Up Tax Notes
Up Tax Notes
Up Tax Notes
TABLE OF CONTENTS
TAXATION 1........................................................... 1 I. KINDS OF TAXES.........................
............ ..........................
................
... 24
I. GENERAL PRINCIPLES OF TAXATION........
.... ...... 2 1. AS TO OBJECT ..................................................24
2. AS TO BURDEN OR INCIDENCE .............................24
A. CONCEPT AND PURPOSE OF TAXATION .... 2
3. AS TO TAX RATES .............................................24
1. DEFINITION AND CONCEPT ..........................
........... .......................
.......... 2 4. AS TO PURPOSE ...............................................25
2. PURPOSE ......................................................... 2 5. AS TO SCOPE (OR AUTHORITY IMPOSING THE TAX) .....
3. TAX AS DISTINGUISHED FROM OTHER FORMS OF .................................................................25
EXACTIONS ....................................................... 4 6. AS TO GRADUATION ..........................................25
3. COMPOSITION OF VALUE-ADDED TAX ................. ........... .... 150 2. NATURE AND SOURCE OF TAXING POWER .......... 217
a. On sale of goods or properties ......... ..... ........
.... 150 a. Grant of Local Taxing Power under the Local
b. On importa
importation
tion of good
goods.................
s.......................
...... 155 Government
Govern ment Code (LGC)........................
............ ............ 217
c. On sale of services and use or lease of b. Authority to Prescribe Penalties Penalties for Tax
properties
properties .............
...........................
...........................
...................
...... 155 Violations
Violation s ....................
.................................
..........................
............... 217
4. ZERO-RATED AND EFFECTIVELY ZERO-RATED SALES c. Authority to Grant Local Tax Exemptions ...
OF GOODS OR PROPERTIES, AND SERVICES......... 159 ........................................................... 217
5. VALUE-ADDED TAX-EXEMPT TRANSACTIONS ....... 162 d. Withdrawal
Withdrawal of Exemptions
Exemptions ....................
............ ........ 217
6. I NPUT AND OUTPUT TAX ...........................
........... ......................
........ 170 e. Authority to Adjust Local Tax Rates .... ......
.. 218
7. REFUND OR TAX CREDIT OF EXCESS INPUT TAX; f. Residual Taxing Power of Local
PROCEDURE ................................................. 174 Governments
Govern ments ...........................
.............. ..........................
............... 218
8. COMPLIANCE REQUIREMENTS ........................
..........................
.. 179 3. SCOPE OF TAXING POWER .....................
...............................
.......... 218
a. Registra
Registration
tion.............
..........................
..........................
...............
.. 179 4. SPECIFIC TAXING POWER OF LGUS .. ...............
................
... 219
b. Invoicing Require
Requirements ments ............
.......................
........... 179 a. Taxing Powers Powers of Provinces
Provinces .................
............ ..... 219
c. Filing of Returns and Payment ......... ..... ........
.... 180 b. Taxing Powers of Municipalities .... .........
........
... 222
d. Withholding of Final Value-add Value-added ed TaTax x on
on c. Taxing Powers
Powers of Cities............
........................
............ 226
Sales to Government
Government .............................
.................. ........... 181 d. Taxing Powers Powers o off Barangays
Barangays ................
............. ... 226
e. Administrative and Penal Sanctions ..... .... . 181 5. C OMMON R EVENUE -R AISING P OWERS ...............
............. . 227
6. COMMUNITY TAX .....................
..................................
.......................
.......... 227
D. PERCENTAGE TAXES: CONCEPT AND
7. COMMON LIMITATIONS ON THE TAXING POWERS OF
NATURE
NATURE.........................
............ ..........................
..........................
................. 187
LGUS........................................................... 229
E. EXCISE TAX: CONCEPT AND NATURE .... 191 8. REQUIREMENTS FOR A VALID TAX ORDINANCE . ... 231
9. COLLECTION OF TAXES.............
..........................
.......................
.......... 232
F. DOCUMENTARY STAMP TAX: CONCEPT AND
10. TAXPAYER’S REMEDIES ............ ..........................
...................
..... 232
NATURE...........................
............. ...........................
..........................
.................
.... 192
a. Protest of Assessment
Assessment .............
.........................
............ 233
1. TAX REMEDIES UNDER THE NIRC .................... 193 b. Claim for Refund or or Tax Credit of
2. TAXPAYER’S REMEDIES................................... 198 Erroneously or Illegally Collected Tax, Fee or
a. Protestin
Protesting
g the asses
assessmentsment.............
...................
...... 199 Charge.............
Charge ..........................
..........................
.........................
............ 233
b. Recovery of Tax Erroneously or or Illegally c. Question the Legality of the Ordinance . 233
Collected.........................
............ ...........................
......................
........ 201 11. ASSESSMENT AND COLLECTION OF LOCAL TAXES .
c. Power of Commissioner of Internal Revenue ............................................................... 234
to Compromise ............
.........................
..........................
............. 205
B. REAL PROPERTY TAXATION....................
............ ........ 236
d. Non-re
Non-retroacti
troactivity
vity of Rulings............
..................
...... 206
3. G OVERNMENT REMEDIES FOR COLLECTION OF 1. FUNDAMENTAL PRINCIPLES ................
.............................
............... 236
DELINQUENT TAXES ....................................... 206 2. NATURE OF REAL PROPERTY TAX (RPT) ...........
... ........ 236
a. Requisi
Requisites tes .............
..........................
..........................
.................
.... 207 3. I MPOSITION.................................................... 236
b. Prescriptive Periods; Suspension of Running a. Power to Levy..........................
............. .........................
............ 236
of Statute of Limitations.............
Limitations..........................
............. 207 b. Exemptions
Exemptions from RPT .........................
............ ............... 238
c. Administrative
Administrative Remedie Remedies s .............
.....................
........ 207 4. APPRAISAL AND ASSESSMENT OF REAL PROPERTY ...
d. No Injunction Rule; Exceptions ........ .... ........
.... 214 ............................................................... 238
4. CIVIL PENALTIES .........................
........... ...........................
...................
...... 214 a. Classes of Real Proper Property ty ......................
............ .......... 239
a. Delinquency Interest and Deficiency Interest b. Assessment of Real Property Property Based on on
........................................................... 214 Actual Use .................................
.................... .........................
............ 240
b. Surcha
Surcharge rge .............
..........................
..........................
.................
.... 215 5. COLLECTION OF REAL PROPERTY TAX ....... ...............
........ 241
c. Compromise
Compromise Penalty Penalty .........................
............ ...............
.. 215 6. TAXPAYER’S REMEDIES ................
.............................
...................
...... 244
d. Fraud Penalty............
.........................
..........................
............. 215 a. Contesting the Valuation of Real Property ..
........................................................... 244
III. LOCAL TAXATION
TAXATION ............
.........................
..........................
................. 216
b. Contesting a Deficiency Tax Assessment...
A. LOCAL GOVERNMENT
GOVERNMENT TAXATION
TAXATION ........... 216 ........................................................... 244
1. FUNDAMENTAL PRINCIPLES (U-PUCE-P
(U-PUCE-PIP)
IP) ....... 216 c. Compromising an RPT assessment ....
......
.. 246
TAXATION 1
TAXATION LAW
Page 1 of 256
7. [MAMALATEO]
Encourage economic growth in the proper implementation of the tax
measure.
through the grant of incentives or
exemptions, which encourage 3. Subject to constitutional and inherent
investment and thereby stimulate limitations – The power to tax is said to be
economic activity the strongest of all the powers of
8. Taxes may be levied to promote government. It is unlimited, plenary,
science and invention [see RA. No. comprehensive and supreme. In the
5448] or to finance educational absence of constitutional restrictions, the
activities [see RA. No. 5447] or to principal checks on its abuse rest on the
improve the efficiency of local responsibility of members of Congress to
police forces in the maintenance of their constituents. However, the power of
peace and order through grant of taxation is subject to constitutional and
subsidy [see RA. No. 6141]. inherent limitations [MAMALATEO]. These
9. To push for
measure thelike
, just government’s health
what happened in limitations
fundamentalare lawthose provided
or implied in the
therefrom,
the landmark legislation on sin taxes in while the rest spring from the nature of the
2012 [see R.A. No. 10351]. taxing power itself although they may or
may not be provided in the Constitution.
Nature
1. Inherent in sovereignty – The power to Elements of Taxation
tax is an attribute of sovereignty. It is a 1. Enforced proportional contribution from
power emanating from necessity because persons and properties - Its imposition is in
it imposes a necessary burden to
to preserve no way dependent upon the will or assent
the State's sovereignty xxx [Phil.
[ Phil. Guaranty of the person taxed. It is not contractual,
Co., Inc. v. Commissioner , G.R. No. L- either express or implied, but positive acts
22074 (1965)]. of government;
2. Imposed by the State by virtue of its
Essentially
2. power to taxaislegislative
peculiarly function – The
and exclusively sovereignty
3. It is levied for; and
the support of government
legislative and cannot be exercised by the [Republic v. COCOFED, G.R. Nos. 147062-64
executive or judicial branch of the (2001)]
(2001)]
government [1 [1 Cooley 160-161].
160-161]. Hence,
only Congress, our national legislative Characteristics of Taxing Power
body, can impose taxes. The levy of a tax, 1. It is comprehensive. Covers persons,
however, may also be made by a local businesses, activities, professions, rights,
legislative body subject to such limitations and privilege
pri vileges.
s.
as may be provided by law. It includes the 2. It is unlimited. A tax does not cease to be
authority to: valid merely because it regulates,
a. Determine the nature, purpose, discourages, or even definitely deters the
extent, coverage, apportionment, activities taxed. The power to impose taxes
situs, and method of collection of the is one so unlimited in force and so
tax; searching in extent, that the courts scarcely
Page 3 of 256
venture to declare that it is subject to any State. The power to tax is a legislative
restrictions whatever, except such as rest power but is also granted to local
in the discretion of the authority which governments, subject to such guidelines
exercises it. [Tio
[Tio v. Videogram Regulatory and limitations as law may be provided by
Board, G.R. No. 75697 (1987)] law.
3. It is plenary or complete. Under NIRC, the
BIR
ensure may avail of of
the collection certain
taxes. remedies to
Taxes, being “Each
power local
to government
create its unit
ownshall have the
sources of
the lifeblood of the government, should be revenues and to levy taxes, fees, and
collected without unnecessary hindrance, charges subject to such guidelines and
every precaution must be taken not to limitations as the Congress may provide,
unduly suppress it. [Republic
[Republic v. Caguioa consistent with the basic policy of local
G.R. No. 168584 (2007)] autonomy. Such taxes, fees, and charges
4. It is supreme. It is supreme insofar as the shall accrue exclusively to the local
selection of the subject of taxation is governments.” [Sec. 5, Art. X, 1987
concerned, but it does not mean that it is Constitution];
Constitution];
superior to the other inherent powers of the
State. 3. Tax as Distinguished from
Characteristics of Tax Other Forms of Exactions
1. Enforced contribution
2. Proportionate
in character – Laid by Tariff
some rule of apportionment which is Taxes Tariff
usually based on ability to pay.
All embracing term to A kind of tax imposed
“The rule of taxation shall be uniform and include various kinds on articles which are
equitable. The Congress shall evolve a of enforced traded internationally
progressive system of taxation.” [Sec. 28 contributions upon
(1), Art. VI, 1987 Constitution]; persons for the
attainment of public
3. Levied for public purpose. Revenues purposes
derived from taxes cannot be used for
purely private purposes or for the exclusive Tariff may be used in one of three (3) senses:
benefit of private persons. [Gaston
[ Gaston v. 1. A book of rates drawn usually in
Republic Planters Bank, G.R. No. 77194 alphabetical order containing the names of
(1988)]; and
(1988)]; several kinds of merchandise with the
corresponding duties to be paid for the
4. Generally payable in the form of money same; or
– Although the law may
may provide
provide payment in 2. The duties payable on goods imported or
kind (e.g. backpay certificates under Sec. exported; or
2, R.A. No. 304,
3 04, as amended );
); 3. The system or principle of imposing duties
on the importation (or exportation of goods)
5. Personal to the taxpayer;
6. Levied on persons, property, rights,
acts, privileges, or transactions;
7. Levied by the State which has
jurisdiction or control over the subject
to be taxed;
8. Levied by the law-making body of the
Page 4 of 256
A toll is a sum of money for the use of License is in the nature of a special privilege,
something, generally applied to the
of a permission or authority to do what is within
consideration which is paid for the use of a
its terms. It makes lawful an act which would
road, bridge or the like, of a public nature. [1
[1
otherwise be unlawful. A license granted by the
Cooley 77 ]
State is always revocable. [Gonzalo
[Gonzalo Sy Trading
v. Central Bank of the Phil., G.R. No. L-41480
License fee
(1976)]
License and
Taxes
Regulatory Fee Importance of the distinctions
1. It is necessary to determine whether a
Imposed under the Levied under the particular imposition is a tax or a license fee
taxing power of the police power of the because some limitations apply only to one
state for purposes of state. and not to the other , and for the reason that
revenue. exemption from taxes may not include
exemption from license fee.
Forced contributions Exacted primarily to 2. The power to regulate as an exercise of
for the purpose of regulate certain police power does not include the power to
maintaining businesses or impose fees for revenue purposes.
government occupations.
[Progressive Development Corp. v.
functions. Quezon City, G.R. No. L-36081 (1989)]
3. An exaction, however, may be considered
Generally unlimited Should not
both a tax and a license fee. This is true in
as to amount unreasonably
the case of car registration fees which may
exceed the
be regarded as taxes even as they also
expenses of issuing
serve as an instrument of regulation. If the
the license and of
purpose is primarily revenue, or if revenue
supervision.
is, at least, one of the real and substantial
Page 6 of 256
authority).
Governed by the Governed by the
special prescriptive ordinary periods of
Since Congress has the power to exercise the
periods provided for prescription
State inherent powers of Police Power,
in the NIRC
Eminent Domain and Taxation, the distinction
Does not draw Draws interest when between police power and the power to tax xxx
Penalty
Taxes Penalty
Violation of tax laws Any sanction
may give rise to imposed as a
imposition of penalty
p enalty punishment for
violation of law or
acts deemed
injurious
B. POWER OF TAXATION AS
DISTINGUISHED FROM POLICE
POWER AND EMINENT DOMAIN
When the distinction of exercise of
powers is relevant
The distinction is important when the one
exercising it is the LGU (mere delegated
Page 7 of 256
May be exercised
May be exercised by:
May be exercised only only by:
Authority (who the government;
by: the government; or
exercises the its political subdivisions;
the government; or its political
Power) its political subdivisions. or may be
companies granted
or public to public service
utilities. subdivisions.
Operates upon:
Operates upon: Operates on:
a community;
Persons Affected a community; an individual as the owner of a particular
or a class of
or class of individuals. property.
individuals.
There is no transfer
The money contributed of title. At most, there
Effect becomes part of the There is a transfer of the right to property. is restraint on the
public funds. injurious use of
property.
Amount
should imposed
just be
commensurate to
Generally, there is no
Amount of No amount imposed but rather the owner is cover the cost of
limit on the amount of tax
Imposition paid the market value of property taken. regulation,
that may be imposed.
issuance of a
license or
surveillance
Page 8 of 256
Page 9 of 256
Taxation is said to be equitable when its burden Test: Whether the statute is designed to
falls on those better able to pay; taxation is promote the public interest, as opposed to the
progressive when its rate goes up depending furtherance of the advantage of individuals,
on the resources of the person affected. although each advantage to individuals might
incidentally serve the public. [Pascual
[Pascual v. Sec.
Note : The non-observance of the above (1960)]
of Public Works , G.R. No. L-10405 (1960)]
principles will not necessarily render the tax
imposed invalid except to the extent those The public purpose of a tax may legally exist
specific constitutional limitations are violated. even if the motive which impelled the
[DE LEON] legislature to impose the tax was to favor one
industry over another. [Tio
[Tio v. Videogram,
Videogram, G.R.
Page 10 of 256
Page 11 of 256
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Page 14 of 256
Page 15 of 256
Page 16 of 256
others).
Test of Use of the property, and not
Exemption the ownership [Abra
[Abra Valley
“Exclusive" – possessed and enjoyed to the
College v. Aquino, G.R. No.
exclusion of others; debarred from participation
L-39086 (1988)]
or enjoyment;
Nature of Actual, direct and exclusive
Use use for religious, charitable "Exclusively" - “in a manner to exclude; as
or educational purposes. enjoying a privilege exclusively.”
[Lladoc v. CIR, supra ]
If real property is used for one or more
Scope of Real property taxes on commercial purposes, it is not exclusively used
Exemption facilities which are actual, for the exempted purposes but is subject to
incidental to, or reasonably taxation. The words "dominant use" or
necessary for the "principal use" cannot be substituted for the
accomplishment of said words "used exclusively" without doing
purposes such as in the case violence to the Constitution and the law. Solely
of hospitals, a school for is synonymous with exclusively. [Lung
[Lung Center
training nurses, a nurses’ of the Philippines v. Quezon City, G.R. No.
home, property to provide 144104 (2004)
144104 (2004)]]
housing facilities for interns, Note: Lung Center did not necessarily
resident doctors and other overturn the case of Abra Valley College v.
members of the hospital Aquino , G.R. No. L-39086 (1988).
(1988). Lung Center
staff, and recreational just provided a stricter interpretation.
interpretation. In Abra
facilities for student nurses, Valley, the Court held: The primary use of the
interns and residents, such school lot and building is the basic and
as athletic fields. [Abra [Abra controlling guide, norm and standard to
Valley College v. Aquino, determine tax exemption, and not the mere
supra ] incidental use thereof. Under the 1935
Constitution, the trial court correctly held that
the school building as well as the lot where it is
TEST: Whether an enterprise is charitable or built, should be taxed, not because the second
not: floor of the same is being used by the Director
· Whether it exists to carry out a purpose and his family for residential purposes
recognized in law as charitable; or (incidental to its educational purpose), but
· Whether it is maintained for gain, profit, or because the first floor thereof is being used for
private advantage. commercial purposes. However, since only a
portion is used for purposes of commerce, it is
A charitable insttution does not lose its only fair that half of the assessed tax be
character as such and its exemption from taxes returned to the school involved.
simply because it derives income from paying
patients, whether out-patient, or confined in the
hospital, or receives subsidies from the
government, so long as the money received is
devoted or used altogether to the charitable
object which it is intended to achieve; and no
money inures to the private benefit of the
persons managing or operating the institution
(including honoraria to members of the board
of trustees; BIR Ruling No. 558-18, among
Page 17 of 256
Page 18 of 256
6. Majority vote of Congress for grant of municipality within the Metropolitan
Metropolitan Manila
tax exemption Area. [Sec. 277, LGC]
passed
of all thewithout
Membersthe concurrence of a majority
of the Congress. All money collected on any tax levied for a
special purpose shall be treated as a special
fund and paid out for such purpose only.
Basis: The inherent power of the state to
impose taxes
taxes carries with
wi th it the power to grant If the purpose for which a special fund was
tax exemptions. created has been fulfilled or abandoned, the
balance, if any, shall be transferred to the
Exemptions may be created by: general funds of the Government.
Government. [Gaston v.
a. The Constitution, or Republic Planters Bank,
Bank, G.R. No. L-77194
b. Statutes, subject to constitutional (1988)].
limitations
8. President’s veto power on
Vote required for the grant of exemption: appropriation, revenue, tariff bills
Absolute majority of the members of Congress
(at least " + 1 of ALL the members voting Sec. 27(2), Art. VI, 1987 Constitution.
SEPARATELY) The President shall have the power to veto
any particular item or items in an
Vote required for withdrawal of such grant appropriation, revenue, or tariff bill, but the
of exemption: Relative majority is sufficient veto shall not affect the item or times to which
(MAJORITY of the QUORUM). he does not object.
Note:
a. Local government units may, through
ordinances duly approved, grant tax
exemptions, incentives or reliefs under
such terms and conditions as they may
deem necessary. [Sec. 192, LGC]
b. The President of the Philippines may, when
public interest so requires, condone or
reduce the real property tax and interest
interes t for
any year in any province or city or a
Page 19 of 256
Sec. 5(2(b)), Art. VIII, 1987 Constitution. 11. Flexible tariff clause
The Supreme Court shall have the following
Delegation of tariff powers to the President
powers: xxx
under the flexible tariff clause [Sec. 28(2), Art.
(2) Review, revise, modify or affirm on
VI, 1987 Constitution]
appeal or certiorari, as the laws or the Rules
of Court may provide, final judgments and
orders of lower courts in xxx Flexible tariff clause: the authority given to the
President, upon the recommendation of NEDA,
to adjust the tariff rates under Sec. 1608 of the
(b) all cases
c ases involving the legality
legality of any tax,
CMTA in the interest of national economy,
impost, assessment or toll or any penalty
general welfare and/or national security.
imposed in relation thereto.
12. Exemption from real property taxes
Even the legislative body cannot deprive the
SC of its appellate jurisdiction over all cases
coming from inferior courts where the
Sec. 28(3), Art. VI, 1987
19 87 Constitution.
Charitable institutions, churches and
constitutionality or validity of an ordinance or
personages or convents appurtenant
the legality of any tax, impost, assessment, or
thereto, mosques, non-profit cemeteries,
toll is in question.
question. [San
[San Miguel Corp v. Avelino,
and all lands, buildings, and improvements,
G.R. No. L-39699 (1979)]
actually, directly, and exclusively used for
religious, charitable, or educational purposes
Sec. 30, Art. VI, 1987 Constitution. shall be exempt from taxation.
No law shall be passed increasing the
appellate jurisdiction of the Supreme Court
without its advice and concurrence.
13. No appropriation or use of public
money for religious purposes
Scope of Judicial Review in taxation: limited
only to the interpretation and application of tax
Sec. 29, Art. VI, 1987 Constitution
No public money or property shall be
laws. Its power does not include inquiry into the
appropriated, applied, paid, or employed,
policy of legislation. Neither can it legitimately
directly or indirectly, for the use, benefit, or
question or refuse to sanction the provisions
pr ovisions of
support of any sect, church, denomination,
any law consistent with the Constitution. [Coll.
[Coll.
sectarian institution, or system of religion, or
v. Bisaya Land Transportation, 105 Phil. 338
of any priest, preacher, minister, other
(1959)]. religious teacher, or dignitary as such,
except when such priest, preacher, minister,
10. Grant of power to the local government or dignitary is assigned to the armed forces,
units to create its own sources of or to any penal institution, or government
revenue orphanage or leprosarium.
LGUs have power to create its own sources of
revenue and to levy taxes, fees and charges,
subject to such guidelines and limitations as
the Congress may provide which must be
consistent with the basic policy of local
autonomy. [Sec. 5, Art. X, 1987 Constitution]
Page 20 of 256
b. Provisions Indirectly Affecting Due process does not require that the property
Taxation subject to the tax or the amount to be raised
should be determined by judicial inquiry, and a
1. Due process notice and hearing as to the amount of the tax
and the manner in which it shall be apportioned
apporti oned
are generally not necessary to due process of
Sec.person
No 1, Art.shall
III, 1987 Constitution
be deprived of life,. liberty, or law. [Pepsi-Cola
[Pepsi-Cola Bottling Co. of the Philippines,
Inc. v. Municipality of Tanauan , G.R. No. L-
property without due process of law, nor shall 31156 (1976)]
any person be denied the equal protection of
the laws. Instances of violations of the due process
clause:
Substantive Due Process – An act is done • If the tax amounts to confiscation of
under the authority of a valid law or the property;
Constitution itself. • If the subject of confiscation is outside the
jurisdiction of the taxing
taxing authority;
authority;
Procedural Due Process – An act is done • If the tax is imposed for a purpose other
after compliance with fair and reasonable than a public purpose;
methods or procedure prescribed by law. • If the law which is applied retroactively
imposes just and oppressive taxes.
Due Process in Taxation requirements: •
If the law violates the inherent limitations
(a) Public purpose on taxation.
(b) Imposed within taxing authority’s territorial
jurisdiction 2. Equal protection
(c) Assessment or collection is not arbitrary or
oppressive
Sec. 1, Art. III, 1987 Constitution.
No person shall be deprived of life, liberty, or
The due process clause may be invoked where wher e
property without due process of law, nor shall
a taxing statute is so arbitrary that it finds no
any person be denied the equal protection of
support in the Constitution, as where it can be
the laws.
shown to amount to the confiscation of
property. [Sison
[Sison v. Ancheta, G.R. No. L-
59431(1984)] What the Constitution prohibits is class
legislation which discriminates against some
Due process is usually violated where: and favors others. As long as there are rational
! The tax imposed is for private, as or reasonable grounds for so doing, Congress
distinguished from, public purposes
purposes may, therefore, group the persons or properties
properti es
! A tax is imposed on property outside the to be taxed and it is sufficient “if
“ if all of the same
State,, ii.e.,
State .e., extra-territorial taxation; or class are subject to the same rate and the tax
! Arbitrary or oppressive methods are used is administered impartially upon them.” [1 [1
in assessing and collecting taxes. Cooley 608 ]. ].
But, a tax does not violate the due process The equal protection clause is subject to
clause, as applied to a particular taxpayer, reasonable classification [See requisites for
although the purpose of the tax will result in an valid classification, supra ].
].
injury rather than a benefit to such taxpayer.
Page 21 of 256
Page 22 of 256
purpose is a public one but once that is such as the Bureau of Internal Revenue or
determined, the courts can make no other Bureau of Customs.
inquiry as to the purpose of tax, as it affects the
power to impose it. [Cooley Taxation, 4th Ed., 3. Taxpaye
Taxpayer’s
r’s Act: Payment
171.]
This process involves the act of compliance by
b) Discretion as to subjects of taxation.
tax ation. the taxpayer in contributing
contributin g his share to pay the
expenses of the government. Payment of tax
It is inherent in the power to tax that a state be also includes the options, schemes or
free to select the subjects of taxation, and it has remedies as may be legally open or available
been repeatedly held that inequalities which to the taxpayer.
result from a singling out of one particular class
for taxation or exemption infringe no
constitutional limitation. [Lutz
[Lutz v. Araneta G.R. 4. Taxpayer’s and Executive
No. L-7859 (1955)] Act: Refund
c) Discretion as to amount or rate of tax. A claim for refund must first be filed with the
Commissioner of Internal Revenue. A suit or
In the absence of constitutional prohibitions, proceeding may be filed within two years from
the legislature has the right to finally determine the date of payment of the tax or penalty
the amount or rate of tax. Not only is the power regardless of any superve
supervening
ning cause that
that may
to tax unlimited in its reach as to subjects, but arise after payment. The Commissioner may,
in its very nature, it acknowledge
acknowledgess no limi
limits
ts and even without a written claim therefor,
therefor, refund or
may be carried even to the extent of exhaustion credit any tax, where on the face of the return,
and destruction, thus becoming in its exercise such payment appears clearly to have been
a power to destroy. erroneously paid. [Sec. 229, NIRC]
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Page 24 of 256
5. As to scope (or authority buys more consumption goods on which the
indirect taxes are collected, the burden of
imposing the tax) indirect taxes rests more on them than on the
more affluent groups.
a. National – taxes imposed by the national
government, through Congress and A progressive tax is, therefore, also different
administered by the Bureau of Internal from a progressive system of taxation.
Revenue (BIR) or the Bureau of Customs
(BOC) (e.g., national internal revenue Regressivity is not a negative standard for
taxes, customs duties, and national taxes courts to enforce. What Congress is required
imposed by laws). by the Constitution to do is to "evolve a
b. Municipal or Local – taxes imposed by progressive system of taxation." These
local governments, through their respective provisions are put in the Constitution as moral
Sanggunians, and administered by the incentives to legislation, not as judicially
local executive through the local treasurer enforceable rights. [Tolentino
[Tolentino v. Secretary of
(e.g., business taxes that may be imposed Finance , GR No. 115455, 25 August 1994]
under the Local Government Code,
professional tax).
J. GENERAL CONCEPTS
6. As to graduation IN TAXATION
a. Progressive – The rate of tax
tax increases
increases as 1. Prospectivi
Prospectivity
ty of Tax Laws
the tax base or bracket increases, e.g.,
income tax, estate tax, donor’s tax. General rule:
b. Regressive – The rate of ttax
ax decrease
decreasess as Tax laws are prospective in operation.
operation.
the tax base or bracket increases. There is
no regressive tax in the Philippines. Reason: Nature and amount of the tax under
c. Proportionate – The rate of tax is based tax laws enacted after the transaction could not
Page 25 of 256
have been foreseen and understood by the favor of the other taxpayers.
taxpayer at the time of the transaction.
2. Imprescriptibili
Imprescriptibility
ty of Taxes
T axes
Exception:
Tax laws may be applied retroactively
retroactively provided Unless otherwise provided by law, taxes are
it is expressly declared or it is clearly the imprescriptible. [CIR v. Ayala Securities
legislative intent (e.g., increase taxes on Corporation G.R. No. L-29485
L-29485 (1980)]
income already earned) except when
retroactive application would be so harsh The law on prescription, being a remedial
and oppressive. [Republic Fernandez , G.R.
[Republic v. Fernandez measure, should be liberally construed in order
No. L-9141 (1956)] to afford such protection. As a corollary, the
exceptions to the law on prescription should
Statutes are prospective and not retroactive in perforce be strictly construed. [Commissioner
[ Commissioner
their operation, laws being the formulation of v. Standard Chartered Bank, G.R. No. 192173
rules for the future, not the past. [Curata
[Curata v. (2015)]
Philippine Ports Authority , G.R. Nos. 154211-
12 (2009)]
a. Prescriptions found in statutes
The language of the statute must clearly
(1) National Internal Revenue Code –
demand or press that it shall have a retroactive
effect. [Lorenzo
[Lorenzo v. Posadas,
Posadas, supra] statute of limitationsofin the
and collection assessment
taxes therein
imposed.
Exception to the exception:
Collection of interest in tax cases is not penal
Summary of prescription on assessment
in nature; it is but a just compensation to the
and collection:
State. Thus, the constitutional prohibition
against ex post facto laws
laws is not applicable to 3 YEARS Prescription of assessment AND
the collection of interest on back taxes. [Central
[ Central collection from:
Azucarera v. CTA, G.R. No. L-23236 (1967)] (a) the prescribed last day of
filing of returns (even if the
Non-retroactivity of rulings [Sec. 246, NIRC] return was filed earlier than the
General rule: deadline);
dead line); OR
Rulings do not have retroactive application if (b) the day when the return was
the revocation, modification,
modification, or rreversal
eversal will be actually filed if filed later than the
prejudicial to the taxpayer. last day of filing [Sec. 203,
NIRC], whichever comes later .
Exceptions:
a. Taxpayer’s deliberate misstatement or 10 Prescription of assessment in
omission of facts YEARS cases of:
b. BIR’s gathered facts is materially (a) false or fraudulent return
return with
different from the facts from which the intent to evade tax; OR
ruling was based on (b) failure or omission to file a
c. Taxpayer acted in bad faith return [Sec. 222, NIRC]
Page 26 of 256
Page 27 of 256
Resident Taxab
le ! exercised
Receivables –
Domicile or
residence of the
Situs of Property Tax
debtor
Kind of Situs ! Bank deposits –
Property Location of the
depository bank
Real property Where it is located (lex
( lex rei
sitae )
Situs of Excise Tax
Tangible Where property is Kind of Excise Tax Situs
Personal physically located although
property the owner resides in
another jurisdiction; or Income Tax Source of the
place of sale or transaction income, nationality or
residence of
taxpayer (Sec. 23,
NIRC)
! Occupation –
where the
occupation is
engaged in
! Transaction –
where the
transaction took
place
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Page 29 of 256
Page 30 of 256
consumers will move to regions with low Impact Distinguished from Incidence
taxes.
Impact Incidence
5. Nature of tax (Direct or Indirect tax) –
Direct tax e.g. PAYE (pay-as-you-earn)
cannot be shifted whatsoever while indirect Initial burden of tax Ultimate
Ultim ate burden of
taxes can be shifted through increase in the tax
prices.
6. Rate of tax – If the rate is too high, shifting
can occur backwards or forwards; if the At the point of At the point of
rate is too low, it may be absorbed by the imposition settlement
manufacturer.
7. Time available for adjustment – The
person who can adjust faster (buyer or Falls upon the Rests on the person
seller) will be able to shift
shi ft the tax e.g. if the person from whom who pays it
buyer can shift to substitute goods, the the tax is collected eventually
seller will bear the tax burden.
8. The tax point
May be shifted Cannot be shifted
Taxes that can be shifted
1. Value-added Tax Incidence is the end
2. Percentage Tax of the shifting
3. Excise Tax process. Sometimes,
however, when no
Meaning of Impact and Incidence of shifting is possible,
Taxation as in the case of
Impact of taxation is the point where the tax income tax or such
is originally imposed or the one on whom the other direct taxes,
tax is formally assessed. [Ingles
[Ingles , Tax Made the impact coincides
Less Taxing (2018)] In so far as the law is with incidence on the
concerned, the taxpayer, the subject of tax, is same person.
the person who must pay the tax to the
government. Application:
Suppose a tax — excise duty — is imposed on
Incidence of taxation is the point on whom
w hom the soap. Its impact is on the producers, in the first
tax burden finally rests. [INGLES] It takes place instance, as they are liable to pay it to the
when shifting has been effected from the government. But, the producers may succeed
statutory taxpayer to another. in collecting it from the consumers by raising
the price of soap by the amount of tax. In that
case, consumers eventually pay the tax and so
the incidence falls upon them.
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Tax Evasion - is the use by the taxpayer of The Willful Blindness doctrine states that a
illegal or fraudulent means to defeat or taxpayer can no longer raise the defense that
lessen the payment of a tax. It is also known as the errors on their tax returns are not their
“tax dodging.”
dodging.” It is
i s punishable by law.
l aw. responsibility or that it is the fault of the
accountants they hired. Intent to defraud need
Example : Deliberate failure to report a taxable not be shown for a conviction of tax evasion.
income or property; deliberate reduction of The only thing that needs to be proven is that
income that has been received; overstatement the taxpayer was aware of his obligation to file
of expenses. the tax return but he nevertheless voluntarily,
knowingly, and intentionally failed to file the
Elements of Tax Evasion required returns. [INGLES citing People v.
a. The end to be achieved. Example: the Kintanar, C.T.A.
Kintanar, C.T.A. E.B. No. 006 (2010)]
payment of less than that known by the
Page 32 of 256
Page 33 of 256
But equity is NOT a ground for tax exemption. when a tax is levied on certain classes
While equity cannot be used as a basis or without mentioning the other classes.
justification for tax exemption, a law may validly Every tax statute, in a very real sense,
authorize the condonation of taxes on makes exemptions since all those not
equitable considerations. mentioned are deemed exempted. The
omission may be either accidental or
There is no tax exemption solely on the ground intentional.
of equity. [Davao
[Davao Gulf Lumber Corp. v. CIR ,
G.R. No. 117359 (1998)] Exemptions are not presumed, but when
public property is involved, exemption is
Nature of tax exemption the rule, and taxation is the exception.
a. Mere personal privilege – cannot be
assigned or transferred without the consent c. Contractual - The legislature of a
of the legislature. The legislative consent to State may, in the absence of special
the transfer may be given either in the restrictions in its constitution, make a
original act granting the exemption or in a valid contract with a corporation in
subsequent law. respect to taxation, and that such
b. General rule: Revocable by the contract can be enforced against the
government. State at the instance of the corporation.
Exception: If founded on a contract which [Casanovas v. Hord , G.R. No. 3473
is protected from impairment. But the (1907)]
contract must contain the essential
elements of other contracts. An exemption In the real sense of the term and where
provided for in a franchise, however, may the non-impairment clause of the
be repealed or amended pursuant to the Constitution can rightly be invoked
invoked,, this
Constitution [Sec. 11, Art. XII, 1987 includes those agreed to by the taxing
Constitution]. A legislative franchise is a authority in contracts, such as those
mere privilege.
privil ege. contained in government bonds or
c. Implies a waiver on the part of the debentures, lawfully entered into by
government of its right to collect taxes due them under enabling laws in which the
to it, and, in this sense, is prejudicial government, acting in its private
thereto. Hence, it exists only by virtue of an capacity, sheds its cloak of authority
express grant and must be strictly and waives its governmental immunity.
construed.
d. Not necessarily discriminatory, provided These contractual tax exemptions,
it has a reasonable foundation or rational however, are not to be confused with
basis. Where, however, no valid distinction tax exemptions granted under
exists, the exemption may be challenged franchises. A franchise partakes the
as violative of the equal protection nature of a grant which is beyond the
guarantee or the uniformity rule. purview of the non-impairment clause
of the Constitution. [Manila
[Manila Electric
Kinds of Tax Exemption Company v. Province of Laguna, G.R.
a. Express or Affirmative - either entirely or No. 131359 (1999)]
in part, may be made by provisions of the
Constitution, statutes, treaties, ordinances, Rationale of Tax Exemption
franchises, or contracts. Such exemption will benefit the body of the
people and not particular individuals
in dividuals or private
b. Implied or Exemption by Omission - interest and that the public benefit is sufficient
Page 34 of 256
to offset the monetary loss entailed in the grant 8. Prohibition on Compensation
of the exemption.
and Set-Off
Principles of Tax Exemption:
a. As the power of taxation is a high General rule: Taxes cannot be subject to
prerogative of sovereignty, the compensation [South
[South African Airways v. CIR,
relinquishment is never presumed and G.R. No. 180356 (2010)]
any reduction or diminution thereof with
respect to its mode or its rate, must be Reasons:
strictly construed , and the same must be a. This would adversely affect the
couched in clear and unmistakable terms in government revenue system [Philex
[Philex Mining
order that it may be applied. [Floro
[Floro Cement v. CA, G.R. No. 125704 (1998)].
v. Gorospe , G.R. No. L-46787 (1991) b. The government and the taxpayer are not
b. When granted, they are strictly construed creditors and debtors of each other. There
against the taxpayer [Luzon
[ Luzon Stevedoring is a material distinction between a tax and
Co. v. CTA,
CTA, G.R. No. L-30232 (1988)] debt. Debts are due to the Government in
c. Tax exemptions are strictly construed its corporate capacity, while taxes are due
against the taxpayer, they being highly to the Government in its sovereign
disfavored and may almost be said “to be capacity. We find no cogent reason to
odious to the law.” [Manila [Manila Electric deviate from the aforementioned
Company v. Vera , supra] distinction. [South
[South African Airways v. CIR,
supra]
Revocation of Tax Exemption
General Rule: Revocable
Revocable by the government. Exception: If the claims against the
government have been recognized and an
Exception: Contractual tax exemptions may amount has already been appropriated for that
not be unilaterally so revoked by the taxing purpose. Where both claims have already
authority without thereby violating the non- become:
impairment clause of the Constitution. a. Due,
b. Demandable, and
c. Fully liquidated,
liquidated,
7. Doctrine of Equitable compensation
compensa tion takes place by operatio
operationn of law
Recoupment under Art. 1200 in
in relation to Articles 1279 and
and
1290 of the NCC, and both debts are
The doctrine of equitable recoupment allows a extinguished to the concurrent amount.
taxpayer whose claim for refund has been [Domingo v. Garlitos , G.R. No. L-18994 (1963)]
barred by prescription to offset such claims
against a current assessment. 9. Compromise
The doctrine also allows the government to
A contract whereby the parties, by making
offset taxes that have not been collected from
reciprocal concessions, avoid litigation or put
the taxpayer against a current claim
cl aim for refund,
an end to one already commenced [Art. 2028,
although the government is time-barred from
Civil Code]. It involves a reduction of the
collecting the previous taxes.
taxpayer’s liability.
The doctrine finds NO application in this
jurisdiction.
Requisites of a tax compromise:
a. The taxpayer must have a tax liability.
b. There must be an offer (by the taxpayer or
Page 35 of 256
Page 36 of 256
Tax statutes offering rewards are liberally mere vague implication or inference.
construed in favor of informers. [Penid
[Penid v. c. RCPI v Provincial Assessor of South
Virata, G.R. No. L-44004 (1983)]. Cotabato [G.R. No. 144486 (2005)]: (2005)]:
Exemptions are strictly construed against
Exceptions: the taxpayer and liberally in favor of the
a. The rule of strict construction
constructi on as a
against
gainst the taxing authority—it is the taxpayer’s duty to
government is not applicable where the justify the exemption by words too plain to
language of the statute is plain and there is be mistaken and too categorical to be
no doubt as to the legislative intent [see 51 misinterpreted.
Am. Jur. 368 ].]. E.g. Word “individual” was d. CIR v. CA [supra]
[supra]:: Refunds are in the
changed by the law to “person”. This clearly nature of exemption and must be
indicates that the tax applies to both natural construed strictly against the
and juridical persons, unless otherwise grantee/taxpayer.
expressly provided
pr ovided.. e. Quezon City v. ABS-CBN Broadcasting
b. The rule does not apply where the Corporation [G.R. No. 166408 (2008)]:
taxpayer claims exemption from the tax. Since taxation is the rule and exemption
the exception, the intention to make an
Tax statutes are to receive a reasonable exemption ought to be expressed in clear
construction or interpretation with a view to and unambiguous terms
carrying out their purpose and intent . They
should not be construed as to permit the Exceptions:
taxpayer easily to evade the payment of tax. a. When the law itself expressly provides for
[Carbon Steel Co. v. Lewellyn, 251 U.S. 201]. a liberal construction , that is, in case of
Thus, the good faith of the taxpayer is not a doubt, it shall be resolved in favor of
sufficient justification for exemption from the exemption;
payment of surcharges imposed by the law for b. When the exemption is in favor of the
failing to pay tax within the period required by government itself or its agencies , or of
law. religious, charitable, and educational
2. Tax Exemption and Exclusion institutions because the general
general rule is that
they are exempt from tax.
Tax exemptions must be shown to exist clearly c. When the exemption is granted under
and categorically, and supported by clear special circumstances to special classes of
legal provisions. [NPC
[NPC v. Albay, G.R. No. persons.
persons.
d. If there is an express mention or if the
87479 (1990)] taxpayer falls within the purview of the
General Rule: exemption by clear legislative intent, the
In the construction of tax statutes, exemptions rule on strict construction does not apply.
are not favored and are construed strictissimi [Comm. v. Arnoldus Carpentry Shop, Inc., Inc. ,
juris against
against the taxpayer. [Republic
[Republic Flour Mills G.R. No. 71122 (1988)].
v. Comm. & CTA, G.R. No. L-25602
L-25602 (1970)]
a. NPC v. Albay [supra]
[supra]:: Tax exemptions 3. Tax Rules and Regulations
must be shown to exist clearly and
categorically, and supported by clear General Rule:
legal provisions. The Secretary of Finance, upon
b. Floro Cement v. Gorospe [supra]
[supra]:: Claims recommendation of the CIR, shall promulgate
for an exemption must be able to point out all needful rules and regulations for the
some provision of law creating the right, effective enforcement of the provisions of the
Page 37 of 256
Note: Administrative rules and regulations Decisions of the Supreme Court applying or
must always be in harmony with the provisions interpreting existing tax laws are binding on all
of the law. In case of conflict with the law
law or subordinate courts and have the force and
the Constitution, the administrative rules and effect of law. As provided for in Article
Articl e 8 of the
regulations are null and void. As a matter of Civil Code, they “form part of the law of the
policy, however, courts will declare a regulation land.”
or provision thereof invalid only when the
conflict with the law is clear and unequivocal. The same is also true with
wi th respect to decisions
of the Court of Tax Appeals. However, by the
Administrative interpretations and opinions nature of its jurisdiction, the decisions of this
The power to interpret the provisions
provis ions of the Tax court are still appealable to the Supreme Court
Code and other tax laws is under the exclusive by a petition for review on certiorari (Rule 45).
Page 38 of 256
a. Powers and Duties of the Bureau of or ruling prior to its reversal. [CIR
Roque , G.R. No. 187485 (2013)]
[CIR v. San
Internal Revenue [Sec. 2, NIRC]
Power to Decide Tax Cases
1. To assess and collect all national
The power to decide (1) disputed
internal revenue taxes, fees, and
assessments, (2) refunds of internal revenue
charges;
taxes, fees, charges and penalties, or (3) other
o ther
2. To enforce all forfeitures, penalties and
matters arising under the NIRC or other laws
fines connected therewith;
administered by the BIR is vested in the CIR,
3. To execute judgment in all cases
subject to the exclusive appellate jurisdiction of
decided in its favor by the CTA and the
the CTA. [Sec. 4, NIRC]
ordinary courts; and
4. To give effect to and administer the
supervisory and police powers
conferred upon it by the Tax Code or
other special laws.
Page 39 of 256
Page 40 of 256
or the completion of its comprehensive income, emoluments, profits and the like. It
computerization program, whichever comes may be succinctly defined as a tax on income,
earlierFor the purpose of this Section, 'large whether gross or net, realized in one taxable
taxpayer' means a taxpayer who satisfies any year. [DE LEON citing CJS
C JS and AmJur]
of the following criteria:
a. Value-Added Tax (VAT) – Business Nature
establishment with VAT paid or payable of Income tax is generally classified as an excise
at least P100,000 for any quarter of the tax. It is not levied upon persons, property,
preceding taxable year; funds or profits but upon the right of a person
b. Excise tax – Business establishment with to receive income or profits. [DE LEON]
excise tax paid or payable of at least
P1,000,000 for the preceding taxable year; General Principles [Sec. 23, NIRC]
c. Corporate Income Tax - Business 1. A resident citizen of the Philippines is
establishment with annual income tax paid taxable on all income derived from sources
or payable of at least P1,000,000 for the within and without the Philippines;
preceding taxable year; and 2. A nonresident citizen is taxable only on
d. Withholding tax - Business establishment income derived from sources within the
with withholding tax payment or remittance Philippines
of at least P1,000,000 for the preceding 3. An individual citizen of the Philippines
taxable year. who is working and deriving income from
abroad as an overseas contract worker is
Provided, however, That the Secretary of taxable only on income derived from sources
Finance, upon recommendation of the CIR, within the Philippines: Provided, That a
may modify or add to the above criteria for seaman shall be treated as an overseas
determining a large taxpayer after considering contract worker if he (1) is a citizen of the
such factors as inflation, volume of business, Philippines, and (2) receives compensation for
wage and employment levels, and similar services rendered abroad as a member of the
economic factors. complement of a vessel engaged exclusively in
international trade;
The penalties prescribed under Sec. 248 shall 4. An alien individual, whether
whether a resident
r esident or
be imposed on any violation of the rules and not of the Philippines, is taxable only on
regulations issued by the Secretary of Finance, income derived from sources within the
upon recommendation
recommendation of the CIR, prescribing Philippines;
the place of filing of returns and payments of 5. A domestic corporation is taxable on all
taxes by large taxpayers. income derived from sources within and
without the Philippines; and
6. A foreign corporation, whether engaged or
B. INCOME TAX not in trade or business in the Philippines, is
taxable only on income derived from sources
within the Philippines.
Page 41 of 256
Foreign Corporation
C orporation # X Emphasizes the Emphasizes revenue
burden allocation and administrative
a. Income Tax Systems aspects. aspects.
Page 42 of 256
they remain subject to different sets of tax rates Philippines, if he qualifies as a non-resident
and covered by different returns. [Mamalateo] citizen. [MAMALATEO]
Note: The
The Philippines, under the NIRC, follows ii. Residence
a semi-schedular and semi-global tax system.
A resident alien is liable to pay Philippine
b. Features of the Philippine Income income tax only on his income from sources
Tax Law within the Philippines but is exempt from tax on
his income from sources outside the
i. Direct Tax – The tax burden is borne Philippines. [MAMALATEO]
by the income recipient upon whom the
tax is imposed.
i mposed. iii. Source
ii. Progressive – The tax rate increases
as the tax base increases. It is founded An alien is subject to Philippine income tax
on the ability to pay principle and is because he derives income from sources
consistent with Sec. 28, Art. VI, 1987 within the Philippines. Thus, a non-resident
Constitution. alien or non-resident foreign corporation is
iii. Comprehensive – The Philippines has liable to pay Philippine income tax on income
adopted the most comprehensive from sources within the Philippines, such as
dividend, interest, rent, or royalty, despite the
system
adoptingoftheimposing income
citizenship tax the
principle, by fact that he has not set foot in the Philippines.
residence principle, and the source [MAMALATEO]
principle. Any of the three principles is
enough to justify the imposition of d. Types of Philippine Income Tax
income tax on the income of a resident
citizen and a domestic corporation that There are several types of income tax under
are taxed on a worldwide income. the NIRC, namely: [MAMALATEO]
iv. Semi-Schedular or Semi-Global Tax i. Graduated income tax and fixed tax on
System – The Philippines follows the gross sales or receipts for individuals;
semi-schedular or semi-global system ii. Normal corporate income tax on
of income taxation, although certain corporations;
passive investment incomes and
iii. Minimum corporate income tax on
capital gains from sale of capital assets
corporations;
(namely: (a) shares of
domestic corporations, andstock of
(b) real iv. Special income tax on certain
property) are subject to final taxes at corporations;
preferential tax rates [MAMALATEO]. v. Capital gains tax on sale or exchange
of unlisted shares of stock of a
c. Criteria in Imposing Philippine domestic corporation classified as
Income Tax capital assets;
vi. Capital gains tax on sale or exchange
i. Citizenship
of real property located in the
A citizen of the Philippines is subject to Philippines classified as a capital
Philippine income tax: asset;
a. On his worldwide income, if he resides in vii. Final withholding tax on certain passive
the Philippines; or investment income paid to residents;
b. Only on his income from sources within the
Page 43 of 256
Corporations Non-
Taxpayer – any person subject to tax imposed resident
by Title II of the Tax Code. [Sec. 22(N), NIRC] Corporation
s
Person – means an individual, a trust, estate
Estates and
or corporation. [Sec. 22(A), NIRC]
Trusts
Page 44 of 256
during the taxable year to reside b. Not engaged in trade or business
permanently in the PH - Treated as within the Philippines - If the
NRC with respect to his income derived aggregate period of his stay in the
from sources abroad until his arrival in Philippines does not exceed 180 days.
the PH
ii. Corporations
Note: The term ‘residence’ is to be understood
not in its common acceptation as referring to Includes all types of corporations, partnerships
‘dwelling’ or ‘habitation,’ but rather to ‘domicile’ (no matter how created or organized), joint
or legal residence, that is, ‘the place where a stock companies, joint accounts (cuentas en
party actually or constructively has his participacion), associations, or insurance
permanent home, where he, no matter where companies, whether or not registered with the
he may be found at any given time, eventually SEC. [MAMALATEO]
[MAMALATEO]
intends to return and remain (animus
manendi). [Japzon
[Japzon v. COMELEC , G.R. No. Excludes general professional partnerships
180088 (2009)]
(2009)] (GPP); joint ventures or consortiums formed for
the purpose of (1) undertaking construction
ALIENS projects or (2) engaging in petroleum, coal,
1. Resident Alien – An alien actually present geothermal and other energy operations
in the Philippines who is not a mere pursuant to an operating or consortium
transient or sojourner is a resident for agreement under a service contract with the
income tax purposes. government.. [Sec. 22 (B),
government ( B), NIRC]
N IRC]
a. No/Indefinite Intention = RESIDENT:
If he lives in the Philippines and has no Law of Incorporation Test
definite intention as to his stay, he is a To determine the residence of a corporation,
resident. A mere floating intention the Philippines adopted the Law of
indefinite as to time, to return to Incorporation
Incorpora tion test under which a corporation is
another country is not sufficient to considered domestic if it is organized or
constitute him a transient. created in accordance with
wi th or under the laws of
b. Definite Intention = TRANSIENT: the Philippines and foreign if it is organized or
One who comes to the Philippines for a created in accordance with
wi th or under the laws of
definite purpose, which in its nature a foreign country. [MAMALATEO]
may be promptly accomplished, is a
transient. Domestic corporations
A corporation created and organized in the
Exception: Definite Intention but such cannot Philippines or under its laws. [Sec. 22 (C),
be promptly accomplished; If his purpose is of NIRC]
such nature that an extended stay may be
necessary for itsnot accomplishment, and thus Foreign corporations
the alien makes his home temporarily in the A corporation which is not domestic. [Sec. 22
Philippines, then he becomes a resident. (D), NIRC]
1. Resident foreign corporations – Foreign
2. Non-resident Alien corporation engaged in trade or business
a. Engaged in trade or business within within the Philippines. [Sec. 22 (H), NIRC]
the Philippines - If the aggregate 2. Non-resident foreign corporations –
period of his stay in the Philippines is Foreign corporation not engaged in trade
more than 180 days during any or business within the Philippines. [Sec. 22
calendar year. [Sec. 25(A)(1), NIRC] (I), NIRC]
Page 45 of 256
DOING BUSINESS – implies a continuity of subject to certain special rules [Sec 61, NIRC]
commercial dealings and arrangements, and
contemplates, to that extent, the performance Estate
of acts or works or the exercise of some of the Refers to all the property, rights
ri ghts and obligations
functions normally incident to, and in of a person which are not extinguished by his
progressive prosecution of commercial gain or death and those which have accrued thereto
for the purpose and object of the business since the opening of the succession. [DE
organization.
organizat ion. [CIR v. BOAC, G.R. No. L-65773
L-65773 LEON citing Arts. 776 and 781 NCC]
(1987)]
Trust
Includes: An arrangement created by will or an
1. soliciting orders, service contracts agreement
agree ment under which legal
l egal title to property is
2. opening offices, whether called "liaison" passed to another for conservation or
offices or branches investment with the income therefrom and
3. appointing representatives or distributors ultimately the corpus (principal) to be
domiciled in the Philippines or who in any distributed in accordance with the directions of
calendar year stay in the country for a the creator as expressed in the governing
period totaling 180 days or more instrument. [DE LEON]
4. participating in the management,
supervision or control of any domestic d. Partnerships, Joint Ventures, Co-
business, firm, entity or corporation in the ownership
Philippines.
General Partnerships
Excludes: A partnership which is not a general
1. mere investment as a shareholder in professional partnership. Treated as a
domestic corporations, and/or the exercise corporation.
of rights as such investor
2. having a nominee director or officer to General Professional Partnerships (GPP)
represent its interests in such corporation A partnership formed by persons for the sole
3. appointing a representative or distributor purpose of exercising their common
domiciled in the Philippines which profession, no part of the income of which is
transacts business in its own name and for derived from engaging in any trade or
its own account. [RA 7042, Foreign business. [Sec. 22 (B), NIRC]
Investments Act]
The partners themselves, not the partnership,
f. Estates and Trusts shall be liable for income tax in their separate
and individual capacities. Each partner shall
Income tax imposed on individuals shall apply report as gross income his distributive share,
to income of estates or of any kind of property actually or constructively received, in the net
held in trust. [Sec. 60 (A), NIRC] income of the partnership. [Sec. 26, NIRC]
Exceptions: (1) Employee’s trust [Sec. 60, Joint venture and consortium
NIRC]; (2) Revocable trusts [Sec. 63, NIRC]; Essential factors of a joint venture or
(3) Income for Benefit of Grantor [Sec. 64, consortium:
NIRC] 1. Each party must make a contribution,
contributi on,
not necessarily of capital but by way of
Taxable income of the estate or trust is services, skill, knowledge,
knowledge, material or money;
2. Profits must be shared among the
computed in the same manner as an individual,
Page 46 of 256
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Page 49 of 256
is exchanged, then a severance of the gain property [Sec 49 (B), NIRC]; and
from its original value takes place, resulting into Sellers of real property [Sec 49 (B) &
taxable income. [Ingles] (C), NIRC]
1. Cash method – income, profits and gains method method if initial
earned are not included in gross income ! Person who payments do
payments
until received, and expenses are not regularly not exceed
deducted until paid. [DE LEON] sells/disposes of 25% of the
2. N.B. “received” here includes actual and personal gross selling
constructive receipt. property on price
3. Accrual method – income, profits and instalment plan ! Deferred
on the instalment
proportion of the plan equivalentreceived
instalments to that method
neither of the 2if
every year which the gross profit realized conditions are
or to be realized when payment is met
completed bears to the contract price. ! Personal
property not
Gross considered
Income to be Profit inventory
Instalment Sale by Individuals
reported for = $
Received ! Installment
the year Contract
Price method
provided ; initial
payments do not
Installment basis is available to:
exceed 25% of
Dealers in personal property [Sec 49
(A), NIRC]; Casual Sellers of personal selling price
Page 50 of 256
Completed contract method – No longer Gross Income means all income derived from
allowed since January 1, 1998 as per RA whatever source, including (but not limited to)
8424. Cost of the contract is accumulated the following items:
during the years of construction and • Compensation for services in whatever
deducted from the income of the contract in form paid, including, but not limited to fees,
f ees,
the year it is completed. salaries, wages, commissions, and similar
si milar
items;
•
Gross income derived from the conduct of
Page 51 of 256
Page 52 of 256
The term “remuneration for domestic the absence of evidence to the contrary, such
services” refers to remuneration paid for price will be presumed to be the FMV of the
services of a household nature performed by remuneration received.
an employee in or about the private home of
the person whom he is employed. The services
servi ces If meals, living quarters, and other facilities and
of household personnel furnished to an privileges are furnished to an employee for the
employee (except rank and file employees) by convenience of the employer, and incidental to
an employer shall be subject to the fringe the requirement of the employee’s work or
benefits tax pursuant to Sec. 33 of the Tax position, the value of that privilege need not be
Code. included as compensation [Henderson v.
Collector, G.R. No. L-12954 (1961)]
The term “casual labor” includes labor which
is occasional, incidental or regular. “Not in the ii. Fringe Benefits
course of the employer’s trade or business”
includes labor that does not promote or Definition
advance the trade or business of the employer. Fringe benefit means any goods, services, or
other benefit furnished or granted in cash or in
General Rule: Compensation income kind, in addition to basic salaries, to an
including overtime pay, holiday pay, night
ni ght shift individual employee, except a rank and file
differential pay, and hazard pay, earned by employee [RR No. 03-98, Sec 2.23b]
MINIMUM WAGE EARNERS (MWE) who has
no other returnable income are NOT taxable Fringe benefit means includes
inclu des but not limited to
and not subject to withholding tax on wages the following:
[RA 9504]; Housing
•
Expense Account
•
[RA 10963], taxable allowance, and other to the extent of the difference between
taxable income other than the statutory the market rate and actual rate
minimum wage (SMW), holiday pay, overtime granted.
pay, hazard pay and night shift differential pay. Membership fees, dues and other
•
Page 53 of 256
Tax base is based on the grossed-up Payor of Fringe Benefit Tax (FBT): The
monetary value (GMV) of fringe benefits. employer withholds and pays the FBT but the
Rate is generally 35%, since this is the law allows him to deduct such tax from his
headline or the highest tax rate for individual gross income.
income taxpayers.
Taxable and non-taxable fringe benefits
FBT is calculated using the GMV multiply by
the 35%. [Sec. 33 (A), NIRC] Fringe Benefits NOT subject to Tax
benefits provided for the convenience of the are offered or furnished by the employer
Page 54 of 256
merely as means of promoting health, goodwill, highly paid employees; [RR No. 5-2011]
contentment, and efficiency of his employees 9. Gifts given during Christmas and major
[RR No. 3-98, Sec 2.23c] anniversary celebrations not exceeding
P5,000 per employee per annum; [RR No.
The following De Minimis
Mi nimis Benefits are exempt 5-2011]
from income tax and withholding tax on 10. Daily meal allowance for overtime work
compensation income of BOTH managerial and night/graveyard shift not exceeding
and rank and file EEs [as provided by R.R. No. twenty-five percent (25%) of the basic
11-2018/ R.R. No. 5-2011 / R.R. No. 8-2012 minimum wage on a per region basis; [RR
and R.R. No. 1-2015 ]: No. 3-98]
1. Monetized unused vacation leave credits of 11. Benefits received by an employee by virtue
PRIVATE employees not exceeding ten of a collective bargaining agreement (CBA)
(10) days during the year. Note that the and productivity incentive schemes
monetization of unused VL credits in provided that the total monetary value
excess of 10 days and monetization of SL received from both CBA and productivity
even if not exceeding 10 days are subject incentive schemes combined do not
to tax; [RR No. 5-2011] exceed P10,000.00 per employee per
2. Monetized value of vacation and sick leave taxable year. [RR No 1-2015]
credits paid to GOVERNMENT officials
and employees. Note that there is no limit All other benefits given by employers
employers which are
as to the number of credits; [RR No. 5- not included in the above enumeration shall
2011] NOT be considered as "de minimis" benefits
3. Medical cash allowance to dependents of and hence, shall be subject to withholding tax
employees, not exceeding P1,500 per on compensation (rank and file employees)
employee per semester or P250 per and FBT
FB T (managerial/supervisory
(managerial/supervisory employees).
month; [RR No. 11-2018]
4. Rice subsidy of P2,000 or one (1) sack of Housing
50 kg. rice per month amounting to not
Fringe Benefit
more than P2,000; [RR No. 11-2018]
Tax Base
5. Uniform and Clothing allowance not Housing Privilege
(Monetary
exceeding P6,000 per annum; [RR No. 11-
Value)
2018]
6. Actual medical assistance, e.g. medical LEASE of residential MV= 50% of
allowance to cover medical and healthcare
needs, annual medical/executive check- property for the lease payments,
residential use of where MV =
up, maternity assistance, and routine employees monetary value
consultations, not exceeding P10,000.00 of the FB
per annum; [RR No. 5-2011]
7. Laundry allowance
allowanc e not exceeding P300 per Assignment of MV= [5% (FMV or
month; [RR No. 5-2011] residential property ZV, whichever is
8. Employees achievement awards, e.g., for owned by employer for higher) x 50%]
length of service or safety achievement, use of employees
which must be in the form of a tangible
personal property other than cash or gift Purchase of residential MV= 5% x
certificate, with an annual monetary value property in installment acquisition cost
not exceeding P10,000 received by the basis for the use of the exclusive of
employee under an established written employee interest x 50%
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Presumed Gain: In the sale of real property Net Capital Loss: Excess of the losses over
Page 58 of 256
the gains on sales or exchanges of capital corporation, which is a party to the merger
assets during the taxable year. [Sec. 39 (A), or consolidation, solely for the stock of
NIRC] another corporation also a party to the
merger or consolidation; or
Income Tax Treatment of Capital Loss c. A security holder of a corporation, which is
a party to the merger or consolidation,
Capital loss limitation rule (applicable to both exchanges his securities in such
corporations and individuals) corporation,
corporation, solely for stock or securities in
General Rule: Losses from sales or such corporation, a party to the merger or
exchanges of capital assets shall be allowed consolidation.
only to the extent of the gains from such sales
or exchanges [Sec. 39(C), NIRC]. Both corporations in the aforementioned cases
must be parties to a merger or consolidation.
Exception for Banks and Trust Companies:
If a bank or trust company incorporated under Merger occurs when one corporation acquires
the laws of the Philippines, a substantial part of all or substantially all the properties
properties of another
whose business is the receipt of deposits, sells corporation. Consolidation occurs when two or
any bond, debenture, note, certificate or other more corporations merge to form one
evidence of indebtedness issued by any corporation.
corporation (including one issued by a
government or political subdivision thereof) Substantially all the properties of another
with interest coupons or in registered form, any corporation means the acquisition of at least
loss resulting from such sale shall not be 80% of the assets, including cash, of another
subject to the foregoing limitation and shall not corporation which has the element of
be included in determining the applicability of permanence and not merely momentary
such limitation to other losses [Sec. 39(C), holding [Banggawan citing BIR Gen.Circ. V-
NIRC]. 253 (1957)]
treated
from thein sale
the succeeding taxable
or exchange of a year as aasset
capital loss a
or result of such
together exchange
with others, not said person,four
exceeding alone
(4)
held for not more than 12 months [Sec. 39(D), persons, gains control of said corporation:
NIRC]. Provided,, That stocks issued for services shall
Provided
(d) Tax free exchanges [Sec. 40 not be considered as issued in return for
(c)(2)] property.
Page 59 of 256
issued as a dividend xxx the amount so property, it also includes all other obligations
Page 60 of 256
assumed to be paid by the lessee to the third consideration of capital paid by him. It is paid
party in behalf of the lessor (e.g., interest, annually, monthly, or periodically, computed
taxes, loans, insurance premiums, etc.) [RR upon the amount paid yearly, but necessarily
19-86] for life. [Peralta
[Peralta v. Auditor General , G.R. No. L-
8480 (1957)]
Lease of personal property
Rental income on the lease of personal The annuity payments represent a part that is
property located in the Philippines and paid to taxable and not taxable. If part of annuity
a non-resident taxpayer shall be taxed as payment represents
represents interest, then it is a taxable
follows: income. If the annuity is a return of premium, it
is not taxable.
NRA-
NRFC viii. Prizes and Awards
NETB
Vessel 4.5% 25% A prize is a reward for a contest or a
competition. Such payment constitutes gain
Aircraft, 7.5% 25% derived from labor.
machineries and
other Equipment The EXCEPTIONS are as follows:
1. Prizes and awards made primarily in
Other assets 30% 25% recognition of religious, charitable,
scientific, educational, artistic, literary or
Leasehold improvements by lessee civic achievements are EXCLUSIONS
from gross income if:
Rent Income from leasehold improvements: 2. The recipient was selected without any
1. Outright method- lessor shall report as action on his part to enter a contest or
income FMV of the buildings or proceedings; and
improvements subject to the lease in the 3. The recipient is not required to render
year of completion. substantial future services as a condition
2. Spread-out method- lessor shall spread to receiving the prize or award.
over the remaining term of the lease the
4. Prizes and awards granted to athletes in
estimated depreciated (book) value of local and international sports competitions
such buildings or improvements at the and tournaments held in the Philippines
Estimated BV at the end of the lease contract/ ix. Pensions, Retirement Benefit, or
remaining lease term = Income per year Separation Pay
vii. Annuities, Proceeds from Life A stated allowance paid regularly to a person
insurance or Other Types of on his retirement or to his dependents on his
Insurance death, in consideration of past services,
meritorious work, age, loss or injury.
It refers to periodic installment payments of [VALENCIA]
income or pension by insurance companies
during the life of a person or for a guaranteed
fixed period of time, whichever is longer, in
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Taxable
(b) Recovery of Accounts Income
Previously Written-off (Net Loss) 298,000 (62,000) (1,000)
after write-
Bad debtsyear(s)
preceding claimed
but as a deduction
subsequently in the
recovered off
shall be included as part of the taxpayer’s gross Year 2
income in the year of such recovery to the
extent of the income tax benefit of said Recovery
deduction. There is an income tax benefit when of
the deduction of the bad debt in the prior year 2,000 2,000 6,000
Amounts
resulted in lesser income and hence tax Written Off
savings for the company. [Sec. 4, RR 5-99]
Taxable
Income on
2,000 - 5,000
the
Recovery
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Page 63 of 256
Items
capitalof Exclusions representing return of ii. Taxpayers Who May Avail
Amount of capital is generally recovered
through deduction of the cost or adjusted basis Exclusion Taxpayer
of the property sold from the gross selling price
or consideration, or through the deduction from All taxpayers since
gross income of depreciation relating to the Return of capital
there is no income.
property used in trade or business before it is
sold. All taxpayers unless
Already subject to
provided that income
internal revenue tax
It may also relate to indemnities, such as is to be included.
proceeds of life insurance paid to the insured’s
beneficiaries and return of premiums paid by As expressly
Express exclusion
the insurance company to the insured under a provided.
Page 64 of 256
Tax Credit refers to amounts subtracted from This refers to the cash surrender value of the
the computed tax in order to arrive at taxes contract.
payable.
Exception: If the amounts received by the
iv. Exclusions Under the
t he Constitution insured (when added to the amounts already
received before the taxable year under such
Income derived by the government or its contract) exceed the aggregate premiums or
political subdivisions from the exercise of any considerations paid (whether or not paid during
essential governmental function the taxable year), then the excess shall be
included in gross income.
Also, all assets and revenues of a non-stock,
non-profit private educational institution used (c) Amounts received under life
directly, actually and exclusively for private insurance, endowment or
educational purposes shall be exempt from annuity contracts
taxation.
Amounts received (other than amounts paid by
v. Exclusions Under the Tax Code reason of the death of the insured and interest
[Sec. 32(b), NIRC] payments on such amounts) under a life
insurance, endowment or annuity contracts are
(a) Proceeds of life insurance excluded from gross income, but if such
policies amounts (when added to amounts already
received before the taxable year under such
The proceeds of life insurance policies paid to contract) exceed the aggregate premiums of
his estate or
transferee forto aany beneficiary
valuable (but not a
consideration), considerations paid (whether
the taxable year), then the or not paid
excess during
shall be
directly or in trust, upon the death of the included in gross income. However, in the case
insured, are excluded from the gross income of of a transfer for valuable consideration, by
the beneficiary. assignment or otherwise, of a life insurance,
endowment, or annuity contract, or any interest
However, if such amounts are held by the therein, only the actual value of such
insurer under an agreement to pay interest consideration and the amount of the premiums
thereon, the interest payments received by the and other sums subsequently paid by the
insured shall be included in gross income. The transferee are exempt from taxation.
interest income shall be taxed at the graduated
income tax rates.
Page 65 of 256
of any damages received, whether by suit or 4917, and Section 60(B) of the NIRC
agreement, on account of such injuries or Terminal pay
•
GSIS benefits
•
Non-taxable – Taxable –
compensation for compensation for Retirement benefits received under RA
damages on damages on 7641(The Retirement Pay Law) and those
account of account of received by officials and employees of private
Actual damages for firms under a reasonable private benefit plan
Personal (physical) (RPBP) maintained by the employer under RA
injuries or sickness loss of anticipated 4917 (now Section 32(B)(6)(a) of NIRC) are
profits
excluded from gross income subject to income
Any other damages Moral and exemplary tax.
recovered on damages awarded
account of personal as a result of break of RA 7641 RPBP
injuries or sickness contract
Retiring employee Retiring official or
Exemplary and moral must be in the employee must have
damages for out-of- Interest for non- service of same been in the service of
court settlement, taxable damages employer the same employer
including attorney’s above CONTINUOUSLY for for at least ten (10)
fees at least five (5) years years.
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Retiring employee
Terminal pay/Separation pay
Retiring official or Any amount received by an employee or by his
must be at least sixty
employee must be at heirs from the employer as a consequence of
(60) years old but not
least fifty (50) years separation of such official or employee from the
more than 65 years
old at the time of service of the employer because of death,
of age at the time of
retirement sickness, other physical disability or for any
retirement cause beyond the control of the employee. The
Retiring employee phrase “for any cause beyond the control of the
shall not have said official or employee” means that the
Availed of only once, separation of the employee must be
previously availed of
and only when there involuntary and not initiated by him.
the privilege under a
is no RPBP
retirement benefit
plan of the same or The separation must not be of his own making.
another employer
Notes:
Plan must be a. Sickness must be life-threatening or one
reasonable. Its which renders the employee incapable of
implementation
implementatio n must working
be fair and equitable b. Retrenchment of the employee due to
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of 1954 [RA 8282], as amended, e.g., Maternity [Commissioner v. Anoldus Carpentry Shop ,
Benefits G.R. No. 71122 (1988)]
Deductions are items or amounts authorized by Income tax is levied by law only on income;
law to be subtracted from the pertinent items of hence, the amount representing return of
gross income to arrive at taxable income. capital should be deducted from proceeds from
sales of assets and should not be subject to
Deductions from income tax purposes partake income tax.
of the nature of tax exemptions; hence, if tax
exemptions are to be strictly construed, then it Costs of goods purchased for resale, with
follows that deductions must also strictly proper adjustment for opening and closing
construed. [CIR
[CIR v. Isabela Cultural Co.,
Co., G.R. inventories, are deducted from gross sales in
No. 172231 (2007)] computing gross income [Sec. 65, Rev. Reg. 2]
Page 68 of 256
from sale of goods or properties. That portion expenditures directly connected with or
of the receipt representing return of capital is pertaining to the taxpayer’s trade or business.
not subject to income tax. Accordingly, cost of The cost of goods purchased for resale, with
goods manufactured and sold (in the case of proper adjustment for opening and closing
manufacturers) and cost of sales (in the case inventories, is deducted from gross sales in
of dealers) is deducted from gross sales and is computing gross income.
reflected above the gross income
incom e line in a profit
and loss statement. Requisites for deductibility
a. Ordinary AND necessary
Sale of stock in trade by a real estate dealer
and dealer in securities: Real estate dealers ORDINARY - normal and usual in relation to
and dealers in securities are ordinarily not the taxpayer's business and surrounding
allowed to compute the amount representing circumstances; need not be recurring
return of capital through cost of sales. Rather
they are required to deduct the total cost NECESSARY - appropriate and helpful in
specifically identifiable to the real property or the development of taxpayer's business or
shares of stock sold or exchanged. are proper for the purpose of realizing a
profit or minimizing a loss
Sale of services: Their entire gross receipts are
treated as part of gross income. b.
c. Paid
Paid or
or incurred
incurred during the taxable
in carrying year; are
on or which
c. Distinguish: Itemized Deductions directly attributable to the development,
and Optional Standard Deductions management, operation and/or conduct of
the trade, business or exercise of
Itemized Deductions profession;
• Expenses d. Substantiated by adequate proof –
• Interest documented by official receipts or adequate
• Taxes records, which reflect the amount of
• Losses expense deducted and the connection or
relation of the expense to the
• Bad debts
business/trade of the taxpayer);
• Depreciation
e. Legitimate
Legitimatelyly paid (not a BRIBE, kickback, or
• Depletion of oil and gas wells and mines
otherwise contrary to law, morals, public
• Charitable and other contributions
•
Research and development policy);
f. If subject to withholding tax, the tax required
• Pension trusts
to be withheld on the expense paid or
payable is shown to have been properly
Timing of Claiming Deductions withheld and remitted to the BIR on time;
A taxpayer has the right to deduct all
g. Amount must be reasonable.
reasonable.
authorized allowances
allowances for the taxable year.
year. As
a rule, if he does not within any year deduct
Note : The expenses allowable to a non-
certain of his expenses, losses, interest, taxes
resident alien or a foreign corporation consist
or other charges, he cannot deduct them from
of only such expenses as are incurred in
the income of the next of any succeeding year
carrying on any business or trade conducted
[Sec. 76, Income Tax Regulations]
within the Philippines exclusively. [Sec. 77 RR
2]
Expenses
Business expenses deductible from gross
income include the ordinary and necessary
Page 69 of 256
Given for personal services must be actually Rentals and/or other payments for use or
rendered and reasonable. possession of property
a. Required as a condition for continued use
For income payment to be allowed as or possession of property.
deduction, the withholding tax must have been b. For purposes of trade business or
paid [RR No. 12-2013]. profession.
c. Taxpayer has not taken or is not taking title
Bonuses are deductible when: to the property or has no equity other than
1. made in good faith that of lessee, user, or possessor.
2. given as additional compensation for d. On the accrual basis, rent is deductible as
Page 70 of 256
expense when liability is incurred during accuracy, which implies something less than
the period of use. On cash basis, rent is an exact or completely accurate amount.
deductible when it is incurred and paid. [Commissioner v. Isabela Cultural Corporation ,
[VALENCIA and ROXAS] G.R. No. 172231 (2007)]
Repairs which
property or add material
appreciably value
prolong its life to the taxpayer.
Repairs in the nature of replacement, to the Requisites for deductibility:
extent that they arrest deterioration and 1. Reasonable in amount.
appreciably prolong the life of the property, 2. Paid or incurred during the taxable
should be charged against the depreciation period.
reserves if such account is kept. [Sec. 68, Rev. 3. Directly connected to the development,
Regs. 2] management, and operation of the trade,
business or profession of the taxpayer,
All maintenance expenses on account of non- or that are directly related to or in
depreciable vehicles for taxation purposes are furtherance of the conduct thereof.
disallowed in its entirely. [RR No. 12-2012
12-2012]] 4. Not to exceed 0.50% of net sales for
sellers of goods or properties or 1% of
Expenses for professionals net revenues for sellers of services,
Deductible in the
are rendered, notyear the professional
in the year they areservices
billed, including
exercise oftaxpayers
profession engaged
and use orinlease
the
provided that the “all events” is present.
p resent. of properties)
5. Not incurred for purposes contrary to
“All events test” requires: law, morals, public policy or public order.
1. Fixing a right to income or liability to pay; 6. Must be substantiated with sufficient
and evidence such as receipts and/or
2. The availability of reasonably accurate adequate records.
determination
determinatio n of such income or liability.
Exclusions from EAR expenses:
The “all-events test” does not demand that the
th e 1. Expenses which are treated as
amount of income or liability be known compensation or fringe benefits for
absolutely; it only requires that a taxpayer has services rendered under an employer-
at its disposal the information necessary to employee relationship
compute the amount with reasonable 2. Expenses for charitable or fund raising
Page 71 of 256
Page 72 of 256
Page 73 of 256
tax; effective January 1, 2009. [RA 9337] [CIR v. Palanca , G.R. No. L-16626 (1966)]
However,
his desire when theoftaxpayer
to avail does NOT
the tax credit signify
for taxes of The following may claim tax credits:
foreign countries, the amount may be allowed a. Resident citizens
as a deduction from gross income of citizens b. Domestic corporations, which include all
and domestic corporations subject to the partnerships except general professional
limitations set forth by law. partnerships
c. Members of general professional
Treatments of surcharges/interests/fines partnerships
for delinquency d. Beneficiaries of estates or trusts
The amount of deductible taxes is limited to the
basic tax and shall not include the amount for The following may NOT claim tax credits:
any surcharge or penalty on delinquent taxes. a. Non-resident
Non-resident citizens
However, interest on delinquent taxes, b. Aliens, whether resident or non-resident
although not deductible as tax, can be c. Foreign corporations, whether resident on
deducted as interest expense at its full amount. non-resident
Page 74 of 256
Page 75 of 256
loss, the loss incurred from the sale of non- Losses on wash sales of stocks or securities
depreciable vehicle is not allowed as a
deduction. [RR No. 2-2013] Wash Sale - a sale or other disposition of stock
or securities where substantially identical
securities (substantially the same as those
No
a. loss is recognized
Merger, in the
consolidation, following
or control :
securities disposed
there wasof)anareoption
acquired or purchased
to acquire, (or
and the
(where no gains are recognized either); acquisition or option should be by purchase or
b. Exchanges not solely in kind; exchange upon which gain or loss is
c. Related taxpayers (see above – (c) recognized under the income tax law) within a
Interest expense incurred to acquire 61-day period, beginning 30 days before the
property for use in sale and ending 30 days after the sale
trade/business/profession)
d. Wash sales; General rule: Not deductible from gross
e. Illegal transactions income
assets (allowable
capital gains, exceptonly
fortobanks
the extent of
and trust Wagering losseswagering
Losses from (gambling) are
companies under conditions in Sec. 39 of deductible only to the extent of gains from such
NIRC where loss from such sale is not transactions. A wager is made when the
subject to the foregoing limitation) outcome depends upon CHANCE.
c. Resulting from securities becoming
worthless and which are capital assets Net Operating Loss Carry Over (NOLCO)
(considered loss from sale or exchange) Net operating loss (NOL) is the excess of
on last day of the taxable year allowable deductions over gross income for
d. Losses from short sales of property; any taxable year immediately preceding the
e. Losses due to failure to exercise privileges current taxable year.
or options to buy or sell property.
NOLCO: The NOL of the business or
Securities becoming worthless enterprise
enterpris e which had not been previously offset
Page 76 of 256
income for the next five (5) years immediately uncollectibility, in whole or in part, of amounts
following the year of such loss.
l oss. due the taxpayer actually ascertained to be
worthless and the corresponding receivable
Requisites for NOLCO should have been written off or charged off
a) The taxpayer was not exempt from income within the taxable year.
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Accounts receivable may be written off as bad The depreciable asset must be located in the
debts even without conclusive evidence that Philippines if the taxpayer is a nonresident
they hadamount
a. the definitely become worthless
; and when:
is insignificant;
insignificant alien
ROXAS]or a foreign corporation. [VALENCIA and
b. collection through court action may be
more costly to the taxpayer. No depreciation shall be allowed for yachts,
helicopters, airplanes and/or aircrafts, and land
“Actually charged off from the taxpayer’s book vehicles which exceed the threshold amount of
of accounts” – Receivable which has actually P2,400,000, unless the taxpayer’s main line of
become worthless at the end of the taxable business is transport operations or lease of
year has been
been cancelled and
and written off. Mere transportation equipment and the vehicles
recording in the books of account of estimated purchased are used in the operations. [RR No.
uncollectible accounts does not constitute a 12-2012]
write-off.
Methods of computing depreciation
EFFECT OF RECOVERY OF BAD DEBTS allowance
Page 78 of 256
Kinds of Contributio
Contributions
ns: Administrative expense, on an annual basis,
a. Contributions deductible
deductible in full;
b. Contributions subject to the statutory limit. must not exceed 30% of total expenses for the
taxable year
Page 79 of 256
derived
computedfrombefore
trade, business or profession
the deduction for deductions
compensationexcept
income.those earning purely
contributions and donations
If an individual opted to use OSD, he is no
The amount deductible is the actual longer allowed to deduct cost of sales or cost
contribution or the statutory limit computed, of services.
whichever is lower.
Amount: 40% of gross sales or gross receipts
Contributions to pension trusts (under RA 9504, effective July 6, 2008)
Contribution to a pension trust may be claimed Requisites:
as deduction as follows: a. Taxpayer is a citizen or resident alien;
a. Amount contributed for the present/normal b. Taxpayer’s income is not entirely from
service cost – 100% deductible compensation;
b. Amount contributed for the past service c. Taxpayer signifies in his return his
cost – 1/10 of the amount contributed is intention to elect this deduction; otherwise
deductible in year the contribution is he is considered as having availed of the
made, the remaining balance will be itemized deductions;
amortized equally over nine consecutive d. Election is irrevocable for the year in which
years made; however, he can change to
itemized deductions in succeeding years.
General Rule: An employer establishing or
maintaining a pension trust to provide for the Corporations, except non-resident foreign
payment of reasonable pensions to his corporations
employees shall be allowed as a deduction, a The option to elect Optional Standard
reasonable amount transferred or paid into Deduction granted is now granted to
such trust in excess of the contributions to such corporations by virtue of RA 9504. The OSD is
trust made during the taxable year. 40% of its gross income.
Page 80 of 256
to submit their financial statements when they same time capitalize such interest and
file their annual ITR and to keep such records claim depreciation on the undepreciated
pertaining to its gross income. [RR 2-2010]. cost which includes the interest. [PICOP
[PICOP v.
Commissioner , G.R. No. 106949-50
Partnerships (1995)]
For purposes
general of taxation, the
co-partnerships asCode considers
corporations. h. Non–deductible losses
i. Non-deductible taxes
Hence, rules on OSD for corporations are j. Losses on Wash Sales (except if by dealer
applicable to general co-partnerships. in securities in ordinary course of exempt
corporations) These are:
d. Items Not Deductible k. Proprietary Educational Institutions and
hospitals
General rule: In determining deductions, one l. Government owned and controlled
of the general rules is that deductions must be corporations
paid or incurred in connection with the m. Others
taxpayer’s trade, business or profession.
Capital expenditures (e.g. acquisition cost of a Relevant points regarding related taxpayers
building) are also not deductible, because a. Payment of interest is not deductible.
these are not expenses, but form part of b. Bad debts are not deductible.
assets. c. Losses fromnotsales
property are or exchanges of
deductible.
Exceptions: In computing taxable net income,
no deduction shall be allowed with respect to: Related Parties [Sec. 34(B), NIRC]
a. Personal, living or family expenses
expenses a. Between members of a family (which shall
b. Any amount paid out for new buildings or include only his brothers and sisters,
for permanent improvements (capital spouse, ancestors and lineal
expenditures), or betterments made to descendants)
increase the value of any property or b. Between an individual and a corporation
estate more than 50% in value of the outstanding
c. Any amount expended in restoring stock of which is owned, directly or
property (major repairs) or in making good indirectly, by or for such individual –
the exhaustion thereof for which an except in the case of distributions in
allowance [for depreciation or depletion] is liquidation
or has been made c. Between two corporations more than 50%
d. Premiums paid on any life insurance policy in value of the outstanding stock of each
covering the life of any officer, employee, of which is owned, directly or indirectly by
or any person financially interested in the or for the same individual
in dividual
trade or business carried on by the d. Between the grantor and the fiduciary of a
taxpayer, individual or corporate, when the trust
taxpayer is directly or indirectly a e. Between the fiduciary of a trust and the
beneficiary under such policy fiduciary of another trust if the same
e. Interest expense and bad debts between person is a grantor with respect to each
related parties [Sec. 36(B), NIRC)] trust
f. Losses from sales or exchanges of f. Between the fiduciary of a trust and a
property between related taxpayers. beneficiary of such trust [Section 36(B),
g. Non-deductible interest – should the NIRC]
taxpayer elect to deduct interest payments
against its gross income, he cannot at the
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General rule: Retirement pay is taxable 4. Directors’ fees, allowances and
bonuses
Exceptions:
i. SSS or GSIS retirement pays [Sec. General Rule: taxable as compensation
32(B)(6), NIRC] income when the recipient director has an
ii. Retirement
7641 provided benefittheunder R.A.
following employee-employer relationship
corporation which pays the same with the
requirements are met:
iii. Retirement program is approved by Exception: not taxable as compensation
the Commissione
C ommissioner;
r; income when recipient director’s duties is
iv. Retirement benefit
benefit is pursuant to a confined to attendance and participation only in
reasonable private benefit plan. the meetings of the Board of Directors, but
v. Retiree employed for 10 years by taxable as income arising from exercise of
the employer; profession [R.M.C 34-08].
vi. Retiree should have been 50 years
old or above at the time of 5. Non-monetary compensation – measure
retirement; and of income subject to tax is the equivalent
vii. Retirement benefit availed only value in money.
m oney.
once [Sec. 32 (B)(6)(a), NIRC].
Separation pay (b) Exclusions
General Rule: Separation pay taxable 1. Fringe benefit subject to tax
if voluntarily availed of. (See Gross Income, supra for the
discussion of Taxable and Non-taxable
Exception: if due to causes such as fringe benefits)
death, sickness, disability,
reorganization or bankruptcy of the If the recipient of the fringe benefits is a
company or for any other cause rank and file employee, and the said fringe
beyond the control of the said benefit is not tax-exempt, then the value of
employee. such fringe benefit shall be considered as
3. Bonuses, 13th month pay, and other part of taxable compensation income.
benefits not exempt [DOMONDON]
Tips
to theand Gratuities
employee
– those paid directly
(usually by employer’s
Where the recipient of the fringe benefit is
not a rank and file employee, and the said
customer) which are not accounted for by benefit is not tax-exempt, then the value of
the employee to the employer. (taxable such fringe benefit shall not be included in
income but not subject to withholding tax) the taxable compensation income. It is
[Sec. 2.78.1, RR No. 2-98] instead levied upon the employer.
[DOMONDON]
13th month pay – taxable only for the part
which exceeds P90,000 [Sec. 32(7)(e), Convenience of the employer Rule
NIRC] If meals, living quarters, and other facilities
and privileges are furnished to an
Overtime Pay – premium payment employee for the convenience of the
received for working beyond regular hours employer, and incidental to the
of work which is included in the requirement of the employee’s work or
computation of gross salary of employee. position,, the value of that privi
position privilege
lege need not
Page 83 of 256
value furnished
employees and by areanasemployer
a means to his
of option to avail
a. The of:
graduated rates under Sec. 24
promoting the health, goodwill, (A)(2)(a) of the Tax Code, as amended;
contentment, or efficiency
efficienc y of his employees OR
[RR No. 11-18]. b. An eight percent (8%) tax on gross sales
or receipts and other non-operating
These are exempt from both fringe benefit income in excess of two hundred fifty
tax and compensation income tax [Sec. 33 thousand pesos (P250,000.00) in lieu of
(C)(4), NIRC]. the graduated income tax rates under Sec.
24 (A) and the percentage tax under Sec.
(See Gross Income, supra for the 116 of the NIRC.
discussion of de minimis benefits)
Individuals earning mixed income
3. 13th month pay and other benefits and For mixed income earners, the income tax
payments specificallyincome
taxable compensation excluded from rates
a. The applicable are: income shall be subject
compensation
Gross benefits received by employees up to the tax rates prescribed under Section 24
to P90,000 (amounts in excess are (A)(2)(a); AND
considered compensation income) b. The income from business or practice of
profession shall be subject to the following:
Benefits include: c. If the gross sales/receipts and other non-
a) Benefits received by government operating income do not exceed the VAT
employees under RA 6686; threshold,
threshol d, the individual has the option to be
b) Benefits received by employees taxed at:
pursuant to PD 851 (13th Month Pay d. The aforementioned graduated taxable
Decree); income rates; OR
c) Benefits received by employees not e. The aforementioned optional 8% gross
covered by PD 851 as amended by income tax.
Memorandum Order No. 28; and, f. If the gross sales/receipts and other non-
d) Other benefits such as productivity operating income exceeds the VAT
incentives and Christmas bonus. threshold, the individual shall be subject to
the graduated income tax rates.
iii. Taxation of Business
Income/Income From Exercise of iv. Taxation of Partners in a General
Profession Professional Partnership
All income obtained from doing business or GPP is not subject to income tax imposed
exercising
exercisi ng of profession shall be included in the pursuant to Sec. 26 of the Tax Code, as
computation of gross income. amended. However, the partners shall be liable
liab le
to pay income tax on their separate and
Individuals earning purely business or individual capacities for their respective
professional income distributive share in the net income of the GPP.
Individuals earning income purely from self-
Page 84 of 256
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taxable
redemptiondividend, the amount
or cancellation so stock
of the distributed in
shall be On sale, barter,
of shares of stockexchange or other
of a domestic disposition
corporation not
considered as taxable income to the extent that listed and traded through a local stock
it represents a distribution of earnings or exchange, held as a capital asset
profits. [Sec. 73 (B), NIRC]
NIRC ]
On the net capital gain: Final Tax of 15%
In other words, stock dividends are generally
not subject to tax as long as there are no Net capital gain: selling price less cost
options in lieu of the shares of stock. Selling price: consideration on the sale OR fair
market value of the shares of stock at the time
On the other hand, a stock dividend constitutes of the sale, whichever is higher
income if it gives the shareholder an interest Cost: original purchase price
different from that which his former
stockholdings represented. Income from the sale of real property situated
in the Philippines
Prizes and other winnings
Prizes and other winnings - 20%, except What property covered
a. Prizes amounting to P10,000 or less, which
whi ch Property located in the PH classified
cl assified as capital
shall be subjected to the graduated rates assets
under Subsection A of Section 24; and
b. Philippine Charity sweepstakes / lotto What transactions covered
winnings which does not exceed P10,000 - Sales, exchanges, or other disposition of real
exempt ; property (classified as capital assets), including
c. Prizes excluded from gross income. pacto de retro sales and other forms of
conditional sales of the following: citizens,
Prize, differentiated from winnings: resident aliens, NRAETB, NRANETB,
A prize is the result of an effort made (e.g., domestic corporations.
prize in a beauty contest), while winnings are
the result of a transaction where the outcome
depends upon chance (e.g., betting). Tax rate rule: 6% of —whichever is higher of:
General
Taxation of Capital Gains GSP, or FMV in accordance with Sec. 6 (E).
Page 86 of 256
Page 87 of 256
for depreciation provided for under Sec. (25%) of the gross income !
34(F) of the Code; or d. Interest income from long-term deposit or
d. Real property used in trade or business of investment in the form of savings,
the taxpayer common or individual trust funds, deposit
substitutes, investment management
Page 88 of 256
every NRANETB within the PH as interest, required shall subject him to the payment of
cash and/or property dividends, rents, salaries, appropriate withholding taxes due on the
wages, premiums, annuities, compensation, transaction. [RMC No. 8-14]
remuneration, emoluments, or other fixed or
determinable annual or periodic or casual i. Minimum Wage Earners
gains, profits, and
tax equivalent income,
to 25% andincome.
of such capital gains, a Rule: they shall be exempt from payment of
income tax on their taxable income.!
d. Aliens Employed by Regional
Headquarters, Regional Operating Limit: However, if he receives “other benefits”
Headquarters, Offshore Banking in excess of the allowable statutory amount of
P90,000, then he shall be taxable on the
Units, and Petroleum Service exceeds benefits as well as his salaries,
Contractors wages, and allowances, just like an employee
receiving compensation income beyond the
The preferential tax treatment of 15% shall no statutory minimum wage.
longer be applicable to employees of regional
headquarters (RHQs), regional operating The treatment of bonuses and other benefits
headquarters (ROHQs), offshore banking units that [a minimum wage earner] receives from
(OBUs) or petroleum service contractors and
subcontractors. They are now subject to the employer in excess of the [ %90,000
90,000]] ceiling
cannot but be the same as the prevailing
regular income tax rates [Sec. 25 (F)]. [Note treatment prior to R.A. 9504 - anything in
item A of veto message of the President on excess of %30,000 is taxable; no more,
mor e, no less.
TRAIN Law] The treatment of this excess cannot operate to
disenfranchise the MWE from enjoying the
e. Individual Taxpayers exempt from exemption explicitly granted by R.A. 9504.
income tax are: [Soriano v. Secretary of Finance , G.R. No.
184450 (2017)]
a. Senior Citizens (with qualifications)
qualifications) !
b. Minimum wage earners The minimum wage shall be exempt from the
c. Exemptions granted under international payment of income tax on their taxable income:
agreements Provided, further, That the holiday pay,
overtime pay, night shift differential pay and
All individuals and entities claiming exemption hazard pay received by such minimum wage
from imposition of taxes on income and, earners shall likewise be exempt from income
consequently, from withholding taxes are tax.
required to provide a copy of a valid, current
and subsisting tax exemption certificate or Compensation income including overtime pay,
ruling, as per existing administrative issuances holiday pay and hazard pay, earned by
and any issuance that may be issued from time minimum wage earners who have no other
to time, before payment of the related income. returnable income are NOT taxable and not
subject to withholding tax on wages [RA 9504].
The tax exemption certificate or ruling must
explicitly recognize the grant of tax exemption, ii. Exemptions Granted Under
as well as the corresponding exemption from International Agreements
imposition of withholding tax. Failure on the
part of the taxpayer to present the said tax See RMC No, 31-2013, April 12, 2013 –
exemption certificate or ruling as herein taxation of compensation income of Philippine
Page 89 of 256
The Government
signatory of certain ofinternational
the Philippines is a
agreements
and a party to different tax treaties which
specifically provide for the exemption of certain
persons or entities from taxes imposed by the
Philippines.
Page 90 of 256
Yield or any other monetary benefit from deposit substitute 20% 20% 25%
Yield or any other monetary benefit from trust funds and similar
simil ar
20% 20% 25%
arrangements
15%
Interest
expandedincomes receiveddeposit
foreign currency from asystem
depositary bank under Note: NRC
exempt (RR –1- Exempt Exempt
11)
Citizens,
Cash and/or Property Dividends Residents NRAETB NRANETB
Cash and/or property dividends actually or constructively
received from a domestic corp. or from a joint stock corp.,
insurance or mutual fund companies and regional operation 10% 20% 25%
headquarters of multinational companies (beginning Jan. 1,
2000)
Page 91 of 256
Tax Rate 6% 6% 6%
Resident Non-Resident
EXEMPT; However:
Interest from long-term deposit or In case of pre-termination, with remaining maturity of:
investment certificates, which have 4 years to less than 5 years -5% on entire income
a maturity of 5 years or more 3 years to less than 4 years – 12% on entire income
less than 3 years – 20% on entire income
Page 92 of 256
Winnings on Philippine
Sweepstakes/ Lotto Exempt if P10,000 and below
Sale of Shares of Domestic 0.6 of 1% of the Selling Price (Stock Transaction Tax)
Corp. (traded in a domestic
stock exchange) Note: Stock Transaction Tax is not an income tax, but a business (percentage) tax
SCHEDULE OF INCOME TAX RATES FOR INDIVIDUAL CITIZENS, RESIDENTS, AND NRAETB
0 to 250,000 - -
Over 250,000 but not more than 400,000 - 20% of excess over 250,000
Over 400,000 but not more than 800,000 30,000 25% of excess over 400,000
Over 800,000 but not over 2,000,000 130,000 30% of excess over 800,000
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Illustration : Mr. CSO earned, aside from his basic wage, additional pay of P140,000.00 which consists
of the overtime pay — P80,000.00, night shift differential — P30,000.00, hazard pay — P15,000.00,
and holiday pay — P15,000.00. He has P5,000 mandatory contributions (SSS, Pag-Ibig, Phil-health,
etc.) and P11,000 non-taxable benefits.
Add: Overtime, night shift differential, hazard, and holiday pay 140,000.00
–––––––––––
–––––––––––
–––––––––––
––––––––––– –––––––
–––––––––––
––––
Mixed-income (i.e. compensation income and business income/income from the practice of
profession – opted to avail of 8% tax on business/
business/professional
professional income)
Illustration : Mr. MAG, a Financial Comptroller of JAB Company, earned annual compensation in 2018
of P1,500,000.00, inclusive of 13th month and other benefits in the amount of P120,000.00 but net of
mandatory contributions
contr ibutions to SSS and
an d Philhealth. Aside
As ide from employment
empl oyment income, he owns a
convenience store, with gross sales of P2,400,000. His cost of sales and operating expenses are
P1,000,000.00 and P600,000.00, respectively, and with non-operating income of P100,000.00.
a. Hisincome
(8%) tax duetax
forrate
2018 shall
on his be sales
gross compu
computedted
for hisas follows
foll ows
income if he
from opted to
business: t o be taxed
tax ed at eight
ei ght percent
perc ent
Tax due:
1. On Compensation:
On P800,000.00 P130,000.00
On excess (P1,410,000 - P800,000) x 30% 183,000.00
––––––––––––
––––––– –––––
Tax due on Compensation Income P313,000.00
––––––––––––
––––––– –––––
2. On Business Income:
Gross Sales P2,400,000.00
Add: Non-operating Income 100,000.00
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––––––––––––
––––––––––––
Taxable Business Income P2,500,000.00
Multiplied by income tax rate 8%
––––––––––––
––––––– –––––
Tax Due on Business Income P200,000.00
––––––––––––
––––––– –––––
Total Income Tax Due (Compensation and Business) P513,000.00
Illustration : Same facts for Mr. MAG. His tax due for 2018 shall be computed as follows if he did not
opt for the eight percent (8%) income tax based on gross sales/receipts and other non-operating
income:
Total
Less: compensation income
Non-taxable 13th month pay and other benefits-max P1,500,000.00
90,000.00
––––––––––––
––––––– –––––
Taxable Compensation Income P1,410,000.00
Add: Taxable Income from Business —
Gross Sales P2,400,000.00
Less: Cost of Sales 1,000,000.00
–––––––––––
––––––– ––––
Gross Income P1,400,000.00
Less: Operating Expenses 600,000.00
–––––––––––
––––––– ––––
Net Income from Operation P800,000.00
Add: Non-operating Income 100,000.00 900,000.00
–––––––––––
––––––– –––– ––––––––––––
––––––––––––
Total Taxable Income P2,310,000.00
Tax Due:
On P2,000,000.00 P490,000.00
Page 95 of 256
* The taxable income from both compensation and business shall be combined for purposes of
computing the income tax due if the taxpayer chose to be subject under the
graduated income tax rates.
Tax Due:
8% of P850,000.00 P68,000.00
* The total of gross sales and gross receipts is below the VAT threshold of P3,000,000.00.
* Taxpayer's source of income is purely from self-employment, thus she is entitled to the amount
allowed as deduction of P250,000.00 under Sec. 24 (A) (2) (b) of the Tax Code, as amended.
* Income tax imposed herein is based on the total of gross sales and gross receipts.
* Income tax payment is in lieu of the graduated income tax rates under subsection (A) hereof and
percentage tax due, by express provision of law.
Pure Business/Professional
Illustration Income (Opted to be taxed at schedular rates)
: Ms. EBQ above, failed to signify her intention to be taxed at 8% income tax rate on gross
sales in her initial
initi al Quarterly Income Tax Return, and she incurred cost of sales and operating expenses
amounting to P600,000.00 and P200,000.00, respectively, or a total of P800,000.00, the income tax
shall be computed as follows:
Tax Due:
Page 96 of 256
A Philippine branch of a foreign corporation (b) Optional gross income tax (GIT)
duly licensed by the SEC is considered a
resident foreign corporation. Thus, only the Section 27 (A) provides for an optional gross
income of the Philippine branch from sources income tax of 15% based on gross income.
within the Philippines is subject to Philippine
income tax. (c) Minimum Corporate Income Tax
(MCIT)
As general rule, the head office of a foreign
corporation is the same juridical entity as its a. Applies to domestic corporations and
branch in the Philippines following the single RFCs whenever such corporations
entity concept. Thus, the income from sources b. have zero or negative taxable income, or
whenever the
within the Philippines of the foreign head office
shall thus be taxable to the Philippine
Phil ippine branch. c. MCIT is greater than the normal income
tax due.
But, when the head office of a foreign d. Imposed beginning the fourth taxable year
corporation independently and directly from the taxable year the corporation
invested in a domestic corporation without the commenced its business operations. For
funds passing through its Philippine branch, purposes of MCIT, the taxable year in
the taxpayer, with respect to the tax on which business operations commenced
dividend income, would be the non-resident shall be the year when the corporation
foreign corporation itself and the dividend registers with the BIR (not in which the
income shall be subject to the tax similarly corporation started commercial
imposed on non- resident foreign corporations. operations).
[Marubeni v. Commissioner , G.R. No. 76573 e. Tax rate: 2% of Gross Income
(1989)]
Page 97 of 256
Gross Income
Gross Sales xxx Direct cost of services all direct costs and
Less: Sales Returns xxx expenses necessarily incurred to provide the
Sales Discounts xxx services required by the customers and clients
including (i) salaries and employee benefits of
Allowances xxx
Cost of Goods Sold xxx xxx personnel, consultants and specialists directly
rendering the service and (ii) cost of facilities
Gross Income xxx directly utilized in providing the service such as
depreciation or rental of equipment used and
If apart from deriving income from core cost of supplies. In the case of banks, it
business activities there are other items of includes interest expense.
gross income realized or earned by the
taxpayer which are subject to the normal MCIT is in the nature of a tax credit, not an
corporate income tax, they must be included as allowable deduction.
part of gross income for computing MCIT. [Sec.
27 (E), NIRC; RR 12-07]
12-07] It addresses the previously rampant practice of
some corporations not declaring their actual
This means that the term “gross income” will income or bloating their expenses.
also include all items of gross income
enumerated under Section 32(A), except: (a) There is no MCIT on the first three taxable
income exempt from income tax, and (b) years as incentive to do business.
income subjected to FWT.
What amount of income tax is paid by the
Cost of goods sold corporation to the BIR?!
In general – includes all business expenses Whichever is higher between the normal tax
directly incurred to produce the merchandise to and the minimum corporate income tax.
bring them to their present location and use.
Coverage
Trading or merchandising
m erchandising – includes invoice The MCIT covers domestic and resident
cost of the goods sold, plus import duties, foreign corporations which are subject to the
freight in transporting the goods to the place regular income tax. Corporations subject to a
where the goods are actually sold including special corporate tax system do not fall within
insurance while the goods are in transit. the coverage of the MCIT.
Page 98 of 256
Page 98 of 256
Illustration:
E Co., a domestic trading corporation, in its fourth year of operations had a gross income from sales
of P300,000 and net taxable income of P100,000. How much was the income tax paid by the
corporation for the year?
Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
MCIT 80K 50K 30K 40K 35K
NT 20K 30K 40K 20K 70K
(a) 60k excess MCIT from year 4 is credited against the normal tax to be paid in year 6 and 8.
(b) 20k excess MCIT from year 5 is credited against the normal tax to be paid in year 8.
(c) 20k excess MCIT from year 7 will
wi ll be credited against future normal
normal tax to be paid.
Page 99 of 256
Relief from MCIT [Sec. 27 (E)(3), NIRC] the normal income tax due is higher than the
The Secretary of Finance may suspend computed annual MCIT, the following shall be
imposition of MCIT on any corporation which allowed to be credited against the annual
sustained substantial losses on account of income tax: (a) quarterly MCIT payments, (b)
(LMB): quarterly normal income tax payments, (c)
a. Prolonged labor dispute (losses from a excess MCIT in the prior year/s (subject to the
strike staged by employees that lasts for prescriptive period allowed for its creditability),
more than 6 months and caused the (d) CWTs in the current year, (d) excess CWTs
temporary shutdown of operations), or in the prior year.
b. Force majeure (acts of God and other
calamity; includes armed conflicts like war If in the computation of annual income tax due,
or insurgency), or the computed annual MCIT due is higher than
c. Legitimate business reverses (substantial the annual normal income tax due, the
losses due to fire, robbery, theft or other following may be credited against the annual
economic reasons). income tax: (a) quarterly MCIT payments of
current taxable quarter, (b) quarterly normal
Quarterly MCIT Computation income tax payments in current year, (c) CWTs
The computation and the payment of MCIT in the current year, (d) excess CWTs in the
shall likewise apply at the time of filing the prior year.
quarterly corporate income tax. In the
computation of the tax due for the taxable Excess MCIT from the previous taxable year/s
quarter, if the quarterly MCIT is higher than the shall not be allowed to be credited against the
quarterly normal income tax, the tax due to be annual MCIT due as the same can only be
paid for such taxable quarter at the time of filing applied against normal income tax.
the quarterly corporate income tax return shall
be the MCIT. Manner of Filing and Payment.
The MCIT shall be paid in the same manner
Items allowed to be credited against quarterly prescribed for the payment of the normal
MCIT due: (a) CWT, (b) Quarterly income tax corporate income tax which is on a quarterly
payments under the normal income tax; and (c) and on a yearly basis.
MCIT paid in the previous taxable quarter(s).
(d) Taxation of Passive Income
Excess MCIT from the previous taxable year/s
shall not be allowed to be credited against the Interest from deposits and yield or any other
quarterly MCIT tax due. monetary benefit from deposit substitutes and
from trust funds and similar arrangements and
Annual Income Tax Computation. royalties
The final comparison between the normal a. 20% final tax on:
income tax payable and the MCIT shall be b. interest on any currency bank deposit,
made at the end of the taxable year. The c. yield or any other monetary benefit from
payable or excess payment in the Annual deposit substitutes, trust funds and similar
Income Tax Return shall be computed taking arrangements, and
into consideration corporate income tax d. Royalties
payment made at the time of filing of quarterly e. same for Domestic Corporations and
corporate income tax returns whether this be Resident Foreign Corporations
MCIT or normal income tax. f. Collected as Final Withholding Tax [Sec.
57, NIRC]
In the computation of annual income tax due, if
Page 100 of 256
Interest Income derived by a domestic taxable year from the sale, barter, exchange or
corporation from depository bank under the other disposition of shares of stock in a
expanded foreign currency deposit system domestic corporation not listed and traded
[Section 27 (D)(1), NIRC] through a local stock exchange:
a. 15% final income tax
b. same for Domestic Corporations and
Resident Foreign Corporations Capital
exchange,gains realized from
or disposition the and/or
of lands sale,
c. Collected as Final Withholding Tax [Sec. buildings
57, NIRC] a. On the sale, exchange or disposition of
lands and/or buildings which are not
Inter-corporate dividends actually used in the business of a
a. Dividends received from a domestic corporation and are treated as capital
corporation by another domestic assets
corporation or resident foreign corporation b. On the gross selling price, or the current
- Exempt fair market value at the time of the sale,
b. Dividends received from a domestic whichever is higher, a final tax of 6%;
corporation by a non-resident foreign c. If it is a Resident Foreign Corporation.,
Corporation., it is
corporation (NRFC): 30% of the amount of subject to the regular corporate income tax
cash and/or property dividend; provided rate of 30%
that it may be reduced to 15% of the d. The capital gains tax is applied on the
amount of cash and/or property dividend, gross selling price, or the current fair
if the country in which the NRFC is market value at the time of the sale,
domiciled shall allow a credit against the whichever is higher. Any gain or loss on
tax due from the NRFC deemed to have the sale is immaterial because there is a
been paid in the Philippines equivalent to conclusive presumption by law that the
15%, which represents the difference sale resulted in a gain.
between the regular income tax of 30% e. Applicable to domestic corporations only.
and the 15% tax sparing rate. f. Tax treatment is similar to that of
individuals.
Stock dividends are exempt if there is no
change in proportionate interest. (e) Improperly Accumulated
Earnings Tax
Taxation of Capital Gains
[Sec. 29, NIRC, as implemented
im plemented by RR 2-2001]
Capital gain from sale of shares of stock not
traded in the stock exchange! Rule: In addition to other income taxes, there
is imposed for each taxable year a tax equal to
Final tax on net capital gains realized by a 10% of the improperly accumulated taxable
domestic corporation during the taxable year income.
from the sale, barter, exchange or other
disposition of shares of stock in a domestic Applies to every corporation formed or availed
corporation not listed and traded through a for the purpose of avoiding the income tax with
local stock exchange: 15% of net capital gains respect to its shareholders or the shareholders
[Sec. 27 (D)(2), NIRC].
N IRC]. of any other corporation,
corporation , by permitting earnings
and profits to accumulate instead of being
Final tax on net capital gains realized by divided or distributed.
Resident Foreign Corporations and
Nonresident Foreign Corporations during the
Page 101 of 256
In applying the above rules, dividends shall be Immediacy Test: The term "reasonable needs
deemed to have been paid out of the most of the business" means (1) the immediate
recently accumulated
accumulated profits (LIFO: last in, first needs of the business, including
includin g (2) reasonably
out). anticipated needs.
Sample computation (RMC No. 35-2011) The corporation should be able to prove (1) an
xx immediate need for the accumulation of the
Taxable Income for the Year xx earnings and profits, or (2) the direct
Add: correlation of anticipated needs to such
xx accumulation of profits.
(a) Income subjected to Final Tax xx
xx Accumulation for Reasonable needs under
(b) NOLCO xx RR 2-2001
xx Accumulation of earnings up to 100% of paid-
(c) Income exempt from tax xx up capital;
(d) Income excluded from gross xx xx
income xx xx Definite corporate expansion projects requiring
xx considerable capital expenditure (approved by
xx Board of Directors or equivalent body);
Less:
xx Building, Plant or Equipment Acquisition
Income Tax paid xx (approved by Board of Directors or equivalent
xx xx body)
Dividends declared/paid xx xx a. compliance with any Loan Covenant or
xx pre-existing obligation (established under
Total xx a legitimate business agreement);
Add: Retained Earnings from xx b. required by Law or applicable regulations
prior years xx to be retained;
Accumulated Earnings as of end xx c. in case of subsidiaries of foreign
of current year xx corporations in the Philippines,
undistributed earnings reserved for
Investments within the Philippines
Page 102 of 256
Where at least 50% of the outstanding capital Tax Rate and Base – 15% final tax based on
stock or at least 50% of the total combined the total profits applied or earmarked for
voting power of all classes of stock entitled to remittance without any deduction for the tax
vote in a corporation is owned directly or component (except those activities registered
indirectly by at least
l east 21 or more individuals, the with PEZA).
corporation is considered as a publicly-held
corporation, thus, exempt from IAET.
Page 103 of 256
The following are not treated as branch profits iii. Government-owned or Controlled
unless effectively connected with the conduct Corporations, Agencies,
of trade or business in the Philippines: Instrumentalities [Sec. 27(C), NIRC]
a. Interests, dividends, rents, royalties
(including remuneration for technical GOCCs
services),
b. salaries, wages, General rule:engaged
corporation
GOCCs are taxable
taxabl e as any other
in similar business,
c. premiums, annuities, emoluments, or industry or activity
d. other fixed or determinable annual,
periodic or casual gains, profits, income Exceptions:
and capital gains received during each a. Government Service Insurance System
taxable year from all sources within the (GSIS)
Philippines b. Social Security System (SSS)
( SSS)
c. Philippine Health Insurance Corporation
Income Tax on Special Domestic (PHIC)
Corporations d. Local water districts (LWDs) [Sec. 27 (C),
NIRC]
ii. Proprietary Educational Institutions
and Non-profit Hospitals [Sec. 27(B), Government agencies or instrumentalities
NIRC] General
tax.
rule: The government is exempt from
Tax Rate and Base –10% tax on taxable
income (except on income subject to capital Exception: When it chooses to tax itself.
gains tax and passive income subject to final Nothing can prevent Congress from decreeing
tax) within and without
wi thout the Philippines
Philippines that even instrumentalities or agencies of the
government performing governmental
Caveat: If gross income from unrelated
unrel ated trade or functions may be subject to tax. Where it is
business or other activity exceeds 50% of total done precisely to fulfill a constitutional mandate
gross income derived from all sources, the tax and national policy, no one can doubt its
rate of 30% shall be imposed on the entire wisdom. [Mactan Cebu Airport v Marcos
taxable income. (1996)]
Unrelated trade, business or other activity – iv. Foreign Currency Deposit Units
any trade, business or other activity, the [Sec. 27(D)(3), NIRC]
conduct of which is not substantially relate
related
d to
the exercise or performance by such Income derived by a depository bank under the
educational
educational institution or hospital of its primary
prim ary expanded foreign currency deposit system
purpose or function. from:
Except net income from transactions specified Air Canada vs. CIR (CTA
(CTA Case No. 6572):
by the Secretary of Finance upon A foreign airline company selling tickets in the
recommendation by the Monetary Board – Philippines through their local agents shall be
subject to regular income tax payable by banks considered as a resident foreign corporation
engaged in trade or business in the country.
Foreign currency loans granted to residents
(other than offshore banking units in the The absence of flight operations within the
Philippines) – interest income subject to a final Philippine territory cannot alter the fact that the
tax of 10% income received was derived from activities
within the Philippines.
Income of nonresidents, individuals or
corporations, from transactions with depository The test of taxability is the source, and the
banks under the EFCDS – exempt from income source is that activity which produced the
tax income.
Same for Domestic and Resident Foreign International Shipping, GPB means:!
Corporations. Gross revenue for (a) passenger, cargo or mail
(b) originating from the Philippines up to final
Similar treatment to OBUs. destination, (c) regardless the place of sale or
payments of the passage or freight documents.
v. Resident Foreign Corporations
Subject to Preferential Tax Rates (b) Foreign Currency Deposit Units
and Offshore Banking Units
(a) International Carriers
FOREIGN CURRENCY DEPOSIT UNITS
Tax Rate and Base – 2.5% on Gross Philippine
Phili ppine [Sec. 28(A)(7)]
Billings (GPB) Interest from Deposits and Yield or any other
Monetary Benefit from Deposit Substitutes,
International Air Carriers, GPB means: Trust Funds and Similar Arrangements and
a. gross revenue derived from Royalties [Sec. 28(B)(7)(a), NIRC]
b. carriage of persons, excess baggage,
cargo and mail Derived from sources within the Philippines -
c. originating from the Philippines in a Final income tax at tax rate of 20% of interest
continuous and uninterrupted flight, income
d. irrespective of the place of sale or issue
and the place of payment of the ticket or Interest income derived by RFC from a
passage document depository bank under the expanded foreign
e. tickets revalidated, exchanged and/or currency deposit system - 7.5% of interest
indorsed to another international airline – income
part of GPB if passenger boards
boar ds a plane in
a port or point in the PH Income derived by a depository bank under
f. flights which originate from the PH, but the expanded foreign currency deposit
transshipment of passenger takes place at system [Sec. 28(B)(7)(b), NIRC]
a port outside PH on another airline – part Note : The provision discussing income derived
of GPB only the aliquot portion of the cost by a resident foreign corporation under the
of the ticket corresponding to the leg flown expanded foreign currency deposit system
from the PH to transshipment point [RR cites the same rule as that derived by a
15-02] domestic corporation [Sec. 27(D)(3), NIRC].
Page 105 of 256
operating for the exclusive benefits of their passive income, etc. applies to these otherwise
members; includes: fraternal organization exempt organizations.
operating under the lodge system; or
mutual aid association or a nonstock Tax on Other Entities: General Partnerships,
corporation organized by employees General Professional Partnerships, Co-
providing life, sickness, accident, or other ownerships, Joint Ventures, and Consortia
benefits exclusively to the members
d. Cemetery company – owned and General Partnerships
operated exclusively for the benefit of its Partnerships where all or part of their income
i ncome is
members derived from the conduct of trade or business;
e. Non-stock corporation or association it is treated as a corporation [Sec. 22 (B),
organized and operated exclusively for NIRC].
religious, charitable, scientific, athletic, or
cultural purposes or for the rehabilitation
rehabilitation of General rule: The partnership is subject to the
veterans, provided that no part of its same rules and rates as corporations.
income or asset belong to or inure to the
benefit of any individual Exceptions: A partner’s share in the
f. Business league, chamber of commerce, partnership’s distributable net income is
or board of trade – Non-profit; no part of deemed actually or constructively received by
net income inures to the benefit of an the partners in the same taxable year [Sec. 73
individual (D), NIRC]. Consequently:
Consequently:
g. Civic league or organization – Non-profit; a. such share will be subjected to dividend
operating exclusively for the promotion of tax (10%) whether actually distributed or
social welfare not.
h. Non-stock and non-profit educational b. there can never be an instance of
institutions improperly accumulated taxable income;
i. Government educational institutions note that RR 2-01 provides that IAET does
j. Organizations of a purely local character not apply to taxable partnerships.
whose income consists solely of
assessment, duties and fees collected Distributable net income of the partnership is
from their members to meet expenses; its taxable income less the normal corporate
includes: farmers’ or other mutual typhoon income tax (30%).
or fire insurance company, mutual ditch or
irrigation company and mutual or A partner’s contribution to the general
cooperative telephone company partnership fund is a capital investment and is
k. Farmers’, fruit growers’, and like not taxable income of the partnership.
association – whose primary function is to
market the product of their members General Professional Partnerships
Partnerships formed by persons for the sole
Notwithstanding the provisions in the purpose of exercising their common
preceding paragraphs, the income of the profession, no part of the income of which is
foregoing organizations from (1) their derived from engaging in any trade or
properties, real or personal, or from (2) their business. [Sec 22 (B), NIRC]
N IRC]
activities conducted for profit regardless of the
disposition made of such income, shall be A GPP as such shall not be subject to the
subject to tax imposed under the NIRC. income tax. It is not a taxable entity for income
tax purposes.
N.B. This means capital gains tax, tax on
N.B.
Page 109 of 256
GPP is not a taxable entity net of cost and expenses. [RR No. 08-2018]
The GPP is deemed to be no more than a mere
mechanism or a flow-through entity in the Co-ownerships
generation of income by, and the ultimate There is co-ownership whenever the
mechanism distribution of such income to the ownership of an undivided thing or right
individual partners [Tan
[Tan v. Commissioner , G.R. belongs to different persons. [Art. 484, NCC] It
No. 109289 (1994)]. may be created by succession or donation.
But the partnership itself is required to file When Co-ownership is not subject to tax
income tax returns for the purpose of furnishing When the co-ownership’s activities are limited
information as to the share in the gains or merely to the preservation of the co-owned
profits which each partner shall include in his property and to the collection of the income
individual return [RR 2-98]. from the property. Each co-owner is taxed
individually on his distributive share in the
The share of an individual partner in the net income of the co-ownership. [De Leon]
profit of a general professional partnership is
deemed to have been actually or constructively When Co-ownership is subject to tax
received by the partner in the same taxable The following circumstances would render a
year in which such partnership
partnership net income was co-ownership subject to a corporate income
earned, and shall be taxed to them in their tax:
individual capacities, whether actually a. When a co-ownership is formed or
distributed or not, at the graduated income tax established voluntarily, or upon
ranging from 5% to 32%. agreement of the parties;
b. When the individual co-owner reinvested
Because the principle of constructive receipt is his share, and
applied to undistributed profits of GPPs, the c. When the inherited property remained
actual distribution to the partners of such tax- undivided for more than ten years, and no
paid profits in another year should no longer be attempt was ever made to divide to same
liable to income
i ncome tax. [MAMALATEO] among the co-heirs, nor was the property
under administration proceedings nor held
A GPP may claim either the itemized in trust, the property should be considered
deductions allowed under Section 34 of the as owned by an unregistered partnership.
Code or in lieu thereof, it can opt to avail of the [Valencia and Roxas]
OSD allowed to corporations in claiming the
deductions in an amount not exceeding forty Automatically converted into an unregistered
percent (40%) of its gross income. partnership the moment the said common
properties and/or the incomes derived from
The distributable net income of the partnership them are used as a common fund with intent to
may be determined by claiming either itemized produce profits for the heirs in proportion to
deductions or OSD. The share in the net their respective shares in the inheritance as
income of the partnership, actually or determined in a project partition either duly
constructively received, shall be reported as executed in an extrajudicial settlement or
taxable income of each partner. The partners approved by the court in the corresponding
comprising the GPP can no longer claim further testate or intestate proceeding. [Ona
[ Ona v. CIR ,
deduction from their distributive share in the G.R. No. L-19342 (1972)]
net income of the GPP and are not allowed to
avail of the 8% income tax rate option since
their distributive share from the GPP is already
Page 110 of 256
c. Resident alien, on income from sources been paid on such property, or (b) when the
within the Philippines
Phil ippines transfer of such property is exempt from the
d. Non-resident alien engaged in trade or donor’s tax [Sec. 51 (E), NIRC].
NIRC ].
business or in the exercise
exerci se of profession in
the Philippines, on income from sources If the taxpayer is unable to make his return,
within the Philippines
Phil ippines such as when he suffers from disability, the
return may be made by his duly authorized
Exceptions: The following shall not be agent or representative or by the guardian or
required to file income tax return: other person charged with the care of the
a. Individuals whose gross income does not taxpayer or his property; the principal and his
exceed P250,000 except citizen and alien representative or guardian assuming
individuals engaged in business or responsibility for penalties for erroneous, false
practice of profession within the or fraudulent returns [Sec. 51 (F), NIRC].
Philippines who shall file income tax
returns regardless of the amount of gross ii. Substituted Filing
income.
b. Individuals with respect to pure Applicable to individual taxpayers:
compensation income from sources within a. receiving purely compensation income,
the Philippines, the income tax on which regardless of amount
has been withheld; except when such b. from only one employer in the Philippines
compensation has been derived from for the calendar year, and
more than one employer. c. the income tax of which has been withheld
c. Individuals whose sole income has been correctly by the employer
subjected to final withholding tax
(pursuant to Sec. 57 (A)). The certificate of withholding filed by their
d. Minimum wage earner (as defined in Sec. respective employers, duly stamped ‘received
‘r eceived’’
22 (HH)) by the BIR, shall be tantamount to the
e. Individuals who are exempt from income substituted filing of income tax returns by the
tax pursuant to the provisions of the Tax employee [Sec. 51-A, NIRC].
Code and other laws.
iii. When and Where to File
Special Provisions
Married individuals (whether citizens, resident Income tax return of an individual who is not on
or nonresident aliens) who do not derive a substituted basis shall be filed on or before
income purely from compensation, shall file April 15 of each year covering income of the
only one consolidated return to cover the preceding taxable year. [Sec. 51 (C)(1), NIRC]
income of both spouses for the taxable year,
but where it is impracticable for the spouses to Individuals subject
subject to capital gains tax [Sec.
file one return, each spouse may file
fil e a separate 51 (C)(2), NIRC]:
return of income but the returns so filed shall a. Sale of shares not traded thru a local stock
be consolidated by the BIR for verification [Sec. exchange – file a return within 30 days
51 (D), NIRC]. from the transaction, and a final
consolidated return on or before April 15
The income of unmarried minors is a tax liability
l iability of each year covering all stock
of the minor but where such income
i ncome is derived transactions of the preceding taxable year
from property received from a living parent, the b. Sale of real property – file a return within
income shall be included in the return of the 30 days from each sale
parent except (a) when the donor’s tax has
Page 112 of 256
render
or quarterly income
adjustment tax returns
return, exceptandforeign
a final
Page 113 of 256
pay the difference between the tax withheld Withholding of VAT [Sec 114 (C), NIRC]
and the tax due on the income. Taxes withheld The government (political subdivisions,
on income payments covered by the expanded instrumentalities, agencies, GOCCs) shall
withholding tax and compensation income are deduct and withhold final VAT of 5% of gross
creditable in nature. payment on purchase of goods and services
subject to VAT. If the payment is for lease or
i. Expanded Withholding Tax use of properties to a nonresident owner,
withholding tax shall be 12%.
Withholding Tax at Source [Sec 57, NIRC]
Withholding of final tax of certain income – Note : Beginning January 1, 2021, the VAT
Subject to rules and regulations the Secretary withholding system shall shift from final to a
of Finance may promulgate, upon the creditable system.
recommendation of the CIR, the tax imposed
or prescribed by the NIRC on certain specified ii. Withholding Tax on Compensation
items of income shall be withheld by payor-
corporation and/or person. Except in the case of minimum wage earner,
every employer making payment of wages
N.B. Sec. 57 contains an extensive list of taxes.
N.B. Sec. shall deduct and withhold upon such wages a
These items of income include taxes on certain tax determined in accordance with the rules
passive incomes (interest, dividends), capital and regulations to be prescribed by the
gains tax (shares not traded, real property), Secretary of Finance, upon recommendation of
branch profit remittance tax, and certain the CIR.
payments to nonresident aliens /foreign
corporations.] d. Fringe Benefits Tax
Withholding of creditable tax at source – Note : See earlier discussion on Fringe Benefits
The Secretary of Finance may, upon the under Gross Income.
recommendation of the CIR, require the
withholding of a tax on the items of income
payable to natural or juridical persons, residing
in the Philippines, by payor-
corporation/persons
corporation/ persons as provided for by law, at
the rate of not less than 1% but not more than
32%, which shall be credited against the
income tax liability of the taxpayer for the
taxable year. Provided, That, beginning
January 1, 2019, the rate of withholding shall
not be less than one percent (1%) but
bu t not more
than fifteen percent (15%) of the income
payment. [Sec. 57 (B), NIRC]
Page 115 of 256
TAXATION 2
TAXATION LAW
Page 116 of 256
Taxable objects/subje
objects/subjects:
cts:
TRANSFER TAXES 1. Right/privilege of the deceased person to
transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death;
2. Certain transfers, during his lifetime, which
A. ESTATE TAX are made by law as
testamentary disposition.
equivalent to
Purpose: To tax the shift of economic benefits The executor or administrator shall not deliver
and enjoyment of property from the dead to the a distributive share to any party interested in
living. the estate despite the transfer of properties
properti es and
rights at the time of death, unless there is a
certification from CIR that estate tax has been
paid. [Sec. 94, NIRC]
Page 117 of 256
d. Proceeds of life insurance [Sec. purpose of avoiding the tax. The decedent’s
85(E), NIRC]; motive is a question of fact. Thus, the
e. Prior interest [Sec. 85(F), NIRC] imminence of death may afford convincing
f. Transfers for insufficient evidence of the impelling cause of transfer.
consideration
considerat ion [Sec. 85(G), NIRC]; [MAMALATEO, Reviewer on Taxation]
i. Decedent’s interest [Sec. 85(A), iii. Revocable Transfers [Sec. 85(C),
NIRC] NIRC]
All property owned by the decedent to the General Rule: A transfer is revocable where:
where:
extent of his interest therein at the time of his 1. There is a transfer by trust or
death. This includes any interest, having value otherwise,
or capable of being valued or transferred, in
property owned or possessed by the decedent Exception: In case of a bona fide sale
at the time of his death., This also includes for an adequate and full consideration
those transferred by the decedent at the time in money or money’s worth
of his death.
2. The enjoyment thereof was subject at
Examples: the date of his death to any change
a. dividend declared on or before death, but through the exercise of a power (in
is received by the estate after death whatever capacity exercisable) by:
b. partnership profits which have accrued a. The decedent alone;
b. The decedent in conjunction with
before his death, but received after death
any other person (without regard to
when or from what source the
ii. Transfers in Contemplation of Death decedent acquired such power), to
[Sec. 85(B), NIRC] alter, amend, revoke, or terminate;
or
It is a transfer in contemplation of death if the c. Where any such power is
decedent either has retained for his life or for relinquished in contemplation of
any period which does not in fact end before the decedent death.
his death:
a. the possession or enjoyment
enjoym ent of, or the right Note: The
The power to alter, amend or revoke shall
to the income from the property, or be considered to exist on the date of the
b. the right, either alone or in conjunction with decedent’s death even though:
any person, to designate the person who a) The exercise of the power is subject
subj ect to
shall possess or enjoy the property or the a precedent giving of notice, or
income therefrom b) The alteration, amendment or
revocation takes effect only on the
expiration of a stated period after the
Exception: In case of a bona fide sale for an
exercise of the power, whether or not
adequate and full consideration in money or
on or before the date of the decedent’s
money's worth
death notice has been given or the
power has been exercised.
Note: The term “in contemplation of death”
c) If notice has not been given or the
does not refer to the general expectation of
power has not been exercised before
death. The words mean that it is the thought
the date of his death, such notice shall
of death
induces
, as a controlling motive, which
the disposition of the property for the
be considered to have been given, or
Page 120 of 256
the power exercised, on the date of his v. Proceeds of Life Insurance [Sec.
death. 85(E), NIRC]
iv. Property Passing under a Special Inclusion of proceeds of life insurance to the
Power of Appointment [Sec. 85(D), gross estate depends on (i) the designated
NIRC] beneficiary; (ii) the revocability of the
insurance; and (iii) the period and source of
Power of Appointment – the right to funds used in premiums.
designate the person or property who shall
enjoy and possess certain property from a When included in the gross estate
donor or a prior decedent. Proceeds of life insurance taken out by the
a. General Power of Appointment (GPA): decedent on his own life shall be included in
when it gives to the decedent the power to the gross estate when the beneficiary is:
appoint any person he pleases including 1. The estate of the deceased, his executor
execu tor or
administrator, irrespective of whether or
himself, thus having as full dominion over
not the insured retained the power of
the property as though he owned it
revocation;
revocation; or
b. Special Power of Appointment (SPA): 2. Any beneficiary designated in the policy,
when the decedent can appoint only except when designa
designation
tion is irrevocable.
among a designated class of persons other
than himself, his estate, the creditors of his When not taxable
estate [AmJur] 1. Irrevocably designated; how done
a. By expressly stating it in the policy
(if not stated, the designation is
General Rule: Property passing under a GPA
PRESUMED to be REVOCABLE);
is excluded from gross estate
b. By not changing the beneficiary
during the lifetime of the insured, it
Exception: Included in the gross estate if the
is deemed irrevocable. [Sec. 11,
property arises under a GPA exercised by the
RA 10607 (2013)]
decedent:
2. Accident insurance proceeds as the Tax
1. By will; or
Code specifically mentions only life
2. By deed executed in contemplation of, or
insurance policies
intended to take effect in possession or
3. Proceeds of a group insurance policy taken
3. enjoyment
By deed underat or which
after his
hedeath; or
has retained for out by a company for its employees.
4. Amount receivable by any beneficiary
his life or any period not ascertainable
irrevocably designated in the policy of
without reference to his death or for any
insurance by the insured. The transfer is
period which does not in factf act end before his
absolute and the insured did not retain any
death –
legal interest in the insurance.
a. The possession or enjoyment of, or the
5. Proceeds of insurance policies issued by
right to the income from the property; or
the GSIS are exempt from all taxes; [PD
b. The right, either alone or in conjunction
1146]
with any person, to designate the
6. Benefits accruing under the SSS Law [RA
persons who shall enjoy or possess the
1161]
property or the income therefrom.
7. Proceed
Proceeds s of life insurance payable to heirs
of deceased members of military personnel
[RA 360]
Page 121 of 256
collect from the decedent must not have Note: Where the settlement is made through
prescribed; and the Court in a testate or intestate proceeding,
e. They must be reasonably certain in pertinent documents filed with the Court
amount, and substantiated. evidencing the claims against the estate, and
the Court Order approving the said claims, if
Substantiation Requirements [Sec. 6 (2.2), already issued, in addition to the documents
RR 12-2018]. mentioned in the preceding paragraphs. [Sec.
In case of simple loan (including advances): 6(2.2.3), RR 12-2018]
a. The debt instrument must be duly
notarized at the time the indebtedness ii. Claims against Insolvent
was incurred, except for loans granted by Persons [Sec. 86 (A)(3),
financial institutions where notarization is NIRC]
not part of the business practice/policy.
b. Duly notarized Certification from the These are claims of the deceased against
creditor as to the unpaid balance of the insolvent persons as defined under RA 10142
debt, including interest as of the time of (The Financial Rehabilitation and Insolvency
death. Act of 2010) and other existing laws, where the
c. Proof of financial capacity of the value of the decedent’s interest therein is
creditor to lend the amount at the time the included in the value of the gross estate. [Sec.
loan was granted, as well as its latest 6(3), RR 12-2018]
audited balance sheet showing the unpaid
balance of the decedent-debtor. Requirements for deductibility:
d. A statement under oath executed by the 1. The full amount owed by the insolvent must
administrator or executor of the estate first be included in the decedent’s gross
reflecting the disposition of the proceeds of estate; and
the loan if it was contracted within 3 2. The incapacity of the debtor to pay his
years prior to the death of the decedent. obligation should be proven, although a
judicial declarat
declaration
ion of insolvency is not
If the unpaid obligation arose from required. [Monserrat
[Monserrat v. Collector of Internal
purchase of goods or services: Revenue , CTA Case No. 11 (1955)]
a. Documents evidencing the purchase of
goods or service (e.g., sales Note: If
If the insolvent could only pay a partial
invoice/delivery receipt or contract for amount, the full amount owed shall be included
services), and statement of account given in the gross estate, and the amount
by the creditor uncollectible shall be allowed as a deduction.
b. Duly notarized certification from the
creditor as to the unpaid balance of the iii. Unpaid Mortgages, Losses,
debt, including interest as of the time of and Taxes [Sec. 86(A)(4),
death. NIRC]
c. Certified true copy of the latest audited
balance sheet of the creditor with a Unpaid Mortgages
detailed schedule of its receivable showing Requisites for Deductibility [Sec. 6(4.1), RR 12-
the unpaid balance of the decedent-debtor. 2018]:
A certified true copy of the updated latest a. The value of the decedent’s interest
subsidiary ledger/records of the debtor- therein, undiminished by such mortgage or
decedent, should likewise be submitted. indebtedness, is included in the value of
the gross estates.
Page 123 of 256
c. Summary of the Composition of the Gross Estate and Exclusions, Deductions
therefrom
RC/NRC/RA NRA
Composition and Determination of GROSS Estate [Sec. 85, NIRC]
All properties,
intangible, real or
wherever personal,
situated [Sec.tangible or Only
4, RR 12- properties
provided situated ofinintangible
that the inclusion inthe Philippines,
tangible personal
2018] property is subject to the rule of reciprocity
provided for under Section 104 of the NIRC [Sec.
4, RR 12-2018]
Deductions from Gross Estate to arrive at the Net Estate [Sec. 86 (A) and (B), NIRC]
Ordinary deductions
deductions 2 :
Ordinary deductions:
a. Proportionate deductions for LIT3
a. Losses, indebtedness, taxes (LIT)
! Claims against the estate
! Claims against the estate
! Claims against insolvent persons
!
Claims
!
against insolvent persons
Unpaid mortgages
!
Unpaid mortgages
! Taxes
! Taxes
! Casualty losses
! Casualty losses
b. Vanishing deductions (property previously
b. Vanishing deductions (property previously
taxed)
taxed)
c. Transfers for public use
c. Transfers for public use
us e
Special deduction
Special deductions
d. Standard Deduction of P500,000
d. Family home (max of P10Million)
e. Standard deduction (fixed at P5Million)
Net share of the surviving spouse
f. Amounts received under R.A. 4917
N.B: No deduction for Family home and
Net share of the surviving spouse
Amounts received under R.A. 4917
[Sec. 6, RR 12-2018] [Sec. 7, RR 12-2018]
* Funeral expenses, judicial expenses, and medical expenses are no longer allowed as
deductions under the TRAIN LAW
2 No deduction shall be allowed for NRA, if the executor, administrator, or anyone of the heirs DID NOT include in the return required
to be filed under Section 90 of the Code the value at t he time of the decedent’s death of that part of his gross estate NOT situated in
the Philippines. [Sec.
[Sec. 86 (D), NIRC ]
3 Formula for
for Proportionate Deductions of NRA [[Sec.
Sec. 7, RR 12-2018]:
12-2018]: Allowable Deduction
Deduction = Phil Gross
Gross Estate World Gross Estate
x LIT
Page 128 of 256
d. Tax Credit for Estate Taxes Paid in Compare the tax credit allowed under
a Foreign Country Limitation A and Limitation B. The lower of the
two amounts is the final allowable tax credit .
Estate Tax Credit is a remedy against
international double taxation to minimize the The resulting amount will be compared to the
onerous effect of taxing the same property actual tax paid to the foreign country. The
twice. lower amount will be the final allowable tax
credit.
General Rule: The estate tax imposed by the
NIRC shall be credited with the amounts of any Illustration :
estate tax imposed by the authority of a foreign A resident decedent died leaving the following:
country. [Sec. 86(E), NIRC] Net estate, Philippines
Phili ppines P8,000,000
Net estate, Indonesia P3,000,000
Who may claim: RC/NRC/RA.
RC/NRC /RA. Only the estate Estate tax paid, Indonesia P200,000
of a decedent who was a citizen or a resident Net estate, UK P2,000,000
of the Philippines at the time of his death can Estate tax paid, UK P100,000
claim tax credit for any estate tax paid to a Net estate, Australia
Australi a (P1,000,000)
foreign country.
Question: How much is the estate tax payable
LIMITATIONS ON CREDIT after estate tax credit?
1. Specific Country Limitation; Limit A
The amount of the credit in respect to the ANSWER : P480,000
tax paid to any country shall not exceed the Total taxable net estate P12,000,000
same proportion of the tax against which Multiplied
Multipl ied by tax rate 6%
such credit is taken, which the decedent's Estate tax due 720,000
net estate situated within such country Less: estate tax credit (240,000)*
taxable under the tax code bears to his Estate tax payable 480,000
entire net estate. [Sec. 86(E)(2)(a), NIRC]
SOLUTION :
Tax Credit Limit A: Limit A:
:-$ ;)$%$- 3/-+ <,+-#=" >,?"$+@9 Indonesia:
2 7A ;)$%$- 5%2
;"$#+- :-$ ;)$%$-
Limit P180,000**
P180,000**
Actual P200,000
2. Global Limitation; Limit B Allowed P180,000
The total amount of the credit shall not UK:
exceed the same proportion of the tax
against which such credit is taken, which Limit P120,000**
P120,000**
the decedent's net estate situated outside Actual P100,000
the Philippines taxable under the tax code Allowed P100,000
bears to his entire net estate. [Sec.
86(E)(2)(b), NIRC] Total Allowed (Indonesia and UK):
P280,000
Tax Credit Limit B:
:-$ ;)$%$- 3%&& <,+-#=" >,?"$+#-)
>,?"$+#-)9 Limit B:
2 7A ;)$%$- 5%2
;"$#+- :-$ ;)$%$-
Limit P240,000***
P240,000***
Actual P300,000
Page 129 of 256
e. Filing of estate tax returns and NRA, of that part of his gross estate
situated in the Philippines
Philippines;;
payment of estate tax
b. Itemized deductions from gross estate
Filing of Notice of Death allowed in Sec. 86; and
NIRC] – Repealed by the TRAIN Law
[Sec. 89, NIRC] – c. The amount of tax due whether paid or
[R.A. 10963]. Hence, no such requirement. still due and outstanding.
FILING OF ESTATE TAX RETURN [Sec. 90, Period for Filing [Sec. 90 (B), NIRC]
NIRC] General Rule: Must be filed within 1 year from
the decedent's death.
When Required (Copies in duplicate) [Sec.
90 (A), NIRC] Exception [Sec. 90 (C), NIRC]
1. In all cases of transfers subject to estate The CIR shall have authority to grant, in
meritorious cases, a reasonable extension not
2. tax, or ss of the gross value of the estate,
Regardless
Regardle exceeding 30 days for filing the return.
when the said estate consists of registered
or registrable property such as real Who will file: The executor, administrator, or
property, motor vehicle, shares of stock or any of the legal heirs, as the case may be,
other similar property for which a clearance under oath. If there is no executor or
from the BIR is required as a condition administrator appointed, qualified, and acting
precedent for the transfer of ownership within the Philippines, any person in actual or
thereof in the name of the transferee. constructive possession of any property of the
decedent
decede nt may file this return.
Contents [Sec. 90 (A), NIRC]
The return shall be filed in duplicate , setting Where to file the estate tax return and pay
forth: the tax due [Sec. 90(D), NIRC]
1. The value of the gross estate of the 1. Resident Citizen (RC and RA): The
executor or administrator shall register the
decede
decedentnt atofthe
of a NRA, time
that of his
part death,
of his or in
gross case
estate estate of the decedent and secure a new
situated in the Philippines; TIN from the RDO where the decedent was
2. The deductions allowed from gross estate domiciled at the time of his death and shall
in determining the net taxable estate; and file the estate tax return and pay the
3. Such part of such information
inform ation as may at the corresponding estate tax with:
time be ascertainable and such a. An authorized agent bank (AAB), or
supplemental data as may be necessary to b. Revenue District Officer (RDO), or
establish the correct taxes. c. Collection Officer, or
4. For estate tax returns showing a gross d. Duly authorized Treasurer
Treasurer of the city or
value exceeding P5,000,000, there must municipality in which the decedent was
be a statement duly certified to by a CPA domiciled at the time of his death
containing the following:
a. Itemized assets of the decedent with
their corresponding gross value at the
time of his death, or in the case of a
Page 130 of 256
2. Non-resident decedent (NRA/NRC) The heirs shall be liable in proportion to their
a. With executor or administrator in the
t he share in the inheritance. [Marcos
[Marcos v. CA, G.R.
Philippines No. 120880 (1997)]
The estate tax return shall be filed with and
the TIN for the estate shall be
b e secured from Extension of Payment [Sec.
[Sec. 91(B), NIRC]
the RDO where such executor or The CIR may allow an extension of payment, if
administrator is registered. payment on the due date would impose undue
hardship upon the estate or any of the heirs:
If the executor or administrator is not 1. Extension not to exceed 5 years, in case
registered,, it shall be filed with and the TIN
registered the estate is settled judicially, or
for the estate shall be secured from the 2. Two (2) years in case the estate is settled
RDO having jurisdiction over the executor extrajudicially.
or administrator’s legal residence. [Section
9(8), RR 12-2018] Where the taxes are assessed by reason of
negligence, intentional disregard of rules
b. Without an executor or and regulations, or fraud on the part of the
administrator in the Philippines taxpayer, no extension will be granted by the
The estate tax return shall be filed with and CIR.
the TIN for the estate shall be
b e secured from
the Office of the Commissioner through If extension is granted,
grant ed, the CIR may require the
RDO 39 QC. [Section 9(8), RR 12-2018] executor, or administrator, or beneficiary, as
the case may be, to furnish a bond in such
PAYMENT OF ESTATE TAX [Sec. 91, NIRC] amount, not exceeding double the amount of
the tax and with such sureties as the CIR
Time of Payment [Sec. 91(A), NIRC] deems necessary, conditioned upon the
“Pay as you file”: At the time the return is filed payment of the said tax in accordance with the
by the executor, administrator or the heirs. terms of the extension.
Who are liable for the payment of estate Effects of granting an extension
ext ension
taxes 1. Payment of the amount in respect of which
Primarily, the estate , through the executor or the extension is granted on or before the
administrator . date of the expiration of the period of the
1. Payment shall be made before the delivery extension
of the distributive share in the inheritance. 2. Suspension of the running of the statute of
2. If there are two or more executors or limitations for deficiency assessment for
administrators, all of them are severally the period of any extension
liable for the payment of the tax. 3. Any amount paid after the statutory due
3. The tax clearance issued by the CIR or the date of the tax, but within the extension
RDO having jurisdiction over the estate will period, shall be subject to interest but not
serve as the authority to distribute the to surcharge. [Sec. 9(5), RR 12-2018]
remaining properties.
Payment by installment [Sec. 91(C), NIRC]
Subsidiarily, the heirs or beneficiaries , for the In case the available cash of the estate is
payment of that portion of the estate tax which insufficient to pay the total estate tax due,
his distributive share bears to the value of the payment by installment shall be made within 2
total net estate. [Sec. 9(9), RR 12-2018] years from the statutory date of filing, without
civil penalty and interest.
Page 131 of 256
Restitution of tax paid [Sec. 96, NIRC] transfer is in trust or otherwise, whether the gift
If, after the payment of the estate tax, new is direct or indirect, and whether the property is
obligations of the decedent appear, and the real or personal, tangible or intangible. [Sec.
persons interested satisfied them by order of 98(B), NIRC]
the court, they shall have a right to the
restitution of the proportional part of the tax It is a tax on donations. Thus, it is a tax on –
paid. 1. An act of the donor disposing gratuitously
of a thing/right in favor of a donee; and
Withdrawal from bank account of decedent 2. Sales, exchanges or other transfers of
General rule: If a bank has knowledge of the properties, other than real property
death of a person, who maintained a bank (defined in Sec. 24(D)) classified as capital
deposit account alone, or jointly with another, asset within the Philippines, for less than
it shall allow withdrawal from the said deposit an adequate and full consideration in
account, subject to a final withholding tax of money or money’s worth. [Sec. 100, NIRC]
6%. [Sec. 97, NIRC]
Nature of donor’s tax
Exception: No withholding tax shall be 1. Donor’s tax is not a property tax, but a tax
imposed where the bank deposit accounts imposed on the transfer of property by way
have been duly included in the gross estate of of gift inter vivos (i.e., an excise tax). [Sec
the decedent and the estate tax due thereon 12, RR 12-2018 citing Lladoc v. CIR , G.R.
has been paid provided that an eCAR is No. L-19201 (
L-19201 ( 1965)]
1965)]
presented prior to withdrawing. [Sec. 10, RR 2. It is a direct tax imposed on the donor.
12-2018] 3. It applies to both natural and juridical
persons. [AMPONGAN, 2014]
Tax deficiency after distribution of
properties Object: To prevent avoidance of income tax
1. The BIR may recover the deficiency from through the device of splitting income among
all the heirs and collect from each of them numerous donees, who are usually members
the amount proportionate to the inheritance of a family, or into many trusts, with the donor
received. thereby escaping the effect of the progressive
2. By virtue of a lien created under
under Sec. 219, rates of income tax.
it may go after one heir and subject the
property he received from the estate to the Time and Transfer of Properties
payment of estate tax. Such heir may seek Donor’s tax shall not apply unless and until
reimbursement from the other heirs. there is a completed gift. The transfer of
property by gift is perfected from the moment
the donor knows of the acceptance by the
B. DONOR’S TAX donee; it is completed by delivery, either
actually or constructively, of the donated
property, to the donee. Thus, the law in
i n force at
the time of the perfection/completion of the
1. Basic Principles, Concept, donation shall govern the imposition of the
and Definition donor’s tax. [Sec. 12, RR 12-2018]
Note: The
The absence of donative intent does not
exempt the sales of stock transaction from
donor's tax since Sec. 100 of the NIRC
categorically states that the amount by which
the fair market value of the property exceeded
Page 133 of 256
share in is
decedent theNOT
hereditary estate
subject to lefttax.
donor’s by [Sec
the
12, RR 12-2018]
4. Classifica
Classification
tion of Donor
Donor’s tax applies to individuals and
corporations. Classifications:
Classifications:
1. Residents (RC/RA/DC/RFC)
2. Non-Reside
Non-Residents
nts (NRC/NRA/NRFC)
Note: If
If there is reciprocity, intangible assets are
excluded from gross gifts [Sec. 104, NIRC]
Exemptions from GROSS gift to arrive at NET Gifts
Gifts made to or for the use of the National Government or any entity created by any of its agencies
which is not conducted
conducted for profit, or to
t o any political subdivision of the said Government. [Sec. 101
(A)(1), NIRC]
Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided not
not more than 30% of said gifts will be used by such donee for
administration purposes.
For the purpose of this exemption, a 'non-profit educational and/or charitable corporation,
institution, accredited nongovernment organization, trust or philanthropic organization
and/or research institution or organiz
organization'
ation' is a:
1. school, college or university and/or charitable corporation,
2. accredited nongovernment organization, or;
3. trust or philanthropic organization and/or research institution or organization, that is:
a. incorporated as a non-stock entity,
b. paying no dividends,
c. governed by trustees who receive no compensation, and
d. devoting all its income, whether students' fees or gifts, donation, subsidies or other forms
of philanthropy, to the accomplishment and promotion of the purposes enumerated in its
Articles of Incorporation. [Sec. 101 (A)(2), NIRC]
Common Exemptions
1. Encumbrances on the property donated if assumed by the donee in the deed of donation.
2. Donations made to entities exempted under special laws
taxable income as stated in his/her ITR subtracted from the gross value of the property
[Sec. 2, RR 7-2011] donated to arrive at the value of the net gift,
which is the tax base for donor’s tax. [DE
2. Gift to Parish Priest or Church
C hurch (applies only LEON]
to real property tax)
3. Onerous donations or donations in 1. Gifts made to or for the use of the National
exchange for goods/services (they are Government or any entity created
cr eated by any of
subject to income tax) its agencies which is not conducted for
profit, or to any political subdivision of the
SUBJECT TO DONOR’S TAX said Government. [Sec. 101 (A)(1), NIRC]
Gratuitous Donations to Homeowners’ 2. Gifts in favor of an educational and/or
Association charitable, religious, cultural or social
welfare corporation, institution, accredited
Valuation of Gifts Made in Property nongovernment organization, trust or
philanthropic organization or research
TAXABLE BASE: institution or organization: Provided not
Net gifts - the net economic benefit from
from the more than 30% of said gifts will be used by
transfer that accrues to the donee AT THE such donee for administration purposes.
TIME OF DONATION [Sec. 101 (A)(2), NIRC]
3. Encumbrances on the property donated if
1. If gift is personal property = FMV at the assumed by the donee in the deed of
time of donation [Sec. 102, NIRC] donation.
2. If gift is real property = whichever is 4. Donations made to entities exempted
HIGHER under special laws.
a. FMV as determined by the CIR (Zonal a. Aquacultur
Aquaculturee Department of the
Value) or Southeast Asian Fisheries
b. FMV in the latest schedule of values Development Center of the Philippines
fixed by the provincial and city b. Development Academy of the
assessor (MV per Tax Declaration) Philippines
[Sec. 102 in relation to Sec. 88(B), c. Integrated Bar of the Philippines
NIRC] d. International Rice Research Institute
3. If there is an improvement = construction e. National Museum
cost per building permit or the FMV based f. National Library
on the latest tax declaration. g. National Social Action Council
C ouncil
4. If unlisted stocks = Adjusted Net Asset h. Ramon Magsaysay Foundation
Method shall be used whereby all assets i. Philippine Inventor’s Commission
and liabilities are adjusted to fair market j. Philippine American Cultural
values. The net of adjusted asset minus Foundation
the adjusted liability value is the indicated k. Task Force on Human Settlement on
value of the equity. [RR 6-2013] the donation of equipment, materials
and services
Where the
Note: Where the consideration is fictitious,
the entire value of the property shall be subject
to donor’s tax.
Exemptions of Gifts from Donor’s Tax
ESTATE TAX
EXCLUSIVE COMMUN
COMMUNITY
ITY TOTAL
Gross Estate 4
4
DO NOT INCLUDE: Exemptions
Exemptions
Add:
Taxable Transfers & Others Value Taken of Property
Revocable Transfers/Donation
Transfers/Donation Mortis Causa Less: Mortgage debt paid, if any
Transfers in contemplation of death
Property passing under GPA Initial Basis
consideration5
Transfers for insufficient consideration Less: Proportionate Deduction**
Decedent’s Interest Accrued6
Proceeds
Proceed s of Life Insurance7 Final Basis
Family Home Multiplied by Vanishing Deduction Rate
Claims against an Insolvent Person8
Amount received by heirs VANISHING DEDUCTION
6 Accrued before his death but only received after his death, e.g., dividends declared on/before, and received after death; partnership’s
profit earned on/before and received after, accrued interest and rents on/before and co llected after death
7 Beneficiary must be the estate of the decedent, or the executor or administrator or any beneficiary designated as revocable. If
premiums are paid using conjugal funds, the proceeds shall form part of the conjugal property.
8 Full amount of the receivable. However, the uncollectible amount may be deducted from GE under LIT.
11 These are not allowable deductions when taxpayer is NRA (except SD of P500,000).
Net Taxable Estate If two or more countries are involved: (whichever is lower)
Multiply by Tax Rate of 6%
Estate Tax Credit =
OR
(1) Decedent is an unmarried head of the family, family home more than P10,000,000:
Less: Deductions
Ordinary Deductions
Unpaid real estate tax (2,000,000)
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
14
Applies only to RC/NRC/RA
(2) Decedent is married, the family home is conjugal property, more than P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary (2,000,000) (2,000,000)
Deductions
Net Conjugal Estate 42,000,000
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
(3) Decedent is married, the family home exclusive property, more than P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 12,000,000
Special Deductions
Family Home (10,000,000)
Standard Deduction (5,000,000)
Total Deductions (17,000,000)
Less: Deductions
Ordinary Deductions (2,000,000)
Special Deductions (14,000,000)
Family Home (9,000,000)
Standard Deduction (5,000,000)
Total Deductions (16,000,000)
(5) Decedent is married, the family home is conjugal property and is below P10,000,000:
Exclusive Conjugal Total
Conjugal Properties:
Family Home P9,000,000 P9,000,000
Real and personal properties 14,000,000 14,000,000
Exclusive
Exclus ive Properties:
Properti es: 5,000,000 5,000,000
Gross Estate 5,000,000 23,000,000 P28,000,000
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 21,000,000
Special Deductions
Family Home
Standard
Deduction (4,500,000)
(5,000,000)
Total Deductions (11,500,000)
(6) Decedent is married, the family home exclusive property and below P10,000,000:
Less:
Ordinary Deductions
Conjugal Ordinary Deductions (2,000,000) (2,000,000)
Net Conjugal Estate 12,000,000
Special Deductions
Family Home (9,000,000)
Standard Deduction (5,000,000)
Total Deductions (16,000,000)
DONOR’S TAX
ON FIRST DONATION
Solution/computation:
subtract from
outputs the the paid
VAT VATon
charged on its sales
its purchases, or
inputs
The taxpayer (seller) determines his tax liability
l iability
by computing the tax on the gross selling price and imports. [CIR
[CIR v. Seagate , G.R. No. 153866
or gross receipts (output tax), and subtracting (2005)].
or crediting the VAT on the purchase (or
importation) of goods or services (input tax) The VAT payable is the excess of output tax
against the tax due on his own sale. over input tax:
VAT rate: 12% standard rate; 0% on certain OUTPUT VAT – INPUT VAT = VAT PAYABLE
sales or transactions or EXCESS INPUT TAX
VAT base: gross selling price or gross receipts Note: If input VAT is higher than output VAT,
the excess input tax is carried over to the
c. Tax on Consumption succeeding taxable quarter/s as tax credit.
However, anymay
rated sales inputinstead
tax attributable to zero-
be refunded or
VAT is a consumption tax imposed at every
stage of the distribution process on (i)
( i) the sale, credited against other internal revenue taxes.
barter, exchange, or lease of goods or [Sec. 4.110-7, RR 16-2005]
properties, (ii) rendition of services in the
course of trade or business, and (iii) the f. Destination Principle and Cross-
importation of goods, whether or not such Border Doctrine
imported goods are for use in business. [Sec.
4.105-2, RR 16-2005] General rule: The VAT system uses the
destination principle as a basis for the
jurisdictional reach of the tax. Goods
Goods and
services are taxed only in the country where
they are consumed. Thus, exports are zero-
taxed. [CIR v.
rated, while imports are taxed.
American Express International , G.R. No.
152609 (2005)]
of good
Page 149 of 256
ordinary asset used in the trade or Sale of Real Property NOT subject to VAT
business of the VAT taxpayer as an a. Sale of real
real properties
properties not
not pr
primarily
imarily he
held
ld for
for
incident to his VAT-taxable
VAT-taxable activity. sale or lease in the course of trade or
e. The sale is not exempt from VAT under business
Sec. 109 of the NIRC, special law, or b. Real property utilized for low cost or
international agreement. socialized housing
[MAMALATEO] c. Residential lot valued at P1.5M and below
d. House and lot, and other residential
Modes of Sales of Real Estate; Effects dwellings valued at P2.5M and below
a. Cash sale – the entire selling price is [Sec. 109(1)(P)]
taxable in the month of sale
Note : Beginning January 1, 2021, the
b. Installment sales VAT exemption for sale of house and
1. Meaning of installment sale: a lot, and other residential dwellings shall
sale in which the initial payments in apply only to those with selling
sellin g price of
the year of sale do not exceed 25% not more than P2,000,000.
Gross Selling Price (GSP)
2. Effect: VAT is recognized based e. Transfer of property to a corporation in
on collection, including interest and exchange for shares of stocks in a tax-
penalties, actually and/or free exchange under Sec. 40(C)(2) of
constructively received by the the NIRC [Sec. 109(1)(X),
109(1)(X), NIRC]
seller. [Sec. 4.106-3, RR 16-2005] f. Transmi
Transmission
ssion of property to a trustee if
the property is to be merely held in trust
Note: “Initial payments” means for the trustor and/or beneficiary [Sec.
payment or payments which the seller 4.106-3, RR 16-2005]
receives before or upon execution of
the instrument of sale and payments Exception: If the property
property transferred is
which he expects or is scheduled to originally intended for sale, lease or
receive in cash or property during the use in the ordinary course of trade or
taxable year when the sale or business AND the transfer constitutes
disposition of the real property was a completed gift, the transfer is subject
made. It covers any down payment to VAT as a deemed sale transaction.
made
actually and
or includes all payments
constructively received The transfer
transferor is a completed
divests gift if the
himself absolutely of
during the year of sale, the aggregate control over the property, i.e.,
of which determines
determines the limit set by law. irrevocable transfer of corpus and/or
irrevocable designation of beneficiary.
c. Sale on a deferred-payment basis [Sec. 4.106-3, RR 16-2005]
1. Meaning: initial payments in the
year of sale exceed 25% of the i. Tax base: gross selling price
GSP
2. Effect: The transaction shall be Basis: Gross selling price or
or gross value in
treated as cash sale which makes money of the goods or properties sold,
the entire selling price taxable in bartered or exchanged.
the month of sale. Subsequent
payments are no longer subject to Meaning of Gross Selling Price (GSP) : The
VAT. [Sec. 4.106-3, RR 16-2005] total amount ofpays
the purchaser money
or isor its equivalent
obligated to pay which
to the
Page 152 of 256
• Excludes : VAT, sales discounts and, b. Sales Discounts – bona fide or regular
allowances and returns discounts given to purchasers, which are
• Includes : Excise tax paid, initial ascertainable and definitely agreed upon
payments, interests and penalties (if between the vendor and the vendee at the
installment), commission income (if time of sale
exported), purchase price, charges for 1. Must be determined and granted at
packing, delivery and insurance the time of sale
2. Must be expressly indicated in the
GSP in case of sale or exchange of real sales invoice and the amount
property forming part of the gross sales duly
a. The consideration stated in the sales recorded in the books of accounts
document or 3. The grant is not dependent upon
b. The fair
fair market value (FMV) whic
whichever
hever is the happening of a future event
higher.
ii. Transactions deemed sale
Meaning of FMV – Whichever
Whichever is higher of the
following: Rate: 12% VAT
1. The FMV as determined by the CIR (zonal
value) or Basis: Market value of the goods deemed sold
2. The FMV as shown in the schedule of as of the time of the occurrence of the
values of the Provincial and City Assessors transactions
(real property tax declaration). [Sec. 4.106-
4, RR 16-2005] However, in case of retirement or cessation of
business , the tax base shall be the acquisition
Note: If the VAT is not billed separately in cost or the current market price of the goods or
the document of sale, the stated selling properties, whichever is lower.
price or of
inclusive consideration shallif be
VAT. However, the deemed
GSP is In the case of a sale where the gross selling
based on the zonal value or market value price is unreason
unreasonably
ably lower than the FMV , the
of the property, the zonal or market value actual market value shall be the tax base. The
shall be deemed exclusive of VAT. Thus, gross selling price is unreasonably lower than
the zonal value/market value, net of the the actual market value if it is lower by more
output VAT, should still be higher than the than 30% of the actual market value of the
consideration in the document of sale, same goods of the same quantity and quality
exclusive
exclusi ve of the VAT. [Sec. 4.106-4, RR sold in the immediate locality on or nearest the
16-2005] date of sale. [Sec. 4.106-7, RR 16-2005]
Allowable Deductions from GSP The following are transactions deemed sale:
a. Sales returns and allowances
allowanc es – those for [Sec. 106(B), NIRC]
which a proper credit or refund was made a. Transfer, use or consumption not in the
during the monthrecorded
sales previously or quarterastotaxable
the buyer for
sales course of intended
originally businessfor
of sale
goods or use
or for properties
i n the
in
Page 153 of 256
c. Consignmen
Consignmentt of goods if actual sale is The 12% VAT is applicable to goods or
not made within 60 days following the properties originally intended for sale or
date such goods were consigned use in business and capital goods which
are existing as of the occurrence of the
Note: Consigned
Consigned goods returned by the following:
consignee within the 60-day period are
not deemed sold. [Sec. 4.106-7(a)(3), a. Change of business activity from VAT
VAT
RR 16-2005] taxable status to VAT-exempt status –
d. Retirement
Retiremen t from or cessation of Example
engaged: inA aVAT-registered person
taxable activity like
business with respect to goods on wholesaler or retailer who decides to
hand discontinue such activity and engages
instead in life insurance business or in
This covers ALL goods on hand, any other business not subject to VAT.
whether capital goods, stock-in-trade,
supplies or materials, as of the date of b. Approval of request for cancellation
cancellati on of
such retirement or cessation, whether a registration due to reversion to
or not the business is continued by the exempt status
new owner or successor. [Sec. 4.106-
7(a)(3), RR 16-2005] c. Approval of
of request for cancellation
cancellati on of
registration due to:
Examples : 1. Reversion
Reversi on to exempt status
(i) change
business of(e.g.,
ownership
when aof sole
the 2. after
A desire to revert
lapse to exempt status
of 3 consecutive years
Page 154 of 256
from the time of registration by a Who Pays: IMPORTER prior to the release of
person who voluntarily registered such goods from customs custody [Sec. 107
despite being exempt under Sec. (A), NIRC]
109(2) of the NIRC
3. Failure
Failur e to exceed the threshold of Importer: any person who brings goods into
P3,000,000 by one who the Philippines, whether or not made in the
commenced business with the course of his trade or business, including non-
expectation of gross sales or exempt persons or entities who acquire tax-
receipts exceeding said threshold free imported goods from exempt persons,
[Sec. 4.106-8(a), RR 16-2005] entities or agencies [Sec. 4.107-1 (b), RR 16-
2005]
(b) Not Subject to VAT
Customs duty – amount of customs duty
VAT shall not apply to goods or properties legally due and paid by the importer
originally intended for sale or use in the
course of business which existing as of the Other similar chargers:
chargers:
occurrence of the following: a. Other taxes (special import tax)
b. Bank charges
a. Change of corporati on by
of control of a corporation c. Arrastre
Arrastr e charges
the acquisition of the controlling d. Wharfage dues
interest of such corporation by another e. Brokerage fees
stockholderr (individual or corporate) or
stockholde f. All other charges or expenses
group of stockholders.
Landed Cost - - invoice amount including costs
b. Change in the trade or corporate name of loading, shipping and unloading, customs
of the business duties, freight, insurance, other charges,
excise tax (if any)
c. Merger or consolidation
consolidation of
corporations: The unused input tax of Expenses incurred after the release of the
the dissolved corporation, as of the goods such as those incurred in delivering
date of merger or consolidation, shall goods do not form part of the landed cost.
be absorbed by the surviving or new
h. Proprietors
Proprietor s or operators of restaurants,
restaurant s, n. Franchise grantees of electric utilities,
refreshment parlors, cafes and other eating telephone and telegraph, radio and/or
places, including clubs and caterers television broadcasting and all other
i. Dealers in securities
securiti es – merchants of stock franchise grantees
or securities who buy and sell securities to
customers with a view to the gains and Exceptions:
profits that may be derived therefrom ! Franchise grantees of radio and/or
television broadcasting whose annual
“Gross receipts” means gross selling gross receipts of the preceding year do
price less cost of the securities sold. not exceed P10,000,000 shall be
subject to 3% franchise tax, subject to
j. Lending investors – all persons OTHER optional registration; while franchise
than banks, non-bank financial grantees
grantee s of gas and water utilities shall
intermediaries, finance companies and be subject to 2% franchise tax. [Sec.
other financial intermediaries NOT 119, NIRC; Sec. 4.108-3(h), RR 16-
performing quasi-banking functions who 2005]
make a practice of lending money for ! With respect to franchise grantees of
themselves or others at interest telephone and telegraph services,
k. Transportation
Transportati on contractors on their amounts received for overseas
transport of goods or cargoes , including dispatch, message, or conversation
persons who transport goods or cargoes originating from the Philippines are
for hire and other domestic common subject to the 10% percentage tax and
carriers by land relative
r elative to their transport of hence exempt from VAT. [Sec. 120,
goods or cargoes NIRC; Sec. 4.108-3, RR 16-2005]
Note: Common carriers which transport o. Non-life insurance companies (except crop
passengers by land are subject to the 3% insurances) including surety, fidelity,
percentage tax under Sec. 117 of the indemnity and bonding companies
NIRC. [Sec. 4.108-3(d), RR 16-2005]
Note: Life and disability insurance, and
l. Common carriers by air and sea relative to health and accident insurance are subject
their transport of passengers, goods or to the 2% percentage tax under Sec. 123
cargoes from
to another onein place
place in the Philippines
the Philippines of the NIRC.
Non-life reinsurance premiums are NOT
m. Sales of electricity by generation
generation subject to VAT. However, insurance and
companies, transmission by any entity reinsurance commissions , whether life or
including the National Grid Corporation of non-life, are subject to VAT. [Sec. 4.108-
the Philippines (NGCP), and distribution 3(i), RR 16-20
16-2005]
05]
companies, including electric cooperatives
(as amended by TRAIN Law; Sec. 2, RR p. Similar services
services regardless
regardless of
of whether
whether or
13-2018) not the performance thereof calls for the
exercise or use of the physical or mental
Note: Sale of power or fuel generated faculties
through renewable sources of energy shall
be subject to 0% VAT (zero-rated). [Sec. Health Maintenance Organizations
108(B)(7), NIRC] (HMOs) – entities which arrange for
coverage or designated managed care
d. information
The supply of any assistance that is under R.A. removed
since been 9238, butby
such
R.A.exemption
9337. has
ancillary and subsidiary to and is
furnished as a means of enabling the b. Services performed by
application or enjoyment of any such actors/actresses, talents, singers,
property, or right as is mentioned in emcees, radio/television broadcasters,
subparagraph (b) or any such choreographers, musical, radio, movie,
knowledge or information as is television, stage directors, and
mentioned in subparagraph (c) professional athletes [R.A. 7716, as
e. The supply of servicesserv ices by a amended by R.A. 8241]
nonresident person or his employee in c. Lease or use of sports facilities
faciliti es and
connection with the use of property or equipment by amateur players [R.A.
rights belonging to, or the installation or 7716, as amended by R.A. 8241]
operation of any brand, machinery or
Philippines
port, or vice directly to a docking
versa without foreign ECOZONES
Ecozones shall be managed and operated by
or stopping at any other port in the PEZA as a separate customs territory [Sec. 8,
Philippines unless it is for RA 7916 or the “Special Economic Zone Act of
unloading passengers and/or 1995”].
cargoes originating abroad, or to
load passengers and/or cargoes Tax Treatment of Sales to and by PEZA-
bound for abroad registered Enterprises [RMC 74-99]:
b. If any portion of such fuel, goods, 1. Any sale of goods, property or services
supplies or equipment is used for made by a VAT registered supplier
purposes other than that from the Customs Territory to any
mentioned, such portion shall be registered enterprise operating in the
subject to 12% VAT [Sec. 4.106-5, ecozone, regardless of the class or
RR 16-2005 as amended by RR type of the latter’s PEZA registration,
embraced by the
regime, hence, such5% special
seller shall tax
be rules
Note:and
Theregulations
0% VAT of the
onBSP;
services
subject to 12% VAT. performed in the Philippines is an
c. Sale of goods by a PEZA exception to the destination principle,
registered enterprise to another which states that goods and services
PEZA registered enterprise (intra- are taxed only in the country where
ecozone) shall be EXEMPT from they are consumed. [CIR
[ CIR v. American
VAT. [Sec. 5, RMC 74-99] Express International , G.R. No.
d. Sale of services by ecozone 152609 (2005)]
enterprise to another ecozone
enterprise (intra-ecozone) shall be: 3. Services rendered to persons or
i. exempt from VAT entities whose exemption under
if PEZA registered special laws or international
seller is subject to 5% agreements
agreeme nts to which the Philippines is
Note: Gross
shipping receipts
carriers of international
doing business inairthe
or
Persons engaged in Registration is
Philippines derived from transport of zero-rated optional for VAT-
passengers and cargo from the Philippines transactions are exempt persons.
to another country shall be subject to the required to register.
3% percentage tax. [Sec. 118, NIRC]
educational
i. Services institutions;
rendered by individuals pursuant including spareare
used by them parts thereof,
subject to to be
VAT.
to an employer-employee relationship; [Sec. 4.109-1(B)(1)(n), RR 16-
j. Services rendered by regional or area 2005]
headquarters established in the Philippines o. Export sales by persons who are not VAT-
by multinational corporations which act as registered;
supervisory, communications and p. Sale of real properties as follows:
coordinating centers for their affiliates, i. Sale of real properties NOT
subsidiaries or branches in the Asia-Pacific primarily held for sale to customers
Region and do not earn or derive income or held for lease in the ordinary
from the Philippines; course of trade or business.
k. Transactions which are exempt under
international agreements to which the ii. Sale of real properties utilized for
Philippines is a signatory or under special low-cost housing as defined by
laws, exceptExploration
(Petroleum those under PD No. 529
Concessionaires R.A. 7279 (Urban
and Housing Development
Act of 1992) and other
under the Petroleum Act of 1949); related laws (e.g., R.A. 7835,
7835, R.A.
l. Sales by agricultural cooperatives duly 8763;
registered with the Cooperative ! Low-cost housing" refers to
Development Authority (CDA) to their housing projects intended
members, as well as sale of their produce, for homeless low-income
whether it is original state or processed family beneficiaries,
form, to non-members; their importation of undertaken by the
direct farm inputs, machineries and Government or private
equipment, including spare parts thereof, developers, which may
to be used directly and exclusively in the either be a subdivision or a
production and/or processing of their condominium registered
produce; and licensed by the
Sale by agricultural cooperatives to Housing and Land Use
! non-members are exempted from Regulatory Board /
homeless citizens
shall include sites which
and rental
! per
If unit
morenot exceeding
than P15,000P15,000;
but the
services development, aggregate rentals of the lessor
long-term financing, during the year do not exceed P3M,
liberated terms on interest the lease shall be exempt from
payments, and such other VAT, but subject to 3% percentage
benefits. [RR 13-2018] tax.
iv. Sale of residential lot valued at ! Where a lessor has several
P1.5M and below, or house & lot residential units for lease, his tax
and other residential dwellings liability will be as follows:
valued at P2.5M and below, as ! Gross receipts from rentals
r entals
adjusted in 2011 using the 2010 not exceeding P15,000
Consumer Price Index values. shall be exempt from VAT
! If two or more adjacent and percentage tax
residential lots are sold or regardless of the
disposed of in favor of one
spaces) exceptandmotels,
rooms, hotels motel
hotel rooms, shall betoused
pertain the exclusively
transport oforgoods
shall
lodging houses, inns and pension and/or passengers from a port in
houses. the Philippines directly to a foreign
! ‘Unit' means an apartment unit in port without stopping at any other
the case of apartments, house in port in the Philippines, except to
the case of residential houses; per unload passengers and/or cargoes
person in the case of dormitories, from abroad or load the same
boarding houses and bed spaces; bound for abroad.
and per room in case of rooms for ! If any portion of such fuel, goods or
rent. [RR 13-2018] supplies is used for any other
r. Sale, importation, printing or publication of purpose, such portion of fuel,
books and any newspaper, magazine, goods and supplies shall be
review or bulletin which appears at regular subject to VAT. [RR 13-2018]
intervals
and salewith fixed
and pricesisfornot
which subscription
devoted v. Services of banks,
intermediaries non-bank
performing financial
quasi-banking
principally to the publication of paid functions and other non-bank financial
advertisements; intermediaries (such as money changers
s. Transport of passengers by international and pawnshops) subject to percentage tax;
carriers; [added by TRAIN Law] [RR 13-2018]
! Note: Transport of cargoes by w. Sale or lease of goods and services to
international carriers doing senior citizens and persons with disability,
business in the Philippines is as provided under RA Nos. 9994
likewise exempt from VAT, but (Expanded Senior Citizens Act of 2010)
subject to 3% percentage tax under and 10754 (An Act Expanding the Benefits
Sec. 118 of the NIRC. and Privileges of Persons with Disability),
t. Sale, importation or lease of passenger or respectively [added by TRAIN Law];
cargo vessels and aircraft, including x. Transfer of property pursuant to Section
engine, equipment and spare parts thereof 40(C)(2) of the NIRC, as amended [added
by TRAIN Law];
Sale or
importation Of fertilizers; seeds, seedlings and fingerlings;
and poultry feeds. fish, prawn, livestock
B
Exception: specialty feeds for race horses, fighting cocks, aquarium
fish, zoo animals, and other animals generally considered pets.
Of personal and household effects belonging to (i) residents of the
C Philippines returning from abroad and (ii) nonreside
nonresident
nt citizens coming
to resettle in the Philippines
Of professional instruments and implements, tools of trade,
Importation
occupation or employment, wearing apparel, domestic animals and
D personal household effects, belong to persons coming to settle in the
Philippines or overseas Filipinos for their own use and not for
barter or sale.
E Subject to percentage tax
Transactions exempt un
Transactions under
der internationa
internationall agreements or special laws,
K Others
except those under PD 529 (Petroleum concessionaires)
By non-agricultural,
non-agricultural, non-electric, and non-credit cooperatives duly
N Sales registered
registered with the CDA. Provided , the share capital contribution of
each member does not exceed P15,000
Sale, importation, Of books and any newspaper, magazine, review or bulletin which
R printing, or appears at regular intervals with fixed prices for subscription and sale
publication and is not devoted principally to publication of paid advertisements
advertisements
W Sale or lease Of goods and services to senior citizens and persons with disability
Sale or lease or Other than the transactions mentioned in the preceding paragraphs,
BB performance of the gross annual sales and/or receipts do not exceed the amount of
services P3M
Page 169 of 256
Input tax –
tax – the VAT due from or paid by a VAT- 2005]
registered person on importation of goods or
local purchase of goods, properties, or Transitional Input VAT credit:
services, including lease or use of properties, Whichever is higher of:
in the course of his trade or business [Sec. 1. two percent (2%) of the value of the
110(A)(3), NIRC] beginning inventory on hand, OR
2. actual VAT paid on such goods,
goods,
Output tax –
tax – the VAT due on the sale or lease materials and supplies.
of taxable goods or properties or services by
any person registered or required to register Note: A real estate dealer is entitled to
under Section 236 of the NIRC [Sec. 110(A)(3), claim transitional input VAT on its
NIRC] beginning inventory based on the value of
the entire real property, including the
b. Sources of Input Tax improvements thereon, regardless of
whether
the there was
purchase prior real
of such paymen
payment t of VAT
property. on
[Fort
[Fort
(a) Purchase or Importation of Goods
(evidenced by VAT invoice/receipt) Bonifacio Development
Development Corp. v. CIR , G.R.
(i) For sale; or Nos. 158885 and 170680 (2009)]
(ii) For conversion into or intended
to form part of a finished (f) Presumptive Input Tax [Sec. 111(B),
product for sale including NIRC]
packaging materials; or
(iii) For use as supplies in the Who may avail: Persons or firms engaged
course of business; or in the:
(iv) For use as materials supplied 1. processing of (i) sardines, (ii)
in the sale of service; or mackerel and (iii) milk, and
(v) For use in trade or business for 2. manufacturin
manufacturingg (i) refined sugar, (ii)
which deduction for cooking oil and (iii) packed noodle
depreciation or amortization is based instant meals
allowed under the NIRC.
(b) Purchase of real properties for Rate and basis: 4% of the gross value in
which VAT has actually been paid money of their purchases of primary
(c) Purchase of services in which VAT agricultural products which are used as
has actually been paid inputs to their production [Sec. 111(B),
(d) Transactions deemed sale NIRC]
(e) Transitional Input Tax [Sec 111(A),
NIRC] “Processing” means pasteurization,
canning and activities which through
Who may avail of transitional input tax: physical or chemical process alter the
1. A person who becomes VAT-liable
VAT-liabl e exterior texture or form or inner substance
for the first time upon exceeding of a product in such manner as to prepare
P3M in any 12-month period, or it for special use to which it could not have
2. any person who voluntarily been put in its original form or condition.
registers even if their turnover does [Sec. 111(B), NIRC]
Input tax of
importation ongoods
domestic purchase
or properties or
shall be months
useful life comprising
[Sec. 4.110-3,the estimated
RR 16-2005]
creditable:
a. To the importer upon payment of the Notes:
VAT prior to the release of the goods ! If the aggregate acquisition cost does
from customs custody; not exceed P1,000,000, the total input
b. To the purchaser of
of domestic goods or taxes will be allowable as credit against
properties upon consummation of sale; output tax in the month of acquisition.
or ! If the depreciable capital good is
c. To the purchaser of services or the sold/transferred within 5 years or prior
lessee or
or licensee upon
upon payment of the to the exhaustion of the amortizable
compensation, rental, royalty or fee. input tax, the entire unamortized input
[Sec. 4.110-2, RR 16-2005] tax can be claimed as input tax credit
during the month/quarter when the sale
d. Input Tax on Depreciable Goods or
RRtransfer
16-2005]was made. [Sec. 4.110-3,
Capital goods or properties ! The amortization of the input VAT shall
1. Goods o orr properties with estimated only be allowed until December 31,
useful life greater than one (1) year; 2021 after which taxpayers with
2. Treated as depreciable
depreciabl e assets under unutilized input VAT on capital goods
Sec. 34(F) of the NIRC; and purchased or imported shall be allowed
3. Used directly or indirectly in the to apply the same as scheduled until
production or sale of taxable goods or fully utilized
services. [Sec. 16, RR 4-2007]
Claiming of input tax on motor vehicles
Claims for input tax on depreciable goods subject to the following conditions:
Where a VAT-registered person purchases or a. Purchase of vehicle must be
imports capital goods, which are depreciable substantiated with official receipts or
assets for income tax purposes, the aggregate other adequate records;
acquisition cost of which (excluding VAT) in a b. Taxpayer has to prove the direct
calendar month exceeds P1,000,000, connection of the motor vehicle to the
regardless of the acquisition cost of each business;
capital good: c. Only one vehicle for land transport is
1. If the estimated useful life is 5 years or allowed for the use of an
more – the input tax shall be spread official/employee with value not
evenly over the month of acquisition exceeding P2.4 million;
and the 59 succeeding months (i.e.,
(i .e., 60 d. No depreciation
depreciation shall be allowed for
months) and the claim for input tax
months) yachts, helicopters, airplanes [Sec. 3,
credit will start in the month of RR 12-2012]
acquisition
Page 171 of 256
price,
be including
paid the VAT,
on October shall
1, 2018. b edata
be
The payable in 5 equal
pertinent to themonthly installments
sold assets with the first installment to
are as follows:
Accounting:
SELLER BUYER
Accumulated 1,000,000
Depreciation
To record VAT
liability:
Output Tax 600,000
* The input tax of P600,000.00 shall be spread evenly over a period of 60 months starting on October
2018 or the month of purchase.
If the depreciable capital good is sold/transferred within a period of 5 years or prior to the exhaustion
of the amortizable input tax thereon, the entire unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit during the month/quarter when the sale or transfer
was made.
a. For purchase made in January 2018, the amortization shall be for the shorter period of 5 years
only or up to December 2022 although the useful life is 6 years.
b. For purchase made in February 2018, the amortization shall be for a period of 4 years only or
up to January 2022 since the useful life of the asset is shorter than 5 years.
c. For purchase made in December 2021, the amortization shall be for the period of 5 years or
up to November 2026.
d. For purchase made iin
n January 2022, no amortization shall be made and the inputinput VAT shall
be claimed on the month of purchase or January 2022
and
ONLYVAT-exempt transactions
the ratable portion pertainingand
to
Not attributable
attributabl e to any specific activity (monthly amortization for 60 months) 20,000
Page 175 of 256
Y Dm,?"$
abcbdef gbefg 3hi`9 ,. #"/?$
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",$ 0#+-1$&@ %$$+#n?$%n&- $, %"@ %1$#o#$@
ajkbe lbefg
pqqrqqq
Y tqrqq
tqrqqq
q L urqqq
sqqrqqq
Total input tax attributable to sales to private entities for the month: 10,000.00
The input tax attributable to zero-rated sales for the month shall be computed as follows:
Input directly attributable to zero-rated sale P 3,000
Ratable portion of the input tax not directly attributable to any activity:
pqqrqqq
Y tqrqq
tqrqqq
q L urqqq
sqqrqqq
Total input tax attributable to zero-rated sales for the month: 8,000
The input tax attributable to VAT-exempt sales for the month shall be computed as follows:
Input tax on VAT-exempt sales - 2,000
Ratable portion of the input tax not directly attributable to any activity:
pqqrqqq
sqqrqqq Y tqrqq
tqrqqq
q L urqqq
The input tax attributable to sales to government for the month shall be computed as follows:
Input tax on sale to gov’t. P 4,000
Ratable portion of the input tax not directly attributable to any activity:
pqqrqqq
Y tqrqq
tqrqqq
q L urqqq
sqqrqqq
Total input tax attributable to sales to government: 9,000
Determination of the VAT payable or excess f. Input tax on "deemed sale"
tax credits transactions – required
r equired invoice
If at the end of any taxable month or quarter: g. Input tax from payments made to
a. The o output
utput tax exceeds the inpu
inputt tax, non-residents (such as for services,
the excessperson
registered shall be paid by the VAT- rentals
Monthlyand royalties) Return
Remittance – copyofof VAT
the
b. The input tax exceeds the output tax, Withheld (BIR Form 1600) filed by the
the excess shall be carried over to the resident payor in behalf of the non-
succeeding quarter or quarters. resident evidencing remittance of VAT
However, any input tax attributable to due which was withheld by the payor
zero-rated sales may be refunded or h. Advance VAT on sugar – Payment
credited. [Sec. 110(B), NIRC] Order showing payment
paymen t of the advance
VAT
Illustration:
For a given taxable quarter ABC Corp. has Who May Claim for Refund/Apply for
output VAT of 100 and input VAT of 80. Since Issuance of Tax Credit Certificate
output tax exceeds the input tax for such
taxable quarter, all of the input tax may be a. Zero-Rated Sales [Sec. 112(A),
utilized
the VATtopayable
offset against
is 20. the output tax. Thus, NIRC]
Requirements:
Substantiation of Input Tax Credits A claim for refund or tax credit for unutilized
Input taxes must be substantiated and input VAT may be allowed only if the following
supported by the following documents, and requisites concur, namely:
must be reported in the information returns 1. the taxpayer is VAT-registered;
VAT-regis tered;
required to be submitted to the BIR: 2. the taxpayer is engaged in zero-rated
a. Importation of goods – import entry or or effectively zero-rated sales;
other equivalent document showing 3. the input taxes are due or paid;
actual payment of VAT on the imported 4. the input taxes are not transitional
transition al input
goods taxes;
b. Domestic purchase of goods and 5. the input taxes have not been applied
properties – invoice showing the against output taxes during and in the
information required under Secs. 113 succeeding quarters;
(Invoicing Requirements) and 237 6. the input taxes claimed are attributabl
attributable
e
(Issuance of Receipts or Invoices) of to zero-rated or effectively zero-rated
the NIRC sales;
c. Purchase of real property – public 7. for zero-rated sales under Section
instrument, i.e., deed of absolute sale, 106(A)(2)(a)(1) and (3) and 108(B)(1)
deed of conditional sale, and (2), the acceptable foreign
contract/agreement to sell, etc., currency exchange proceeds have
together
toget her with VAT invoice issued by the been duly accounted for in accordance
seller with the rules and regulations of the
d. Purchase of services – official receipt BSP;
showing the information required under 8. where there are both zero-rated or
Secs. 113 and 237 of the NIRC effectively zero-rated sales and taxable
e. Transitional input tax – inventory of or exempt sales, and the input taxes
goods as shown in a detailed list to be
goods cannot be directly and entirely
submitted to the BIR attributable to any of these sales, the
after
when the close
such of were
sales the taxable
made. quarter
[Luzon must
which be filed
must be within the from
reckoned two-year period,
the close of
Hydro Corporation v. CIR , G.R. No. the taxable quarter when the relevant sales
188260 (2013); Sec. 4.112-1, RR 16- were made. [CIR [CIR v. San Roque Power
2005] Corporation , G.R. 187485 (2013)]
b. Cancelled VAT Registration [Sec. Note: In tax refunds of erroneous tax
112(B), NIRC] payments under Sec. 229 of the NIRC, the
1. A VAT-registered person whose administrative and judicial claims may be
registration has been cancelled due made simultaneously, and the reckoning
to (i) retirement from or cessation of point of the 2-year period is from the date
business, or due to changes in or (ii) of payment.
cessation of status under Section
106(C) of the NIRC may, within two (2) b. The CIR shall
shall grant the refund within 90
grant
years
apply for from
thethe date ofof cancellation,
issuance a tax credit days from
official the date
receipts or of submi ssion
submission
invoices and of the
other
certificate for any unused input tax documents in support of the
which may be used in payment of his application.
other internal revenue taxes.
2. The taxpayer shall be entitled to a Note: Prior to January 1, 2018, all claims
refund if he has no internal revenue tax for refund or tax credit will be
b e governed
governed by
liabilities against which the tax credit the 120-day processing period.
certificate may be utilized.
util ized.
3. The date of cancellation shall be the c. Should the CIR find that tthe he grant
grant of
date of issuance of tax clearance
clearanc e by the refund is not proper, the CIR must state
BIR, after full settlement of all tax in writing
wri ting the legal and factual basis for
liabilities. the denial.
4. The filing of thethe claim shall be made
Judicial Claim [Sec
a. In case [Sec
of full112
or (C), par.denial
2, NIRC]
only after completion of the mandatory
audit of all internal revenue tax or partial of the
liabilities covering the immediately claim for tax refund, the taxpayer may
preceding year and the short period appeal to the CTA within 30 days from
return and the issuance of the the receipt of decision.
applicable tax clearance/s. [RR 13- b. The 30-day period to appeal is both
2018] mandatory
mandato ry and jurisdictional.
under Section
Committed by 269 of the NIRCEnforcement
Government (Violations Only VAT-registered persons are
Officers). [Sec. 112(C), NIRC] required to print their TIN followed by
the word “VAT” in their invoice or ORs,
Note: The provision on the appeal of the CIR’s which shall be considered as a “VAT
failure to act on the application for refund or tax Invoice” or “VAT OR”. All purchases
credit was removed by the TRAIN Law. covered by invoices/receipts other than
VAT Invoice/VAT OR shall not give rise
ri se
Exclusive appellate jurisdiction of CTA to any input tax. [Sec. 4.113-1(A), RR
The CTA has
h as exclusive appellate jurisdiction to 16-2005]
review by appeal the inaction by the CIR in
cases involving disputed assessments, refunds Information Contained in the VAT Invoice or
of internal revenue taxes, fees or other VAT Official Receipt:
charges, penalties in relations thereto, or other 1. A statement that the seller is a VAT-
matters arising under the NIRC or other laws registered person, followed by his
administered by the BIR, where the NIRC taxpayer's
taxpaye r's identification number (TIN);
provides a specific period of action, in which 2. The total amount which the purchaser pays
case the inaction shall be deemed a denial. or is obligated to pay to the seller with the
[Sec. 7(a)(2), R.A. 1125 as amended by R.A. indication that such amount includes the
9282] VAT:
a. The amount of the ta tax
x shall be shown
Manner of Refund as a separate item in the
Refunds shall be made upon warrants drawn invoice/receipt;
by the CIR or by his duly authorized b. If the
the sale
sale is exempt
exempt from VAT, the term
term
representative without the necessity of being "VAT-exempt sale" shall be written or
countersigned by the Chairman of the printed prominently on the invoice or
Commission on Audit (COA), provided that receipt;
refunds shall be subject to post audit by COA. c. If the sale is subject
subject to 0% VAT, the
[Sec. 112(D), NIRC] term "zero-rated sale" shall be written
or printed prominently on the invoice or
8. Compliance Requirements receipt;
d. If the sale involves
involv es goods, properties
properti es or
services some of which are subject to
a. Registration
and some of which are VAT zero-rated
or VAT-exempt, the invoice or receipt
Note: Refer to table below for flowchart of VAT
shall clearly indicate the breakdown
breakdown of
registration
the sale price between its taxable,
exempt and zero-rated components,
b. Invoicing Requirements and the calculation of the VAT on each
portion of the sale shall be shown on
In General the invoice or receipt. The seller may
A VAT-registered person shall issue: issue separate invoices or receipts for
a. A VAT invoice
exchange for or
of goods every sale, barter
properties; and or the taxable, exempt, and zero-rated
components of the sale.
P1,000
is madeortomore where the saleperson,
a VAT-registered or transfer
the followed
issuance byshallthe word
result "VAT",
to the the erroneous
following:
name, business style, if any, address and a. The issuer shall be liable to:
TIN of the purchaser, customer or client. 1. percentage taxes applicable to his
[Sec. 113(B), NIRC] transactions;
2. VAT due on transactions under Section
In Deemed Sale Transactions 106 or 108 of the NIRC, without the
a. Transfer, use or consumption not in the benefit of any input tax credit; and
course of business of goods or 3. a 50% surcharge
surchar ge under Section 248(B)
properties originally intended
intended for sale or of the NIRC.
for use in the course of business – b. The VAT shall be recognized as an input
Memorandum entry in the subsidiary sales tax credit to the purchaser, if the other
journal to record withdrawal of goods
goods for requisite information is shown on the
personal use invoice/receipt.
invoice/recei pt. [Sec. 113(D), NIRC]
Total Sales
Multiplied by(Taxable
12% Base) 12% xxx
Output VAT on sales or gross receipts xxx
Less: Allowable Input Tax:
Input VAT on current purchases/importations/services xxx
Input VAT on sales to nonresidents xxx
Input VAT on capital goods exceeding P1M
(deferred from prior period) xxx
(from current period) xxx
Transitional Input VAT, if applicable xxx
Presumptive Input VAT, if applicable xxx
Input VAT Carry-over from previous period xxx
Total available input tax xxx
Less: Input tax on capital goods exceeding P1M xxx
deferred to next period
Input tax on exempt sales xxx
Input tax subject to VAT refund/TCC xxx xxx
Net VAT payable xxx
Less: Tax Credits/Payments:
Creditable VAT withheld xxx
Advance payments xxx
VAT paid in return previously filed xxx xxx
xxx
VAT Still Payable (Overpayment) xxx
Page 182 of 256
SALES TO GOVERNMENT
Sales 1,000,000
Output VAT (Sales x 12%) 120,000
Purchases 700,000
Input VAT (Purchases x 12%) 84,000
70,000
Note: No VAT is payable since the 5% VAT withheld by the government is a final tax. However, the
difference between the standard input VAT and the actual input VAT shall be dealt with as follows:
! When Actual Input VAT > 7% Standard Input VAT : excess forms part of seller’s
expense/cost
! When Actual Input VAT < 7% Standard Input VAT : difference is closed to expense or cost
(i.e., treated as taxable other income)
Page 183 of 256
OT 0 OT 12% OT 12%
IT 36 54
0 IT IT
VAT Payable 0 0 36
Vat Payable VAT Payable 18
36
OT 12% OT 0 OT 12%
12 IT 0 54
IT 0 Vat Payable 0 IT 0
VAT Payable VAT Payable
12 54
Profit
188
Nature
D. PERCENTAGE TAXES: It is a privil
privilege
ege tax. Like VAT, it is imposed on
CONCEPT AND NATURE the privilege to sell commodities or services.
[DE LEON]
Concept
A percentage tax is a national tax measured by TAX BASE: Gross Receipts
a certain percentage of the gross selling price
pr ice By its nature, a gross receipts
recei pts tax applies to the
or gross value in money of goods sold, bartered
barter ed entire receipts without any deduction,
or imported; or of the gross receipts or earnings exemption or exclusion, unless the law clearly
provides otherwise. [China
[China Banking Corp. v.
derived
services.by[CIR
any v.
[CIR person engaged
Solidbank in ,the
Corp.
Corp., saleNo.
G.R. of CA,, G.R. No. 146749 (2003)]
CA
148191 (2003)]
TAX RATE
Percentage tax is a business tax imposed on Any person whose sales or receipts are
persons, entities, or transactions specified exempt from the payment of VAT and who is
under Sections 116 to 127 of the NIRC. not a VAT-registered person shall pay a tax
equivalent to 3% of his gross quarterly sales
or receipts.
Other Non-bank 5% on gross receipts derived from interest, commissions, discounts and
Financial Intermediaries other items of gross income
[Sec. 122, NIRC]
Note: Interests, commissions and discounts from lending, as well as
income from financial leasing shall be taxed based on the remaining
maturities:
1. 5 years of less – 5%
2. More than 5 years – 1%
Operator of Amusement
Places [Sec. 125, NIRC] 2.
3. Cabarets, night ons
Boxing exhibiti or day
exhibitions – clubs
10%; –exempt
18% if a World or Oriental
Championship is at stake and a Filipino is a contender and the
exhibition is promoted by a Filipino or by an entity 60%-owned
by Filipinos
4. Profession
Professionalal basketball games – 15% in lieu of all other
percentage taxes
5. Jai-alai a
and
nd racetracks – 30%
Sale, Barter or Exchange 1. Sale through the local stock exchange, other than sale by a
of Shares of Stock Listed dealer in securities – 6/10 of 1% of the gross selling price or
and Traded through the gross value in money of the shares of stock
Local Stock Exchange or 2. Sale through IPO of shares of stock in closely held corporations
corporati ons
through Initial Public
Offering (IPO) The tax is based on gross selling price or gross value in money of
said shares in accordance with the proportion of shares disposed to
the total outstanding shares after listing:
a. Up to 25% - 4%
b. Over 25% but not over 33 1/3% - 1%
Domestic travel -
Domestic Regular Tax
Person / Cargo / 12% VAT
Goods International travel –
Domestic Regular tax
0% VAT
2.5% on Gross
Philippine Billing if
By Air / Sea Persons International VAT-exempt
doing business in
the Philippines
2.5% on Gross
International (doing
Philippine Billing if
Cargo / Goods business in the 3% Percentage Tax
doing business in
Philippines)
the Philippines
Page 190 of 256
Nature
E. EXCISE TAX: CONCEPT Excise taxes, whether under the specific or the
AND NATURE ad valorem tax system, is basically an indirect
tax imposed on certain types or classes of
Concept
Excise taxes are taxes imposed on certain
goods, whether locally manufactured or
imported. While the tax is directly levied upon
specified goods manufactured or produced in the manufacturer/importer upon removal of the
the Philippines for domestic sale or taxable goods from its place of production or
consumption or for any other disposition and to from the customs custody, the tax, in reality, is
things imported as well as services performed actually passed
pass ed on to the end consumer as part
in the Philippines. [Sec. 129, par. 1, NIRC] of the transfer value or selling price of the
goods, sold, bartered or exchanged. [Silkair
[Silkair
Kinds of Excise Taxes [Sec. 129, par. 2, (Singapore) Pte. Ltd. v. CIR, G.R.
CIR, G.R. No. 166482
NIRC] (2012)]
1. Specific tax – tax due is computed based
on: In the refund of indirect
i ndirect taxes, the proper party
o weight to question or seek a refund of the tax is the
o volume capacity statutory taxpayer, the person on whom the tax
o
any other physical unit of is imposed by law and whowh o paid the same even
when he shifts the burden thereof to another.
measurement.
2. Ad valorem tax – tax due is computed The tax liability remains with the
based on: manufacturer/producer/importer that is
o selling price primarily, directly, and legally liable for the
o other specified value of the good or payment of excise taxes. [Ibid.
[Ibid.]]
service performed
Purpose
The NIRC enumerates the specific goods and 1. To curtail consumption of certain
services that are subject to Excise Tax: commodities, the excessive or
NIRC Goods/Services indiscriminate use of which is considered
Sec. 141 Distilled Spirits harmful to the individual or community
Sec. 142 Wines (e.g., alcoholic
alcoholi c beverages and tobacco
Sec. 143 Fermented Liquors products);
Sec. 144 Tobacco Products 2. To protect a domestic industry, the
Cigars and products of which face competition from
Sec. 145 similar imported articles;
Cigarettes
Manufactured Oils 3. To distribute the tax burden in proportion to
Sec. 148 the benefit derived from a particular
and Other Fuels
government service (e.g., excise taxes on
Sec. 149 Automobiles
Automobil es
gasoline, lubricating oils and denatured
Non-essential
Sec. 150 alcohol for motive power); and
Goods
4. To raise revenue [DE LEON]
Non-essential
Sec. 150-A
Services*
Sweetened
Sec. 150-B
Beverages*
Sec. 151 Mineral Products
*Added by TRAIN Law
taxable document enjoys the exemption from ii. Filing a claim for tax credit
the tax, the other party thereto who is not 2. Judicial Remedies (CTA/RTC)
exempt shall be the one directly liable for the a. Civil Action
tax. [TABAG, p. 429 (2019)] i. Appeal to the CTA
ii. Action to contest forfeiture
Purpose of chattel; and
The purpose of the law in imposing stamp iii. Action for damages
taxes is to raise revenue and not to invalidate b. Criminal Action
contracts or inflict penalties, and courts should i. Filing a criminal complaint
give it a liberal construction. [33 C.J.S. 315- against erring BIR officials
316] and employees
General Rule: The issuance of an LOA is a Note : A Revenue Officer is allowed only 120
mandatory statutory requirement. [Sec. 13, days from the date of receipt of an LOA by the
NIRC] taxpayer to conduct the audit and submit the
required report of investigation. If the Revenue
Any tax assessment issued without an LOA is Officer is unable to submit his final report of
a violation of the taxpayers’ right to due investigation within the 120-day period, he
process and is therefore “inescapably void.” must then submit a progress report to his Head
[RMC 75-2018; Medicard Philippines, Inc. v. of Office, and surrender the LOA for
CIR , G.R. No. 222743 (2017)] revalidation.
Exception: The following cases need not be iii. Notice for Informal Conference (NIC)
covered by a valid LOA:
a. Cases involving civil or criminal tax The Revenue Officer who audited the
fraud which fall under the jurisdiction of taxpayer’s records shall state in his report
the Tax Fraud Division of the whether or not the taxpayer agrees with his
Enforcement Services, and findings that the taxpayer is liable for deficiency
b. Policy cases under audit by the special taxes. If the taxpayer is not amenable, based
teams in the National Office. [RMO 36- on the said Officer’s submitted report of
99] investigation, the taxpayer shall be informed, in
writing, of the discrepancies in the taxpayer’s
Letter of Authority vs. Letter Notice
N otice payment of his internal revenue taxes for the
A Letter Notice (LN) is not found in the NIRC purpose of “lnformal Conference,” in order to
and is not an authority to conduct an audit. The afford the taxpayer with an opportunity to
LN is merely a notice to the taxpayer that a present his side of the case.
discrepancy is found based on the BIR’s third
party information data matching programs. The Informal Conference shall in no case
Thus, an LOA must still be secured before extend beyond 30 days from receipt of the
proceeding with the further examination and notice for informal conference. If it is found that
assessment of the taxpayer. [Medicard [Medicard the taxpayer is still liable for deficiency tax or
Philippines, Inc. v. CIR , G.R. No. 222743 taxes after presenting his side, and the
(2017)] taxpayer is not amenable, the case shall be
endorsed within 7 days from the conclusion of
Note : The revenue officers who caused the Modes of service of assessment notice
delay shall be subject to administrative 1. Personal Service – Notice is delivered
sanction. [RMC 11-2014] personally to the taxpayer at his known
address. If not practicable, notice shall be
b. If the FLD/FAN is issued before the served by substituted service or by mail.
lapse of the 15-day period, it shall be void. 2. Substituted Service – The notice is left with
a clerk or a person in charge at the
Note : Prematurely issuing an FLD/FAN before taxpayer’s known address.
the lapse of the 15-day period is a wanton 3. Service by mail [RR 18-2013]
disregard of the mandatory due process
requirement. [CIR[CIR v. Pacific Bayview Service to the tax agent shall be deemed
Properties, Inc.,
Inc., CTA EB No. 1677 (2018), service to the taxpayer. [RR 18-2013]
citing CIR v. Metro Star Superama, Inc.,
Inc., G.R.
No. 185371 (2010)] The notice shall first be served to the
taxpayer’s registered address before the same
vi. Disputed Assessment may be served to the taxpayer’s known
address, or in the alternative, may be served to
The taxpayer or his duly authorized the taxpayer’s registered address and known
representative may protest administratively address simultaneously. [RMC 11-2014]
against the FLD/FAN within 30 days from date
of receipt thereof. The taxpayer protesting an c. Tax Delinquency as
assessment may file a written request for Distinguished from Tax
reconsideration or reinvestigation. Deficiency
vii. Administrative Decision on a Deficiency is defined as the amount still due
Disputed Assessment and collectible from a taxpayer upon audit or
investigation; whereas delinquency is defined
viii. Appeal from an Administrative as the failure of the taxpayer to pay the tax due
Decision on Disputed Assessment on the date fixed by law or indicated in the
assessment notice or letter of demand.
b. Requisites for a valid [Takenaka Corporation Philippine Branch v.
assessment CIR , CTA EB No. 745 (2012)]
1. The taxpayer shall be informed in writing of
the law and the facts on which the Tax Delinquency v. Tax Deficiency
assessment is made; otherwise, the Tax Delinquency Tax Deficiency
assessment notice shall be rendered null ! The self- ! The amount by
and void. [Sec. 228, NIRC] assessed tax per which the tax
2. assessment contains not only a return was not imposed by law
computation of tax liabilities, but also a paid or only exceeds the
demand for payment within a prescribed partially paid; or amount shown in
period. [CIR
[CIR v. Pascor , G.R. No. 128315 ! The deficiency the tax return; or
(1999)] tax assessed by ! If no amount is
3. assessment must be served on and the BIR became shown in the
received by the taxpayer. [CIR
[CIR v. Pascor , final and return, or if there
ibid] executory. is no return, then
the amount by
which the tax as
determined by the
CIR exceeds the
i. It is executed before the expiration government. [CIR v. Next Mobile, Inc., G.R.
of the prescriptive period. The date No. 212825 (2015)]
of execution shall be indicated.
ii. It is signed by the taxpayer himself Suspension of running of statute of
or his authorized representative. In
a corporation, it must be signed by limitations
a. When the CIR is prohibited from
its responsible officials making the assessment or beginning
iii. The expiry date of the period agreed distraint or levy or a proceeding in
upon to assess/collect the tax after court, and for 60 days thereafter;
the regular 3-year period of b. When the taxpayer requests for a
prescription should be indicated. reinvestigation which is granted by the
b. Except for waiver of collection of taxes CIR;
which shall indicate the particular taxes c. When the taxpayer cannot be located
assessed, the waiver need not specify the in the address given by him in the
particular taxes to be assessed nor the return filed, BUT if the taxpayer informs
amount thereof, and it may simply state “all the CIR of any change in address, the
internal revenue taxes”. running of the statute of limitations
c. It may or may not be notarized. shall not be suspended;
d. CIR or designated officials or the d. When the warrant of distraint or levy is
concerned revenue district officer or group duly served upon the taxpayer, his
supervisor must indicate acceptance by authorized representative, or a
signing the same before the expiration of member of his household with
the period to assess or collect taxes, or sufficient discretion, and no property is
before the lapse of the period agreed upon located; and
in a prior agreement. e. When the taxpayer is out of the
e. The taxpayer has the duty to retain a copy Philippines.
of the accepted waiver.
Determining if prescription has set in
Two (2) material dates required on the The important date to remember is the date
waiver: when the demand letter or notice is released,
1. The date of execution of the waiver by the mailed or sent by the CIR to the taxpayer.
taxpayer or its authorized representative; [Basilan Estates, Inc. v. CIR , G.R. No. L-22492
and (1967)]
2. The expiry date of the period the taxpayer • Provided the release was effected
waives the statute of limitations
l imitations BEFORE prescription sets in, the
assessment is deemed made on time,
Effect of noncompliance with the requisites even if the taxpayer actually receives it
General Rule: When a waiver does not comply AFTER the prescriptive period.
with the requisites for its validity, it is invalid and • Mailing of the assessment before the
ineffective to extend the prescriptive period to prescriptive period sets in must be proved
assess taxes. with substantial evidence by the CIR.
• Direct denial of receipt of a mailed demand
Exception: When both the BIR and the letter shifts the burden to the Government
taxpayer are in pari delicto or “in equal fault”, it to prove that such letter was indeed
would be more equitable if the BIR’s lapses received by the taxpayer [Republic
[Republic v. CA,
were allowed to pass and consequently uphold G.R. No. L 38540 (1987)].
(1987)]. [INGLES]
the validity of the waivers in order to support
the principle that taxes are the lifeblood of the
2. Taxpaye
Taxpayer’s
r’s Remedies days from filing the
protest.
a. Protesting the assessment Counting of 180-day period for CIR to
decide
i. Period to File Protest From the filing of the From submission of
After issuance of the FLD/FAN, the taxpayer protest the complete
may protest the assessment within 30 days supporting
from receipt thereof by filing a request for documents
reconsideration or reinvestigation. [TABAG, p. 397 (2019]
shall not toll the 30-day period to appeal to the issuance of a tax certificate or tax credit
CTA. memo, which can be applied against
any sum that may be due and collected
from the taxpayer.
i. Grounds, Requisites, and Period for tax regardless of any supervening cause
Filing a Claim for Refund or [Sec. 229, NIRC]
Issuance of a Tax Credit Certificate Note : Both the claim for refund with the BIR
(TCC) and the subsequent appeal to the CTA
must be filed within the 2-year period.
Grounds for filing a claim for tax refund or
credit e. Taxpayer must show proof of the payment
1. Tax is erroneously or illegally assessed or of tax [Sec. 229, NIRC]
collected Note: The two-year period is not jurisdictional.
a. Taxes are erroneously paid when a Even if it had already lapsed, the same may be
taxpayer pays under a mistake of suspended for reasons of equity and other
fact, as when he is not aware of an special circumstances. [CIR [CIR v. Philippine
existing exemption in his favor at American Life Ins. Co., G.R.
Co., G.R. 105208 (1995)]
the time that payment is made.
b. Taxes are illegally collected when It is subject to waiver in the absence of
payments are made under duress. objection to a claim filed after 2 years.
c. Penalty is collected without
authority Two-year period when counted
2. Penalty is collected without authority
3. Sum collected is excessive or in any General Rule: From the date the tax was paid
manner wrongfully collected [Sec. 229,
NIRC] Exceptions:
a. If the tax is withheld at source – from the
Requisites for tax refund or tax credit date it falls due at the end of the taxable
1. There is a tax collected erroneously or year [Gibbs v. CIR, G.R. No. L-17406
illegally, or a penalty collected without (1965)]
authority, or a sum excessively or
b. If the income is paid on a quarterly basis –
wrongfully collected.
collected. from the time of filing the final adjustment
2. There must be a written claim for refund return [CIR
[CIR v. CA,
CA, G.R. No. 117254 (1999)]
filed by the taxpayer to the CIR [Vda.
[Vda. De c. When the tax is paid in installments
i nstallments – from
Aguinaldo v. CIR , G.R. No. L-19927 the date of final payment or the last
(1965)] installment
government and the amount thereof shall Exception: The judicial claim need not await
revert to the general fund. [Sec. 230(A), NIRC] the expiration of the 90-day period, if such was
filed from December 10, 2003 (issuance of BIR
Period for using the TCC Ruling No. DA-489-03) to October 6, 2010
TCCs may be applied against all internal (promulgation
(promulgation of Aichi).
revenue taxes, excluding withholding tax.
TCCs which remain unutilized after 5 years Sec. 229 Sec. 112
from the date of issue shall, unless revalidated,
revalidated, Refers to a refund or Refers to a refund or
be considered as invalid, and shall revert to the credit of tax credit of excess
general fund. [Sec. 230, NIRC] 1. tax erroneously or unutilized input
or illegally VAT attributable to
All TCCs issued
i ssued by the BIR shall not be allowed assessed or zero-rated sales
to be transferred or assigned to any person. collected,, or
collected
[RR 14-2011] 2. penalty collected
without authority,
iii. Distinction Between Refund of or
Unutilized Input VAT (Sec. 112, 3. any sum
NIRC) and Refund of Erroneously or excessively or
Illegally Collected Tax (Sec. 229, wrongfully
NIRC) collected
The 2-year period The 2-year period
Rules on refund of excess or unutilized shall be reckoned shall be reckoned
input VAT from the date of from the close of the
1. When to file an administrative claim with payment of the tax taxable quarter
the CIR: or penalty. when the sales were
a. General rule: Within 2 years from made.
the close of the taxable quarter Both the Only the
when the sales were made [Sec. administrative claim administrative claim
112(A), NIRC; CIR v. Mirant with the CIR and the is required to be filed
Pagbilao , G.R. No. 172129 (2008)] appeal to the CTA within the 2-year
b. Exception: Within 2 years from the must be made within period.
date of payment of the output VAT, the 2-year period.
if the administrative claim was filed If the 2-year period is Sec. 112(C) of the
from June 8, 2007 (promulgation of about to lapse and NIRC provides a 90-
Atlas v. CIR) to September 12, the CIR has not day waiting period
2008 (promulgation of Mirant) acted on the claim, for the CIR to decide
2. When to file a judicial claim with the CTA: the taxpayer may on the application for
a. General rule: Section 112(D) already appeal to the tax refund or credit.
applies; not Section 229 CTA without waiting Compliance with the
i. Within 30 days from the full or for the decision of 90-day waiting
partial denial of the the CIR. period is mandatory
administrative
administrat ive claim by
b y the CIR; and jurisdictional.
or
ii. Within 30 days from the Thus, the taxpayer
expiration of the 90-day period may elevate his
provided to the CIR to decide claim to the CTA (a)
on the claim. This is mandatory within 30 days from
and jurisdictional.
j urisdictional. the full or partial
3. Government Remedies for made after the 3-year period for making an
assessment. [Sec. 203, NIRC]
Collection of Delinquent
Taxes Exception: A proceeding in court for the
collection of such tax may be filed without
a. Requisites assessment in the case of (i) false or fraudulent
1. The government can initiate collection return with intent to evade tax or of (ii) failure to
administratively or judicially once the file a return [Sec. 222(a),
222(a), NIRC]
assessment becomes final and executory.
2. Collection must be made within 5 years Waiver of prescriptive period
following the assessment of the tax. [Sec. If tax was assessed within the period agreed
222(c), NIRC] upon by the CIR and the taxpayer, such tax
may be collected by distraint or levy or by a
The government has two ways to collect: proceeding in court within the period agreed
1. Summary or administrative remedies upon in writing before the expiration of the 5-yr
a. Distraint on personal property period. [Sec. 222(d), NIRC]
b. Levy on real property
2. Judicial remedies (civil or criminal) Suspension of running of statute of
limitations
Note : The remedies of distraint and levy shall [see discussion under Assessments]
not be availed of where the amount of tax
involved is not more than P100. c. Administrative Remedies
b. Prescriptive Periods; Suspension i. Tax Lien
of Running of Statute of
Limitations A tax lien is a legal claim or charge
char ge on property,
whether real or personal, established by law as
a source of security for the payment of tax
Prescriptive period
obligations. [HSBC v. Rafferty, G.R. No. L-
General Rule: The taxes due must be
13188 (1918)]
collected within 5 years following the
assessment of the tax. [Sec. 222(c), NIRC]
Nature and extent of tax lien
Exception: 1. When a taxpayer neglects or refuses to pay
his internal revenue tax liability after
a. In case of (i) false or fraudulent return with
demand, the amount so demanded shall be be
intent to evade tax or of (ii) failure to file a
a lien in favor of the government from the
return, a proceeding in court for the
time the assessment was made by the CIR
collection of such tax without assessment
until paid with interests, penalties, and
may be made within 10 years from
costs that may accrue in addition thereto
discovery of falsity, fraud or omission. [Sec.
upon all property and rights to property
222(a),
222(a ), NIRC]
belonging to the taxpayer.
b. When a waiver of the statute of limitation is
2. The lien shall NOT be valid against any
executed within the 5-year period,
mortgagee, purchaser or judgment creditor
collection may be made within the period
until notice of such lien shall be filed by the
agreed upon. [Sec. 222(d), NIRC]
CIR in the office of the Register of Deeds
of the province or city where
wh ere the property of
Court proceeding
General for collection
rule: No proceeding of taxwithout
in court
the taxpayer is situated or located. [Sec.
219, NIRC]
assessment for the collection of taxes may be
In case the proceeds of the sale exceed the Further distraint or levy
claim and cost of sale, the excess shall be The remedy by distraint of personal property
turned over to the owner of the property. [Sec. and levy on realty may be repeated if
213, NIRC] necessary until the full amount due, including
all expenses, is collected. [Sec. 217, NIRC]
5. Redemption of property sold
Within one (1) year from the date of sale, the SUMMARY
taxpayer or anyone for him, may pay to the It is the seizure of personal
Revenue District Officer the following
following:: property, tangible or
a. public taxes Distraint intangible, by the government
b. penalties to effect collection of taxes
c. interest from the date of delinquency to including penalties.
the date of sale It is the taking of personal
d. interest of 15% per annum on said property, usually cash or sums
purchase price from the date of sale to
Garnishm
of money, owned by the
the date of redemption. [Sec. 214,
ent
delinquent taxpayer
taxpayer which is in
NIRC; RMC 46-2018]
46-2018] the possession of a third party.
It is the seizure of real property
p roperty
Note : The owner shall not be deprived of Levy of of the taxpayer by the
possession of the said property and shall be real government in order to
entitled to rents and other income until the property enforcement payment of
expiration of the period for redemption [Sec. taxes.
214, NIRC] [TABAG, p. 406 (2019)]
b. By filing an answer to the petition for review NIRC or who causes the commission of any
filed by the taxpayer with the CTA such offense by another shall be liable in the
[MAMALATEO] same manner as the principal. [Sec. 253(b),
NIRC]
Criminal Action
Any person convicted of a crime under the Offender Penalty
NIRC shall: Not a citizen He shall be deported
a. be liable for the payment of the tax, and of the immediately after serving the
b. be subject to the penalties imposed under Philippines sentence.
the NIRC. [Sec. 253(a), NIRC] The maximum penalty
prescribed for the offense shall
Prescriptive period for criminal action A public
be imposed and he shall be
All violations of any provision of the NIRC shall dismissed from public office,
officer or
prescribe after 5 years: employee
and perpetually disqualified
a. from the day of the commission of the from holding any public office,
violation, or to vote, and to participate in
any election.
b. if not known at the time, from the discovery
His license shall be
thereof and the institution of judicial CPA
proceedings for its investigation and automatically revoked
cancelled upon conviction. or
punishment. [Sec. 281, NIRC]
Corporation The penalty shall be imposed
s, on the partner, president,
When prescription is interrupted association general manager, branch
a. when proceedings are instituted against s, manager, treasurer, officer-in-
the guilty persons and the period shall run partnership charge and employees
again if the proceedings are dismissed for s etc. responsible for the violation.
reasons not constituting jeopardy; or [Sec. 253, NIRC]
b. when the offender is absent from the
Philippines. Minimum amount of fine:
The fines imposed for any violation
violati on of the NIRC
Assessment not necessary before filing a shall not be lower than the fines imposed
criminal charge for tax evasion herein or twice the amount of taxes, interests
An assessment is not necessary before a and surcharges due from the taxpayer,
criminal charge can be filed. The criminal whichever is higher.
higher. [Sec. 2
253(e),
53(e), NIRC]
charge need only be proved by a prima facie
showing of a willful attempt to file taxes, such Common crimes punishable under the
as failure to file a required tax return. [CIR
[ CIR v. NIRC
Pascor , G.R. No. 128315 (1999)] a. Attempt to evade or defeat tax [Sec. 254,
NIRC]
Payment of tax not a defense b. Willful failure to file return, supply correct
Payment of the tax due after a criminal case and accurate information, pay tax, withhold
has been filed shall not constitute a valid and remit tax and refund excess taxes
defense in any prosecution for violation of the withheld on compensation [Sec. 255,
provisions under the NIRC. [Sec. 253(a), NIRC]
NIRC]
Liability of person who aids or abets
Any person who willfully aids or abets in the
commission of a crime penalized under the
Willful blindness doctrine collected from the date prescribed for its
The neglect or omission of the taxpayer to payment until: (a) full payment thereof; or (b)
ensure compliance with her obligation to file upon issuance of a notice and demand by the
her ITRs and pay the tax due is tantamount to CIR or his authorized representative,
“deliberate ignorance” or “conscious whichever comes first [Sec 249(B), NIRC; Sec.
avoidance”. [People
[People v. Kintanar , CTA EB Crim. 3, RR 21-2018]
No. 006 (2010)]
2. Delinquency interest – Interest at the
d. No Injunction Rule; Exceptions rate of 12% per annum on the unpaid amount
in case of failure to pay:
General Rule a. the amount of the tax due on any return
r eturn
No court shall have the authority to grant an required to be filed; or
injunction to restrain the collection of any b. the amount of the tax due for which no
national internal revenue tax, fee or charge return is required; or
imposed by the NIRC. [Sec. 218, NIRC] c. a deficiency tax, or any surcharge or
interest thereon on the due date
Exception appearing in the notice and demand of
When in the opinion of the CTA, the collection the CIR or his authorized
of tax may jeopardize the interest of the representative until the amount is fully
government and/or the taxpayer, the CTA may paid, which interest shall form part of
suspend said collection and require the the tax [Sec. 249(C), NIRC; Sec. 4, RR
taxpayer to deposit the amount claimed or file 21-2018]
a surety bond. [Sec. 11, R.A. 1125, as
amended] Deficiency Delinquency
interest interest
4. Civil Penalties Basic tax +
deficiency
Base Basic tax
interest +
a. Delinquency Interest and surcharge
Deficiency Interest From the due
From the date
date appearing
INTEREST prescribed for
in the notice and
In general, interest is assessed and collected Reckoni its payment demand of the
on any unpaid amount of tax at the rate of 12% ng date until the full
CIR until the
or double the legal interest rate for loans or payment
amount is fully
forbearance of any money as set by the BSP thereof
paid
from the date prescribed for payment until the Rate 12% per annum
amount is fully paid. [Sec. 249(A), NIRC; Sec.
2, RR 21-2018]
Note : Upon effectivity of the TRAIN Law on
January 1, 2018, the deficiency and the
Note : The rate of interest per BSP Circular No.
delinquency interest SHALL NOT be imposed
799 series of 2013 for loans or forbearance of
simultaneously. [Sec. 249(A), NIRC; Sec. 5,
any money in the absence of an express
RR 21-2018]
stipulation is 6%. Thus, the interest rate
imposable shall be 12%. [Sec. 2, RR 21-2018]
3. Interest on extended payment
Interest at the rate of 12% per annum on the
1. Deficiency Interest – Interest at the tax or deficiency tax or any part thereof unpaid
rate of 12% per annum on any deficiency tax
due, which interest shall be assessed and
ILLUSTRATION
Mr. A has been assessed deficiency income tax of P1,000,000, exclusive of interest and surcharge,
for taxable year 2015. The tax liability remained unpaid despite the lapse of June 30, 2017, the
deadline for payment stated in the notice and demand issued by the Commissioner. Payment was
made by Mr. A on February 10, 2018. The civil penalties are computed as follows:
o
be levied and collected only for
III. LOCAL TAXATION o
Public
not
purposes;
be Unjust, excessive,
oppressive, or confiscatory;
A. LOCAL GOVERNMENT o not be Contrary to law, public
TAXATION policy, national economic policy, or
in restraint of trade;
c. The collection of local taxes, fees, charges
1. Fundamental Principles (U- and other impositions shall not be left to
PUCE-PIP) any Private person;
a. Taxation shall be Uniform in each local d. The revenue collected shall Inure solely to
government unit (LGU); the benefit of, and be subject to the
b. Taxes, fees, charges and other impositions disposition
dispositi on by, the LGU levying the tax, fee,
shall: charge or other imposition, unless
o
be Equitable and based as far as otherwise specifically provided herein; and,
practicable on the taxpayer's ability
to pay;
Franchise Tax ! !
!
Real Property Tax [see
[see separate discussion on Real
! (w/in !
Property Taxation ]
Metro Manila)
Note: Evidence of
payment of tax must be
presented to the Register
of Deeds before
registration, and to the
provincial assessor before
cancellation of an old tax
declaration.
TAX ON BUSINESS OF PRINTING AND PUBLICATION
Imposed on the business Tax Rate: Not exceeding Receipts from printing
of persons engaged in the 50% of 1% and/or publishing of books
printing, and/or publication and other reading
of books, cards, posters, Tax Base: Gross annual materials prescribed by
leaflets, handbills, receipts for the preceding the Department of
certificates, receipts, calendar year Education as school texts
pamphlets, and others of or references
similar nature [Sec 136, In the case of a newly
LGC]
LGC] started business:
!
Tax Rate: Not
exceeding 1/20 of 1%
! Tax Base: Capital
investment
FRANCHISE TAX
Imposed on businesses Tax Rate: Not exceeding No exception Franchise tax is a tax on
enjoying a franchise [Sec 50% of 1 the privilege of transacting
137, LGC] Notwithstanding any business in the state and
Tax Base: Gross annual exemption granted by any exercising corporate
receipts for the preceding law or other special law, franchises granted by the
calendar year based on the province may impose a state. It is not levied on the
the incoming receipt, or tax on businesses corporation simply for
realized, within its enjoying a franchise. [Sec. existing as a corporation.
territorial jurisdiction 137, LGC]
Requisites to be covered
In the case of a newly by franchise tax:
started business: a. that one has a franchise
! Tax Rate: Not more in the sense of a
than 1/20 of 1% secondary or special
! Tax Base: Capital franchise; and
investment b. that it is exercising its
rights or privileges
under this franchise
within the territory of the
concerned LGU [NPC [NPC v.
Province of Isabela,
G.R. No. 165827
(2006)]
TAX ON SAND, GRAVEL AND OTHER QUARRY RESOURCES
Levied on ordinary stones, Tax Rate: Not more than Who issues permit to
gravel, earth and other 10% extract: issued exclusively
quarry resources, as by the provincial governor
defined in the NIRC, Tax Base: Fair market pursuant to an ordinance
extracted from public value in the locality per by the Sangguniang
lands or from the beds of Panlalawigan
Scope of taxing power: Municipalities may levy taxes, fees, and charges not otherwise levied by provinces. [Sec. 142,
LGC]
Any other business which the Tax Base: Gross sales or receipts Note: This is a catch-all provision.
Sanggunian concerned may deem
proper to tax [Sec. 143(h), LGC] Tax Rate: The Sanggunian may Exception: Any business engaged
prescribe a schedule of graduated in the production, manufacture,
rates but in no case to exceed the refining, distribution or sale of oil,
rates prescribed herein. gasoline, and other petroleum
products shall not be subject to any
Note: For any business subject to local tax imposed under Sec. 143 of
excise, value-added or percentage the LGC. [Art. 232(h), LGC IRR]
tax under the NIRC, the rate of tax
shall not exceed 2% of gross sales
or receipts of the preceding calendar
year.
Tax base of local business tax current year. If the tax paid is less than the tax
Business tax must be based on gross sales or due, the difference shall be paid before the
receipts, it being different from gross revenue. business is considered officially retired. [Sec.
[Ericsson Telecommunications Inc. v. City of 145, LGC]
Pasig , G.R. No. 176667 (2007)]
Rules on payment of business tax
“Gross Sales or Receipts” include the total 1. Taxes imposed under Sec. 143 of the LGC
amount of money or its equivalent representing shall be paid for every separate or distinct
the contract price, compensation or service establishment or place where business
fee, including the amount charged or materials subject to tax is conducted.
supplied with the services and deposits or 2. One line of business is not exempted by
advance payments actually or constructively being conducted with some other
received during the taxable quarter for the businesses for which such tax has been
services performed or to be performed for paid.
another person excluding discounts if
3. The tax on a business must be paid by the
determinable at the time of sales, sales return, person conducting it.
excise tax, and VAT. [Sec. 131(n), LGC] 4. If a person operates 2 or more businesses
mentioned in Sec. 143, the tax shall be
“Gross revenue” covers money or its computed:
equivalent actually or constructively received, a. on the combined total gross sales
including the value of services rendered or or receipts, if they are subject to the
articles sold, exchanged or leased, the same tax rate
payment of which is yet to be received. b. separately based on the gross
[Ericsson Telecommunications Inc. v. City of sales or receipts of each business,
Pasig , G.R. No. 176667 (2007)] if they are subject to different tax
rates [Sec. 146, LGC]
Ceiling on business tax within Metro Manila
Municipalities within Metro Manila may levy Note : Condominium corporations are not
taxes at rates which shall not exceed by 50% business entities, and are thus not subject to
the maximum rates prescribed in Sec 143 of local business tax. Even though the
the LGC. [Sec. 144, LGC] corporation is empowered to levy assessments
or dues from the unit owners, these amounts
Tax on retirement of business are not intended for the incurrence of profit by
Upon
under termination
Sec. 143 and of144,
a business subject
it shall submit
submi to tax
t a sworn the corporation,
necessary but to shoulder
expenses the multitude
for maintenance of
of the
statement of its gross sales or receipts for the
condominium. [Yamane
[Yamane v. BA Lepanto 2. 70% shall be taxable by the
Condominium Corp.,
Corp., G.R. No. 154993 (2005)] city/municipality where the factory,
project office, plant, or plantation is
Situs of business tax located [Sec. 150(b), LGC]
a. Rule 1: In case of persons
maintaining/operating a branch or sales outlet Illustration of Rules 1 to 3
making the sale or transaction, the sale shall A company has a principal office in
be recorded in said branch or sales outlet and Mandaluyong, and a sales office and a factory
the tax paid to the municipality/city where the in Sta. Rosa:
branch or sales outlet is located. [Sec. 150(a), 1. Sales made in Mandaluyong will be
LGC] recorded in Mandaluyong.
2. Sales made in Sta. Rosa by the Sta.
“Branch or Sales Office” – a fixed place in a Rosa sales office will be recorded in
locality which conducts operations of the Sta. Rosa.
business as an extension of the principal office. 3. Sales made in Los Baños, Calamba or
Offices used only as display areas of the Cabuyao [i.e., delivered to customers
products where no stocks or items are stored located in these places and not made
for sale, although orders for the products may by the Sta. Rosa sales office] will be
be received thereat, are not branch or sales recorded in Mandaluyong where the
offices as herein contemplated. A warehouse principal office is located. The
which accepts orders and/or issues sales allocation shall be as follows:
invoices independent of a branch with sales a. 30% of all sales recorded in the
office shall be considered as a sales office. [Art. principal office shall be taxable
243(a)(2),
243(a )(2), LGC IRR] in Mandaluyong;
b. 70% of all sales recorded in the
b. Rule 2: Where there is NO branch or principal office shall be taxable
sales outlet in the city/municipality where the in Sta. Rosa where the factory
sale is made, the sale shall be recorded in the is located.
principal
princip al office and the tax shall be paid to such
city/municipality. [Sec. 150(a), LGC] d. Rule 4: In case the plantation is
located in a place other than the place where
“Principal Office” – the head or main office of the factory is located, the 70% in Rule 3 will be
the business appearing in the pertinent divided as follows:
documents (e.g., articles of incorporation) 1. 60% to the city/municipality where the
submitted to the SEC, or the DTI, or other factory is located; and
appropriate
appropriate agencies, as the case may
m ay be [Art. 2. 40% to the city/municipality where the
243(a)(1),
243(a)(1), LGC IRR] plantation is located. [Sec. 150(c),
LGC]
c. Rule 3: In the case of manufacturers,
assemblers, contractors, producers, and e. Rule 5: In case of 2 or more factories,
exporters having factories, project offices, project offices, plants or plantations in different
plants, and plantations, proceeds shall be localities, the 70% shall be prorated among the
allocated as follows: localities where they are located in proportion
1. 30% of sales recorded in the principal to their respective volumes of production. [Sec.
office shall be taxable by the 150(d), LGC]
city/municipality where the principal
office is located; and Illustration: A company has a principal office
in Valenzuela and 2 factories located in
Malolos City, Bulacan and Mandaue City, Municipal Fees and Charges For Regulation
Cebu, which produced 60% and 40%, & Licensing
respectively, of the total production for the
year. It also has branches selling merchandise General rule: The municipality may impose
in Muntinlupa, Bacolod and Cebu City. reasonable fees and charges on the conduct
conduc t of
1. Sales made in Valenzuela will be business or practice of profession
recorded in Valenzuela; commensurate with the cost of regulation,
2. Sales made in Muntinlupa, Bacolod inspection and licensing. [Sec. 147, LGC]
and Cebu City shall be taxable in the
said cities; Exception: Professional tax reserved to the
3. Sales in all other places which do not province in Sec. 139 of the LGC [Sec. 147,
have a sales branch shall be LGC]
distributed as follows: 30% to
Valenzuela and 70% to be allocated Specific rules:
between Malolos City, and Mandaue 1. The municipality may impose
City based on the factories’ volume of reasonable fees for sealing and
production. Hence, 42% shall be taxed licensing of weights and measures.
in Malolos City; while 28% shall be [Sec. 148, LGC]
taxed in Mandaue City. 2. The municipality has exclusive
authority to grant fishery privileges in
Note : The sales allocation shall be applied municipal waters and impose rentals,
irrespective of whether or not sales are made fees or charges therefor. [Sec. 149,
in the locality where the factory, project office, LGC]
plant, or plantation is located. [Sec. 150(e),
LGC] c. Taxing Powers of Cities
Excise Tax: The business tax is imposed on Scope of taxing power: The city may levy taxes,
the performance of an act, enjoyment of a fees, charges which the province or
privilege, or engagement in an occupation. The municipality may impose.
i mpose.
power to levy such tax depends on the place in
which the act is performed or the occupation is 1. Those levied and collected by highly
engaged in, not upon the location of the office urbanized and independent component
or the domicile of the person. [Allied
[ Allied Thread cities shall accrue to them and
Co., Inc. v. City Mayor of Manila , G.R. No. L- distributed according to the provisions
40296 (1984)] of the LGC.
2. Rates of taxes that the city may levy
Sales Tax: It is the place of the consummation may exceed the maximum rates
of the sale, associated with the delivery of the allowed for the province or municipality
things which are the subject matter of the by not more than 50%. [Sec. 151, LGC]
contract, that determines the situs of the
contract for purposes of taxation, and not Exception: Rates of professional and
merely the place of the perfection of the amusement taxes [Sec. 151, LGC]
contract. [Shell
[Shell Co., Inc. v. Municipality of
Sipocot, Camarines Sur , G.R. No. L-12680
(1959)]
d. Customs duties, registration fees of vessel h. Excise taxes on articles enumerated under
and wharfage on wharves, tonnage dues, the NIRC, as amended, and taxes, fees or
and all other kinds of customs fees, charges on petroleum products;
charges and dues;
i. Percentage or VAT on sales, barters or
Exception: wharfage on wharves constructed exchanges or similar transactions on
and maintained by the LGU concerned goods or services except as otherwise
provided herein;
“Wharfage” means a fee assessed against the
cargo of a vessel engaged in foreign or Exceptions (Percentage taxes):
domestic trade based on quantity, weight, or 1. Tax on business of printing and
measure received and/or discharged by publication imposed by provinces/cities
vessel. [Sec. 131(y), LGC] [Sec. 136, LGC]
2. Amusement tax imposed by
e. Taxes, fees or charges on Goods carried provinces/cities [Sec. 140, LGC]
into or out of, or passing through, the 3. Tax on business imposed by
territorial jurisdictions of LGUs in the guise municipalities/cities
municipalities/cities on manufacturers,
manufacturers,
of charges for wharfage, tolls for bridges or wholesalers, distributors, dealers, and
otherwise, or other taxes, fees, or charges contractors enumerated in Sec. 143 of
in any form; the LGC in accordance with the
schedules provided therein
Note : Sec.133(e) prohibits the imposition, in
the guise of wharfage, of fees, as well as all j. Taxes on the gross receipts of:
other taxes or charges in any form whatsoeve
whatsoever,r, 1. Transportation contractors and
on goods or merchandise. It is therefore 2. persons engaged in the transportation
irrelevant if the fees imposed are actually for of passengers or freight by hire and
police surveillance on the goods, because any 3. common carriers by air, land or water
other form of imposition on goods passing
through the territorial jurisdiction of the Exception: Tax on the operation and
municipality is clearly prohibited. [Palma
[Palma franchising of tricycles [Art. 221(j), LGC IRR]
Development Corp. v. Municipality of
Malangas , G.R. No. 152492 (2003)] k. Taxes on premiums paid by way of
Reinsurance or retrocession;
f. Taxes, fees or charges on Agricultural and
aquatic products when sold by marginal l. Taxes, fees or charges for the Registration
farmers or fishermen; of motor vehicles and for the issuance
iss uance of all
kinds of licenses or permits for the driving
"Marginal Farmer or Fisherman " refers to an thereof,, except tricycles;
thereof
individual engaged in subsistence farming or
fishing which shall be limited
li mited to the sale, barter m. Taxes, fees, or other charges on Philippine
or exchange of agricultural or marine products products actually Exported;
produced by himself and his immediate family.
[Sec. 131(p), LGC] Exception: Tax on exporters of essential
commodities [Sec. 143(c), LGC, Art. 221(m),
g. Taxes on business enterprises certified to LGC IRR]
by the Board of Investments as Pioneer or
non-pioneer for a period of 6 and 4 years, n. Taxes, fees, or charges on Countryside
respectively from the date of registration; and Barangay Business Enterprises and
cooperatives duly registered under RA 2. The Sanggunian shall send written
w ritten notices,
6810 (Magna Carta for Countryside and specifying the date and venue of public
Barangay Business Enterprises) and RA hearing, to the interested or affected
6938 (Cooperative Code of the parties operating or doing business within
Philippines), respectively; and the concerned LGU. [Art. 276(b)(2), (3),
LGC IRR]
o. Taxes, fees or charges of any kind on the 3. The public hearing must be held not earlier
National Government, its agencies and than 10 days from sending the notices, or
instrumentalities, and LGUs. [Sec. 133, the last day of publication, or date of
LGC] posting, whichever is later. [Art. 276(b)(3),
LGC IRR]
8. Requirements for a Valid Tax 4. An ordinance must be approved on third
reading by a majority of the sanggunian
Ordinance members present, there being a quorum.
[Art. 107(g), LGC IRR]
Local tax ordinance 5. The enacted ordinance shall be presented
The power to impose a tax, fee, or charge or to to the local chief executive (LCE), who
generate revenue under the LGC shall be may:
exercised by the Sanggunian concerned a. Approve the same by affixing his
through an appropriate ordinance. [Sec. 132, signature; or
LGC] b. Veto and return the same with his
objections to the Sanggunian
Tests of a valid ordinance: within 15 days in case of a
1. It must not contravene the Constitution or province, and 10 days in case of a
any statut city or municipality; otherwise, the
2. It must not be unfair or oppressive; ordinance shall be deemed
3. It must not be partial or discriminatory; approved. [Art. 108, LGC IRR]
4. It must not prohibit but may regulate trade;
5. It must be general and consistent with Note : The LCE, except the Punong Barangay,
public policy; and may veto any ordinance on the ground that it is
6. It must not be unreasonable [Magtajas
[Magtajas v. ultra vires or prejudicial to public welfare. His
Pryce Properties
Properties , G.R. No. 111097 (1994)] reasons shall be stated in writing. The LCE
may veto an ordinance only once. [Art. 109,
Note : An ordinance is presumed valid unless LGC IRR]
declared otherwise by a court in an appropriate
proceeding. [Rural
[Rural Bank of Makati v. 6. The sanggunian may override the veto of
Municipality of Makati , G.R. No. 150763 the LCE by 2/3 vote of all its members,
(2004)] thereby making the ordinance effective.
[Art. 109(c), LGC IRR]
Procedure for approval of tax ordinances 7. Once approved, the ordinance shall be
1. Within 10 days from the filing of the transmitted to the higher level sanggunian
proposed tax ordinance, the same shall be for review. If no action is taken by the latter
published for 3 consecutive days in a within 30 days after submission, the same
newspaper of local circulation or posted shall be deemed approved. [Arts. 110 and
simultaneously in at least 4 conspicuous 111, LGC IRR]
public places within the territorial 8. Within 10 days after the approval of the
jurisdiction of the LGU. [Art. 276(b)(1), LGC ordinance, certified true copies of all tax
IRR] ordinances or revenue measures shall be
Note : The Secretary of Justice can only review Note : If the property distrained is not disposed
the constitutionality or legality of the tax of within 120 days from the date of distraint, the
ordinance, and, if warranted, to revoke it on same shall be considered as sold to the LGU
either or both of these grounds. There is no for the amount of the assessment made. [Sec.
need for a written protest when disputing an 175(e), LGC]
ordinance. [Ingles]
f. Disposition of proceeds [Sec. 175, LGC]
11. Assessment and
LEVY ON REAL PROPERTY
Collection of Local Taxes Subject of Levy: real property and interest in
or rights to real property
a. Remedies of LGUs
i. Local Government’s Lien Procedure
a. After expiration of the time for payment of
Local taxes, fees, charges and other revenues delinquent tax, fee or charge, real property
constitute a lien, superior to all liens or may be levied on before, simultaneously or
encumbrances in favor of any person, after the distraint of personal property.
enforceable by administrative or judicial action. b. Preparation of a duly authenticated
[Sec. 173, LGC] certificate by the local treasurer effecting
the levy and showing:
The lien may only be extinguished upon full o the name of the taxpayer,
payment of the delinquent local taxes, fees, o the amount of the tax, fee or
and charges including related surcharges and charge, and penalty due, and
interest. [Sec. 173, LGC] o the description of the property.
c. Service of written notice of levy to the
ii. Civil Remedies, in General assessor, Register of Deeds, and the
delinquent taxpayer (or his agent if he be
(a) Administrative action absent from the Philippines, or if none, to
the occupant of the property in question)
DISTRAINT OF PERSONAL PROPERTY d. Annotation of the levy on the tax
Subject of distraint: goods, chattels or effects declaration and the certificate of title
and other personal property of whatever e. Report on any levy to be submitted to the
character, including stocks and other Sanggunian within 10 days after receipt of
securities, debts, credits, bank accounts, and warrant [Sec. 176, LGC]
interest in and rights to personal property [Sec. f. Advertisement of the sale or auction shall
174(a), LGC] be held within 30 days after the levy.
g. Before the date of sale, the taxpayer may
Procedure: stay the proceedings by paying the taxes,
a. Seizure of personal property fees, charges, penalties and interests.
b. Accounting of distrained goods h. Sale of the subject property [Sec. 178,
c. Publication of time and place of sale and LGC]
the articles distrained i. Redemption of property sold within 1 year
d. Release of distrained property upon from date of sale [Sec. 179, LGC]
payment prior to sale j. If not redeemed, the local treasurer shall
e. Sale of the goods or effects distrained at execute a deed conveying the property to
public auction. the purchaser [Sec. 180, LGC]
k. Purchase of the real property by the local h. Any material or Article forming part of a
treasurer in case there is no bidder for said house or improvement of any real
property or if the highest bid is insufficient property [Sec. 185, LGC]
to pay the taxes, fees, or charges, related
surcharges, interests, penalties and costs; Penalty on local treasurer for failure to issue
resale of said property may be made at a and execute warrant of distraint or levy
public auction [Sec. 181 and 182, LGC] Automatic dismissal from service after due
notice and hearing [Sec. 177, LGC]
Further distraint or levy
The remedies of distraint or levy may be (b) Judicial Action
repeated if necessary until the full amount due,
including all expenses, is collected [Sec. 184, The LGU may enforce the collection of
LGC] delinquent taxes, fees, charges or other
revenues by civil action in any court of
Note: In case the levy is not issued before or competent jurisdiction within 5 years from the
simultaneously with the warrant of distraint, date they became due. [Secs. 183 and 194,
and the personal property of the taxpayer is not LGC]
sufficient to satisfy his delinquency, the local
treasurer shall within 30 days after execution of Note : Either of these remedies (administrative
the distraint, proceed with the levy on the or judicial action) or all may be pursued
taxpayer's real property. [Sec. 176, LGC] concurrently or simultaneously at the discretion
of the LGU concerned. [Sec. 174, LGC].
Property exempt from distraint or levy
(ToB-CUPLAF) Injunction against collection of local taxes
a. Tools and implements necessarily The LGC does not contain a provision
used by the taxpayer in his trade or prohibiting courts from enjoining the collection
employment of local taxes. Such lapse may have allowed
b. One horse, cow, carabao, or other preliminary injunction under Rule 58 of the
Beast of burden, such as the Rules of Court where local taxes are involved.
delinquent taxpayer may select and [Angeles City v. Angeles City Electric
necessarily used by him in his ordinary Corporation, G.R. No. 166134 (2010)]
occupation
c. His necessary clothing, and that of all Prescriptive Period
his family
d. Household furniture and Utensils Prescriptive period for assessment
necessary for housekeeping and used 1. General Rule: Within 5 years from the date
for that purpose by the delinquent they become due
taxpayer, such as he may select, of a 2. Exception: In case of fraud or intent to
value not exceeding P10,000 evade tax, within 10 years from discovery
e. Provisions, including crops, actually of fraud or intent to evade payment [Sec.
provided for individual or family use 194(a),(b), LGC]
sufficient for 4 months
f. The professional Libraries of doctors, Prescriptive period for collection
engineers, lawyers and judges Within 5 years from the date of assessment by
g. One Fishing boat and net, not administrative or judicial action. No such action
exceeding the total value of P10,000 by shall be instituted after the expiration of said
the lawful use of which a fisherman period. [Sec. 194(c), LGC]
earns his livelihood
l ivelihood
Note : Real property shall be classified, valued Note : The LGC contains no definition of the
and assessed on the basis of its actual use term “real property”. Therefore, reference
regardless of where located, whoever owns it, should be made to the enumeration of
and whoever uses it. [Sec. 217, LGC] immovable property under Art. 415 of the Civil
Code.
b. It is an ad valorem tax where the tax base
is a fixed proportion of the value of the Machinery
property. [Sec. 199(c), LGC] It embraces machines, equipment, mechanical
contrivances, instruments, appliances or
apparatus which may or may not be attached,
Exception: The special levy shall not apply to: Withdrawal of exemption
1. lands exempt from basic RPT; and Except as provided herein, any exemption from
2. the remainder of the land, portions of payment of RPT previously granted to, or
which were donated to the LGU for the presently enjoyed by, all persons, whether
construction of such projects or natural or juridical, including all government-
improvements. [Sec. 240, LGC] owned or controlled corporations (GOCCs) are
hereby withdrawn upon the effectivity of the
Note : Municipalities outside Metro Manila may LGC. [Sec. 234, LGC]
impose a special levy on lands benefited by
public works. Note : Section 234 of the LGC applies
specifically to RPT exemptions, while Section
b. Exemptions from RPT 193 of the LGC applies to exemptions from all
other local taxes.
1. Real property owned by the Republic
Republi c of the
Philippines or any of its political Proof of exemption
subdivisions Every person who shall claim tax exemption
shall file with the local
l ocal assesso
assessorr within 30 days
Exception: when beneficial use is granted for from the date of declaration of real property
a consideration or to a taxable person. sufficient documentary evidence in support of
such claim (e.g., corporate charters, title of
2. Charitable institutions, churches, ownership, affidavits, by-laws, contract, articles
parsonages, or convents appurtenant of incorporation). Otherwise, the property will
thereto, mosques, non-profit or religious be listed as taxable in the assessment roll.
cemeteries, and all lands, buildings, and [Sec. 206, LGC]
improvements actually, directly and
exclusively used for religious, charitable, or GOCCs not exempt from RPT
R PT
educational purposes The last paragraph of Sec. 234 of the LGC
3. Machinery and equipment actually, directly expressly withdrew the exemption of GOCCs
and exclusively used by local water from RPT upon the effectivity of the LGC.
districts
distric ts and GOCCs engaged in the supply
and distribution of water and/or generation Exemption of Charitable Institutions
To be entitled to the exemption, claimant must
4. and
Realtransmission of electric
property owned power
by duly registered prove, that (a) it is a charitable institution; and
cooperatives as provided for under RA (b) its real properties are actually, directly and
6938 [Cooperative Code of the Philippines] exclusively used for charitable purposes.
5. Machinery and equipment used for
pollution control and environmental What is meant by actual, direct and exclusive
protection [Sec. 234, LGC] use of the property for charitable purposes is
the direct and immediate and actual application
applicati on
A claim for exemption under Sec. 234(e) of the of the property itself to the purposes for which
LGC should be supported by evidence that the the charitable institution is organized. [Lung
[ Lung
property sought to be exempted is actually, Center of the Philippines v. Quezon City , G.R.
directly and exclusively used for pollution No. 144104 (2004)]
control and environmental protection.
[Provincial Assessor of Marinduque v. CA,
CA,
FMV is the price at which property may be sold the machinery by its estimated
economic life and multiplied by
by a seller who is not compelled to sell and the replacement or reproduction
bought by a buyer who is not compelled to buy. cost. [Sec. 224(a), LGC]
[Sec. 199(l), LGC] Depreciatio Depreciation rate: not
n Allowance exceeding 5% of its original cost
Determination of FMV or its replacement or
1. The assessor of the province, city or reproduction cost, for each year
municipality
municip ality or his deputy may summon the of use
owners or persons having legal interest
therein and witnesses, and may administer The remaining value shall be
oaths, and take deposition concerning the fixed at not less than 20% of such
property, its ownership, amount, nature, original, replacement or
and value. [Sec. 213, LGC] reproduction cost for so long as
2. The assessors shall prepare a schedule of the machinery is useful and in
FMV for the different classes of real operation. [Sec. 225, LGC]
property situated in their respective local
government units for enactment by b. Assessment of Real Property
ordinance of the Sanggunian concerned. Based on Actual Use
[Sec. 212, LGC]
3. The schedule of FMV shall be published in Basis of assessment
a newspaper of general circulation in the Real property shall be classified, valued and
LGU concerned or in the absence thereof, assessed on the basis of actual use regardless
shall be posted in the provincial capitol, city of where located, whoever owns it, and
or municipal hall and in 2 other whoever uses it. [Sec. 217, LGC]
conspicuous public places therein. [Sec.
212, LGC] Actual Use refers to the purpose for which
4. The assessor may recommend to the the property is principally or predominantly
Sanggunian
in amendments
valuation in to correct
the schedule of FMV.errors
The utilized
[Sec. by the
199(b), person in possession thereof
LGC]
Sanggunian shall, by ordinance, act upon
Note : Unpaid realty taxes attach to the property increasing the value of said property or of any
and are chargeable against the person who change in its actual use. [Sec. 220, LGC]
had actual or beneficial use and possession of
it regardless of whether or not heh e is the owner. Date of effectivity of assessment or
[Estate of Lim v. City of Manila , G.R. No. 90639 reassessment
(1990)] General rule: All assessments or
reassessments made after January 1 of any
Assessment levels year shall take effect on January 1 of the
It is the percentage applied to the FMV to succeeding year [Sec. 221, LGC]
determine the taxable value of the property.
[Sec. 199(g), LGC] Exceptions: Reassessments due to the
following causes shall be made within 90 days
Note : Assessment levels shall be fixed by from the date of any cause and shall take effect
ordinances of the Sanggunian at rates not at the beginning of the quarter subsequent to
exceeding those prescribed under Sec. 218 of the reassessment:
the LGC. 1. partial or total destruction
2. major change in actual use;
Assessed or Taxable Value 3. any great and sudden inflation or deflation
It is the FMV of the real property multiplied by of real property values;
the assessment level. [Sec. 199(h), LGC] 4. gross illegality of the assessment when
• Assessed Value = FMV $ Assessment made; or
Level 5. any other abnormal cause. [Sec. 221, LGC]
• RPT = Assessed Value $ Tax Rate
Assessment of property subject to back taxes
General revisions of assessments and Property declared for the first time shall be
property classification assessed for taxes for the period during which
The local assessor shall undertake a general it would have been liable but in no case for
revision of real property assessments every 3 more than 10 years prior to the date of initial
years. [Sec. 219, LGC] assessment [Sec. 222, LGC]
more
case often than once
of new every 3 years
improvements except in
substantially
2. Prompt payment – not exceeding 10% the assessor and the Register of Deeds
of annual tax due [Art. 342, LGC IRR] where the property is located.
e. The Register of Deeds must annotate the
c. Remedies of LGUs levy on the tax declaration and certificate
certifi cate of
title.
Issuance of notice of delinquency f. The levying officer shall submit a report on
When the real property tax becomes the levy to the Sanggunian within 10 days
delinquent, the local treasurer shall post a after receipt of warrant by the owner. [Sec.
notice of delinquency at the main hall and in a 258, LGC]
publicly accessible and conspicuous place in g. Advertisement of the sale or auction shall
each barangay of the LGU concerned. [Sec. be made within 30 days after service of
254, LGC] warrant.
h. Before the date of sale, the proceedings
1. Local Government’s Lien may be stayed by paying the delinquent
The RPT shall constitute a lien on the property tax.
subject to tax, superior to all liens, charges or i. Sale of the real property [Sec. 260, LGC]
encumbrances in favor of any person, j. Redemption of property sold within 1 year
from date of sale upon payment of the
irrespective
ble of
enforceable
enforcea bythe owner or possessor
administrative or judicialthereof,
action delinquent tax [Sec. 261, LGC]
and may only be extinguished
extinguish ed upon payment of k. If not redeemed, the local treasurer shall
the tax and the related interests and expenses. execute a deed conveying the property to
[Sec. 257, LGC] the purchaser. [Sec. 262, LGC]
l. Purchase of property by local treasurer in
It constitutes a lien on the property from the case there is no bidder for the real property
date of accrual (i.e., January 1) [Sec. 246, or if the highest bid is insufficient to pay the
LGC]. RPT and other costs; resale of such
property may be made at a public auction
2. Administrative Action [Sec. 263 and 264, LGC]
collection (i.e., 5 years or 10 years) under Sec. controversy does not involve questions of fact
270 of the LGC. [Sec. 266, LGC] but only of law. Under Sec. 229(b) of the LGC
"the proceedings of the Board shall be
conducted solely for the purpose of
6. Taxpaye
Taxpayer’s
r’s Remedies ascertaining the facts." It follows that appeals
to the LBAA may be fruitful only where
a. Contesting the Valuation of Real questions of fact are involved. [Ty
[Ty v. Trampe ,
Property G.R. No. 117577 (1995)]
i. Appeal to the Local Board of ii. Appeal to the Central Board of
Assessment Appeals (LBAA) Assessment Appeals (CBAA)
Who may appeal Who may and when to appeal
Any owner or person having legal interest in the The owner of the property or the person having
property who is not satisfied with the action of legal interest therein or the assessor who is not
the local assessor in the assessment of his satisfied with the decision of the LBAA, may,
property may appeal to the LBAA by filing a within 30 days after receipt of the decision of
petition under oath, together with copies of the said LBAA, appeal to the CBAA. [Sec. 229,
tax declarations and such affidavits or LGC]
documents submitted in support of the appeal.
[Sec. 226, LGC] Period to decide and finality of decision
The CBAA shall decide cases on appeal within
When to appeal 12 months from the date of receipt thereof,
The appeal must be filed within 60 days from which shall become final and executory 15
the date of receipt of the written notice of days after receipt thereof by the appellant or
assessment. [Sec. 226, LGC] appellee, as the case may be. [Sec. 9, Rule 3,
Chapter VII, Manual of Real Property Appraisal
Period to decide on the appeal and Assessment Operations]
The LBAA shall decide the appeal within 120
days from the date of receipt of such appeal. Effect of appeal on the payment of tax
[Sec. 229(a), LGC] Appeal on assessments of real property shall
Decision on the
a. If the protest
protest is decided in favor of the assessor, a question of fact which should be
resolved, at the very first instance, by the
taxpayer, the amount or portion of the LBAA. [NPC
[NPC v. Provincial Treasurer of
tax protested shall be refunded to the Benguet , G.R. No. 209303 (2016)]
protestant, or applied as tax credit
against his existing or future tax iii. Refunds or Credits of RPT
liability. [Sec. 252(c), LGC]
b. If the protest is denied or the 60-day Repayment of excessive collections
period expired, the taxpayer may When an assessment of RPT is found to be
appeal to the LBAA and subsequently illegal or erroneous and the tax is accordingly
to the CBAA pursuant to Secs. 226 and reduced or adjusted, the taxpayer may file a
229 as in the case of assessment written claim for refund or credit for taxes and
appeals. [Sec. 252(d), LGC] interests with the provincial or city treasurer
within 2 years from the date the taxpayer is
entitled to such reduction or adjustment.
6. Decisions of the Secretary of Trade and original jurisdiction over tax collection
Industry, in the case of nonagricultural cases; and
product, commodity or article, and the 4. Decisions of the Central Board of
Secretary of Agriculture, in the case of Assessment Appeals (CBAA) in the
agricultural product, commodity or article, exercise of its appellate jurisdiction over
involving dumping and countervailing cases involving the assessment and
duties under Section 301 and 302, taxation of real property originally decided
respectively, of the Tariff and Customs by the provincial or city board of
Code, and safeguard measures under assessment appeals.
Republic Act No. 8800, where either party
may appeal the decision to impose or not 2. Criminal Cases
to impose said duties. [Sec. 3(a), Rule 4,
RRCTA]
a. Exclusive Original Jurisdiction of
Civil cases within the jurisdiction of the the Court in Divisions
Court En Banc [Sec. 2(a-e), Rule 4, RRCTA]
The Court en banc shall exercise exclusive The Court in Divisions
D ivisions shall exercise exclusive
appellate jurisdiction to review by appeal the original jurisdiction over all criminal offenses
following: arising from violations of the NIRC or Tariff and
Customs Code and other laws administered by
1. Decisions or resolutions on motions for the BIR or the Bureau of Customs, where the
reconsideration
reconsidera tion or new trial of the Court in principal amount of taxes and fees, exclusive
Divisions in the exercise of its exclusive of charges and penalties, claimed is one million
milli on
appellate jurisdiction over: pesos or more. [Sec. 3(b)(1), Rule 4, RRCTA]
a. Cases arising from administrative
agencies – Bureau of Internal b. Exclusive Appellate Jurisdiction in
Revenue, Bureau of Customs, Criminal Cases
Department of Finance, Department of
Trade and Industry, Department of The Court in Divisions
D ivisions shall exercise exclusive
Agriculture; appellate jurisdiction over appeals from the
b. Local tax cases decided by the judgments, resolutions
resolutions or orders
orders of the RTC in
their original jurisdiction in criminal offenses
Regional Trialjurisdiction;
their original Courts in the
andexercise of arising from violations of the NIRC or Tariff and
c. Tax collection cases decided by the Customs Code and other laws administered by
Regional Trial Courts in the exercise of the BIR or Bureau of Customs, where the
their original jurisdiction involving final principal amount of taxes and fees, exclusive
and executory assessments for taxes, of charges and penalties, claimed is less than
fees, charges and penalties, where the one million pesos or where
w here there is no specified
principal amount of taxes and penalties amount claimed. [Sec. 3(b)(2), Rule 4, RRCTA]
claimed is less than one million pesos.
2. Decisions, resolutions or orders of the RTC Criminal cases within the jurisdiction of the
in local tax cases and in tax collection Court En Banc [Sec. 2(f-h), Rule 4, RRCTA]
cases decided or resolved by them in the The Court en banc shall exercise exclusive
exercise of their appellate jurisdiction; appellate jurisdiction to review by appeal the
3. Decisions, resolutions or orders on motions following:
forDivision
in reconsidera
reconsideration
tionexercise
in the or new trial of exclusive
of its the Court 1. Decisions, resolutions
for reconsideration
reconsidera or orders
tion or new onthe
trial of motions
Court
in Division in the exercise of its exclusive
original jurisdiction over cases involving
which
and to are legally demandable
determine and
whether or not enforceable,
there has been MTC/RTC depending
threshold amount. on jurisdictional
a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any Prescriptive period
branch or instrumentality of the Government. Local taxes, fees, or charges shall be assessed
within five (5) years from the date they became
On the strength of the above constitutional due.
provisions, it can be fairly interpreted that the
power of the CTA includes that of determining No action for the collection of such taxes, fees,
whether or not there has been grave abuse of or charges, whether administrative or judicial,
discretion amounting to lack or excess of shall be instituted after the expiration of such
jurisdiction on
on the part of the
the RTC in issuing an
an period.
interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. In case of fraud or intent to evade the payment
[City of (2014)]
175723 Manila v. Grecia-Cuerdo , G.R. No. of taxes, fees,
assessed withinorten
charges, the from
(10) years samediscovery
may be
of the fraud or intent to evade payment.
Local taxes, fees, or charges may be collected for reconsideration or new trial may appeal
within 5 years from the date of assessment by within 15 days from receipt of the copy of the
administrative or judicial action. decision.
3. The
otherwise taxpayer
cannot is out of
be located. the194,
[Sec. country
LGC]or satisfaction
satisfactio
existing n of his tax liability as provided
laws. p rovided under
under
Mode of Appeal: Rule 42 The CTA has ample authority to dispense with
Aggrieved party may file a motion for the deposit of the amount claimed or the filing
reconsideration or new trial within 15 days from
reconsideration of the required bond, whenever the method
receipt of the copy of the decision. employed by the BIR in the collection of tax
jeopardizes
jeopardizes the interest of the taxpaye
taxpayerr for
Appeal to CTA en Banc being patently in violation of law. [Sps.
[Sps.
A party adversely affected by a decision or Pacquiao v. CTA First Division , G.R. No.
resolution
resoluti on of a Division
Divisi on of the Court on a motion 213394 (2016)]
taking
a of evidence,
question when the
of fact arises determination
at any of
stage of the Oppositionto: the
opposition Themotion
adverse
for party may file an
reconsideration or
proceedings, or when the taking of an account new trial within ten days after his receipt of a
is necessary, or when the determination
determination of an copy of the motion for reconsideration or new
issue of fact requires the examination of a long trial of a decision, resolution or order of the
account. The hearing before such justice shall Court.
proceed in all respects
r espects as though the same had
been made before the Court. When: He shall file a motion for
reconsideration or new trial within 15 days from
reconsideration
Upon the completion of such hearing, the the date he received notice of the decision,
justice concerned shall promptly submit to the resolution or order of the Court in question.
Court a written report thereon, stating therein
his findings and conclusions. Thereafter, the The Court shall resolve the motion for
Court shall render its decision on the case, reconsideration
reconsideration or new trial within three months
adopting,
whole or modifying,
in part, or,orthe
rejecting
Court the report
may, in
in its from the time it is deemed submitted for
resolution.
discretion, recommit it to the justice with
instructions, or receive further evidence. [Sec. How: The motion shall be in writing stating its
12, RA No. 1125, as amended; also Sec. 3, grounds, a written notice of which shall be
Rule 12, A.M. No. 05-11-07] served by the movant on the adverse party.
Solicitor General as counsel for the People allowing a court to annul its own judgment and
and government officials sued in their acknowledging that a hierarchy exists within
official capacity such court. A proper remedy would have been
an original action for Certiorari under Rule 65.
The Solicitor General shall represent the [CIR v. Kepco Ilijan Corp.,
Corp., G.R. No. 199422
People of the Philippines and government (2016)]
officials sued in their official capacity in all
cases brought to the Court in the exercise of its 6. Petition for Review on
appellate jurisdiction. He may deputize the
legal officers of the Bureau of Internal Revenue Certiorari to the Supreme
in cases brought under the National Internal Court
Revenue Code or other laws enforced by the
Bureau of Internal Revenue, or the legal [Rule 16, A.M. No. 05-11-07]
officers of the Bureau of Customs in cases
brought under the Tariff and Customs Code of A party adversely affected by a decision or
the Philippines or other laws enforced by the ruling of the Court en banc may appeal by filing
Bureau of Customs, to appear in behalf of the with the Supreme Court a verified petition for
officials
capacity:of said agencies
Provided, sued in their
however, such official
duly review ona certiorari
receipt of within
copy of the fifteen
decision or days from
resolution,
deputized legal officers shall remain at all times as provided in Rule 45 of the Rules of Court.
under the direct control and supervision of the
Solicitor General. The motion for reconsideration or for new trial
filed before the Court shall be deemed
5. Appeal to the CTA En Banc abandoned if, during its pendency, the movant
shall appeal to the Supreme Court.
No civil proceeding involving matters arising
under the National Internal Revenue Code, the
Tariff and Customs Code or the Local
Government Code shall be maintained, except
as herein provided, until and unless an appeal
has been previously filed with the CTA and
disposed of in accordance with the provisions
of this Act.