LUMBERA NOTES SUPPLEMENT  If creditor is RC – taxable

 If creditor is NRC, RA, NRAET/B, NRA~ETB – taxable

INCOME TAX  If creditor is DC – taxable
 If creditor is RFC(T/B), NRFC(~T/B) – not taxable
Situs of Income: f. If debtor is DC – within
1. Compensation – Where the service is rendered regardless of where it was paid  All are taxable
 If the service is rendered within the Philippines, then any income realized is g. If debtor is RFC, it is within
within regardless of where the payment of compensation is  All are taxable
 If the services rendered outside the Philippines, then whether binayaran sa h. If the debtor is NRFC – without
Pilipinas o sa labas ng Pilipinas ang bayad it is considered income without  If creditor is RC – taxable
 KEYWORDS: where the service are rendered  If creditor is NRC, RA, NRAET/B, NRA~ETB – taxable
2. Real Property, Tangible Personal Property – Where the property is located
 If creditor is DC – taxable
 If the property is located (RP/TPP) is located in the Philippines, regardless of
 If creditor is RFC(T/B), NRFC(~T/B) – not taxable
saan nagbayaran ng income, it is within the Philippines
6. Dividends:
 If lRP/TPP is located outside the Philippines, then any income derived
a. If Corporation that issued the dividend is DC, all dividends issued is within,
therefrom is considered income without
from the point of view of the stockholder [all kinds of taxpayers are taxable]
3. Royalties and Rentals – Where the property is located
b. If the Corporation is FC:
 Rules same with RP/TPP Gr: All dividends within (All dividends issued by FC in the amount
 The royalties – we realize that because of the usage; so, the property being of P100,000 are within)
used is located in the Philippines regardless where the royalties are being XPN: if less than 50% of the gross income of the FC is derived from
paid, it is income within sources within for a period of 3 year before the release of such
4. Interest on Bank Deposits- Where the bank issued the bank deposit is located dividend. Only such income shall be considered within based on the
 If the bank which issued the interest on the bank deposit is located in the ratio of the gross income within
Philippines, then it is considered as within (unless less than fifty percent (50%) of the gross income of such foreign
 If the bank which issued or paid the interest on the bank deposit is located corporation for the three-year period ending with the close of its taxable
outside of the Philippines, then it is considered as without year preceding the declaration of such dividends or for such part of such
5. Interest on loan: [RULE: Debtor  Resident of Phils  within period as the corporation has been in existence was derived from sources
Debtor  Non-Resident  without] within the Philippines as determined under the provisions of this Section;
a. If the debtor is RC, income is within regardless where the creditor is but only in an amount which bears the same ratio to such dividends as the
 If the debtor is a resident of the Philippines, then the interest income gross income of the corporation for such period derived from sources within
from the point of view of the creditor is within the Philippines bears to its gross income from all sources;)
b. If the debtor is NRC, interest income is without  Special Persons: Aliens employed in off shore banking units, multi-national companies
 If the creditor is RC, subject to tax (w/in or w/o) and oil petroleum service contractors, they are considered NRANETB even if they are
 If the creditor is NRC, RA, NRAT/B, NRA~ETB – no tax in the PH.
 If the creditor is DC, subject to tax (w/in or w/o)
 If the creditor is RFC(T/B), NRFC(~T/B) – no tax Income Tax on Individuals
c. If the creditor is RC or DC, even if Debtor is NR, it is still income within. (REFER TO TABLE of LUMBERA)
d. If debtor is RA, it is within
 The interest on loan, paid by the debtor to all (kinds of) taxpayers (A) Catch all Proviso
are taxable in the Philippines  (RC) Kung wala sa B, C, D nasa A yan.
e. If the debtor is NRA, whether engaged in T/B or not – without  (GI-AD) = TNI x % = Tax Due

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  NIT is = use schedular table  If dividends are issued by domestic corporation – (as earlier discussed, sabi natin) the
 Compensation Income Earner= NIT Payable P100,000 dividends are considered as income within, therefore, falling under column B.
 In case of SEP/SEI whose income does not exceed 3M, he has a choice of NIT or 8% of It is now subject to FWT
GR/GS in excess of 250k. In it exceeds 3M then use NIT.  If the dividends are issued as a foreign corporation – as a general rule, that the P100,000
 Mixed Income Earner: dividends are income within, therefore, subject to tax. But not under column B. Because
o For Compensation, use NIT column B, FWT on passive income pertains only to passive income derived from PH
o For Profession or Sales, use the rule for SEI/SEP sources or issued by domestic corporation.
o But since the dividends were issued by a foreign corporation then the income
(B) Passive Income: shall be subject to tax under column A and the tax due is NIT
 Should be from sources within the PH, if not then it is not under (B) but under (A).
 Passive income from within the Phils.: NOTE: The rule is, all kinds of income are subject to income tax. The only income that is not
A. Royalties derived from PH sources subject to tax is if the law specifically exempts the income or excludes the income from
B. Interest on Bank Deposit issued by a bank in PH computation of the gross income.
Xpn: interest income on long term deposit or investment shall be exempt
from tax provided that the holder of the certificate does not pre-terminate (C) Sale of shares of stock of a PH Corp
the deposit or investment before the 5 th year.  Capital Gains Tax of 15% FWT
C. Prizes and Winning from PH (less than 10k, not taxable)  For it to fall under C, the share of stock must be sold untraded.
D. Dividends issued by domestic corp (FWT 10%) o Untraded – meaning hindi pinadaan sa stock exchange ng Pilipinas
 Passive income derived from Philippine sources shall be subject to FWT  If traded in a local stock exchange , income tax will not apply, instead apply Sec 127, tax
o What rate? Royalties from literary or musical compositions shall be subject to is percentage tax at the rate of 0.6 of 1% of gross selling price.
FWT with the rate of 10%  Requirements:
o But if the rate is not from literary or musical compositions the rate of tax is a. Shares of stocks in a Domestic Corporation
changed to 20% b. Sold untraded
 (In the example, royalties – P50,000 earned in USA) – pag wala sa B, nasa A. Royalties c. Capital Asset
na nasa B, lahat lang ng royalties derived from Philippine sources. (Thus, the royalties (FWT = 15%)
of P50,000, are derived from outside of the Philippines, therefore, wala sya sa B. Kaya
nasa A) (D) Sale of real property situated in the PH
 Interest on bank deposits derived from PH sources nasa letter B, therefore the tax is  CGT of 6% FWT
FWT with the rate of 20%  Based on 1. FMV, 2. Gross selling price, 3. Assessed value based on Tax Declaration and
o If the interest is on long term deposit, (which you do not preterminate for 4. Zonal Valuation based on Tax Declaration, whichever is higher valuation. (basis for
5yrs) the same shall be exempt the FWT)
 If you preterminate on the 4th – 12%  Binenta ng lugi or may tubo, both may CGT
 3rd – 5%
 So malalaman mo kung may tubo ka or lugi based on the FMV at the time of sale
 Prior to the 3rd – 20% FWT
 When we speak of prizes and winnings as passive income, we refer to prizes and
 Elements:
winnings in games of chance (raffle, sugal)
a. Sold
o PCSO/lotto winnings – P10,000 and below exempted
b. Real prop
 More than P10,000 subject to FWT under column B (20%)
c. Located in PH
o Other than PCSO – P10, 000 and below subject to tax but falls under column A
d. Capital Asset
(NIT)
(FWT = 6%)
 More than P10,000 – under column B, FWT (20%)

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  Ordinary Assets under Sec 39: (key words: used in trade or business) a. The real property must be the actual principal residence of the
a. Stocks in trade (Raw Materials) taxpayer/seller;
b. Goods sold b. Seller must inform the BIR of his intention to avail of the exemption (within
30 days from sale);
c. Inventory Subject to depreciation
c. Seller must build or purchase another principal residence within 18 months
d. Real Prop used in trade or business from sale;
d. Proceeds from the sale should be used in building/purchasing new principal
 All other assets are Capital Assets. residence
 Nag benta ka ng lugi, means namigay ka ng libre, thus liable to donor’s tax, this applies e. 6% CGT will be applied proportionately to proceeds not used for new
both to sale of Capital Assets or Ordinary Assets. principal residence.
o Hanapin ang FMV at the time of sale.
 If the consideration is more than the FMV, then you realize a gain
Exemption from the CGT of 6% when you sell your actual principal residence:
 If the consideration is less than the FMV, you incurred a loss Requisites –
o In sale of assets, specially, of goods ordinarily held for sale to customers, 1. Sell actual principal residence located in the PH
when they are sold for insufficient consideration, nagbenta ka ng lugi,  Actual principal residence – where one is absent, he has
namigay ka ng libre, bayad ka ng 6% donor’s tax on the diff. between the the intention of returning to; (concept of domicile) does not
FMV of the asset versus the consideration require continuous, uninterrupted stay
2. Within 30 days from the sale, inform the BIR that you are availing of
the exemption
o If the asset whether capital or ordinary is sold at a gain, then you realize a
3. Within 18 months from the sale, you buy or build another principal
gain. Then the gain of course is always taxable residence (in lieue of the one you sold)
o If you incurred a loss, is it deductible? No. It remains as a loss. It will affect  For example, ang benta mo ng bahay mo is 5M, ang
your net worth but not for tax purposes nagamit mo lang ay 3M  bayad ka ng 6% sa 2M
 Pano naman kung nagastos mo lahat at kulang pa, edi
o If the shares of stocks are traded (hence, not in C/A) in the local stock wala kang babayaran. Bakit? Nagastos mo lahat ng
exchange, apply Sec. 127 of the Tax Code. (% tax, at the rate of 0.6 of 1% of the proceeds ng sale of your actual principal residence
4. That you avail of the exemption once every ten years
Gross Selling Price), hence, whether tubo or lugi, the percentage tax shall be
5. The historical cost is considered in determing how much will be
paid subject to income tax or will be exempted from tax

 If you sell (expropriation) your real property (capital asset) to the Government, you can  Above exception is applicable to Non-Resident Citizen.
choose the imposable tax between CGT of 6% or NIT under (A) (Involuntary sale)  As well as the rules on expropriation, involuntary sale and Foreclosure
o Kung NIT ang pinili mo  FMV – purchase price = 0 (tubo) [hence, no tax proceedings, provided that the property subject to tax is within the PH
payment]
 Hindi sinasabi ng batas na libre ka sa buwis, pero wala kang tax  In case the seller builds or purchase another principal residence using the
payment. Bakit? Dahil ang basis ng NIT ay yung tubo proceeds, if there is excess, such will be subjected to Income Tax. If no excess, no
tax.
o Kung pinili mo ang CGT  6% ng kung ano ang pinaka mataas sa apat (FMV,
GSP, AV, ZV) TAKE NOTE:
 In case of Foreclosure proceedings, there is CGT only when the right of redemption [NRC] If you sell at a loss, then Sec. 100 (Donor’s Tax) will be applicable to you, even if you are a
prescribes and the title to the property is consolidated to the highest bidder. NRC
o If mortgagor-borrower exercised the right of redemption, no CGT  Pag tubo, walang tax ang nasa US (income without)
o Only ang Pilipinas ang may tax under letter D (FWT) [Capital Asset]; under
 Exemption from CGT for sale of real property: Requisites [Sec 24 (D)(2), NIRC]: letter A [Ordinary Asset]
 Pag binenta ng lugi, may tax
o Capital Asset (w/in) – under letter D
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 o Capital Asset (w/o) – Donor’s Tax (B) Passive Income:
o Ordinary Asset (w/in or w/o) – Donor’s Tax
 They also have passive income but only Interest on bank deposit and Royalties, (except
2. RA and NRC yung Royalties as to literary or musical compositions). Wala din silang passive income
on Prizes and winnings
 They are taxed the same way  Wala ding dividends, because that is what we call Intercorporate Dividends Tax
 NRC and RA not taxed from sources without (ICDT) which is in case that a dividend is issued by a DC, received by another DC, that
 Rules on D still applicable to RA like NRC is exempt.
 Remember the xpn that interest income on long term deposit or investment shall be
3. NRAETB exempt from tax provided that the holder of the certificate does not pre-terminate the
 Taxed the same ways as above, except one deposit or investment within 5 years. This is not applicable on DC.
 In case of dividends issued by Domestic Corp under (B), RC, NRC and RA are all taxed (C) and (D)
at the rate of FWT of 10%, but if NRAETB the rate is increased to 20%  (C) and (D) of individuals shall be applicable to DC as well, but the XPN to CGT of 6%
does not apply to a Corporate Taxpayer.
4. NRANETB  Aside from ABCD and ICDT there is also Minimum Corporate Income Tax (MCIT) and
 (A) and (B) shall now be subjected to Gross Income Tax of 25% (withheld) Improperly Accumulated Earnings Tax (IAET)
 (C) and (D) is the same as above  For MCIT, the rate for DC is 2% on the Gross Income.
 XPN to CGT is also applicable (sale of actual principal residence)  For IAET, the rate for DC is 10% based on the Improperly Accumulated Earning.
 As a rule, aliens are not allowed to own real property in the PH, except:  So what are the rule on this additional taxes?
a. By way of succession or inheritance o First, MCIT is applied in lieu of 30% NIT (A)
b. Condominium unit in a Condo Corp o IAET is in addition to ABCD kung meron kang Improperly Accumulated
c. If a former resident citizen Earnings
 Anong pagkakataon na nag-aapply yung exception sa NRA~ETB? These xpn o Let’s discuss
specifically applies to special persons (offshore banking units and etc), so if they own
Condo, the xpn of CGT 6% may be applicable to them MCIT
 The preferential tax system for Special Unit is now vetoed by the President, thus they  A DC shall be subject to MCIT of 2% of the GI beginning the 4th year following the
are now subjected to NIT(A), this is to prevent any inequality in the application of commencement of its operation provided that the 2% on the GI is higher than the NIT
compensation income for RC which are also employed under the same company which of 30%
are offshore banking unit, multinational corporations, and oil petroleum service
contractors, vs aliens employed under the same company. NOTE:
Gross Income – after cost of sales; hindi yung benta
Income Tax on Corporation
 Remember on Corporate Taxpayers, their income is always based on trade or business. IAET
We call that ordinary income  Rate is 10% upon IAE
 These are earning of corporate taxpayers which are retained beyond the reasonable
1. Domestic Corporation business needs.
 Income within and without  This is related to dividends
 Diba ang corporation pag kumita, yung kita niya ay inaappropriate para sa kanyang
(A) Catch all Proviso business operations tsaka expansion so pwede niyang iretain

 Under column A, they are taxed a fixed rate of 30% NIT

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  Yung hindi nya gagamitin sa kanyang business operation at expansion, ang tawag don  So beneficial sa PH pag niretain, pero beneficial pa din kahit iremit kasi kikita sila sa
unappropriated. And accg to Corpo Code, yung hindi mo gagamitin hindi mo pwede BPRT
iretain 100% kailangan mong ipamigay sa SH via dividends.
 Kung hindi mo ipamigay, yan ang Improperly Accumulated Earning
 This is the system of tax that we know of as bawi bawi, hindi pwedeng libre 3. Non-Resident Foreign Corporation

2. Resident Foreign Corporation (A) And (B)

 The tax is Gross Income Tax at the rate of 30%
(A) Catch all Proviso
 Same with DC (C) Sale of shares of stock of a PH Corp
 Same with Individual
(B) Passive Income:
 Same with DC (D) Sale of real property situated in the PH
 As to dividend (ICDT), if  Not allowed since foreign corp are not allowed to own real property
o D to D = Exempt ICDT
o D to RFC = Exempt pa din  D to NRFC is taxable already
(C) Sale of shares of stock of a PH Corp  FWT at the rate of 15%
 Same with Individual
MCIT
(D) Sale of real property situated in the PH  Not applicable
 Not allowed since foreign corp are not allowed to own real property
MCIT IAET
 Is applicable  Not applicable

IAET
 Not applicable, because this is just a branch here in the PH
Constitutional Provision on the Exemption of various Organizations and of the Government
There is a new tax applicable to RFC, the Branch Profit Remittance Tax (BPRT) in relation to Income
 At the rate of 15%based on the amount applied for remittance regardless of the amount Tax table of Lumbera (Sec. 30)
actually remitted.
 Only applicable to RFC  Ano yung nature nung 11 organizations under Sec. 30? Non-stock, non-profit
 Kunyari may US Corp may branch sya sa PH, yung branch sa PH ang tawag natin RFC. organization
Pag kumita yung branch sa PH, yung kita nya dito ang tax nya is 30% NIT under (A).  Sabi sa batas any Income “As Such” shall be exempt from income under this title.
Ang gusto natin, as much as possible yung kita wag iremit dun sa US main branch, kasi  So anong klaseng tax sila exempted? Pag binasa nyo yung sec. 30, ang ibig sabihin
kapag yung kita niya ininverse(?) nya ulit sa pilipinas it will generate income, then it nyan, 11 na corporasyon, anong income, income as such, shall be exempted from
will generate another tax. Income tax of 30% NIT (A). Because yung non-stock non-profit, these are all DC.
 E hindi naman pwedeng iprohibit yung branch na magremit sa head branch, so para  Ano yung ibig sabihin nung “As such, ang ibig sabihin nyan, income, derived by
madiscourage, kapag niremit, we can tax that as BPRT the 11 corporations pursuant to the primary purpose for which each one of them is
 Gusto ng gobyerno yan kasi kapag di niremit sa US, the income will stay here created.
gagamiting reinvestment sa operations and will generate more income and therefore  Exception to the Rule: Now, there is a last paragraph under Section 30, ang naka
mas madami kikitain ng PH. sulat, subject to limitations notwithstanding the provisions of the preceding

5
 paragraph, income of whatever character from Real or Personal Property or from
an activity conducted for profit, regardless of disposition shall be subject to tax. 2. Non-Stock, Non-Profit Educational Institution (NSNPEI)
Anong tax, yung 30% NIT and any other applicable tax under the Income tax.  Constitutional limitation – All revenues and assets as well as all lands, buildings
 Regardless of disposition = kahit saan ginastos yung income and improvement of a NSNPEI actually, directly and exclusively (ADE) used for
 So kahit na ginamit yung income from an activity conducted for profit sa repair CONSTI TAX CODE (SEC. 30)
kunyari ng church, taxable pa din because the law provides that it is subject to tax Para ma libre sa buwis, kailangan mong Hindi gamit ang usapan kundi if the
regardless of disposition. gamitin (ADE use) for educational income “as such” like tuition fee, it is the
 Icorrelate natin yung sabi ng constitution. purpose source of the income, regardless of use,
that determines the exemption.
1. Charitable/Religious Institution (CRI) educational purpose shall be exempt from taxes and duties. (Consti and LGC 1991)
 Charitable institution includes both charitable and religious  As you can see, sa charitable institutions, ang exempted lang is land, buildings and
 The constitution provides that all charitable institutions, churches, convents, assets, dito revenues kasama, kita. Sa exemption, same ADE used. Pero the
mosques, non-profit cemetery, parsonages, including all lands, buildings and exemption is much broader than CRI, because the exemption here include RPT and
improvements actually, directly and exclusively (ADE) used for charitable, all Internal Revenue Taxes meaning income tax, donors tax, yung lahat
religious or educational purpose shall be exempt from tax. Yan ang sabi ng consti. enumerated sa tax code, so mas malawak yung exception.
 So anong klaseng tax exempted? RPT lang ang coverage ng consti.  Under the consti, kapag yung revenue (kita) gamitin (ADE) sa educational purpose
 Pag ang asset is principally but not entirely, hindi kailangan entirely ah, in other libre sa income tax
words there may be incidental use.  Sabi naman sa Sec 30, income as such ng skwelahan from the primary purpose
 Take note the ff questions: such as tuition fee, no tax.
1. is consti applicable = exempt from RPT  But there is a big difference between the 2, sa consti & Sec. 30:
2. is it exempt from income tax or is it subject to the exc eption under last par =
exempt from NIT 30, if falls under last par, taxable, what income? ABCD. If
passive income FWT 20%
3. is it gifts, bequests and devices (not taxable income but subject to donor’s tax
if intervivos, and estate tax if mortis causa)
a. Rule under tax code, the gift shall not be subject to donors’ tax or  That conflict has long been in existence, but BIR has always used sec 30 as basis for
estate tax provided not more than 30% of the gift is used by the the interpretation. Until such time that De La Salle University case came out and
charitable institution for administration purposes. (Sec 87 for was decided by the SC, landmark case yan, so sinabi dun sa CIR vs DLSU case
Donors Tax, Sec 101 for Estate Tax) that sec.30 insofar as NSNPEI is concerned is unconstitutional because it runs
 Administration purposes – meaning hindi dapat gamitin contrary to the express provision of the constitution, and because it is
for pampasweldo ng tao, pangbayad ng renta, telepono, unconstitutional the effect is we use the constitution, meaning as long as the tuition
supplies; but for the maintenance of the organization fee, maipakita mo na gagamitin ADE for educational purpose libre sa income tax.
b. Is the donation deductible to the gross income of the donor. Eto ang  What is the other consequence of that ruling in the case of De La Salle University,
sagot (Sec 34H): because of that case, sa halip na 11 na corporasyon ngayon ang covered ng Sec. 30
i. kung si donor ay tao at purely compensation income minus 1, nagging sampu nalang. So by reason of the case, Sec. 30 has no effect at all
earner, no he cannot claim it as deduction. insofar as NSNPEI is concerned.
ii. If donor is SEP/SEI or MIE, he can claim as deduction but  How do you prove the use? You have to prove in your audited financial statement
only up to the extent of 10% of his taxable income prior to that the amount was ADE devoted for educational purpose.
this deduction.  So even for kunyari, rentals, sa Sec. 30 pasok sya sa last paragraph, so dapat
iii. If Donor is corporate taxpayer, it can claim up to 5% of his taxable sya. But for the reason of the ruling of the case, we disregard Sec. 30 and
taxable income prior to this deduction.

6
 use the constitutional limitation. So dapat lang iprove na yung revenue from  So, the rented portion, is not exempt because the beneficial use pertains to a non-
rentals is ADE used for EP. exempt entity for a consideration. What is the consideration? The rentals.
 Pano kung nilagay sa bangko? Yung interest earning may be exempt from income  Let’s go to tuition fees. Ano ang basehan sec.30 ng tax code. Is it income, yes, is it
tax following the constitutional limitation. (proof of ADE use) taxable, no because it is income as such. How about rentals, is it income, yes, is it
 What if you donate? Follow the rule on CRI subject to tax, sabi sa last paragraph ng sec30, subject to tax, why? Because it is
income of whatever kind and character from real or personal property or from an
3. Proprietary Educational Institution (PEI) activity conducted for profit regardless of disposition shall no longer be exempt
 Anong sabi sa Constitution? May karugtong yan sa constitutional limitation for from tax.
NSNPEI, sabi sa second paragraph ng constitution “subject to the limitations  If you donate in favor of the gov, is it income, yes, is it taxable, no because it is an
provided for by law, PEI may likewise be exempt from similar taxes and duties.” item of exclusion. Is it subject to DT/ET, the answer is simply no without the 30%
 What is the basis of exemption of let’s say, RPT, walang constitution, LGC of 1991 restriction. Because if you donate in favor of the govt, then the entire gift shall not
ang basis mo. Same reasons as for NSNPEI but different basis because the consti be subject to DT/ET.
does not cover the exception.  Can the donor claim it as a deduction from gross income, the rules are the ff.
 Okay, let’s go back to tuition fee, ano iaapply natin? We apply sec.27(b), ang tawag  kung si donor ay tao at purely compensation income earner, no
sa kita sa tuition fee kapag PEI is related trade or activity (RTA), ang tawag naman he cannot claim it as deduction.
sa rentals, kunyari, is unrelated trade or activity (UTA).  If donor is SEP/SEI or MEI or Corporate taxpayer, yes, he can
 Anong sabi sa sec.27(b)? If the income from unrelated trade or activity does not claim as deduction in full, if priority project of the government.
exceed 50% of its total income, then the preferential tax rate of NIT 10% instead of As long as naka declare as priority project ng govt yung GEI or
NIT 30% shall be applied. yung pagaaral sa public then it will be allowed as a deduction
in full.
4. Government Educational Institution (GEI)  Assuming it is not declared priority project of the govt, then we
 UP does not fall within the purview of GEI kasi it has a separate charter. apply the restriction of 10% or 5% under 34(H) of the Tax Code.
 Bali baliktarin nyo man ang consti, walang sinabi dito na exempt from income tax
ang GEI. 5. Government of the Philippines
 Under the tax code, section 30, you will find a specific provision dealing with GEI.  Nothing in the consti, states na exempted and gobyerno sa tax.
So ang nakasulat dun, “for GEI, they are exempt from income tax for income as  So okay, same scenario as GEI. Is the govt exempted from RPT, sabi sa sec 234 ng
such, (what is the exemption? 30% NIT) but income from whatever kind or LG1991, not subject to RPT because owned by the government or any of its
character from real or personal property, or from activity conducted for profit by instrumentality and the beneficial use does not pertain to a 3 rd person. E yung
GEI, regardless of disposition, shall be subject to tax.” portion na to (portion leased to mcdo, Jollibee and etc) yes, kasi beneficial use
 So, for NSNPEI, the constitution applies, for PEI there is no specific provision pertains to non-exempt entity. Basis sec.234. Walang constitution na pinaguusapan.
but we apply LG1991 and the tax code, for GEI, we apply sec. 30 of the tax code,  Next, let’s say nagcoconduct and DSWD ng training, may mga nagbabayad,
walang constitution kumita ng 10M, income? Ggamitin ba natin ang sec 30? Wala naman sya dun sa 11.
 The GEI may still be exempted from RPT by virtue of Sec. 234 of LGC 1991 which Meron bas a consti? Wala din. Is it taxable income? No, pero anong basehan?
states that, “the ff real properties shall not be subject to RPT”, number 1 on the list Makikita ang sagot sa sec 32 par.B number 7, andun sa miscellaneous items. Ano
real properties owned by the government of the Republic of the PH or any of its nakasulat dun, income of the government from exercise of governmental function
instrumentalities except when the beneficial use pertains to a non-exempt entity for such as the income of DSWD from trainings conducted, that is a performance of
a consideration. Tandaan, walang constitutional provision but sec. 234 of LGC 1991 governmental function and therefore exempted from income tax.
shall be applied.  What about the rentals? Is it income? Yes, is it taxable income? It’s the same
 So how do we answer, the properties are exempt from RPT not because of ADE but provision, sec 32 par.b, the item of exclusion from the computation of gross income
simply put a real property owned by the government of the RP and the beneficial is income of the govt from the performance of its govt functions and conversely
use does not pertain to a non-exempt entity. therefore income of the government from the performance of the proprietary

7
 function such as rental income, because it is in the nature of proprietary function of  What constitutes gross income of the taxpayer, you’ll find the provision in sec.32 of
the government therefore it is not exempt from payment of tax. NIRC par.A.
 So it is not correct to say that the govt is exempt from payment of tax, that is not an  Sec.32 is divided into 2 portions. 32(A) which pertains to items of inclusions and 32(B)
umbrella statement, hindi sya encompassing. which pertains to items of exclusions.
 What kind of tax? E di look at the table, the govt is considered as DC for tax
purposes, then the rental income shall be subject to 30% NIT under (A)
 How about interest earning (passive income)? Income? Yes, Taxable? Yes, pero
anong basehan? Because it is in the nature of proprietary function the same is 32(A) – Inclusions
taxable under (B) FWT 20%.  What is the effect if the income is included? Taxable.
 What if you donate in favor of the government?  Ang code ko dito CG(2)DIR(2)AP(3), pronounced sijidirap.
o Is it income? Yes, is it taxable income? The answer is no, why because  Do you have to memorize this portion? Because of the rule that all income unless
gifts, bequest and devices are items of exclusions from the computation excluded is included. Kung hindi excluded, siguradong included.
of the gross income.  Gross income = All income from whatever source derived (whether legal or illegal)
o Is it subject to DT/ET? the answer is no, period. Fully not subject to such as but not limited to the ff:
DT/ET, there is no restriction of 30% for administration purposes. 1. Compensation for services rendered including fees, commission and other similar
o Can the donor claim the same as deduction? items (NIT and no VAT)
 If CIE, No.  ER-EE relationship is present
 If donor is SEP/SEI or MEI or Corporate taxpayer, yes, he can o Tax repercussion – tax due lagi is NIT because the taxpayer is
claim as deduction in full, if priority project of the government. considered only as a purely CIE
As long as naka declare as priority project ng govt yung GEI or o When you are a CIE, you do not have any VAT on your
yung pagaaral sa public then it will be allowed as a deduction compensation income
in full. 2. Gross income from exercise of profession or trade or business
 Assuming it is not declared priority project of the govt, then we  Exercise of profession (sale of service), no ER-EE relationship
apply the restriction of 10% or 5% under 34(H) of the Tax Code. o SEP – that means, the taxpayer can exercise the option. When
are the options available?
The easier way to study this is, dahil mahirap syang imemorize, gumawa kayo ng sariling table.  If the GR does not exceed 3M, the SEP can choose
Para di mo sya makakalimutan. And you use the same series of questions. Laging may tanong between the 8% and the NIT
dito sa Bar, lalo na dahil sa landmark case of Dela Salle University at tsaka yung St. Lukes  If you choose 8%  no vat, no % tax
Medical Center Case. (National Kindney Institute case, Lungs Center of the Phils. Case)
 If NIT  no vat, but there will be % tax
 If the GR exceeds 3M, the taypayer will have no
6. Charitable Hospital and Proprietary Hospital (CH and PH)
choice, kundi NIT  Automatically, 12% VAT will be
 Meron pa, yung case ng charitable hospitals vs proprietary hospitals, you just have to
imposed on your sale of service but no %tax
apply yung rules ng PEI at charitable institutions, pareho lang rules nun. When we talk
about charitable hospital you apply strictly the rules nung charitable institutions, when
3. Gains derived from dealings in property
we talk about proprietary hospitals, kasi walo yan talaga e, you apply the same rule as
4. Dividends
PEI, yun lang.
5. Interests, may refer to either interest on bank deposit and deposit substitute or
 Recap lang nung walo, 1) CI, 2) RI, 3) NSNPEI, 4) PEI, 5) GEI, 6) Govt itself, 7) CH, 8) investment or interest on loans
PH. 6. Rentals
7. Royalties
ITEMS OF INCLUSIONS/EXCLUSIONS IN THE COMPUTATION OF THE GROSS 8. Annuities
INCOME OF THE TAXPAYER 9. Prizes and winnings

8
 10. Pensions taxable income. Anong klaseng tax ang babayaran? E di (A), wala yan sa
11. Partner’s distributive share in the GPP (B), wala sa (C) at wala sa (D) e di nasa (A)
 Basta ang tatandaan ninyo, kahit saan nanggaling, ninakaw, pinulot, lahat ng yan form  Kapag may nakita kayong problem na may namatay automatic may
in part ng inyong gross income. tanong sa kabilang side, Estate Tax. So were talking about the same
amount, 2 topics.
 The rule if the same would form part of his gross estate is it would
depend on his designated beneficiary.
32(B) – Exclusions o So if his beneficiary is himself, his estate, his executor or
 What is the effect if the income is excluded? Not subject to tax, I will not use the word administrator, whether the designation is revocable or
exempt. irrevocable, include in the GE therefore taxable.
 Lahat ng wala dito sa list, taxable. o If the designated beneficiary is any person other than above:
 So sabi natin, dalawang bagay ang hindi tinatax, kung ito ay exempted or kung ang  If designation is revocable then include
income ay excluded.  If irrevocable exclude from computation of GE;
 Naaral na natin so far ang income exempted, ano ano yung income exempted? Just by therefore, not subject to estate tax
looking at the table.  Above rules are under section 86.
1. Income from sale of actual principal residence
2. PCSO and Lotto winnings not exceeding 10k. 2. Return of Premium
3. Interest on long term deposits which you do not preterminate for a period of 5  This is just a return of capital
years, with respect to individual tax payer  But if the return of capital may nakalagay na provision stipulating that it
4. Dividends issued by a domestic corporation in favor of another DC will realize income or interest, then of course, naturally the interest
5. Dividends issued by DC in favor if RFC income of ROP shall be included to the computation of income tax.

 So, these are examples of the items that we have discussed that are exempted. We now 3. Gift, Bequest and Devises
go to the items which are excluded. I will never use the word exempted when we  Intervivos or Mortis Causa covered.
discuss sec.32.  Kaninong point of view ang tinetake? Recipient’s point of view.
 If you are faced with a question tapos di mo sigurado kung ang item is excluded or  But if the GBD realizes income, such income shall be subject to income tax.
exempted, wag mo ng ipagpilitang gamiting sabihin mo nalang based on the tax code,  Ang excluded lang yung property mismo na binigay sayo, so kunyari yung
that particular income is not subject to tax. binigay sayo is apartment, tapos meron rentals. Yung property lang yung excluded
 Magkaiba kasi meaning nung exempted sa excluded baka mapagpalit nyo. from tax, but yung rentals subject na sya to tax.
 So let us enumerate.  Let’s summarize the rules.
1. Proceeds of life insurance policy received by the insured or his heirs in case of his  Pag ang binigyan mo ay bf or gf mo or friend, dahil ngayon wala ng strangers sa
death income tax. So dalawang tax ang titingnan natin, Income tax at Donor/Estate tax.
 Provided that if there is payment of interest on the proceeds of the life So sa income tax, excluded. Dahil excluded sa income tax, ang tanong subject ba
insurance, then the interest shall be subject to tax. sya ng DT/ET, papaya ba ang batas na libre ka? Tandaan ninyo, bawi bawi system,
 So let’s say in a case, X is insured by a life insurance policy, the proceeds babawian ka ng gobyerno. Kung libre ka sa IT, aba may DT/ET yan.
amounting to 1M, return of premium of 500K, and interest earning of the  Next, kapag binigyan mo charitable Institution, Religious Institution, NSNPEI,
proceeds of 10%. When he died the same was transferred to beneficiaries. excluded pa din. Sa DT/ET, no tax but subject to the 30% restriction, that not more
Are the amount income? than 30% of the gift is devoted for administrative purpose.
 As to the proceeds, yes, ROP is not income, interest income is income.  Pag nagbigay ka sa govt, no income tax, no DT/ET din, wala din restriction.
 Next question, alin diyan ang taxable, una yung proceeds excluded, yung  For election contribution, not subject to both IT and DT, provided the ff requisites:
ROP is also excluded because that is no.2 on the list. Yung 10% interest is 1. That it is given for campaign purposes

9
 2. That it is fully utilized authorized campaign expenditure as provided by  Must be at least 60 years old
the Comelec rules  20 years of service
3. That Statement of Contribution and Expenditure (SOCE) is filed by both  The (2) must be complied, for the same to be excluded.
the winning or losing candidate  Let’s start with government sector:
4. That the creditable withholding tax of 5% was withheld (by the o All retirement benefits, no tax. Including conversion of leave
party/candidate) and remitted to BIR credits into cash, lahat ng yan wala. That’s the benefit you get
when you get employed by the govt.
 Since nandito na tayo sa RB, meron lang akong ididiscuss about
4. Income exempted under a Treaty employment. Usong uso ito ngayong Covid 19:
 It’s very simple, treaties form part of the law of the land, therefore if a o Retrenchment, redundancy, installation of labor-saving device,
particular treaty is entered into by the PH and another country which business losses, automation of business process, these are some
expressly provide for the exclusion of any income then it will be not of the grounds for the termination of services of employees and
subject to tax. these are considered valid or legitimate cause (just cause) on the
5. Damages part of the employers.
o If you are removed from employment by reason of the
 Compensation for sickness and death
abovementioned, you are receiving separation pay, is the SP
 Let us summarize the rules, work related and not work related.
subject to tax? Not subject to tax. Because these are for causes
Napakadali ng rules, the keyword here is reparation of damage.
beyond the control of the employee.
 If work related at ikaw ay nireimburse dahil ikaw ay nagkasakit o
o In addition, if an employee dies, any retirement benefits
namatay, lahat ng yan excluded.
received by the employee by the reason of his death and
 Kung not work related sa ka kukuha ng reimbursement, e di kung meron
received by the heirs shall not be subject to tax, because again
kang accident insurance coverage, or health card at ikaw ay nireimburse
this is for a cause beyond the control of the employee.
sa ginastos mo sa pagkakasakit mo then the same shall be excluded as
o If you are dismissed for cause, e di wala kang matatanggap.
well.
What if binigyan ka ng financial assistance, natural it shall be
 Yung property insurance, building insurance, Fire insurance, CMVLI,
taxable ang financial assistance, because you’re not supposed to
isama na natin to kahit di compensation for sickness and death, In other
receive anything.
words if there is insurance coverage, and you are reimbursed for all the
o If you’re dismissed without cause, and the final judgement
damages that you sustained, not subject to tax yan.
when you filed the case is reinstatement plus payment of
 This is easy, again, the key word is reparation for damage, whenever you damages, moral and exemplary damages, Attorney’s fees and
receive amount for reparation for damage then the same shall be cost of suit, alin diyan ang taxable?
excluded from tax.  Reinstatement = if reinstated you will receive your
same pay, therefore taxable
6. Retirement Benefits  M and E Damage = subject to tax
 Let’s start with private sector:  AF and Cost of suit = only in excess of actual expense
o With private retirement plan shall be subject to tax. But if you are just reimbursed
 Must be 50 years old in full for actual expense, no tax.
 10 years of continuous service o What if the judgement was in lieu of reinstatement, plus
 The plan is approved by the BIR payment of moral and exemplary damages, Attorney’s fees and
 No part of the fund is used for any purpose other than cost of suit, alin diyan ang taxable?
for the benefit of the employees  The separation pay shall not be subject to tax because
 The (4) must be complied, for the same to be excluded. that is due to a cause beyond the control of the
o Without private retirement plan employee.
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  M and E Damage = subject to tax So take note of these (7), kasi kung wala sa list manahimik ka, at yan ay taxable. So kung hindi
 AF and Cost of suit = only in excess of actual expense exempted at hindi excluded, e di include yan. So pag included yan, balik kayo sa table, at
shall be subject to tax. But if you are just reimbursed hanapin ninyo kung saan box magpupunta.
for actual expense, no tax.

7. Miscellaneous Items
Fringe Benefit, De minimis Benefit, Basic Compensation

A. Prizes and Winnings

DE MINIMIS BENEFIT – (BOC) facilities and privileges furnished or offered by an
 Ano difference nya sa passive income na prizes and winnings? Sa passive
employer to his employees that are relatively small value and are offered or furnished by the
income, it pertains to games of chance. But this one, pertains to sports
employer merely as means of promoting health, goodwill, contentment and effificency of his
competition sanctioned by National Sports Commission (NSC).
employees
 So yung professional boxers, di sila covered by this exclusion, tulad nila
 Eto yung mga add ons other than the sweldo. So how do we treat the add ons?
many pacquiao, dahil yun ay kanilang kita in the exercise of their
 Remember yung DMB natin may limit yan. So kailangan alam nyo yung limitasyon ng
profession (SEP)
batas:
 Professional Basketball players SEP din yan.
 Monetized Vacation Leave
 So what are the prizes and winnings that are excluded:
 not exceeding 10 days in the private sector
1. Again, prizes and winnings in sports competition sanctioned by
 if you have unused vacation leave credits na c(in)onvert into
National Sports Commission (NSC)
cash ng employer, if the same is 10 days or less, DM yun and
2. Prizes and winnings in recognition of various purposes,
within the limits
charitable, religious, scientific, education, literary, civic
 Sick Leave Benefit
achievement and _________. Provided that the winner did not
 Walang DM. Lahat ng SL benefits na m(in)onitize ninyo, at the
actively participate to join the contest and the winner is not
end of the year, hind yun DMB, so yun ay taxable. Yan ang sa
required to render future services. So pano napprevent yun?
private sector
Ang ginagawa diyan is kunyari yung 10 outstanding men, ang
ginagawa diyan ninonominate para hindi sya actively  Sa govt walang limit ang SL at VL, kahit anong klase ng leave
participated to join the contest. The joining of the contest is by credit na kinonvert sa cash pag part ng govt sector, lahat ng yon
way of nomination to avoid the payment of tax. DMB, so hindi subject sa tax.
 Medical Allowance to dependents of Employee
 to the extent not exceeding Php 1500 per semester (6 mos)
B. 13th Month Pay and Other Benefits  Rice Subsidy = 2k pesos per month
 Magkano ang limit ng 13th month pay and other benefits ngayon? 90K.  Uniform or Clothing Allowance
 6k pesos per year
C. Income of the Government in the exercise of its governmental function  Actual Medical Assistance
 not exceeding 10k per year
D. Income of Foreign Govt from investment in the PH  Achievement Awards in the form of Tangible Personal Property other
 Example nito yung mga utang ng PH sa ibang bansa, it is in the form of than cash or Gift certificate
investment.  not exceeding 10k per year
 Any interest income payment made by the PH to the creditor, that is  Gifts given during Xmas or Major Anniversary Celebration
considered income of the foreign govt from its investment here in the PH,  5k per year
that is not subject to tax.
 Daily Meal Allowance
 25% of the basic minimum

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  Benefits received by the Employee pursuant to a CBA
 not exceeding 10K FRINGE BENEFIT – (BOC) any goods, services or other benefit furnished or granted in cash
 So what happens to the excess of the limit? Eto yung rule, yung sobra lumilipat, or in kind, in addition to basic salaries, to an individual employee, except a rank and file
pupunta sya as other benefits, and itong other benefits may limit din sya. Which is 90k. employee
o When the DMB exceeds the limit provided for by law, yung sobra (beyond the  What are Fringe Benefits? These are benefits extended by an employer to an employee
limits) tumatawid sa kabila, ang tawag dun ay Other Benefits on top of the basic pay and other benefits. These are normally given to Managerial and
o Pag tumawid na, kung ikaw ay may sobra, isinama mo sa other benefits – eto Supervisory Employees and the tax rate is 35% FBT based on the grossed up monetary
(other benefits), meron ding limits value and withheld by the employer. So this is in the nature of a withholding tax.
 Refer to table  What are usually Fringe Benefits? Eto yung mga Housing Privileges, Motor Vehicle,
 In income taxation, tatlo lang ang klase ng employees and how are they subjected to Equipment, Personnel assigned to you, Exclusive Membership Clubs, Plane Tickets,
tax: and all other benefits extended by the employer to the employee other than DMB, 13th
o Managerial and Supervisory month pay and “Other Benefits”
 We call his basic pay, compensation and the tax due is NIT (A)  Under the present law, yung Special Units subject na din sya to FBT 35%
 DMB within the limit is exempted o Yung sweldo nila (alien employees of OBU, OPC, MNC) compensation
 If Other benefits exceeds 90k the same shall be included in the income nila will be treated as subject to NIT just like a Filipino resident who is
compensation thus taxable under NIT (A) UNLESS the benefit is a Managerial/Supervisory Employee
considered as Fringe Benefit in which case shall be subject to FBT  Remember this, if the ff instances are present do not apply the rules on DMB/FBT:
35% based on the Grossed Up Monetary Value. 1. If such benefits were furnished by employer for the convenience of the
o Rank and File employer, or
 Meron din yang basic pay, we call it compensation as well, and tax 2. The benefit is necessary in the trade or business of the employer
due is NIT(A)  Ang explanation diyan is if you binigyan ka ng benefit ng employer mo pero yun will
 DMB within limit is exempted benefit the employer, it’s as if you received nothing for your personal advancement
 If Other benefits (along with the excess of DMB) does not exceed 90k
exempted, if it exceeds, the excess shall be included in the DEDUCTIONS
compensation thus taxable under NIT (A)  Medyo mahirap ito ah.
 Number one concept in deduction is “only income subject to NIT is allowed to claim
o Minimum Wage Earner the deduction”
 Pag MWE, we call your basic pay as statutory minimum wage  So let’s say in column A, pag yung SEP/SEI pinili nya yung 8% hindi sya subject to
(SMW), and the same is exempt from the payment of income tax deduction.
 Kailangan alamin nyo yung SMW in metro manila and outside  So here is he summary, First we answer who is entiled for deductions? (refer to table)
metro manila. 1. RC
 DMB within limit is exempted  Only under column A, if he chooses 8%, not subject
 If Other benefits (Along with the excess of the DMB) does not exceed  If CIE, no deduction allowed, the train law removed already
90k exempted, if it exceeds, the excess shall be included in the personal exception, additional exemption
compensation thus taxable under NIT (A)  If SEP/SEI, if GR/GS not exceed 3M at pinili nya yung 8% hindi sya
 Remember this, if the ff instances are present do not apply the rules on DMB/FBT: subject to deduction. But kung pinili nya is NIT(A) then may
1. If such benefits were furnished by employer for the convenience of the deduction sya. He has the option to choose (option of the taxpayer)
employer, or kung OSD or Itemized Deduction under sec. 34
2. The benefit is necessary in the trade or business of the employer  Kapag naman nagexceed ng 3M automatic may deduction kasi
NIT(A) na yun. He has the option to choose (option of the taxpayer)
 Whatever amount from the (2) instance is not considered income and therefore not kung OSD or Itemized Deduction under sec. 34
subject to tax.
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  Kapag MIE, we apply the same rules. So no deduction as to the  Taxes
Compensation income, and the rules on the SEI/SEP will apply to  Losses
the trade or business or exercise of profession part.  Bad Debt
 Depreciation
2. NRC  Depletion
 Same rule as RC, income within  Charitable contribution
3. RA  Pensions
 Same rule as RC, income within  Research and Development
4. NRAETB 1. You need supporting documents for Itemized deduction to prove the
 Same rule as RC, income within expense. Eg. Resibo
5. NRANETB a. Tatandaan ninyo na yung deductions are in the nature of
 Not subject, because it is taxable on the basis of Gross Income gastos/ expenses
6. DC 2. All the itemized deductions must be necessary for the trade and business
 Only under column A, if he chooses 8%, not subject of the tax payer
 For Corporate Taxpayer, it has the option to choose between OSD 3. Actually paid or incurred on the by the tax payer for the year for which
and Itemized Deduction you are computing your tax due
7. RFC 4. Reasonable in amount
 Same rule as DC, income within
8. NRFC  So, the choice is upon the tax payer, but when do you make the choice (OSD/ID)?
 Not subject, because it is taxable on the basis of Gross Income Under the TRAIN law, the tax payer is required to choose at the start of the taxable
 So pag ikaw ay CIE, eto lang ang dinededuct sayo na walang tax: period, how? When? Pag nag file ka ng first quarterly return mo, nakasulat na dun
1. Pagibig, Philhealth, SSS, GSIS, Union dues, 13 th month pay and other benefits kung anong inaavail mong deduction.
not exceeding 90k. But this are not considered as actual deductions from your  By default, if you did not choose, the itemized deductions will be applied.
income. Kasi this are legitimate remittances to government.  The choice is irrevocable until the end of the year.
 Now what are the kinds of deductions?  If you can see, all of these deductions they have something in common between them –
 Optional Standard Deduction at Itemized Deduction lang yan. If you can see, only those they are all business-related expenditure. Meaning the expense is related to the kind of
engaged in T/B or in the exercise of profession are entitled to deduction, pati DC at business you are engaged. [legitimate business expenditures]
RFC. o Ano ang importante dito? Yung salitang, the itemized deductions must be
 So Optional Standard Deduction necessary in the trade or business of the employer. Ibig sabihin nito, these
1. It is 40% of Gross Income or Gross Reciepts or Gross Sales. deductions, these expenditures must be incurred by the taxpayer, in
2. Then after deduction, the difference will be the one used to be multiplied to connection with his trade or business – business related expenditures.
the rates now. Therefore, dependent on nature of business
3. Meaning the remaining 60% of his income will now be subjected to tax.  Pag marami kang expenditures, mas maliit ang taxable income mo, therefore maliit
 If the taxpayer chooses the OSD of 40% as the allowable deduction, yung tax.
then he will never incur any loss because it is always 60% of his  Pag konti ang kine-claim mo na expenses, mas mataas yung taxable income mo, mas
income, will be subjected to tax; there will be no possibility of you malaki yun tax na babayaran mo
not paying any tax because 60% of your income is taxable depending
on the applicable rate  How do we compare items of exclusions vs items of deductions?
4. No documentation needed o Yung items of exclusions, these are items of income but the law specifically
 Itemized deduction naman, Eto code ko diyan EITLBD(2)CPR provides that they should not be considered in computing for the gross
 Expenses income and therefore the effect is no tax due.
 Interest
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 o Items of deduction, itemized deduction in particular under sec.34, these are o What is the effect of the subsequent recovery of the bad debt (kapag
items of expenditures, gastos. seubsequently binayaran ni debtor yun utang), on the point of view of
 Since both of them have the effect of reducing your tax due, and because of that both of creditor? We have this rule, the Tax Benefit Rule
them are treated as items of exemptions and must be strictly construed against the  Tax Benefit Rule = When BD is previously claimed as a deduction
taxpayer. on the part of the creditor, and subsequently it was paid by the
debtor after claiming it as deduction, then the creditor shall consider
 Basic rule: if a taxpayer who is engaged in trade or business acquires assets used in his the amount paid or the indebtedness recovered as forming part of
T/B, the asset acquired is in the nature of ordinary asset, the purchase price that he his gross income in the year of recovery.
spent for the purchase of the property will never be allowed as a business expense  On the part of the debtor, when he paid the amount, what is the
deduction because the taxpayer acquires ownership of the property, we call it capital effect on him? On the day it became due, and it was not paid, the
expenditure. debtor cannot claim any interest expense, but when he paid it
 Take note, capital expenditure is not allowed as a deduction, in lieu thereof the person subsequently, then he can the IE on the year that it was it was paid.
who claims for deduction can claim depreciation expense of the asset as the allowable  On Interest, we are aware of the concept of Tax Arbitrage. Ano ibig saibihin nito? The
deduction. concept of Tax Arbitrage applies only on interest on loans. Diba sabi natin the interest
 So how can he claim under depreciation expense, there are (2) ways: Modes of on loans, incurred in the in connection of trade/business may be claimed as deduction
depreciating assets – by the debtor who paid the interest. In tax arbitrage, ang sinasabi ng batas ay the
o Straight Line Method amount of interest expense allowed as a deduction shall be further reduced by 33% of
 Usually used in the PH any interest income subjected to FWT. When you look at sec.34 di nyo mahahanap yung
o Diminishing Method tax arbitrage diyan, ang hanapin nyo is yung sec.34(B) on interest expense, pag nakita
nya no yung sec34(B) may makikita kayong 33%, yan ang tax arbitrage.
 What is the acceptable depreciation period? For RP = between 15 to 25 years, for TPP =
o Ang ibig sabihin ng tax arbitrage, yung interest expense that could be claimed
5 years
by debtor as interest expense deduction, pwede pang mareduce ng 33% ng
 So if X buys a motorcycle worth 1M, he cannot claim it as a business expenditure but he
any interest income (so under (B) sya kasi passive income subject to FWT)
can claim for depreciation expense. So that 20K deduction for 5 years.
subjected to FWT.
 So the rule, if you apply expense, you cant apply depreciation expense, but if you don’t
apply expense, you apply depreciation. Di pwedeng sabay.
 Okay next, Taxes. Kunyari nagbayad ng business tax sa LGU, nagbayad din ng tariff
 Purely CIE, not allowed to claim any deductions; hence, cannot claim deductions for
and custom duties nung nagimport sya ng kawali, can the taxpayer claim both as
depreciation expenses (xxx other itemized deductions xxx)
deduction? The answer is yes. As long as he is not CIE (again, CEI is not allowed to
claim for deductions). Provided further that the taxes paid (i.e. business tax and the
Interest on loan incurred in connection with trade or business. When debtor pays
tariff and customs duties) are in connection with his trade or business as allowable
creditor, is there income of the part of creditor? Yes. Is it subject to tax? Yes, it’s under
deduction.
(A) interest on loans.
o What if the taxpayer claimed for a refund, approved ang refund. So nagbayad,
o Can debtor claim the payment as deductible? Yes, interest on loans
clinaim as deduction, 2 years after nirefund ng govt yung tax. What is the
effect of the subsequent refund of the taxes previously paid and claimed as
deduction? The answer again is the Tax Benefit Rule.
 Bad Debt vs Interest Expense  The amount of taxes claimed as deduction and subsequently
o Bad Debt = Kapag di nabayaran yung utang refunded to the taxpayer shall form part of the gross income of the
o Pag Bad debt ang mag cclaim ng deductions si Creditor, kapag Interest taxpayer in the year of recovery.
expense ang nagcclaim ng deduction naman si Debtor. o What happens if the same scenario is asked but now the taxpayer is CIE? No
o Kapag bad debt, ang macclaim ni creditor ay buong utang kasama interest, effect. [In the first place, he is never allowed to claim any deductions,
while sa Interest Expense, ang macclaim lang ni debtor ay Interest. therefore, that is just a return of his expense of taxes. So, no effect sa kanya

14
 yan.] Because he just claimed his tax paid. Unlike if taxpayer is SEP/SEI or  If there is retirement fund maintained by the employer, and the
MEI, where the same claims it as deduction employee retires, if Mr. Y is at least 60 years of age and has rendered
 Next, Losses. Let’s talk specifically of Casualty Loss arising from theft, robbery, 20 years of service continuously, all the retirement benefits that he
embezzlement, or fire, storm or shipwreck or any natural calamity. Provided that the received shall not be subject to tax
loss is sustained in connection with T/B and that the same is completely not recovered,  Research and Development, professional fees that you pay for legal services. Let’s say
not compensated for by insurance. nag pa feasibility study ka (in relation to your T/B), seminar for employees.
o In case of casualty loss, we must remember the rules on depreciation of TPP
for the determination of the actual value of the TPP. TAKE NOTE: In deductions –
o So kung ninakaw yung stove at motor ni taxpayer, he can claim the total value 1. Business related expenditures
of the same (subject to depreciation) as casualty loss expense deduction. 2. Necessary in T/B
o So what if after 2 year, binalik ni magnanakaw yung stove at motor, by then 3. Actually paid or incurred
the value of the properties were further depreciated. So what is the effect of 4. Reasonable in amount
the subsequent recovery of the property which was the subject matter of the
CL as a form of dedcuction? We again apply the Tax Benefit Rule.  If you do not spend anything, you are not allowed to claim any deduction at all.
 So in summary, ano yung mga subject ng Tax Benefit Rule (CBT)  These expenditures must be related to the tyoe of business that you are engaged in
1. Casualty Loss, claimed as deduction and subsequently recovered
2. Bad Debt, claimed as deduction subsequently recovered.
3. Taxes, claimed as deduction subsequently refunded

 Next, Charitable and other contributions. Correlate with what was discussed in in the
exempt institutions.
o Mr. X gave donation to Gov’t, R/C institution and NSNPEI (1M each).
 Can he claim 1M donation to Gov’t as deduction to his T/B income?
Yes, in full, provided it is a priority project of the Gov’t. If not, X can
only claim up to:
 10% of his taxable income, prior to deductions if X were an
individual; and
 If X is a corporate taxpayer, up to 5% of his taxable income
from his T/B as a form of deduction
 Can he claim the donation given to R/C institutions and NSNPEI as
deductions? Yes, but subject to the 10% and 5% restriction
 Pensions, it was also discussed under retirement benefits on exclusions.
o Retirement fund; X pays premium/contributions. Can X claim the
contrubutions to the retirement fund of employees as a form of deduction?
Yes.
o Mr. Y (CIE) paid retirement benefits. Retired. Received retirement benefits, is
this income on the part of Y? It depends.
 If there is a private retirement plan and Mr. Y is at least 50 years of
age, has rendered service continuously for 10 years and that the
private retirement plan is approved by the BIR, any retirement
benefit received by Mr. Y is income but not subject to tax.

15
VALUE – ADDED TAX 2. Bumili ka ng produkto, inenhance mo, binenta mo ang enhanced na
 In the nature of tax on business. produkto
 Kung ikaw ay CIE, may VAT ka ba? Wala kasi wala kang business. Kung ikaw ay 3. Bumili ka ng produkto, wala kang ginawa sa produkto, binenta mo ang
individual na SEP/SEI, meron kang VAT. MEI, dahil meron kang component na produkto (buy and sell)
engaged in T/B, may VAT ka.  So si buyer nagiging seller. At pag binenta nya ang produkto si buyer (na ngayon si
 Corporation, like I said before corporation is always engaged in T/B so may VAT ka seller na) ay magiimpose ng 12% VAT, ang tawag ni Buyer (new seller) this time dito ay
sigurado. output kasi sya na ang nagbebenta. At ang tawag ni new buyer sa 12% na binili nya ay
 Nag aapply ang VAT sa lahat ng income earners but only on income derived from PH input.
sources (income within). Kasi kahit taxable yung sources without ng RC, di naman tayo  Ang formula natin is: output less input = vat payable.
pwede mag VAT dun dahil beyond jurisdiction e. o So if you have more sales, than purchases then it will result to VAT payable.
 Pinakamadali ito pero pinakatechnical ang wordings nito. o If you have more purchases than sales, then the result is excess input vat. In
 So ang VAT, (3) transactions lang pinaguusapan: which case you can refund the same, or you can carry it over, meaning credit
1) Sale of good in the course of T/B for the following quarters. Ang tawag dun – crediting.
2) Sale of service in the course of T/B o So to be precise: output less input = vat payable only if there is excess output.
3) Importation of Goods, w/n such importation is in connection of T/B
 Basta dumating ang goods sa PH, dun sa warehouse ng BOC, automatic yan ang  Importante ang resibo, because you cannot claim input over your output kung
iiimpose ng govt – tariff and custom duties, regular and special (if applicable ang walang resibo.
special), and excise tax (kung applicable) and VAT.  So sa deductions, only on the expenditures ang may vat, yung iba walang VAT.
 Pag ibinenta mo subsequently, meron nanaman yang VAT.  In every transaction, involving income tax relating to exercise of trade or business
 Because yung VAT is in the nature of indirect tax = passed on and on. So bawat laging may tax consequence na at least dalawa, IT at VAT. So habang tumatakbo
ibinibenta mo at may bumibili, every sale transaction, may VAT. (Sale transactions ang computation mo ng IT, that is the same basis for the computation ng VAT.
only) o So kung ikaw ay lugi sa income tax side, malamang excess input vat ka,
o The only one na hindi sale transaction is the importation of goods o Kung ikaw ay tubo sa income tax side, malamang excess output vat ka,
 So in VAT, there are 2 personalities, the buy and the seller. vat payable yan. (bayad ka sa income tax, bayad ka rin sa vat)
o Seller o So if you are IT payable, you are VAT Payable.
 Kung ikaw ay seller, ikaw ay income taxpayer kasi kumite ka, tama? o Pag ikaw ay lugi, walang babayaran sa income tax, ikaw naman ay
 Whenever there is S of G // S of S // importation of goods, the govt magparefund ng income vat because definitely, you resulted in excess
imposes 12% VAT based on Gross Selling Price/Gross Reciepts. So, input vat
12% is added to the value of the goods. REITERATION:
 Ang tawag ni seller sa 12% ay output.  Pag marami kang benta kesa sa ginastos, you result in taxable net income = bayad NIT
 Output is the VAT on sales  Sa VAT naman, pag marami kang binenta kesa sa ginastos, ang tawag sayo ay excess
o Buyer output VAT = bayad ka rin ng buwis
 Ano tawag mo sa binili mo? Diba gastos yun?  Sa income tax side, pag marami kang gastos kesa sa nabenta mo, ang tawag sayo lugi
 Kung ikaw naman ay bumili sa seller, pag ibinenta ni seller sayo, si (loss). Magbabayad ka ba ng buwis? Wala. Kasi loss ka eh. 0 taxable income, therefore, 0
seller, nagpatong ng 12%, ang tawag mo sa 12% na patong ay input tax
(take note, same 12% as that of the seller)  Sa VAT, pag marami kang nagastos kesa sa nabenta, you have more input than output,
 Input is the VAT on purchase. therefore, you have excess input vat. Ano gagawin mo? Paparefund ka kasi sobra yung
 When the buyer buys, and pays the input of 12%, anong gagaawin nya sa goods na binayaran mong input vat or you credit it in the succeeding quarters
binili? The buyer will sell also, so if the buyer sells ano ang kanyang binebenta? There
are only (3) possibilities: FORMULA:
1. Bumili ka ng raw mats, ginawa mo to create product  Output – input

16
 = VAT payable (if excess output); or si tinapang bangus, pag nagbenta ka, iyan ba ay Vatable? Hindi pa rin,
= Refund/Credit (if excess input) because simple procedures for preservation is not considered as a Vatable
transaction.
0% and Exempt Transactions o So si buyer, bumili ka ng daing na bangus, tinapang bangus, may resto ka,
 Zero Rated Transactions niluto mo ngayon si bangus, ginawa mong sinigang na bangus, bangsilog at
o These are transactions which are not subject to VAT at all stages. tinapsilog. So (3) ngayon ang produkto, tapos ikaw bumili ka ng finished
o The Input Vat is allowed to be credited against output VAT product, no longer in the original state, Vatable.
o There is no zero-rated transaction in importation of goods o Makikita nyo rin diyan sa 109, ano pa ba yung mga exempt? Compensation
 Exempt Transactions pursuant to Er-Ee relationship.
o Are transactions which are not subject to VAT at a particular stage. o Rentals, 15k is the threshold. Tingnan nyo yung mga threshold. So you have
o The Input VAT, is not allowed to be credited against output VAT. to be conscious about the threshold, ano ba yung mga stages kung saan di sya
 Pag kinompare mo naman yung dalawa sa 12% napakasimple. Yung 12% nagpapatong vatable, after that stage, vatable na sya.
ka ng 12%sa bawat bentam yung 0% at exempt walang kang ipapatong na 12%, but o And yung most important provision sa 109 is yung par.(BB) makikita nyo
merong tax effect kung zero rated or exempt transaction. diyan si 3M, if in one taxable period the GS/GR of a taxpayer exceeds 3M
 So why is it then that if it is import purchase, we impose tax, and if there is export sale it pesos then the transactions will no longer be exempted from VAT.
is zero rated? o Sa madali’t sabi, kahit ano ang ibinebenta mo, as long as the GS/GR in one
o Simply put, pag nagiimport ka kasi, that is prejudicial to the government and taxable year exceed 3M threshold, your sales shall be subjected to VAT.
to the economy, kasi pag nagiimport ka nagcocompete sa locally  What is the relevance of the 3M threshold in 109 (BB) to the 3M peso
manufactured goods yung inimport mo. threshold for income tax purposes. We are referring to the same 3M.
o E hindi naman natin pwedeng ipagbawal yung importation, so bayad nalang If your GR/GS, you are an SEP/SEI do not exceed 3M, then the
kayo ng tax. option of 8% or NIT will be available.
o Pero kung exportation naman palabas ng PH, because pag inexport mo ang  But when you choose the 8% there will still be no VAT
goods at ibinenta mo, we are promoting locally manufactured products, so in because it is below 3M. That is precisely Sec. 109(BB)
return, the incentive is we will impose 0% VAT, from the time of production o Pag nag exceed ka ng 3M, under Sec. 109 (BB) di ka na exempted from VAT.
up to the actual export of the goods. Kaya yung NIT mo, magbabayad ka pa ng VAT. It is the same 3M that we are
o Ano pa ang benefits ng exportation? Pag ikaw ay nag-export, ang ibabayad talking about.
sayo is foreign currency – ang papasok sa PIlipinas. Pag ikaw ay nagiimport, SUMMARY:
palabas naman ang foreign currency. Export sales ang better kasi money  When you have more sales that means you have more output, you result in VAT
comes in. In import, money comes out of the Philippines. That’s why export payable
sales is encouraged. To encourage us, the law provides for zero rate of tax.  When you have more purchases, that means you have more input, then you result in
 So sabi natin sa exempted transaction, that the same will not be subject to tax at a excess input VAT, in which case you will have to file for a refund of the excess input vat
specified stage. Makikita mo yan sa Sec. 109 mula (A) hanggang (BB). Ang tanong, or credit the same with the succeeding quarter or in the following year if at the end of
memeoryahin? Hindi. Tingnan nyo lang yung mga importante diyan kung ano ang the year, kahit carry-over ka nang carry-over, sa dulo meron ka pa rin excess input vat
exempt transactions. hindi mo sya pwede i-claim ng matagal na panahon. Sa susunod na taon i-claim mo na
o So ang perfect na example ko lagi diyan is yung sale of goods in the original agad, otherwise, waived (hindi mo na sya make-claim)
state. Mangingisda nakahuli ng bangus, ibinenta sayo, VATable? Hindi.
o Yung bangus nilangay mo sa banyera, dinala sa palengke, nagtinda ka sa
palengke, may bumili sayo ng isang kilong bangus, Vatable? Hindi, bakit? In
the original state.
o Yung ibang bangus ginawa mong tinapa, ibinilad mo sa araw, yung iba
naman hiniwa mo, nilagyan ng bawang sibuyas suka at paminta, ginawa
mong daing na bangus, binenta mo ngayon si daing na bangus na timplado at
17
DONOR’S TAX 4. IPP that has acquired PH situs.
 Eto ang keywords na dapat tandan: o Yang apat na yan pag owned ng NRA at dinonate nila, considered yan as located
o Una ang donor ay pwedeng tao o corp within and subject to DT here in the PH
o Intervivos ang mode of transfer o There is an xpn to the rule, you have to memorize this rule, that is the reciprocity
o Basis of DT is FMV at the time of gift. Meaning you’ll have to compare: rule, provided however that if the country where the NRA is a citizen of, does not
 the FMV as stated in the tax dec impose donor’s tax on Filipino who donate similar properties (yung apat na
 the Assessed value as stated in tax dec and abovementioned), we will not also impose donors tax.
 the Zonal valuation as provided by the BIR. o So dapat alam ninyo ang rules kung ang subject property ay IPP at ang nagdonate
o Kung ano ang pinakamataas sa 3 yun ang ginagawang basehan ng DT. ay NRA.
o The rate has been fixed, wala na ngayong distinction sa donor, dati kasi if the
donor is a stranger the DT is fixed. Kinds of Donors W/IN W/OUT DEDUCTIONS
o Formula: Gross Donations – AD = TNG (in excess of 250k) x 6% = Tax Due, TRANSFERS FOR TRANSFERS FOR
less tax credit if any PUBLIC USE IN PUBLIC USE IN
o Remember to deduct Tax Net Gains the 250K. FAVOR OF FAVOR OF NSNP
 Who are donors? How are they classified? GOVERNMENT ORGANIZATIONS
o RC
RC ✓ ✓ ✓ ✓
 Taxable within or without
NRC ✓ ✓ ✓ ✓
o NRC
RA ✓ ✓ ✓ ✓
 Taxable within or without
o RA NRA ✓ ✖ ✓ ✓
 Taxable within or without
o NRA  For DT, aalamin nyo lang yung total gifts sa isang taon. But here is the clincher:
 Taxable within or only o DT is the only tax where the rate is imposed per transaction basis within
 For IT purpose, the taxability is based on the source of the income, for DT the taxability the period of Jan to Dec every year. (cumulative within one taxable
is dependent on the location of the property. Location determines w/n the gift is period but on a 6% per transaction basis)
taxable within the PH. So within or without ulit. o In other words, the computation is, per transaction per gift, pero
 Among all kinds of donors, you will be surprised that it is only the NRA which is not nagcocompute ka cumulatively from Jan to Dec.
taxed to gifts derived outside the PH, this is the rule under Sec.86 o Gross Donations – AD = TNG (in excess of 250k) x 6% = Tax Due
o Hence, yung NRC at RA, even if the properties are outside they are subject to  In other words, merong 250K na hindi tina-tax
tax o So yung per transaction, bayaran as BIR 30 days from gift.
 When we talk about DT, we are talking about assets, walang serbisyo diyan, lahat yan o So if after 2 months nag gift ka sa iba, the law provides that
assets, anong kinds ng assets? RP, TPP, IPP magcocompute ka cumulatively, then you add the previous gifts. So as of
 As to RP or TPP, gamitin ang mata, malalaman nyo agad kung nasa PH o wala yang the second gift, the Gross Gifts should be the total of the gifts plus prior
properties na yan. gifts.
o So the third time na magdonate ka, ang computation na is to include the
 But in the case of IPP, how do we determine the situs of the property for purposes of
tax? Here is the rule, look at sec. 104 of the code. (2) prior donations. Consistent nay an all the way hanggang December.
o Ang sabi, as a GR, the IPP of a NRA shall be considered as within the PH, ano  Ano ang mga deductions? Napakadali. Dalawa nalang ang deductions:
yun? Eto yun (4): o Transfers for public use in favor of the government
1. Shares, obligation and bonds issued by a domestic corporation o Transfers for public use in favor of NSNP Orgs.
2. Shares, obligation and bonds issued by a foreign corporation, 85%  Lahat yan available. Walang exception to the rule
of the business of which is located in the PH  But there is a restriction, if there is a donation to NSNP organizations, the same shall
3. Franchises exercised in the PH not be suject to tax provided not more than 30% is used for administration purposes
18
  Pwede ka bang mag gift ng walang tax? Oo, pano tayo makakaavoid ng DT? So kung
may 500k donation ka at gusto mong makaavoid ng bayad? Hatiin mo. Isang Dec31 na
250k at pagdating ng January 1 na 250K pareho yang walang tax. Basta yung 250K sa
isang taon lang syung limit na walang buwis.

19
ESTATE TAX 2. Claims against insolvent person (creditor dead)
 Tao lang involved 3. Unpaid mortgage
 Donations mortis causa 4. Unpaid taxes
 Basis is the FMV at the time of death, what FMV are we talking about? 5. Casualty loss
o the FMV as stated in the tax dec 6. Standard deduction
o the Assessed value as stated in tax dec 7. Family home
o the Zonal valuation as provided by BIR 8. Retirement benefits
 The rate is fixed at 6% of the Taxable Net Estate. 9. Transfer for public use
10. Conjugal share of the surivivng spouse
 Formula: GE-AD=TNE(less 250k) x 6% = Estate Tax due less tax credit, if any.
11. Property previously taxed
 Same yan sa DT na less tax credit. So pano nagkakaron ng tax credit, meron kasing mga
o Eto ang mga aalamin nyo pag deduction
properties na nasa labas ng bans ana subject sa donors tax sa ibang bansa, ganon din sa
1. Sino ang namatay
ET, may mga properties na nasa labas ng bansa na pag namatay ka will be subjected to
2. Kailan namatay
ET in the country where they are located. So because of that, it creates double taxation
3. Ano ang properties sa oras ng kamatayan
in the broad sense and to reduce that Double taxation in the broad sense, we have tax
4. Magkano ang value sa oras ng kamatayan
credit.
o For claims against the estate, the deductibility of the claims as far as NRA is
 Now, similar to DT, these are the kinds of decedent estate.
concerned shall be in proportion to the value of the estate located in the PH,
o RC
so not all are deductible.
o NRC
o For claims against insolvent person, it is the creditor who died na hindi
o RA
nabayaran ng buhay na may utang.
o NRA
 For NRA, also in proportion but there is an additional requirement.
 Same with DT, the taxability is dependent on the location of the property. And same
 Because it is the creditor who died and the creditor is the one who
with DT, NRA is only taxed from sources within.
holds the credit, you add first the credit to the gross estate before
 Gross estate is defined as the value of the properties whether real or personal, tangible you claim as deduction.
or intangible at the time of death wherever situated provided in the case of NRA, the  Kasi if the decedent holds a credit, it is in form of IPP.
properties situated within shall be subject to estate tax within the Phiilippines. o Unpaid Mortgage. Si decedent ang may utang and he owns the property
 How do we determine the situs or the location? Same with DT. If RP, or TPP gamitin subject to mortgage. At the time of death the mortgage loan was not paid but
ang mata, if IPP use sec 104 subject to reciprocity rule. with security of property.
 What are the items of inclusions? If you cannot memorize them here is the rule of o So it should be added sa GE muna before deducting.
thumb, for the purposes of ET, sa oras ng kamatayan, kung meron kang degree ng o So ano yung idadagdag sa GE? Yung FMV ng property used as
control, interest no matter how small then sigurado kasama sa GE. security for the mortgage, value at the time of death.
o In particular ang importanteng items: Proceeds of life insurance policy at o And then idededuct mo yung value ng utang na hindi nya
yung transfer for insufficient consideration. nabayaran
 Allowable deductions, this is just a matter of tingnan mo lang kung ano yung available. o Same rule for NRA
So what are the deductions: o Unpaid Taxes. Pag namatay ang tao, there are obligations that survive. One of
o Tanggalin nyo sa isipan nyo si them is taxes. Lahat ng taxes na utang nyo sa govt will be allowed as a
1. Funeral expense deduction
2. Judicial expense o Deductible whether related to trade or business
3. Medical expense o Same rule for NRA
o Yang tatlong yan tinanggal na yan ng TRAIN o Casualty Loss. It’s the same casualty loss we have for the deductions under
o So ano na ang mga deduction ngayon? Income Tax.
1. Claims against the estate (debtor dead)

20
 o Casualty loss arising from embezzlement, fire, storm, shipwreck,  Prior decedent (lumbera) – involving a specific property
and any other natural calamities not compensated for by insurance. and for which estate tax has been paid
o So ano difference nya dun sa deductions sa IT? Yung casualty loss sa  Present decedent (anak)
IT, ay the loss is sustained in relation to T/B. Yung casualty loss o So bakit naman vanishing deduction ang tawag?
naman sa ET need not be related to T/B, provided however that if 1. If the period of time when the death of the prior decedent
the same is allowed as a deduction from Gross Income, you can no (lumbera) is from 0 to 1 year the deduction is at 100%
longer have it deducted under ET. So if a property which is the 2. From 1 to 2 years 80%
subject matter of the casualty loss you can only claim it once, either 3. From 2-3 60%
as deduction on IT or ET, not both. 4. From 3-4 40%
o Same rule for NRA. 5. From 4-5 20%
o Standard Deduction. Under the TRAIN law this has been increased to 5M. Up o So pag lagpas ng 5 years the deduction is completely vanished.
to 5M ito ah. Hindi ito 5M na buo ah. If your GE is less than 5M you cannot Meaning the estate of my child, which was previously taxed, will not
claim 5M as SD. be entitled to the deduction of PPT (properties previously taxed)
o Now the TRAIN law included the NRA Estate to the coverage of SD when the period of her death and my death is beyond 5 years.
upto 500k. o Di nyo kailangan may compute for the purposes of the Bar, it’s the
o Family Home. It used to be 1M, not it is increased upto 10M. concept that you have to understand.
o But a NRA is not entitled to this, bakit? Kasi nonresident sya so 1. Prior decedent and present decedent
malamang wala syang FH. 2. Involving the same property
o If your FH is less than 10M, you cannot claim 10M, it is up to 10M on 3. Provided that the estate tax for the prior decedent was
the assumption that the value of the FH is more than 10M. paid
o Retirement Benefit. This is the 3rd deduction that requires the amount to be 4. The present decedent can now claim deduction the
credited first to the GE before deducting. vanishing deduction
o Does not apply to NRA. 5. Depending on the period of time between the death of the
o Transfer for Public Use. Pag nagbigay ka sa gobyerno, in full deductible. And prior and the death of the present
it even applies to NRA. Natural, foreigner tapos nagbigay pa sa gobyerno, o Applies to all.
maawa naman kayo ilibre na natin sa buwis.
o Conjugal Share of the Surviving Spouse. All are entitled but for limited only to So putting all of the revenue taxes side by side, we are creating double taxation in the broad
properties located in the PH. sense. What are the instances?
o When it comes to nonresident alien the conjugal share of the o Kitang kita natin sa estate tax, when the properties located outside the PH are
surviving spouse is computed based on properties located in the PH. subjected to tax here, they are also subjected to tax in the country where they
o Properties Previously Taxed. Sometime this is what we refer to as “Vanishing are all located.
Deduction”. This is very simple, explain ko ah. Although mahirap basahin, o Same rules come to DT
pag binasa nyo sa libro mahirap intindihin. o Same rules come to IT, specifically when it comes to NRC and aliens. Because
o Example, lumbera natigok, napunta yung property sa anak ko, the income from within the PH is subject to income tax in the PH and they are
subject to estate tax. Yung anak ko natigok, napunta sa apo ko yung also subject to IT in the country where they are residing or they are citizens of.
property. Subject ulit sa estate tax yun. Take note this involves the So kitang kita natin yung double taxation in the broad sense. The law provides for remedies for
same property. So sa paglipat ng property may sobrang impact yung the Double taxation in the broad sense.
ET, alam natin yan.  In Income Tax, there are 2:
o So the law recognizes the impact, in order to reduce the impact of  Tax Credit
double taxation in the broad sense as far as estate tax is concerned,  Reciprocity rule
one of the remedies na provided by law yung Vanishing deduction. o In Donor’s Tax
 Tax Credit
21
  Reciprocity Rule
o Estate Tax
 Tax Credit Alamin nyo lang yung What, when where and how para naka outline na agad sa utak niyo.
 Reciprocity Rule
 Vanishing Deduction So protest cases starts from taxpayers and the returns, lahat ng revenue taxes merong returns.
So sa lahat ng Tax sa revenue code, tatandaan nyo lang yung formula. So why is the formula This is the difference from National Taxes and Local. Unlike local tax na walang return, because
important to me, the formula give you the idea on how to segmentize the topics. all local tax due is on January 1. Because it is automatic, all local taxes accrue on Jan 1, tapos all
local taxes are due on or before Jan 20. Sa NIRC, iba iba ang due date. Pero ang common sa
revenue taxes is that meron returns dapat. Which leads us to the second distinction, yung
REMEDIES UNDER THE NIRC revenue taxes self-assessed yan. Unlike sa local taxes.
 Most of the time, the materials that you read discusses the remedies of the
government separately discussed from remedies of taxpayer. So ilagay nyo sa utak nyo, ang revenue taxes ay (1) self-assessed taxes and (2) covered by returns.
 Ang pinaguusapan lang naman sa remedies is collection, so anong taxes ang
WHAT
kinokolekta?
o Income Tax
What is a return? It is a verified statement, prepared by the taxpayer submitted to the BIR, and
o VAT or %Tax
providing for all the materials facts relevant to the kind of tax that you are filing for.
o Donors Tax
o Estate Tax
Remember yung formula na for all the other taxes, yan din yung laman ng returns. Sa returns ang
o Excise Tax
pinakaimportante is yung tax identification number (TIN) mo, because it is unique to every
o DST
taxpayer who is registered with the BIR.
 So pano ba ito kinocollect? Tandan nyo na ang nangongolektang administrative
agency ng govt is the BIR. Iconnect natin to sa general principle ng non-delegability So kunyari I am the taxpayer, I prepared the returns, these are downloadable forms, so the return
ng taxing power. is presumed to have been prepared and filed by the taxpayer in good faith . That’s a disputable
o Dun sa non-delegability of taxing power, one of the inherent limitations presumption.
niyan, there are (2) aspects of taxation: the act of levy and the act of collection.
1. Yung act of levy hindi yan talaga pwedeng idelegate. Because we So meron original return, meron ding amended return, pag sinabi nating amended return you are
say that the power of taxation is exercised by the legislature and it referring to the original return, because of certain instances you are amending the data that you
cannot be delegated. originally included in the original return.
2. Yung second act is the act of collection, and this act of collection may
be delegated, of course alam natin to sa Admin law, the delegation is So what is the effect of filing of an amended return? So the AR when filed, will be consolidated to
in favor of BIR (administrative agency of the government) which has the return filed.
the right to collect all of the internal revenue taxes.
When can a taxpayer amend?
A. PROTEST CASES  So a taxpayer may amend the return originally filed within 3 years from the date the
ADMINISTRATIVE PROCEEDINGS original return is amended. Provided, however, that no notice of investigation has yet
been received by the tax payer.
o Meaning, kahit nakapagissue na ang BIR ng letter of authority to investigate
which is in the nature of notice to investige, basta hindi pa natatanggap ng ng
taxpayer yung notice na yan and still within the 3-year period, the taxpayer
may still amend the return.

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  What is the reason why the taxpayer is prohibited from amending the return originally If Fiscal Year is used
filed if the notice of investigation is already received by the taxpayer? o Kung fiscal year ginagamit mo, it should be 15th day of the 4th month
o Napakasimple ng sagot, if you will be allowed to do such, sigurado tayo na following the close of the fiscal year.
magaamend ka to suit the subject matter of the investigation. Babaguhin mo o Para mas madali, hanapin nyo yung end ng FY, if you start on Feb 1 then the
yung return mo kasi iniimbestigahan ka. end is jan 31. So feb, march, April, may. Yung sa pang apat na buwan, 15 days
 Why is it 3 years? Kasi the prescriptive period by the assessment of the BIR is 3 years, so so May 15. Para di mahirapan.
dapat bago mag expire yung period, pwede ka mag amend. o If the taxpayer choses 8%, (quarterly pa rin) then follow the rule on SEP/SEI.
 What do you file? Lahat taxes fifilean mo ng return o In case of VAT = 4Qs din.
o Income tax o Donor’s tax = 30 days from gift
o VAT o Estate Tax = 1yr from death
o Donor’s tax o What will be the consequence kung hindi ka nagbayad on due date?
o Estate tax  Meron kang penalty, ang penalty mo is 25%, pero ang interest mo
o Excise tax ngayon is instead of 20 nagiging 12% nalang or double the bsp rate.
o DST  So under the TRAIN law may penalty kang 25% plus the interest of
double the bsp approved rate (12% per annum), and you also have
WHEN the surcharge of 50% in case of bad faith or fraud.
When do you file the return?  So automatic yan, pag lumagpas ka ng isang araw, magcocompute
agad ang system, meron kang penalty of 25% and interest of 12% per
If Calendar Year is used annum, computed daily.
 If taxpayer is CIE = the due date for the filing of return is on or 15 April.
o There is substituted filing for compensation income earner. Meaning, that if WHERE
your income if purely arising from compensation pursuant to an ER-EE
relationship. (employment contract) Then it is your employer who would file So san ka nagbabayad ng tax?
the return for you on your behalf.
o It is allowed only if (1) purely CIE, (2) no other source of income other than Kung CEI ka
compensation paid pursuant to E-E relationship and (3) you only have one  Edi dun sa pinagttrabahuan mo, the regional branch of BIR which has jurisdiction over
employer for the year. your place of business.
o Pag (2) ang employer mo ng isang taon di ka pwedeng mag avail ng
substituted filing. Kung SEP/SEI/MEI
 If taxpayer is SEP/SEI or MEI  e di the place where your business is located.
o You are required to file (3) quarterly returns:
 May 15 E kung corporate taxpayer ka?
 August 15  The principal place of business
 Nov 15
 Yung final return (4th return) is April 15 of the ff year. VAT = place where you are conducting your business
 If taxpayer is corporate taxpayer
o Sa corporate taxpayers, (4) din ang return, bakit? Engaged in T/B DT = residence of the donor, because it is the donor who pays for it.
o You are required to file (3) quarterly return which is 60 days from the close of
each quarter. ET= the place where the decedent died
o For the final return (4th), if calendar year dapat bayaran mo ng 15 April the ff
year.

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What is the effect kung mali ang venue mo? It is as if you did not file any return at all. And  Preliminary Assessment Notice
remember, we have self-assessed taxes, and pay as you file system. So once you file the return o W/N you reply to the LA, BIR may issue PAN
you pay the tax due that you computed, you assess for your self  Final Assessment Notice
o W/N you reply to the PAN, the BIR may issue FAN within 15 days.
So kung nagbayad ka sa maling venue, at tinaggap ng BIR it is as if you did not file a return and o A FAN is a notice from BIR providing for the amount of tax that is
did not pay the tax kahit pa tinanggap ang bayad. The assumption is, pag nag file ka ng return sa required of you to pay.
wrong venue, it is as if you did not file any return and it is as if you did not pay the tax due kahit o So kung nagbayad ka naman ng tax, ano ngayon yung sinisingil ng govt
pa tinanggap ang bayad. Why? Because in tax, estoppel does not apply to the govt. So hindi mo sayo? Yung kakulangan. Kaya ang tawag diyan deficiency assessment.
pwede sabihin na “eh tinanggap nyo e”. (Hence, Wrong venue = non-filing)  Bakit kulang? Kasi nung nag file ka ng return (nagcompute ka
ng tax, kasi pay as you file system), nag bayad ka na, pero nung
HOW? inaral ng BIR kulang ang ibinayad mo kaya nag kakaroon ng
Dadalhin mo yung lahat ng relevant documents, and you will be required to pay the tax due to “A” – assessment. Yung assessment may stages: 1st LA, 2nd
the accredited banks of the BIR. Of course, there are already instances where if you are a large PAN, 3rd FAN
taxpayer mas facilitated ang online payment.
Dapat yung LA, PAN and FAN dapat in proper order. Kung hindi yan sundin ng BIR, that is a
But here under regular circumstances, there are authorized banks of the BIR and you will receive denial of due process, and you can argue that the assessment notice is not a valid one because of
an order of payment when you go to the bank to file the return, tatatakan yan. So you don’t pay the failure to the govt to comply with the requisites of procedural due process.
to the BIR. And these are listed in the website. Ang di lang nag cocompute diyan is yung estate
tax kasi patay na sya, ang nagcocompute nun is si EXECAD. What are the requisites of FAN, pakilista ito, there are (8):
1. In writing. Saan nakasulat? Sa papel. It has to be in writing. Ano ang dapat
nakasulat?
So ngayon nung nagbayad ka, the ball game is na kanino? So nag file ka ng return we go to BIR o Na that is a final demand letter
na. sinong BIR, the BIR which has jurisdiction over the taxpayer.
2. Addressed to the taxpayer. So sa sulat may addressee, si taxpayer who filed the
BALL GAME TO THE BIR return. Saang address? When you register to the BIR, you indicate an address and
Anong gagawin ni BIR? Sa returns na finile ninyo? that address remains forever as your registered address unless you amend it.
 Aaralin ng BIR yung finile ninyo. o So if there is a change in your address and there is no proof that the BIR
o If the return was filed within the due dates, Proper venue or kung kumpleto received a notice as to you change in address and the same was for the
yung dokumento assessment, you cannot invoke improper address or business address.
o filed it in Good faith = aaralin ng BIR o Ang technique lang naman diyan is kung ikaw ay maglilipat ng business
o Falsified/fraudulent = Aaralin ng BIR pati yung registration mo pinalilipat mo.
o Non-filing = BIR could file a return on your behalf. o Kaya di mo dapat ifault ang BIR, ediba nga ikaw ang nagbigay ng
 Ano ang ginagamit ng BIR na proseso para aralin yung return mo? Meron tayong address?
tinatawag sa tax code, sec. 3 to 15.
 Pwedeng gamitin yan ng BIR in the course of its assessment for the returns that you 3. Providing for the basis of tax in fact or in law for the computation of the tax. Ibig
filed or even without returns. Kung di ka naman nagfile ng return, may option ang BIR sabihin nakasulat mismo sa FAN kung ano ang ta na sinisingil, anong period
not to file a return but to proceed with the assessment. covered, anong specific provisions in the Tax code are used by the BIR in arriving
at the FAN.
Anong steps para sa A? Ang consequence after aralin is Assesment. Unang ini-issue ay Letter of
Authority (to investigate), tapos PAN then FAN. 4. (Providing for the amount of tax due) Amount Due. Nakasulat din dun broken
 Letter of authority to investigate (LA) down into specific amount, interest, penalty and surcharge in any.
o Within 15 days you will be required to answer
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 o Kapag nakita nyo na may surcharge sa problem, ibig sabihin the BIR return all the adjustments can be done for the computation of the final return,
found that you committed fraud. So surcharge is equal to fraud. so ang pinaguusapan dito is yung final return.
o Kung di naka breakdown hindi din valid kasi requirement yan. o There is another period, ang tawag dito yung waiver. Meaning the govt and
the BIR will enter into an agreement to extend any of the prescriptive period
of assessment and that should be covered by a valid waiver.
5. Demand to Pay. Ibig sabihin nito nakasulat don na para kayong sinisingil ng utang
 Who files a waiver? The taxpayer, and he applies for it.
ninyo that you have to pay the amount due on or before the specified date.
 What are the requirements for a valid waiver?
o Hindi ka dito pagbibilangin ng BIR, like in remedial yung tipong paid
1. Executed before the expiration of the original period
within 15 days, in tax nakasulat mismo dun kung kelan mo sya kailangan
2. Signed by taxpayer and BIR
bayaran.
3. Date of signing and acceptance should be indicated
o Pano kung dumating yung date tapos hindi ka nakapagbayad sa due
4. (3) original copies: isa sa BIR, isa sa records ng kaso, at isa
date? Ano ang effect sayo?
sa taxpayer.
o Ay papatawan ka ngayon ng bagong penalty.
o Should it be notarized? Latest case: dapat duly notarized yung
o Pero bawal na ngayon under the TRAIN law na pagsabayin ng
waiver
govt na singilin yung deficiency penalty and itong kind ng
o Very strict ang requirements. Why? Because any of these
penalty.
requirements in the execution of a valid waiver is missing, then the
government absolutely, completely loses its right to issue the FAN.
6. Signed by the duly authorized BIR Representative
Hindi na sya makakasingil, kasi nag expire na si assessment.
8. Due date.
7. Issued within the Prescriptive Period. All final assessment notices must be issued by the
government within the prescriptive period of assessment. What are the prescriptive
Let’s put it in a scenario:
periods of assessment?
o If you filed the return in good faith, the prescriptive period is (3) years. From
RVL is a SEP, the BIR gave due date of filing FR on 15 April 2020 for my income for the year 2019.
when?
So, I should have filed the same on or before 15 April 2020.
 If the return is filed before due date, then 3 years from due date
 If filed exactly on due date, then 3 years from due date
So, let’s say I filed in good faith:
 If filed beyond due date, then 3 years from actual filing
1. If I filed early, 14 Feb 2020, FAN can be filed on 15 April 2023 (3 years from due date)
o If you filed the return in bad faith/fraudulent return/falsified return, the
2. If I filed on the date of DD, FAN can be filed up to 15 April 2023 (3 years from due date)
prescriptive period is 10 years from the discovery of fraudulent return or
3. If filed late, 28 Sept 2020, FAN can be filed up to 28 Sept 2023 (3 years from the actual
falsified return. (same rule applies if the same was filed before, on the date,
filing)
and after the due date)
 Whether the return is filed before, exactly at due date or beyond fue
Let’s say I filed in bad faith or fraudulent/falsified return, and the fraud was discovered only on
date, if the return you filed is a fraudulent return, disregard the 3-yr
2025, then the FAN can be issued up to 2035.
period – we apply 10yrs from BIR discovery of the filing of
fraudulent return
How about if you did not file (non-filing), and the fact of non-filing was only discovered on 2025,
o If in case of non-filing, 10 years from the discovery of non-filing of return
then the FAN can be filed up to 2035.
o If the taxpayer is SEP/SEI/MEI, yung return na pinaguusapan dito is yung
Final (4th and consolidated) return. Diba naalala nyo pag SEP/SEI/MEI
So you can see the date there, both in good faith and bad faith, what if those dates are about to
required na mag file ng 3 quarterly returns plus one final. So ito yung sa final
expire and the govt has yet to issue the FAN, the BIR and the taxpayer MAY execute a valid
return. Kasi ganito yan if you file Q1 return kasama yan yung transactions for
waiver extending those dates. Which should be done before said periods expire.
Q1, then sa Q2 return kasama yung transaction both ng Q1 at Q2 then so on
and so forth, parang nagaaccumulate. And then yung final consolidated

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Meron bang limit sa extension? Wala. Follow mo lang yung requisites. Then the period shall be
valid. So based on the rules bilang taxpayer may (2) option ka.
1. To appeal to CTA within the 30-day period after the lapse of 180 days; OR
So pag nagissue ng FAN lilipat ang ball game ngayon sa taxpayer 2. Or to wait for the BIR to actually decide on the FDDA even after the lapse of 180
days
BALL GAME BACK TO THE TAXPAYER But remember such remedies are mutually exclusive.
Nakatanggap ka ngayon ng FAN, we’ll talk now about the remedies of the taxpayer. This is the
protest. (the proceedings are administrative in nature)

Venue? The BIR, walang korteng pinaguusapan dito. Ang nagaaway lang ay yung BIR at yung
taxpayer sa opisina ng BIR.

What is a protest?
o It is in writing questioning or assailing the validity or the substance of the FAN.
o Sa tagalog, hindi ka nagaagree sa sinasabi ng gobyerno, kasi sabi mo mali ang
gobyerno.
o So kailangan in writing and signed by the taxpayer

Where do you file?

o To the Revenue District Office (RDO) which issued the FAN

When do you file?

o Within a non-extendible period of 30 days, regardless of any supervening event
o From when? 30 days from the TX’s receipt of the FAN
o The only time na maeextend yan ay kung pumatak ang sabado, holiday or fortuitous Meron cases where the protest is incomplete. So nagpproptesta ka meaning kinukwestion mo si
event pero dapat declared na sinuspend ang workday. assessment, in doing so, meron kang mga supporting documents to support your argument. So
o 30 days from what? From the taxpayer’s receipt of the FAN. Parang decision ng korte. yung protest is in the nature of 1) Motion for Reconsideration and 2) motion for reinvestigation,
dati meron yang pangatlong MR, yung motion for recomputation pero wala na yan ngayon.
Ano ang gagawin ng BIR sa protesta mo? DECISION (BIR decides your protest)
o The BIR may grant your protest, taxpayer happy So dahil nga it’s in the nature of Motion for Recon and Motion for reinvestigation, kailangan may
o The BIR may deny your protest, taxpayer sad. supporting documents diyan. There are instances where you have not submitted the complete
o The BIR may partly grant or deny your protest, taxpayer half happy half sad. documents, supportive of your protest. So you will be given by the BIR ample time to complete
o The BIR may sit on your protest within 180 days from the submission of your complete the documents within a period not exceeding 60 days from the order requiring you to submit.
documents.
Ang tanong, sasabihin ba sayo ng BIR na isubmit mo nga ang mga documenting ito, 1, 2, 3, 4,
hindi. Hindi ka ididirect ng BIR na magsubmit ng documents. Unang una, di ba ikaw yung
Pano binibilang yung 180 days of inaction? From receipt of FAN, you have 30 days to file protest. nagaargue against the BIR? So you should know which documents are relevant against BIR.
From receipt of protest by the BIR, bilang ka ng 180 days. Pag nag expire si 180 and the BIR has
not acted then you “may” go up to the CTA within 30 days from the expiration of the 180-day. So how do we count the 180 days if you are required to submit additional documents? It is the
 Ito ba ay must? No. Ang sabi sa batas “may”. Pwede kang umakyat kung gusto mo time the BIR actually receives the additional documents that you start the counting of the 180
punta ka ng CTA or kung gusto o pagkamlapas ng 180 hindi ka pumunta, in which case days. So, if despite the lapse of 180 days, the BIR did not decide on your protest then the 30-day
maghintay ka na lang ng FDDA. These two are mutually exclusive of each other period will now commence for filing of an appeal to CTA.
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 So whoever loses before the CTA division may file a Motion for Reconsideration within 15 days
Dito nagtatapos ang venue ng BIR. It ends the administrative proceedings. Kung granted ka, from the time you received the prejudicial decision, filed before the CTA division who issued the
manahimik ka na. decision. Take note that the MR on the decision of the CTA division is a sine qua non
requirement before any prejudiced party may go up to the CTA Enbanc.
Kung denied, partly denied at not acted upon by the BIR within 180 days means you have an
immediate remedy of appeal. Tatawid naman tayo ngayon sa judicial proceedings. This is the Kung sino matalo sa MR, pupunta sa CTA En Banc, ilang araw? 15 days lang ulit, from the
time the taxpayer goes to CTA kaya tumatawid ng judicial. receipt of order denying the MR.

If BIR denies, partly grants/denies, sits on your protest – tawid na tayo sa JUDICIAL Pwede ka pa bang magfile ng MR? no prohibition, because the ROC are applied in suppletory
PROCEEDINGS (TX goes to CTA) character with the rules and regulations on CTA.

JUDICIAL PROCEEDINGS Kung sino matalo sa CTA EB, punta naman kayo sa SC, ilang araw? 15 days. May MR ba? Apply
the rules of courts.

Eto ang tandan nyo regarding sa CA, regardless if civil or criminal, the CA will not have any
jurisdiction over any tax issue, matter or concern. Kahit pa local tax, wala na sya.

REITERATION: Sa protest cases walang jurisdiction ang ordinary courts. It is only the
CTA which has jurisdiction over protest cases.
 What is the mode of going up to the CTA? By way of appeal to the CTA
Division
 Ilang araw bago ka umakyat ng CTA? 30 days from receipt of the final
decision on disputed assessment (FDDA). CTA may:
Again, the ordinary courts does not have jurisdiction over protest cases. It is only the CTA that o Grant
has jurisdiction over protest cases. And what is the mode of going up to the CTA, by mode of o Deny
appeal to CTA division. o Partly grant/deny appeal
 Kung sino ang naagrabyado sa CTA Division, go to higher court – CTA En
When? Within 30 days from the receipt of the final decision of disputed assessment (FDDA) of Banc
the BIR. o REQUIREMENTS:
1. Kung sino ang natalo, sine qua non requirement file
Ang magkalaban dito is BIR and taxpayer pero in the CTA. And it is only the taxpayer who Motion for Reconsideration
appeal up to the CTA. because hindi naman magaapela ang BIR e, sya nga nagdesisyon tapos sya 2. To the CTA Division which issued the decision
magaapela? Hindi pwede. 3. Within 15 days from the time of the receipt of the
prejudicial decision
The CTA division may:  Kung sino matalo, pupunta sa CTA Enbanc – 15 days from receipt of the order
o Grant denying the MR
o Deny  Kung sino matalo sa CTA Enbanc go to SC – within 15 days
o Partly Grant/Deny
TAKE NOTE: the CA does not have any jurisdiction at all over any tax issue, matter or concern;
Wala ditong non action, bakit? E korte. Wala namang ganun sa korte. CTA has now exclusive jurisdiction over protest cases

B. COLLECTION OF THE GOVERNMENT

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You must understand that when the BIR issues the assessment, is yung process ng LA, PAN at Now, I mentioned before that aside from the appellate jurisdiction of the CTA, The CTA has an
FAN, this is the stage na nangongolekta yung gobyerno by way of administrative means of exclusive and original jurisdiction of cases amounting to 1M and above principal exclusive of the
collection ng govt. surcharge, interest and penalties. The motion for new trial is applicable because it is a trial on the
merit. You may file either MR or MNT within 15 days and these two are sine qua non
Ang tanong natin ay when the FAN is issued by the BIR and parties undergo the procedure requirement before you proceed to the CTA En Banc. And then to the SC, 15 days.
discussed above, both admin and judicial proceedings, can the BIR collect? Eto yung
pinakaimportanteng tanong. Habang kinukwestion mo ang final assessment notice na inissue ng So dapat gagawin mo both yung protest at collection para di kayo matalo ng mabilis.
BIR by way of protest until you reach the SC, can you collect? The answer is yes. Because the rule
is no injunction against tax collection. CRIMINAL CASE (COLLECTION)

What is the basis of this rule? Lifeblood doctrine (Taxes are the lifeblood of the government). So Tandaan nyo yung rule, the issuance of FAN is NOT required in the filing of the Criminal Case.
meaning, hindi mo pwede iprevent ang government mangolekta EVEN IF may pending protest Why? Because you are being charged with violation of the penal provisions of the tax code. So
ka. At pwede yang pagsabayin. the issuance of a FAN is not a requirement.

CIVIL CASE (COLLECTION) There are (2) types of criminal cases under the Tax code.
1. Criminal case involving an offense that does not result in tax deficiency
BIR is the plaintiff, then taxpayer is the defendant. So ganito ang proseso.  Example, failure to obey subpoena is a criminal offense under the tax code, pero
wala yang tax deficiency.
The BIR files a tax case of collection, saan finifile ng BIR? Syempre ordinary courts. Anong 2. Criminal case involving an offense that results in tax deficiency
ordinary court? Aba e di first level courts, RTC and CTA.  Example, failure to issue a receipt, this is a criminal offense and the same results in
tax deficiency kasi hindi mo nadeclare yung binenta mo.
So sinong court ang may jurisdiction at how do we determine the jurisdiction.
COURT OUTSIDE WITHIN MM Jurisdiciton? Same sa civil case. First level courts, RTC, e yung CTA? Eto yung sagot.
First level courts (MTC, 300k and below 400k and below  If the offense does not result in any tax deficiency, the jurisdiction of CTA in Crim case
MeTC, MTCC) is purely exclusive appellate.
RTC Above 300k Above 400k  If the offense results in tax deficiency the CTA has exclusive original jurisdiction. (1M
CTA (exclusive original 1M and above exclusive of penalties, surcharge, and above requirement)
jurisdiction) interest.
COURT Penalty
Remember in determining the jurisdiction we will just consider the principal amount. First level courts 6 years and below
RTC Above 6 years
So pag nagfile ka sa MTC, kung sino matalo, punta ka ng RTC, kung sino ulit matalo punta ng CTA (exclusive original If offense results in tax deficiency specifically if the
CTA. But take note, if the court of origin is the MTC then the decision appealed from to the CTA jurisdiction) principal amount of tax due is 1M and above
is in exercise of its appellate jurisdiction (ng RTC) so ang pupuntahan mong korte is CTA en exclusive of interest, penalties and surcharge
banc.
To summarize both the civil and criminal case, the only time the CTA will have an exclusive
MTC -> RTC (appellate jurisdiction) -> CTA En banc (30 days) -> SC (15 days) original jurisdiction is when the amount of principal tax due is 1M and above exclusive of
interest, penalties and surcharges. Conversely, if the offense does not result in tax deficiency then
If the RTC is the court of origin, the appeal should be to CTA Division. the jurisdiction of the CTA in criminal case is purely appellate.

RTC -> CTA Div (30 days) -> MR/MNT (15 days) -> CTA EB (15 days) -> SC (15 days) C. REFUND CASES
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  Within what period can you file the administrative claim for refund? Within (2) years
Pag sinabi nating refund cases, sobra ang binayad ninyo. from the date of payment. What about the judicial claim for refund? The judicial claim
for refund must be filed on the SAME (2) year period.
(2) types of refund under the Tax Code: o Both the administrative and judicial claims for refund must be filed within the
1. Refund of excess input VAT in zero rated transaction same two-year period from date of payment
 If you can remember in our discussions in VAT, we said that in zero rated transaction, o Non-extendible
the input VAT in all of your purchases, is allowed to be credited against output VAT.  Walang requirement for the BIR to decide sa refund mo. So maghihintay ka ngayon.
 In regular VATable transactions, kung may excess input ka, ang remedy mo is credit. Ganito ang mangyayari, kung natanggap mo yung decision let’s say 5 days before mag
Iccredit mo sa mga susunod na quarter ng output VAT. expire yung (2) years, meron ka bang 25 days pa after the lapse to file an appeal? (25
 You have to file the administrative claim for refund within (2) years from the close of days plus 5 days = 30 days) wala na. 5 days nalang ang meron ka kas inga the judicial
the quarter that you incurred the excess input VAT in zero rated transaction. claim must be filed on the same (2) year period.
 Dati meron yang rule on non-action. Wherein 120 days upon filing, pag di umaction  Kung last day na at wala ka padin natatanggap? E di mag file ka na agad on that day.
ang BIR, must go up within 30 days to CTA. This rule is no longer applied. 2:120:30  Kapag nakatanggap ka 20 days before expiration, meron ka bang 10 days pa na
 Ang rule na ngayon eto, 2:90:30, but yung 90 days proactive na sabi ni TRAIN law, from extension after the lapse of (2) years? Wala na, you must file within the remaining 20
the time the taxpayer filed the claims for refund within (2) years from the end of the days.
quarter, from the close of the quarter when you had the excess input VAT on zero rated  Pero ito, pag nakatanggap ka ng desisyon na MORE THAN 30 days ang natitira sa
transaction, the BIR is REQUIRED to decide within 90 days. Once the BIR decides the period, you MUST COMPLY the 30-day period to appeal to CTA div, because the said
case, that is when you go up to CTA Division within 30 days from the receipt of the 30 days period is within the (2) years. That’s the difference ordinary refund and refund
decision. Anong procedure sa CTA? Follow procedure sa Protest Cases up to SC. of zero-rated transactions.
 In other words, now there will always be a decision issued by the BIR on your claim for
refund.
 How will this be operationalized by the BIR, the BIR stated that if the BIR personnel
does not act within the 90 day period, he will be administratively charged.
 Remember in refund cases, laging mauuna ang administrative case within (2) years
kesa sa judicial proceedings to be filed within (30) days. Pwede lang dumirecho ng
judicial pag gobyerno at if it involves collection case whether civil or criminal.
o Take note: there are a lot of cases decided by the SC where these two
(administrative and judicial claim) must be complied with. Requisites for the
refund of taxes.

2. Ordinary Claim for Refund (Section 226)

 Apat lang ang grounds niyan
1. Illegally Assessed
2. Illegally Collected
3. Erroneously Assessed
4. Erroneously Collected
 And this applies to all revenue taxes.
 Dito, as you can observe, merong element of illegality. Doon sa number 1 walang
element of illegality.

29
LOCAL GOVERNMENT TAXATION  No ordinance can be enacted without any prior public hearing conducted for that
N.B: This is from Ingles’ book. This is not of Atty. Lumbera’s lecture. purpose, since local taxes must be levied pursuant to a valid ordinance.

Each LGU has the power to:

1. Create its own sources of revenue
2. Levy taxes, fees, and charges
Sec. 133 provides for specific taxes which the LGU cannot tax:
These powers shall accrue exclusively to the LGU, thus in one. case where the law redirects the 1. Income tax
amusement tax collection to the movie producers makes the said provision void and  Except when levied on banks and other financial institutions;
unconstitutional.  Bar Q:
ABC Corp, a holding company, was taxed by City of Manila as a
Fundamental principles that shall govern the exercise of taxing and revenue-raising powers of contractor or one that sells service for a fee.
the LGU:
1. Uniformity in each LGU The City of Manila is wrong. ABC Corp is not a bank or financial
2. The taxes, fees, charges and other imposition shall: institution thus it cannot be assessed for income.
a. Be equitable and based on the taxpayer’s ability to pay 2. Documentary stamp tax; 
b. Be levied and collected only for public purpose 3. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa
c. Not unjust, excessive, oppressive or confiscatory  Except as otherwise provided herein; 
d. Not be contrary to law , public policy, national economic policy, or restraint of 4. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and
trade. all other kinds of customs fees, charges and dues
3. Collection not be let to any private person  Except wharfage on wharves constructed and maintained by the local
4. Revenue collected shall inure solely to the benefit of the LGU levying the tax unless government unit concerned;
otherwise provided by the LGC. 5. Taxes, fees, and charges and other impositions upon goods carried into or out of, or
5. Each LGU shall evolve a progressive system of taxation passing through, the territorial jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in
The power to exercise to tax in the LGU is vested in and exercise by the Sanggunian. Every tax any form whatsoever upon such goods or merchandise; 
imposed must be levied pursuant to a valid ordinance. This ordinance is the ultimate reference
 It is irrelevant if the fees imposed are actually for police surveillance, because
for local taxation.
any other form of imposition of goods passing through the territorial
jurisdiction of the LGU is clearly prohibited.
Limitations on the LGU’s power to tax
 Thus, what the law prohibits is any absolute imposition on goods passing thru
 Those already subject to tax under the NIRC or other applicable laws cannot be taxed
territories.
again
6. Taxes, fees or charges on agricultural and aquatic products when sold by marginal
o Hence the province may not ordinarily impose taxes on stone, sand, gravel
farmers or fishermen; 
from private land since the same is already taxed by NIRC.
7. Taxes on business enterprises certified to by the Board of Investments as pioneer or
o Same with PBA. The PBA is liable to pay Amusement tax to the National
non-pioneer for a period of six (6) and four (4) years, respectively from the date of
Govt. It is important to note that Amusement Tax on professional basketball registration; 
games remains a national tax under the NIRC. 8. Excise taxes on articles enumerated under the national Internal Revenue Code, as
o Of course there are other instance where the province can levy for amusement amended, and taxes, fees or charges on petroleum products;
tax, but professional basketball games is not one of them. This is an example
 Since the law does not distinguish, the LGU are prohibited from imposing not
of exclusionary rules under the local taxation.
only excise tax on petroleum products but also all taxes, fee, and charges.
 Local taxes shall not be unjust, excessive, confiscatory or contrary to national policy 9. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services
30
  Except as otherwise provided herein;   Provincial govt can levy excise tax on quarry resources from the public lands
10. Taxes on the gross receipts of transportation contractors and persons engaged in the independently from the national government.
transportation of passengers or freight by hire and common carriers by air, land or 5. Professional Tax
water, except as provided in this Code;   As for professions, even if you pay tax in Batanes, you can still practice your
 The grantee of a pipeline concession is a common carrier thus exempt from profession in Manila, or anywhere in the PH.
business tax imposed by the LGU. 6. Amusement Tax
 The purpose of this exception is because there is already a “common carriers’  The common typifying characteristics of those subject to amusement tax is
tax” found in the NIRC. that such venues are primarily for the staging of spectacles or the holding of
 Bar Q: public shows, exhibitions, performance. Accordingly, “other places of
XYZ Shipping Corp is a branch for international shipping line with voyages amusement” must be interpreted in this light.
bet. Manila and West Coast of US. The City Manila levied a tax of 2% on GS of  Thus, resorts, swimming pools, bath houses, hot springs, and tourist spots are
the shipping lines in using the port of Manila. not within the phrase “other places of amusement” as provided by law which
the province can tax.
City of Manila is wrong. LGC prohibits the imposition of local tax on common  Golf courses are not included as well, people don’t go to golf course to watch
carrier. a performance.
11. Taxes on premiums paid by way or reinsurance or retrocession;  7. Fixed Tax for every Delivery Truck or Van of Manufacturers or Producers, Wholesalers
12. Taxes, fees or charges for the registration of motor vehicles and for the issuance of all of, Dealers, or Retailers in, Certain Products.
kinds of licenses or permits for the driving thereof,
 Except tricycles;  Municipalities and Cities
13. Taxes, fees, or other charges on Philippine products actually exported,
 Except as otherwise provided herein; Municipalities may levy taxes, fees, and charges not otherwise levied by the Province.
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty- Cities, on the other hand, may levy taxes, fees, and charges which the Province and
nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of Municipalities may impose.
the Philippines" respectively; and   The rate may exceed the maximum rates provided for the Province and Municipality by
15. Taxes, fees or charges of any kind on the National Government, its agencies and not more than 50%.
instrumentalities, and local government units. o XPN: rates of professional and amusement tax
 Is this rule absolute? No, when the beneficial use of its RP is given to a taxable
entity. Municipalities may impose tax on the ff:
1. Tax on Business (Based on Gross Receipts):
Taxing Powers of LGUs a. On manufacturers, assemblers, repackers, processors, brewers, distillers,
 Only cities and municipalities can impose business tax rectifiers, and compounders of liquors, distilled spirits, and wines or
Province manufacturers of any article of commerce of whatever kind or nature.
b.  On wholesalers, distributors, or dealers in any article of commerce of
The province is authorized by law to impose tax on the ff: whatever kind or nature
1. Tax on Transfer of Real Property Ownership c. On exporters, and on manufacturers , millers, producers, wholesalers,
 Note that this is not a tax on the income, but a tax on the transfer of real distributors, dealers or retailers of essential commodities enumerated
property. hereunder
2. Tax on Business of Printing and Publication d. On retailers.
3. Franchise Tax e. On contractors and independent contractors
4. Tax on Sand, Gravel, and other Quarry Resources f. On banks and other financial institutions, at a rate not exceeding fifty percent
(50%) of one percent (1%) on the gross receipts of the preceding calendar year
31
 derived from interest, commissions and discounts from lending activities, 2. Persons who come to reside in the PH on or after July 1
income from financial leasing, dividends, rentals on property and profit from 3. Persons who become 18 years old on or after July 1
exchange or sale of property, insurance premium. 4. Corporations established and organized on or after July 1
g. On peddlers engaged in the sale of any merchandise or article of commerce, at o Time of filing: Before Feb. 1 of each year
a rate not exceeding Fifty pesos (P50.00) per peddler annually.  Municipalities and Cities may impose and collect such reasonable fees and charges on
h. On any business, not otherwise specified in the preceding paragraphs, which business and occupation. XPN is professional tax which is reserved to the Province.
the sanggunian concerned may deem proper to tax: Provided, That on any
business subject to the excise, value-added or percentage tax under the Barangay
National Internal Revenue Code, as amended, the rate of tax shall not exceed
two percent (2%) of gross sales or receipts of the preceding calendar year. 1. Taxes
 Note: Tax on business should be based on gross receipt, so if the city assessed the o On store or retailers with fixed business establishment with GS/GR of the
taxpayer’s local business based on gross revenues. Then such assessment is improper. preceding calendar year of 50K or less (in case of cities) or 30k (in case of
 Condo corp are usually exempted from local business under the LGC. They are municipalities) at a rate of 1% of such GS/GR.
prohibited from doing activities for profit under the Condominium Code, hence, they 2. Service and Fees Charges
are “not business” under the LGC. o In connection with the regulation or the use of barangay-owned properties or
 When the Municipality or City already imposed a business tax under A-G of Sec. 143 of service facilities.
the LGC. The municipality or city may no be allowed to impose business tax the same 3. Barangay Clearance
taxpayer based on H of Sec. 143. This constitutes direct double taxation. 4. Other Fees and Charges
o Tax on Commercial breeding and fighting cock, cockfights, and cockpits
2. Fees and Charges o Tax on places of recreation which charge admission fees
o On the business and occupation and practice of any profession or calling o Tax on billboard, sign boards, neon signs , and outdoor events.
before any person may be allowed to engage in such business or occupation or
practice of profession. Common revenue raising power between the different LGUs
1. Reasonable fees and charges for services rendered
3. Fees for Sealing and Licensing of Weights and Measures. 2. Public utility
4. Fishery Rentals, Fees and Charges o For operations maintained by them within their jurisdiction.
o The municipality hast the exclusive authority to grant fishery privileges in the 3. Toll fees or charges
municipal waters and impose rentals, fees, or charges. o Take note: The fees shall be for any public road, pier, wharf, waterway,
5. Community Tax bridge, ferry or telecommunication system actually FUNDED and
o Individuals who are 18 years old and above who is: CONSTRUCTED by the taxing LGU.
(1) regularly employed for at least 30 consecutive days, or o XPN: No taxes collected against:
(2) engaged in business or occupation, or 1. Officers enlisted men of the AFP and members of PNP on a mission
(3) owns real property worth more than P1000 (assessed 2. Post office personnel delivering mail
value) 3. Physically-handicapped and disabled citizens
(4) required to file and income tax return 4. Citizens who are 65 years or older.
o Corporations Situs of Local Taxation
o Who are exempt from Community tax?
Absolutely Here are the rules on the situs of Local Taxation
1. Diplomats 1. When the sale was made in a certain municipality or city
2. Consular Representatives a. If there is a branch (or sales office or warehouse) where the same was made,
Exempt for the rest of the current taxable year the sale shall be recorded in the said branch and the tax shall accrue and be
1. Transient visitors who stay not more than (3) months paid to the municipality where the branch is located.
32
 b. If there is no branch (or sales office or warehouse), the sale shall be recorded o Subject to interest of 2% PER MONTH on the amount including the
in the principal place of business and taxes shall accrue there, and taxes shall surcharges.
be paid on the municipality of said place. o BUT in no case shall the total interest on the unpaid amount or portion exceed
2. If there is no branch, and the company has factory, plant, plantation, project office 36 months.
a. 30% of sales – taxable where the principal is located o Surcharge shall not be applied in a yearly accrual bases, the same would be
b. 70% of sales – taxable where the F,P,P,PO is located unconscionable.
3. Sales allocation in case factories and plantations located in difference places
a. 30% - taxable where the principal is located Retirement of Business
b. 70% distributed as follows:
o 60% taxable where the factory is located A retiring business shall submit a sworn statement of GS/GR of the current year. The business
o 40% taxable where the factory is located should be subject to tax prior to retirement.
4. In case there are two or more factories and plantations located in different localities
a. Prorate the 70% according to the volume of production If the tax paid during the year is less than the tax due on said GR/GS:
b. 30% taxable where the principal is located o The same shall be paid before the business is considered officially retired.
5. In case of route sale What if the tax paid is more than the tax due on the said GR/GS?
a. Made in a locality where manufacturer, producer, wholesaler, retailer or o In one case, since the basis for the tax due is the GR/GS of the previous year, then if the
dealer has a branch (including sales office and warehouse) and tax due GR/GS of the taxpayers is actually lower then it necessary follows that the tax he paid
thereon shall be paid to the LGU where such branch is located. is more than the tax due, then he is entitled for a refund/credit.
b. Made in a locality where a manufacturer, P, W, R or D has no branch o So the situation would be, you are taxed already for the privilege of carrying a business
(including SO and W), the sales shall be recorded in the branch (including SO prior to closing of business, this is based on the estimate from last year. Now upon
and W) from where the route trucks withdraw the products for sale. manifestation of retirement, you will be assessed again if the prior payment is equal to
the tax due. Kung sakto binayad mo noong nagbayad ka ng tax, then wala ka ng
Remember that as long as there is a branch, the sale will be recorded there. The above rules on problema.
allocation shall only apply in absence of the branch. Sale allocation (in absence of branch) shall be
applied irrespective of w/n sales are made in the locality where the factory, project office, plant, Remedies for Collection of Local Taxes
or plantation is located.
Local taxes and other fees shall constitute lien, superior to all liens in favor of any person,
In one case, the city can validly tax the sales of the matches to customers outside of the city as enforceable by appropriate administrative or judicial action.
long as the orders were booked and paid for in the company’s branch office in the city. o Such lien may only be extinguished upon full payment

In one of the Bar Qs, the principal office, along with (2) other branches were subjected to tax for Civil Remedies
sales within its respective cities. The principal was included notwithstanding the existence of A. Administrative Action
branches because the principal is also a sales office. Remember branch includes sales office and 1. Distraint of Personal Property
warehouse. o The local treasurer or his deputy may, upon written notice, seize or confiscate
any personal property belonging to the taxpayer.
Collection of Local Taxes o The officer making the distraint shall make an account of the distrained
goods.
All local taxes, fees, and charges accrue on January 1 and must be paid by January 30, or of each o There shall be publication in not less than 3 conspicuous places of the govt
subsequent quarter. where the distraint is made.
o The time of sale shall not be less than 20 days from the notice.
Surcharge: 25% of the amount of taxes, fees or charge NOT paid on time. o If the property is not sold within 120 days from the date of distraint, the same
shall be considered sold in favor of the LGU
33
 o If the amount of the proceeds is insufficient to cover the tax due, other (f) The professional libraries of doctors, engineers, lawyers and judges; 
properties may be distrained.
(g) One fishing boat and net, not exceeding the total value of Ten thousand
2. Levy on Real Property pesos (P10,000.00), by the lawful use of which a fisherman earns his
o RP may be levied before, simultaneously or after the distraint of the personal livelihood; and 
property.
o Notice shall be given to the Register of Deeds where the property is located (h) Any material or article forming part of a house or improvement of any real
who shall annotate the levy on the tax declaration property.
B. Judicial Action
o Either of these remedies or all may be pursued concurrently or
simultaneously at the discretion of the LGU.
Power to levy other taxes
Local treasurer who fails to issue or execute levy or warrant of distraint after the expiration of
time or who is guilty of abusing the exercise competent authority shall be automatically LGU may exercise power to levy taxes, fees, or charges on any base or subject not otherwise
dismissed from office, without prejudice to criminal prosecution under RPC. specifically enumerated therein or taxed under the provisions of the NIRC. Provided that the
taxes, charges or fees are not:
Within 1 year from the date of sale, the delinquent tax payer may exercise his right to redeem the
1. Unjust
property upon payment to the local treasurer of the total amount of taxes, fees, or charges, and 2. Oppressive
related surcharges, interest of not more than 2% per month. Failure to redeem the property will 3. Confiscatory
warrant the local treasurer to execute a deed conveying to the purchaser the property. 4. Contrary to declared national policy.

In case of want of bidders, the LGU may purchase the property. The sangguanian, upon an Note: the ordinance levying such taxes, fees, or charges shall not be enacted without prior public
hearing conducted for such purpose.
ordinance, may resale the same and the proceeds will go to the general fund of the LGU.
o Take note that the LGU is authorized only to purchase in case of want of Such ordinance may be appealed within 30 days from its effectivity to the Secretary of Justice
bidder. Disqualified bidder is not among the authorized ground. who shall render a decision within 60 days from the days of receipt of the appeal.

Personal Properties exempt from Distraint or Levy Remember, the appeal does not in effect suspend the effectivity of the ordinance
Within 30 days from the receipt of the decision of the SOJ or the lapse of the 60 days without the
SOJ acting on appeal, the taxpayer may file appropriate proceedings with a court of competent
(a) Tools and implements necessarily used by the delinquent taxpayer in his trade or
jurisdiction.
employment;

(b) One (1) horse, cow, carabao, or other beast of burden, such as the delinquent Exemption from Tax
taxpayer may select, and necessarily used by him in his ordinary occupation; 
LGU has the power to grant tax incentives through ordinances
(c) His necessary clothing, and that of all his family; 

(d) Household furniture and utensils necessary for housekeeping and used for that Local Tax vs RPT in case of power to grant exemptions:
purpose by the delinquent taxpayer, such as he may select, of a value not exceeding Ten
thousand pesos (P10,000.00);  o In RPT, LGUs cannot add on to the exemptions stated in the LGC
o In Local Tax, the LGUs are free to grant exemptions.
(e) Provisions, including crops, actually provided for individual or family use sufficient
for four (4) months; 

34
Sanggunians have the power to grant tax exemptions, tax incentives, and tax reliefs. These For Assessment:
however does not cover regulatory fees collected by the LGU. o Within 5 years from the date they become due
o In case of fraud, or if there is intent to evade the payment of taxes, 10 years from the
For Tax Exemptions: time of discovery.
For Collection:
o The tax exemptions should be conferred via tax exemption certificate o Within 5 years from the date of assessment by administrative or judicial action.
o The tax exemption and reliefs must be through an ordinance.
o They may be granted in cases of natural calamities, civil disturbances, general failure of The prescriptive period will be suspended in case of: (PRO)
crops, or adverse economic conditions 1. When the local treasurer is legally prevented from making assessment or collection of
o Any exemption or relief granted in to a type or kind of business shall apply to business the tax.
similarly situated. 2. When the taxpayer requests for reinvestigation and executes a waiver in writing before
o XPN shall only last for a period not exceeding 12 months. the expiration of the period.
3. The taxpayer is out of the country or otherwise cannot be located.
For Tax Incentives:
o Incentives shall be granted only to new investments on the locality and the ordinance Tax Remedies of the Taxpayer
shall prescribe the terms and conditions therefore. 1. To question the newly enacted ordinance
o This grant of the incentives shall be for a definite period not exceeding 1 calendar year. o Prior to the enactment of ordinances, you need:
o The grant of tax incentives shall be by ordinance passed prior to the 1 st days of any year;  Public hearings
and  Publication in full for 3 consecutive days
o Any tax incentive granted to a type or kind of business shall apply to all businesses o Any question on the constitutionality and legality of tax ordinance may be
similarly situated. appealed within 30 days from its effectivity to SOJ
o SOJ must decide within 60 days from receipt
Withdrawal of Tax Exemptions Privileges o After the lapse of 60 days if there is non-action or within 30 days from the
decision of the SOJ, the aggrieved party may go to court.
The LGC (1991) withdrew all tax exemptions or incentives granted to, or presently enjoyed by all  If the party did not appeal to SOJ, the courts will dismiss the case.
persons, whether natural or juridical, including GOCCs. Except: Appeal to SOJ is MANDATORY
o Local Water Districts  If the case involves pure questions of law, the party may go straight
o Cooperatives duly registered under RA 6938 to the courts.
o NSNP hosp and educational institutions o SOJ may only review the constitutionality or legality of the tax ordinance, and
o Unless provided by in the code. if warranted, to revoke it.
 He cannot replace it with his own version.
Although the GR is that the LGU cannot impose taxes on the National Government, this rule now  He has no right to determine or declare that the ordinance is unjust,
admits an exception which is when a specific provision of the LGC authorizes the LGU to impose excessive, oppressive, or confiscatory.
tax on the national govt then it can. o When assailing the ordinance, there is no need for a written protest to be
made. Protest is only needed if assailing the validity of the assessment.
How about if exemption granted after the LGC was enacted?
o Congress has the power to grant tax exemptions over and above of the local 2. Protest against the assessment
government’s delegated power to tax. o Treasurer issues the assessment
o However, the grant of congress must be unequivocal o Taxpayer will file a written protest with the local treasurer within 60 days
from the receipt of the notice of assessment, otherwise the same shall be final
and executory.
o Treasurer shall decide within 60 days. He can cancel the assessment or deny
the protest.
o The taxpayer has 30 days from receipt of denial or the lapse of 60 days in case
Prescriptive Periods and Taxpayer’s Remedies in Local Taxation of non-action within which to appeal the case.
o Aggrieved party may then appeal to CTA, within 30 days, via:
Prescriptive Periods for Assessment and Collection  Petition for review to CTA Division under Rule 42 (if the RTC acted
in original jurisdiction)
35
  Petition for review to CTA En Banc under Rule 43 (if from the RTC
acting under appellate jurisdiction)
o Written protest is mandatory when protesting an assessment. The taxpayer
cannot go straight to the court.
o Unlike RPT, no need for payment under protest.
 However some LGUs require payment under protest
o The LGC does not specifically prohibit injunction to enjoin the collection of
taxes.
 Unlike in case of the National taxes, where the laws expressly
prohibits the courts from enjoining the collection of taxes, with the
SOLE EXCEPTION of CTA.

3. Claim for refund or tax credit

o Requirements
 Written claim file with the local treasurer
 Filed within 2 years from
a) Date of payment
b) Date when the taxpayer is entitled to a refund or credit.
o As compared to refund in National Taxes, in local taxes, supervening causes
are allowed as reckoning points for the prescriptive period purposes.
o If a taxpayer wins a case against the LGU regarding local taxes already paid,
should move for the issuance of writ of execution to get his money back?
 No, the taxpayer should just request from the LGU the
implementation of the tax refund or credit.
Take note: The recovery of local business tax improperly paid is subject to the tax benefit rule.
The local business tax paid is a business connected tax (expenses) hence, deductible from gross
income. If at the time of its deduction (payment of the local business tax) it resulted to a tax
benefit to the taxpayer, then the recovery will form part of gross income to the extent of the tax
benefit on the previous deduction

36
REAL PROPERTY TAX (9) Docks and structures which, though floating, are intended by their nature and object
to remain at a fixed place on a river, lake, or coast; 
RPT shall be: (10) Contracts for public works, and servitudes and other real rights over immovable
1. Appraised at its current and FMV property. (334a)
2. Classified for assessment purposes on the basis of its actual use
3. Assessed on the basis of a uniform classification within each LGU. As for Machinery

The appraisal, assessment, levy and collection shall:

1. Not be let to nay private person LGC Sec 199(o):
2. Be equitable

Only the following LGU can impose RPT: "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances
1. Province (enactment and collection) or apparatus which may or may not be attached, permanently or temporarily, to the real
2. Cities (enactment and collection) property. It includes the physical facilities for production, the installations and appurtenant
3. Municipalities within Metro Manila (collection only) service facilities, those which are mobile, self-powered or self-propelled, and those not
o Includes those converted into cities permanently attached to the real property which are actually, directly, and exclusively used to
meet the needs of the particular industry, business or activity and which by their very nature and
Real Property and Machinery purpose are designed for, or necessary to its manufacturing, mining, logging, commercial,
industrial or agricultural purposes;
For taxation purposes, real property consists of the ff:
1. List of immovable in Art. 415 of the Civil Code DOF Local Finance Circular 001-2002
2. Definition of machinery under Section 199(0) clarified by the DOF Local Finance
Circular 001-2002
Summary of the rules
For reference:
1. Machinery that is permanently attached to land and buildings is subject to the real
property tax, even though this is actually, directly and exclusively (ADE) used for
Article 415. The following are immovable property: 
religious, charitable or educational purposes.
2. Machinery that is not permanently attached
(1) Land, buildings, roads and constructions of all kinds adhered to the soil; 
(2) Trees, plants, and growing fruits, while they are attached to the land or form an
a. Subject to the real property tax if it is an essential and principal element
integral part of an immovable; 
of an industry, work or activity without which such industry, work or
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot
activity cannot function; and
be separated therefrom without breaking the material or deterioration of the object; 
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
b. Not subject to the real property tax if it is not an essential and principal
buildings or on lands by the owner of the immovable in such a manner that it reveals
element of an industry, work or activity.
the intention to attach them permanently to the tenements; 
(5) Machinery, receptacles, instruments or implements intended by the owner of the
3. Notwithstanding rules 1 and 2, machinery of non-stock, non-profit educational
tenement for an industry or works which may be carried on in a building or on a piece
institutions used actually, directly, and exclusively for educational purposes is not
of land, and which tend directly to meet the needs of the said industry or works; 
subject to real property tax.
(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar
nature, in case their owner has placed them or preserves them with the intention to
have them permanently attached to the land, and forming a permanent part of it; the
Under Sec.199 (o), the machinery which are ADE used to meet the standards of the particular
animals in these places are included; 
industry are liable for RPT.
(7) Fertilizer actually used on a piece of land; 
 Hence if the machinery is only for general purpose, it is not a real property.
(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and
waters either running or stagnant; 
Rules on Machinery:

37
  As long as attached to land and buildings: the same is subject to RPT o If the machinery is imported, the acquisition cost will include all the charges
 If not permanently attached: necessary to bring the thing into the Ph.
o If essential to the principal element of industry, work or activity without o Specific to Machinery, only a 5% depreciation rate can be used.
which the same cannot function – subject to RPT  However, as long as the machinery is useful and in operation, the
o If not essential and principal element of an industry – not subject RPT value will not be less than 20% of its original price. It can never be
 But machinery of NSNPEI used ADE for educational purpose – not subject to RPT zero.

As between the Civil Code and LGC, the latter must prevail since the same is special law. Hence For Assessment Purposes
in determining w/n the property is subject to RPT, the definition and requirements of the LGC is
controlling over the civil code.
 Actual use is the basis, regardless of who owns the property.
In the case of Board of Assessment vs Manila Electric Co:  The same is for assessment purposes only.
 Meralco insisted that their transformers, electric posts, transmission lines, insulators  Unpaid real estate tax attach to the property and is chargeable against the taxable
and electric meters were not immovable under Art 415 of the Civil Code because 415(5) person who had actual and beneficial use and possession of it, regardless w/n he is the
imposed additional requirements for machinery to be considered as real property owner.
being: 1) the machinery being placed in the tenement by the owner of such tenement o So the estate should not be liable for the RPT for the periods when it did not
and 2) destined for use in the industry or work in the tenement. have beneficial use of the property.
 SC said that following that argument would mean imposing additional requirement for o Contractual assumption to pay RPT, by itself, is not sufficient to make one
classifying machinery as real property not provided by LGC. legally compellable by the govt to pay the taxes due. The person liable must
also use and possess the property.
 Using the LGC definition, the SC stated that even if the same is not permanently
attached, they are real property if the property is ADE used to meet the ends of the
particular and by their very nature and purpose necessary for the business purpose. Classes of Real Property

Gasoline station equipment and machineries are permanent fixtures for purposes of realty 1. Residential
taxation, even if they are on leased land. 2. Agricultural
3. Commercial
The storage tanks of Meralco are classified as real property and subject to tax since they are 4. Industrial
machinery or improvement. 5. Mineral
6. Timberland
7. Special, which are:
 While the tanks are not embedded in the land, it is undeniable that such tanks have
 Land, buildings, and other improvements ADE used for hospital, cultural, or
been installed with some degree of permanence as receptacles for the considerable
scientific purpose
quantities of oil needed by Meralco for its operations.
 Those which are owned by local water districts and GOCCs rendering
essential public services in the supply and distribution of water and
Appraisal and Assessment electricity.

 For real property A hospital which was previously considered as special cannot be reclassified to “commercial”
o All real prop shall be appraised at the current and fair market value simply because it charges rental for the use of its offices by accredited physicians.
prevailing at the locality where the property is situated.  A facility which is incidental and reasonably necessary for the operations of a
o This implies that LGUs may only collect RPT to properties falling within its hospital should likewise be classified as special.
territorial jurisdiction
o Hence, a boundary dispute is a prejudicial question that must be resolved first A special classification prescribes a lower assessment than commercial classification.
before determining the RPT liability of the property.
 For Machinery The SC held that income generating facility which is incidental and reasonably necessary for the
o For FMV of Machineries, the basis shall be the acquisition cost operations of a hospital, such as offices held out for lease to accredited doctors, does not justify
o In all other cases, the basis will be the book value, depreciation having been the change in the class of real property from special to commercial.
taken into account.
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  City or Municipality within Metro Manila area, not exceeding 2% of the assessed value.

Special Education Fund (SEF)

Declaration by owner or by the assessor; listing of real property in the assessment rolls  On top of the RPT rate, the province, city or municipality in MM, may levy annual tax
of 1% of the assessed value for the SEF.
o All persons, natural or juridical, owning or administering real property to prepare and  This is in addition of the RPT
file with the provincial, city or municipal assessor, as sworn statement declaring the  The LGU can impose less than 1%, the law does not specify that the tax be exactly 1%.
true value of their property.
 This includes the persons acquiring the property or making improvement Tax on Idle Land
thereon, within 60 days from acquisition or from the time the improvement is Idle Lands are:
made.  If Agricultural – more than one hectare in area and suitable for cultivation, dairying,
o The declaration shall be filed with the assessor concerned once every (3) years during inland fishery and other agricultural uses and ½ of which is uncultivated or
the period of January 1st to June 30th. unimproved.
o If such person mentioned above refuses to prepare such declaration, the assessor shall  If other than Agricultural – more than 1k sqm, and ½ of which is uncultivated or
himself declare the property in the name of the name of the defaulting owner, and shall unimproved.
assess the property for taxation.
o There shall be prepared and maintained by the provincial, city or municipal assessor an
assessment roll wherein shall be listed all real property, whether taxable or exempt, Idle lands are taxed at a rate not exceeding 5%, in addition to the basic real property tax.
located within the territorial jurisdiction of the local government unit concerned. Real
property shall be listed, valued and assessed in the name of the owner or administrator, So, the SEF and Tax on Idle Land may be imposed in addition of the RPT.
or anyone having legal interest in the property.
However, idle lands may be exempt from tax, because of:
o Any person who claims tax exemption shall file evidence in support of such claim.  Force Majure, or
o In case of transfer of the property, transferor shall notify the assessor of the LGU  Civil Disturbance, or
concerned within 60 days from the transfer.  Natural Calamity, or
 Any cause which physically or legally prevents the owner of the property or person
having legal interest from improving, utilizing, or cultivating the same.

Special Levy

Imposition of Real Property Tax and Special Levy Special Levies are imposed when lands are benefited by public works projects or improvements
funded by the LGU concerned.
Power to Levy RPT  HOWEVER, no special levy shall be imposed:
The ff may levy real property tax: o On lands exempt from RPT
1. A Province o Remainders of land portions of which are donated to LGUs for the projects.
2. A city, and Special Levy by province, city or municipality (in MM) should not exceed 60% of the total code of
3. A municipality within Metro Manila area. the government improvements
 Municipalities outside Metro Manila cannot levy real property taxes.
Note on the ordinance for Special Levy
 They can however impose special levies
 Public Hearing
 Notification
Rates of Levy  Opportunity of the owner to object

 Province can impose RPT not exceeding 1% of the assessed value of the property

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  If some portion are leased for activities which are not for charitable ,
Exemption from RPT religious or educational purposes, then those portions will be subject
to RPT.
Upon the enactment of the LGC, any exemption from RPT given to all persons whether natural or o A charitable institution does not lose its character as such and its exemption
juridical, including GOCCs were withdrawn from taxes simply because it derives its income from paying patients.
 However, the Congress has the power to grant exemptions over the power of LGU to o So long as the money received is devoted or used altogether to the charitable
impose taxes. object which is intended to achieve and no money inures to the private
 In one case, the reenactment of franchise law after the LGC in favor of Bayantel was benefit of the persons managing or operating the institution.
said to revive its exception
3. All machineries and equipment that are actually, directly and exclusively used by local
The list is an exclusive one and the LGU cannot add on to the exception. water districts and government owned or controlled corporations engaged in the
o The exception includes exception from special assessments supply and distribution of water and/or generation and transmission of electric power
o Take note that only the machineries and equipment are exempt from the RPT,
Properties exempt from RPT not the lands or buildings
1. Real property owned by the Government or any of its political subdivision o 2 elements must be complied:
o XPN when the beneficial use thereof has been granted, for consideration, to a  First, that the machineries and equipment are actually, directly and
taxable. exclusively used by local water districts and GOCCs.
o XPN to XPN when the national government, its agencies and instrumentalities  Second, that the local water district and GOCC must be engaged in
are subject to any kinds of tax by local government the supply and distribution of water and/or generation and
o Who pays then? The taxable entity having beneficial use of the property is transmission of electric power.
liable o What if the GOCC which supplies electric power, entered into an agreement
o Political subdivision to mean government instrumentalities vested with with a taxable entity for the lease of the former’s equipment - and the
corporate powers or government corporate entities. (LLDA, UP, MIAA, PNR, agreement states that the GOCC will be liable for the RPT, will the exemption
PPA) extend to the taxable entity?
 An instrumentality is neither stock or non-stock corp and it performs  No, in one case, the SC states that the agreement is between the two
governmental or public functions. and does not bind third person not privy thereto.
 Hence, GOCC is liable for RPT.  In short, tax assumption clause is binding only between the 2
 In summary, Government Corporate Entity (GCE) is exempt while parties, and not to the government and LGU.
GOCC is not exempt.
o Reclaimed land is a part of public domain 4. All real property owned by duly registered cooperatives.
o The exemption applies even if the land owned by the cooperative is
2. Charitable institutions, churches, parsonages or convents appurtenant thereto, leased to a taxable entity.
mosques, non-profit or religious cemeteries and all lands, buildings, and improvements o The law does not care if the property owned by the cooperation is used
actually, directly, and exclusively used for religious, charitable or educational purposes by the cooperative or not.
o Note that improvements does not include machineries.
o Thus the general rule is that machines that are permanently attached to land 5. Machinery and equipment used for pollution control and environmental protection.
and buildings is subject to RPT, even though this is ADE used for religious, o The exemption now includes infrastructure and improvement.
charitable or educational purpose
 Improvements, on the other hand, are exempt. In one Bar qs, a group of Tibetan monks offered to lease a certain property as a venue for their
o But in the case of NSNPEI, machineries used ADE for educational purposes is Buddhist ritual and ceremonies. The owner accepted rentals of 1M for the whole year. The
not subject to RPT. suggested answer states that the assessor is wrong in assessing the property. The use in this case
o “ADE use” of the property for charitable purposes means the direct and is ADE used for religious purposes, which is exempted from RPT under the LGC.
immediate and actual application of the property itself to the purposes for
which the charitable institution sis organized. The burden of proving exemption from local taxation is upon whom the subject real property is
 It is not the use of income derived from the property but the use of declared.
the property which is determinative of whether the property is used
for tax-exempt purposes.

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  Within 30 days after the sale, the LT shall report about the sale to the Sanggunian
Collection of RPT concerned.
 In case the proceeds of the sale is in excess of the tax due, the expenses of the sale shall
RPT for the year shall accrue on the 1 st day of January and from that date it shall constitute a lien be remitted to the owner of the property.
on the property which shall be superior to any other lien, mortgage or encumbrance.  Within 1 year from the date of sale, the delinquent tax payer may exercise his right to
redeem the property upon payment to the local treasurer of the total amount of taxes,
The city or municipal treasurer shall be in charge of the collection of RPT. fees, or charges, and related surcharges, interest of not more than 2% per month. Failure
 The city or municipal treasurer may deputize the barangay treasurer to collect all the to redeem the property will warrant the local treasurer to execute a deed conveying to
real taxes in the barangay. the purchaser the property.
 Provided that the barangay treasurer is properly bonded, the premiums on such bonds  The owner of the delinquent RP or the person having legal authority or interest therein,
shall be furnished by the city or municipal treasurer. or his representative has the right to redeem the property within 1 yr.
 The taxpayer may pay the basic RPT and SEF in installment basis in (4) equal  However when the ordinance states that RoR starts from date of
installment: annotation, such will be followed since it is more favorable to the
o 1st installment – on or before 31 March original owner or redemptioner.
o 2nd installment – on or before 30 June  No court shall entertain any action assailing the sale at public
o 3rd installment – on or before 30 September auction of real property until taxpayer shall have deposited with
o 4th installment – on or before 31 December the court the amount for which the property was sold with 2%
o As for the Special Levy, the same shall be governed by the ordinance. interest per month.
 The Sangguinian my grant tax discount not exceeding 20% of the annual tax due in case
the basic RPT and additional tax accruing to the SEF are paid in ADVANCE. 2. Judicial action
 Unpaid real property shall subject the taxpayer to the payment of interest at the rate of  LGUs may enforce the collection of the RPT by civil action in any court of competent
2% per month on the unpaid amount or a fraction thereof, until the delinquent tax is jurisdiction
paid.
o In no case shall the total interest on the unpaid tax or portion thereof exceed In case of want of bidders, the LGU may purchase the property. The sangguanian, upon an
36 months. ordinance, may resale the same and the proceeds will go to the general fund of the LGU.

LGU Remedies for collection o Take note that the LGU is authorized only to purchase in case of want of
bidder. Disqualified bidder is not among the authorized ground.
LGU concerned may avail of:
1. Administrative action through levy on RP In case of an action involving ownership or possession of, or succession to, the real property, the
 RP may be levied under the issuance of a warrant on or before, or simultaneously with, court may, motu proprio or upon representation of the LGU, award the ownership or possession,
the institution of the civil action for the collection of the delinquent tax. or succession to any party to the action UPON PAYMENT OF THE TAXES.
 Only the registered owner of the property is deemed the taxpayer who is entitled to a
notice of delinquency and other proceedings relative to tax sale. Prescriptive Period to Collect
 The warrant shall operate with the force of a legal execution throughout the province,
city or a municipal within the MM. Based on the ff periods:
 Any local treasurer or his deputy who fails to issue or execute the warrant of levy o Within 5 years from the date of assessment by administrative or judicial action.
within 1 year from the time the tax becomes delinquent or within 30 days from the date o In case of fraud, or if there is intent to evade the payment of taxes, 10 years from the
of the issuance thereof, who is found abusing the exercise of his administrative or time of discovery.
judicial proceeding shall be dismissed from service.
 30 days from the service of warrant, the local treasurer shall proceed to publicly
The prescriptive period will be suspended in case of: (PRO)
advertise the sale and auction of the property.

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 1. When the local treasurer is legally prevented from making assessment or  So the taxpayer must appeal the assessment to the Local Board of Assessment
collection of the tax. Appeal (LBAA) within 60 days from the date of receipt of the written notice of
2. When the taxpayer requests for reinvestigation and executes a waiver in writing assessment
before the expiration of the period.  The LBAA has 120 days from receipt of the appeal to decide.
3. The taxpayer is out of the country or otherwise cannot be located.  If still unsatisfied, the taxpayer may appeal to the Central Board of Assessment
Appeals (CBAA) within 30 days after receipt of the decision of the LBAA
Condonation or Reduction of the RPT and Interest  If still unsatisfied, he may appeal to CTA en banc within 30 days.
1. In case of general failure of crops or substantial decrease in the price or agricultural or o Why enbanc? Remember that the decisions of the CBAA and the
agribased products, or RTC in the exercise of appellate jurisdiction are appealable to CTA
2. Calamity in any province, city, municipality in MM. via Rule 43.
 Taxpayer’s failure to appeal the same to LBAA renders the assessment final,
The sanggunian concerned may, by ordinance, by recommendation of Local Disaster executory and demandable.
Coordinating Council, condone or reduce, wholly or partially, taxes and interest due for the
 The taxpayer protesting must have a legal capacity
succeeding years or years in the city or municipality affected.
 Appeals on the assessment shall in NO CASE SUSPEND the collection of the RPT
Taxpayer’s Remedies
3. Payment under protest and tax refund or credit
Taxpayer has the ff remedies in RPT:
 You resort to this when the taxpayer questions the excessiveness of the amount
1. Protest against newly enacted ordinance or revenue measure
imposed on him.
 Same sa Local Tax
o A claim for exemption, whether full or partial, raises a question on
 For reference:
correctness. Hence, payment under protest is required.
o Prior to the enactment of ordinances, you need:
o However, when the taxpayer questions the legality or validity of an
 Public hearings
assessment – a question of law – direct recourse to the local courts is
 Publication in full for 3 consecutive days
allowed.
o Any question on the constitutionality and legality of tax
 The procedure is as follows:
ordinance may be appealed within 30 days from its effectivity
1. Pay first and cause annotation to the local treasurer “paid under protest”
to SOJ
2. Protest in writing within 30 days from payment with the local treasurer.
o SOJ must decide within 60 days from receipt
3. Treasurer has 60 days to resolve it
o After the lapse of 60 days if there is non-action or within 30
4. In case of denial or lapse of 60days, follow the procedure in questioning an
days from the decision of the SOJ, the aggrieved party may go
assessment;
to court.
i. Appeal to LBAA within 60 days
 If the party did not appeal to SOJ, the courts will
ii. Appeal to CBAA within 30 days
dismiss the case. Appeal to SOJ is MANDATORY
iii. Appeal to CTA EB within 30 days
 If the case involves pure questions of law, the party
 Posting of surety bond before filing an appeal of the assessment with the LBAA is a
may go straight to the courts.
substantial compliance of the requirement of payment under protest.
o SOJ may only review the constitutionality or legality of the tax
4. Claim a refund
ordinance, and if warranted, to revoke it.
 He cannot replace it with his own version.  Like local taxes, refunds must be claimed within 2 years from the date the taxpayer
is entitled
 He has no right to determine or declare that the
ordinance is unjust, excessive, oppressive, or  It must filed with the treasurer who must decide within 60 days
confiscatory. o If the treasurer denies the claim, follow the procedure in questioning an
o When assailing the ordinance, there is no need for a written assessment
protest to be made. Protest is only needed if assailing the  Appeal to LBAA within 60 days
validity of the assessment.  Appeal to CBAA within 30 days
 Appeal to CTA EB within 30 days
2. Remedy against assessment
 You resort to this when you want to question an act of the assessor, like when the
assessor makes an appraisal on the real property

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