October 2022

FILING
Atty. C. Llamado

Income tax return – a sworn declaration of the income tax liability of a taxpayer.

Individual Return

1. Individuals Required to File Income Tax Return

(a) Every Filipino citizen residing in the Philippines;

(b) Every Filipino citizen residing outside the Philippines on his income from sources
within the Philippines;
(c) Every alien residing in the Philippines on income derived from sources within the
Philippines; and
(d) Every non-resident alien engaged in trade or business or in the exercise of a profession
in the Philippines.

2. Individuals Not Required to File Income Tax Return

(a) An individual whose taxable income does not exceed ₱250,000 under the graduated
rates of Section 24(A)(2)(a) of the Tax Code.

EXC. An individual (whether citizen or alien) engaged in business or practice of a

profession within the Philippines shall file income tax returns, regardless of the
amount of gross income.

(b) An individual receiving purely compensation income, regardless of amount, from only
one employer in the Philippines for the calendar year, the income tax of which has been
withheld correctly by the said employer (substituted filing)1.

EXC.

1) An individual deriving compensation from two or more employers concurrently

or successively at any time during the taxable year shall file an income tax return.

2) Individuals receiving purely compensation income from a single employer

although the income tax of which has been correctly withheld, but whose spouse
does not qualify for substituted filing, must file an income tax return covering
the income of both spouses.

(c) An individual whose sole income has been subjected to final withholding tax pursuant
to Section 57 (A) of the Tax Code.

1
The employee shall sign BIR Form No. 2316 (Certificate of Compensation Payment and Tax Withheld)
and return the same to the employer. The employer shall, in turn, submit a duplicate copy to the BIR not
later than February 28 of the succeeding year with the accompanying Certified List of Employees Qualified
for Substituted Filing of ITR. This list, when stamped “RECEIVED” by the BIR shall be tantamount to the
substituted filing of ITR by the qualified employees.
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 October 2022

(d) A minimum wage earner as defined in Section 22(HH) of the Tax Code or an individual
who is exempt from income tax pursuant to the provisions of this Code and other laws,
general or special.

Notes:
(1) Individuals deriving other non-business, non-profession-related income in addition to
compensation income not otherwise subject to final tax are required to file an income
tax return.

(2) The foregoing notwithstanding, any individual not required to file an income tax return
may nevertheless be required to file an information return pursuant to rules and
regulations.

3. Husband and Wife

Married individuals shall file a joint return to include the income of both spouses, but where
it is impracticable for the spouses to file one return, each spouse may file a separate return
of income but the returns so filed shall be consolidated by the BIR for purposes of
verification for the taxable year.

Return of Parent to Include Income of Children

The income of unmarried minors derived from property received from a living parent shall
be included in the return of the parent, except:

(1) When the donor’s tax has been paid on such property; or
(2) When the transfer of such property is exempt from donor’s tax.

4. Individual returns shall be filed in duplicate.

5. Required Attachments

(a) BIR Form No. 2316 (Certificate of Compensation Payment/Tax Withheld) – for
individuals earning compensation income.
(b) BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source) – for self-
employed individuals, estates and trusts.
(c) Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax at Source (“SAWT”)
(d) Audited Financial Statements Which Must be Attached to the Annual Income Tax
Return Upon Filing2

If the gross sales, earnings, receipts, or output from business for the year exceed
₱3,000,000:
(1) Balance Sheet and Profit and Loss Statement certified by an independent CPA.
(2) Comparative profit and loss statements for the current and preceding taxable years.
(3) Schedule of income producing properties and corresponding incomes therefrom.

2
If an individual taxpayer is computing his tax under the Graduated Rates, and is itemizing deductions, his
Financial Statements (whether audited or not) shall be required as an attachment even if his gross
sales/receipts plus non-operating income is less than ₱3.0 Million. If the same exceeds ₱3.0 Million, his
annual income tax return shall be accompanied by Audited Financial Statements. If he claims the OSD,
or if he avails of the 8% income tax rate option, the Financial Statements are not required to be
attached (Rev. Reg. No. 8-2018).
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 October 2022

6. Where to File Return

The return shall be filed with:

a) An authorized agent bank (AAB) located within the territorial jurisdiction of the
Revenue District Office where taxpayer is registered,3 or
b) Revenue District Officer, Collection Agent, or duly authorized Treasurer of the city or
municipality in which such person has his legal residence or principal place of business
in the Philippines, or if there be no legal residence or place of business in the
Philippines, with the Office of the Commissioner.

7. When to File Return

(a) The annual return must be filed on or before the fifteenth (15th) day of April of each
year covering income for the preceding taxable year;

(b) Individuals earning self-employment (business) income (whether solely or in

combination with employment income or other income not subject to final taxes) must
file quarterly returns4 and a final adjusted return (annual ITR)5 as follows:

1st Quarter - on or before May 15 of the current taxable year;

2nd Quarter - on or before August 15 of the current taxable year;
3rd Quarter - on or before November 15 of the current taxable year;
Final Adj. Return - on or before April 15 of the next year.6, 7

(c) Individuals subject to tax on capital gains:

(1) From the sale or exchange of shares of stock not traded thru a local stock
exchange: Form No. 1707 shall be filed within thirty (30) days after each
transaction, and a final consolidated return, Form No. 1707-A shall be filed on or
before April 15 of each year covering all stock transactions of the preceding taxable
year; and

3
AABs have been instructed to accept out-of-district returns (i.e. returns filed outside the jurisdiction of the RDO
where the taxpayer is registered) whose due dates fell within the ECQ period.
4
BIR Form No. 1701Q (Quarterly ITR for Self-Employed Individuals, Estates, and Trusts)
5
BIR Form No. 1700 (Annual ITR for Individuals Earning Purely Compensation Income)

BIR Form No. 1701 (Annual ITR for Individuals (Including MIXED Income Earner), Estates and Trusts)

BIR Form No. 1701A (Annual ITR for Individuals Earning Income PURELY from Business/Profession:
Those under the graduated rates with OSD as mode of deduction OR those who
opted to avail of the 8% income tax rate)
6
RR No. 8-2018. However, under the Tax Code as amended by the TRAIN Law, the final adjusted ITR
shall be filed on or before May 15 of the following year.
7
Professionals and other suppliers of services deriving gross receipts of ₱250,000 or less in any 12-month
period and who (1) are hired under a job order or service contract with the departments and agencies of the
government, local government units (“LGUs”), state colleges and universities, including GOCCs and
government financial institutions (“GFIs”), and (2) receive income from a LONE PAYOR with no other
source of income, shall be exempt from filing quarterly ITRs. Such professional or supplier of service shall
file only an annual ITR (RMC No. 51-2018).

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 October 2022

(2) From the sale or disposition of real property classified as a capital asset: Form
No. 1706 shall be filed within 30 days following each sale or other disposition.

8. When There is An Overpayment in the Final Adjusted Return (Annual Return)

The taxpayer has the following options:

a) For the overpayment to be refunded to him;

b) For him to be issued a Tax Credit Certificate; or
c) For the overpayment to be carried over as a tax credit against his income tax liabilities
for the quarters of the succeeding taxable years.

Option (c) is the default choice. Once the taxpayer opts to carry-over and apply the
overpayment against the income tax due for the succeeding taxable year, no application for
cash refund, or issuance of a tax credit certificate shall be allowed.

9. Installment Payment -

When the tax due in the annual ITR is in excess of Two Thousand Pesos (₱2,000), the
taxpayer, other than a corporation, may elect to pay the tax in two (2) equal installments,
in which case, the first installment shall be paid at the time the return is filed, and the second
installment, on or before October 158 following the close of the calendar year.

If any installment is not paid on or before the date fixed for its payment, the whole amount
of the tax unpaid becomes due and payable, together with the delinquency penalties.

10. Filing an Amended Return

A return may be modified, changed, or amended within (3) years from the date such return
is filed provided no notice for audit or investigation of such return has, in the meantime,
been actually served upon the taxpayer.

8
Before the TRAIN, the second installment should be paid on or before July 15 following the close of the
calendar year.

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 October 2022

Corporate Return
1. Quarterly and Final Adjusted Returns

With the exception of foreign corporations not engaged in trade or business in the
Philippines (NRFCs), all other corporations shall file quarterly income tax returns9 and a
final adjusted return10 as follows:
1st Quarter - not later than 60 days from the close of the quarter
2nd Quarter - not later than 60 days from the close of the quarter
rd
3 Quarter - not later than 60 days from the close of the quarter
Final Adj. Return - not later than the 15th day of the 4th month following the
close of the taxable year.

Note: A GPP may, but is not required to file quarterly income tax returns or quarterly
information returns (BIR Form No. 1702Q) because it is exempt from taxes. It is
required, however, to file an annual income tax return or annual information return
(BIR Form No. 1702EX) setting forth the items of gross income and deductions,
and the names, TINs, addresses and shares of each partner.

Required Attachments:

(a) BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source)
(b) Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax at Source (“SAWT”);
(c) Financial Statements Which Must be Attached to the Annual Income Tax Return Upon
Filing.

If the gross sales, earnings, receipts, or output from business for the year exceed
₱3,000,000.
(1) Balance Sheet and Profit and Loss Statement certified by an independent CPA.
(2) Comparative Profit and Loss Statements for the current and preceding taxable
years.
(3) Schedule of income producing properties and corresponding incomes therefrom.

2. Place of Filing

The quarterly income tax return and the final adjustment return shall be filed with

a) the authorized agent bank located within the territorial jurisdiction of the Revenue
District Office where taxpayer is registered11 or

9
BIR Form No. 1702Q (Quarterly ITR for Corporation, Partnership, and Other Non-Individual Taxpayer)
10
BIR Form No. 1702-EX (Annual ITR for Corporation, Partnership, and Other Non-Individual Taxpayer
EXEMPT under the Tax Code and Other Special Laws, and with NO Other Taxable Income)

BIR Form No. 1702-MX (Annual ITR for Corporation, Partnership, and Other Non-Individual Taxpayer
with MIXED Income Subject to Multiple Income Tax Rates or with Income Subject to
SPECIAL/PREFERENTIAL RATE)

BIR Form No. 1702-RT (Annual ITR for Corporation, Partnership, and Other Non-Individual Taxpayer
Subject Only to the Regular Income Tax Rate)
11
AABs have been instructed to accept out-of-district returns (i.e. returns filed outside the jurisdiction of the RDO
where the taxpayer is registered) whose due dates fell within the ECQ period.

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 October 2022

b) Revenue District Officer or Collection Agent or duly authorized Treasurer of the city
or municipality having jurisdiction over the location of the principal office of the
corporation filing the return or place where its main books of accounts and other data
from which the return is prepared are kept.

3. When There is An Overpayment in the Final Adjusted Return (Annual Return)

The corporation has the following options:

1. For the overpayment to be refunded; or

2. For a Tax Credit Certificate to be issued; or
3. For the overpayment to be carried over as a tax credit against income tax liabilities for
the quarters of the succeeding taxable years (default choice).12

4. Filing an Amended Return

A return may be modified, changed, or amended within (3) years from the date such return
is filed, provided no notice for audit or investigation of such return has, in the meantime,
been actually served upon the corporate taxpayer.

5. Annual Tax Incentives Report under RA No. 10708 (Tax Incentives Management
and Transparency Act (TIMTA))

Registered Business Entities (RBEs) availing of incentives administered by Investment

Promotion Agencies (IPAs)13 shall file with their respective IPAs an Annual Tax Incentives
Report within thirty (30) days from the statutory deadline of filing of the Final
Adjustment Return for Income Tax and payment of tax due thereon, if any.
Annual Tax Incentives Report of a Registered Business Entity – shall refer to the report to
be submitted by an RBE to its respective IPA containing complete information on income-
based tax incentives in the form of tax holidays and preferential tax rates, VAT incentives,
duty exemptions, deductions, credits, exclusions from the tax base, and other information
that may be required by the rules.

In addition to the Annual Tax Incentives Report, such RBE shall file a complete Annual
NEW Benefits Report which shall include data on (a) the approved and actual amount of
investments, (b) approved and actual employment level and job creation including
information on quality of jobs and hiring of foreign and local workers, (c) approved and
actual exports and imports, (d) domestic purchases, (e) profits and dividend payout, and (f)

12
Once the taxpayer opts to carry-over and apply the overpayment against the income tax due for the
succeeding taxable year, no application for cash refund, or issuance of a tax credit certificate shall be
allowed.
13
IPAs include the Board of Investments (“BOI”), Philippine Economic Zone Authority (“PEZA”), Bases
Conversion and Development Authority (“BCDA”), Subic Bay Metropolitan Authority (“SBMA”), Clark
Development Corporation (“CDC”), John Hay Management Corporation (“JHMC”), Poro Point
Management Corporation (“PPMC”), Bataan Technology Park, Inc. (“BTPI”), Cagayan Economic Zone
Authority (“CEZA”), Zamboanga City Special Economic Zone Authority (“ZCSEZA”), Phividec Industrial
Authority (“PIA”), Aurora Pacific Economic Zone and Freeport Authority (“APECO”), Authority of the
Freeport Area of Bataan (“AFAB”), Tourism Infrastructure and Enterprise Zone Authority (“TIEZA”), and
all other similar authorities that may be created by law in the future.

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 October 2022

all taxes paid, within thirty (30) calendar days from the statutory deadline for the annual
income tax return and payment of tax.14

Preservation of Books of Accounts and Other Accounting Records

All the books of accounts, including the subsidiary books and other accounting records of
corporations, companies, partnerships, or persons, shall be preserved by them for a period
beginning from the last entry in each book until the last day prescribed by Section 203 of the Tax
Code within which the Commissioner is authorized to make an assessment.15

The term “other accounting records” includes the corresponding invoices, receipts, vouchers and
returns, and other source documents supporting the entries in the books of accounts.16

However, under Rev. Reg. No. 17-2013 as amended by Rev. Reg. No. 5-2014, the retention
period is ten (10) years reckoned from the day following the deadline in filing a return, or if filed
after the deadline, from the date of filing the return, for the taxable year when the last entry was
made in the books of accounts. Provided that, within the first five (5) years of such retention
period, the taxpayer shall retain hard copies of the books of accounts, including subsidiary books
and other accounting records. Thereafter, the taxpayer may retain only an electronic copy thereof
in an electronic storage system which complies with the requirements set forth in Rev. Reg. No.
5-2014.

The foregoing notwithstanding, if the taxpayer has any pending protest or claim for tax credit or
refund of taxes, and such books or records are material to the case, the taxpayer is required to
preserve the same until the case is finally resolved.

Finally, unless a longer period of retention is required under the Tax Code or other relevant laws,
the independent CPA who audited the records and certified the financial statements, also has the
responsibility to maintain and preserve electronic copies of the audited and certified financial
statements including the audit working papers for a period of ten (10) years from the due date of
filing the annual income tax return, or the actual date of filing, whichever comes later.17

14
Sec. 305, NIRC.
15
Sec. 235, NIRC.
16
Rev. Reg. No. 5-2014.
17
Ibid.
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 October 2022

ELECTRONIC FILING AND PAYMENTS SYSTEM (“eFPS”)

eFPS refers to the system developed and maintained by the BIR for electronically filing tax
returns, including attachments, if any, and paying taxes due thereon, specifically through the
internet.

Who are Covered?

The following shall e-file their returns and e-pay the taxes due thereon through the eFPS:

(a) Taxpayer Account Management Program (“TAMP”) taxpayers - individuals or

juridical entities that have been identified by a Revenue District Office (“RDO”) as the top
taxpayers in the tax region based on selection criteria pursuant to existing revenue
issuances.

(b) Accredited Importers who or which are required to secure BIR-Importer Clearance
Certificates (“ICCs”) and BIR-Customs Broker Clearance Certificates (“BCCs”)

(c) National Government Agencies (“NGAs”)

(d) Licensed local contractors

(e) Enterprises enjoying fiscal incentives granted by other government agencies such as
those registered with the PEZA, BOI, TIEZA, etc.

(f) Top 5,000 individual taxpayers engaged in trade or business or practice of a

profession

(g) Corporations with paid-up capital of Ten Million Pesos (₱10,000,000) and above.

(h) Corporations with complete computerized systems.

(i) Government Offices insofar as remittance of withheld VAT and business tax is concerned;

(j) Government bidders

(k) Large taxpayers – taxpayers who have been classified and duly notified by the
Commissioner of Internal Revenue for having satisfied any or a combination of set criteria.

(l) Top 20,000 private corporations

(m) Stock brokers duly registered with the SEC, and insurance companies duly registered
with the SEC and licensed by the Insurance Commission

Time of Filing of Return

a) The e-filing of returns shall be available 24 hours a day, 7 days a week. However, to ensure
timely filing of a return and payment of the corresponding tax, the electronic return must
be filed and the corresponding tax must be paid on or before 10 P.M. of the due date.

b) For purposes of filing certain returns under the eFPS, taxpayers are classified under
different business groups based on industry, primary line of business, or primary purpose
of existence. Depending on such groupings, there shall be staggered filing as follows:

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 October 2022

1) the Monthly Withholding Tax returns, except withholding of VAT, shall be filed eleven
(11), twelve (12), thirteen (13), fourteen (14) , or fifteen (15) days following the end of
the month;

2) the Monthly VAT Declarations, and Monthly Percentage Tax Returns shall be filed
twenty-five (25), twenty-four (24), twenty-three (23), twenty-two (22), or twenty-one
(21) days following the end of the month.

Time of Payment of Taxes

Following the “pay as you file principle”, the payment of taxes shall be made within banking
hours of the day the return was electronically filed for cases of manual payment, or within the
day of e-filing for cases of electronic payment. However, no penalties shall be imposed for
taxpayers who e-filed earlier and paid at a later date but within the prescribed due date for the
applicable tax.

When e-filing is unsuccessful, the taxpayer must print the evidence and proof thereof (i.e.,
print screen with the message as given by the system). Furthermore, to avoid penalties, the
taxpayer should report this to the BIR HELPDESK and get the Trouble Ticket Log on or before
the due date, or report the same to the BIR CONTACT CENTER and get the Reference Number
of the call.

The taxpayer should then manually file and pay on or before the due date, and attach the proof
of unsuccessful eFPS attempts. He/It must then re-file electronically within fifteen (15) days
after the statutory deadline.18

Confirmation of Receipt of Returns, Documents, and Payment of Taxes

The return is deemed filed, on the date appearing in, and after a Filing Reference Number is
generated and issued to the taxpayer via the eFPS.

The tax due thereon is deemed paid after a Confirmation Number is issued by the AAB to the
taxpayer and the BIR.

Time and Place of Submitting the Required Attachments

Taxpayers availing of eFPS shall submit all required attachments of applicable BIR Forms to
the Revenue District Office/Division of the BIR where they are registered within fifteen (15)
days from date of filing.

18
RMO No. 5-2002; RMC No. 26-2015.
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 October 2022

ELECTRONIC BUREAU OF INTERNAL REVENUE FORMS (“eBIRFORMs”)

eBIRForms refers to the 2 types of electronic services provided by the BIR relative to the
preparation, generation, and submission of tax returns:

(1) Offline eBIRForms Package - a tax preparation software that allows the taxpayer and/or an
Accredited Tax Agent (“ATA”) to accomplish or fill up tax forms offline.
(2) Online eBIRForms Package – a filing infrastructure that accepts tax returns submitted online
and automatically computes penalties for tax returns submitted beyond the due date.

Who Are Covered?

a) eBIRForms shall be available to all non-eFPS filers.

b) However, the following non-eFPS filers shall mandatorily use the eBIRForms facility in
electronically submitting and filing all their tax returns:

1) Accredited Tax Agents (ATAs)/Practitioners and all its client-taxpayers;

2) Accredited Printers of Principal and Supplementary Receipts or Invoices – the duly

constituted agents of the BIR in the printing of principal and supplementary receipts or
invoices, and included in the List of Accredited Printers published in the BIR website;

3) One-Time Transaction (“ONETT”) taxpayers who are classified as real estate

dealers/developers or those who are considered as habitually engaged in the sale of real
property, and regular taxpayers already covered by eBIRForms.19

4) Those who shall file a “No Payment” Return;20

2) Government-Owned or Controlled Corporations (“GOCCs”);

3) Local Government Units (“LGUs”), except barangays; and

7) Cooperatives registered with the National Electrification Administration (“NEA”) and

Local Water Utilities Administration (“LWUA”).

Upon successful validation of the accomplished tax return, the taxpayers listed above shall
receive a system-generated notification e-mail acknowledging that the tax return has been
successfully filed. The taxpayer should then print the Filing Reference page generated by
the system, and submit the same to an AAB for the payment of the taxes due thereon.

19
The following are excluded from the mandatory coverage of the eBIRForms:
(a) BIR Form No. 1706 (Capital Gains Tax Return for Onerous Transfer of Real Property Classified as
Capital Asset);
(b) BIR Form No. 1707 (Capital Gains Tax Return for Onerous Transfer of Shares Not Traded Through
the Local Stock Exchange);
(c) BIR Form No. 1800 (Donor’s Tax Return);
(d) BIR Form No. 1801 (Estate Tax Return); and
(e) BIR Form No. 2000-OT (DST Declaration/Return for One-Time Transactions)
20
However, the following can manually file their “No Payment Returns”:
a) Senior Citizens (“SCs”) or Persons with Disabilities (“PWDs”) filing for their own return;
b) Employees deriving purely compensation income, regardless of the number of employers, where the
income tax has been withheld correctly, but whose spouse is not entitled to substitute filing; and
c) Employees qualified for substituted filing who opt to file an ITR for purposes of promotion, loans,
scholarship, foreign travel requirements, etc.

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 October 2022

Penalties

All taxpayers mandatorily required to file their returns using the eFPS or eBIRForms, who
fail to do so, shall face the following penalties:

1) Penalty of One thousand Pesos (₱1,000) per return pursuant to Section 250 of the Tax
Code;
2) Civil penalty equivalent to 25% of the tax due for filing a return in the wrong venue
pursuant to Section 248(A) of the Tax Code; and
3) Inclusion of the non-compliant taxpayers in the BIR’s priority audit program.

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 October 2022

PENALTIES
- Applies to all types of taxes
- Applies also to withholding agents

Civil Penalties

I. Surcharge
- Percentage of the amount of tax due

25% Surcharge 50% Surcharge

(1) Failure to file any return and pay the tax (1) Willful neglect to file the return within
due thereon (within the prescribed the period prescribed by the Tax Code
period for filing and payment); or by rules and regulations;

Involves a situation where the taxpayer Note: The 50% surcharge shall be imposed
voluntarily files the return beyond the in case the taxpayer files the return
prescribed period, but before any notice only after prior notice in writing.
is received from the BIR.
(2) In case a false or fraudulent return is
(2) Wrong Venue. Filing a return with an willfully made.
internal revenue officer other than those
with whom the return is required to be A substantial underdeclaration of
filed; taxable sales, receipts or income, or a
substantial overstatement of deductions
(3) Failure to pay the full or part of the by > 30%, shall constitute prima facie
amount of tax shown on any return evidence of falsity or fraud.
required to be filed, or before the date
prescribed for its payment.

(4) Failure to pay the deficiency tax21

within the time prescribed for its
payment in the notice of assessment;

(5) In an amendment of a return by a

taxpayer where an additional tax is due
per amended return, the 25% penalty
shall be imposed based on the
additional tax to be paid per amended
NEW
return. Provided, the initial return was
filed beyond the prescribed deadline.22

(6) The 25% surcharge shall be imposed

on a tax deficiency found during an
audit if the particular tax return being
audited was found to have been filed
beyond the prescribed period or due
date.23

21
As a rule, no surcharge is imposed on deficiency tax. Deficiency tax means the amount by which the
correct amount of tax as determined by the BIR exceeds the amount shown in the taxpayer’s return.
22
If the taxpayer was able to file the initial tax return on or before the prescribed deadline for its filing, the
25% surcharge shall not be imposed (RMC No. 43-2022).
23
RMC No. 43-2022
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 October 2022

II. Interest

There shall be assessed and collected on any unpaid amount of tax, interest at the rate of
double the legal interest rate for loans or forbearance of any money in the absence of an
express stipulation as set by the Bangko Sentral ng Pilipinas, from the date prescribed for
payment until the amount is fully paid.

Note: The current rate set by the BSP is six percent (6%) per annum, pursuant to
BSP Circular No. 799 dated June 21, 2013. Twice (2x) this rate is twelve
percent (12%) per annum.24

Provided, that the deficiency and delinquency25 interest shall not be imposed
simultaneously.

Notes:

(a) In cases where extended payment of the tax is duly authorized by the BIR, no
25% surcharge shall be imposed for late payment since the deadline for payment
has been duly extended. However, 12% interest per annum for the extended
payment shall be imposed. The 12% interest per annum shall be imposed on the
extended payment based on the diminishing balance of the unpaid amount.

Provided, however, that the taxpayer’s request for extension of the period within
which to pay is made on or before the deadline.

Conversely, if such request is made after the deadline prescribed for payment, the
taxpayer shall already be treated late in payment, in which case, the 25% surcharge
shall be imposed even if payment of the delinquency be allowed in partial
amortization.

(b) In an amendment of return by a taxpayer where an additional tax is due per

amended return, the 12% interest shall be imposed based on the additional tax to
be paid per amended return.26

III. Other Penalties

A. For failure to file an information return, statement, list, or any required

attachment:
₱1,000 for each such failure. The aggregate amount to be imposed for all such failures
during a calendar year shall not exceed ₱25,000.

B. For failure of a withholding agent to collect and remit the tax:

Penalty in the amount equal to the total amount of the tax not withheld.

C. For failure of a withholding agent to refund excess withholding tax:

Any employer/withholding agent who fails or refuses to refund excess withholding tax
shall be liable to a penalty equal to the total amount of refunds which was not refunded.

24
Before the effectivity of the TRAIN (January 1, 2018), interest was set at 20% per annum.
25
Deficiency interest is paid for the shortage of payment. Delinquency interest is for the delay in payment.
26
DOR Memo 16-2018 (RMC No. 21-2018).
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 October 2022

REMEDIES
- Actions available to:
a) The BIR or government in enforcing collection of the proper taxes; or
b) The taxpayer in defending himself or itself against the unlawful enforcement of
tax laws.

Assessment

I. Remedies of the State

Collection
(a) Assessment27 – notice given to the taxpayer that the correct taxes have not been
paid. To be valid, the assessment must:
(a) State the facts and the law on which its conclusion is based;
(b) Include or contain a computation of the tax liabilities, and
(c) Contain a demand for payment within a specified period.

Time of Assessment
GR: Within 3 years after the last day prescribed by law for filing or from the date
of filing the return, whichever is later.

EXC: The 3-year period can be extended in the following cases:

a) In cases where a false or fraudulent return with intent to evade the tax
is filed:

Period of assessment = Within 10 years after the discovery of the

falsity or fraud.

b) Where there is a failure or omission to file a return:

Period of assessment = Within 10 years after the discovery of the

failure or omission.

c) Within any period agreed upon by the taxpayer and the Commissioner
of the BIR. Provided, such agreement is entered into before the
expiration of the 3-year period for assessment.

By distraint (seizure) of personal property

(b)Collection May be
By levy of real property pursued
simultaneously

By court action (civil or criminal)

27
Refers to the Final Assessment Notice (FAN).
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 October 2022

Time of Collection:

1) Within 5 years following the assessment;28 or

2) Within the period agreed upon between the taxpayer and the Commissioner
before the expiration of the 5-year period; or
3) Within 10 years after the discovery of the fraud, falsity, or omission even
without assessment thru a proceeding in court.

Distraint

Seizure of goods, chattels, or effects, and the personal property, including stocks
and other securities, debts, credits, bank accounts, and interests in and rights to
personal property in sufficient quantity to satisfy the tax, or charge, together with
any increment thereto incident to delinquency, and the expenses of the distraint and
the cost of the subsequent sale.

Levy on Real Property

- may be made before, simultaneously, or after distraint

The BIR shall prepare a duly authenticated certificate showing the name of the
taxpayer and the amounts of the tax and penalty due from him. Said certificate
shall operate with the force of a legal execution throughout the Philippines.

Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be
mailed to or served upon the Register of Deeds of the province or city where the
property is located and upon the delinquent taxpayer,

Tax Lien

When a taxpayer refuses or neglects to pay the tax, a lien accrues against all
properties and property rights of the taxpayer. However, such tax lien shall not be
valid against any mortgagee, purchaser, or judgment creditor until the notice of lien
is filed with the Register of Deeds.

Court Action

a) Civil Action – for the collection of taxes; filed within 5 years of assessment.

(1) With the regular courts (Regional Trial Court, Municipal Trial Court, or
Metropolitan Trial Court) – if principal amount of taxes (exclusive of
charges and penalties) is < ₱1,000,000.

(2) With the Court of Tax Appeals – if the principal amount of taxes (exclusive
of charges and penalties) is ≥ ₱1,000,000

28
The collection of the tax is counted 5 years from the assessment of the tax, and not from receipt thereof
by the taxpayer. An assessment is deemed made for purposes of counting the relevant prescriptive period
when such assessment is “released, mailed, or sent” by the Commissioner of the BIR to the taxpayer
(Barcelon Roxas Securities, Inc. vs. CIR, G.R. No. 157064, August 7, 2006; CIR vs. Pascor Realty and
Development Corp., et. al., G.R. No. 128315, June 29, 1999).
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 October 2022

b) Criminal actions – for the enforcement of penal provisions; filed within 5 years
of assessment; may be filed during the pendency of an administrative protest in
the BIR.

Period of Assessment and Collection of Withholding Taxes

The Supreme Court has consistently and uniformly applied the 3-year prescriptive period
on the assessment of withholding taxes, without qualification or distinction.29, 30

The statute of limitations on assessment and collection of taxes is for the protection of the
taxpayer. There is no reason why a rule that applies to the principal (taxpayer) should not
apply to the (withholding) agent as well.

Suspension of Running of Statute of Limitations

The running of the Statute of Limitations in the assessment and the beginning of
distraint or levy or a proceeding in court for collection shall be suspended:

(a) For the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or proceeding in court and for sixty (60)
days thereafter;

(b) When the taxpayer requests for a reinvestigation which is granted by the
Commissioner;

(c) When the taxpayer cannot be located in the address given by him in the return
filed upon which a tax is being assessed or collected.

However, the running of the Statute of Limitations will not be suspended if the
taxpayer informs the Commissioner of any change in address;

(d) When the warrant of distraint or levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and

(e) When the taxpayer is out of the Philippines.

Notes:

a) Deficiency tax assessments of ₱100 or less, excluding surcharge and interest, shall no
longer be assessed nor be collected, except where, in a single investigation, several
assessments are made against the taxpayer and the total deficiency tax assessments,
excluding surcharge and interest, exceeds ₱100.

b) GR: No court shall have the authority to grant an injunction to restrain the collection
of any national internal revenue tax, fee, or charge imposed by the Tax Code.

29
CIR vs. Coral Bay Nickel Corporation, CTA (En Banc) Case No. 1652, August 14, 2018.
30
SM Development Corporation vs. CIR, CTA Case No. 9396, April 8, 2019.

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 October 2022

EXC: The CTA can grant a Temporary Restraining Order (TRO)/Injunction when:
(1) The collection of the tax may jeopardize the interest of the government
or of the taxpayer, or both;
(2) The amount claimed is deposited with the court, or a surety bond for not
more than double the amount of the tax is filed with the court; and
(3) The appeal is not frivolous nor dilatory.

(c) Allocation of Income and Deductions by the Commissioner (Section 50)

In the case of two or more organizations, trades, or businesses (whether or not

incorporated and whether or not organized in the Philippines) owned or controlled
directly or indirectly by the same interests, the Commissioner is authorized to
distribute, apportion, or allocate gross income or deductions between or among such
organization, trade, or business, if he determines that such distribution, apportionment
or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the
income of such organization, trade, or business.31

Taxpayers with related party transactions are required to submit BIR Form No. 1709
(Information Return on Transactions with Related Parties (Foreign and/or
Domestic)) with the filing of their Annual Income Tax Return.32 This is to be completed
by Philippine taxpayers with related party transactions (“RPTs”) regardless of the
amount and volume of transactions. This allows the BIR to verify that taxpayers are
indeed reporting their related party transactions at arm’s length prices.

31
Sec. 50, NIRC.
32
BIR Form No. 1709 shall be attached to the Annual Income Tax Return (“AITR”), and shall be an
integral part of such return (Rev. Reg. No. 19-2020).

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 October 2022

II. Remedies of the Taxpayer

Letter of Authority (“LOA”)

An LOA is the authority given to the appropriate revenue officer assigned to perform
assessment functions. The LOA empowers or enables said revenue officer to examine
the books of accounts and other accounting records of a taxpayer for the purpose of
collecting the correct amount of tax. The LOA must thus specify the name of the revenue
officer assigned to conduct the audit/investigation of the taxpayer.

Unless authorized by the Commissioner or his duly authorized representative through an

LOA, an examination of the taxpayer cannot ordinarily be undertaken. Thus, a Final
Assessment Notice (“FAN”) issued on the basis of a mere Letter of Notice (“LN”) is
void.

The taxpayer must be within the jurisdiction of the district of the Revenue Regional
Director issuing the LOA.

Moreover, an LOA must specify the years covered for an investigation of those years to
be valid.33

Note: Previously, the LOA should be served to the taxpayer within 30 days from
the date of its issuance; otherwise, it would become null and void. 34

RAMO No. 1-2020 has amended RAMO No. 1-2000 by deleting the
abovementioned 30-day period. Hence, an LOA which remains unserved
beyond the 30-day period from the date of issuance shall still be considered valid
and enforceable, provided the period to complete the audit process has not yet
expired.35

Notice of Discrepancy (formerly known as Notice for Informal Conference)

A Notice of Discrepancy is a written notice informing a taxpayer that the findings of the
audit conducted on his books of accounts and accounting records indicate that additional
taxes or deficiency assessments have to be paid.

The taxpayer shall then have thirty (30) days from the date of his receipt of the
Notice of Discrepancy to explain his side.

Notes:

(1) The Revenue Officer who audited the taxpayer’s records shall state in his report
whether or not the taxpayer agrees with his findings of the taxpayer’s liability for

33
Commissioner of Internal Revenue vs. Priscila J. Cruz and Jocelyn Cruz-Delos Reyes, CTA (En Banc)
Case Nos. 1646 and 1650, November 13, 2018.
34
RMO No. 43-90; RAMO No. 1-2000.
35
What is crucial is that the entire audit process be completed within a period of 180 days for Revenue
District Office (“RDO”) cases or 240 days for Large Taxpayer (“LT”) cases, from the date of issuance
of the LOA. Therefore, an LOA which is served beyond the 30-day period from its issuance shall still
be considered valid and enforceable, provided the 180/240 day period to complete the audit process has
not yet expired (RMC No. 82-2022).

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 October 2022

deficiency taxes. If the taxpayer is not amenable, he shall be informed in writing by

the BIR of the discrepancies in the payment of his internal revenue taxes for the
purpose of the “Discussion of Discrepancy” in order to afford the taxpayer with an
opportunity to present his side of the case.

(2) The Discussion of Discrepancy shall in no case extend beyond thirty (30) days from
receipt of notice thereof. If it is found that the taxpayer is still liable for deficiency
taxes after presenting his side and the taxpayer is still not amenable, his case shall be
endorsed to the reviewing office and approving official in the National Office or
Revenue Regional Office of the BIR for issuance of a deficiency tax assessment.

Pre-assessment Notice or Preliminary Assessment Notice (“PAN”)

When the Commissioner or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his findings in a Preliminary
Assessment Notice (PAN). The PAN shall show in detail the facts and the law or
jurisprudence on which the proposed assessment is based.

The service of the PAN to the taxpayer is a mandatory requirement for issuing the
Formal Letter of Demand/Final Assessment Notice (“FLD/FAN”). The service of the
FLD/FAN prior to the service of the PAN violates the taxpayer’s right to be informed of
the facts and the law on which the assessment was made.36

The taxpayer is given 15 days to respond from date of receipt of the PAN. If the taxpayer
fails to respond to the PAN within the 15-day period or disagrees therewith, the
Commissioner or his duly authorized representative shall issue the Formal Letter of
Demand and Final Assessment Notice (“FLD/FAN”).

Final Assessment Notice (“FAN”)

The FLD/FAN shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based; otherwise, the assessment shall be void.

36
Kokoloko Network Corp. vs. CIR, CTA Case No. 9574, September 24, 2019.
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 October 2022

Remedies Against Assessment

1. Where Tax Has Not Been Paid

Receipt of FLD/FAN

Within 30 days

Protest by Filing with the CIR [Note (a)]

Request for Request for

Reconsideration OR
Reinvestigation

Within 60 days

Within 180 days

Submission of all
relevant supporting
documents

Within 180 days

Protest is denied OR Not Acted Upon

Within 30 days
Within 30 days

Request for Await the decision:

Reconsideration with Within 30 days Protest is eventually
the Commissioner denied by the
(Administrative Commissioner
Appeal) [Note (b)]

Appeal to the CTA Within 30 days

[Note (b)]

Appeal to the CTA

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 October 2022

Notes:

(a) Contents of the Protest

(1) Nature of the protest, whether it is a request for reconsideration or reinvestigation;

(2) Newly discovered or additional evidence the taxpayer intends to present if it is a
request for reinvestigation;
(3) Date of the assessment notice or letter of demand; and
(4) The applicable law, rules and regulations, or jurisprudence on which the protest is
based.

Note: The taxpayer must state all the aforementioned items. Otherwise, the protest
shall be considered void, and without force and effect.37

(b) The Motion for Reconsideration (administrative appeal) shall not toll the 30-day period
to appeal to the CTA. Therefore, it is best for the taxpayer to file its appeal to the CTA
when a decision on the administrative appeal is not forthcoming and the 30-day period
within which to appeal to the CTA is about to expire.

2. Where Tax Has Been Paid

Remedy: Claim for refund of the tax paid on the ground that the tax was erroneously
collected, or that the tax was illegally collected, or for excessive payment
of tax.

Date of payment of the tax

Within 2 years

File claim for refund

with the Commissioner

Within 2 years

Denial of Claim

Within 30 days

Appeal to the CTA

37
Rev. Reg. No. 12-1999, as amended by Rev. Reg. No. 18-2013; Asia Renal Care Philippines, Inc. vs.
Commissioner of Internal Revenue, CTA (En Banc) Case No. 1502, January 4, 2018.
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 October 2022

Notes:

a) The filing of the claim for refund with the Commissioner and the institution of judicial
action with the Court of Tax Appeals to recover the tax can be done either
simultaneously or one after the other within the 2-year period to protect the interest
of the taxpayer.

Note: However, the claim for refund with the Commissioner must be filed first before
any institution of judicial action with the CTA.

b) If the tax is paid in installments, the 2-year prescriptive period within which to file both
administrative and judicial claims for refund shall be counted from the date of the final
payment.38

c) No interest is paid by the government in tax refunds unless directed by law.

d) Even without a claim for refund, the Commissioner of the BIR may award a refund or
credit if on the face of the return the payment was erroneous.

3. Filing a criminal action against the erring or abusive BIR official.

4. Apply for a TRO or Injunction with the CTA.

38
In a case, the taxpayer paid ₱108,025,207 representing deficiency DST, interest, and the 50% surcharge.
This was paid in 6 installments, the last and final installment of which was made on July 31, 2015.
Therefore, the taxpayer had until July 31, 2017 within which to file both administrative and judicial
claims for refund (Eagle II Holdco, Inc. vs. CIR, CTA Case No. 9637, September 10, 2019).

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 October 2022

III. Remedies Available to the State and Taxpayer

A) Compromise
- mutual concession or settlement which can be entered into by the BIR and the
taxpayer even if a (civil) case has been filed in court.
- there is an offer to pay by the taxpayer and an acceptance by the Commissioner.
- called a compromise penalty if paid in lieu of criminal prosecution.

Grounds for Compromise:

1) Reasonable doubt as to the validity of the claim against the taxpayer:

(a) The delinquent account or disputed assessment is one resulting from a jeopardy
assessment39;
(b) The assessment is lacking in legal and/or factual basis; or
(c) The taxpayer failed to file an administrative protest on account of the alleged
failure to receive notice of assessment, or
(d) The demand notice allegedly failed to comply with the formalities prescribed
under Section 228 of the Tax Code; or
(f) The assessment was made based on the “Best Evidence Obtainable Rule” under
Section 6(B) of the Tax Code, and there is reason to believe that the same can
be disputed by sufficient and competent evidence; or
(g) The assessment was issued within the prescriptive period for assessment as
extended by the taxpayer’s execution of a Waiver of the Statute of Limitations.
However, the validity or authenticity of such waiver is being questioned or at
issue, and there is strong reason to believe and evidence to prove that the same
is not authentic; or
(h) The assessment is based on an issue where a court of competent jurisdiction has
made an adverse decision against the BIR. However, the Supreme Court has
not decided upon the case with finality.

2) Financial inability of the taxpayer to pay

- the compromise must be accompanied by a waiver under the Secrecy of Bank

Deposit Law.

Amounts of Compromise Settlement

(1) The compromise settlement of any tax liability shall be subject to the following
minimum rates:

(a) For cases of financial incapacity, a minimum compromise rate equivalent to ten
percent (10%) of the basic assessed tax.

39
“Jeopardy assessment” refers to a tax assessment which was assessed without the benefit of a complete or partial
audit by an authorized revenue officer. Such assessments are made when it is determined that the assessment and
collection of the deficiency tax would be endangered or jeopardized by prescription due to the taxpayer’s failure to
comply with the audit and investigation requirements to present his books of accounts or pertinent records, or to
substantiate all or any of the deductions, exemptions, or claims claimed in his return.

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 October 2022

(b) For other cases (doubtful validity), a minimum compromise rate equivalent to
forty percent (40%) of the basic assessed tax.

(2) On the other hand, the compromise penalty to be imposed in lieu of a criminal
violation not involving fraudulent acts shall strictly follow the amounts in the
Revised Schedule of Compromise Penalties found in RMO No. 7-2015.

Approval of the Compromise

a) Where the basic tax involved exceeds One Million Pesos (₱1,000,000), or
b) Where the settlement offered is less than the prescribed minimum rates,
the compromise shall be subject to the approval of the National Evaluation
Board (“NEB”) which shall be composed of the Commissioner and four (4)
Deputy Commissioners.

Cases Which May Not Be Compromised

(1) Withholding tax cases, in general;
(2) Criminal tax fraud40 cases confirmed as such by the Commissioner of Internal
Revenue or his duly authorized representative;
(3) Criminal violations already filed in court;
(4) Delinquent accounts with duly approved schedule of installment payments;
(5) Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment, and the taxpayer is agreeable
to such decision by signing the required agreement form for the purpose;
(6) In general, (a) cases which have become final and executory (except where
compromise is requested on the ground of financial incapacity) and (b) estate
tax cases (except where compromise is requested on the ground of doubtful
validity of the assessment).

B) Abate or Cancel a Tax Liability

The Commissioner has the authority to abate or cancel the surcharge, interest, and
compromise penalties.

Grounds to Abate or Cancel a Tax Liability

(1) The tax or any portion thereof appears to be unjustly or excessively assessed;

The following are instances when the penalties and/or interest imposed on the
taxpayer may be abated or cancelled on the ground that the imposition thereof is
unjust or excessive:

(a) When the filing of the return or payment of the tax is made at the wrong
venue;

40
Examples of fraud: (1) discrepancies between receipts per taxpayer’s copy and amount in purchaser’s
copy; (2) possession or use of multiple sets of invoices; (3) misrepresentation; (4) falsification; and (5)
keeping 2 or more sets of books.
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 October 2022

(b) When the taxpayer’s mistake in payment of his tax is due to the erroneous
written official advice of a revenue officer;
(c) When the taxpayer fails to file the return and pay the tax on time due to
substantial losses from prolonged labor dispute, force majeure, or legitimate
business reverses, or to other circumstances beyond the control of the
taxpayer. However, the abatement shall only cover the surcharge and the
compromise penalty, and not the interest imposed under Section 249 of the
Tax Code.
(d) When the assessment is the result of taxpayer’s non-compliance with the
law due to a difficult interpretation of said law.

(2) The administration and collection costs involved do not justify the collection
of the amount due.

25