+a. citi0ens

,1 resident citi0ens 6RC:

,2 non-resident citi0ens 6NRC:b. aliens

(1) resident aliens 6RA:

(2) non-resident aliens 6NRA:(a) engaged in trade or

business within the 'hils.6NRAET':

(b) not engaged in trade orbusiness within the'hilippines 6NRANET':

Cororatio+

a. @omestic 6&C:b. Aoreign,1 resident foreign corporation

6RFC:,2 non-resident foreign

corporation 6NRFC:E+tate+Tru+t+Parter+hi+

A. IN&I"I&%ALS

W#O ARE TAXA'LE0

1. Re+idet CitiKe2. No,re+idet CitiKe

! non-resident citi8en means aAilipino citi0en?a. who establishes to the

satisfaction of the ommissionerthe fact of his physical presenceabroad with a definite intentionto reside therein+

b. who leaves the 'hilippinesduring the taxable year to resideabroad either as an immigrant

or for employment on apermanent basis+

c. who works and derives incomefrom abroad and whose

employment thereat re5uireshim to be physically presentabroad most of the time duringthe taxable year+

d. who is previously considered as anon-resident and who arrives inthe 'hilippines at anytime duringthe taxable year to residethereat permanently shall beconsidered non-resident for thetaxable year in which he arrivesin the 'hilippines with respect tohis income derived from sources

abroad until the date of hisarrival 5ec. (+), NIRCD

N*2+ !n o5er+ea+ *otra*t worer6OCW: is taxable only on incomederived from sources within the'hilippines. QSec. 2" ,;,R

! +ea3a is considered as anD provided the followingre5uirements are met?

1. receives compensation for servicesrendered abroad as a member of the complement of a vessel+ and

2. such vessel is engaged exclusivelyin international trade.

;ased on the above provisionsthere are three ," types of nonresident citi0ens namely? ,1immigrants+ ,2 employees of a foreignentity on a permanent basis+ and," overseas contract workers.Immigrants and employees of a foreignentity on a permanent basis aretreated as nonresident citi0ens fromthe time they depart from the'hilippines. owever overseascontract workers must be physicallypresent abroad most of the timeduring the calendar year to 5ualify asnonresident citi0ens.

". Re+idet alie ' means an individualwhose residence is within the'hilippines and who is not a citi0enthereof. 5ec. (7, NIRC)D

$. No,re+idet alie e!a!ed itrade or (u+ie++ withi thePhiliie+. 6NRAET':








! non-resident a$ien means anindividual whose residence is notwithin the 'hilippines and who is nota citi0en thereof. 5ec. (G)D

/he term trade or 7usinessincludes the performance of thefunctions of a public office. 5ec. (5)D

/he term trade 7usiness or profession shall not includeperformance of services by thetaxpayer as an employee. 5ec. (CC)D

! non-resident alien individualwho shall come to the 'hilippinesand stay therein for an aggregateperiod of more than 1BK days during

any calendar year shall be deemed anon'resident alien doing business inthe Philippines 5ection (G)notithstanding 5ec. 0(A)()D

&. No,re+idet alie ot e!a!ed itrade or (u+ie++ withi thePhiliie+. 6NRANET':

ONL/ RESI&ENT CITIENS are taxablefor income derived from sources ithinand ithout the Philippines. !ll otherindividual income taxpayers are taxableonly for income derived from sources

ithin the Philippines.

Tax Rate+8 'lease refer to Aex A.

'. CORPORATIONS

W#O ARE TAXA'LE01. &o3e+ti* Cororatio 6 created or

organi0ed in the 'hils. or under itslaw 5ec. (C), NIRCD

2. Re+idet Forei! Cororatio 6engaged in trade or business within

the 'hilippines 5ec. ($), NIRCD 3. No,re+idet Forei! Cororatio 6not engaged in trade or businesswithin the 'hilippines 5ec. (I),NIRCD

A Cororatio I*lude+81. 'artnerships no matter how

created or organi0ed+2. oint-stock companies+3. oint accounts ,cuentas en

participacion$. !ssociations+ or. Insurance companies 5ec. (4),

NIRCD.

Ex*lude+81. 4eneral professional

partnerships+

2. oint venture or consortiumformed for the purpose of undertaking construction projects orengaging in petroleum coalgeothermal and other energyoperations pursuant to an operatingor consortium agreement under aservice contract with the4overnment.

CORPORATIONS EXE;PT FRO; INCO;E

TAXATION 6FOR INCO;E R EALIE& AS S%C#:%N&ER NIRC

1. Tho+e eu3erated uder #ec.3.

9xempt corporations are subjectto income tax on their income fromany of their properties real orpersonal or from any other activitiesconducted for profit regardless o% the disposition made o% such income.

2. With re+e*t to GOCC+= thegeneral rule is that thesecorporations are taxable as anyother corporation except?

a. 4SIS

b. SSSc. 'Id. 'SDe. '!4D: 5ec. 8 (C)D

". Re!ioal or Area #ead<uarter+uder #ec. ))2 6 not subject toincome tax

:egional operating head5uartersunder 5ec. (++) shall pay a tax of 1KC of their taxable income.

ONL/ &O;ESTIC CORPORATIONS aretaxable for income derived from sourcesithin and ithout the 'hilippines. !llother corporate income taxpayers aretaxable only for income derived fromsources ithin the 'hilippines.

Tax Rat!! "lease refer to A""x B.

C. ESTATES AN& TR%STS

ESTATE 6 refers to the mass of propertiesleft by a deceased person.








R %LES ON TAXA'ILIT/ OF ESTATE

hen a person who owns propertydies the following taxes are payableunder the provisions of the income ta:

la ?1. Income tax for individual under Sec.

2$ and 2& ,to cover the periodbeginning anuary to the time of death+

2. 9state income tax under Sec. )K if the estate is under administration orjudicial settlement.

ESTATES %N&ER 4%&ICIAL SETTLE;ENT

A. &uri! the Pede*) of the

Settle3etGeeral Rule8 !n estate underjudicial settlement is subject toincome tax in the same manner asindividuals. Its status is the same asthe status of the decedent prior tohis death.Ex*etio+81. /he entitlement to personal

exemption is limited only to'2KKKK.

2. >o additional exemption isallowed.

". /he distribution to the heirsduring the taxable year of estateincome is deductible from thetaxable income of the estate.Such distributed income shallform part of the respectiveheirs7 taxable income.

here no suchdistribution to the heirs is madeduring the taxable year that theincome is earned and suchincome is subjected to incometax payment by the estate thesubse5uent distribution thereof is no longer taxable on the partof the recipient.

'. TER;INATION OF T#E 4%&ICIAL

SETTLE;ENT 6W#ERE T#E #EIRS STILL

&O NOT &I"I&E T#E PROPERT/:1. If the heirs contribute to the

estate money property orindustry with intention to dividethe profits between(amongthemselves an unregistered

partnership is created and the

estate becomes liable for thepayment of corporate incometax. (+vangelista vs. Collector,GR No. '1119, *ctober 0,

108; *Ja vs. Commissioner, GRNo. '1-, !ay 0, 18)

2. If the heirs without contributingmoney property or industry toimprove the estate simplydivide the fruits thereof between(among themselves aco-ownership is created andindividual income tax is imposedon the income received by eachof the heirs payable in theirseparate and individual capacity.(Pascual vs. Commissioner, GR

No. '8/, *ctober /, 1//;*billos vs. Commissioner, GRNo. '9//, *ctober 1, 1/0)

ESTATES N 'T %N&ER 4%&ICIAL SETTLE;ENT

'ending the extrajudicialsettlement either of the followingsituations may arise?1. If the heirs contribute money

property or industry to the estatewith the intention of dividing theprofits between(among themselvesan unregistered partnership is

created and the estate becomesliable for the payment of corporateincome tax+ or

2. If the heirs without contributingmoney property or industry to theestate simply divide the fruitsthereof between(among themselvesa co-ownership is created andincome tax is imposed on the incomereceived by each of the heirspayable in their separate andindividual capacity.

TR%ST 6 ! right to the property whether

real or personal held by one person forthe benefit of another.

W#EN TR%STS ARE TAXA'LE ENTITIES

1. ! trust the income of which is to beaccumulated

2. ! trust in which the fiduciary may athis discretion either distribute oraccumulate the income.

R %LES ON TAXA'ILIT/ OF T#E INCO;E OF A

TR%ST








1. /he income of the trust for thetaxable year which is to bedistributed to the beneficiaries #

%iling and payment o% ta: lie on the

bene%iciaries.2. /he income of the trust which is to

be accumulated or held for futuredistribution whether consisting of ordinary income or gain from thesale of assets included in thePcorpusP of the estate 6 %iling o% return and payment o% ta: becomethe burden o% the trustee or

%iduciary.+:ceptions?a. In the case of a revocable trust

the income of the trust will be

returned by the grantor.b. In a trust where the income is

held for the benefit of thegrantor the income of the trustbecomes income to the grantor.

c. In the case of trustadministered in a foreigncountry the income of the trust+undiminished by any amountdistributed to the beneficiariesshall be taxed to the trustee.

IRRE"OCA'LE TR%STS ,irrevocable both as

to corpus and as to income 6

/rust itself through the trustee orfiduciary is liable for the payment of income tax. /axed exactly in the sameway as estates under judicial settlementand its status as an individual is that of the trustor. It is entitled to theminimum personal exemption ,'2KKKKand distribution of trust income duringthe taxable year to the beneficiaries isdeductible from the trust7s taxableincome.

R E"OCA'LE TR%STS 6 the trustor not thetrust itself is subject to the payment of income tax on the trust income.

EXE;PTION OF E;PLO/EES> TR%ST 'rovided? 1. the employee7s trust must be part of

a pension stock bonus or profitsharing plan of the employer for thebenefit of some or all of hisemployees+

2. contributions are made to the trustby such employer or suchemployees or both+

". such contributions are made for the

purpose of distributing to suchemployees both the earnings andprincipal of the fund accumulated bythe trust and

$. that the trust instrument makes itimpossible for any part of the trustcorpus or income to be used for ordiverted to purposes other than theexclusive benefit of such employees.(5ec. 964, NIRC)

/ax exemption is likewise to beenjoyed by the i*o3e of the e+io

tru+t+ otherwise taxation of thoseearnings would result in a diminution of accumulated income and reducewhatever the trust beneficiaries wouldreceive out of the trust fund.(Commissioner vs. Court o% Appeals,Court o% 2a: Appeals and GCRetirement Plans, GR No. 106, !arch, 11)

&. PARTNERS#IPS

7 IN&S OF PARTNERS#IP FOR TAX P%RPOSES

%N&ER T#E NIRC1. Geeral Profe++ioal Parter+hi+

6GPP: - formed by persons for?a. the sole purpose of exercising a

common profession andb. no part of the income of which is

derived from engaging in anytrade or business. 5ec. (4),NIRCD.

2. Taxa(le or 'u+ie++ Parter+hi 6!ll other partnerships except

general professional partnerships no

matter how created or organi0ed. Itincludes unregistered joint venturesand business partnerships.

owever joint ventures are nottaxables as corporations when it is+,a undertaking construction projects,b engaged in petroleum coal andother energy operation under aservice contract with thegovernment

+enera$ co-partners!ips +CP2are partnerships which are by lawassimilated to be within the context

of and so legally contemplated as








corporations. /he partnership itself is subject to corporate taxation. /heindividual partners are consideredstockholders and therefore profits

distributed to them by thepartnership are taxable as dividends.

/he taxable income for a taxableyear after deducting the corporateincome tax imposed therein shall bedeemed to have been actually or constructively received by thepartners in the same taxable yearand shall be taxed to them in theirindividual capacity hether actually distributed or not. 5ec. 8("),NIRCD

LIA'ILIT/ OF A PARTNERS#IP1. Geeral Profe++ioal Parter+hi .-

/hey are not sub&ect to income ta: but are re5uired to file returns of their income for the purpose of furnishing information as to theshare of each partner in the net gainor profit which each partner shallinclude in his individual return. /hepartnership shall act as thewithholding agent.

/he net income ,income fordistribution shall be computed in

the same manner as a corporation.@ate of filing of the return is !pril 1&of each year.

2. Taxa(le or 'u+ie++ Parter+hi -/he income tax of this type of 'artnership is computed and ta:ed li?e that o% a corporation. /his kindof partnership like a regularcorporation is also re5uired to file a5uarterly corporate income taxreturn. Ailing and payment of 5uarterly return is within )K daysafter the end of each 5uarter whilethe annual return is on or before!pril 1& of the following year.

LIA'ILIT/ OF A PARTNER

Rule+8?. Share of a arter i !eeral

rofe++ioal Parter+hia. 9ach partner shall report as

gross income ,business incomehis distributed share actually orconstructively received in thenet income of the partnership.

(5ec. 9, NIRC) Q/he same share

shall be subject to creditablewithholding tax of 1KC.R /heyare liable in their separate and individual capacity .

b. Share of a partner in the lossof a general professionalpartnership may be taken by theindividual partner in his returnof income.

c. 9ach partner in a generalprofessional partnership shallreport as gross income hisdistributed share in the netincome of the 4'' based on his

agreed ratio whether he availsof itemi0ed or optional standarddeduction.

d. 'ayments made to a partner of a 4'' for services rendered shallbe considered as ordinary business income subject to Sec.2$! ,9ffective anuary 1 1FB2

9. Share of a arter i Taxa(le or'u+ie++ arter+hia. Share of a partner in the net

income of a taxable or businesspartnership ,dividend shall besubject to a final tax as follows.

• :esident iti0en >on-

resident iti0en and:esident !lien ,2KKK andonward 6 1KC (5ec. -4)

• >on-resident !lien engaged

in trade or business 6 2KC(5ec. 0 A)

• >on-resident alien not

engaged in trade or business

6 2&C (5ec. 04)b. Share of a partner in the lossof a taxable or businesspartnership maybe taken by theindividual partner in his returnof income.

c. 'ayments made to a partner of a business or taxable partnershipfor services rendered shall beconsidered as compensationincome subject to sec. 2$!.

7IN&S OF INCO;E TAXES








%N&ER T#E NIRC

1. >et Income /ax2. Dptional orporate Income tax

". %inimum orporate Income /ax$. Improperly !ccumulated 9arnings

/ax&. 'referential :ates or Special :ates

of Income /ax). 4ross Income /ax*. Ainal Income /axB. Aringe ;enefits /axF. apital 4ains /ax

6?: NET INCO;E TAX

&EFINITION8 %eans gross income lessdeductions and(or personal andadditional exemptions (5ec. , NIRC)

NET INCO;E TAX FOR;%LA

9ntire Incomeess 9xclusions and Income subject

to Ainal /ax ,e.g. 'assiveIncome

4ross Incomeess @eductions ,and(or additional

exemptions if applicable>et /axable Income

!ultiply by /ax :ate ,C

>et Income /ax @ueess /ax redit if any

Tax Still due= if a)

GROSS INCO;E

&EFINITION8 %eans all income derivedfrom whatever source including but notlimited to the following #ec. 2a. ompensation+b. 4ross income from profession trade

or business+

c. 4ains form dealings in property+d. Interests+e. :ents+f. :oyalties+g. @ividends+h. !nnuities+i. 'ri0es and winnings+j. 'ensions+k. 'artner7s share in the net income of

the general professional partnership

See Aex & for detailed discussion

of items.

7 IN&S OF &I"I&EN&S

?. Ca+h ad Proert) &i5ided+Individual /axpayera. Arom @omestic orporations

•: >: :! 6 ?J (5ec.-A)

• >:!9/; 6 9J (5ec. 0A)

• >:!>9/; 6 9 on gross

income (5ec. 04)b. Arom Aoreign orporations

• : >: :! >:!9/; 6 ,

B9 (5ec. -, 0A)

• >:!>9/; 6 9 on gross

income (5ec. 04)

orporate /axpayer

a. Aoreign to @omestic orp. 6 B9(5ec. A)b. @omestic to @omestic orp. 6

Exe3t+ intercorporatedividends (5ec. 8")

c. @omestic to Aoreign orp. -

• :esident Aoreign orp. 6

Exe3t (5ec. / AD 8d)

• >onresident Aoreign orp. 6

? subject to the conditionstated in 5ec. / 4D 0.Dtherwise it shall be taxedat B9. (5ee Commissioner

vs. Procter and Gamble, GRNo. 99//, "ecember ,11)

9. Sto* &i5ided+4eneral rule? Not subject to taxbecause it does not constituteincome+ it represents transfer of surplus to capital account. (5ec.84, 118 NIRC)9xceptions?a. Sec. *"; 1FF* >I:

,1 there is redemption or

cancellation,2 the transaction involves

stock dividends and(3) the <time and manner= of

the transaction makes it<essentially e5uivalent to adistribution of taxabledividends=. ,seeCommissioner vs. Court o%

Appeals, Court o% 2a: Appeals E AN5C*R, GR No.6/089, <an. 6, 111)








b. the recipient is other than theshareholder (4achrach vs.5ei%ert, GR No. '901, *ctober , 106)

c. change in the stockholder7se5uity results by virtue of thestock dividend issuance.

B. Li<uidati! &i5ided+ – hen acorporation distributes all of itsassets in complete li5uidation ordissolution the gain reali0ed orloss sustained by thestockholder whether individualor corporation is taxableincome or deductible loss as thecase may be. (5ec. 8A)

! li5uidating dividend is nota dividend income. /hetransaction is considered a saleor exchange of propertybetween the corporation and thestockholder.

EXCL%SIONS FRO; GROSS INCO;E

N*2+ Ender the 1FF* /ax ode theterm <exclusions= refers to items thatare not included in the determination of gross income either because?

,a they represent return of capital

or are not income gain or profit+ or,b they are subject to another kind

of internal revenue tax+ or,c they are income gain or profit

that are expressly exempt form incometax under the constitution tax treaty/ax ode or a general or special law.

1. Pro*eed+ of life i+ura*e paid by

reason of the death of the insured tohis estate or to any beneficiary,individual partnership orcorporation but not a transferee fora valuable consideration directly orin trust.

N*2+ ? if the proceeds areretained by the insurer the interestthereon is taxable+

2. Retur of i+ura*e re3iu3MN*2+ ? if such amounts ,when addedto amounts already received beforethe taxable year under suchcontracts exceed the aggregatepremiums or considerations paid

,whether or not paid during the

taxable year then the excess shallbe included in the gross income.owever in the case of a transfer fora valuable consideration by

assignment or otherwise of a lifeinsurance endowment or annuitycontract or any interest thereinonly the actual value of suchconsideration and the amount of thepremiums and other sumssubse5uently paid by the transfereeare exempt from taxation. >o loss isreali0ed on surrender of a lifeinsurance policy for its surrendervalue.

3. Gift= (e<ue+t or de5i+e

4ifts be5uests and devises,which are subject to estate or gifttaxes are excluded but not theincome from such property. If theamount received is on account of services rendered whetherconstituting a demandable debt ornot or the use of the opportunity touse of capital the receipt is income(Pirovano vs. Commissioner, - 5CRA/)

#. Co3e+atio for er+oal iHurie+or +i*e++= whether () +uit ora!ree3etN*2+ ? /he phrase <personalinjuries= should be given arestrictive meaning to refer only tophysical injuries. /he theory for thisis that recoupment on account of such losses is not income since it isnot derived from capital from laboror from both combined. !nd thefact that the payment of compensation for such loss was

voluntary does not change itsexempt status. It was in factcompensation for a loss whichimpaired petitioner7s capital.

. I*o3e exe3t uder Treat)M

$. Retire3et (eefit+= e+io=!ratuitie+= et*.a. those derived under :.!. *)$1

,pertains to private firmswithout retirement trust fund+

b. those received by officials and

employees of private employers








in accordance with a reasonableprivate benefit plan+ReBuisites?,1 in the service of the same

employer for at least 1Kyears+

,2 at least &K years old+," must be availed of only once,$ plan approved by the ;I:

,R.R.'1/+c. separation pay because of

death sickness or otherphysical disability or for anycause beyond the control of theofficial or employee ,e.g.retrenchment redundancy orcessation of business+

K%or any cause beyond thecontrol o% said o%%icial or employee 6 connotesinvoluntariness on the part of the official or employee+separation must not be asked orinitiated by the official oremployee.

d. social security benefitsretirement gratuities pensionsand other similar benefitsreceived by citi0ens and alienswho come to reside permanently

here from foreign sourcesprivate or public+

e. benefits due to residents underthe laws of the E.S.administered by the E.S.eterans !dministration

f. SSS benefits+ andg. 4SIS benefits.

%. ;i+*ellaeou+ ite3+a. 'assive income derived in the

'hilippines by?,1 Aoreign governments+,2 Ainancing institutions

owned controlled orenjoying refinancing fromforeign governments

," International or regionalfinancial institutionsestablished by foreigngovernments

b. Income derived from anypublic utility or from theexercise of any governmentalfunction+

c. 'ri0es and awards madeprimarily in recognition of religious charitable scientificeducational artistic literary or

civic achievementReBuisites?

,1 recipient was selectedwithout any action on hispart+ and

,2 recipient is not re5uired torender substantial futureservices.

d. 'ri0es and awards granted toathletes in sports competitionsand sanctioned by their nationalsports association +

e. 1"th month pay and other

benefits up to '"KKKK.KK+f. 4SISSSS %edicare and union

dues of individuals+g. 4ains derived from debt

securities with a maturity of more than & years+

h. 4ains from redemption of sharesin %utual Aund.

EXCLUS#ONS $S. %E%UCT#ONS

Ex*lu+io+Se*. B96':

&edu*tio+Se*. B@

:efer to flow of wealth which are nottreated as part of gross incomebecause?,1 exempted by thefundamental law+ ,2exempted by statute+," do not comewithin the definitionof income

:efer to the amountswhich the law allowsto be subtractedfrom gross income inorder to arrive atnet income

'ertain to the

computation of grossincome

'ertain to the

computation of thenet income

Something earned orreceived by thetaxpayer which donot form part of grossincome

Something spent orpaid in earning of gross income

&E&%CTIONS

&EFINITION? Items or amounts which the

law allows to be deducted from gross








income in order to arrive at the taxableincome.

'ASIC PRINCIPLES GO"ERNING &E&%CTIONS

a. /he taxpayer seeking a deductionmust point to some specificprovisions of the statute authori0ingthe deduction+ and

b. e must be able to prove that he isentitled to the deduction authori0edor allowed. (Atlas Consolidated !ining E "ev. Corp. vs.Commissioner, GR No. '91,

<anuary , 1/)c. !ny amount paid or payable which is

otherwise deductible from or takeninto account in computing gross

income or for which depreciation oramorti0ation may be allowed shallbe allowed as deduction only if it isshown that the tax re5uired to bededucted and withheld therefromhas been paid to the ;I:. 5ec.-(=), NIRCD

N*2+ @eductions for income taxpurposes partake of the nature of taxexemptions+ hence if tax exemptionsare to be strictly construed then itfollows that deductions must also be

strictly construed.

TAXPA/ERS W#O CANNOT A"AIL OF

&E&%CTIONS FRO; GROSS INCO;E

1. iti0ens and resident aliens whoseincome is purely compensationincome ,except for premiumpayments on health and(orhospitali0ation insurance+

2. >on-resident aliens not engaged intrade or business in the 'hilippines+and

". >on-resident foreign corporation

CLASSES OF &E&%CTIONS

?. Idi5idual+a. with gross compensation income

from employer-employeerelationship only,1 premium payments on health

and(or hospitali0ationinsurance

,2 personal additionalexemptions

b. gross income from business or

practice of profession

,1 Dptional Standard @eduction,DS@

,2 Itemi0ed deductions," premium payments on health

and(or hospitali0ationinsurance

,$ personal additionalexemptions

9. Cororatio+

• Itemi0ed @eductions

7 IN&S OF &E&%CTIONS

a. Otioal +tadard dedu*tio+ 6OS&:–1KC of the gross income.

/he DS@ may be availed of only by individuals ,except

nonresident alien who are notpurely compensation incomeearners.

b. Per+oal ad additioal exe3tio+!vailable only to individuals

,business income and compensationincome earners.

>:!9/; may be entitled topersonal exemptions ,only subjectto reciprocity i.e.a. the country of which he is a

subject or citi0en has an income

tax law+ andb. the income tax law of his

country allows personalexemption to citi0ens of the'hilippines not residing thereinbut deriving income therefromand not to exceed the amountallowed in >I:.

/he personal exemption shall bee5ual to that allowed by the incometax law of his country to a citi0en of the 'hilippines not residing thereinor the amount provided in the >I:whichever is lower.

Idi5idual+ not etitled to the+eexe3tio+8a. >on-resident !lien not engaged

in trade or businessb. !lien individual employed by

:egional or !rea ead5uarters of %ultinational ompanies

c. !lien individual employed byDffshore ;anking Enits








d. !lien individual employed by'etroleum Service ontractorand Subcontractor

c. Ite3iKed dedu*tio+a. ordinary and necessary

expensesb. interestsc. taxesd. lossese. bad debtsf. depreciation of property+g. depletion of oil and gas wells

and mines+h. charitable and other

contributions+i. research and development+

j. pension trust contributions ofemployees+ and

k. premium payments on healthand(or hospitali0ation insurance.,/his is the only deduction whicha compensation income earnermay claim as a deduction.

d. Se*ial dedu*tio+a. private proprietary educational

institutions and hospitals thatare non-profit (5ec. - A, )

b. insurance companies (5ec. 8)

c. estates and trusts (5ec. 9)

PERSONAL EXE;PTIONS

A. A3out+ of Per+oal Exe3tio+9#ec. 5 N*RC:1. P 9J=JJJ 6 Single individual or

married individual judiciallydecreed legally separatedwithout 5ualified dependentchildren.

2. P 9=JJJ 6 ead of the family or

married individual judiciallydecreed legally separatedwith 5ualified dependentchildren.

". P B9=JJJ 6 Aor eac! legallymarried individual.

#ead of the Fa3il)

1. Enmarried or legally separated

person with one or both parentsor one or more brothers orsisters or one or morelegitimate recogni0ed natural or

legally adopted children living

with and dependent upon thetaxpayer for their chief support+andKChie% support means more

than one-half of there5uirements for support.

2. here such brother ( sister or

children are not more than 21years of age unmarried and notgainfully employed or wheresuch dependents regardless of age are incapable of self 6support because of mental orphysical defect.

'arents brothers sisters and seniorciti0en with the tax payer whether

relative or not may 5ualify thetaxpayer to the personal exemption of '2&KKK as head of the family but not tothe additional e:emption o% P/,666 .

'. Additioal Exe3tio for&eedet+ 9#ec. 5 N*RC:' BKKK 6 Aor each of the 5ualified

dependent children notexceeding four ,$ innumber.

/he additional exemption refersonly to 5ualified dependent childrensuch as legitimate recogni0ed naturalillegitimate and legally adopted.

/he proper claimant of theadditional exemption is the husbandbeing the head of the family exceptunder the following cases?

1. usband is unemployed2. usband is working abroad like

an DA or a seaman". usband explicitly waived his

right of the exemption in favorof his wife in the withholding

exemption certificate.

! Seior CitiKe is?1. any

resident citi0en of the'hilippines

2. at leastsixty )K years old includingthose who have retired fromboth government offices andprivate enterprises and

". has anincome of not more than Sixty

thousand pesos ,)KKKK per








annum subject to the review of the >ational 9conomic@evelopment !uthority ,>9@!every three years.

'arents and dependents 5ualifythe taxpayer to the personalexemption of '2&KKK as head of thefamily but not to the additionale:emption o% P/,666 .

N*2+ >:!9/; may deduct personalexemption ,not additionalexemption but only to the extentallowed by his country to Ailipinosnot residing therein and shall notexceed the aforementioned

amounts. >:!>9/; cannot claimany personal or additionalexemptions.

C. Cha!e of Statu+ 9#ec. 5 N*RC:1. If the taxpayer should marry or

should have additionaldependents during the taxableyear he may claim thecorresponding exemptions in fullfor such year.

2. If the taxpayer should die duringthe taxable year his estate may

claim the correspondingexemptions as if he died at theclose of such year.

". If the spouse or any dependentshould die or any dependentshould marry or become twenty-one years old during the year orshould become gainfullyemployed the taxpayer mayclaim the exemptions as if thespouse or dependent died or asif such dependent marriedbecame twenty one years old orbecame gainfully employed atthe close of such year.

4. Aor any other event and for

which there are no specific rulesapplicable from the above-mentioned the status of thetaxpayer at the end of the yearshall determine his exemptions.(strictly construed against theta:payer)9xamples?

• became legally separated 6

can only claim ' 2KKKK

• 2& years old child became

incapacitated 6 cannot claimadditional exemption

ITE;IE& &E&%CTIONS

A. OR&INAR/ AN& NECESSAR/EXPENSES

NECESSAR/ EXPENSE 6 appropriate andhelpful in the development of taxpayer3sbusiness and are intended to minimi0elosses or to increase profits. /hese arethe day-to-day expenses.OR&INAR/ EXPENSE 6 normal or usual inrelation to the taxpayer7s business and

the surrounding circumstance.

R E$%ISITES OF '%SINESS EXPENSE TO 'E

&E&%CTI'LE

1. ordinary and necessary+2. paid or incurred w(in the taxable

year+". paid or incurred in carrying on a

trade or business+$. substantiated with official receipts

or other ade5uate records.&. if subject to withholding taxes proof

of payment to the ;ureau of Internal

:evenue must be shown.). must be reasonable ,when the

expense is not lavish extravagant orexcessive under the circumstances

*. must not be contrary to law publicpolicy or morals.

N*2+ hile illegal income will formpart of income of the taxpayer expenseswhich constitute bribe kickback andother similar payment being against lawand public policy are not deductiblefrom gross income. (5ubsec. A, , c)

CAPITAL EXPEN&IT%RE 6 !n expenditurethat benefits not only the current periodbut also future periods. It is notdeductible but depreciable e:cept if the taxpayer is a non-profit proprietaryeducational institution which may electeither to deduct the capital expense ordepreciate it.

See Aex E 6 ;usiness 9xpenses








See Aex F 6 eiling on

<9ntertainment !musement and:ecreational 9xpenses=

'. INTEREST

INTEREST 6 shall refer to the payment forthe use or forbearance or detention of money regardless of the name it iscalled or denominated. It includes theamount paid for the borrower3s use ofmoney during the term of the loan aswell as for his detention of money afterthe due date for its repayment.

R E$%ISITES FOR &E&%CTI'ILIT/ 6RE". REG.NO. ?B,9JJJ:

1. /here must be an indebtedness+2. /here should be an interest

expense paid or incurred uponsuch indebtedness+

". /he indebtedness must be that of the taxpayer+

$. /he indebtedness must be connectedwith the taxpayer3s trade businessor exercise of profession+

&. /he interest expense must have beenpaid or incurred during the taxableyear+

). /he interest must have beenstipulated in writing+

*. /he interest must be legally due+B. /he interest arrangement must not

be between related taxpayers+F. /he interest must not be incurred to

finance petroleum operations+ and1K. In case of interest incurred to

ac5uire property used in tradebusiness or exercise of professionthe same was not treated as acapital expenditure.

11. /he interest is not expressly

disallowed by law to be deductedfrom gross income of the taxpayer.

R %LES ON &E&%CTI'ILIT/ OF INTEREST

EXPENSE

Geeral Rule - In general the amount of interest expense paid or incurred withina taxable year of indebtedness inconnection with the taxpayer3s tradebusiness or exercise of profession shallbe allowed as a deduction from thetaxpayer3s gross income.

Li3itatio - /he amount of interestexpense paid incurred by a taxpayer inconnection with his trade business orexercise of a profession from an existing

indebtedness shall be reduced by anamount e5ual the following percentagesof interest income earned which hadbeen subjected to final withholdingdepending on the year when the interestincome earned vi0?

"BC - beginning anuary 1 2KKK andthereafter

Ai3 of Li3itatio8 /o discourage so-called <back-to-back= loans where ataxpayer secures a loan from a bankturns around and invests the loan

proceeds in money market placements.;y imposing a limit as to the amount of interest expense that can be deductedfrom gross income the previous practiceof tax arbitrage was absolutely nullified.

Tax Ar(itra!e 6 is a method of borrowingwithout entering into a debtor(creditorrelationship often to resolve financingand exchange control problems. In taxcases back-to-back loan is used to takeadvantage of the lower of tax oninterest income and a higher rate of tax

on interest expense deduction.

Illu+tratio8Dn une 1 2KKK ompany O has?

1. Dbtained a loan from !; Ainancingorporation in connection with theoperation of its business and itsinterest expense on the loanamounted to ' 12KKKK.

2. @eposit account in @9A ;ank andderived interest income thereof amounting to '2KKKKK on which thefinal tax of '$KKKK has beenwithheld.

!ssume that ompany O7s netincome before the deduction of interest expense is '&KKKKK.

/he deductible expense shall becomputed as follows?

/ear 9JJJ

>et Income beforeinterest expense '&KKKKK

ess Interest 9xpense '12KKKK








ess "BC of interestincome from deposit,"BC x '2KKKKK *)KKK

&edu*ti(le Itere+t

Exe+e @@=JJJ/axable Income '$&)KKK

%&'t*+ #"t,!t Ex-"!1. Interest on taxes such as those paid

for deficiency or delin5uency sincetaxes are considered indebtedness,provided that the tax is adeductible tax except in the case of income tax. owever finespenalties and surcharges on accountof taxes are not deductible. 2he

interest on unpaid business ta: shallnot be sub&ected to the limitationon deduction.

2. Interest paid by a corporation onscrip dividends

". Interest-on deposits paid byauthori0ed banks of the 4ang?o5entral ng Pilipinas to depositorsif it is shown that the tax on suchinterest was withheld.

$. Interest paid by a corporate taxpayerwho is liable on a mortgage upon realproperty of which the said

corporation is the legal or e5uitableowner even though it is not directlyliable for the indebtedness.

N 'N ,&E&%CTI'LE INTEREST EXPENSE

1. !n individual taxpayer reportingincome on the cash basis incurs anindebtedness on which an interest ispaid in advance through discount orotherwise?

• allowed as a deduction in the

year the indebtedness is paid

•

if the indebtedness is payable periodic amortiation on theamount of interest whichcorresponds to the amount of the principal amorti0ed or paidduring the year shall be allowedas deduction in such taxableyear.

2. Interest paid on indebtednessbetween related taxpayer

". If the indebtedness is incurred tofinance petroleum exploration

$. Interest on preferred stock which

in reality is dividend

&. Interest on unpaid salaries andbonuses

). Interest calculated for cost keepingon account of capital or surplus

invested in business which does notrepresent charges arising underinterest-bearing obligation.

*. Interest paid when there is nostipulation for the payment thereof.

OPTIONAL TREAT;ENT OF INTEREST EXPENSE

!t the option of the taxpayerinterest incurred to acBuire property used in trade or business may beallowed as a deduction or treated ascapital e:penditure. 5ec - (4)(),NIRCD

C. TAXES

/axes mean TAXES PROPER= andtherefore no deductions are allowed for?. interest. surcharges. penalties or fines incident to

delin5uency (5ec. /6, Rev. Reg. )

R E$%ISITES FOR &E&%CTI'ILIT/

1. must be in connection withtaxpayer7s business+

2. tax must be imposed by law on andpayable by taxpayer ,direct tax+and

". paid or incurred during the taxableyear.

TAXES N 'T &E&%CTI'LE

1. income tax+2. estate and donor7s tax+". special assessments+$. excess electric consumption tax+&. foreign income tax war profits and

excess profits tax if the taxpayermakes use of tax credit+ and

). final taxes being in the nature of income tax.

N*2+ /axes allowed as deductionswhen refunded or credited shall beincluded as part of gross income in theyear of receipt to the extent of theincome tax benefit of said deduction.,2a: 4ene%it Rule

Aor >:!9/; and :A taxes paid or

incurred are allowed as deductions only








if and to the extent that they areconnected from income within the'hilippines.

EXCEPTIONS to re5uirement that onlysuch persons on whom the tax isimposed by law can claim deductionthereof?1. /axes of shareholder upon his

interest as such and paid by thecorporation without reimbursementfrom him can be claimed by thecorporation as deduction.

2. ! corporation paying the tax for the

holder its bonds or other obligationcontaining a tax-free covenantclause cannot claim deduction for

such taxes paid by it pursuant tosuch covenant.

TAX CRE&IT

&EFINITION8 right of an income taxpayerto deduct from income tax payable theforeign income tax he has paid to hisforeign country subject to limitation.

W#O CAN CLAI; TAX CRE&IT

1. resident citi0ens of the 'hilippines2. resident aliens under the principle of

reciprocity". domestic corporations which include

partnerships except generalprofessional partnership

$. beneficiaries of estates and trusts&. members of beneficiaries of local

partnerships

W#O ARE N 'T ENTITLE& TO TAX CRE&IT

1. non-resident citi0ens2. resident aliens if without

reciprocity

". resident aliens whose income isderived solely from sources withinthe 'hilippines

$. foreign corporations ,resident andnon-resident

FOR;%LA FOR CO;P%TING LI;ITATION

?. Per *outr) li3itatio /axable income from foreign country O 'hil. M /ax redit

/axable income income tax 8imitfrom all sources

9. O5er,all li3itatio /axable income from outside sources O 'hil. M /ax redit/axable income income tax 8imit from all sources

2he alloable ta: credit is the Kloer amount beteen the ta: creditcomputed under No. and No. .

W#EN CRE&IT FOR TAXES ;A/ 'E TA7EN

/he credit for taxes provided bySection "K,," to ,F may ordinarily betaken either in the return for the year inwhich the taxes accrued or on which thetaxes were paid dependent uponwhether the accounts of the taxpayerare kept and his returns filed upon theaccrual basis or upon cash receipts anddisbursements basis.

LI;ITATIONS ON CRE&IT FOR FOREIGN TAXES

1 /he amount of credit in respect tothe taxes paid or accrued to anycountry shall not exceed the sameproportion of the tax against whichsuch credit is taken which thetaxpayer7s net income from sourceswithin such country taxable under

/itle II ,income /ax bears to hisentire net income for the sametaxable year+ and

2 /he total amount of the credit shallnot exceed the same proportion of the tax against which such credit istaken which the taxpayer7s netincome from sources without the'hilippines taxable under /itle II,Income /ax bears to his entire netincome for the same taxable year.

&. LOSSES

LOSSES – refer to such losses which donot come under the category of baddebts inventory losses depreciationetc. and which arise in taxpayer3sprofession trade or business.


1. !ctually sustained during the taxableyear

2. onnected with the trade businessor profession




http://for.the.holder.its.bonds/








". 9videnced by a close and completedtransaction

$. >ot compensated for by insurance orother form of indemnity

&. >ot claimed as a deduction forestate tax purposes

). >otice of loss must be filed with the;ureau of Internal :evenue ithin-0 days %rom the date o% discovery of the casualty or robbery theft orembe00lement.

N*2+ /he taxpayer7s failure to record inhis books the alleged loss proves thatthe loss had not been suffered hencenot deductible. (City umber vs."omingo and Court o% 2a: Appeals, GR

No. '/9, <anuary 6, 19-)

CATEGOR/ AN& T/PES OF LOSSES

?. OR&INAR/ LOSSES

a. Incurred in trade or business orpractice of profession

• Net operatin $oss carry-over N'&C'2

:efers to the excess of

allowable deductions over grossincome of the business for anytaxable year which had notbeen previously offset as

deduction from gross income. an be carried over as a

deduction from gross income forthe next " consecutive yearsimmediately following the yearof such loss.

Aor mines other that oil and

gas well net operating lossincurred in any of the first tenyears of operation may becarried over for the next &years.

ReBuirements

,1 /he taxpayer was notexempt from income tax inthe year of such netoperating loss+

,2 /he loss was not incurred ina taxable year during thetaxpayer was exempt fromincome tax+ and

," /here has been nosubstantial change in the

ownership of the business orenterprise./here is no substantialchange in the ownership of

the business when?(a) not less than *&C in

nominal value of theoutstanding issued sharesis held by or on behalf of the same persons+ or

(b) not less than *&C of thepaid up capital is held byor on behalf of the sameperson.

N*2+ /he " year period shallcontinue to run notwithstanding

that the corporation paid its taxesunder %I/ or that the individualavailed the 1KC DS@.

See Aex S for illustration.

b. Df property connected with the

trade business or profession if the loss arises from firesstorms shipwreck or othercasualties or from robberytheft or embe00lement.6?: Total de+tru*tio

/he replacement cost torestore the property to itsnormal operating conditionbut in no case shall thedeductible loss be more thanthe net book value of theproperty as a wholeimmediately before casualty.

69: Partial &e+tru*tio/he excess over the net

book value immediatelybefore the casualty should

be capitali0ed subject todepreciation over theremaining useful life of theproperty.

9. CAPITAL LOSSES 6LOSSES ARE &E&%CTI'LE

ONL/ TO T#E EXTENT OF CAPITAL

GAINS:a. 8osses from sale or exchange of

capital assetsb. 8osses resulting from securities

becoming worthless and whichare capital assets.








c. 8osses from short sales of property.

d. 8osses due to failure to exerciseprivilege or option to buy or sell

property.

B. SPECIAL 7 IN&S OF LOSSES

a. ;aerin $osses - deductible only to

the extent of gain or winnings. 5ec.- (")(9)D; deemed to apply only toindividuals

b. &osses on <as! sa$es of stoc=s - not

deductible because these areconsidered to be artificial loss.

;as! sa$es 6 a sale or otherdisposition of stock or securitieswhere substantially identicalsecurities are ac5uired or purchasedwithin )1-day period beginning "Kdays before the sale and ending "Kdays after the sale. 5ec. /D

Geeral rule8 8osses from wash salesare not deductible.Ex*etio8 hen the sale is made bya dealer in stock or securities andwith respect to a transaction made inthe ordinary course of the business of

such dealer losses from such sale isdeductible.Ele3et+ of Wa+h Sale+8,1 /he sale or other disposition of

stock resulted to a loss+,2 /here was an ac5uisition or

contract or option for ac5uisitionof stock or securities within "Kdays before the sale or "K daysafter the sale+ and

," /he stock or securities sold weresubstantially the same as thoseac5uired within the )1-day

period.

c. A7andonment $ossesin petroleum operation and producingwell.,1 In case a contract area where

petroleum operations areundertaken is partially or whollyabandoned all accumulatedexploration and developmentexpenditures pertaining theretoshall be allowed as a deduction.

,2 In case a producing well is

abandoned the unamorti0ed cost

thereof as well as theundepreciated cost of e5uipmentdirectly used therein shall beallowed as deduction in the year

the well e5uipment or facility isabandoned.

d. &osses due to vo$untary remova$ of 7ui$din incident to renewal orreplacements - deductible expensefrom gross income.

e. &oss of usefu$ va$ue of capita$assets due to charges in businessconditions - deductible expense onlyto the extent of actual loss sustained,after adjustment for improvement

depreciation and salvage value

f. &osses from sa$es or exc!anes of property 7et<een re$ated taxpayers -losses of this nature is notdeductible but gains are taxable.

g. &osses of farmers - if incurred in theoperation of farm business it isdeductible.

!. &oss in s!rin=ae in va$ue of stoc= 6if the stock of the corporation becomesworthless the cost or other basis may bededucted by the owner in the taxableyear in which the stock of itsworthlessness is made. !ny amountclaimed as a loss on account of shrinkagein value of the stock through fluctuationin the market or otherwise cannot bededucted from gross income.

E. 'A& &E'TS

'A& &E'TS – shall refer to those debtsresulting from the worthlessness oruncollectibility in whole or in part of amounts due the taxpayer by othersarising from money lent or fromuncollectible amounts of income fromgoods sold or services rendered.


1. 9xisting indebtedness due to thetaxpayer which must be valid and

legally demandable+








2. onnected with the taxpayer3strade business or practice of profession+

". %ust not be sustained in a

transaction entered into betweenrelated parties+

$. !ctually ascertained to be worthlessand uncollectible as of the end of the taxable year.+ and

&. !ctually charged off in the books of accounts of the taxpayer as of theend of the taxable year.

E$%ITA'LE &OCTRINE OF TAX 'ENEFIT ! recovery of bad debts previously

deducted from gross income constitutestaxable income if in the year the

account was written off the deductionresulted in a tax benefit. (2a: 4ene%itRule)

Illustrationase ! ase ; ase

>etincome,lossbeforewrite offfor baddebts

'1KKKK ,' FKKK ' &KKK

8ess?!ccountswritten off as baddebts "KKK 2KKK

)KKKAinal >etIncome,8oss ' *KKK ,'11KKK ,'1KKK;ad debtsrecoveryin a subse-5uent year

"KKK

2 KKK

) KKKTAXA'LEINCO;Euo the(ad de(t

re*o5er) PB=JJJ

P , J , P=JJJ

ASCERTAIN;ENT OF WORT#LESSNESS

• 'roof of /wo Aacts?

1. taxpayer did in fact ascertain thedebt to be worthless in the yearfor which deduction is sought

2. that in so doing he acted in good

faith. (Collector vs. GoodrichInternational Rubber, GR No. '90, "ec. , 198)

• @epends upon the particular facts and

the circumstances of the case.

• 4ood faith does not re5uire that the

taxpayer be an <incorrigible optimist=but on the other hand he may not beunduly pessimistic.

F. &EPRECIATION

&EPRECIATION 6 the gradual diminution inthe service or useful value of tangibleproperty due from exhaustion wear andtear and normal obsolescence.

/he term also applies toamorti0ation of intangible assets theuse of which in trade or business i s o% limited duration.


1. /he allowance for depreciationmust be reasonable.

2. It must be for property use oremployment in trade or business orout of its not being usedtemporarily during the year.

". /he allowance must be charged off within the taxable year.

$. Schedule on the allowance must beattached to the return.

PROPERT/ #EL& '/ ONE PERSON FOR LIFE

WIT# T#E R E;AIN&ER TO ANOT#ER PERSON

/he deduction shall be computed asif the life tenant was the absolute ownerof the property and as such the expenseshall accrue to him.

PROPERT/ #EL& IN TR%ST

!llowable deduction shall beapportioned between the incomebeneficiaries and the trustees inaccordance with the pertinent provisionsof the instrument creating or in theabsence of such provisions on the basis

of the trust income allowable to each.

;ET#O&S OF &EPRECIATION

/he term Preasonable allowancePshall include ,but not limited to anallowance computed in accordanceith the regulations prescribed by the@epartment of Ainance under any of thefollowing methods.1. Straight-line method2. @eclining-balance method". Sum of the years-digit method$. !ny other method which may be

prescribed by the @epartment of








Ainance upon recommendation of the ommissioner of Internal:evenue.

;ET#O&S OF &EPRECIATION7id For3ula

1Straight-line cost- salvage valueestimated life

2@ecliningbalance

cost 6 depreciation x :ateestimated life

"Sum of the yearsdigits ,SH@

nth period x cost- salvage SH@

Illustration ! machine is used in themanufacturing department of orporation ! compute the depreciationper annum with the following facts?ost M '1&KKK Salvage

alueM '&KKK

1. 5traight ine !ethod with estimatedlife M & years1&KKK 6 &KKK M '2KKK & years

2. "eclining balance with rate of 2KKCHear 1? 1&KKK 6 K x 2KKC M ')KKK &Hear 2?1&KKK6)KKK x 2KKC M'")KK &

. 5um o% the years digitsSH@ for & years M &T$T"T2T1 or 1&Hear 1? &(1& x ,1&KKK 6 &KKK

M '"""".""Hear 2? $(1& x ,1&KKK 6 &KKK

M '2))).)*

AGREE;ENT AS TO %SEF%L LIFE ON W#IC#

&EPRECIATION R ATE IS 'ASE&

/he ;ureau of Internal :evenue and

the taxpayer may agree in writing on theuseful life of the property to bedepreciated. /he agreed rate may bemodified if justified by facts orcircumstances. /he change shall not beeffective before the taxable year onwhich notice in writing by certified mailor registered mail is served by the partyinitiating.SPECIAL T/PES OF &EPRECIATION

1. 'etroleum Dperations

• @epreciation of all properties

directly related to production of

petroleum shall be allowedunder straight-line ,S8 ordeclining balance ,@; method

• %ay shift from @; to S8 method

• Eseful life? 1K years or shorterlife as allowed by theommissioner

• Eseful life of property not

directly related to production? &years under straight line method

2. %ining Dperations

• @epreciation on all properties in

mining operations other thanpetroleum operations at thenormal rate if expected life isless than 1K years.

• If expected life is more than 1K

years depreciation shall be anynumber of years between &years and the expected life.

". @epreciation deductible by non-resident aliens engaged intrade(business or non-residentcorporation

a. Dnly when such property is

located in the Philippines.

G. &EPLETION OF OIL AN& GAS

WELLS AN& ;INES

&EPLETION - exhaustion of naturalresources as in mines oil and gaswells. /he natural resources are called<wasting assets=. !s the physical unitsrepresenting such resources areextracted and sold such assets movetowards exhaustion.

#nown as cost of depletionallowance for mines oil gas wells andother natural deposits starting calendaryear 1F*) and fiscal year beginning uly11F*&

TO W#O; ALLOWE&

Dnly mining entities owningeconomic interest in mineral deposits.

+conomic interest means interest inminerals in place investment therein orsecured by operating or contractagreement for which income is derivedand return of capital expected from theextraction of mineral.








%ere economic or pecuniaryadvantage to be derived by productionby one who has no capital investment inthe mineral deposit does not amount to

economic interest.

FEAT%RES

1. Intangible 9xploration anddevelopment drilling cost inpetroleum exploration shall betreated either as?a. revenue expenditures+ orb. capital expenditures

2. /he total amount deductible forexploration and developmentexpenditures shall not exceed &KC of net income from mining operation.

/he excess shall be carried forwardto the succeeding year until fullydeducted.

#. C#ARITA'LE AN& OT#ER CONTRI'%TIONS

TAX TREAT;ENT

A. &edu*ti(leI Full

'. &edu*ti(leSu(He*t To Li3itatio

?: :ecipient is?,a 4overnment of

the'hilippines+

,b !ny of itsagencies orpoliticalsubdivisions+or

,c !ny fully-ownedgovernmentcorporation

For riorit)

a*ti5it) i81. Science+2. 9ducation". ulture$. ealth&. 9conomic

@evelopment). uman

Settlement*. Houth and

Sports@evelopment

?: :ecipient is?,a 4overnment of

the 'hilippines+,b !ny of its

agencies orpoliticalsubdivisions

Aor a non-priorityactivity in any of theareas mentioned in !and exclusively for apublic purpose.

9: :ecipient is a

foreign or

9: >on-government

organi0ations

internationalorgani0ation withan agreementwith the'hilippine

4overnment ondeductibility orin accordancewith special law.

B: :ecipient is anaccredited non-governmentorgani0ationorgani0ed( operatedfor ,purposes?

B: :ecipient is anaccredited domesticcorporation orassociationorgani0ed(operatedfor ,purposes?

,a Scientific+,b 9ducational+,c ultural+,d haracter

building(youthand sportsdevelopment

,e haritable,f Social welfare,g ealth,h :esearch

Ad +ati+f)i! thefollowi!*oditio+8

1. /he donationmust be utili0ednot later thanthe 1&th day ofthe "rd monthfollowing theclose of itstaxable year.

2. /headministrativeexpense must not

exceed "KC oftotal expenses.

". Epon dissolutionassets must bedistributed toanother non-profit domesticcorporation or tothe state.

,a Scientific,b 9ducational

+,c ultural+,d Houth and

sportsdevelopment

,e haritable,f Social

welfare(g) Religious(h) Rehabilitati

on o% 3eterans

If the conditionsin /able ! is notcomplied with?

Su(He*t toli3itatio8

,a Individual -1KC taxableincome fromtradebusiness orprofession

beforecontribution

,b orporation- &C taxableincome fromtradebusiness orprofessionbeforecontribution









1. /he contribution or gift must beactually paid.

2. It must be given to the organi0ationsspecified in the code.". /he net income of the institution

must not inure to the benefit of anyprivate stockholder or individual.

"AL%ATION

haritable contribution of property other than money shall be based on theac5uisition cost of said property.

I. RESEARC# AN& &E"ELOP;ENT6R&:

TAX TREAT;ENT +ither as

?. Re5eue Exediture+:e5uisites?a. 'aid or incurred during

the taxable yearb. Drdinary and necessary

expenses in connection withtrade business or profession

c. >ot chargeable tocapital account

9. &eferred Exe+e+

:e5uisites?a. 'aid or incurred in

connection with trade businessor profession

b. >ot treated as expensec. hargeable to capital

account but not chargeable toproperty subject to depreciationor depletion.

A3out dedu*ti(le8

!mount ratably distributed overa period of )K months beginning withthe month taxpayer reali0edbenefits from such expenditures.

EXCL%SION FRO; R ESEARC# AN&

&E"ELOP;ENT EXPEN&IT%RES

1. !ny expenditure for the ac5uisitionor improvement of land or for theimprovement of property to be usedin connection with research anddevelopment subject to depreciationand depletion.

2. !ny expenditure paid or incurred for

the purpose of ascertaining the

existence location extent or5uality of any deposit of ore or othermineral including oil or gas.

4. PENSION TR%ST CONTRI'%TIONS

PENSION TR%ST CONTRI'%TIONS 6 adeduction applicable only to theemployer on account of its contributionto a private pension plan for the benefitof its employee. /his deduction is purelybusiness in character.


1. /he employer must have established

a pension or retirement plan toprovide for the payment of reasonable pensions to hisemployees+

2. /he pension plan is reasonable andactuarially sound+

". It must be funded by the employer+$. /he amount contributed must be no

longer subject to the control anddisposition of the employer+

&. /he payment has not yet beenallowed as a deduction+ and

). /he deduction is apportioned in

e5ual parts over a period of 1Kconsecutive years beginning with theyear in which the transfer orpayment is made.

S%;;AR/ OF R %LES ON R ETIRE;ENT 'ENEFITS

PLAN - PENSION TR%ST

1. Exe3t fro3 I*o3e Tax –employees7 trust under 5ec. 96(4)

. Ex*lu+io fro3 Gro++ I*o3e –amount received by the employeefrom the fund upon compliance of certain conditions under 5ec. (4)(9)

. &edu*tio fro3 Gro++ I*o3e –a. !mounts contributed by the

employer during the taxableyear into the pension plan tocover the pension liabilityaccruing during the year 6considered as ordinary andnecessary expenses under 5ec.-(A)()

b. 1(1K of the reasonable amountpaid by the employer to cover

pension liability applicable to








the years prior to the taxableyear or so paid to place thetrust in a sound financial basis 6deductible under 5ec. -(<)

7. PRE;I%; PA/;ENTSON #EALT# AN&-OR

#OSPITALIATION INS%RANCE

&EFINITION8 It is an amount of premiumon health and(or hospitali0ation paid byan individual taxpayer ,head of family ormarried for himself and members of hisfamily during the taxable year.


1. Insurance must have actually been

taken2. /he amount of premium deductible

does not exceed '2$KK per familyor '2KK per month during thetaxable ear.

". /hat said family has a gross incomeof not more than '2&KKKK for thetaxable year.

$. In case of married individual onlythe spouse claiming additionalexemption shall be entitled to this -deduction.

W#O ;A/ A"AIL OF T#E &E&%CTION

1. Individual taxpayers earning purelycompensation income during theyear.

2. Individual taxpayer earning businessincome or in practice of h i sprofession whether availing of itemi0ed or optional standarddeductions during the year.

". Individual taxpayer earning bothcompensation and business orpractice of profession during the

year.

NON,&E&%CTI'LE EXPENSES

R EASONS FOR NON,&E&%CTI'ILIT/

1. 'ersonal expenses2. apital expenditures". Items not normally subject to

income tax and therefore are notdeductible.

$. Items taken advantage of by thetaxpayer to avoid payment of income tax.

SPECIFIC ITE;S 6SECTION B:1. 'ersonal living or family expenses+2. !mount paid out for new buildings or

for permanent improvements orbetterment made to increase thevalue of any property or estate

+:cept that intangible drillingand development cost incurred inpetroleum operations aredeductible+

". !mount expended in restoringproperty or in making good theexhaustion thereof for which anallowance has been made+

4. 'remiums paid on any life insurance

policy covering the life of any officer

or employee or of any personfinancially interested in any trade orbusiness carried on by the taxpayerindividual or corporate when thetaxpayer is directly or indirectly abeneficiary under such policy. 5ec.9D

5. 8osses from sales or exchanges of

property beteen related ta:payers. 5 ec. 9D

TRANSACTIONS 'ETWEEN R ELATE& PARTIES

1. ;etween members of the family+K7amily includes only thebrothers sisters ,whether by thewhole or half blood spouseancestors and linealdescendants of the taxpayer.

2. 9xcept in the case of distributions inli5uidation?a. between an individual and a

corporation more than &KC invalue of the outstanding stock of which is owned directly orindirectly by or for such

individual+b. between two corporations morethan &KC in value of theoutstanding stock of each of which is owned directly orindirectly by or for the sameindividual if either one of suchcorporations with respect to thetaxable year of the corporationpreceding the date of the sale of exchange was a personal holdingcompany or a foreign personalholding company+ or








". ;etween the grantor and a fiduciaryof any trust+

$. ;etween the fiduciary of a trust andthe fiduciary of another trust if the

same person is a grantor withrespect to each trust+

&. ;etween a fiduciary of a trust and abeneficiary of such trust.

TAX CONSE$%ENCES

/he following are not deductible?

1. Interest expense 5ec. - (4)()D

2. ;ad debts 5ec. - (+)()D

3. 8osses from sales or exchanges of

property 5ec 9 (4)D

69: OPTIONAL CORPORATEINCO;E TAXSECTION 9 6A:

APPLIES TO81. @omestic corporations ,@2. :esident foreign corporations ,:A

R ATE OF TAX AN& &ATE OF EFFECTI"IT/

? of the Gro++ I*o3e effectiveanuary 1 2KKK

CON&ITIONS OR R E$%IRE;ENTS

1. ! tax effort ratio of 2KC of 4ross>ational 'roduct

2. ! ratio of $KC income tax collectionto total tax revenues

". ! !/ tax effort of $C of 4>'$. ! K.FC ratio of onsolidated 'ublic

Sector Ainancial 'osition ,'SA' to4>'

OT#ER FEAT%RES

1. !vailable only to firms whoseratio of?

ost of salesUM&&C

4ross sales or receipts from allsources

2. /he election shall be irrevocable for three ," consecutive years

;EANING OF GROSS INCO;E

Geeral *o*et –4ross salesess

,1 Sales :eturn+

,2 @iscount and allowances," ost of goods sold - means

all business expensesdirectly incurred to produce

the merchandise to bringthem to their presentlocation and use.

6B: ;INI;%; CORPORATEINCO;E TAX 6;CIT:

SECTION 9 6E:

W#O ARE CO"ERE&0%I/ is imposed on domestic and

resident foreign corporations1. henever such corporation has 0ero

or negative taxable income+ or2. henever the amount of %I/ is greater than the normalincome tax due from suchcorporation determined underSection 2*Q!R.

LI;ITATIONS

1. /he %I/ shall apply only todomestic and resident foreigncorporations subject to the normalcorporate income tax ,income tax

rates under Sec 2*Q!R of the /:'.2. In the case of a domestic

corporation whose operations oractivities are partly covered by theregular income tax system and partlycovered under a special income taxsystem the %I/ shall apply onoperations covered by the regular corporate income ta: system.

". In computing for the %I/ due froma resident foreign corporation onlythe gross income from sources withinthe 'hilippines shall be considered

for such purpose.

W#EN &OES A CORPORATION 'ECO;ELIA'LE %N&ER T#E ;CIT0

%I/ is imposed beginning onthe fourth taxable year immediatelyfollowing the year in which suchcorporation commenced its business./he taxable year in which the businessoperations commenced shall be the yearwhen the corporation registers with the;I:.








CARR/ FORWAR& OF T#E EXCESS;INI;%; TAX

•!ny excess of %I/ over the normalincome tax can be carried forwardon an annual basis.

• /he excess can be credited against

the normal income tax due in thenext " immediately succeedingtaxable years.

• !ny amount of the excess %I/

which cannot be credited against thenormal income tax due in the next"-year period shall be forfeited.

RELIEF FRO; ;CIT

/he Secretary of Ainance isauthori0ed to suspend the imposition of the %I/ on any corporation whichsuffers losses because of?

a. prolonged labor dispute+b. force majeure+ orc. legitimate business reverses.

<5ubstantial losses %rom a prolonged labor disputeP means losses arising from a

strike staged by the employees whichlasted for more than six ,) monthswithin a taxable period and which hascaused the temporary shutdown of business operations.

<7orce ma&eureP means a cause dueto an irresistible force as by P!ct of 4odPlike lightning earth5uake storm floodand the like. /his term shall alsoinclude armed conflicts like war andinsurgency.

<egitimate business reversesP shallinclude substantial losses sustained due

to fire robbery theft orembe00lement or for other economicreason as determined by the Secretaryof Ainance.

TAX RATE8 9 of !ro++ i*o3e ortaxable base pertinent to atrading(merchandising concern or aservice entity

TAX 'ASE8 4ross Income;EANING OF GROSS INO;E

Geeral *o*et - gross income means?

4ross salesess

,1 Sales :eturn+,2 @iscount and allowances

," ost of goods sold - meansall business expensesdirectly incurred to producethe merchandise to bringthem to their presentlocation and use.

7IN&S OF '%SINESS

A. Tradi! or ;er*hadi+i! Co*erGro++ I*o3e Mgross sales(receipts less sales

returns discountsand allowances andcost o% goods sold

Co+t of Sale+ M

1. Invoice cost

of the goods sold+

2. import

duties+

3. freight in

transporting thegoods to the placewhere the goodsare actually sold+

4. insurance

while the goodsare in transit.

'. ;aufa*turi!Gro++ I*o3e

,Same

Co+t of Sale+ Q !llcost of production of

finished goods suchas1.raw materials

used+2.direct labor+".manufacturing

overhead+$.freight cost+&.insurance

premiums+).other costs

incurred to bringthe raw materials

to the factory orwarehouse.








C. Ser5i*e+Gro++ I*o3e Q4ross receipts lesssales returns

allowancesdiscounts and costso% services

Co+t of Ser5i*e+ M !lldirect costs andexpenses necessarilyincurred to provide

the services re5uiredby the customers andclients including?a. Salaries and

employee benefitsof personnelconsultants andspecialists directlyrendering theservice+

b. ost of facilitiesdirectly utili0ed inproviding the

service.It shall ot

i*lude itere+t

exe+e e:cept %orban?s and other

%inancialinstitutions.

• 4ross income e:cludes passive

income subject to final tax.

• Dther income and 9xtraordinary

Income are included since :: F-FBprovides that gross sales includesales contributory to income taxableunder the regular corporate tax.

See Aex T for interplay of normal

tax optional corporate income taxand %I/.

6@: I;PROPERL/ ACC%;%LATE&EARNINGS 6IAE: TAX

SECTION 9

6RE"EN%E REG%LATIONS NO. 9 – 9JJ?:

&EFINITION8 KImproperly accumulated earnings (IA+) are the profits of acorporation that are permitted toaccumulate instead of being distributedby a corporation to its shareholders forthe purpose of avoiding the income ta: with respect to its shareholders or theshareholders of another corporation.

TAX RATE8 ?J of the Improperly!ccumulated /axable Income ,in additionto other taxes.Rat"a+ */"& #AET

If the earnings and profits weredistributed the shareholders would thenbe liable to income tax thereonwhereas if the distribution were notmade to them they would incur no taxin respect to the undistributed earningsand profits of the corporation. /hus atax is being imposed+

a. in the nature of a penalty to thecorporation for the improperaccumulation of its earnings and

b. as a form of deterrent to theavoidance of tax upon

shareholders who are supposedto pay dividends tax on theearnings distributed to them bythe corporation.

1I;PROPERL/ ACC%;%LATE& TAXA'LEINCO;E2

/axable income for the year!dd?Income exempt from tax+Income excluded from gross income+Income subject to final tax+

>et operating loss carry-over ,NOLCOTotal8ess?Income tax paid(payable for the taxableyear@ividends actually or constructivelypaid(issued from the applicable year7staxable income!mount reserved for the reasonableneeds of the business as defined in the:egulations

Tax (a+e of i3roerl) a**u3ulatedeari!+ tax

EXCL%SIONS

• Aor corporations using the calendar

basis the accumulated earnings taxshall not apply on IA+ as o% "ec. ,118.

• Aor fiscal year basis the tax shall

not apply to the 12-month period of fiscal year 1FF*-1FFB.








I!9 as of the end of a calendaror fiscal year period on or after @ec."1 1FFB shall be subject to the 1KCtax.

W#O ARE CO"ERE&0

Geeral Rule8 /he I!9 tax shall apply toevery corporation formed or availedfor the purpose of avoiding theincome tax with respect to itsshareholders or the shareholders of any other corporation by permittingearnings and profits to accumulateinstead of being divided ordistributed. /hese are?1. "omestic corporations as

defined under the /ax ode+2. orporations which are classified

as closely'held corporations.• those corporations at least

fifty percent ,&KC in valueof the outstanding capitalstock or at least fiftypercent ,&KC of the totalcombined voting power of allclasses of stock entitled tovote is owned directly orindirectly by or for not morethan twenty ,2K individuals.

• @omestic corporations notfalling under the aforesaiddefinition are thereforepublicly-held corporations.

Ex*etio8 /he said tax shall not applyto?1. 'ublicly held corporations (5ec. 1)2. ;anks and other non-banks Ainancial

intermediaries (5ec. 1)". Insurance companies (5ec. 1)$. /axable partnerships (deemed to

have actually or constructively received the ta:able income under 5ec. 8")

&. 4eneral professional partnerships(e:empt; ta:able against the

partners)). >on- taxable joint ventures and*. 9nterprises duly registered with the

'hilippine 9conomic Vone !uthority,'9V! under :.!. *F1) andenterprises registered pursuant tothe ;ases onversion and@evelopment !ct of 1FF2 under :.!.

*22* as well as other enterprises

duly registered under specialeconomic 0ones declared by lawwhich enjoy payment of special taxrate on their registered operations

or activities in lieu of other taxesnational or local.

B. Aoreign corporations RR No. 6'66D

E"I&ENCE OF P%RPOSE TO A"OI&INCO;E TAX

1. /he fact that any corporation is amere holding company or investmentcompany shall be prima %acieevidence of a purpose to avoid thetax upon its shareholders or

members.

I+ta*e+ idi*ati5e of uro+e toa5oid i*o3e tax uo+hareholder+8

1. Investment of substantial

earnings and profits of thecorporation in unrelated business or in stock orsecurities of unrelatedbusiness+

2. Investment in bonds and other

long-term securities+". !ccumulation of earnings inexcess of 1KKC of paid-upcapital not otherwiseintended for the reasonableneeds of the business asdefined in these :egulations.

2. /he fact that the earnings or profitsof a corporation are permitted toaccumulate beyond the reasonableneeds o% the business shall bedeterminative of the purpose to

avoid the tax upon its shareholdersor members unless the corporationby the clear preponderance of evidence shall prove the contrary.

1Rea+oa(le eed+ of the(u+ie++2 includes the reasonablyanticipated needs of the businesssuch as?a. !llowance for the increase in the

accumulation of earnings up to1KKC of the paid-up capital of the corporation as of ;alance

Sheet date inclusive of










income subjected to A/. It is thewithholding agent who files thereturn.

&. /he rate of the final tax is

multiplied to the gross income./hus deductions and(or personaland additional exemptions are notallowed.

6D: FRINGE 'ENEFIT TAX 6F'T:

FRINGE 'ENEFIT TAX is a fina$ incometax on the employee which shall bewithheld and paid by the employer on a5uarterly basis.

FRINGE 'ENEFIT means any good

service or other benefit furnished orgranted by an employer in cash or inkind in addition to basic salaries to anindividual employee ,except rank andfile employees such as but not limitedto the following?1. ousing2. 9xpense !ccount". ehicle of any kind$. ousehold personnel such as maid

driver and others&. Interest on loan at less than market

rate to the extent of the differencebetween the market rate and actualrate granted.

). %embership fees dues and otherexpenses borne by the employer forthe employee in social and athleticclubs and similar organi0ations

*. 9xpenses for foreign travelB. oliday and vacation expensesF. 9ducational assistance to the

employee or his dependents+ and1K. 8ife or health insurance and other

non-lire insurance premiums or

similar amounts on excess of whatthe law allows.

PERSONS LIA'LE

/he E;PLO/ER ,as a withholdingagent whether individual professionalpartnership or a corporation regardlessof whether the corporation is taxable ornot or the government and itsinstrumentalities

TAX RATE8 B9 ,from anuary 1 2KKKonwards of the Grossed up !onetary 3alue (G!3) of fringe benefits.

In the case of aliens the tax rates to

be applied on fringe benefit shall be asfollows?

1. >:!>9;/ 2&C2. !liens employed by regional D

1& C". !liens employed by D;E 1&C$. !liens employed by 'etroleum

Service ontractors andSubcontractors 1&C

1G;"2 OF T#E FRINGE 'ENEFITREPRESENTS

1. /he whole amount of incomereali0ed by the employee whichincludes the net amount of money ornet monetary value of propertywhich has been received+ plus

2. /he amount of fringe benefit taxthereon otherwise due from theemployee but paid by the employerfor and in behalf of the employee.

<G;"= of the fringe benefitshall be determined by dividing themonetary value of the fringe benefit by

the Gro++ed u di5i+or. /he 4rossed updivisor is the difference between 1KKCand the applicable rates.

/EAR GROSSE& %P

&I"ISOR RATE

1FFB ))C "$C A/

1FFF )*C ""C A/

2KKKonwards

)BC "2C A/

FRINGE 'ENEFITS N'T S%'4ECT TO F'T

1. Aringe benefits not considered as gross income 6a. if it is re5uired or necessary to

the business of employerb. if it is for the convenience or

advantage of employer2. Aringe ;enefit that is not taxable

under Sec. "2 ,; 6 9xclusions from4ross Income

". Aringe benefits not taxable underSec. "" Aringe ;enefit /ax?a. Aringe ;enefits which are

authori0ed and exempted under








special laws such as the 1"thmonth 'ay and Dther ;enefitswith the ceiling of '"KKKK.

b. ontributions of the employer

for the benefit of the employeeto retirement insurance andhospitali0ation benefit plans+

c. ;enefits given to the :ank andAile 9mployees whether grantedunder a collective bargainingagreement or not+ and

d. /he "e minimis benefits 6benefits which are relativelysmall in value offered by theemployer as a means of promoting goodwillcontentment efficiency of

9mployees/he term <Ra ad File

E3lo)ee+= shall mean allemployees who are holdingneither managerial norsupervisory position as definedin the 8abor ode

In the case of rank and fileemployees fringe benefits otherthan those excluded from grossincome under the /ax ode andother special laws are taxableunder the individual normal tax

rate.&E&%CTI'ILIT/ TO T#E TAXA'LEINCO;E OF T#E E;PLO/ER

Geeral Rule8 /he amount of taxablefringe benefit and the fringe benefits taxshall constitute allowable deductionsfrom gross income of the employer.Ex*etio8

If the basis for computation of thefringe benefits tax is the depreciationvalue the 0onal value or the fair marketvalue only the actual fringe benefits taxpaid shall constitute a deductibleexpense for the employer. /he value of the fringe benefit shall not bedeductible and shall be presumed tohave been tacked on or actually claimedas depreciation expense by theemployer. 'rovided however that if theaforesaid 0onal value or fair marketvalue of the said property is greaterthan its cost subject to depreciation theexcess amount shall be allowed as adeduction from the employer3s gross

income as fringe benefit expense. (5ec.."D, Rev. Reg. No. '1/)

EXA;PLE OF &E ;INI;IS 'ENEFITS NOT

S%'4ECT TO F'T 6RR NO. D,9JJJ AN&?J,9JJJ:

1. %oneti0ed unused vacation leavecredits of ':I!/9 employees notexceeding ,1K days during the yearand the moneti0ed value of leavecredits paid to government officialsand employees

2. %edical cash allowance todependents of employees notexceeding '*&K.KK per employee persemester or '12& per month+

". :ice subsidy of '1KKK.KK or one ,1sack of &Kkg. rice per monthamounting to not more than'1KKK?KK

$. Eniform and clothing allowance notexceeding '"KKK per annum+

&. !ctual yearly medical benefits notexceeding '1KKKK per annum+

). 8aundry allowance not exceeding'"KK per month+

*. 9mployees achievement awards e. g.for length of service or safetyachievement which must be in the

form of a tangible personal propertyother than cash or gift certificatewith an annual monetary value of not exceeding '1KKKK received bythe employee under an establishedwritten plan which does notdiscriminate in favor paidemployees+

B. 4ifts given during hristmas andmajor anniversary celebrations notexceeding '" KKK per employee perannum+

F. Alowers fruits books or similaritems given to employees underspecial circumstances

1K. @aily meal allowance for overtimework not exceeding 2&C of the basicminimum wage.

Ti3e for fili! of <uarterl) re3itta*eretur of fial i*o3e taxe+ withheld

/he tax imposed under Sec. "" shallbe treated as a final income tax on theemployee that shall be withheld andpaid by the employer whether a large

taxpayer or non-large taxpayer on or








7efore t!e 13t! day of t!e mont!following the calendar 5uarter in whichthe fringe benefits were granted ,:: K$-2KK2.

Aor !dditional :ules on Aringe

;enefits refer to Aex #.

6: CAPITAL GAINS TAX

S%;;AR/ OF TAX RATES

?. Idi5idual+a. Dn sale of shares of stock of a

domestic corporation not listedand traded thru a local stockexchange held as capital asset

*n the Net Capital Gain>ot over '1KKKKK 6 A/

of &C!mount in excess of '1KKKKK 6 A/

of 1KC

b. Dn sale of real property in the'hilippines held as capital asset

Dn the gross selling price, or thecurrent %air mar?et value at thetime of sale whichever is higher 6A/ of )C

9. Cororatio+a. Dn sale of shares of stock of a

domestic corporation not listedand traded thru a local stockexchange held as capital asset

*n the Net Capital Gain #>ot over '1KKKKK 6 A/ of &C!mount in excessof '1KKKKK 6 A/ of 1KC

b. Dn sale of land(building held ascapital asset

Dn the gross selling price, or thecurrent %air mar?et value at thetime of sale whichever is higher6 A/ of )C

(Reyes, 3irgilio. Income 2a: a and Accounting # A Ne Approach, 66)

CAPITAL GAINS AN& LOSSES –*N +ENERA&

CONCEPT OF CAPITAL ASSETS

Ender the tax code there is nodefinition for the term Pcapital assetsP.hat it gives is the meaning of ordinaryassets?

a. Ordiar) a++et+ #ec. / N*RC2

a. Stock in trade of the taxpayer orother properties of a kind whichwould properly be included inthe inventory of the taxpayer+

b. 'roperty held by the taxpayerprimarily for sale to customers inthe ordinary course of business+

c. 'roperty used in trade orbusiness and subject todepreciation+ and

d. :eal property used in trade orbusiness.

b. Caital A++et+ include all property

held by the taxpayer whether or notconnected in trade or business butnot including those enumeratedabove ,W1 as ordinary assets.

CAPITAL GAIN CAPITAL LOSS

/he gain derivedfrom the sale orexchange of capitalassets.

/he loss incurredfrom the sale orexchange of capitalassets.

NET CAPITALGAIN

NET CAPITALLOSS

/he excess of thegains from sales(exchanges of capitalassets over thegains from suchsales( exchanges.

/he excess of thelosses from sales orexchanges of capitalassets over the gainsfrom such sales orexchanges.

TRANSACTION R ES%LTING IN TAXA'LE

GAINS '%T NON,R ECOGNITION OF LOSSES

a. Sale or exchange betweenrelated parties+

b. ash sales by non-dealers of securities and when not subjectto the stock transfer tax+

c. 9xchanges not solely in kind inmerger and consolidation+ and

d. Sales or exchanges that are notat arms length.








RE$%ISITES FOR RECOGNITION OFCAPITAL GAIN-LOSS

1. /he transaction must involve

property classified as capitalasset+ and

2. /he transaction must be a saleor exchange or one considered ase5uivalent to a sale or exchange.

R%LES ON T#E RECOGNITION OFCAPITAL GAINS OR LOSSES

IN&I"I&%AL CORPORATION

#oldi!Period

/he percentagesof gain or loss to betaken into accountshall be thefollowing?

a.1KKC - if thecapital assets hasbeen held for 12mos. or less+ and

b.&KC - if thecapital asset has

been held formore than 12mos.

apital gains andlosses arerecogni0ed to theextent of 1KKC.,/here is noholding period

No,

dedu*ti(ilit) of Net Caitallo++e+

• apital losses

are allowed onlyto extent of thecapital gains+hence the net

capital loss isnot deductible.

• apital losses

are allowed onlyto extent of thecapital gains+hence the netcapital loss isnot deductible.

Ex*etio? If anydomestic bank or

trust company asubstantial part of whose business isthe receipt of deposits sells anybond debenturenote or certificateor other evidenceof indebtednessissued by anycorporation,including oneissued by agovernment or

political

subdivision

Net Caital Lo++

Carr) –O5er

•

!llowed /he net capital loss,in an amount not inexcess of the taxableincome beforepersonal exemption forsuch year shall betreated in thesucceeding year ,butnot beyond 12 monthsas a deduction asshort-term capital loss,at 1KKC from the netcapital gains.

• >ot allowed

See Aex % for illustration.

SALE OR EXC#ANGE OF CAPITAL ASSETS

/he following are considered as saleor exchange of capital assets?1. :etirement of bonds2. Short sales of property". Aailure to exercise privilege or

option to buy or sell property$. Securities becoming worthless

&. @istribution in li5uidation of corporations

). :eadjustment of interest in ageneral professional partnership.

TAX FREE EXC#ANGES

Sales or exchanges resulting in non-recognition of gains or losses?1. 9xchange solely in ?ind in legitimate

3er!er+ ad *o+olidatio+includes?a. ;etween the corporations which

are parties to the merger orconsolidation ,property for

stocks+b. ;etween a stockholder of a

corporation party to a merger orconsolidation and the otherparty corporation ,stock forstock+

c. ;etween a security holder of acorporation party to a merger orconsolidation and the otherparty corporation ,securities forsecurities








2. /ransfer to a *otrolled *ororatio6 exchange of property for stocksresulting in ac5uisition of corporatecontrol by a person alone or

together with others not exceedingfour.

1Cotrol2 means ownership of stocks in a corporation amounting toat least &1C of the total votingpower of all classes of stocksentitled to vote.

SALE OR EXC#ANGE OF OR&INAR/ ASSETS

4eneral rules of income taxationapply to both gain and loss.

See Aex & ,4ross Income 6 4ainsfrom dealings in property

S%;;AR/ OF TAX TREAT;ENT OFGAINS-LOSSES IN T#E EXC#ANGE OFPROPERTIES

Geeral Rule8 Epon the sale orexchange of property the entire gain orloss as the case may be shall berecogni0ed. QSec. $K , 1R

Ex*etio+8

1. /ransactions where gains and lossesare not recogni0ed 6

a. 9xchange solely in kind inlegitimate mergers andconsolidation

b. /ransfer to a controlledcorporation QSec. $K, 2R

1. /ransactions wheregain is recogni0edbut not the loss 6

a. /ransactions between relatedtaxpayers QSec. ")R

b. Illegal transactions QSec. F):ev. :eg. 2R

c. 9xchanges of property notsolely in kind in pursuance of corporate mergers andconsolidations QSec. $K , "R

I;PORTANT &ISTINCTIONIf it is an ordiar) a++et the

ordinary gains and losses are consideredin determining income or loss fromtrade business or profession. (5ee 5ecs.A, -")

If it i s a *aital a++et determinefurther whether or not it is a realproperty located in the 'hilippines. If itis then it is subject to capital gains tax.

(5ee 5ecs. -", 8"0) (5ee also 5ec s.-C, 8") If not the capital gains andlosses are considered in determining thetaxable income. (5ec. 1)

CAPITAL GAINS AN& LOSSES –#>ARE# '? #T'C@

/he taxation of shares of stockwhether or not listed and traded in thestock exchange is subject to %inal ta: .

W#O ARE LIA'LE TO T#E TAX

1. Individual taxpayer citi0en or alien2. orporate taxpayer domestic or

foreign". Dther taxpayers such as estate

trust trust funds and pension amongothers.

R ATES OF TAX

1. Share+ of +to* ot traded throu!ha lo*al +to* ex*ha!e 6 >et capitalgains derived during the taxableyear from sale exchange or

transfer shall be taxed as follows ,ona per transaction basis?

>ot over ' 1KKKKK - &CDver ' 1KKKKK - 1KC

2. Share+ of +to* li+ted throu!h alo*al +to* ex*ha!e 6 X of 1C of the gross selling price of the stock.

EXCEPTIONS TO T#E TAX

1. 4ains derived by dealers insecurities.

2. !ll other gains which are specificallyexempt from income tax underexisting investment incentives andother special laws.

'ASIS FOR CO;P%TING GAIN OR LOSS 6'IRR %LING ?@,D:

• /he fair market value ,A% of the

sale of shares not traded but listedin the stock exchange is the highestclosing price on the day the shareswere sold transferred or exchanged.

• hen no sale is made in the stock

exchange the A% shall be the

highest selling price on the day








nearest to the day of sale transferor exchange.

• Aor shares not listed in the

exchange the A% shall be the book

value nearest the valuation date

/he above rules shall be used incomputing for the net capital gain(lossfor disposition of shares.

I;PORTANT FEAT%RES

1. Sale of shares of stock of a domesticcorporation listed and traded in alocal stock exchange and that of initial public offering shall be subjectto 'ercentage tax ,;usiness /ax

2. apital losses sustained during theyear ,not listed and traded in a localstock exchange shall be allowed asa capital loss deductible on the sametaxable year only ,no carry-over

". /he entire amount of capital gainand capital loss ,not listed andtraded in a local stock exchangeshall be considered without takinginto account holding periodirrespective of who is the taxpayer,all 1KKC

$. >on-deductibility of losses on wash

sales.

FILING AN& PA/;ENT OF TAX

1. Li+ted ad Traded i the Sto*

Ex*ha!e - /he stockbroker shallturn over the tax collected to the;.I.:. within %ive (0) banking daysfrom the date of collection.

2. Not traded throu!h the +to* ex*ha!e

- It shall be paid by the seller on a pertransaction basis upon filing of there5uired return within 6 daysfollowing each sale or otherdisposition of shares of stock.

CAPITAL GAINS AN& LOSSES

REA& PR'PERT2

PERSONS LIA'LE AN& TRANSACTIONS

AFFECTE&

?. Idi5idual taxa)er+= e+tate+ adtru+t+

Sale or exchange or otherdisposition of real propertyconsidered as capital assets.

/he said sale shall include Lpacto

de retro saleP and other conditionalsale.

9. &o3e+ti* CororatioSale or exchange or disposition

of lands and(or building which arenot actually used in business and aretreated as capital asset.

EXCEPTIONS TO T#E TAX

1. 4ains derived by dealers in realestate

R ATE AN& 'ASIS OF TAX

! final tax of )C is based on the gross selling price or %air mar?et valueor onal value whichever is higher .

Note8 4ain or loss is immaterialthere being a conclusive presumption of gain.

See Aex G 6 4uidelines in

@etermining hether a :eal'roperty is a apital or an Drdinary!sset.

EXE;PTION OF CERTAIN IN&I"I&%ALS FRO; T#E

CAPITAL GAINS TAX ON T#E SALE OR

&ISPOSITION OF A PRINCIPAL R ESI&ENCE

Coditio+8a. Sale or disposition of the old

principal residence+b. ;y natural persons - citi0ens or aliens

provided that they are residentstaxable under Sec. 2$ of the ode,does not include an estate or atrust+

c. /he proceeds of which is fullyutili0ed in ,a ac5uiring or ,bconstructing a new principalresidence within eighteen ,1Bcalendar months from date of sale ordisposition+

d. >otify the ommissioner withinthirty ,"K days from the date of saleor disposition through a prescribedreturn of his intention to avail thetax exemption+

e. an only be availed of only onceevery ten ,1K years+

f. /he historical cost or adjusted basis

of his old principal residence sold








exchanged or disposed shall becarried over to the cost basis of hisnew principal residence

g. If there is no full utili0ation the

portion of the gains presumed tohave been reali0ed shall be subjectto capital gains tax.

GROSS INCO;E FRO; &IFFERENT SO%RCES 6SEC. @9:

'lease refer to Aex I.

ACCO%NTNG PERIO&S AN& ;ET#O&S OF ACCO%NTING

I. ACCO%NTING PERIO&S

A. Geeral rule 6Se*. @B:

/axable income is computedupon the basis of taxpayer7sannual accounting period ,fiscal orcalendar year in accordance withthe method of accountingemployed.

• If no method of accounting

employed or method does notclearly reflect the incomecomputation shall be made inaccordance w( such method asthe opinion of the ommissionerclearly reflects the income.

• /axable income is computed

based on calendar year if?1. accounting period is other

than a fiscal year2. taxpayer has no accounting

period". taxpayer does not keep

books$. taxpayer is an individual

• Fi+*al )ear? accounting period of

12 months ending on the last dayof any month other than

@ecember• Caledar )ear? accounting period

from anuary 1 to @ecember "1

'. Period+ i whi*h ite3+ of !ro++i*o3e i*luded 6Se*. @@:

• !mount of all items of gross

income shall be included in thegross income for the taxableyear in which received by thetaxpayer unless any suchamounts are to be properlyaccounted for in a different

period under methods of accounting permitted

• In case of death of taxpayer?

include for the taxable year in

which falls the date of his deathall amounts which accrued up tothe date of his death+ if nototherwise properly includible inrespect of such period or a priorperiod

C. Period for whi*h dedu*tio ad*redit+ tae 6Se*. @:

• @eductions provided in this /itle

shall be taken for the taxableyear in which Lpaid or incurreddependent upon the method of

accounting upon the basis of which the net income iscomputed unless in order toreflect the income deductionsshould be taken as of a differentperiod.

• In case of death of taxpayer?

deductions allowed for thetaxable period in which falls thedate of his death amountsaccrued up to the date of hisdeath if not otherwise properly

allowable in respect of suchperiod or a prior period.

&. Cha!e of a**outi! eriod6Se*.@:

• #inds of changes?

- from fiscal year to calendaryear

- from calendar year to fiscalyear

- from one fiscal year toanother

• 9ffect of change? >et income

shall with the approval of theommissioner be computed onthe basis of the new accountingperiod subject to Sec. $*.

E. Fial or adHu+t3et retur+ for aeriod of le++ tha ?9 3oth+,1 :eturns for short period

resulting from change of accounting period

• taxpayer is other than an

individual








• with the approval of the

ommissioner

• If change is from fiscal year to

calendar year?

- separate final or adjustmentreturn be made for theperiod between the close of the last fiscal year for whichreturn was made and thefollowing @ecember "1

• If change is from calendar year

to fiscal year?- separate final or adjustment

return be made for theperiod between the close of the last calendar for whichreturn was made and thedate designated as the closeof the fiscal year

• If change is from one fiscal year

to another?- separate final or adjustment

return be made for theperiod between the close of the former fiscal year andthe date designated as theclose of the new fiscal year

,2 Income computed on basis of short period

•

In what casesGa. here a separate final or

adjustment return is madeon account of a change inaccounting period

b. In all other cases where aseparate final oradjustment return isre5uire or permitted by:J: prescribed by Sec. ofAinance. uponrecommendation ofommissioner

• ;oth shall be made for afractional part of a year.

• /hen income is computed on the

basis of the short period forwhich separate final oradjustment return is made.

II. ;ET#O&S OF ACCO%NTING

A. Ca+h 3ethod:ecognition of income

and expense dependent on

inflow or outflow of cash.

?. A**rual 3ethod%ethod under which

income gains and profits are

included in gross income whenearned whether received or notand expenses are allowed asdeductions when incurred?although not yet paid. It is theright to receive and not theactual receipt that determinesthe inclusion of the amount ingross income

• 9xamples

?1. interest or rent income

earned but not yet

received2. rent expense accrued

but not yet paid". wages due to workers

but remaining unpaid

9. A**outi! forlo!,ter3 *otra*t+

• ong'term contracts?

building installation orconstruction contractscovering a period in excessof 1 yr

• 'ersons whose gross income

is derived in whole or in partfrom such contracts shallreport such income upon thebasis of percentage o% completion

• /he return is accompanied

by a return certificate of architects or engineersshowing the percentage of completion during thetaxable year of the entire

work performed under thecontract

• @eductions from gross

income? all expendituresmade during the taxableyear on account of thecontract? account beingtaken of the material andsupplies on hand at thebeginning and end of thetaxable period for use inconnection with the work








under the contract but notyet so applied.

• !mended return may be

permitted (re5uired by the

ommissioner? if uponcompletion of contracttaxable income has not beenclearly reflected for anyyear,s.

B. I+tall3et(a+i+,1 Sales of dealers in personal

propertyEnder rules and

regulations prescribed bythe Sec. of Ainance a person

who regularly sells orotherwise disposes of personal property on theinstallment plan may returnas income there from in anytaxable year that proportionof the installment paymentsactually received in thatyear which the gross profitreali0ed or to be reali0edwhen payment is completedbears to the contract price.

+:ample 5ale in 666 ontract price ,',installmentsreceivable '2KK KKKost 1&KKKK4ross profit ,4' &KKKK

Installments payable in 2e5ual annual installments

4'(' ratioM &KKKK(2KKKKK M 2&C

ollections in 2KKKM'1KKKKKIncome for 2KKKM '1KKKKK x 2&C M '2&KKK

(2) Sales of realty and casual

sales of 'ersonalty

• In cases o%

a. casual sale or othercasual disposition of personal property,other thaninventory on hand of the taxpayer at theclose of the taxable

year for a price Y'1KKK or

b. sale or otherdisposition of real

property if in eithercase the initialpayments do notexceed 2&C of theselling price

• $o may income be

returned ? same as insales of dealer inpersonal property above

• Initial payments

payments received incash or property otherthan evidences of

indebtedness of thepurchaser during thetaxable period in whichthe sale or otherdisposition is made.

," Sales of realproperty considered ascapital asset by individuals

• Individual who sells of

disposes of realproperty considered as

capital asset and isotherwise 5ualified toreport the gain under ,2above may pay thecapital gains tax ininstallments under rulesand regulations to bepromulgated by the Sec.of Ainance.

,$ hange from accrual toinstallment basis

•taxpayer must beentitled to benefitsunder ,1 hereof sales of dealers in personalproperty

• in computing income for

the year of change orany subse5uent year?amounts actuallyreceived during any suchyear on account of salesor other dispositions of property made in any








prior year shall not beexcluded.

@. Allo*atio of

i*o3e ad dedu*tio+• !pplicable to? cases of 2 or

more organi0ations tradesor businesses ,incorporatedand organi0ed within the'hilippines owned orcontrolled directly(indirectly by the sameinterest

• ommissioner is authori0ed

to distribute apportion orallocate gross income ordeductions between or

among such organi0ationtrade or business if hedetermines that suchdistribution apportionmentor allocation is necessary inorder to prevent evasion of taxes or to clearly reflectthe income of any suchorgani0ation trade orbusiness.

FILING OF TAX R ET%RN AN& PA/;ENT OF TAX

TAX R ET%RN 6 /his is a report made bythe taxpayer to the ;I: of all grossincome received during the taxable yearthe allowable deductions includingexemptions the net taxable income theincome tax rate the income tax duethe income tax withheld if any and theincome tax still to be paid orrefundable.

PERSONS R E$%IRE& TO FILE INCO;E TAXR ET%RN

a. Idi5idual1. :esident citi0en+2. >on-resident citi0en on income

from within the 'hil.+". :esident alien on income from

within the 'hil.+$. >:!9/; on income from within

the 'hil.&. !n individual ,citi0ens ( aliens

engaged in business or practice

of a profession within the 'hil.

regardless of the amount of gross income+

). Individual deriving compensationincome concurrently from two or

more employers at any timeduring the taxable year+

*. Individual whose purecompensation income derivedfrom sources within the 'hil.exceeds ')KKKK.

b. Taxa(le E+tate ad Tru+tc. Geeral Profe++ioal Parter+hid. Cororatio

1. >ot exempt from income tax+2. 9xempt from income tax under

Sec. "K of >I: but has notshown proof of exemption.

IN&I"I&%ALS EXE;PT FRO; FILING INCO;E TAX

R ET%RN

1. Individual whose gross income doesnot exceed total personal andadditional exemptions+

2. Individual with respect to purecompensation income derived fromsources within the 'hilippines theincome tax on which has beencorrectly withheld+

". Individual whose sole income has

been subjected to final withholdingincome tax+

$. Individual who is exempt fromincome tax.

S%'STIT%TE& FILING – is when theemployer7s annual return may beconsidered as the <substitute= Income/ax :eturn ,I/: of employee inasmuchas the information provided in hisincome tax return would exactly be thesame information contained in theemployer7s annual return.

#OW IS 1S%'STIT%TE& FILING2 &IFFERENT

FRO; 1NON,FILING20

• Su(+tituted Fili! 6 an individual

taxpayer although re5uiredunder the law to file his incometax return will no longer haveto personally file his own incometax return.

6 but instead theemployerFs annual in%ormation

return filed is the considered








<substitute= income tax returnof the employee inasmuch as theinformation in the employer7sreturn is e:actly the same

in%ormation contained in theemployee7s return.

• No,fili! 6 applicable to certain

types of individual taxpayerswho are not re5uired under thelaw to file an income tax return.

9xample? employee whosepure compensation income doesnot exceed ')KKKK and has onlyone employer for the taxableyear and whose tax withheld ise5uivalent to his tax due.

S%'STIT%TE& FILING OF INCO;E TAX R ET%RNS

'/ E;PLO/EES R ECEI"ING P%REL/

CO;PENSATION INCO;E. SECTION @= RR B,9JJ9M R;C J?,JB

Re<ui+ite+81. /he employee receives purely

compensation income ,regardless of amount during the taxable year.

2. /he employee receives the incomeonly from one employer during thetaxable year.

". /he amount o% ta: due from theemployee at the end of the yeareBuals the amount of tax withheldby the employer .

$. /he employee3s spouse also complieswith all three ," conditions statedabove.

&. /he employer files the annualinformation return ,;I: Aorm >o.1)K$-A

). /he employer issues ;I: Aorm 2"1),Dct 2KK2 9>S version to eachemployee

IN&I"I&%ALS NOT $ %ALIFIE& FOR S%'STIT%TE&

FILING 6STILL R E$%IRE& TO FILE:

1. Individuals deriving compensationfrom two or more employersconcurrently or successively duringthe taxable year.

2. 9mployees deriving compensationincome regardless of the amountwhether from a single or severalemployers during the calendar year

the income tax of which has not

been withheld correctly ,i.e. tax dueis not e5ual to the tax withheldresulting to collectible or refundablereturn.

". 9mployees whose monthly grosscompensation income does notexceed '&KKK or the statutoryminimum wage whichever is higherand opted for non-withholding of taxon said income.

$. Individuals deriving other non-business non-profession-relatedincome in addition to compensationincome not otherwise subject tofinal tax.

&. Individuals receiving purelycompensation income from a single

employer although the income tax of which has been correctly withheldbut whose spouse falls under 1 to $above.

). >on-resident aliens engaged in tradeor business in the 'hilippinesderiving purely compensationincome or compensation incomeand other non-business non-profession-related income.

N*2+ >on-filing of I/: for employeeswho are 5ualified for the substituted

filing shall be *P2I*NA for the taxableyear 2KK1 the returns for which shall befiled on or before !pril 1& 2KK2./hereafter substituted filing whereapplicable shall be !AN"A2*RM. 5ec 0RR '66)

R E$%IRE;ENT OF 'AN7S FOR S%';ISSION OF

AN ITR FOR LOAN OR CRE&IT CAR&

APPLICATIONS

;anks may re5uire the submission of ;I: Aorm >o. 1*KK ,for employees notentitled to substituted filing of I/:.owever for employees entitled tosubstituted filing of I/: the submissionof the oint ertification will suffice.

4OINT CERTIFICATION - It is a swornstatement made by the employer andemployee which serve the followingpurposes?1. It contains the employee3s consent

that ;I: Aorm >o. 1)K$A may be








considered his substituted return inlieu of ;I: Aorm >o. 1*KK which theemployee no longer filed.

2. It contains the employer3s

certification that he has reportedthe employee3s income to the ;I:and that he has remitted the taxeson the employee3s income asindicated in ;I: Aorm >o. 1)K$-A.

". It serves as proof of financialcapacity in case the employeedecides to apply for a bank loan or acredit-card or for any otherpurpose as if he had in fact filed a;I: Aorm >o. 1*KK.

IN&I"I&%ALS R E$%IRE& TO FILE AN

INFOR;ATION R ET%RN

Individuals not re5uired to file anincome tax return may nevertheless bere5uired to file an information returnpursuant to rules and regulationsprescribed by the Secretary of Ainanceupon recommendation of theommissioner.

PLACE OF FILING

1. 8egal residence - authori0ed agent

bank+ :evenue @istrict Dfficer+ollection agent or duly authori0edtreasurer

2. 'rincipal place of business". ith the Dffice of the ommissioner

Ti3e For Fili! 6Pa) a+ )ou file +)+te3:

Apri$ 15 6 for those earning solecompensation income or solely businesspractice of profession or combination of business and compensation.

R ET%RN AN& PA/;ENT OF ESTI;ATE& INCO;E

TAX '/ IN&I"I&%AL 6SELF,E;PLO/E& OR

PRACTICE OF PROFESSION:

1. Airst 5uarter - !pril 1& of current year2. Second 5uarter -!ugust 1& of currentyear". /hird 5uarter 6 >ovember 1& of currentyear

$. Ainal 5uarter - !pril 1& of the followingyear.

Note? hen the tax due is in excess of '2

KKK - the taxpayer may elect to pay in two,2 e5ual installments?

1st installment - !pril 1&2nd installment - on or before uly 1&

EXTENSION OF TI;E TO FILE R ET%RN

/he ommissioner may onmeritorious cases grant a reasonableextension of time for filing income taxreturn and may subject the imposition of twenty ,2K percent interest per annumfrom the original due date.

Retur Of #u+(ad Ad Wife

• File oe 6?: retur for the taxpayer

year if following re5uisitescomplied+a. %arried individuals ,citi0ens

resident or nonresident aliensb. @o not derived income purely

from compensation.

• If i3ra*ti*a(le to file oe retur?

each spouse file a separate return of income but the return so filed shallbe consolidated by the ;ureau forthe purposes of verification for theyear.

%N;ARRIE& ;INOR

• Income of unmarried minors derived

from property received by the living

parent shall be included in thereturn of the parent except?a. when donor7s tax has been paid

on such property orb. when transfer of such property isexempt from donor7s tax

PERSONS %N&ER &ISA'ILIT/

If a taxpayer is unable to make hisown return it may be made by his1. duly authori0ed agents+2. representative+". by guardian+$. other person charged with the care

of his person or property+








• who will assume the responsibility of

making the return and incurringpenalties provided for erroneousfalse or fraudulent return.

R ET%RN OF ESTATE= TR%ST AN& PARTNES#IP

9state and /rust with gross incomeof '2KKKK or more and partnership,whether professional or business shallfile their income tax return on or before!pril 1&.

TAX R ET%RNS OF GENERAL PROFESSIONAL

PARTNERS#IPS 6GPP:

• 9ach 4'' shall file in duplicate a

return of its income ,except thoseincome exempt

• Shall set forth?

a. items of gross income anddeductions allowed

b. names of partnersc. /I>d. address and share of each

partner

Tax Retur of a Cororatio/hose re5uired to file?1. orporation subject to tax having

existed during the taxable yearwhether with income or not.2. orporation in the process of

li5uidation or receivership.". Insurance company doing business in

the 'hilippines or deriving incometherein

$. Aoreign corporation having incomefrom within the 'hilippines

Fili! of retur 6Pa) a+ )ou file +)+te3:Zuarterly returns for the first three

," 5uarters on a strictly sixty ,)K day

basis and the final or adjusted return onthe 1&th day of the fourth ,$th monthfollowing the close of either a-fiscal oncalendar year.

See Aex " for Illustration.

Who +hall file0/he return shall be filed by the

president vice-president or otherprincipal officer and shall be sworn to bysuch officer and by the treasurer orassistant treasurer.

WIT##OL&ING TAXES

Withholdi! Taxe+

7id+81. ithholding /ax at Source?

a. Ainal ithholding /axb. reditable ithholding /ax

,9xpanded withholding tax2. ithholding /ax on ompensation

,ages". ithholding /ax on reditable alue-

!dded /ax$. ithholding of 'ercentage /ax

FINALWIT##OL&ING

TAX S/STE;

CRE&ITA'LEWIT##OL&ING

TAX S/STE;

/he amount ofincome tax withheldby the withholdingagent is constitutedas a full and finalpayment of theincome due from thepayee on the saidincome. QSec. 2.&*,a :ev. :eg. 2-FBR

/axes withheld oncertain incomepayments areintended to e5ual orat least approximatethe tax due from thepayee on the saidincome.

/he liability for

payment of the taxrests primarily onthe payor or thewithholding agent./he payee is notre5uired to file anincome tax returnfor the particularincome.

/he income

recipient is stillre5uired to file anincome tax returnand(or pay thedifference betweenthe tax withheld andthe tax due on theincome. QSec.2.&*,; :ev. :egs.2-FBR

Ti3e to Withhold Tax at Sour*e

- arises at the time an income is paidor payable whichever comes first. /heterm <payable= refers to the date theobligation becomes due demandable orlegally enforceable. (5ec. .0-.- Rev.Regs. .1/)

Nature of Withholdi! A!et>+ Lia(ilit)/he withholding agent is directly

and independently liable for the correctamount of the tax that should bewithheld from the dividend remittance.(Commissioner vs. Procter and Gamble,

GR No. 99//, "ecember , 11)








CONSE$%ENCES FOR FAIL%RE TO WIT##OL&8. liable for surcharges and

penalties+

. liable upon conviction to a penaltye5ual to the total amount of thetax not withheld or not accountedfor and remitted. (5ec. 0, 118 NIRC)

. any income payment which isotherwise deductible from thepayor7s gross income will not beallowed as a deduction if it isshown that the income taxre5uired to be withheld is not paidto the ;I:. (5ec. .0/.0, Rev. Reg.'1/)

Withholdi! Tax O Co3e+atio9very employer must withhold

from compensation paid an amountcomputed in accordance with theregulations.

Ex*etio8here such compensation

income of an individual?1. @oes not exceed the statutory

minimum wages+ or2. Aive thousand ,'&KKK monthly

,')KKKK a year

• <!ic!ever is !i!er .

ELE;ENTS OF WIT##OL&ING ON

CO;PENSATION

1. /here must be an employer-employee relationship

2. /here must be payment of compensation or wages for servicesrendered

". There must be a payro per!od.CO;PENSATION EXE;PTE&

1. :emunerations received as anincident of employment

2. :emunerations paid for agriculturelabor

". :emunerations paid for domesticservices

$. :emunerations for casual not in thecourse of an employer3s trade orbusiness.

&. ompensation for services of aciti0en resident of the 'hilippines

for a foreign government or aninternational organi0ation

). @amages*. 8ife insurance

B. !mount received by the insured asreturn of premium

F. ompensation for injuries andsickness

1K. Income exempt under treaty11. /hirteenth ,1"th month pay and

other benefits12. 4SIS+ SSS+ 'hilhealth and other

contributions

Tax,Free Co5eat 'ON& 9#ec. 5C2:

CO"ENANT 'ON&S 6 bonds mortgages

deeds of trust and other similarobligations of domestic(resident foreigncorporation which contain acontract(provision by which the obligoragrees+1. to pay any portion of the tax

imposed upon the obligee+2. to reimburse the obligee for any

portion of the tax+ or". to pay the interest without

deduction for any tax which theobligor may be re5uired(permittedto pay or to retain therefrom.

• Dbligor shall deduct and withhold a

tax M "KC of the interest and otherpayments whether interest or otherpayments are payable annually or ata shorter period+ whether bondssecurities obligations had been(willbe issued( marketed and theinterest and other payments paidwithin and without the 'hilippines if the interest or other payment ispayable to a non-resident alien or aciti0en or resident of the 'hilippines

I*o3e of Re*iiet 9#ec. 50 d2:

• Income which any creditable tax is

re5uired to be withheld at sourceshall be included in the return of itsrecipient.

• /he e:cess of the amount of tax

withheld over the tax due on hisreturn shall be refunded to himsubject to Section 2K$ ,abatementrefund(credit taxes.








• If amount withheld at source is less

than the tax due on his return thedifference is paid in accordance withSection &) ,payment and assessment

of income tax.• !ll taxes withheld shall be

considered as trust funds andmaintained in a separate accountand not commingled with any otherfunds of the withholding agent.

'. TRANSFER TAXES

TRANSFER TAX INCO;E TAX

/ax on transfer of property.

/ax on income

:ates are lower--&C to 2KC -estate tax-- 2C to 1& C or"KC - donor7stax

:ates are higher -- &C to "2C

8esser exemptions %ore exemptions

6?: ESTATE TAXES&EFINITION8 an excise tax on the right of transmitting property at the time of death and on the privilege that a personis given in controlling to a certain extentthe disposition of his property to takeeffect upon death.

E+tate Tax For3ula

4ross 9state (5ec. /0)ess ,1 @eductions (5ec. /9)

,2>et share of the SS in the ''>et /axable 9state!ultiply by /ax rate (5ec. /-)

9state /ax dueess /ax redit Qif anyR (5ec. /9+D or 64D

9state /ax @ue if any

GROSS ESTATE

A de*edet>+ !ro++ e+tate i*lude+

#ec. 052

RESI&ENT NON,RESI&ENT CITIEN=

RESI&ENT ALIEN

&ECE&ENT

NON,RESI&ENTALIEN &ECE&ENT

1. :eal propertyherever situated

1. :eal propertysituated in thePhilippines.

2. 'ersonal propertyherever situateda /angible andb Intangible

2. 'ersonalproperty

a /angiblepropertysituated inthePhilippines

b Intangible

personalpropertywith a situsin thePhilippines unlessexemptedon the basisofreciprocity.

The law that !o5er+ the i3o+itio of e+tate tax

/he statute in force at the time o% death o% the decedent shall governestate taxation.

Ita!i(le er+oal roertie+ with a+itu+ i the Phil. #ec. 134 1// N*RC2

1. Aranchise which must be exercisedin the 'hilippines+

2. Shares obligations or bonds issuedby any corporation or sociedad anonima organi0ed or constituted in

the 'hilippines in accordance withits laws+

". Shares obligations or bonds issuedby any foreign corporation eighty-five per centum ,B&C of thebusiness of which is located in the'hilippines+

$. Shares obligations or bonds issuedby any foreign corporation if suchshares obligations or bonds haveac5uired a business situs in the'hilippines+








&. Shares or rights in any partnershipbusiness or industry established inthe 'hilippines.

Ita!i(le er+oal roert)= with a+itu+ i the Philiie+= of a de*edetwho i+ a o,re+idet alie +hall otfor3 art of the !ro++ e+tate if 6re*iro*it) *lau+e: #ec. 1342

1. the decedent at the time of hisdeath was a citi0en and resident of aforeign country which at the time of his deatha. did ot i3o+e a tra+fer tax or

death tax of any character

1. in respect of intangible personalproperty of citi0ens of the'hilippines not residing in thatforeign country+ or

2. the laws of the foreign country of which the decedent was a citi0enand resident at the time of his deatha. allow a +i3ilar exe3tio from

transfer taxes or death taxes of every character

b. in respect of intangible personalproperty owned by citi0ens of the 'hilippines not residing in

that foreign country(Reciprocity).

"aluatio of the !ro++ e+tate

/he properties comprising the grossestate shall be valued based on their fairmarket value as of the time of death.

PROPERT/ "AL%ATION

1 :eal 'roperty - fair market valuea as determined by the

ommissioner orb as shown in the

schedule of valuesfixed by theprovincial and cityassessors

I99: IS I49:

2 Shares of StockEnlisted

ommon Shares'referredShares

,book value-par value,arithmetic meanbetween the highest and

8isted lowest 5uotation at adate nearest the date ofdeath if none isavailable on the date ofdeath itself.

":ight tousufruct use orhabitation aswell as that ofannuity

- shall be taken intoaccount the probablelife of the beneficiary inaccordance with thelatest basic standardmortality table to beapproved by theSecretary of Ainanceupon recommendation of the Insuranceommissioner.

$ 'ersonal

property

- whether tangible or

intangible appraised atA%. <Sentimentalvalue= is practicallydisregarded.

I*lu+io+ i the Gro++ E+tate #ec. 052

?. &ECE&ENT>S INTEREST/o the extent of the interest in

property of the decedent at the time of his death.

9. TRANSFER IN CONTE;PLATION OF&EAT#1. ! transfer motivated by the thought

of impending death although deathmay not be imminent+ or

2. ! transfer by which the decedentretained for his life or for any periodwhich does not in fact end before hisdeath?a. the possession or enjoyment of

or the right to the income fromthe property or

b. the right either alone or inconjunction with any person todesignate the person who shallpossess or enjoy the property orthe income therefrom.

Ex*etio8 bona fide sale for anade5uate and full consideration inmoney or money7s worth.

B. RE"OCA'LE TRANSFER ! transfer whereby the terms of

enjoyment of the property may be








altered, amended, revo?ed or terminated by the decedent alone or inconjunction with any other person orwhere any such power is relin5uished in

contemplation of the decedent7s death.It is enough that the decedent had thepower to alter amend or revoke thoughhe did not exercise such power.


@. TRANSFER %N&ER GENERAL POWER OF APPOINT;ENT

! power of appointment is the rightto designate the person or persons who

will succeed to the property of the priordecedent.

/he general power of appointmentmay be exercised by the decedent?1. by will+ or2. by deed executed in contemplation

of his death+ or". by deed under which he has retained

for his life or for any period notascertainable without reference tohis death or for any period whichdoes not in fact end before hisdeath?

a. the possession or enjoyment ofor the right to the income fromthe property+ or

b. the right either alone or inconjunction with any person todesignate the persons who shallpossess or enjoy the property orthe income therefrom.


. PROCEE&S OF LIFE INS%RANCE'roceeds of life insurance taken by

the decedent on his own life shall beincluded in the gross estate if thebeneficiary is?a. the estate of the decedent his

e:ecutor or administrator ,regardless whether the designationis revocable or irrevocable+ or

b. a third person other than the estateexecutor or administrator where thedesignation of the beneficiary is

revocable.

. TRANSFERS FOR INS%FFICIENTCONSI&ERATION

/he value to be included in the gross

estate is the e:cess of the fair marketvalue of the property at the time of thedecedent7s death over the considerationreceived. /his is applicable in cases of transfer in contemplation of deathrevocable transfer and transfer undergeneral power of appointment made fora consideration but is not a bona fidesale for an ade5uate and fullconsideration in money or money7sworth.

. PRIOR INTERESTS

!ll transfers trusts estatesinterests rights powers andrelin5uishment of powers madecreated arising existing exercised orrelin5uished before or after theeffectivity of the >I:.

Proert) relatio+ (etwee #u+(adad Wife

/he property relations between thespouses shall be governed by contract,marriage settlement executed beforethe marriage.

In the absence of such contract or if the contract is void?Dn marriages contracted before !ugust

" 1FBB the system of conjugalpartnership of gains shall govern+

Dn marriages contracted on or after!ugust " 1FBB ,effectivity of theAamily ode of the 'hilippines thesystem of absolute community of property shall govern.

Exe3t Tra+3i++io+ #ec. 021. /he merger of usufruct in the owner

of the naked title+2. Aideicommisary substitution+". /he transmission from the first heir

legatee or donee in favor of anotherbeneficiary in accordance with thewill of the predecessor+ and

!ll be5uests devices legacies ortransfers to social welfare cultural andcharitable institutions no part of the netincome of which inures to the benefit of any individual+ 'rovided that not more

than "KC of the said be5uests legacies








or transfers shall be used by suchinstitutions for administration purposes.

&E&%CTIONS ON GROSS ESTATE

APPLICA'LE TO RE#*)ENT A&*EN# AN& C*T*EN#

RE%EN(E RE+(&AT*'N# -332

/he following are deductible fromthe gross estate of citi0ens and residentaliens?1. 9xpenses losses indebtedness

taxes etc. ordinary deductions2 2. /ransfer for public use". anishing deduction$. Aamily home&. Standard deduction e5uivalent to

one million pesos ,'1KKKKKK). %edical expenses*. !mounts received by heirs under :!

$F1* ,:etirement ;enefitsB. >et share of the surviving spouse in

the conjugal or community property

?. OR&INAR/ &E&%CTIONS

A. Fueral Exe+e+/he amount deductible is the lowest

among the following?

1. actual funeral expenses2. &C of the gross estate". '2KKKKK.

It i*lude+ the followi!81. %ourning apparel of the surviving

spouse and unmarried minor childrenof the deceased bought and used inthe occasion of the burial.

2. 9xpenses of the wake preceding theburial including food and drinks.

". 'ublication charges for deathnotices.

$. /elecommunication expenses ininforming relatives of the deceased.

&. ost of burial plot. /ombstonemonument or mausoleum but nottheir upkeep. In case deceasedowns a family estate or severalburial lots only the valuecorresponding to the plot where heis buried is deductible.

). Interment fees and charges.*. !ll other expenses incurred for the

performance of the ritual and

ceremonies incident to theinterment.9xpenses incurred a%ter the

interment such as for prayers masses

entertainment or the like are notdeductible.

!ny portion of the funeral and burialexpenses borne or de%rayed by relativesand %riends of the deceased are notdeductible.

'. 4%&ICIAL EXPENSES OF T#E

TESTA;ENTAR/ OR INTESTATE

PROCEE&INGS

9xpenses allowed as deduction underthis category are those?

1. incurred in the inventory-taking

of assets comprising the grossestate

2. administration". payment of debts of the estateas well as the distribution of the

estate among the heirs.In short these deductible items are

expenses incurred during the settlementof the estate but not beyond the last dayprescribed by law or the extensionthereof for the filing of the estate taxreturn.

C. CLAI;S AGAINST T#E ESTATE

/he word PclaimsP is generallyconstrued to mean debts or demands of a pecuniary nature which could havebeen enforced against the deceased inhis lifetime and could have beenreduced to simple money judgments.

laims against the estate orindebtedness in respect of property mayarise out of?

1. ontract+2. /ort+ or". Dperation of 8aw.

Re<ui+ite+81. /he liability represents a

personal obligation of thedeceased existing at the time of his death except unpaidobligations incurred incident tohis death such as unpaid funeralexpenses ,i.e. expensesincurred up to the time of

interment and unpaid medical








expenses which are classifiedunder a different category of deductions+

2. /he liability was contracted in

good faith and for ade5uate andfull consideration in money ormoney3s worth+

". /he claim must be a debt orclaim which is valid in law andenforceable in court+

$. /he indebtedness must not havebeen condoned by the creditoror the action to collect from thedecedent must not haveprescribed.

&. CLAI;S AGAINST INSOL"ENT PERSONS

Re<ui+ite+81. /he amount thereof has been

initially included as part of his grossestate ,for otherwise they wouldconstitute double deductions if theywere to be deducted

2. /he incapacity of the debtors to paytheir obligation is proven.

C. %NPAI& ;ORTGAGE

• In case unpaid mortgage payable is

being claimed by the estateverification must be made as to whowas the beneficiary of the loanproceeds.

• If the loan is found to be merely an

accommodation loan where the loanproceeds went to another personthe value of the unpaid loan must beincluded as a receivable of theestate.

• If there is a legal impediment to

recogni0e the same as receivable of the estate said unpaid obligation(

mortgage payable shall not beallowed as a deduction from thegross estate.

• In all instances the mortgaged

property to the e:tent o% thedecedents interest therein, should always form part of the grosstaxable estate.

F. TAXES

/axes which have accrued as of thedeath of the decedent which wereunpaid as of the time of death.

The followi! are ot dedu*ti(le81. income tax on income received

after death

2. property taxes not accruedbefore death

". estate tax

G. LOSSES

Re<ui+ite+81. It should arise from fire storm

shipwreck or other casualtyrobbery theft or embe00lement+

2. >ot compensated by insuranceor otherwise+

". >ot claimed as deduction in anincome tax return of the taxable

estate+$. Dccurring during the settlement

of the estate+ and&. Dccurring before the last day for

the payment of the estate tax,last day to pay? six months afterthe decedent7s death.

9. TRANSFER FOR P%'LIC %SE

Re<ui+ite+81. /he disposition is in a last will and

testament

2. /o take effect after death". In favor of the government of the

'hil. or any political subdivisionthereof

$. Aor exclusive public purposes.

Note /his should also include be5uestsdevices or transfers to social welfarecultural and charitable institutions.

B. "ANIS#ING &E&%CTION

&EFINITION8 /he deduction allowed fromthe gross estate for properties that weresubject to donor7s or estate taxes. It iscalled vanishing deduction because thededuction allowed diminishes over aperiod of five years. /he rate of deduction depends on the period fromthe date of transfer to the death of thedecedent as follows?

PERIO& &E&%CTION

• 1 year or less 1KKC

• 1 year 6 2 years BKC








• 2 years 6 " years )KC

• " years 6 $ years $KC

• $ years 6 & years 2KC

Re<ui+ite+81. the present decedent died within &

years from transfer of the propertyfrom a prior decedent or donor.

2. /he property must be located in the'hils.

". /he property formed part of thetaxable estate of the prior decedentor of the taxable gift of the donor.

$. /he estate tax or donor7s tax on thegift must have been finallydetermined and paid.

&. /he property must be identified as

the one received from the priordecedent or something ac5uired inexchange therefor.

). >o vanishing deduction on theproperty was allowable to the estateof the prior decedent.

@. FA;IL/ #O;E

Coditio+81. /he family home must be the actual

residential home of the decedent

and his family at the time of hisdeath as certi%ied by the 4arangay Captain of the locality where thefamily home is situated+

2. /he total value of the family homemust be included as part of the grossestate of the decedent+ and

". !llowable deduction must be in anamount e5uivalent to1. the current fair market value of

the family home as declared orincluded in the gross estate or

2. the extent of the decedent3s

interest ,whetherconjugal(community or exclusiveproperty whi*he5er i+ lowerbut not exceeding '1KKKKKK

. STAN&AR& &E&%CTION

! deduction in the amount of Dne%illion 'esos ,'1KKKKKK shall beallowed as an additional deductionithout need o% substantiation.

/he full amount of '1KKKKKK shallbe allowed as deduction for the benefitof the decedent.

. ;E&ICAL EXPENSES

• !ny amount of medical expenses

incurred within one year from deathin excess of Aive undred /housand'esos ,'&KKKKK shall no longer bealloed as a deduction under thissubsection.

• >either can any unpaid amount

thereof in excess of the '&KKKKKthreshold nor any unpaid amount formedical expenses incurred prior tothe one-year period from date of death be allowed to be deductedfrom the gross estate as claimagainst the estate.

. A;O%NT RECEI"E& '/ #EIRS%N&ER REP%'LIC ACT NO.

@?

!ny amount received by the heirsfrom the decedent3s employer as aconseBuence o% the death o% thedecedent'employee in accordance with:epublic !ct >o. $F1* is allowed as adeduction provided that the amount of the separation benefit is included as

part of the gross estate of the decedent.

D. NET S#ARE OF T#ES%R"I"ING SPO%SE IN T#E

CON4%GAL PARTNERS#IP OR CO;;%NIT/ PROPERT/

!fter deducting the allowabledeductions (only the ordinary deductions) appertaining to the conjugalor community properties included in thegross estate the share of the surviving

spouse must be removed to ensure thatonly the decedent3s interest in theestate is taxed.

&E&%CTIONS ON GROSS ESTATE APPLICA'LE TO N 'N -RE#*)ENT A&*EN#

/he following are deductible from the grossestate of non-resident aliens?








?. 9xpenses losses indebtedness andtaxes ,98I/ (ordinary deductions)

For3ula8

2a: O 'hil. 4ross Credit 9state O orld imit orld 4ross 98I/

9state

2. /ransfer for public use

". anishing deduction on property inthe 'hilippines.

$. onjugal share of the survivingspouse

ESTATE TAX CRE&IT

! tax credit is granted for estatetaxes paid to a foreign country on theestate of citi0ens and resident alienssubject to the following limitations

?. Oe forei! *outr) ol)/he tax credit is whichever is

lower between?$. 9state tax paid to the foreign

country&. /ax redit 8imit M

>/9 foreign country O 'hil. estate >/9 world /ax

( NTE ' Net 2a:able +state)

9. ;ore tha oe forei! *outr)/he credit shall be that which is

the lower amount between 8imit !and 8imit ;.

Li3it A. hichever is lowerbetween?

•

9state tax paid to a foreigncountry

• /ax redit 8imit M

>/9 foreign country O 'hil. estate >/9 world /ax

Li3it '. hichever is lowerbetween?

• /otal of estate taxes paid to all

foreign countries

• /ax redit 8imit M

>/9 outside 'hil. O 'hil. estate "T#$ %ord /ax

SETTLE;ENT OF T#EESTATE TAX

A. FILING

Noti*e Of &eath To 'e FiledIn all cases of transfers subject to

tax or where though exempt from taxthe gross value o% the estate e:ceedsP6,666 the executor administrator orany of the legal heirs ithin tomonths after the decedent7s death orwithin a like period after 5ualifying assuch executor or administrator shall

give a written notice thereof to theommissioner. (5ec. /1)

A E+tate Tax Retur I+ Re<uired To 'eFiled1. when the estate is subject to estate

tax+ or2. when the estate is not subject to

estate tax but the gross estateexceeds ' 2KKKKK+ or

3. regardless of the amount of thegross estate where the gross estateconsists of registered or registrable

property such as motor vehicle orshares of stock or other similarproperty for which clearance fromthe ;I: is re5uired as a conditionprecedent for the transfer of ownership thereof in the name of the transferee.

Ti3e for Fili! of the e+tate tax retur/he estate tax return shall be filed

<it!in six "2 mont!s a%ter the death of the decedent.

Exte+io8 /he ;I: may in meritoriouscases grant an extension of note:ceeding thirty (6) days for the filingof the estate tax return.

Whe The Gro++ E+tate Ex*eed+P9=JJJ=JJJ= The E+tate Tax ReturShall 'e A**o3aied ') A State3etWhi*h I+ Certified ') A IdeedetCertified Pu(li* A**outat Stati!1. the itemi0ed assets of the decedent

with its corresponding gross value atthe time of his death or in the case








of a non-resident not citi0en of the'hilippines that part of his grossestate situated in the 'hilippines+

2. the itemi0ed deductions from the

gross estate+3. the amount of tax due whether paid

or still due and outstanding.

Pla*e Where to File the E+tate TaxRetur

?. Re+idet CitiKe- with the !ccredited !gent ;ank

,!!; :evenue @istrict Dfficerollection Dfficer or duly authori0ed/reasurer of the city or municipalitywhere the decedent was domiciled at

the time of his death.

9. No,re+idet 6*itiKe or alie:a. has registered executor oradministrator

- with the :evenue @istrictDffice where such executor oradministrator is registered

b. executor or administrator is notregistered

- with the :evenue @istrictDffice having jurisdiction overthe executor7 or administrator7s

residencec. no executor or administrator

- with the Dffice of theommissioner (5ec. 1C, Rev. Reg.'66)

'. PA/;ENT

Pa)3et of the e+tate tax due/he estate tax due shall paid at the

time when the estate tax return is filed.hen the ommissioner finds that

the payment of the estate tax on thedue date would impose undue hardshipsupon the estate or any heir?

a. the payment of the estate taxmay be extended for a periodnot to exceed five ,& years if there is a judicial settlement of the estate+ or

b. the payment of the estate taxmay be extended for a periodnot to exceed two ,2 years if there is an extra-judicialsettlement of the estate.

N*2+ In case the available cash is notsufficient to pay its total estate taxliability the estate may be allowed to

pay ta: by installment. (5ec. 17, Rev.

Reg. '66)

Lia(ilit) for Pa)3etThe estate ta& shall be paid b' the

e&ecutor or administrator before deliver'to an' beneficiar' of his distributive shareof the estate.

Such beneficiary to the extent of hisdistributive share of the estate shall besubsidiarily liable for the payment of such portion of the estate tax as hisdistributive share bears to the value of the total net estate. (5ec. 1G, Rev. Reg.

'66)>o judge shall authori0e the

distribution of the estate unless acertification from the ommissioner thattax has been paid is shown. ,Sec. F$

>o shares or other forms of securitiesshall be transferred in the books of anycorporation partnership business orindustry organi0ed in the 'hilippinesunless a similar certification by theommissioner is shown. ,Sec. F*

hen a bank has knowledge of thedeath of a person who maintained a

joint account it shall not allow anywithdrawal by the surviving depositorwithout the above certification. ,Sec.F*

Provided, that the administrator of the estate or any one ,1 of the heirs of the decedent may upon authori0ation bythe ommissioner withdraw an amountnot exceeding twenty thousand pesos6P9J=JJJ: without the said certification.

/here is nothing in the /ax ode andin the pertinent remedial law thatimplies the necessity of the probatecourt or estate settlement of court7sapproval of the State7s claim for estatetaxes before the same can be enforcedand collected by the ;I:. Dn thecontrary under Section F$ it is theprobate or settlement court which is








bidden not to authori0e the delivery of the distributive share to any interestedparty without a certification from theI: showing the payment of the estate

tax. (!arcos II vs. Court o% Appeals, GRNo. 6//6, <une 0, 118)

COLLECTION OF TAX FRO; T#E #EIRS

!n estate or inheritance taxwhether assessed before or after thedeath of the deceased can be collectedfrom the heirs even after thedistribution of the properties of thedecedent. (Palanca vs. Commissioner o% Internal Revenue, GR No. 999,

<anuary , 19)

/he 4overnment has two ways of collecting taxes due from the estate.

a. ;y going after all the heirs andcollecting from each one of them the amount of the taxproportionate to the inheritancereceived or

b. 'ursuant to the lien created bySection 21F of the /ax odeupon all property and rights toproperty belonging to thetaxpayer for unpaid income taxis by subjecting said property of

the estate which is in the handsof an heir or transferee to thepayment of the tax due theestate. (Commissioner o% Internal Revenue vs. Pineda, GRNo. #8-, 5eptember 0,198)

69: &ONOR>S TAXES

&EFINITION8 ! tax on the privilege of transmitting one7s property or propertyrights to another or others withoutade5uate and full valuableconsideration.

Co5era!e Of The Tax #EC. 1342

RESI&ENT NON,RESI&ENT CITIEN=

RESI&ENT ALIEN

&ONOR

NON,RESI&ENTALIEN &ONOR

1. :eal propertyherever situated

1. :eal propertysituated in thePhilippines.

2. 'ersonal propertyherever situated

a. /angible andIntangible

2. 'ersonal propertya. /angible property

situated in thePhilippines

b. Intangiblepersonal propertywith a situs in the'hilippines unless

exempted on thebasis ofreciprocity.

Re<ui+ite+

1. apacity of the donor2. @onative Intent". @elivery whether actual or

constructive of the subject gift$. !cceptance by the donee

Law that !o5er+ the i3o+itio of

&oor>+ Tax

/he donor7s tax shall not applyunless and until there is a completedgift. /he transfer is per%ected from themoment the donor knows of theacceptance by the donee+ it iscompleted by the deliver either actuallyor constructively of the donatedproperty to the donee. /hus the law inforce at the time o% the

per%ectioncompletion o% the donationshall govern the imposition of the

donor7s tax.

! gift that is incomplete because of reserved powers becomes completewhen either?1. the donor renounces the power+ or2. his right to exercise the reserved

power ceases because of thehappening of some event orcontingency or the fulfillment of some condition other than becauseof the donor3s death.








• :enunciation by the surviving

spouse of his(her share in theconjugal partnership or absolutecommunity a%ter the dissolution

o% the marriage in favor of theheirs of the deceased spouse orany other person(s is subject todonor3s tax.

• hereas general renunciation

by an heir including thesurviving spouse of his(hershare in the hereditary estateleft by the decedent is notsubject to donor3s tax unlessspecifically and categoricallydone in favor of identified heir(sto the exclusion or disadvantageof the other co-heirs in thehereditary estate. (5ec. , Rev.Reg. '66)

STRANGER , a person who is not a brothersister spouse ancestor and linealdescendant or of a relative byconsanguinity in the collateral within the$th civil degree.

• ! legally adopted child is entitled to

all the rights and obligations provided by la to legitimate

children and therefore donation tohim shall not be considered asdonation made to stranger.

• @onation made between business

organi0ations and those madebetween an individual and a businessorgani0ation shall be considered asdonation made to a stranger.

"aluatio of !ift+ of roert)/he fair market value of the

property given at the time of the giftshall be the value of the gift.

Ita!i(le er+oal roertie+ with a+itu+ i the Phil. 6+a3e a+ i e+tate tax+u(He*t to the re*iro*it) rule: #ec.1342

7ormula (*n a cumulative basis over a period o% one calendar year)

?. O the ?+t doatio of a )ear

4ross gifts xxx

ess @eductions from grossgifts

xxx

>et gifts

!ultiply by /ax :ate

xxx

xxx@onor7s tax on the net gifts xxx

9. O doatio of a +u(+e<uetdate duri! the )ear

4ross gifts made on this date OOess @eductions from gross gifts OO

>et gifts OO Add ? !ll prior net gifts within theyear

OO

!ggregate net gifts!ultiply by ? /ax :ate

OOOO

@onor7s tax on aggregate net gifts OOess @onor7s tax on all prior netgifts

OO

@onor7s tax on the net gifts on thisdate

OO

Exe3tio of *ertai !ift+

1. 4ifts made by a residenta. @owries or gifts made on

account of marriage and beforeits celebration or within one

year thereafter by parents toeach of their legitimateillegitimate or adopted childrento the extent of the first '1KKKK.

b. 4ifts made to or for the use of the >ational 4overnment or anyentity created by any of itsagencies which is not conductedfor profit or to any politicalsubdivision of the saidgovernment.

c. 4ifts in favor of educational

charitable religious cultural orsocial welfare corporationinstitutions foundations trustor philanthropic organi0ationresearch institution ororgani0ation accredited non-government organi0ation ,>4D.'rovided that no more than "KCof said gifts shall be used bysuch donee for administrationpurposes.

2. 4ifts made by a non-resident nota citi0en of the 'hil.








a. same as ,bb. same as ,c except accredited

non-government organi0ation,>4D

A o,rofit edu*atioal ad-or*harita(le *ororatio= i+titutio=a**redited o,!o5er3etor!aiKatio= tru+t or hilatrohi*or!aiKatio= re+ear*h i+titutio oror!aiKatio i+

1. one incorporated as a non-stockentity

2. paying no dividends". governed by trustees who receive no

compensation and

$. devoting all its income whetherstudents7 fees or gifts donationssubsidies or other forms of philantrophy to the accomplishmentand promotion of the purposesenumerated in its !rticles of Incorporation.

Tax *redit for door>+ taxe+ aid to aforei! *outr)

1. @onor was a Ailipino citi0en orresident alien

2. !t time of foreign donation". @onor7s taxes of any character and

description$. !re imposed and paid by the

authority of a foreign country.

Li3itatio+ o tax *redit

1. /he amount of the credit in respectto the tax paid to any country shallnot exceed the same proportion of the tax against which such credit istaken which the decedent7s netgifts situated within such countrytaxable under the >I: bears to hisentire net gift+ and

2. /he total amount of the credit shallnot exceed the same proportion of the tax against which such credit istaken which the decedent7s net giftsituated outside the 'hilippinestaxable under the >I: bears to hisentire net gift.

For3ula of Tax Credit Li3it

?. For door>+ taxe+ aid to oeforei! *outr)

>4 situated /ax

in a foreign country O '@/ M redit9ntire net gift 8imit

6NG , Net Gift+M P&T , Phil. &oor+ Tax:

9. For door>+ taxe+ aid to two or3ore forei! *outr)

>4 outside the 'hil. O '@/ M /ax9ntire net gifts redit

8imit

/he allowable tax credit is the

loer amount between the tax creditlimit under ,a and ,b.

SETTLE;ENT OF T#E &ONOR>S TAX

Ti3e for Fili! of Retur ad a)3etof the &oor>+ Tax

/he donor7s tax return is filed andthe donor7s tax due is paid ithin thirty (6) days after the date the gift is made.

/he return shall be under oath induplicate setting forth?

1. 9ach gift made during the calendaryear which is to be included incomputing net gifts+

2. /he deductions claimed andallowable+

". !ny previous net gifts made duringthe same calendar year+

$. /he name of the donee+&. :elationship of the donor to the

donee+ and). Such further information as may be

re5uired by rules and regulationsmade pursuant to law.

N*2+ /he filing of a notice of donationis not reBuired, unlike in estate taxwhere notice of death is re5uired.

Pla*e for Fili! of Retur ad a)3etof the &oor>+ Tax

?. Re+idet

• ith an authori0ed agent bank the

:evenue @istrict Dfficer :evenueollection Dfficer or duly








authori0ed /reasurer of the city ormunicipality where the donor asdomiciled at the time of thetransfer or if there be no legal

residence in the 'hilippines withthe *%%ice o% the Commissioner .

9. No,re+idet

• Ailed with the Philippine +mbassy

or Consulate in the country wherehe is domiciled at the time of thetransfer or directly with the*%%ice o% the Commissioner .

Tax rate

If the donee is a +tra!er the rate of tax shall be "KC of the net gifts.

If the donee is ot a +tra!erthe rate shall be from 2C to 1&C of thenet gifts.

See Aex W - @onor7s /ax

C. TAX RE;E&IES%N&ER T#E NIRC

I. TAX RE;E&IES OF T#E

GO"ERN;ENT

I3orta*e

1. /hey enhance and support thegovernment7s tax collection.

2. /hey are safeguards of taxpayer7srights against arbitrary action.

Tax *olle*tio *aot (e re+traied ()*ourt iHu*tio #ec. 10 1// N*RC2

4u+tifi*atio8 8ifeblood /heory

Ex*etio8 Injunction may be issued bythe /! in aid of its appellatejurisdiction under :! 112& ,as amendedby :! F2B2.

Coditio+ for the I++ua*e of aIHu*tio () the Court of Tax Aeal+

/he /! may enjoin collection of taxes?a. If in its opinion the same mayjeopardi0e the interest of thegovernment and(or the taxpayer.

b. In this instance the court mayre5uire the taxpayer either to depositthe amount claimed or file a surety bondfor not more than double the amount

with the court.

N ;efore enforcement of remediesassessment is necessary to trigger theprocess. If no return is filed theommissioner is empowered to obtaininformation and to summon(examineand take testimony of persons todetermine the amount of tax due. (5ec.0, 118 NIRC)

TAX R E;E&IES %N&ER T#E ? TAX CO&E8

1. Summary 6 remedies at theadministrative level or regulation thatare executed without ceremony ordelay+ short or concise2. Substantive 6 remedies provided forby law or regulation+ an essential part orconstituent or relating to what isessential". 'rocedural 6 remedies involving law of pleading evidence jurisdiction etc.$. !dministrative 6 remedies available atthe administration ,;I: level&. udicial 6 remedies that are

enforced through judicial actionwhich may be civil or criminal

tax re3edie+ of the !o5er3et toeffe*t *olle*tio of taxe+

1. ompromise (5ec. 6-)2. @istraint ,!ctual and

onstructive) (5ecs. 60'6/)". 8evy (5ec. 684)$. /ax 8ien (5ec. 1)&. ivil !ction (5ec. )). riminal !ction (5ecs. , and

)*. Aorfeiture of 'roperty (5ec.

-'0)B. Suspension of business

operations in violation of !/(5ec. 0)

F. 9nforcement of !dministrativeAine

/he remedies of distraint and levy aswell as collection by civil and criminalactions may in the discretion of the

ommissioner be pursued singly or








independently of each other or all of them simultaneously.

6?: CO;PRO;ISE

&EFINITION8 ! contract whereby theparties by reciprocal concessions avoidlitigation or put an end to one alreadycommenced (Art. 6/, Ne Civil Code).

Re<ui+ite+1. /he taxpayer must have a tax

liability.2. /here must be an offer ,by the

taxpayer of an amount to be paid bythe taxpayer

". /here must be an acceptance ,bythe ommissioner or taxpayer as thecase may be of the offer in thesettlement of the original claim.

Offi*er+ authoriKed to *o3ro3i+e

1. /he Co33i++ioer of Iteral

Re5eue ,I: with respect tocriminal and civil cases arising fromviolations of the /ax ode 5ecs. 8(C)and 6-, 118 NIRCD . /his power of the I: is discretionary and onceexercised by him cannot be reviewedor interfered with by the ourts.(=oppel, Philippines vs.Commissioner, GR No. '188,5eptember , 106)

2. ;y the Re!ioal E5aluatio 'oardcomposed of?a. the :egional @irector as

hairmanb. !ssistant :egional @irector

the heads of the 8egal!ssessment and ollection

@ivisions andc. the :evenue @istrict Dfficerhaving jurisdiction over thetaxpayer as members+

• on assessments issued by the

regional offices involving basictaxes of '&KKKKK or less andminor criminal violations.

Ca+e+ whi*h 3a) (e *o3ro3i+ed

1. @elin5uent accounts2. ases under administrative protests

". ivil tax cases being disputed beforethe courts

$. ollection cases filed in courts&. riminal violations other than those

already filed in court or thoseinvolving criminal tax fraud+ and

$. ases covered b' preassessmentnotices but ta&pa'er is not agreeableto the findings of the audit office asconfirmed b' the review office.(Sec.2, Rev. Reg. 7-2001)

Ex*etio+

1. ithholding tax cases+2. riminal tax fraud cases+". riminal violations already filed in

court+$. @elin5uent accounts with duly

approved schedule of installmentpayments+

&. ases where final reports of reinvestigation or reconsiderationhave been issued resulting toreduction in the original assessmentand the taxpayer is agreeable tosuch decision.

). ases which become final andexecutory after final judgment of acourt where compromise is

re5uested on the ground of doubtfulvalidity of the assessment (RR. 6#66)+

*. 9state tax cases where compromiseis re5uested on the ground offinancial incapacity of the taxpayer.(RR. 6#66)

Co33i++ioer 3a) *o3ro3i+e thea)3et of a) iteral re5eue taxwhe

1. ! rea+oa(le dou(t a+ to the5alidit) of the *lai3 against thetaxpayer exists+ ora. /he delin5uent account or

disputed assessment is oneresulting from a jeopardyassessment.

b. /he assessment seems to bearbitrary in nature appearingto be based on presumptionsand there is reason to believethat its is lacking in legaland(or factual basis+ or








c. /he taxpayer failed to file anadministrative protest onaccount of the alleged failureto receive notice of assessment

or preliminary assessment andthere is reason to believe thatits is lacking in legal and(orfactual basis+ or

d. /he taxpayer failed to file are5uest forreinvestigation(reconsiderationwithin "K days from receipt offinal assessment notice andthere is reason to believe thatits is lacking in legal and(orfactual basis+ or

e. /he taxpayer failed to elevate

to the /! an adverse decisionof the ommissioner or hisauthori0ed representative insome cases within "K days fromreceipt thereof and there isreason to believe that its islacking in legal and(or factualbasis+ or

f. /he assessment were issued onor after an. 1 1FFB where thedemand notice allegedly failedto comply with the formalitiesprescribed under Sec. 22B of

the 1FF* >I:+ org. !ssessments made based on the

<;est 9vidence Dbtainable:ule= and there is reason tobelieve that the same can bedisputed by sufficient andcompetent evidence.

h. /he assessment was issuedwithin the prescriptive periodfor assessment as extended bythe taxpayer3s execution of aiver of the Statute of 8imitations the validity orauthenticity of which is being5uestioned or at issue and thereis strong reason to believe andevidence to prove that it is notauthentic. (RR. 6# 66)

i. /he assessment is based on anissue where a court ofcompetent jurisdiction made anadverse decision against the;ureau but for which theSupreme ourt has not decidedupon with finality. (RR. 6/'

66-).

2. /he financial position of thetaxpayer demonstrates a *learia(ilit) to a) the assessed tax

5ec. 6-(A), 118 NIRC). In suchcase the taxpayer should waive theconfidentiality privilege on bankdeposits under :! >o. 1$K& 5ec.9(7)(), NIRCD.

Ainancial Incapacity. [ /he offerto compromise based on financialincapacity may be accepted uponshowing that?a. /he corporation ceased operation

or is already dissolved. 'rovidedthat tax liabilities correspondingto the Subscription :eceivable or

!ssets distributed(distributable tothe stockholders representingreturn of capital at the time of cessation of operation ordissolution of business shall not beconsidered for compromise+ or

b. /he taxpayer as reflected in itslatest ;alance Sheet supposed tobe filed with the ;ureau of Internal :evenue is suffering fromsurplus or earnings deficitresulting to impairment in the

original capital by at least &KCprovided that amounts payable ordue to stockholders other thanbusiness-related transactionswhich are properly includible inthe regular Paccounts payableP areby fiction of law considered aspart of capital and not liabilityand provided further that thetaxpayer has no sufficient li5uidasset to satisfy the tax liability+ or

c. /he taxpayer is suffering from anetworth deficit ,total liabilitiesexceed total assets computed bydeducting total liabilities ,net of deferred credits and amountspayable to stockholders(ownersreflected as liabilities exceptbusiness-related transactionsfrom total assets ,net of prepaid

expenses deferred charges pre-








operating expenses as well asappraisal increases in fixedassets taken from the latestaudited financial statements

provided that in the case of anindividual taxpayer he has noother leviable properties underthe law other than his familyhome+ (5ec. , RR. 6#66).

c. /he taxpayer is a compensationearner with no other source of income and the family7s grossmonthly compensation does notexceed ,'1K&KK(month if single+'21KKK(month if married andthat it appears that the taxpayer

possesses no other leviable(distrainable assets other than hisfamily home+ or

d. /he taxpayer has been granted bythe S9 or by any competenttribunal a moratorium orsuspension of payments tocreditors or otherwise declaredbankrupt or insolvent. (5ec. , RR.68'66)

/he ongressional Dversight

ommittee under Section 2FK of the1FF* >I: is empowered to re5uire the;I:?

?. /he submission of allpertinent information includingbut not limited to industryaudits collection performancedata status reports on criminalactions initiated againstpersons+ and

9. /he submission of taxpayerreturns.

;ii3u3 Co3ro3i+e Rate+ 6;CR: of a) tax lia(ilit)a. In case of financial incapacity?

%: M 1KC of the basic assessed taxb. Dther cases?

%: M $KC of the basic assessed tax5ec. 6-(A), 118 NIRCD

Aro5al of the *o3ro3i+e () theE5aluatio 'oard i+ re<uired whe

a. the basic tax involved exceeds'1KKKKKK.KK or

b. the settlement offered is less thanthe %:.

N*2+ /he %: may be less than theprescribed rates of 1KC or $KC as thecase may be provided it is approved bythe 9valuation ;oard ,composed of the;I: ommissioner and the four ;I:@eputy ommissioners.

Co3ro3i+e of Cri3ial "iolatio+Geeral Rule8 !ll criminal violationsunder the /:' may be compromised.

Ex*etio+8

1. /hose already filed in court2. /hose involving fraud 5ec. 6-(4),

118 NIRCD.

Extet of the Co33i++ioer>+&i+*retio to Co3ro3i+e Cri3ial"iolatio+

1. 'efore the *o3lait i+ filed withthe Pro+e*utor>+ Offi*e8 /he I: hasfull discretion to compromise exceptthose involving fraud.

2. After the *o3lait i+ filed withthe Pro+e*utor>+ Offi*e (ut (eforethe ifor3atio i+ filed with the*ourt /he I: can still compromiseprovided the prosecutor must giveconsent.

". After information is fi$ed <it! t!ecourt8 /he I: is no longerpermitted to compromise with orwithout the consent of the'rosecutor. (People vs. !agdaluyo,GR No. '90, April 6, 19)

/his is more so when the courthas rendered a fial Hud!3et. !s amere agent of the 4overnment theommissioner is not authori0ed toaccept anything less than what isadjudicated in favor of the4overnment. ;y virtue of such finaljudgment the 4overnment hasalready ac5uired a 5e+ted ri!ht.

Nature of a Co3ro3i+e iExtraHudi*ial Settle3et of the








Taxa)er>+ Cri3ial Lia(ilit) for hi+"iolatio

It is consensual in character hence

may not be imposed on the taxpayerwithout his consent. /he ;I: may onlysuggest settlement of his tax liabilitythrough a compromise. /he extra-judicial settlement and the amount of the suggested compromise penaltyshould conform with the schedule of compromise penalties provided underthe relevant ;I: regulations or orders.

Re3ed) i *a+e the taxa)er refu+e+or fail+ to a(ide the tax *o3ro3i+e

1. 9nforce the compromisea. If it is a judicial compromise it

can be enforced by mereexecution. ! judicial compromiseis one where a decision based onthe compromise agreement isrendered by the court on re5uestof the parties.

b.!ny other compromise isextrajudicial and like any othercontract can only be enforced bycourt action.

2. :egard it as rescinded and insist

upon original demand (Art. 6-,Civil Code).

Co3ro3i+e Pealt)

It is an amount of money that thetaxpayer pays to compromise a taxviolation. /his is paid in lieu of criminalprosecution. ! taxpayer cannot becompelled to pay a compromise penalty.If he does not want to pay the I: mustinstitute a criminal action.

CO;PRO;ISE "S. A'ATE;ENT

Compromise involves a reduction of the taxpayer7s liability while abatementmeans that the entire tax liability of thetaxpayer is cancelled.

A'ATE;ENT

The Co33i++ioer 3a) a(ate or *a*ela tax lia(ilit) whe

1. /he tax or any portion thereof

appears to be uHu+tl) or

ex*e++i5el) a++e++ed+ 5ec. 6-(4),118 NIRCD.a. hen the filing of the

return(payment is made at the

wrong venue+b.hen the taxpayer7s mistake in

payment of his tax is due toerroneous written official adviceof a revenue officer+

c. hen the taxpayer fails to file thereturn and pay the tax on timedue to substantial losses fromprolonged labor dispute forcemajeure legitimate businessreverses provided however theabatement shall only cover thesurcharge and the compromise

penalty and not the interestimposed under Sec. 2$F of theode+

d.hen the assessment is broughtabout or the result of taxpayer7snon-compliance with the law dueto a difficult interpretation of saidlaw.

e.hen the taxpayer fails to file thereturn and pay the correct tax ontime due to circumstances beyondhis control provided howeverthe abatement shall only cover

the surcharge and the compromisepenalty and not the interestimposed under Sec. 2$F of theode+

&. 8ate payment of the tax under

meritorious circumstances ,ex.Aailure to beat bank cut-off timesurcharge erroneously imposedetc. (5ec. , Rev. Reg. '66)

2. /he ad3ii+tratio ad *olle*tio*o+t+ i5ol5ed do ot Hu+tif) the

*olle*tio of the amount due 5ec.6-(4), 118 NIRCD.a.!batement of penalties on

assessment confirmed by thelower court but appealed by thetaxpayer to a higher court

b.!batement of penalties onwithholding tax assessment undermeritorious circumstances

c. !batement of penalties ondelayed installment paymentunder meritorious circumstances

d.!batement of penalties on

assessment reduced after








reinvestigation but taxpayer isstill contesting reducedassessment+ and

e. Such other circumstances which

the ommissioner may deemanalogous to the enumerationabove. (5ec. , Rev. Reg. '66)

". /he Commissioner may also evenwithout a *lai3 therefor refund orcredit any tax where on the face of the return upon which payment wasmade such a)3et aear+ *learl)to ha5e (ee erroeou+l) aid(5ec. 1, 118 NIRC)).

69: &ISTRAINT

&EFINITION8 It is the sei0ure by thegovernment of personal propertytangible or intangible to enforce thepayment of taxes. /he property may beoffered in a public sale if taxes are notvoluntarily paid. It is a summary remedy.

Nature of the Warrat of &i+trait orLe5)

/he warrant is a summary procedure<forcing= the taxpayer to pay. /hereceipt of a warrant may or may notpartake the character of a final decision.If it is an indication of a final decisionthe taxpayer may appeal to the /!within "K days from service of thewarrant.

@uties of the officer serving the

warrant of distraint?1. %ake an account of the personal

properties distrained+

2. Sign the list of personalproperties distrained to whichshall be added a statement of the sum demanded and note of the time and place of sale+

". 8eave either with the owner orperson from whose possessionsuch personal properties weretaken or at the dwelling orplace of business of such personwith someone of suitable ageand discretion ,Sec. 2KB /:'

Two t)e+ of &i+trait

1. A*tual8 there is taking of possession of the personal

property from the taxpayer bythe government. 'hysicaltransfer of possession is notalways re5uired. /his is true inthe case of intangible propertysuch as stocks and credits.

2. Co+tru*ti5e8 the owner ismerely prohibited from disposingof his property.

A*tual 5+. Co+tru*ti5e &i+trait

ACT%AL

&ISTRAINT

CONSTR%CTI"E

&ISTRAINT

%ade only on theproperty of adelin5uent taxpayer

%ade on the propertyof any taxpayerwhether delin5uentor not

/here is taking of possession

/he taxpayer ismerely prohibitedfrom disposing of hisproperty

9ffected by leaving alist of distrained

property or byservice of a warrantof distraint orgarnishment

9ffected by re5uiringthe taxpayer to sign

a receipt of theproperty or by therevenue officerpreparing and leavinga list of suchproperty

!n immediate stepfor collection of taxes

>ot necessarily so

'oth!re summary remedies for the collection of taxes+N*2+ ? :efer only to personal property+ andcannot be availed of where the amount of the tax involved is not more than '1KK

Re<ui+ite+ for the exer*i+e of there3ed) of di+trait








1. /he taxpayer must be delin5uent,except in constructive distraint inthe payment of tax+

2. /here must be a subse5uent demand

for its payment ,assessment+". /he taxpayer must fail to pay the tax

at the time re5uired+ and$. /he period within which to assess or

collect the tax has not yet

prescribed.

Per+o+ who +hall +eiKe ad di+traiter+oal roert) 6a*tual di+trait:

1. !mount of delin5uent tax is morethan '1KKKKKK 6 ommissioner orhis duly authori0ed representatives.

2. !mount of delin5uent tax is'1KKKKKK or less 6 :evenue @istrictDfficer. (5ec. 68(A), 118 NIRC)

A%T#ORIT/ OF T#E CO;;ISSIONER TO

IN$%IRE INTO 'AN7 &EPOSIT ACCO%NTS

@istraint includes garnishment of money even in bank deposits because :!1$K& ,;ank Secrecy 8aw covers onlydivulging of information of deposits. >oin5uiry is made on garnishment for itonly earmarks a portion of the deposits.

>otwithstanding any contraryprovision of :! 1$K& the ommissioneris authori0ed to in5uire into the bankdeposits of?1. a decedent to determine his grossestate2. a taxpayer who waives his right byreason of financial incapacity to pay histax liability ,Sec.& >I:

Pro*edure+ for the A*tual &i+trait orGari+h3et

ICo33e*e3et of di+trait

9ither by the I: or his duly authori0edrepresentative+ or by the :evenue@istrict Dfficer

IISer5i*e of Warrat of &i+trait

6Se*. 9JD:

ith respect to?1. 'ersonal property 6

,a upon the owner of the goodschattels or other personalproperty+ or

,bupon the person from whosepossession such properties aretaken.

2. Stocks and other securities,a upon the taxpayer+ and,b upon the president manager

treasurer or other responsibleofficer of the corporationcompany or association whichissued the said stock andsecurities.

". ;ank accounts shall be garnished byserving a warrant of distraint 6,a upon the taxpayer+ and,b upon the president manager

treasurer or other responsibleofficer of the bank.

Note Epon receipt of the warrant of distraint the bank shall turn over to the

ommissioner so much of the bankaccounts as may be sufficient to satisfythe claim of the government.$. @ebts and credits 6

,a persons owing or having in hispossession the debts+

,b or under his control such credits+or

,c upon his agent.

Note /he warrant of distraint shall besufficient authority to the person owingthe debts or having in his possession orunder his control any credits belongingto the taxpayer to pay to theommissioner the amount of such debtsor credits.

Taxa)er 3u+t +i!re*eit








IIIPo+ti! of Noti*e

Se*. 9J NIRC

>otice specifying the time and placeof sale and the articles distrained. /heposting shall be made in not less thantwo ,2 public places in the city or muni-cipality where the distraint is made.Dne place for posting of such notice is atthe Dffice of the %ayor of such city ormunicipality.

I"Sale of Proert) &i+traied

The taxa)er>+ roert) 3a) (e la*eduder *o+tru*ti5e di+trait whe he

1. is retiring from any business subjectto tax+

2. is intending to 6

a. leave the 'hilippinesb. remove his property therefromc. hide or conceal his property

". is performing any act tending toobstruct the proceeding forcollecting the tax due or which maybe due from him (5ec. , 118 NIRC).

Pro*edure for the Co+tru*ti5e&i+trait of Per+oal Proert)

Taxa)er>+ o(li!atio to re+er5e

I: shall re5uire the taxpayer or anyperson having possession or control of such property to,a sign a receipt covering the propertydistrained and,b obligate himself to

1. preserve the same intact andunaltered and

2. not to dispose of the same in any

manner whatsoever without the

express authority of theommissioner of Internal:evenue.

If the taxpayer or person in possession of the property refuses or fails to sign thereceipt referred to the revenue officereffecting the constructive distraint shall,a proceed to prepare a list of suchproperty and

,b in the presence of two ,2 witnessesleave a copy thereof in the premiseswhere the property distrained is locatedafter which the said property shall bedeemed to have been placed underconstructive distraint.

6B: LE"/

&EFINITION8 It refers to the act of sei0ureof real property in order to enforce thepayment of taxes. /he property may beoffered in a public sale if after sei0urethe taxes are not voluntarily paid.

R E$%ISITES FOR T#E EXERCISE OF T#E R E;E&/

OF LE"/

Same as in the remedy of distraint.

Whe 3a) Le5) (e Effe*ted0

:eal property may be levied upon

before simultaneously or after thedistraint of personal property belongingto the delin5uent 5ec. 68(4), 118 NIRCD ;and the remedy by distraint and levymay be repeated if necessary until thefull amount including all expenses iscollected (5ec. 8, 118 NIRC).

Pro*edure of Le5) o Real Proert)

IPre are Certifi*ate of Le5

I




Re3ed) whe taxa)er did>t +i!re*eit





'reparation of a duly authen-ticatedcertificate containing?,a description of the property levied+,b name of the taxpayer and

,c the amounts of tax and penalty duefrom him. /his certificate shalloperate with the force of a legalexecution throughout the 'hilippines(5ec. 684, 118 NIRC).

Service of written notice to?,a the delin5uent taxpayer+ or,b if he is absent from the 'hilippinesto his agent or manager of the businessin respect to which the liability arose+ orc. to the occupant of the property.d. the proper :egister of @eeds shallalso be notified of the levy (5ec. 684,118 NIRC).

IIIAd5erti+e3et of the Ti3e ad

Pla*e of Sale

/he advertisement shall contain?1. the amount of tax and penalties due+2. name of the taxpayer against whom

taxes are levied+". short description the property to be

sold.

/he advertisement shall be made

within 2K days after the levy and thesame shall be for a period of at least "Kdays. It shall be effectuated by?a. posting a notice at the main entrance

of the municipal building or city halland in a public and conspicuousplace in the barrio or district in whichthe real property lies+ and

b. by publication once a week for "weeks in a newspaper of generalcirculation in the municipality or citywhere the property is located (5ec., C2RP).

&i+trait 5+. Le5)

&ISTRAINT LE"/

:efers to personalproperty

:efers to realproperty

Aorfeiture by thegovernment is notprovided

Aorfeiture isauthori0ed

/he taxpayer is notgiven the right ofredemption withrespect to distrainedpersonal property.

/he right ofredemption isgranted in case ofreal property leviedupon and sold orforfeited to thegovernment.

'oth

• !re summary remedies for the collection of

taxes+ and

•

annot be availed of where the amount of the tax involved is not more than '1KK

Rede3tio of Proert) Sold

>ithin year %rom the date o% sale,the property may be redeemed by thedelin5uent taxpayer or anyone from himupon payment of the taxes penaltiesand interest thereon from the date of delin5uency to the date of saletogether with interest on purchase priceat 1&C per annum from the date of sale

to the date of redemption. (5ec. -,NIRC).

Forfeiture to the Go5er3et

If there is no bidder in the publicsale or if the amount of the highest bidis insufficient to pay the taxes penaltiesand costs the real property shall beforfeited to the 4overnment.

Further &i+trait ad Le5)




IISer5i*e of Noti*e

I"Sale





/he remedy of distraint and levymay be repeated if necessary until thefull amount of the tax delin5uency dueincluding all expenses is collected from

the taxpayer. Dtherwise a clevertaxpayer who is able to conceal most of the valuable part of his property wouldescape payment of his tax liability bysacrificing an insignificant portion of hisholdings.

6@: TAX LIEN

&EFINITION? It is a legal claim or chargeon property either real or personalestablished by law as a security indefault of the payment of taxes (0

Am<ur //). 4enerally it attaches to theproperty irrespective of ownership ortransfer thereof.

Extet ad ature

/he tax together with interestspenalties and costs that may accrue inaddition thereto is a lien upon all

property and rights to property belonging to the ta:payer .

/he lien shall not be valid againstany mortgagee purchaser or judgmentcreditor until notice of such lien shall befiled by the ommissioner of Internal:evenue in the Dffice of the :egister of @eeds of the province or city where theproperty of the taxpayer is situated orlocated (5ec. 1, 118 NIRC).

Whe doe+ it Atta*h0

>ot only from the service of the

warrant of distraint but from the timetax became due and payable.

Lie 5+. &i+trait

LIEN &ISTRAINT

@irected againstthe propertysubject to the tax

>eed not bedirected against theproperty subject totax

:egardless of theowner of the

'roperty sei0edmust be owned by

property the taxpayer

6: CI"IL ACTIONS

&EFINITION8 Aor tax remedy purposesthese are actions instituted by thegovernment to collect internal revenuetaxes. It includes filing by thegovernment with the probate courtclaims against the deceased taxpayer.

Whe re+orted to0

1. hen a tax is assessed but theassessment becomes final and

unappealable because the taxa)erfail+ to file a ad3ii+trati5erote+t with the CIR withi BJ da)+fro3 re*eitM or

2. hen a protest against assessment isfiled and a decision of the I: wasrendered but the said decisionbecomes final executory anddemandable for failure of thetaxa)er to aeal the de*i+io tothe CTA withi BJ da)+ fro3re*eit of the de*i+io.

N*2+ udicial action may be resortedto even be%ore assessment althoughimpractical as stated in 5ec. 6, 118 NIRC <\ and no proceeding in courtwithout assessment for the collection of such taxes shall be begun a%ter theexpiration of such ,"year period.=

It should be noted that no civilor criminal action for the recovery of taxes shall be filed in court without theapproval of the ommissioner.

Where to file

1. Court of Tax Aeal+ 6 where theprincipal amount of taxes and feesexclusive of charges and penaltiesclaimed is *ne million pesos and above.

2. Re!ioal Trial Court= ;ui*ial TrialCourt= ;etroolita Trial Court 6where the principal amount of taxesand fees exclusive of charges andpenalties claimed is less than *nemillion pesos. (5ec. 8, RA No. 1/)








T#E APPRO"AL OF T#E CIR IS ESSENTIAL IN

CI"IL CASES. owever under 5ec. 8, 118 NIRC the ommissioner may delegatesuch power to a :egional @irector.

&efe+e+ whi*h are re*luded () fialad exe*utor) a++e++3et+

1. Invalidity or illegality of theassessment+ and

2. 'rescription of the government7sright to assess.

6: CRI;INAL ACTIONS

/he judgment in the criminal caseshall not only impose the penalty but

shall also order the payment of taxessubject of the criminal case as finallydecided by the ommissioner (5ec. 60,NIRC).

Where to file

1. Court of Tax Aeal+ 6 on criminaloffenses arising from violations of the >I: or / and other lawsadministered by the ;I: and the;D where the principal amount of taxes and fees exclusive of chargesand penalties claimed is *ne million

pesos and above.2. Re!ioal Trial Court= ;ui*ial Trial

Court= ;etroolita Trial Court 6 oncriminal offenses arising fromviolations of the >I: or / andother laws administered by the ;I:and the ;D where the principalamount of taxes and fees exclusiveof charges and penalties claimed isless than *ne million pesos or herethere is no speci%ied amount

claimed. (5ec. 8, RA No. 1/)

I;PORTANT CONSI&ERATIONS

1. >o criminal action shall bebegun without the approval of theommissioner. (5ec. 6, 118 NIRC)

2. It shall be brought in thename of the 4overnment and shallbe conducted by the legal officers of the ;I:.

EFFECT OF AC$%ITTAL OF T#E

TAXPA/ER IN A CRI;INAL ACTION

It does not necessarily result in the

exoneration of said taxpayer from hiscivil liability to pay taxes.

Ratioale8 /he duty to pay tax isimposed by statute prior to andindependent of any attempt on the partof the taxpayer to evade payment. It isnot a mere conse5uence of the feloniousacts charged nor is it a mere civilliability derived from a crime. (Republicvs. Patanao, GR No. '--, !ay 6,19)

EFFECT OF S%'SE$%ENT SATISFACTIONOF CI"IL LIA'ILIT/

/he subse5uent satisfaction of civilliability by payment or prescription doesnot e:tinguish the taxpayer7s criminalliability.

NO S%'SI&IAR/ I;PRISON;ENT

In case of insolvency on the part of the taxpayer subsidiary imprisonmentcannot be imposed as regards the ta: hich he is sentenced to pay.

owever it may be imposed in casesof failure to pay the fine imposed. (5ec.

/6, 118 NIRC)

CRI;INAL ACTION ;A/ 'E FILE& &%RINGT#E PEN&ENC/ OF AN A&;INISTRATI"EPROTEST IN T#E 'IR

It is not a re5uirement for thefiling thereof that there be a precisecomputation and assessment of the taxsince what is involved in the criminalaction is not the collection of tax but a*ri3ial ro+e*utio for the 5iolatioof the NIRC. Provided, hoever, thatthere is a ri3a fa*ie showing of awillful atte3t to evade taxes. (5eeHngab vs. Cusi, GR Nos. '-11'-, !ay 6, 1/6 in relation to Commissioner vs.Court o% Appeals, GR No. 1, <une-, 119)

6: FORFEIT%RE








&EFINITION8 divestiture of propertywithout compensation in conse5uenceof a default or offense.

ENFORCE;ENT OF T#E RE;E&/ OFFORFEIT%RE

a. I *a+e of er+oal roert) – /heforfeiture of chattels and removablefixtures of any sort is enforced by+eiKure ad +ale or de+tru*tio of the specific forfeited property.

b. I *a+e of real roert) – /heforfeiture of real property isenforced by a Hud!3et of *ode3atio ad +ale in a legalaction or proceeding civil or

criminal as the case may re5uire.c. I *a+e of di+tilled +irit+= li<uor+=

*i!ar+= *i!arette+ 3aufa*tured=rodu*t+ of to(a**o ad aaratu+u+ed for their rodu*tio – Eponforfeiture may be destroyed byorder of the ommissioner where thesale may be injurious to publichealth or prejudicial to lawenforcement.

d. Other arti*le+ +u(He*t to ex*i+e taxwhi*h ha5e (ee 3aufa*tured orre3o5ed i 5iolatio of the Code=die+ for riti! or 3ai! faere5eue +ta3+ ad la(el+ – Eponforfeiture may be sold or destroyedat the discretion of theommissioner. Aorfeited propertyshall not be destroyed until at least2K days from sei0ure.

EFFECT OF T#E FORFEIT%RE OFPROPERT/

/he effect is to transfer the title tothe specific thing from the owner to thegovernment. !ll the proceeds in case of a sale go to the coffers of thegovernment (H.5. vs. 5urla, GR No.

909, 5eptember , 1). In sei0ure for

the enforcement of a tax lien theresidue after deducting the tax liabilityand expenses will go to the taxpayer(4an? o% the Phil. Island vs. 2rinidad, GR

No. 96-, *ctober -, 1-).

INFOR;ER>S REWAR& 6Se* 9D9:A. Aor violations of the >I: a reward

of 1KC of the revenues surchargesor fees re*o5ered and(or fine orpenalty imposed and *olle*ted or ' 1% per case whichever is lower shallbe given to?1. any person who voluntarily gives

definite and sworn informationnot yet in the possession of the;I: leading to the discovery of

fraud upon the Internal :evenue8aws and(or any violations thereof

2. an informer where the offenderhas offered to compromise theviolation of law comiited by himand his offer has been acceptedand *olle*ted by the I: . /hisexcludes an Internal :evenueDfficer(employee or other publicofficial(employee or his relativewithin the sixth degree

N /his shall not refer to a case already

pending or examined by the I:

'. Aor the discovery and sei0ure of smuggled goods

- a reward of 1KC of the A% of thesmuggled and confiscated goods or' 1 % per case whichever islower shall be given to personsinstrumental in the discovery andsei0ure of such smuggled goods.

N /his does not apply to all publicofficials whether incumbent or retiredwho ac5uired the information in thecourse of performance of their dutiesduring their incumbency.

PRESCRIPTI"E PERIO&S FOR T#E ASSESS;ENT AN&COLLECTION OF TAXES

RATIONALE OF PRESCRIPTI"E PERIO&S








Such periods are designated tosecure the taxpayers againstunreasonable investigation after thelapse of the period prescribed. /hey are

also beneficial to the governmentbecause tax officers will be obliged toact promptly.

R%LES ON PRESCRIPTION

1. hen the tax law itself is silenton prescription the tax isimprescriptible+

2. hen no return is re5uired taxis imprescriptible+

Note :emedy of taxpayer is to file areturn.

". @efense of prescription iswaivable+

W#AT CONSTIT%TES ASSESS;ENT0

!n assessment contains not onlya computation of tax liabilities but alsoa demand for payment within aprescribed period.

PRESCRIPTI"E PERIO& FOR T#EASSESS;ENT OF TAXES

Geeral Rule82hree () years after the date

the return is due or filed whichever islater (5ec. 6, 118 NIRC).

Ex*etio+8. Failure to file a retur8 ten ,1K

years from the date of thediscovery of the omission to filethe return (5ec.AD);

. Fal+e or fraudulet retur withitetio to e5ade the tax8 ten,1K years from the date of thediscovery of the falsity or fraud(5ec. AD);

Note >othing in Section 222,!shall be construed to authori0e theexamination and investigation orin5uiry into any tax return filed inaccordance with the provisions of any tax amnesty law or decree.

• Araud must be alleged and

proved as a %act. It must be the

product of a deliberate intent to

evade taxes. It may beestablished by the?a. Intentional and substantial

understatement of tax

liability by the taxpayer+b. Intentional and substantial

overstatement of deductionsof exemptions+ and(or

c. :ecurrence of the abovecircumstances

• Aalsity constitutes a deviation

from the truth due to mista?e,carelessness or ignorance.

There i+ fraud i the followi! de*ided*a+e+81. Araud must be the product of a

deliberate intent to evade taxes, <alandoni vs. Republic

2. Simple statement that return filedwas not fraudulent does not disproveexistence of fraud ,2ayengco vs.Collector

". Substantial under-declarations ofincome for six consecutive five yearsdemonstrate fraudulence of return,Pere vs. C2A

$. 'resence of fictitious expenses withno evidence presented provesexistence of fraud ,2an Guan vs.

Commissioner

owever the courts did not considerthe tax returns filed as false orfraudulent with intent to evade paymentof tax in the following cases?

a. %ere understatement in the taxreturn will not necessarily implyfraud (<alandoni vs. Republic)

b. Sale of a real property for a priceless than its fair market value isnot necessarily a false return(Commissioner vs. Ayala5ecurities)

c. Araud is a 5uestion of fact and thecircumstances constituting fraudmust be alleged and proved in thetrial court (Commissioner vs.

Ayala 5ecurities)d. Araud is never imputed and the

courts never sustain findings of fraud upon circumstances thatonly create suspicion(Commissioner vs. <avier)

e. %istakes of revenue officers on

three different occasions remove










a. /he return is valid 6 it has compliedsubstantially with the re5uirementsof the law+ and

b. /he return is appropriate 6 it is areturn for the particular tax re5uiredby law.

Note ! defective tax return is thesame as if no return was filed at all.

PRESCRIPTI"E PERIO& FOR T#E"IOLATION OF AN/ PRO"ISION OF T#ETAX CO&E #EC. 01 1// N*RC2

1. Should be filed within %ive (0) years

from the ,a day of the commissiono% the violation of the law and if the same be not known from the ,bdiscovery thereo% and theinstitution o% the &udicial

proceedings for its investigation andpunishment.

2. Illustrative case? (im vs. Court o% Appeals GR Nos. -/-'8, *cober / , 116)a. charge is failure or refu+al to

a) deficiency income tax 6

committed only after the finalityof the assessment coupled withthe taxpayer7s willful refusal topay the taxes within the allottedperiod. ,i.e. cannot becommitted upon filing thereturn

b. charge is fili! of fal+e orfraudulet retur with itetto e5ade the assessment 6 inaddition to the fact of discoverythere must be a judicialproceeding for the investigationand punishment of the taxoffense before the & yearprescriptive period begins torun.

II. TAX RE;E&IES OF T#ETAXPA/ER

Geeral Re3edie+

A. A&;INISTRATI"E'efore Pa)3et

a. Prote+t – filing a petition forreconsideration or

reinvestigation within "Kdays from receipt of assessment ithin )K daysfrom filing of protest allrelevant supportingdocuments should have beensubmitted otherwise theassessment shall become

%inal 6 cannot be appealed(5ec. /, 118 NIRC).

Note Submission of documentswithin the )K day period is

optional to the ta:payer .

P/hat the relevantsupporting documentsmentioned in the law refersto such documents which thetaxpayer feels would benecessary to support hisprotest and not what theommissioner feels shouldbe submitted otherwisetaxpayer would always be atthe mercy of the ;I: which

may re5uire production of such documents whichtaxpayer could not produce.P(5tandard Chartered 4an?vs. CIR, C2A Case No. 0919,

August 9, 66)! protest is a vital

document which is a formaldeclaration of resistance of the taxpayer. It is arepository of all arguments.It can be used in court incase administrative remedieshave been exhausted. It isalso the formal act of thetaxpayer 5uestioning theofficial actuation of the I:./his is e5uivalent to apleading.

(. Eteri! ito a *o3ro3i+e(5ec. 6-, 118 NIRC).

After Pa)3etAiling of claim for refund

or tax credit within 2 years fromdate of payment regardless of








any supervening cause (5ec. 1,118 NIRC).

'. 4%&ICIAL

Ci5il A*tioa. Aeal to the Court of Tax

Aeal+ – within "K days fromreceipt of decision on the protestor from the lapse of 1BK days dueto inaction of the ommissioner(5ec. /, 118 NIRC).

(.A*tio to *ote+t forfeiture of *hattel= at any time (efore the+ale or de+tru*tio thereof torecover the same and upon givingproper bond enjoin the sale+ orafter the +ale and within )

months an action to recover thenet proceeds reali0ed at the sale(5ec. , 118 NIRC); and

*. A*tio for da3a!e+ against arevenue officer by reason of anyact done in the performance of official duty (5ec. 8, 118 NIRC).

Cri3ial A*tioa.Fili! of *ri3ial *o3lait

a!ai+t erri! 'IR offi*ial+ ade3lo)ee+.

(.IHu*tio – when the /! in its

opinion the collection by the ;I:may jeopardi0e taxpayer.

Note ith the enactment of the new/! law ,:! >o. F2B2 amending :! >o.112& /! now has jurisdiction overcriminal cases. (5ee Chapter 3I ' Courto% 2a: Appeals.)

Su(+tati5e Re3edie+1. Zuestioning the constitutionality or

validity of tax statutes or regulations2. >on-retroactivity of rulings (5ec.-9,

NIRC)". Aailure to inform the taxpayer in

writing of the legal and factual basesof assessment makes it void (5ec./, NIRC)

$. 'reservation of books of accounts andonce a year examination ,Sec. 2"&>I:

ASSESS;ENT AN& PROTEST Assessment

General rule /axes are self assessing

and thus do not re5uire the issuance of

an assessment notice in order toestablish the tax liability of a taxpayer.+:ceptions

1. /ax period of a taxpayer is

terminated (5ec. 9("), NIRC)2. @eficiency tax liability arising

from a tax audit conducted bythe ;I: (5ec. 09(4), NIRC)

". /ax lien (5ec. 1, NIRC)$. @issolving orporation (5ec.

0(c), NIRC)

Protest

?. &ire*t deial of rote+t Admnistrative decision on a disputed assessment ' /he decision of theommissioner or his duly authori0ed

representative shall ,a state the factsthe applicable law rules and regulationor jurisprudence on which such decisionis based otherwise the decision shall bevoid in which case the same shall not beconsidered a decision a disputedassessment and ,b that the same is hisfinal decision (5ec. ..0, Rev. Regs. No.'11)

9. Idire*t deial of rote+ta. ommissioner did not rule on the

taxpayer7s motion for

reconsideration of theassessment 6 it was only whenrespondent received thesummons on

the civil action for thecollection of deficiency incometax that the period to appealcommenced to run(Commissioner vs. Hnion5hipping Corp.)

b. :eferral by the ommissioner of re5uest for reinvestigation tothe Solicitor 4eneral (Republicvs im 2ian 2eng 5ons)

c. :eiterating the demand forimmediate payment of thedeficiency tax due to taxpayer7scontinued refusal to executewaiver (Commissioner vs. Ayala5ecurities Corp.)

d. 'reliminary collection letter mayserve as assessment notice(Hnited International Picturesvs. Commissioner)








ACTS OF 'IR CO;;ISSIONER CONSI&ERE& AS &ENIAL OF PROTESTW#IC# SER"E AS A 'ASIS FOR APPEALTO T#E CO%RT OF TAX APPEALS

1. filing by the ;I: of a civil suit forcollection of the deficiency tax(Commissioner vs. Hnion 5hippingCorporation, GR No. 9996, !ay ,116)

2. indication to the taxpayer by theommissioner <in clear andune5uivocal language= of his finaldenial. (Commissioner vs. Hnion5hipping Corporation, GR No. 9996,!ay , 116)

". ;I: demand letter reiterating his

previous demand to pay sent to thetaxpayer after his protest of theassessment. (5urigao +lectric Co.,Inc. vs. C2A, GR No. '0/1, <une/, 18-; Commissioner vs. Ayala5ecurities Corporation, GR No. '1-/0, !arch , 189)

$. /he actual issuance of a warrant of distraint and levy in certain casescannot be considered a final decisionon a disputed settlement.(Commissioner vs. Hnion 5hippingCorporation, GR No. 9996, !ay ,

116)

FILING OF CLAI; FOR TAX REF%N& OR TAX CRE&IT

GRO%N&S FOR FILING A CLAI; FOR TAXREF%N& OR TAX CRE&IT

1. /ax is collected erroneously orillegally.

2. 'enalty is collected withoutauthority.

". Sum collected is excessive.

TAX REF%N& "S. TAX CRE&IT

TAX REF%N& TAX CRE&IT

/he taxpayer asks forrestitution of themoney paid as tax

/he taxpayer asksthat the money sopaid be applied to hisexisting tax liability

TAX REF%N& TAX CRE&IT

/wo-year period tofile claim with theI: starts after thepayment of the taxor penalty

/wo-year periodstarts from the datesuch credit wasallowed ,in casecredit is wronglymade.

RE$%ISITES OF TAX REF%N& OR TAXCRE&IT

1. Clai3 3u+t (e i writi!M2. It 3u+t (e filed with the

Co33i++ioer withi two 69: )ear+after the a)3et of the tax orealt).Note >o suit or proceeding shall bebegun after the expiration of thesaid two ,2 years regardless of anysupervening cause that may ariseafter payment.

". Show roof of a)3et.

CO;;ENCE;ENT OF T#E TWO 69: /EAR PERIO& 64%RISPR%&ENCE:

?. Tax +ou!ht to (e refuded i+ille!all) or erroeou+l) *olle*ted- from the date the tax was paid.

(Commissioner vs. 3ictorias !illing,GR No. '-6/, <anuary , 19/)9. Tax i+ aid ol) i i+tall3et+ or

ol) i art- from the date the last or finalinstallment or payment because fortax purposes there is no paymentuntil the whole or entire tax liabilityis fully paid. (Collector vs. Prieto,GR No. '189, August 1, 19)

B. Taxa)er 3erel) 3ade a deo+it

- counted from the conversion of

the deposit to payment (Hnion

Garment vs. Collector, C2A Case No.-9, November 8, 10/)

- %erely making a deposit is note5uivalent to payment until theamount is actually applied to thespecific purpose for which it wasdeposited.

@. Tax ha+ (ee withheld fro3 +our*e6throu!h the withholdi! tax+)+te3:- counted from the date it falls dueat the end of the taxable year








- ! taxpayer who contributes to thewithholding tax system does notreally deposit an amount to thegovernment but in truth performs

and extinguishes his tax obligationfor the year concerned. (Gibbs vs.Commissioner, GR No. '8-69,November 1, 190)

. Ed of taxa(le )ear 5+. date of thefili! of the fial adHu+ted retur- from the date when the finaladjusted return was filed.- the rationale in computing thisperiod is the fact that it is only thenthe corporation can ascertainwhether it made profits or incurredlosses in its business operations.

(ACCRA Investments vs. Court o% Appeals, GR No. 19, "ecember 6, 11)

. &ate whe <uarterl) i*o3e taxwa+ aid 5+. date whe fialadHu+ted retur wa+ filed- from the date when final adjustedreturn was filed- /he filing of the 5uarterly incometax return ,Sec. )B and payment of 5uarterly income tax should only beconsidered mere installments of theannual tax due. (Commissioner vs.

2!@ 5ales, GR No. /89, <anuary 0, 11)

%. &ate whe the fial adHu+t3etretur wa+ a*tuall) filed ex. Apr.2 5+. La+t da) whe theadHu+t3et retur *ould +till (efiled ex. Apr. 152- from the date the final adjustmentreturn was actually filed.(Commissioner vs. Court o% Appeals,GR No 80-, <anuary , 111)

D. Tax wa+ ot erroeou+l) or ille!all)aid (ut the taxa)er (e*a3eetitled to refud (e*au+e of +uer5ei! *ir*u3+ta*e+- from the date the taxpayerbecomes entitled to refund and notfrom the date of payment.(Commissioner vs. "on PedroCentral Aucarera, GR No. '/-98,7eb. /, 18)

PA/;ENT %N&ER PROTEST IS NOTNECESSAR/ %N&ER NIRC

! suit or proceeding for tax refund

may be maintained <whether or not such

tax penalty or sum has been paid underprotest or duress= (5ec. 1, NIRC).

Note Similarly payment under protest is

not necessary in refund for local taxes.(5ee 5ec. 19, GC).

owever payment under protest isnecessary in claim for refund for realproperty taxes (5ec. 0, GC) and forcustoms duties (5ec. 6/, 2CC).

S%SPENSION OF T#E TWO,/EAR PRESCRIPTI"E PERIO&

1. /here is a pending litigationbetween the 4overnment and the

taxpayer+ and2. I: in that litigated case agreed to

abide by the decision of the S as tothe collection of taxes relativethereto (Panay +lectric Co. vs.Collector, GR No. '608-, !ay /,10/).

INTEREST ON TAX REF%N&S

Geeral Rule84overnment cannot be reBuired

to pay interest on taxes refunded to the

taxpayer in the absence of a statutoryprovision clearly or expressly directingor authori0ing such payment.,ommissioner vs. 5eeney, GR No. '8/, August 1, 101)

Ex*etio+81. hen the I: acted with patent

arbitrariness. !rbitrarinesspresupposes inexcusable or obstinatedisregard of legal provisions.(Commissioner vs. 3ictorias !illing,GR No. '1998, Nov. 1, 199)

2. Ender Sec. *F,,2 with respect toincome taxes withheld on the wagesof the employees.

TAX CRE&IT CERTIFICATE

1. %ay be applied against any internalrevenue tax e:cept withholdingtaxes

2. Driginal copy is surrendered to therevenue office








". >o tax refund will be given resultingfrom availment of incentives grantedby law where no actual payment wasmade ,5ec. 6-C, 118 NIRC).

FORFEIT%RE OF CAS# REF%N&-TAXCRE&IT

1. Aorfeiture of refund in favor of thegovernment when a refund check orwarrant remains unclaimed oruncashed within five ,& years fromdate of mailing or delivery.

2. Aorfeiture of /ax redit 6 a taxcredit certificate which remainsunutili0ed after five ,& years fromdate of issue shall be invalid unless

revalidated (5ec. 6, 118 NIRC).

REGLE;ENTAR/ PERIO&S IN INCO;E TAX I;POSE&

'/ LAW %PON T#E TAXPA/ER 6P%RS%ANT TO RE". REG. NO. ?9,=SEC. 99D OF T#E ? NIRC= AN& RA

NO. ??9 AS A;EN&E& '/ RA NO. 9D9:

;I: makes a tax a++e++3et

If taxpayer is not satisfied with theassessment file a rote+t withi BJ da)+

from receipt thereof

Su(3it +uorti! do*u3et+ withiJ da)+ from date of the filing of the

protest

If protest is denied= ele5ate the 3atterto the ommissioner of Internal :evenue,I:: withi BJ da)+ from receipt of the

decision of the I:7s duly authori0edrepresentative officer

Aeal to the &i5i+io of the Court of Tax Aeal+ 6CTA: withi BJ da)+ from

receipt of final decision of I: or hisduly authori0ed representative ,thetaxpayer has the option to appeal

straight to the /! upon receipt of thedecision of the I:7s duly authori0ed

representative

If the I: or his duly authori0edrepresentative fail+ to a*t o the

rote+t withi ?DJ da)+ from date of submission by taxpayer the latter may

aeal withi BJ da)+ from lapse of the1BK-day period with the /! @ivision

/he 'arty adversely affected by the /!@ivision7s decision may file one motionfor reconsideration(new trial withi ?da)+ from receipt of decision. If the %:is denied file a petition for review with

the /! en banc

Aeal to the Sure3e Court withi ?da)+ from receipt of the /! en banc

decision under :ule $& of the :ules of ourt

Pre,A++e++3et Noti*e= Whe NotRe<uired #ec. 0 N*RC2

1. hen the finding for anydeficiency tax is the result of mathematical error in thecomputation of the tax asappearing on the face of thereturn+ or

2. hen a discrepancy has been

determined between the taxwithheld and the amountactually remitted by thewithholding agent+ or

". hen a taxpayer who opted toclaim a refund or tax credit of excess creditable withholdingtax for a taxable period wasdetermined to have carried overand automatically applied thesame amount claimed againstthe estimated tax liabilities forthe taxable 5uarter or 5uartersof the succeeding taxable year+or

$. hen the excise tax due onexcisable articles has not beenpaid+

&. hen an article locallypurchased or imported by anexempt person such as but notlimited to vehicles capitale5uipment machineries andspare parts has been soldtraded or transferred to non-exempt persons.








Notes

• !s a general rule payment

under protest is not re5uired

under the >I: except whenpartial payment of uncontroverted taxes isre5uired under :: 12-FF./he ommissioner may evenwithout a written claimtherefor refund or credit anytax where on the face of thereturn upon which paymentwas made such paymentappears clearly to have beenerroneously paid.

• In case of the I:7s final

denial of the claim forrefund the "K-day period toappeal with the /! must bewithin the 2-year peremptoryperiod for instituting judicialaction.

See Aex N – !ssessment

'rocess and !ppeal

A&&ITIONS TO T#E TAX

6SECS. 9@,99 NIRC:

&EFINITION8 increments to the basic taxincident due to the taxpayer7s non-compliance with certain legalre5uirements.1. CI"IL PENALT/ - S%RC#ARGE

1. 2&C surchargea. Aailure to file any return and

pay the tax due thereon asre5uired under theprovisions of this ode orrules and regulations on the

date prescribed+ orb. Enless otherwise authori0ed

by the ommissioner filing areturn with an internalrevenue officer other thanthose with whom the returnis re5uired to be filed+ or

c. Aailure to pay the deficiencytax within the timeprescribed for its payment inthe notice of assessment+ or

d. Aailure to pay the full orpart of the amount of tax

shown on any returnre5uired to be filed underthe provisions of this odeor rules and regulations or

the full amount of tax duefor which no return isre5uired to be filed on orbefore the date prescribedfor its payment. (5ec. -/)

2. &KC surchargea. in case of willful neglect to

file the return within theperiod prescribed by theode or

• will not apply in case a

taxpayer without noticefrom the ommissioner

or his duly authori0edrepresentativevoluntarily files the saidreturn ,only 2&C shall beimposed

• &KC surcharge shall be

imposed in case thetaxpayer files the returnonly after prior notice inwriting from theommissioner or his dulyauthori0ed representa-tive (5ec. -., Rev. Reg.'11)

b. in case a false or fraudulentreturn is willfully made

Prima 7acie evidence

• substantial underdeclaration

(e:ceeding 6Q o% thatdeclared) of taxable salesreceipts or income

•or a substantialoverstatement (e:ceeding6Q o% actual deductions) of deductions ,Sec. 2$B

2. INTEREST- 2KC per annum or such higher rateas may be prescribed by the rulesand regulations

a. @eficiency interest (5ec. -14)b. @elin5uency interest (5ec. -1C)








c. Interest on 9xtended 'ayment(5ec. -1")

". OT#ER CI"IL PENALTIES OR

A&;INISTRATI"E FINES

a. Aailure to file certaininformation returns (5ec. 06)

b. *ailure of a withholding agent tocollect and remit ta& (Sec. 251)

c. *ailure of a withholding agent of refund e&cess withholding ta&(Sec. 252)

III. LOCAL TAXATION

POWERS AN& LI;ITATIONS

NAT%RE AN& SO%RCE OF LOCAL TAXINGPOWER 6SEE. SEC = ART. X= ?DCONSTIT%TION AN& SEC. ?9= LGC:

/he 8ocal 4overnment Enit has thepower?

a. to create its own sources of revenue and

b. to levy taxes fees and charges.

ongress cannot enact lawsdepriving 84E from exercising suchpower to tax but it may set guidelinesand limitations for the exercise.

#uc! taxes fees and c!aress!a$$ accrue exc$usive$y to t!e $oca$overnment units.

Nature of the Taxi! Powera. >ot inherent+b. 9xercised only if delegated to

them by law or onstitution+c. >ot absolute+ subject to

limitations provided for by law.

Ender the present constitutionalrule <where there is neither a grant nora prohibition by statute the tax powermust be deemed to exist althoughongress may provide statutory

limitations and guidelines. /he basicrationale for the current rule is tosafeguard the viability and self-sufficiency of local government units by

directly granting them general and broadtax powers.= ,!anila +lectric Co. vs.Province o% aguna, G.R. No. 01 A+e*t+ of Lo*al Taxi! Power

a. local taxationb. real property taxation

Fuda3etal Pri*ile+ !o5eri!Lo*al Taxatio 6Se*. ?BJ= l!*:

a. Shall be uniform in each localsub-unit

b. Shall be e5uitable and based as

much as possible on thetaxpayer7s ability to pay

c. 8evied for public purposesd. Shall not be unjust excessive

oppressive or confiscatorye. Shall not be contrary to law

public policy national economicpolicy or in restraint of trade

f. ollection of local taxes andother impositions shall not belet to any person

g. /he revenues collected underthe ode shall inure solely to

the benefit of and subject todisposition by the 84E levyingthe tax or other impositionunless otherwise specificallyprovided therein

h. 9ach 84E shall as far aspracticable evolve aprogressive system of taxation.

Lo*al Taxi! Authorit) 6Se*. ?B9= l!*:Shall be exercised by the Sanggunian

of the 84E concerned through anappropriate ordinance.

Power to re+*ri(e Pealtie+ for Tax"iolatio+ ad Li3itatio+ thereo6Se*. ?= l!*:1. /he Sanggunian is authori0ed to

prescribe fines or other penaltiesfor violations of tax ordinances.a. in no case shall fines be less

than '1KKK nor more than'&KKK

b. nor shall the imprisonment beless than one ,1 month nor

more than six ,) month.








2. Such fine or other penalty shall beimposed at the discretion of thecourt.

". /he Sangguniang ;arangay may

prescribe a fine of not less than'1KK nor more than '1KKK.

Power to AdHu+t Lo*al Tax Rate 6Se*.??= l!*:

!djustment of the tax rates asprescribed herein should not be oftenerthan once every five ,& years and in nocase shall such adjustment exceed tenpercent ,1KC of the rates fixed underthe 84.

Power to Grat Lo*al Tax Exe3tio+

6Se*. ?9= l!*:8ocal government units may

through ordinances duly approvedgrant tax exemptions incentives orreliefs under such terms and conditionsas they may deem necessary.

Tax Exe3tio+ Exi+ti! 'efore theEffe*ti5it) of the LGC ha+ (eeA(oli+hed 6Se*. ?B= l!*:

Enless otherwise provided in thisode tax exemptions or incentivesgranted to or presently enjoyed by all

persons whether natural or juridicalincluding government-owned orcontrolled corporations are herebywithdrawn upon the effectively of the84except the following?B. local water districtsF. cooperatives duly registered under

:.!. >o. )F"B non-stock and non-profit hospitals and

1K. educational institutions.

/he power to grant tax exemptionstax incentives and tax reliefs shall notapply to regulatory %ees which arelevied under the police power of the84E.

/ax exemptions shall be conferredthrough the issuance of a non-transferable tax exemption certificate.

Guidelie+ for the Grati! of TaxExe3tio+= Tax I*eti5e+ ad TaxRelief+ Art. 097: Ru$es and Reu$ations *mp$ementin t!e &c2

?. O the !rat of tax exe3tio+ ortax relief+8a. the same may be granted in

cases of natural calamities civil

disturbance general failure of crops or adverse economicconditions such as substantialdecrease in prices of agriculturalor agri-based products.

b. /he grant shall be through anordinance.

c. !ny exemption or relief grantedto a type or kind of business shallapply to all business similarlysituated.

d. /he same shall take effect onlyduring the next calendar year for

a period not exceeding 12months as may be provided inthe ordinance.

e. In the case of shared revenuesthe exemption or relief shall onlyextend to the 84E granting suchexemption or relief.

2. O the !rat of tax i*eti5e+8a. /he same shall be granted only

to new investments in thelocality and the ordinance shallprescribe the terms andconditions therefore.

b. /he grant shall be for a definiteperiod of not exceeding 1calendar year.

c. /he grant shall be by ordinancepassed prior to the 1st day of anuary of any year.

d. !ny grant to a type or kind of business shall apply to allbusinesses similarly situated.

LE"/ING OF LOCAL TAXES 6LOCAL TAXOR&INANCE:Re<ui+ite+?1. /he procedure applicable to local

government ordinances in generalshould be observed (5ec. /8, GC)

2. 'rocedural details (5ecs. 0-, 00, and 01, GC)a. necessity of a 5uorumb. submission for approval by the

local chief executivec. he matter of veto and overriding

the samed. the publication and affectivity










and $ years respectively fromthe date of registration+

B. Excise taxes on articlesenumerated under the >I: as

amended and taxes fees orcharges on petroleum products+

F. Percentage or value-added tax,!/ on sales barters orexchanges or similar transactionson goods or services except asotherwise provided herein+

1K. Taxes on the gross receipts of transportation contractors andpersons engaged in thetransportation of passengers orfreight by hire and commoncarriers by air land or water

except as provided in the ode+11. Taxes on premiums paid by way

of :einsurance or retrocession+12. Taxes fees or charges for the

registration of motor vehiclesand for the issuance of all kindsof licenses or permits for thedriving thereof except tricycle+

1". Taxes fees or other charges on'hilippine products actuallyexported except as otherwiseprovided in the ode+

1$. Taxes fees or charges on

ountryside and barangaybusiness enterprises andcooperatives duly registeredunder :.!. )B1K and :.!. )F"B,ooperatives ode of the'hilippines + and

1&. Taxes fees or charges of anykind on the >ational4overnment its agencies andinstrumentalities and localgovernment units.

CLASSIFICATION OF CO;;ONLI;ITATIONS1. /axes which are levied under the

>I: unless otherwise provided bythe 84

• Numbers 1 0 / 13

2. /axes fees etc. which are imposedunder the /ariffs and ustoms ode

• Number 4

". /axes fees and charges where theimposition of which contravenesexisting governmental policies or

which are violative of thefundamental principles of taxation

• Numbers 5 " 11 1 14 15

$. /axes fees and charges imposed

under special laws.• Number 1

TAXES AN& OT#ER I;POSITIONS T#ATT#E LOCAL GO"ERN;ENT ;A/ LE"/

6A: PRO"INCES#EC#. 14-141 &+C2

1. /ax on /ransfer of :eal 'roperty2. /ax on ;usiness of 'rinting and

'ublication". Aranchise /ax$. /ax on Sand 4ravel and other

Zuarry :esources extracted from'ublic 8and

&. 'rofessional /ax). !musement /ax*. !nnual Aixed /ax for every

@elivery /ruck or an of%anufacturers or 'roducersholesalers of @ealers or:etailers in certain products

See Aex 4 for the rates and

details.

6': ;%NICIPALITIES#EC. 14 &+C2

?. ;ui*ial Taxe+, taxes on thebusinesses of the following?

a. Dn manufacturers assemblersrepackers processors brewers

distillers rectifiers andcompounders of li5uors distilledspirits and wines ormanufacturers of any article ofcommerce of whatever kind or

b. Dn wholesalers distributors ordealers in any article ofcommerce of whatever kind or

c. Dn exporters and onmanufacturers millersproducers wholesalersdistributors dealers or retailersof essential commodities








d. Dn retailerse. Dn contractors and other

independentf. Dn banks and other financial

g. Dn peddlers engaged in the saleof any merchandise or article ofcommerce

h. Dn any business not otherwisespecified in the precedingparagraphs which thesanggunian concerned may deemproper to tax.

9. ;ui*ial o,re5eue fee+ ad*har!e+

/he municipality may imposeand collect such reasonable fees and

charges on business and occupationexcept professional taxes reserved forprovinces. ,Sec. 1$*. 84

Rate+ of Tax withi the ;etroolita;aila Area 6+e*. ?@@= l!*:

- >ot to exceed by &KC themaximum rates prescribed in thepreceding Section.

Pa)3et of 'u+ie++ Taxe+a. It shall be payable for every

separate or distinctestablishment or place wherebusiness subject to the tax isconducted and one line of business does not becomeexempt by being conducted withsome other business for whichsuch tax has been paid.

b. /he tax on a business must bepaid by the person conductingthe same.

c. In cases where a personconducts or operates 2 or moreof the businesses mentioned inSection 1$" of 84

- which are subject to thesame rate o% ta: the tax shall be

computed on the combined total

gross sales or receipts of the said 2or more related businesses.

- which are subject todi%%erent rates o% ta: the gross

sales or receipts of each businessshall be separately reported for thepurpose of computing the tax duefrom each business.

See Aex 7 for the rates and

details.

6C: CITIES#EC. 151 &+C2

• /he city may levy the taxes fees

and charges which the province ormunicipality may impose.

• /he tax rates that the city may levy

may e:ceed the maximum ratesallowed for the province ormunicipality by not more than &KCexcept the rates of professional andamusement taxes.

6&: 'ARANGA/S#EC. 15 &+C2

;arangays may levy the following taxes

fees and charges which shall accrueexclusively to them?

a. Taxe+ 6 Dn stores or retailerswith fixed businessestablishments with the grosssales or receipts for thepreceding calendar year of '&KKKK or less ,for barangays inthe cities and '"KKKK or less,for barangays in municipalities

b. Rate M not exceeding 1C of suchgross sales or receipts.

c. Ser5i*e Fee+ or Char!e+ 6 Aorservices rendered in connectionwith the regulation or the use of barangay-owned properties orservice facilities such as palaycopra or tobacco dryers

d. 'ara!a) Cleara*e 6 >o city ormunicipality may issue anylicense or permit fee for anybusiness or activity unless aclearance is first obtained fromthe barangay where such








business or activity is located orconducted.

e. Other Fee+ ad Char!e+ 6 /hebarangay may levy reasonable

fees and charges?1. Dn ommercial breeding of

fighting cocks cockfightsand cockpits+

2. Dn places of :ecreationwhich charge admission fees+and

". Dn ;illboards signboardsneon signs and outdooradvertisements.

SIT%S OF LOCAL TAXATION

A. Situ+ A**ordi! to the Ca+e+ith respect to excise tax the

tax is upon the performance of an actenjoyment of a privilege or the engagingin an occupation. /he power to levy suchtax is not dependent on the domicile of the taxpayer but on the place in whichthe act is performed or the occupation isengaged in+ not upon the location of theoffice but the place where the sale isperfected. , Allied 2hread Co., Inc. v.City !ayor o% !anila, '-619

ith respect to sale it is theplace of the consummation of the saleassociated with the delivery of thethings which are the subject matter of the contract that determines the situs of the contract for purposes of taxationand not merely the place of theperfection of the contract. ,5hell Co.,Inc. v. !unicipality o% 5ipocot,Camarines 5ur 60 Phil 9

'. Situ+ A**ordi! to Se*. ?J= LGC

'ra*h or +ale+ offi*e 6 a fixed place inthe locality which conducts theoperation of the business as an extensionof the principal office

Pri*ial offi*e- the head or the mainoffice of the business+ the city or themunicipality specifically mentioned inthe !rticles of Incorporation or officialregistration papers as being the officialaddress of said principal office shall beconsidered the situs thereof.

1. 'lace of sale ,with branch or salesoutlet therein?

• %unicipality or city where the

branch or outlet is located.

2. 'lace of sale ,no branch or salesoutlet?

• %unicipality or city of principal

office ,not in the place of sale". If manufacturer assembler

contractor producer or exporter,%!'9 with factory project officeplant or plantation ,A'''

$. "KC of recorded sales in the principaloffice? city or municipality wherethe principal office is located

&. *KC of recorded sales in theprincipal office? city or municipality

where the A''' is located• pro rata if A''' are located in

different municipalities or citiesin proportion to their respectivevolumes of production.

). If plantation is located in some otherplace than where the factory islocated the foregoing *KC shall besubdivided as follows?

• )KC to the city or municipality

where the factory is located

• $KC to the city or municipality

where the plantation is located.

CO;;ON RE"EN%E,RAISING POWERSOF LG%+ #EC. 15 T' 1552 1. Service fees and charges for services

rendered2. 'ublic Etility harges for the

operation of public utilities ownedoperated and maintained by 84Eswithin their jurisdiction.

". /oll fees or charges for the use of any public road pier or wharfwaterway bridge ferry or

telecommunication system fundedand constructed by the localgovernment unit concernedEx*etio+8a. Dfficers and enlisted men of the

!A' and '>'+b. 'ost office personnel delivering

mail+ andc. 'hysically handicapped and

disabled citi0ens who aresixty-five ,)& years or older.,Sec. 1&2 84










2. takes the oath of office uponelection or appointment toany position in thegovernment service+

". receives any licensecertificate or permit from anypublic authority+ pays any taxor fee+

$. receives any money from anypublic fund+

&. transacts other officialbusiness+ or

). receives any salary or wagefrom any person orcorporation.

/he presentation of the community taxcertificate shall not be re5uired in

connection with the registration of avoter.

'. Cororatio1.receives any license certificate

or permit from any publicauthority+

2.pays any tax or fee+".receives money from public

funds+ or$. transacts other official business.

/he city of municipal treasurerdeputi0es the barangay treasurer to

collect the community tax in theirrespective jurisdictions. (5ec. 9-, CG)

/he proceeds of the community taxactually and directly collected by thecity or municipal treasurer shall accrueentirely to the general fund of the city ormunicipality concerned.

'roceeds of the community taxcollected through the barangay treasurers shall be apportioned asfollows?

• &KC accrues to the general fundof the city or municipalityconcerned+ and

• &KC accrues to the barangay

where the tax is collected. Colle*tio Of Lo*al Taxe+

Tax Period ad ;aer of Pa)3et –#ec. 1"5 &+C2

Enless otherwise provided thetax period shall be the calendar year .

Such taxes fees and chargesmay be paid in 5uarterlyinstallments.

A**rual of Tax – #ec. 1"" &+C2Enless otherwise provided shall

accrue on the first day of anuary of each year.

owever new taxes fees orcharges or changes in the ratesthereof shall accrue on the %irstday o% the Buarter ne:t %olloingthe effectivity of the ordinanceimposing such new levies or rates.

Ti3e of Pa)3et – #ec. 1" &+C2Enless otherwise provided shall

be paid ithin the %irst tenty (6)days o% <anuary or of eachsubse5uent 5uarter as the case maybe.

%ay for a justifiable reason orcause be extended withoutsurcharges or penalties but only fora period not e:ceeding si: (9)months.

Sur*har!e+ ad Pealtie+ o %aidTaxe+= Fee+ or Char!e+ – #ec. 1"0&+C2

Surcharge not exceeding 2&C of the amount of taxes fees or chargesincluding surcharges until suchamount is fully paid.

;ut in no case shall the totalinterest on the unpaid amount orportion thereof exceed thirty-six,") months.

Itere+t+ o Other %aid Re5eue+ –#ec. 1"/ &+C2

!n interest thereon at the ratenot exceeding 2C per month from thedate it is due until it is paid but in nocase shall the total interest on theunpaid amount or portion thereof exceed thirty-six ,") months.

Colle*tio of Lo*al Re5eue+ () theTrea+urer – #ec. 13 &+C2

!ll local taxes fees and chargesshall be collected by the provincial citymunicipal or barangay treasurer or theirduly authori0ed deputies.

/he provincial city or municipal

treasurer may designate the barangay








treasurer or his deputy to collect localtaxes fees or charges.

In case a bond is re5uired for thepurpose the provincial city or

municipal government shall pay thepremiums thereon in addition to thepremiums of the bond that may bere5uired under the ode.

LOCAL TAX RE;E&IES%N&ER T#E LGC

?. TAX RE;E&IES OF T#ELOCAL GO"ERN;ENT %NITS 6LG%+:

Ci5il Re3edie+ Of The Lo*alGo5er3et %it+ 6LG%: To Effe*tColle*tio Of Taxe+

6?: Lo*al Go5er3et>+ Lie 6 8ocaltaxes fees charges and otherrevenues constitute a lien superiorto all liens charges orencumbrances in favor of anyperson enforceable by anyappropriate administrative orjudicial action.

69: Ci5il Re3edie+

,a by administrative action throughdistraint of personal propertyand by levy upon real property

,b by judicial action

9ither of these remedies or all maybe pursued concurrently orsimultaneously at the discretion of the84E concerned.

4%RIS&ICTION OF CO%RTS O"ER LOCALTAXATION CASES

a. ith the amendment brought by:! >o. F2B2 the ourt of /ax!ppeals now has appellatejurisdiction over local taxationcases decided by the :egional/rial ourt in the exercise of itsappellate or original jurisdiction.

b. :egular judicial courts are notprohibited from enjoining the

collection of local taxes subjectto :ule &B ,'reliminaryInjunction of the :ules of ourt.

Note Enlike the >I: the 8ocal /axode does not contain any specificprovision prohibiting courts fromenjoining the collection of local taxes.Such statutory lapse or intent may haveallowed preliminary injunction wherelocal taxes are involved. ;ut it cannotnegate the procedural rules andre5uirements under :ule &B of the :ulesof ourts. (3alley 2rading Co. vs. C7I o% Isabela, GR No. -101, !arch , 1/1)

PRESCRIPTI"E PERIO&S FOR T#E ASSESS;ENT

AN& COLLECTION OF LOCAL TAXES

PRESCRIPTI"E PERIO&S OF ASSESS;ENT1. Lo*al taxe+= fee+= or *har!e+ 6 five

,& years from the date they becamedue. (5ec. 1-, GC).

2. Whe there i+ fraud or itet toe5ade the a)3et of taxe+= fee+or *har!e+ 6 ten ,1K years %romdiscovery of the fraud or intent toevade the payment (5ec. 1- GC).

PRESCRIPTI"E PERIO& OF COLLECTION8ocal taxes fees or charges

may be collected within five ,& yearsfrom the date of assessment byadministrative or judicial action. >osuch action shall be instituted after theexpiration of such period (5ec. 1-,GC).GRO%N&S FOR T#E S%SPENSION OFT#E R%NNING OF T#E PRESCRIPTI"EPERIO&S

a. /he treasurer is legally

prevented from the assessmentor collection of the tax+b. /he taxpayer re5uests for a

reinvestigation and executes awaiver in writing before theexpiration of the period withinwhich to assess or collect+ and

c. /he taxpayer is out of thecountry or otherwise cannot belocated (5ec. 1-, GC).

2. TAX RE;E&IES OFT#E TAXPA/ER








Re3edie+ Of The Taxa)er I Lo*alTaxatio

A. A&;INISTRATI"EBefore assessmenta. Aeal 6 any 5uestion on

constitutionality or legality of taxordinance within "K days fromeffectivity thereof to Secretary of ustice 65ec. /8 GC)

b. &e*larator) relief wheneverapplicable.

After assessmenta. Prote+t 6 within )K days from receipt

of assessment (5ec. 10 GC).

'ayment under protest is notnecessary.

7. Pa)3et +u(+e<uet refud ortax *redit – within 2 years frompayment of tax to local treasurer(5ec. 19 GC). It is to be notedthat unlike in internal revenuetaxes the supervening cause appliesin local taxation because the periodfor the filing of claims for refund orcredit of local taxes is counted notnecessarily from the date of

payment but from the date thetaxpayer is entitled to a refund orcredit.

c. Ri!ht of rede3tio 6 1 year fromthe date of sale or from the date of forfeiture (5ec. 81, GC).

'. 4%&ICIAL?. Court a*tio

• within "K days after receipt of

decision or lapse of )K days of

Secretary of ustice7s inaction(5ec. /8 GC)

• within "K days from receipt

when protest of assessment isdenied (5ec. 10 GC)

• if no action is taken by the

treasurer in refund cases and thetwo year period is about to lapse(5ec. 10 GC)

• if remedies available does not

provide plain speedy andade5uate remedy.

9. A*tio for de*larator) reliefB. IHu*tio 6 if irreparable damage

would be caused to the taxpayer andno ade5uate remedy is available.

I".REAL PROPERT/TAXATION

&efiitio+8REAL PROPERT/ TAXATION – ! direct tax

on ownership of lands andbuildings or other improvementsthereon payable regardless of whether the property is used or

not although the value may varyin accordance with such factor.

Ender the 84 it coversthe administration appraisalassessment levy and collectionof :eal 'roperty /ax i.e. tax onland and building and otherstructures and improvements onit including machineries.

REAL PROPERT/ 6 subject to thedefinition given by Art. -0 o% the Civil Code.

I;PRO"E;ENT 6 valuable addition madeto a property or amelioration inits condition amounting to morethan a mere replacement of parts involving capitalexpenditures and labor.

NAT%RE AN& CLASSES

C#ARACTERISTICS OF REAL PROPERT/TAX1. @irect tax on the Dwnership of

real property2. Ad valorem tax. /he value is

based on the tax base.". 'roportionate 6 the tax is

calculated on the basis of acertain percentage of the valueassessed.

$. Indivisible single obligation&. 8ocal tax

TAXING A%T#ORITIES #EC. &+C2








LG%Rate of 'a+i* Real

Proert) Tax

1. 'rovince not e:ceeding 1C of assessed value

2. ity not e:ceeding 2C

". %unicipalitywithin %etro%anila

not e:ceeding 2C.

F%N&A;ENTAL PRINCIPLES GO"ERNINGREAL PROPERT/ TAXATION #EC. 1/0&+C21. :eal property shall be appraised at

its current and Aair market value+2. :eal property shall be classified for

assessment purposes on the basis of actual Ese.

". :eal property shall be assessed onthe basis of Eniform classificationwithin each 84E

$. /he appraisal assessment levy andcollection of :' /ax shall not be letto any 'rivate person

&. /he appraisal and assessment of realproperty shall be 95uitable.

EXTENT OF T#E POWER TO LE"/

• ;asic real property tax+

• 1C additional real estate tax to

finance the Special 9ducationAund+ (5ec. 9)

• &C additional ad valorem tax on

Idle lands+ (5ec. 9, GC) and

• Special levy or special

assessments ,may be imposedeven by municipalities outside%etro %anila on lands comprisedwithin its territorial jurisdiction

specially benefited by publicworks projects or improvementsfunded by the local governmentunit concerned.Provided Special levy shall not exceed

)KC of the actual cost of such projects andimprovements including thecosts of ac5uiring land andsuch other real property inconnection therewith

not apply to lands exempt

from basic real property taxand the remainder of theland have been donated to

the local government unitconcerned for theconstruction of saidprojects. (5ec. -6, GC).

FOR P%RPOSES OF REAL PROPERT/TAXATION I&LE LAN&S S#ALL INCL%&E86#EC. &+C21. !gricultural lands 3ore tha oe

he*tare in area oe,half of whi*h

re3ai u*ulti5ated or unimproved bythe owner of the property or personhaving legal interest therein.

!gricultural lands planted topermanent or perennial crops withat least &K trees to a hectare shallnot be considered idle lands.

8ands actually used for gra0ingpurposes shall likewise not beconsidered idle lands+ and

2. 8ands other than agriculturallocated in a city or municipality3ore tha oe thou+ad +<uare 3eter+

in area oe,half of whi*h re3ai

uutiliKed or ui3ro5ed by theowner of the property or person

having legal interest therein.

I&LE LAN&S EXE;PT FRO; TAX 6#EC.0 &+C2

;y reason of?. %orce ma&eure1. civil disturbance2. natural calamity". or any cause which physically or

legally prevents the owner of the property or person havinglegal interest therein from

improving utili0ing orcultivating the same.

CLASSIFICATION OF LAN&S FOR P%RPOSESOF ASSESS;ENT #EC. 10 A2

a. ommercialb. !griculturalc. :esidentiald. %inerale. Industrialf. /imberlandg. Special








SPECIAL CLASSES OF REAL PROPERT/#EC. 1" &+C2

1. ospitals2. ultural and Scientific purposes". owned and used by 8ocal water

districts$. 4Ds rendering essential public

services in the supply anddistribution of water and(orgeneration or transmission of electric power.

PROPERTIES EXE;PT FRO; REALPROPERT/ TAX 6#EC. 4 &+C:9xemption is limited only to the

following?1. :eal property owed by the

government e:cept when the(eefi*ial u+e thereof has beengranted to a taxable person+

2. haritable institutionschurches personages orconvents appurtenant theretomos5ues non-profit or religiouscemeteries and all landsbuildings and improvementsa*tuall)= dire*tl) adex*lu+i5el) u+ed for religious

charitable or educationalpurposes (Art. 3I, 5ec. /,Constitution);

". %achineries and e5uipment thatare a*tuall)= dire*tl) adex*lu+i5el) u+ed by local waterutilities and 4D7s engaged inthe supply and distribution of water and(or electric power+

$. :eal property owed by dulyregistered cooperatives asprovided for in :! )F"B+ and

&. %achinery and e5uipment u+edfor pollution control andenvironmental protection.

ACT%AL %SE OF PROPERT/ AS 'ASISFOR ASSESS;ENT 6#EC. 1 &+C:

:eal property shall be classifiedvalued and assessed on the basis of a*tual u+e regardless o% here located,hoever ons it, and hoever uses it.

Enpaid realty taxes attach to the

property and is chargeable against the

person who had actual or beneficial useand possession of it regardless of whether or not he is the owner. /oimpose the real property tax on the

subse5uent owner which was neither theowner nor the beneficial user of theproperty during the designated periodswould not only be contrary to law butalso unjust. (+state o% im vs. City o% !anila, GR No. 1691, 7ebruary ,116)

PROCE&%RE

STEP ?8 &ECLARATION OF REALPROPERT/

&ECLARATION '/ OWNER OR A&;INISTRATOR

6SEC. 9J9,9JB:

• Aile a sworn declaration with the

assessor- once every " years during

the period from anuary 1to une "K.

• 7or nely acBuired property 6

W#EN? %ust file with the assessor within)K days from date of transferW#AT? Sworn statement containing thefair market value and description of the

property.• 7or improvement on property

W#EN? %ust file within )K days uponcompletion or occupation ,whichevercomes earlierW#AT? Sworn statement containing thefair market value and description of theproperty.

&ECLARATION '/ PRO"INCIAL - CIT/ -;%NICIPAL ASSESSOR #EC. 342

W#EN? Dnly when the person under Sec.

2K2 re%uses or %ails to make adeclaration within the prescribed time.

>o oath by the assessor is re5uired.

Notes, Proof of Exe3tio of RealProert) fro3 Taxatio , #ec. 3"2

W#O? ;y any person or for whom realproperty is declared.

• laim for exemption must be filed

with the assessor together with








sufficient documentary evidence tosupport claim

W#EN8 within "K days from the date of

declaration of property.

IF PROPERT/ IS &ECLARE& FOR T#E FIRST

TI;E – 6SEC.999:If @eclared for the first time real

property shall be assessed for backtaxes?

Aor ot 3ore tha ?J )ear+ prior todate of initial assessment

/axes shall be computed on the basisof applicable schedule of values in forceduring the corresponding period.

STEP 98 LISTING OF REALPROPERT/ IN T#E ASSESS;ENT

ROLLS 6SECS. 9J= 9J:

!ll declarations shall be kept and

filed under a uniformclassification system to beestablished by the provincial cityor municipal assessor.

STEP B8 APPRAISAL AN& "AL%ATIONOF REAL PROPERT/ 6SECS. 9?9,

9?@= 99@,99:

&eter3iatio of fair 3aret 5alue6F;":

?or $and

!ssessor of the province(city or

municipality may summon theowners of the properties to beaffected and may ta?e depositionsconcerning the property itsownership amount nature andvalue (5ec. , GC)

!ssessor prepares a schedule of A% for different classes of properties.

Sanggunian enacts an ordinance

/he schedule of A% is

published in a newspaper of general circulation in theprovince city or municipalityconcerned or in the absencethereof shall be posted in theprovincial capitol city ormunicipal hall and in two other

conspicuous public placestherein (5ec. , GC)

?or mac!inery

1. Aor ;rand new machinery? A% is theac5uisition cost

2. In all other cases? A%M :emaining eco. life O :eplacement

9stimated 9co.8ife ost

STEP @8 &ETER;INE ASSESSE&"AL%E 6SEC. 9?D:

&eter3ie A++e++ed "alueProcedure1. /ake the schedule of A%2. !ssessed alue M A% x

!ssessment level". /ax M !ssessed value x /ax rate

STEP 8 PA/;ENT AN& COLLECTIONOF TAX

6a: A**rual of Tax8 anuary of everyyear and such will constitute asa superior lien. (5ec. -9)

6(: Ti3e ad ;aer of Pa)3et8 (5ec.06)

1. basic real property tax in $ e5ualinstallments ,%arch "1 une "KSeptember "K @ecember "K

2. special levy 6 governed byordinance

6*: Itere+t for Late Pa)3et (5ec. 00)1. two percent 69: for ea*h 3oth

on unpaid amount until thedelin5uent amount is paid

2. provided in no case shall thetotal interest exceed thirty-six,") months.

6d: For Ad5a*e ad Pro3t Pa)3et1. !dvance payment 6 discount not

exceeding 2KC of annual tax ,Sec.2&1 84

2. 'rompt payment 6 discount notexceeding 1KC of annual tax due,!rt "$2 I::

Colle*tio of Tax #ec. 42It shall be the responsibility of the

city or municipal treasurer concerned./he city or municipal treasurer may

deputi0e the barangay treasurer to








collect all taxes on real property locatedin the barangay+ provided the barangaytreasurer is properly bonded.

Period to Colle*t #ec. 321. within five ,& years from thedate they become due

2. within ten ,1K years fromdiscovery of fraud in case thereis fraud or intent to evade

Su+e+io of Pre+*riti5e Period #ec.32

1. local treasurer is le!all)re5eted to collect tax.

2. the owner or property re5uestsfor rei5e+ti!atio and write+ a

wai5er before expiration of period to collect.

". the owner of property is out of the country or cannot belocated.

REAL PROPERT/ TAXRE;E&IES %N&ER T#E LGC

?. TAX RE;E&IES OF T#E LOCALGO"ERN;ENT TO EFFECT

COLLECTION OF TAXES

A. A&;INISTRATI"E. :eal 'roperty tax lien (5ecs. 08,

GC) 6 superior to all liens chargesor encumbrances+

. @istraint (5ec. 0-4D, GC);. 8evy (5ec. 0-AD, 0/ GC); -. 'urchase of property by local

treasurer for want of bidder (5ec.9, GC).

'. 4%&ICIALivil !ction ( 5ec. 99, 86 GC)

PRESCRIPTI"E PERIO&S FOR T#ECOLLECTION OF REAL

PROPERT/ TAXES

1. 'a+i* real roert) tax ad a)other tax le5ied uder the title oReal Proert) Taxatio6 five ,&years from the date they becamedue. (5ec. 86, GC).

2. Whe there i+ fraud or itet toe5ade the a)3et of taxe+ – ten,1K years from discovery of the

fraud or intent to evade thepayment (5ec. 86, GC).

GRO%N&S FOR T#E S%SPENSION OF

T#E R%NNING OF T#E PRESCRIPTI"EPERIO&S

1. /he treasurer is legally preventedfrom the assessment or collection of the tax+

2. /he taxpayer re5uests for areinvestigation and executes awaiver in writing before theexpiration of the period withinwhich to assess or collect+ and

3. /he taxpayer is out of the country orotherwise cannot be located (5ec.

86, GC).

9. TAX RE;E&IES OF T#E TAXPA/ER

A. A&;INISTRATI"E

Prote+t 6 payment under protest isre5uired within "K days to provincialcity or municipal treasurer. >o protestshall be entertained unless the tax isfirst paid. (5ec. 0 GC)

Clai3 for Tax Refud or redit (5ec.0)

a the taxpayer may file a writtenclaim for refund or credit withthe provincial or city treasurerwithin two years from the datethe taxpayer is entitled to suchreduction or adjustment.

b in case of denial of refund orcredit appeal to 8;!! as inprotest case.

Rede3tio of real roert) (5ec. 9GC)

Re3ed) a!ai+t the A++e++3et-Aealst within )K days from notice of

assessment of provincial city ormunicipal assessor to 8;!! (5ec. 9GC)

nd within "K days from receipt of decision of 8;!! to ;!! (5ec. 6 GC)

rd within "K days from receipt of decision of ;!! to ourt of /ax

!ppeals en banc








-th within 1& days from receipt of decision of ourt of /ax !ppeals enbanc to the Supreme ourt

APPEALS IN REAL PROPERT/TAXATION

within )K daysDwner('erson with legal interestmust file?1 ritten 'etition under Dath2 ith Supporting @ocuments

within "K days

within "K days

within 1& days

'. 4%&ICIAL?. Court A*tio – appeal of ;!!7s

decision to ourt of /ax !ppeals enbanc.

9. Suit a++aili! 5alidit) of taxMre*o5er) of refud of taxe+ paid(5ec. 9- P" -9-).

B. Suit to de*lare i5alidit) of tax dueto irre!ularit) i a++e++3et ad*olle*tio (5ec. 9- P" -9-)

@. Suit a++aili! the 5alidit) of tax +ale(5ec. / P" -9-) (5ec. 98 GC)

Codoatio of Real Proert) Taxe+1. ;y the Sanggunian

:eal property taxes may becondoned wholly or partially in a

given local government unit when?

a. /here is general failure of crops+ b. /here is substantial decrease in

the price of agricultural or agri-based products+ or

c. /here is calamity.2. ;y the 'resident of the 'hilippines

• when public interest so re5uires.

". TARIFF AN&C%STO;S CO&E

&EFINITIONS

TARIFF8 ustoms duties toll or tributepayable upon merchandise to the

4overnment. C%STO; &%TIES8 /ax assessed uponmerchandise from or exported to aforeign country. (Garcia v. +:ecutive5ec., GR No. 68, <uly, 11))

Note Customs and tari%%s aresynonymous ith one another. 2hey both re%er to the ta:es imposed onimported or e:ported ares, articles, or merchandise.

Other T)e+ of Fee+ Char!ed () the'ureau of Cu+to3+

1. !rrastre charge2. harfage due 6 counterpart of

license charged not for the use of any wharf but for a special fundknown as the 'ort orks Aund.

". ;erthing fee$. arbor fee&. /onnage due

;eai! ad S*oe of the Tariff adCu+to3+ Law+

Include not only the provisions of the/ariff and ustoms ode ,/ andregulations pursuant thereto but allother laws and regulations that aresubject to the ;ureau of ustoms ,;Dor otherwise within its jurisdiction.

!s to its scope therefore tariff andcustoms laws extend not only to theprovisions of the / but to all otherlaws as well the enforcement of whichis entrusted to the ;D.




LOCAL 'OAR& OF ASSESS;ENT APPEALS6L'AA +hould de*ide withi ?9J da)+

CENTRAL 'OAR& OF ASSESS;ENT

CO%RT OF TAX APPEALS EN 'ANC

PRO"INCIAL= CIT/ OR ;%NICIPAL





T#E '%REA% OF C%STO;S

F%NCTIONS OF T#E '%REA% OFC%STO;S

1. !ssessment and collection of revenues from imported articles andall other impositions under the tariff and customs laws+

2. ontrol smuggling and relatedfrauds+

". Supervision and control over theentrance and clearance of vesselsand aircraft engaged in foreigncommerce+

$. 9nforcement of / and relatedlaws+

&. Supervision and control over thehandling of foreign mails arriving inthe 'hilippines+

). Supervise and control all import andexport cargoes for the protection of government revenue+

*. 9xclusive original jurisdiction oversei0ure and forfeiture cases underthe tariff and customs laws.

4%RIS&ICTION OF COLLECTOR OFC%STO;S O"ER I;PORTATION OFARTICLES1. ause all articles for importation to

be entered in the customhouse2. ause all such articles to be

appraised and classified". !ssess and collect the duties taxes

and other charges thereon and$. old possession of all imported

articles until the duties taxes andother charges are paid thereon.(5ec. 69, 2CC)

TERRITORIAL 4%RIS&ICTION OF T#E

'OC1. !ll seas within the jurisdiction of the'hilippines

2. !ll coasts ports airports harborsbays rivers and inland waterswhether navigable or not from thesea. (st par, 5ec. 96, 2CC)

C%STO;S &%TIES

W#EN TARIFF AN& C%STO;S APPLIE&Dnly after importation has begun but

before importation is terminated.

Importation begins1 when the conveying vessel or

aircraft

2 enters the jurisdiction of the'hil.

" with intention to unload therein

Importation is deemed terminated

,a upon payment of the duties taxesand other charges due upon the articles.

,b and legal permit for withdrawalshall have been granted.

• In case the articles are free of

duties taxes and other charges untilthey have legally left the jurisdiction of the customs (5ec. 6, 2CC)

INTENTION TO %NLOA&9ven if not yet unloaded and there isunmanifested cargo forfeiture may takeplace because importation has alreadybegun.

ARTICLES %N&ER TCC!ay either be1. Su(He*t to dut) 6

a. 8ive animals and animalproducts+

b. egetable products+c. !nimal or vegetable fats+ oils

and their cleavage products+prepared edible fats+ animal orvegetable waxes+

d. 'repared foodstuffs+ beveragesspirits and vinegar+ tobacco andmanufactured tobaccosubstitutes+

e. %ineral products+f. 'roducts of chemical or allied

industries+g. 'lastics and articles thereof+

rubber and articles thereof+h. :aw hides and skins+ leather

etc.+i. ood and articles of wood etc.+j. 'ulp of wood etc.+k. /extiles and textile articles+l. !rticles of stone+ plaster

cement etc.+m. Aootwear headgear etc.+n. >atural or cultured pearls

precious(semi-precious stones+








o. ;ase metals and articles of basemetals+

p. %achinery and mechanicalappliances+ electric e5uipment+

sound recorders etc+5. ehicles aircraft vessels and

associated transport e5uipment+r. Dptical photographic medical

surgical instruments etc.+s. !rms ammunition parts and

accessories+t. %iscellaneous manufactured

articles+ andu. orks of art collector3s pieces

arid anti5ues (5ec. 6-, 2itle ,2CC).

2. Prohi(ited fro3 (ei! i3orted,'rohibited importationa. Absolutely prohibited such as?

weapons of war+ gamblingdevices+ narcotics or prohibiteddrugs+ immoral obscene orinsidious articles+ and thoseprohibited under special laws(5ec.6, 2CC).

b. uali%iedly prohibited here such conditions as to

warrant a lawful importation donot exist the legal effects of the

importation of 5ualifiedlyprohibited articles are the sameas those of absolutely prohibitedarticles. (Auyong $ian vs. C2A,GR No. '/8/, 5eptember ,18-)

". Coditioall),free fro3 tariff ad*u+to3+ dutie+ ,conditionally-freeimportation

• /hose provided in Sec. 1K& /+

• /hose granted to government

agencies 4Ds withagreements with foreigncountries+

• /hose given to international

institutions entitled toexemption by agreement orspecial laws+ and

• /hose that may be granted by

the 'resident upon >9@!7srecommendation.

$. Free fro3 TC dutie+ ,duty-free

Imported goods must beentered in a customhouse at theirport of entry otherwise they shall beconsidered as contraband and the

importer is liable for smuggling (5ee5ec. 6, 2CC).

!ll articles when imported fromany country into the 'hilippines shallbe subject to duty upon eachimportation even though previouslyexported from the 'hilippinesexcept as otherwise specificallyprovided for in the / or otherlaws.

Lia(ilit) for Cu+to3+ &utie+Geeral Rule8 !ll importations (

exportations of goods are subject tocustoms duties (5ec. 60, 2CC).

Ex*etio+8,1 9xemptions under the /+,2 9xemptions granted to

government agenciesinstrumentalities or 4Ds withexisting contractscommitments agreements orobligations with foreigncountries+

," 9xemptions of international

organi0ations pursuant toagreements or special laws+ and

(4) 9xemptions granted by the 'res.

of the 'hil. uponrecommendation of >9@! (5ec.60, 2CC).

LIA'ILIT/ OF I;PORTER FOR C%STO; &%TIES

• ! personal debt which can be

discharged only by payment infull thereof+

• ! lien upon the imported articles

while they are in custody or

subject to the control of thegovernment. (5ec. 6-, 2CC).

Extet Of I3orter>+ Lia(ilit)/he liability of an importer is

limited to the value of the importedmerchandise. In case of forfeiture of the sei0ed material the maximum civilpenalty is the forfeiture itself.(!endoa vs. "avid, GR No. '1-0,!arch 8, 19)

&raw(a*








! device resorted to for enabling acommodity affected by taxes to beexported and sold in foreign marketsupon the same terms as if it had not

been taxed at all. (Hy Chaco 5ons vs.Collector o% Customs, GR No. 89/,!arch 8, 1)

I3ort Etr)It is a declaration to the ;D

showing particulars of the importedarticle that will enable the customsauthorities to determine the correctduties. !n importer is re5uired to file animport entry. It must be accomplishedfrom disembarking of last cargo fromvessel.

Tra+a*tio 5alue uder RA NO. D?D?It is the invoice value of the

goods plus freight insurance costsexpenses and other necessary expenses./his replaces the ome onsumptionalue as basis of valuation of goods.

CLASSIFICATION OF C%STO; &%TIES

'. Re!ular &utie+ 6 those which are

imposed and collected merely as asource of revenue.?. Ad 5alore3 dut)8 /his is a duty

based on the value of theimported article.

9. Se*ifi* dut)8 /his is a dutybased on the dutiable weight of goods ,either the gross weightlegal weight or net weight.

B. Alterati! dutie+8 /his is aduty which alternates advalorem and specific.

@. Co3oud &ut)8 /his is a dutyconsisting of ad valorem andspecific duties.

'. Se*ial dutie+ – those which areimposed and collected in addition tothe ordinary customs duties usuallyto protect local industries againstforeign competition.

?. &u3i! dut)9. Couter5aili! dut)B. ;ari! dut)@. &i+*ri3iator) dut)

NAT%RE OF SPECIAL C%STO;S &%TIESSpecial customs duties are

additional import duties imposed onspecific kinds of imported articles undercertain conditions.

P%RPOSE OF SPECIAL C%STO;S &%TIES/he special customs duties are

imposed for the protection of consumersand manufacturers as well as 'hil.products from undue competition posedby foreign-made products.

SPECIAL &%TIES CO;PARE&

&%;PING &%T/ CO%NTER"AILING &%T/ ;AR7ING &%T/&ISCRI;INATOR/

&%T/

1. NatureImposed uponforeign products

with value lowerthan their fairmarket value to thedetriment of localproducts.

Imposed upon foreigngoods enjoying subsidythus allowing them to

sell at lower prices tothe detriment of localproducts similarlysituated.

Imposed uponthose notproperly marked

as to place of origin of thegoods.

Imposed upongoods comingfrom countries

that discriminateagainst 'hilippineproducts.

. AmountRate @ifference betweenthe actual priceand the normalvalue of the article.

95uivalent to thebounty subsidy orsubvention.

&C ad valoremof articles

!ny amount notexceeding 1KKCad valorem of thesubject articles








&%;PING &%T/ CO%NTER"AILING &%T/ ;AR7ING &%T/&ISCRI;INATOR/

&%T/

". *mposin Aut!ority

Special committeeon !nti-@umping,composed of theSecretary of Ainanceas hairman+%embers? theSecretary of @/Iand either theSecretary of !griculture if articlein 5uestion isagricultural productor the Secretary of labor if non-agricultural product

Secretary of Ainance ommissioner of

ustoms

'resident of the

'hilippines

FLEXI'LE TARIFF CLA%SE/he 'resident may fix tariff rates

import and export 5uotas etc. under/ (5ee 5ec. /, Art. 3I, Constitution

and 5ec. -6, 2CC)1. to increase reduce or removeexisting protective rates of importduty ,including any necessary changein classification.

/he existing rates may beincreased or decreased to any levelon one or several stages but in nocase shall the increased rate of import duty be higher than amaximum of one hundred ,1KKC percent ad valorem

2. to establish import 5uota or to ban

imports of any commodity as may benecessary+ and

". to impose an additional duty on allimports not exceeding ten ,1KC percent ad valorem whenevernecessary?

LI;ITATIONS I;POSE& REGAR&ING T#EFLEXI'LE TARIFF CLA%SE

a. onduct by the /ariff ommission of an investigation in a public hearing.

/he ommission shall also hearthe views and recommendations of any government office agency orinstrumentality concerned.

/he ommission shall submittheir findings and recommendationsto the >9@! within thirty ,"K daysafter the termination of the publichearings.

/he >9@! thereafter submits itsrecommendation to the 'resident.

1. /he power of the 'resident to

increase or decrease the rates of import duty within theabovementioned limits fixed in theode shall include the modi%icationin the %orm o% duty .

In such a case the correspondingad valorem or specific e5uivalents of the duty with respect to the importsfrom the principal competing foreigncountry for the most recentrepresentative period shall be usedas bases (5ec. -6, 2CC).

T#E TARIFF CO;;ISSION 6TC:

F%NCTIONS OF T#E TARIFF CO;;ISSION








?. I5e+ti!ati5e Power+ 6Se*. J=TCC:a. the administration of and the

fiscal and industrial effects of

the tariff and customs laws of this country now in force orwhich may hereafter be enacted+

b. the relations between the ratesof duty on raw materials and thefinished or partly finishedproducts+

c. the effects of ad valorem andspecific duties and of compoundspecific and ad valorem duties+

d. all 5uestions relative to thearrangement of schedules andclassification of articles in the

several schedules of the tariff law+

e. the tariff relations between the'hilippines and %oreigncountries commercial treatiespreferential provisionseconomic alliances the effect of export bounties and preferentialtransportation rates+

f. the volume of importationscompared with domestic pro-duction and consumption+

g. conditions causes and effects

relating to competition of foreign industries with those of the 'hilippines includingdumping and cost of production+and

h. in general to investigate theoperation of customs and tariff laws including their relation tothe national revenues theireffect upon the industries andlabor of the country and tosubmit reports of itsinvestigation as provided.

9. Ad3ii+trati5e A++i+ta*e to thePre+idet ad Co!re++ 6Se*. J=TCC:

TAX RE;E&IES %N&ER T#ETARIFF AN& C%STO;S CO&E

6TCC:

TAX RE;E&IES OF T#EGO"ERN;ENT

A. A&;INISTRATI"E

?. Tax Lie 6Se*. ?9J@ TCC:• attaches on the goods

regardless of ownership whilestill in the custody or controlof the 4overnment

• availed of when the

importation is neitherprohibited nor improperlymade

9. Ad3ii+trati5e Fie+ adForfeiture+

• applied when the

importation is unlawful• and it may be exercised even

where the articles are not orno longer in ustom7scustody' unless the importation ismerely attempted in whichcase it may be effected onlywhile the goods are stillwithin the ustomsjurisdiction or in the handsof a person who is awarethereof (5ec. 0 E 06,

2CC)• under 5ec. 06(a) o% the

2CC in order to warrantforfeiture it is not necessarythat the vessel or aircraftmust itself carry thecontraband. /hecomplementary if collateraluse of the essna plane forsmuggling operation issufficient for it to bedeemed to have been usedin smuggling. (lamado vs.Commissioner o% Customs,GR No. '//61, !ay 9,1/)

B. Redu*tio of *u+to3+ dutie+ -*o3ro3i+e

• subject to approval of Sec.

of Ainance (5ec. 861, 92CC)

@. +ei,ure- +earch- Arrest (Sec.2205, 2210, 2211 TC )

'. 4%&ICIAL








1. thi+ re3ed) i+ or3all)a5ailed of whe the tax liei+ lo+t () the relea+e of the!ood+

•ivil !ction ,Sec. 12K$/

• riminal !ction

TAX RE;E&IES OF T#E TAXPA/ER

A. A&;INISTRATI"E1. Prote+t

a. !ny importer or interestedparty if dissatisfied withpublished value within 1&days from date of publication or within & daysfrom the date the importeris entitled to refund if payment is renderederroneous or illegal byevents occurring after thepayment.

b. /axpayer 6 within 1& daysfrom assessment. 'aymentunder protest is necessary.(5ec. 6/, 6 2CC)

2. Refuda. ! written claim for refund

may be submitted by theimporter in abatement caseson missing packagesdeficiencies in the contentsof packages or shortagesbefore arrival of the goods inthe 'hilippines articles lostor destroyed after sucharrival dead or injuredanimals and for manifestclerical errors+ and

b. @rawback cases where the

goods are re-exported (5ec.

86'86/ 2CC).". Settle3et of a) +eiKure ()

a)3et of fie or rede3tio

• ;ut this shall not be allowed

in any case whereimportation is absolutelyprohibited or the releasewould be contrary to law orwhen there is an actual andintentional fraud (5ec. 68 2CC).

$. Aeal

• ithin 1& days to the

ommissioner afternotification by ollector of his decision (5ec.

2CC).

'. 4%&ICIAL?. Aeal

• ithin "K days from receipt

of decision of theommissioner or Secretary of Ainance to the division of the/! (5ec. -6 2CC, 5ec. 8 RA 0, as amended by 5ec.1 RA 1/)

• Since Sec.11 of :! 112& as

amended by :! F2B2empowers the /ax ourt toissue injunctions it wouldappear that an importer mayappeal without first payingthe duties such as insei0ure but not in protestcases.

9. A*tio to <ue+tio the le!alit)of +eiKure

B. A(ado3et #ec. 1031 TCC2a. expressly (5ec. /6 2CC)b. impliedly 6

c. failure to file an importentry within "K daysfrom the discharge of goods or

d. having filed an entryfails to claim within 1&days but it shall not beso effective until sodeclared by thecollector. (5ec. /6, asamended by RA 890)

TWO 7IN&S OF PROCEE&INGS IN

T#E '%REA% OF C%STO;S 6'OC:

A. C%STO;S PROTEST CASES

&EFINITION8 /hese are cases which dealsolely with liability for customs dutiesfees and other charges.

Note ;efore filing a protest theremust first be a payment under protest.

Whe *u+to3+ rote+t ali*a(le








/he customs protest is re5uired to befiled only in case the liability of thetaxpayer for duties taxes fees andother charges is determined and the

taxpayer disputes said liability.

Whe Cu+to3+ rote+t N'T re<uired

here there is no dispute but theclaim for refund arises by reason of thehappening of supervening events such aswhen the raw material imported isutili0ed in the production of finishedproducts subse5uently exported and aduty drawback is claimed.

Re<uire3et+ for 3ai! a rote+t

1. %ust be in writing2. %ust point out the particular

decision or ruling of the ollector of ustoms to which exception is takenor objection made+

". %ust state the grounds relied uponfor relief+

$. %ust be limited to the subjectmatter of a single adjustment+

&. %ust be filed when the amountclaimed is paid or within 1& daysafter the payment+

). 'rotestant must furnish samples of goods under protest when re5uired.

PROCE&%RE IN C%STO;S PROTESTCASES

/he ollector acting within hisjurisdiction shall cause the imported

goods to be entered at the customhouse

/he ollector shall assess li5uidate andcollect the duties thereon or detain the

said goods if the party liable does notpay the same

/he party adversely affected ,theprotestant may file a written protest onhis foregoing liability with the ollector

within 1& days after paying theli5uidated amount ,the payment under

protest rule applies

earing within 1& days from receipt of the duly presented protest. Epon

termination of the hearing the ollectorshall decide on the same within "K days

If decision is adverse tothe protestant

If decision is adverse tothe government

!ppeal with theommissioner within1& days from notice

!utomatic :eview bythe ommissioner

!ppeal with the ourtof /ax !ppeals @ivision

within "K days fromnotice

!utomatic review bythe Secretary of

Ainance

!ppeal with the /! en banc

!ppeal by certiorariwith the Supreme

ourt within 1& daysfrom notice

If decision of ommissioner or

Secretary of Ainance isadverse to the

protestant he mayappeal to the /! and

S under the sameprocedure on the left.

Rea+o+ for the auto3ati* re5iew of de*i+io+ ad5er+e to the Go5er3et

1. /o protect the interest of the4overnment

2. ! favorable decision will not beappealed by the taxpayer andcertainly a ollector will notappeal his own decision.

". 8ifeblood /heory

'. SEI%RE AN& FORFEIT%RE CASES

&EFINITION8 /hese refer to mattersinvolving smuggling. It is administrativeand civil in nature and is directed against the res or imported articles andentails a determination of the legality of their importation. /hese are actions inrem.

/hus It is of no defense that theowner of the vessel sought to beforfeited had no actual knowledge thathis property was used illegally. /heabsence or lack of actual knowledge of

such use is a defense personal to the








owner himself which cannot in any wayabsolve the vessel from the liability of forfeiture. (Commissioner o% Customsvs. !anila 5tar 7erry, Inc., GR Nos.

889'8/, *ctober , 11)

S;%GGLING1. !n act of any person who shall?

a. Araudulently import any articlecontrary to law or

b. !ssist in so doing orc. :eceive conceal buy sell

facilitate transport conceal orsell such article knowing itsillegal importation (5ec. 96,2CC)

d. 9xport contrary to law. (5ec.

0-, 2CC)

2. /he 'hilippines is divided intovarious ports of entry 6 entry otherthan port of entry will beS%E448I>4.

PORT OF ENTR/! domestic port open to both

foreign and coastwise trade including<airport of entry=. (5ec. 0-, 2CC)

!88 articles imported into the'hilippines whether subject to duty or

not shall be entered through acustomshouse at a port of entry.

9>/:H? in ustoms law means-1. the

documents filed at theustoms house

2. thesubmission and acceptanceof the documents

3. the

procedure of passing goodsthrough the customs house

(Rodrigue vs. Court o% Appeals, GR No. 0/,5eptember /, 110)

CONTRA'AN&8 !rticles of prohibitedimportations or exportations. (5ec. 0-,2CC)

E"I&ENCE FOR CON"ICTION INS;%GGLING CASES

%ere possession of the article in

5uestion - unless defendant could

explain that his possession is lawful tothe satisfaction of the court (5ec. 96,2CC). 'ayment of the tax due afterapprehension is not a valid defense

(Rodrigue vs. Court o% Appeals, GR No.0/, 5eptember /, 110)

T#INGS S%'4ECT TO CONFISCATION INS;%GGLING CASES

!nything that was used forsmuggling is subject to confiscation likethe vessel plane etc. (lamado vs.Commissioner o% Customs, GR No. '//61, !ay 9, 1/).

Ex*etio8 ommon carriers that arenot privately chartered cannot be

confiscated.

RIG#T OF C%STO;S OFFICERS TOEFFECT SEI%RE ARREST #EC. 3521. %ay sei0e any vessel aircraft cargo

article animal or other movableproperty when the same is subject toforfeiture or liable for any time asimposed under tariff and customslaws rules J regulations

2. %ay exercise such powers only inconformity with the laws andprovisions of the /

CO;;ON CARRIERSM FORFEIT%RE1. ommon carriers are generally not

subject to forfeiture although if theowner has knowledge of its use insmuggling and was a consentingparty it may also be forfeited.

2. If a motor vehicle is hired to carrysmuggled goods but it has noertificate of 'ublic onvenience,' it is not a common carrier. Itis thus subject to forfeiture and

lack of personal knowledge of theowner or the carrier is not a defenseto forfeiture.

PROPERTIES NOT S%'4ECT TOFORFEIT%RE IN T#E A'SENCE OF PRI;AFACIE E"I&ENCE

/he forfeiture of the vehicle vesselor aircraft shall not be effected if it isestablished that the owner thereof or hisagent in charge of the means of conveyance used as aforesaid has no=no<$ede of or participation in t!e

un$a<fu$ act?








Provided however that a primafacie presumption shall exist against thevessel vehicle or aircraft under any of the following circumstances?

1. If the conveyance has been usedfor smuggling at least twicebefore+

2. If the owner is not in thebusiness for which theconveyance is generally used+and

". If the owner is financially not ina position to own suchconveyance.

&OCTRINE OF #OT P%RS%ITRe<ui+ite+8

?. O5er "e++el+a. !n act is done in 'hil. aters

which constitutes a violation of the tariff and customs laws

b. a pursuit of such vessel beganwithin the jurisdictional waterswhich,i may continue beyond the

maritime 0one and,ii the vessel may be sei0ed on

the high seas.

9. O5er I3orted Arti*le+

a. /here is a violation of the tariff and customs laws

b. !s a conse5uence they may bepursued in the 'hil.

c. ith jurisdiction over them at

any place therein for theenforcement of the law. (nd par.5ec. 96, 2CC)

REGIONAL TRIAL CO%RTS 6RTC:"S.

'%REA% OF C%STO;S 6'OC:

• /he :/s do not have jurisdiction

over sei0ure and forfeitureproceedings conducted by the ;Dand to interfere with theseproceedings. /he ollector of ustoms has exclusive jurisdictionover all 5uestions touching on thesei0ure and forfeiture of dutiablegoods.

• >o petitions for certiorari

prohibition or mandamus filed with

the :/ will lie because these are inreality attempts to review theommissioner3s actuations. >eitherreplevin filed with the :/ will

issue. Rationa$e, "octrine o% Primary <urisdiction.

• 9ven if a ustoms sei0ure is illegal

exclusive jurisdiction ,to theexclusion of regular courts stillbelongs to the ;ureau of ustoms(<ao v. Court o% Appeals, GR No.6-96-, *ctober 9, 110).

GOO&S IN C%STO;>S C%STO&/ 'E/ON&REAC# OF ATTAC#;ENT

4oods in the custom7s custodypending payment of customs duties are

beyond the reach of attachment. !s longas the importation has not beenterminated the imported goods remainunder the jurisdiction of the ;ureau of ustoms. (3iduya vs. 4erdiago, GR No.'1/, *ctober 1, 189)

A&;INISTRATI"E AN& 4%&ICIALPROCE&%RES RELATI"E TO C%STO;SSEI%RES AN& FORFEIT%RES

@etermination of probable cause and

issuance of warrant

!ctual sei0ure of the articles

8isting of description appraisal andclassification of sei0ed property

:eport of sei0ure to the omm. of ustoms and the hairman omm.

on !udit

Issuance by the ollector of awarrant of detention

>otification to owner or importer

Aormal hearing

@istrict collector renders hisdecisions








If decision is notfavorable to the

aggrieved owner orimporter

If decision is notfavorable to the

government

!ppeal by the

aggrieved owner orimporter

!utomatic :eviewby the

ommissioner

PERSONS #A"ING POLICE A%T#ORIT/TO ENFORCE T#E TARIFF C%STO;SLAWS AN& EFFECT SEARC#ES= SEI%RESAN& ARRESTS #EC. 3 TCC21 officials of the ;D districtcollectors police officers agentsinspectors and guests of the ;D+2 officers of the 'hil. >avy and othermembers of the !A' and national lawenforcement agencies when authori0edby the ommissioner of ustoms" officials of the ;I: on all cases fallingwithin the regular performances of theirduties when the payment of internaltaxes are involved+$ officers generally empowered by lawto effect arrests and execute processesof courts when acting under thedirection of the ollector.

RE$%IRE;ENTS FOR C%STO;SFORFEIT%RE1. /he wrongful making by the owner

importer exporter or consignee of any declaration or affidavit or thewrongful making or delivery by thesame persons of any invoice letteror paper - all touching on theimportation or exportation of merchandise.+ and

2. /hat such declaration affidavitinvoice letter or paper is false.

(7arolan, <r. vs. Court o% 2a: Appeals, GR No. -6-, <anuary ,11)

PLACES W#ERE SEARC#ES SEI%RES;A/ 'E CON&%CTE&

,a enclosures,b dwelling house ,there must be

search warrant issued by a judge,c vessels or aircrafts and persons

or articles conveyed therein,d vehicles beasts and persons

,e persons arriving from foreigncountries.

Note, ;urden of proof in sei0ure or

forfeiture is on the claimant. (5ec.00, 2CC)

RE$%IRE;ENTS FOR ;ANIFEST! manifest in coastwise trade for

cargo and passengers transported fromone place or port in the 'hilippines toanother is re5uired when one or both of such places is a port of entry (5ec. 169,2CC). %anifests are also re5uired of vessel from a foreign port (5ec. 660,2CC).

IS ;ANIFEST RE$%IRE& ONL/ FOR I;PORTE& GOO&S0

>D. !rticles subject to sei0uredo not have to be imported goods.%anifests are also re5uired for articlesfound on vessels or aircraft engaged incoastwise trade. (Rigor vs. Rosales, GRNo. '809, *ctober , 1/)

%N;ANIFESTE& CARGO IS S%'4ECT TOFORFEIT%RE whether the act of smuggling is established or not under theprinciple o% res ipsa loBuitur . It isenough that the cargo was unmanifestedand that there was no showing thatpayment of duties thereon had beenmade for it to be subject to forfeiture.

SETTLE;ENT OF FORFEIT%RE CASESGeeral Rule8 Settlement of cases bypayment of fine or redemption of forfeited property is alloed.

Ex*etio+81. the importation is absolutely

prohibited or2. the surrender of the property to

the person offering to redeemwould be contrary to law or

". when there is fraud. (5ec. 68,2CC)

AC$%ITTAL IN CRI;INAL C#ARGE NOTRES 4%&ICATA IN SEI%RE OR FORFEIT%RE PROCEE&INGS








Rea+o+81 riminal proceedings are actions in

personam while sei0ure or forfeitureproceedings are actions in rem.

2 ustoms compromise does notextinguish criminal liability. (Peoplevs. "esiderio, GR No. '6/660,November 9, 190)

Note, !t any time prior to the sale thedelin5uent importer 3a) +ettle hi+o(li!atio+ with the ;ureau of ustomsin which case the aforesaid articles maybe delivered upon payment of thecorresponding duties and taxes andcompliance with all other legalre5uirements (5ec. 06/, 2CC)

A'ATE;ENT/he reduction or non-imposition of

customs duties on certain importedmaterials as a result of?

1 @amage incurred during voyage+2 @eficiency in contents packages" 8oss or destruction of articles

after arrival$ @eath or injury of animals

FRA%&%LENT PRACTICES CONSI&ERE&AS CRI;INAL OFFENSES AGAINST

C%STO;S RE"EN%E LAWS1 Enlawful importation+2 9ntry of imported or exported article

by means of any false or fraudulentpractices invoice declarationaffidavit or other documents+

" 9ntry of goods at less than their trueweights or measures or upon aclassification as to 5uality or value+

$ 'ayment of less than the amountdue+

& Ailing any false or fraudulent claimfor the payment of drawback orrefund of duties upon theexportation of merchandise+ or

) Ailing any affidavit certificate orother document to secure to himself or others the payment of anydrawback allowance or refund of duties on the exportation of mdse.greater than that legally duethereon. (5ec. 96, 2CC)

"I. CO%RT OF

TAX APPEALS6RA ??9 a+ a3eded

() RA 9D9:

See ANNEX O for comparison of /!

as created by :! >o. 112& and theamendments made by :! >o. F2B2.

NAT%RE AN& POWERS

ELE"ATION OF RAN7 shall be of the same level as the

ourt of !ppeals possessing all theinherent powers of a ourt of ustice

CO;POSITION

• onsists of a 'residing ustice and

five ,& !ssociate ustices

• %ay sit en banc or in two ,2

@ivisions each @ivision consisting of three ," ustices. /he 'residingustice and the most Senior !ssociateustice shall serve as chairmen of the two divisions

$%OR%;

•

Aour ,$ ustices shall constitute a5uorum for sessions +N 4ANC.

• /wo ,2 ustices for sessions of a

"I3I5I*N .PR*3I"+" in case the reBuired Buorumcannot be had due to any vacancy,disBuali%ication, inhibition, disability, or any other la%ul cause, the Presiding

<ustice shall designate any <ustice o% other "ivisions o% the Court to sittemporarily therein.

POWERS

1. to administer oaths+2. to receive evidence+". to summon witnesses by

subpoena+$. to re5uire production or papers

or documents by subpoena ducestecum+

&. to punish contempt+). to promulgate rules and

regulations for the conduct of itsbusiness+








*. to assess damage againstappellant if appeal to /! isfound to be frivolous or dilatory+

B. to suspend the collection of the

tax pending appeal+ andF. to render decisions on cases

brought before it1K. to issue order authori0ing

distraint of personal propertyand levy of real property

&ISTRAINT OF PERSONAL PROPERT/AN& LE"/ OF REAL PROPERT/

Epon the issuance of any rulingorder or decision by the /! favorable tothe national government the /! shallissue an order authori0ing the ;I:

through the ommissioner?

1. to sei0e and distraint any goodschattels or effects and the personalproperty including stocks and othersecurities debts credits bankaccounts and interests in and rightsto personal property and(or

2. levy the real property of suchpersons in sufficient 5uantity tosatisfy the tax or charge togetherwith any increment thereto incidentto delin5uency.

/his remedy shall not be exclusiveand shall not preclude the ourt fromavailing of other means under the :ulesof ourt.

4%RIS&ICTION

I. EXCL%SI"E APPELLATE 4%RIS&ICTIONTO RE"IEW '/ APPEAL

6a: @ecisions of the Commissioner

of *nterna$ Revenue 1. in cases involving disputedassessments refunds of internal revenue taxes feesor other charges penaltiesin relation thereto

2. or other matters arisingunder the >I: or other lawsadministered by the ;I:+

6(: Inaction by the Commissioner of *nterna$ Revenue 1. in cases involving disputed

assessments refunds of

internal revenue taxes fees

or other charges penaltiesin relation thereto

2. or other matters arisingunder the >I: or other laws

administered by the ;I:where the >I: provides aspecific period for action inwhich case the inaction shallbe deemed a denial+

6*: @ecisions orders or resolutionsof the RTC 6 in local tax cases originallydecided or resolved by them inthe exercise of their original orappellate jurisdiction+

6d: @ecisions of the Commissioner of Customs

1. in cases involving liabilityfor customs duties fees orother money chargessei0ure detention orrelease of propertyaffected fines forfeituresor other penalties inrelation thereto

2. or other matters arisingunder the ustoms 8aw orother laws administered bythe ;ureau of ustoms+

6e: @ecisions of the Centra$ Board

of Assessment Appea$s 6 in the exercise of its appellatejurisdiction over cases involvingthe assessment and taxation of real property originally decidedby the provincial or city board of assessment appeals+

6f: @ecisions of the #ecretary of ?inance 6 on customs cases elevated tohim automatically for reviewfrom decisions of theommissioner of ustoms whichare adverse to the 4overnmentunder Section 2"1& of the /ariff and ustoms ode+

6!: @ecisions of the #ecretary of Trade and *ndustry in the caseof nonagricultural productcommodity or article and the5ecretary o% Agriculture in thecase of agricultural productcommodity or article6 involving dumping andcountervailing duties under Secs.

"K1and "K2 respectively of the








/ariff and ustoms ode andsafeguard measures under :! >oBBKK where either party mayappeal the decision to impose or

not to impose said duties.

II. 4%RIS&ICTION O"ER CASESIN"OL"ING CRI;INAL CASES

a2 Exc$usive oriina$ Durisdictionover all criminal cases arising fromviolations of the >I: or /ariff andustoms ode and other lawsadministered by the ;I: or the;ureau of ustoms

• Provided hoever, here the

principal amount of taxes and

fees exclusive of charges andpenalties claimed is less thanone million pesos ,'1 KKK KKK.KK or where there is nospecified amount claimed - theoffenses or penalties shall betried by the regular courts andthe jurisdiction of the /! shallbe appellate.

• !ny provision of law or the :ules

of ourt to the contrarynotwithstanding the criminalaction and the correspondingcivil action for the recovery of civil liability for taxes andpenalties shall at all times besimultaneously instituted withand jointly determined in thesame proceeding by the /! thefiling of the criminal actionbeing deemed to necessarilycarry with it the filing of thecivil action and no right toreserve the filing of such civilaction separately from the

criminal action will berecogni0ed.

72 Exc$usive appe$$ate Durisdiction in criminal offenses

• Dver appeals from the

judgments resolutions or ordersof the :/ in tax cases originallydecided by them in theirrespective territorialjurisdiction.

• Dver petitions for review of the

judgments resolutions or

orders of the :/ in the exerciseof their appellate jurisdictionover tax cases originally decidedby the %etropolitan /rial ourts

%unicipal /rial ourts and%unicipal ircuit /rial ourts intheir respective jurisdiction.

III. 4%RIS&ICTION O"ER TAXCOLLECTION CASESa2 Exc$usive oriina$ Durisdiction

in tax collection cases involvingfinal and executory assessmentsfor taxes fees charges andpenalties.

• In collection cases where the

principal amount of taxes and

fees exclusive of charges andpenalties claimed is less thanone million pesos ,' 1 KKK KKK.KK 6 shall be tried by the proper!unicipal 2rial Court!etropolitan 2rial Court andRegional 2rial Court.

72 Exc$usive appe$$ate Durisdiction in tax collectioncases

• Dver appeals from the

judgments resolutions or ordersof :/ in tax collection casesoriginally decided by them intheir respective territorialjurisdiction.

• Dver petitions for review of the

judgements resolutions ororders of the :/ in the exerciseof their appellate jurisdictionover tax collection casesoriginally decided by the%etropolitan /rial ourts%unicipal /rial ourts and

%unicipal ircuit /rial ourts intheir respective jurisdiction.

In criminal and collection cases the

4overnment may directly file thesaid cases with the /! coveringamounts within its exclusive andoriginal jurisdiction.

See ANNEX P 6 omparative

@iagrams on /! jurisdiction.








1Other ;atter+2/hose controversies which can be

considered within the scope of thefunction of the ;I: ( ;D under ejusdemgeneris rule ,e.g. action for the nullity of distraint and levy+ 5uestioning thepropriety of the assessment+ collectionof compromise penalties.

APPEAL

Wheithin "K days after the receipt of

such decision or ruling or after theexpiration of the period fixed by law foraction.

;ode+ of Aeal,1 ;y filing a petition for review under

a procedure analogous to thatprovided for under :ule $2 of 1FF*:ules on ivil 'rocedure

• decision ruling or inaction of

the Commissioner o% InternalRevenue Commissioner o% Customs the 5ecretary o% 7inance the 5ecretary o% 2rade

and Industry or the 5ecretary o% Agriculture or the Regional 2rialCourts

• this appeal shall be heard by a

@ivision of the /!,2 ;y filing a petition for review under

a procedure analogous to thatprovided for under :ule $" of 1FF*:ules on ivil 'rocedure

• decisions or rulings of the

Central 4oard o% Assessments Appeals and the Regional 2rialCourts in the exercise of its

a ppellate jurisdiction• this appeal shall be heard by the

/! en banc.

Pro*edure!. !ny party adversely affected by a

ruling order or decision of a @ivisionof the /! may file a motion forreconsideration or new trial beforethe same @ivision within 1& daysfrom notice

;. !ny party adversely affected by aresolution of a @ivision of the /! on

a motion for reconsideration or newtrial may file a petition for reviewwith the /! en banc.

. !ny party adversely affected by adecision or ruling of the /! en bancmay file with the Supreme ourt averified petition for review oncertiorari pursuant to :ule $& of the1FF* :ules on ivil 'rocedure.

Thirt) 6BJ: da) Pre+*riti5e Period forAeal

Starts to run from the date theta:payer receives the appealabledecision. If the taxpayer7s re5uest forreconsideration ,i.e. the protest isdenied or the original assessment ismaintained the appealable decision isthe decision denying the re5uest forreconsideration.

/he said period is &urisdictional and non'e:tendible. :e5uests or motions forreconsideration however operate tosuspend the running of the period toappeal. ! pro forma re5uest for

reconsideration or one which is directedto the Secretary of Ainance does notsuspend the running of the "K-dayreglementary period.

Ol) A Fial &e*i+io I+ Aeala(le ToThe Court Of Tax Aeal+

'reliminary collection letters post

reporting notices and pre-assessmentnotices are not appealable becausethey are not the final decision of theommissioner.

!n assessment can be appealed if

taxpayer does not seek areconsideration.

!t times there is an exchange of

communications between taxpayerand ommissioner states that hisaction is final then period forappeal begins to run.

ommissioner must state that his

decision is final for period of appealto run.

Ainal decision cannot be implied

from issuance of warrant of distraint








and levy unless it is issued after are5uest for reconsideration.

GENERAL R%LE8 >ew issues cannot beraised for the first time on appeal.

EXCEPTIONS8a. @efense of prescription

:eason? /his is a statutory right.(3isayan and 2ransportation vs.Collector)

b. 9rrors of administrative officials:eason? State can never be inestoppel and lifeblood theory.(Commissioner vs. Procter and Gamble Phils. !%g. Corp, GR No.99//, April 0, 1//)

N*2+ owever this was reversed inSupreme ourt7s subse5uent resolutionwherein it was held that <in the absenceof explicit statutory provisions to thecontrary the 4overnment must followthe same rules of procedure which bindprivate parties.= (Commissioner vs.Procter and Gamble, GR No. 99//,"ecember , 11, Resolution)

Tax *olle*tio Not Su+eded duri!Aeal

Geeral Rule8 >o appeal taken to the/! shall suspend the payment levy ordistraint and(or sale of any property of the taxpayer.

Ex*etio8 /he /! is empowered tosuspend the collection of internalrevenue taxes and custom duties onlywhen there was a 6

c showing that collection of the taxmay jeopardi0e the interest of thegovernment and ( or the taxpayer+

d deposit of the amount claimed orfile a surety bond for not morethan double the amount of taxwith the ourt when re5uired+ and

e showing by taxpayer that appeal isnot frivolous nor dilatory.

Ca The CTA EHoi Colle*tio of Taxe+0

• Sec. 11 of :! >o. 112& as amended

by Sec. F of :! >o. F2B2 grants /!power to suspend collection of tax if

such collection works to serious

prejudice of either taxpayer orgovernment.

• owever Sec. 21B of the /ax ode

provides no court may grant

injunction to restrain collection of any tax fee or charge imposed by/ax ode.

• /he provision in /ax ode refers to

courts other than the /!. (4laBueravs. Rodrigue, GR No. '10,!arch 1, 10/)

• !ppeal to the /! does not

automatically suspend collectionunless /! issues suspension order atany stage of proceedings.

Si3ultaeou+ fili! of a ali*atiofor refud or *redit ad i+titutio of a*a+e (efore the CTA allowed

/he law fixes the same period of two ,2 years for filing a claim for refundwith the ommissioner and for filing acase with the /!. /he two-year periodfor both starts from the date after thepayment of the tax or penalty or fromthe approval of the application forcredit.

'7servation, If we are not going toallow the taxpayer to file a refundbefore the /! and let him wait for theI:7s decision and the latter failed torender a decision within the 2-yearperiod the said taxpayer can no longerfile a refund before the /! because hisright to appeal has prescribed.

Wei!ht of &e*i+io of CTA

• @ecisions of /ax ourt have

persuasive effect and may serve as

judicial guides. /hey have morepersuasive value than ;I: :ulings.

• /!7s findings of fact are entitled to

the highest respect. (Raymundo vs.de <oya, GR No. '88, "ecember , 1/6)

• /he Supreme ourt will not set aside

conclusions reached by /ax ourtwhich by the very nature of itsfunction is dedicated exclusively tothe consideration of tax problemsand has developed an expertise on

the subject unless there has been








an abuse or an improvident exerciseof authority on its part.(Commissioner vs. Court o% AppealsE Atlas Consolidated, GR No. /98/0,

November , 11)

"II."AL%E–A&&E& TAX6"AT:

TITLE I" OF NIRC

&EFINITION8 /he value-added tax is anindirect tax and the amount of tax maybe shifted or passed on to the buyertransferee or lessee of the goodsproperties or services. /his rule shalllikewise apply to existing contracts of sale or lease of goods properties orservices at the time of the effectivity of :epublic !ct >o. **1).

!/ replaced Sales /ax as imposed byprevious /ax 8aws.

#ISTOR/8a. 9xecutive Drder >o. 2*"b. :epublic !ct >o. **1)c. :epublic !ct >o. B2$1d. :epublic !ct >o. B$2$ ,took

effect on 1 anuary 1FFB

TRANSACTIONS CO"ERE& '/ "AT81. Sale of ommodities or 4oods ,in

the course of trade or businessonly

2. Sale of Services ,in the course of trade or business only

". 9xportation ,in the course of trade or business only

4. Importation ,<!et!er or not in

the course of trade or business

PERSONS LIA'LE FOR "AT!ny person who in the course of

trade or business sells bartersexchanges leases goods or propertiesrenders services and any person whoimports goods shall be subject to thevalue-added tax ,!/ imposed inSections 1K) to 1KB of the >ationalInternal :evenue ode.

*N T>E C'(R#E '? TRA)E 'RB(#*NE##F

/he regular conduct or pursuit of acommercial or an economic activityincluding transactions incidentalthereto by any person regardless of

whether or not the person engagedtherein is a non-stock nonprofit privateorgani0ation ,irrespective of thedisposition of its net income andwhether or not it sells exclusively tomembers or their guests or governmententity.

/herefore if the disposition of goodsor services is NOT in the course of tradeor business then it is not subject to !/+with the exception of importation of course.

/he rule of regularity to thecontrary notwithstanding services asdefined in this ode rendered in the'hilippines by non-resident foreignpersons shall be considered as beingcourse of trade or business.

I3ortatio i+ +u(He*t to "ATre!ardle++ of whether or ot it i+ i the*our+e of trade or (u+ie++

/he reason for the rule is to protectour local or domestic goods or articlesand to regulate the entry or introduction

of foreign articles to our local market.:egulation is one of the purposes of /axation.

Tax Rate+81. 1KC - the rate used in sale of

commodities and goods sale of services and importation.

2. Vero-rated ,KC - the rate used inexportation.

;ANNER OF CO;P%TING T#E "AT8 A. 13G rate of Tax

1. In sale of commodities and goods1KC is multiplied with the 4rossSelling 'rice.

2. In sale of services 1KC is multipliedwith the 4ross :eceipts.

". In importation 1KC is multipliedwith the rates used by the ;ureau of ustoms in imposing tariff andcustoms duties plus customs dutiesexcise taxes if any and other

charges such tax to be paid by the








importer prior to the release of suchgoods from customs custody?'rovided /hat where the customsduties are determined on the basis

of the 5uantity or volume of thegoods the value-added tax shall bebased on the landed cost plus excisetaxes If any. customs duties.

B. ero-rated 3G2 rate of tax

1. 9xport Sales as provided in Section1K),!,2,a

2. Aoreign urrency @enominated Saleas provided in Section 1K) ,!,2,b

". Sale to persons or entities which is!/ exempt under special laws or

international agreements to whichthe 'hilippines is a signatory asprovided in Section 1K) ,!,2,c

$. /ransactions subject to 0ero-rated,KC as provided in Section 1KB,;

REGISTRATION %N&ER T#E "AT S/STE;6SECTION 9B OF T#E NIRC:

+enera$ Ru$e, Aailure to register issubject to temporary closure of theestablishment for & days as provided inSection 11&,b.

Ex*etio8 It does not apply to anexporter who fails to register. /he effectis instead of treating the transaction as0ero-rated ,KC it is treated as anexempt transaction.

What i+ the differe*e0 In ero'rated (6Q) transactions, ta: credit isavailable. $oever, in e:empttransactions, ta: credit is not available.

EXE;PT TRANSACTIONS 6SECTION ?J:81. In Section 1KF,a and ,c food and

non-food products are 3A2'e:emptas long as these products are in itsoriginal state. /he simple process of preparation or preservation for themarket such as free0ing dryingsalting broiling roasting smokingor stripping doe+ ot remove theproduct from its category of being inits original state.

• owever even if the products were

no longer in its original state it can

still be !/-exempt under Section1KF,r if sold by agriculturalcooperatives duly registered byooperative @evelopment !uthority.

2. Ender Section 1KF,m privateeducational institutions are exemptfrom !/ if duly accredited by the@9S or by the 9@. In case of government educational institutionno accreditation is re5uired.

". /ransactions in the field of !rts are!/-exempt only as provided inSection 1KF,n if the seller is theartist himself or the artist7s servicesperformed for the production of such works.

$. Section 1KF,p makes :egional or!rea ead5uarters exempt from !/.

&. Ender Section 1KF,w in order forthe sale or lease of real property tobe exempted from !/ thetransaction must >D/ be conductedin the ordinary course of trade orbusiness. It complements Section1K),!,1,a where it states that inorder for the sale or lease of realproperty to be covered by !/ it

must be made in the ordinary courseof trade or business.

). :evenue :egulations >o. )-F* adds are5uirement in order for the lease of residential units with a monthlyrental of not more than 'BKKK.KKas provided in Section 1KF,x to be!/ exempt that the annual grossreceipts must not exceed'&&KKKK.KK.

*. Section 1KF,0 provides that the saleor lease of goods or performances of services other than those mentionedin the preceding paragraphs are !/exempt if the 4ross !nnual :eceiptsdo not exceed '&&KKKK.KK.owever the limitation of '&&KKKK.KK does apply for thosetransactions from Section 1KF,a to,y except ,x because :evenue:egulations >o. )-F* imposes a'&&KKKK.KK limitation.








• In cases of tax-free importation of

goods into the 'hilippines bypersons entities or agencies exemptfrom tax where such goods are

subse5uently sold transferred orexchanged in the 'hilippines to non-exempt persons or entities thepurchasers transferees or recipientsshall be considered the importersthereof who shall be liable for anyinternal revenue tax on suchimportation. /he tax due on suchimportation shall constitute a lien onthe goods superior to all charges orliens on the goods irrespective of the possessor thereof.

TRANSACTIONS &EE;E& SALE8

/he following transactions shall bedeemed sale therefore making themcovered by !/? 6?: /ransfer use or consumption not inthe course of business of goods orproperties originally intended for sale orfor use in the course of business+69 @istribution or transfer to?

6a: Shareholders or investors asshare in the profits of the !/-registered

persons+ or6(: reditors in payment of debt+

6B: onsignment of goods if actual sale isnot made within sixty ,)K days followingthe date such goods were consigned+ and6@: :etirement from or cessation of business with respect to inventories of taxable goods existing as of suchretirement or cessation.

>o< to determine t!e %AT, /he taxshall be computed by multiplying thetotal amount indicated in the invoice byone-eleventh ,1(11.

Exa3le8 the total amount indicated inthe invoice is '11K. '11K(11 M '1K. '1Kis the amount of !/.

TAX CRE&IT AN& REF%N&

?ormu$a for Tax Credit,Dutput8ess? Input!/ due.

• If Input is greater than Dutput

/ax redit is available.

H*NP(T TA6H means the value-added taxdue from or paid by a !/-registeredperson in the course of his trade orbusiness on importation of goods or localpurchase of goods or services includinglease or use of property from a !/-registered person. It shall also includethe transitional input tax determined inaccordance with Section 111 of the>I:.

H'(TP(T TA6H means the value-addedtax due on the sale or lease of taxable

goods or properties or services by anyperson registered or re5uired to registerunder Section 2") of the >I:.

• If at the end of any taxable 5uarter

the output tax exceeds the inputtax the excess shall be paid by the!/-registered person. If the inputtax exceeds the output tax theexcess shall be carried over to thesucceeding 5uarter or 5uarters. !nyinput tax attributable to thepurchase of capital goods or to 0ero-rated sales by a !/-registeredperson may at his option berefunded or credited against otherinternal revenue taxes subject tothe provisions of Section 112.

'PT*'N# '? A TA6PAER A# PR'%*)E)*N #ECT*'N 11,1. to claim for tax credit+ or2. to claim for refund

/he claim which must be in writingfor both cases must be filed within 2years after the close of the taxable5uarter when the sales were made for?a the issuance of a tax creditcertificate+ b refund of creditable inputtax due or paid attributable to suchsales.

#OW TO &ETER;INE CRE&ITA'LE INP%TTAX

/he sum of the excess input taxcarried over from the preceding month

or 5uarter and the input tax creditable








to a !/-registered person during thetaxable month or 5uarter shall bereduced

reduced by the amount of claim forrefund or tax credit for value-added taxand other adjustments such as purchasereturns or allowances and input taxattributable to exempt sale.

/he claim for tax credit referred toin the foregoing paragraph shall includenot only those filed with the ;ureau of Internal :evenue but also those filedwith other government agencies such asthe ;oard of Investments or the ;ureau

of ustoms.

/he ommissioner within 12K daysin proper cases from the date of submission of complete documents insupport of the application shall grant arefund or issue the tax credit certificatefor creditable input taxes.

:emedy in case of full or partialdenial or failure on the part of theommissioner to act upon the

application for tax credit or refund? thetaxpayer affected may within thirty ,"Kdays from the receipt of the decisiondenying the claim or after the expirationof the one hundred twenty day-periodappeal the decision or the unacted claimwith the ourt of /ax !ppeals

his principal place of business or headoffice and all branches.

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